Employers concerned about the enforceability of restrictive covenants can breathe a little easier for now. A Texas federal court has blocked the Federal Trade Commission’s (“FTC’s”) final rule banning non-compete agreements (the “Non-Compete Ban” or “Ban”), which was set to take effect on September 4, 2024. As a result, the Ban will not be implemented as planned, and employers are not required to comply with its provisions. Instead, restrictive covenants, including non-compete agreements, will continue to be governed by applicable state law.

Non-Compete Ban Background

As outlined in our previous client alert, the FTC’s Non-Compete Ban would have prohibited employers from using non-compete agreements with workers (employees and independent contractors), except in very limited circumstances, such as agreements with “senior executives” (employees earning at least $151,164 annually and in policy-making positions) or in connection with the bona fide sale of a business entity.

Several legal challenges have arisen against the Ban, resulting in the following outcomes:

• ATS Tree Services, LLC v. FTC: The Eastern District of Pennsylvania denied an employer’s request for a preliminary injunction, affirming that the Ban falls within the FTC’s authority and promotes fair competition.
• Properties of the Villages v. FTC: The Middle District of Florida granted a preliminary injunction for the employer, delaying the Ban’s effect for the employer.  The court found a strong likelihood that the Ban violates the major questions doctrine due to its unprecedented nature and significant legal issues, although the employer’s argument on the FTC’s statutory rulemaking authority was less convincing.

Ryan LLC v. Federal Trade Commission

 One legal challenge has successfully halted the Non-Compete Ban. In Ryan LLC v. FTC, the plaintiffs—Ryan, LLC, the U.S. Chamber of Commerce, and other trade organizations—sought a nationwide stay of the Ban, arguing that (1) the FTC acted beyond its statutory authority, (2) the Ban was an unconstitutional exercise of power, and (3) the FTC’s actions were arbitrary and capricious.

Prior to deciding this matter on its merits, on July 3, 2024, the Northern District of Texas granted the plaintiffs’ motion for a stay and preliminary injunction, delaying the Ban’s effective date for the plaintiffs.

On August 20, 2024, the Court ruled on the merits, blocking the Ban. The Court found that the FTC exceeded its statutory authority and lacked the power to create substantive rules through its approach. Specifically, the Court stated that upon reviewing the text, structure and history of the Administrative Procedure Act (“APA”) – the federal statute that establishes the rules and procedures for federal agency rulemaking and allows federal courts to hold unlawful and set aside such rulemaking – that the FTC lacks the authority to create substantive rules through the method used by the FTC in relation to the Non-Compete Ban.

The Court also deemed the Ban “arbitrary and capricious” because (1) the FTC provided no evidence or reasoned basis supporting the categorical ban of non-competes, as opposed to targeting specific harmful and overly broad non-competes; and (2) the FTC failed to sufficiently address alternatives to issuing the categorical ban of non-competes, and instead dismissed any possible alternatives by concluding that either pro-competitive justifications outweighed the harms or that employers had other avenues to protect their interests.

As a result, the Court set aside the Non-Compete Ban, preventing it from taking effect on September 4, 2024.

Looking Ahead

 The Ryan decision is a significant win for employers but does not mark the end of the debate regarding the enforceability of non-competes. The FTC may appeal the ruling to the Fifth Circuit, and ongoing litigation could lead to conflicting precedents. Additionally, the FTC might revise the Ban in response to the Court’s findings in Ryan and Properties of the Villages. Congress could also step in with new legislation on restrictive covenants.

In the meantime, employers are relieved from complying with the Non-Compete Ban. We continue to encourage employers to review their restrictive covenants, particularly non-compete clauses, to ensure compliance with applicable state laws. Currently, non-competes are banned in California, North Dakota, Oklahoma, and Minnesota, with state-level bans pending in Illinois, Kentucky, Massachusetts, and Michigan.  Many other states also have limitations on the use of non-competes or other restrictive covenants.

Winthrop & Weinstine’s Employment group is actively monitoring ongoing litigation related to the Non-Compete Ban and will provide timely updates as new information emerges.  As always, our attorneys are dedicated to assisting your business navigate these complex regulatory changes effectively. Please do not hesitate to contact a member of our Employment group regarding any questions or concerns regarding the Non-Compete Ban.

Situation Report

Since Vice President Kamala Harris became the presumptive Democratic nominee for President just over two weeks ago, speculation has swirled about the identity of her pick for the Vice Presidential candidate.

Minnesota Governor Tim Walz rapidly began making headlines with media appearances in his role as Chair of the Democratic Governors Association (DGA), in which he hit at Republican candidates, former President Donald Trump and his Vice Presidential candidate, Senator J.D. Vance of Ohio, for being “just weird.”

Governor Walz’s messaging has since come to define the national conversation online and in the media, thrusting him into the spotlight as a potential pick for Harris’s ticket.

Who is Governor Tim Walz?

Governor Tim Walz was raised in rural Nebraska, where he enlisted in the Army National Guard and attended college. He taught high school and coached football before moving to Mankato, MN in 1996. (First Lady Gwen Walz is a native of Glencoe, MN, near Mankato.) Governor Walz received his Master’s of Education from MSU-Mankato, taught high school geography and coached high school football until his first run for U.S. Congress (CD-1) in 2006. He served six terms in Congress, carving out a niche in veterans’ affairs and agriculture, and becoming the highest-ranking military veteran to hold federal office. He then ran for and was elected Governor in 2018 and was re-elected in 2022.

Walz’s tenure as Governor has been punctuated by major events like COVID-19, the civil unrest following the murder of George Floyd, and the major legislative session of 2023 led by a DFL trifecta. (DFL = Minnesota Democratic Farmer Labor Party)

Governor Walz has two children: Hope, who recently graduated college out of state, and Gus, who attends Central High School in Saint Paul.

This writer can confirm our Governor’s folksy charm is fully authentic. An affable and unrehearsed politician, Walz’s leadership has relied on finding common ground with political opponents, minimizing responses to scandals such as the Feeding Our Future criminal case, and leaving much of the policy agenda-setting to the Legislature.

What’s the timeline?

Vice President Kamala Harris conducted final-round interviews with her top VP picks on Sunday. Press reports indicate her final two choices have since narrowed to Governor Walz and Governor Josh Shapiro of Pennsylvania.

VP Harris has an event scheduled in Philadelphia on Tuesday evening that will mark the first joint public appearance for the full Democratic ticket. Her team has indicated they will announce her VP pick via video either Monday or Tuesday ahead of the event.

If Governor Walz is selected, what happens next?

If selected, Governor Walz will immediately hit the road with VP Harris, embarking on a multi-city rally tour this week to fire up enthusiasm for Democrats in key states. His team hasn’t indicated how his gubernatorial responsibilities would be handled while he’s on the campaign trail.

What does this mean for MN state government?

If Governor Walz is indeed selected for the ticket, he and VP Harris will face off against former President Trump and Sen. Vance in November. If Democrats win, Minnesota law elevates Lieutenant Governor Peggy Flanagan to the chief executive of the state, and elevates the President of the Senate–currently Sen. Bobby Joe Champion (D-Minneapolis)–to the Lt. Governor spot.

Currently, the state Senate is tied 33-33 due to the resignation of Senator Kelly Morrison (D-Deephaven) to run for Congress. Sen. Morrison’s special election takes place on election day. This DFL-leaning but fairly competitive district will determine the balance of power in the MN Senate in the 2025 legislative session.

If the DFL wins that seat, but if Sen. Champion is elevated to Lt. Governor upon the Presidential inauguration in January, the Senate will again be 33-33 heading into the 2025 session. Sen. Champion’s district is a DFL stronghold—but special elections take time to organize, giving Senate Republicans a chance to throw a wrench into the DFL’s agenda early in session.

Even if Gov. Walz is not selected for the VP spot, his newfound national profile could garner him a spot in a future Harris administration as a cabinet secretary—perhaps returning to his strengths in agriculture or veterans’ affairs.

Anything could happen—and the dominos may fall in myriad different ways—but it’s clear that the next 24 hours could change everything for Minnesota.

In accordance with the Minnesota Campaign Finance and Public Disclosure Act, any political committee or political fund that receives a contribution or loan of more than $1,000 between July 23 through August 12, 2024 must reported the contribution or loan to the Minnesota Campaign Finance & Public Disclosure Board electronically or in person by 4:30 p.m. on the next business day after receipt and also on subsequent reports of receipts and expenditures for the year. The 24 hour reporting requirement applies to all political committees and political funds, including independent political committees and independent political funds. Failure to file the notice on time will result in a minimum $50 per day late filing fee.

Additionally, all Minnesota political committees, political funds, independent expenditure committees and independent expenditure funds are required to file a quarterly report of receipts and expenditures no later than Monday, July 29, 2024. The period covered by this report is January 1 through July 22, 2024.

State reports must be filed electronically unless a waiver has been granted. A committee or fund that fails to file the annual report by the due date is subject to a late filing fee of a minimum of $50 per day, not to exceed $2,000. Additional information about state reporting requirements can be found here.

If you have any questions about State or Federal reporting requirements, the submission process, or any other campaign finance or lobbying issues, please contact Winthrop & Weinstine’s experienced Campaign Finance and Lobbying Compliance teams.

On May 25, 2023, Gov. Tim Walz signed new legislation establishing Minnesota’s state-run family and medical leave program (the “Paid Leave Program”), and guaranteeing almost all Minnesota employees the right to paid family and medical leave when they are unable to work due to serious health or caregiving needs (the “Paid Leave Law”).  The Paid Leave Law is set to take effect on January 1, 2026, at which time eligible employees can begin taking paid leave (“Paid Leave”) and employers must begin making their required contributions to the Paid Leave Program.  As the effective date approaches, and in light of recent amendments passed by the Minnesota legislature, employers should prioritize understanding the Paid Leave Law’s implications and upcoming compliance requirements, which take effect as early as fall 2024.

Minnesota’s Paid Leave Law will provide eligible employees with partial wage replacement for up to 20 weeks of leave during a 52-week period for various family and medical reasons, qualifying exigencies, and safety leave (“Paid Leave Benefits”).  The Paid Leave Program will be administered by a newly created division of the Minnesota Department of Employment and Economic Development (“DEED”) called the Family and Medical Benefits Division.  Like Minnesota’s state unemployment insurance fund, DEED will maintain a benefits account for each covered employer in the state and an employee requiring Paid Leave will apply for said leave through DEED.  DEED will then determine the employee’s leave eligibility and available benefit amount.

Employers will fund their Paid Leave benefit accounts, managed by DEED, through a new payroll tax of .88% (amended from the originally stated .7%).  The Paid Leave Law requires that employers pay at least 50% of their annual Paid Leave premiums, with the option to deduct the remaining 50% from employees’ wages, provided such deductions do not reduce an employee’s pay below minimum wage.

Covered Employers

The Paid Leave Law applies to all Minnesota employers with one or more employees, with exceptions for employees of the federal government and self-employed individuals who opt to provide their own coverage for themselves.  Employers with thirty or fewer employees will be eligible for reduced premiums for the employer portion of the requisite premium payments.

Rather than participating in the state-run Paid Leave Program, employers may also opt to offer paid family and medical leave to employees through a private insurance carrier, or self-insure, so long as these plans confer all of the same rights, protections, and benefits provided to employees under the Paid Leave Program.  To opt out of the state-run plan, employers must apply for an exemption from DEED.

Paid Leave Program vs. Private Plan

Employers should carefully consider the advantages and disadvantages of the state-run Paid Leave Program and a private plan before choosing coverage.

The Paid Leave Program, administered by the state, requires an initial employer premium rate of .88%, half of which may be deducted from employees’ wages.  However, there is a possibility that the premium rate may rise based on the Minnesota legislature’s estimated costs of the Paid Leave Program.  Additionally, employees are responsible for filing their own Paid Leave claims with DEED, which could lead to longer processing times and potential difficulties in contacting claims processors.  Employers may also have limited visibility into the leave process and the status of their employees’ claims and/or benefits.  On the upside, the state-run plans like the Paid Leave Program typically offer more stable premium rates from year to year.

Private plans, on the other hand, are administered by private insurers, and generally offer faster claims processing times than state-run plans like the Paid Leave Program.  Although insurers may increase rates beyond the state-run Paid Leave Program’s premiums, private plans offer flexibility to tailor coverage to meet specific employer and employee needs.  Moreover, private plans tend to be more user-friendly and transparent, with easier access to information compared to state-managed plans.

Eligibility

Beginning on January 1, 2026, employees will be able to receive up to 12 weeks of paid leave for either (i) their own serious health condition; or (ii) bonding, safety leave, family care, or a qualifying exigency.  However, the total combined maximum for these categories cannot exceed 20 weeks.  Employees qualify for Paid Leave Benefits in any week of their benefit year during which they are unable to work due to a serious health condition, qualifying exigency, safety leave, family care, bonding, or pregnancy-related medical care for a qualifying 7-day event.  Bonding leave eligibility extends for 12 months after childbirth or placement of a child, without the 7-day event requirement.

The period for which employees seek Paid Leave Benefits must stem from a single event lasting at least 7 consecutive calendar days related to medical care, family care, a qualifying exigency, safety leave, or their own serious health condition, unless the leave is intermittent.  Employees must provide adequate certification from a health care provider or authorized professional regarding the circumstances of their Paid Leave request and information regarding the amount of time off work that is requested.  Under the Paid Leave Law, there is no waiting period to start receiving benefits.

Intermittent leave for a serious health condition of either the employee or an employee’s family member may be taken if reasonable and appropriate.  Other types of leave, including bonding leave, can be taken intermittently.  Employees requesting intermittent leave must provide their employer with a schedule of required workdays off as soon as possible and make reasonable efforts to schedule the leave to minimize disruption to the employer’s operations.  If this cannot be done to the satisfaction of both the employer and employee, the employer cannot require the employee to change their leave schedule in order to accommodate the employer.

Employers are not required to provide, but may elect to provide, more than 480 hours of intermittent leave in any 12-month period.

Employees can use accrued vacation pay, sick pay, or other paid time off in lieu of Paid Leave, provided they meet the eligibility criteria set out by their employer’s policies.  Disability insurance benefits received by the employee may be reduced by the amount of Paid Leave Benefits paid, according to the terms of the disability insurance policy.

Employers have the flexibility to offer supplemental benefit payments to employees on Paid Leave, in addition to any Paid Leave Benefits; however, the total amount of benefits received by the employee, including both Paid Leave Benefits and supplemental benefits from the employer, cannot exceed the employee’s regular salary.  Additionally, employees are ineligible to receive Paid Leave Benefits for any week in which they receive or will receive separation pay, severance pay, bonus pay, or any employer payments related to the separation of employment.

Self-Employment, Independent Contractors, and other Individuals Not Covered by the Paid Leave Law

The Paid Leave Law does not cover self-employed individuals or independent contractors, but such individuals can opt in to the state-run Paid Leave Program and must be approved for coverage if they choose to participate.  The Paid Leave Law also contains limited exceptions for seasonal hospitality employees, as more fully set forth within the law.

Continuation of Benefits

Employers are required to maintain an employee’s coverage under any group insurance policy, group subscriber contract, or health care plan for the employee and any dependents as if the employee was not on Paid Leave.  However, the employee must continue to pay their share of the costs for these benefits.

Similar to the federal Family and Medical Leave Act (“FMLA”) and the Minnesota Parental Leave Act, Paid Leave is job-protected leave for employees beginning 90 calendar days after an employee’s date of hire.  This means that upon their return from leave, employees are entitled to be reinstated to the same position they held when their leave started, or to an equivalent position with equivalent benefits, pay, and other terms and conditions of employment.  Employees are entitled to reinstatement even if the employee has been replaced or the employee’s position has been restructured to accommodate the employee’s absence.  However, employees are not entitled to greater reinstatement rights than if they had continued to be employed, and employers may deny reinstatement if they can show that the employee would not otherwise have been employed at the time reinstatement is requested.

Interaction with Other Leave Laws

Leave under the Paid Leave Law may also qualify for leave under other applicable laws, such as the federal FMLA, Minnesota Parental Leave Act, or local sick and safe time laws, and run concurrently with these laws.  Employers should properly designate leave under these laws, as applicable.  Failure to designate leave concurrently under other applicable laws, like the FMLA, could result in employees combining leave benefits from both laws, potentially extending their entitlement to job-protected leave.

Employee Notice Requirements

If the need for leave is foreseeable, an employee must provide their employer with at least 30 days’ advance notice of his or her need for Paid Leave.  If 30 days’ notice is not practicable because of a lack of knowledge of approximately when the leave is required to begin, a change in circumstances, or a medical emergency, notice must be given as soon as practicable.

Employer Notice Requirements

Employers are required to prominently display a notice detailing the benefits available under the new Paid Leave Law.  DEED will provide a standard employee notice form for employers to use, ensuring compliance with this requirement. Additionally, within 30 days of an employee’s start date or 30 days before premium deductions begin (whichever is later), employers must provide written information in the primary language of the employee, as provided by DEED.  This information includes:

• An explanation of the availability of family and medical leave benefits provided under the Paid Leave Law, including rights to reinstatement and continuation of health insurance;
• The amount of premium deductions made by the employer under the Paid Leave Law;
• The employer’s premium amount and obligations under the Paid Leave Law;
• The name and mailing address of the employer;
• The ID number assigned to the employer by the department;
• Instructions on how to file a claim for family and medical leave benefits;
• The mailing address, e-mail address, and telephone number of the department; and
• Any other information required by the department.

Failure to comply with these notice requirements may result in penalties, starting at $50 per employee for initial violations and increasing to $300 per employee for subsequent violations.

Furthermore, beginning January 1, 2026, employers must include on employees’ earnings statements the amount deducted for the portion of the premium passed on to employees (up to 50% of an employer’s annual premiums) and the amount paid by the employer based on the employee’s wages.

No Retaliation

Employers are prohibited from retaliating against employees for requesting or obtaining Paid Leave Benefits and/or Paid Leave, or for exercising any rights under the Paid Leave Law. This includes actions such as discharge, discipline, penalties, threats, coercion, or any form of discrimination or retaliation.  In addition to other remedies available under the law, the DEED commissioner may impose penalties on the employer ranging from $1,000 to $10,000 per violation.

The Paid Leave Law introduces a new rescission period of employee waivers of claims under the Paid Leave Law.  Employees may waive or release their rights under the Paid Leave Law (likely in a separation agreement or private settlement agreement); however, this waiver or release can be rescinded within 15 days of its execution, except for waivers or releases made in settlement of claims filed with DEED or another administrative or judicial body, which are final upon execution.  Employees waiving or releasing their rights under the Paid Leave Law must be notified in writing of their right to rescind the waiver or release.

Employee Remedies for Violation of the Paid Leave Law

In addition to other specific remedies outlined for retaliatory actions and equitable relief, an employer found to have violated the Paid Leave Law is liable to affected employees for damages, interest on those damages, additional liquidated damages equal to the sum of the damages and interest (unless the employer demonstrates in good faith that the act or omission leading to the violation was not intentional and had reasonable grounds to believe it did not violate the Paid Leave Law, in which case, the court may exercise discretion to waive the liquidated damages penalty), injunctive relief or other equitable remedies including reinstatement and promotion.

Further Rulemaking

The DEED commissioner has the authority to utilize rulemaking to further clarify the Paid Leave Law.  This includes specifying which serious health conditions and other events are presumed to qualify as seven-day qualifying events under the law.  These rules will likely offer additional clarity and guidance on how the Paid Leave Law applies to both employers and employees.

Next Steps to Prepare for the Paid Leave Law

Employers should take proactive steps to prepare for the implementation of the Paid Leave Law, including:

• Deciding on the type of coverage to obtain, whether through a private insurance provider or the state-run Paid Leave Program.
• Contacting their payroll provider to ensure they are prepared to begin making payroll deductions under the new Paid Leave Law.
• Understanding that employer wage detail reporting begins in 2024, with the first report due on October 31, 2024.  Employers with existing Unemployment Insurance accounts can submit a single report covering both programs, while those without UI coverage will need to set up a separate account for Paid Leave reporting.
• Reviewing existing leave policies to ensure compliance with the Paid Leave Law, assessing their relevance, and planning for how benefits under current policies will align with the Paid Leave Law.
• Preparing for the notice and posting requirements of the Paid Leave Law, including understanding the format of employer notices and meeting written notification obligations to employees by late 2025.
• Proactively discussing upcoming changes to benefits and leave policies with employees, outlining the impact of the new Paid Leave Law and clarifying employee entitlements under the legislation.

Although the Paid Leave Law takes effect on January 1, 2026, employers should begin planning and adjusting their employment policies and practices well in advance to ensure compliance and smooth implementation.

The Minnesota Supreme Court recently issued a landmark decision recognizing the tort of “negligent selection of an independent contractor.” This development holds significant implications for businesses that engage independent contractors. The case in question is Pedro Alonzo, et al. v. Richard Menholt, et al.

Case Background

The case arose from a personal injury incident involving Pedro Alonzo, who was severely injured in a truck accident caused by Alberto Lopez, a driver employed by Braaten Farms—a subcontractor for Menholt Farms. Lopez had a suspended license and a history of driving infractions, which were not investigated by Braaten Farms or Menholt Farms before his employment.

Court’s Decision

1. Recognition of Tort: The Minnesota Supreme Court officially recognized the tort of negligent selection of an independent contractor. This means businesses in Minnesota can now be held liable for failing to exercise reasonable care in selecting competent and careful independent contractors.
2. Duty of Care: The court emphasized that principals (those who hire independent contractors) must exercise reasonable care to ensure that the contractors they hire are competent and careful. The extent of this duty depends on the nature of the work and its associated risks.
3. Proximate Cause: To prevail on a claim, plaintiffs must prove that the principal’s negligence in selecting the contractor was a proximate cause of their injuries. This implies that the harm must stem from a quality in the contractor that made it negligent for the principal to entrust the work to them.

Practical Clarifications from the Court

The court acknowledged concerns from the United States and Minnesota Chambers of Commerce—represented by Winthrop & Weinstine, P.A.—and other amici about the potential increased business risks and costs. To address these concerns, the court clarified the following points:

• Minimal Risk and Skill Work: For work requiring no special skill or training and posing minimal physical danger if improperly done, a principal “is entitled to assume that a [contractor] of good reputation is competent.” The principal need not investigate the contractor’s actual competence or verify their reputation unless they know the contractor is incompetent or has a bad reputation.
• Limiting Liability: If a contractor is incompetent due to a “lack of skill and experience or of adequate equipment but not in any previous lack of attention or diligence,” the principal will only be liable for harm caused by that “lack of skill, experience, or equipment.” They will not be liable for harm caused by the contractor’s inattention or negligence. This causation requirement limits claims to circumstances where the principal could have reasonably anticipated the harm. In essence, if the principal had exercised reasonable care, they would have known of the contractor’s deficiency and avoided the harm.

Implications for Businesses

• Potential Liability: Failure to adequately vet independent contractors could result in liability for any harm caused by the contractor’s negligence.
• Legal Counsel: Businesses should consult with legal counsel to understand the full implications of this decision and to develop or update contractor selection policies.
• Operational Adjustments: Companies may need to review and possibly revise their policies and procedures regarding the hiring and monitoring of independent contractors to ensure compliance with this new legal standard.

Conclusion

The Minnesota Supreme Court’s recognition of the tort of negligent selection of an independent contractor marks a significant shift in liability for businesses. For further advice and detailed guidance on adjusting your business practices in light of this decision, please contact your legal team at W&W.

As discussed in our prior alert concerning the FTC final rule banning non-competes, litigation has threatened the final rule’s enforcement and implementation.

Ryan, LLC, the United States Chamber of Commerce, and other related trade organizations (referred to herein as “Plaintiff” and “Plaintiff-Intervenors”) sought an injunction in federal court in the Northern District of Texas, to enjoin the enforcement and implementation of the final rule.  The court granted a limited stay and temporary injunction in favor of the Plaintiff and Plaintiff-Intervenors. Even though the Plaintiff-Intervenors sought nationwide relief and associational relief on behalf of their members, the court declined to make its temporary injunction nationwide, and did not extend the temporary injunction to the members of the Plaintiff-Intervenors due to lack of briefing on associational standing. Thus, the temporary injunction only applies to the named Plaintiff and Plaintiff-Intervenors. The court plans to issue a final adjudication on the merits on or before August 30, 2024. Additional briefing could persuade the court to address associational standing before its final adjudication.

The court’s order for temporary relief leaves employers that are not a party to the lawsuit in a tough spot because an August 30 decision does not leave much time for those employers to act before the September 4, 2024 effective date of the FTC final rule.  Given the current status of litigation, it may be wise for employers to prepare to comply with the final rule by September 4, including sending required notices. Employers should keep an eye on the ongoing federal litigation in the Eastern District of Pennsylvania as well, since that court is expected to rule on similar injunctive relief by July 23, 2024.

Winthrop & Weinstine continues to monitor the situation and we will update you on this topic as the litigation unfolds.  For more information about employment agreements, including non-competition, non-disclosure, and non-solicitation provisions, please feel free to reach out to any member of our Employment team.

Effective July 1, 2024, the U.S. Department of Labor’s (“DOL’s”) final rule on salary minimums for exempt employees (the “Overtime Rule”) under the Fair Labor Standards Act (“FLSA”) has come into effect.  This rule applies to executive, administrative, professional, outside sales, and certain computer employees, common known as the “EAP” or “white collar” exemptions.  It also includes an increase in the annual compensation threshold for employees classified as “highly compensated.”  Additionally, the rule outlines scheduled increases in salary thresholds, with subsequent adjustments planned for January 1, 2025, July 1, 2027, and every 3 years thereafter.

The limited exception to the Overtime Rule relates to a lawsuit filed by the State of Texas, in which a federal court in Texas has blocked the DOL from enforcing the increased salary thresholds under the Overtime Rule for Texas state employees.  However, the Overtime Rule took effect for all other employers on July 1, 2024.  More details about this lawsuit and other legal challenges to the Overtime Rule are provided below.

The Increased Salary Thresholds

Before July 1, 2024:

Under the previous FLSA overtime rule, employees needed to earn at least $684 per week ($35,568 annually) and fulfill specific job duty criteria to qualify as exempt from FLSA overtime requirements.  Highly compensated employees, on the other hand, had to earn at least $107,432 annually, including a weekly salary of $684, along with other minimum job duty requirements, to be classified as such.

As of July 1, 2024:

The Overtime Rule raises the minimum salary threshold for exemption to $844 per week ($43,888 annually) and maintains the same job duty requirements for exemption status.  It also increases the minimum annual compensation threshold for highly compensated employees to $132,964 annually, including a weekly salary of $844, and maintains the additional job duty criteria.

As of January 1, 2025:

The Overtime Rule further increases the minimum salary threshold for exempt employees to $1,128 per week ($58,656 annually) for white collar exemptions, and sets the minimum annual compensation for highly compensated employees at $151,164, including a weekly salary of at least $1,128.  Starting January 1, 2025, the methodology for determining these thresholds shifts from using the 20th percentile of weekly earnings in the lowest U.S. wage region, the South, to the 35th percentile, updated with current wage data.

As of July 1, 2027 (and every 3 years thereafter):

The standard salary thresholds for FLSA overtime exemptions will be recalculated using the updated methodology tied to the 35th percentile of weekly earnings in the lowest U.S. wage region, based on current wage data.  Threshold increases will occur every 3 years thereafter.

Other Exemption Classification Requirements

In addition to meeting the applicable salary thresholds discussed above, employees must satisfy other criteria to qualify as exempt under the FLSA, including:

1. Receiving a “salary,” defined as a fixed and predetermined amount that isn’t subject to reductions based on the quantity or quality of work performed. This may also apply to hourly employees in certain cases;
2. Being paid at least a specified weekly salary; and
3. Primarily engaging in executive, administrative, professional, outside sales, or computer-related duties as outlined in the DOL’s regulations.  More details on these duties can be found here: DOL’s Fact Sheet on Overtime Exemptions.

To comply with the FLSA, highly compensated employees must be salaried (as defined above), earn more than the applicable annual compensation threshold, and regularly perform at least one duty or responsibility of those meeting white collar exemption standards.  Additional information about requirements for the “highly compensated” employee classification can be found here: DOL’s Fact Sheet on Highly Compensated Employees.

Consequences of Misclassification

While the Overtime Rule itself does not alter penalties for misclassifying exempt employees, the FLSA imposes significant financial repercussions for such errors.  Employers found to have misclassified employees as exempt may be liable for all unpaid overtime owed to the employee for up to 3 years prior to the employee’s claim.  Additionally, courts have the authority to impose liquidated damages equivalent to the total unpaid overtime, effectively doubling the amount owed to the misclassified employee by the employer.  Furthermore, employers who willfully or repeatedly misclassify employees as exempt may face civil penalties of up to $1,000 per violation, and in severe cases, criminal prosecution.  Employers should also be aware of potential state-imposed penalties if misclassification violates state or local wage and hour laws.

Additionally, it’s crucial for employers to consider the impact of the Overtime Rule on classification status concerning the enforceability of restrictive covenants in states where exemption status is a prerequisite.  For instance, in Rhode Island and Massachusetts, compliance with FLSA overtime requirements may determine whether certain post-termination restrictive covenants are enforceable.

Limitation of the Overtime Rule Against the State of Texas and Other Legal Challenges

On June 28, 2024, the final business day before the Overtime Rule took effect on July 1, a Texas federal judge issued a preliminary injunction that delays the rule’s implementation specifically for Texas state employees.  This decision, made in the case of State of Texas v. U.S. Department of Labor, suggests that the judge believes Texas is likely to succeed in arguing that the DOL exceeded its statutory authority by focusing on compensation rather than job duties in determining overtime classification under the FLSA.

The court’s rationale in State of Texas indicates that the DOL’s adjustment to the minimum salary thresholds for exemption contradicts the clear text of the FLSA’s EAP exemption, which emphasizes that employers should primarily base overtime classification on an employee’s job, rather than focusing on the employee’s compensation.  This injunction applies only to Texas state employees, while all other employers must now comply with the new salary thresholds outlined in the Overtime Rule.  However, the outcome of the State of Texas case may set a precedent for similar challenges to the Overtime Rule.  The judge highlighted the potential impact on other pending cases and indicated his decision might shape future interpretations of the rule’s legality.

In another case before a Texas federal court, Flint Ave., LLC v. U.S. Department of Labor, a software company seeks a nationwide injunction against the Overtime Rule, similarly arguing that the DOL’s adjustment of the salary level test exceeds the DOL’s statutory authority.   According to the employer’s brief supporting its motion for injunctive relief, “[the] DOL has usurped Congress’s prerogative to establish overtime wages by unilaterally grafting the salary level test” to the FLSA.  Additionally, a case currently under consideration by the Fifth Circuit questions the DOL’s authority to establish any minimum salary requirements for overtime exemptions.  This case predates the announcement of the Overtime Rule but could significantly impact its enforcement, depending on the Fifth Circuit’s ruling.

Next Steps for Employers

Employers are strongly encouraged to prepare for the impacts of the Overtime Rule and ensure compliance immediately.  Here are recommended steps:

1. Review current employee classifications and compensation data to identify those who may need reclassification based on the updated salary thresholds.  This is also an opportunity to correct any inadvertent misclassifications.
2. Evaluate compliance strategies, such as considering reclassification, adjusting compensation, or redistributing exempt duties, based on the review of employee classifications.
3. Develop communication plans to inform affected employees about changes to their employment status.
4. Ensure newly classified non-exempt employees have the necessary timekeeping resources if they previously did not track their time.
5. Seek guidance from our Employment group regarding employee classification, compliance strategies, or any other FLSA-related concerns.

Winthrop & Weinstine’s Employment group is actively monitoring ongoing litigation related to the Overtime Rule and will provide timely updates as new information emerges.  As always, our attorneys are available to assist your business in navigating these complex regulatory changes effectively, so please do not hesitate to contact a member of our Employment group regarding any questions or concerns regarding the Overtime Rule or FLSA compliance.

The 2024 legislative session saw the Minnesota Legislature make a number of sweeping changes and clarifications to the State’s one-year-old cannabis statute.  And in recent days, the Office of Cannabis Management (OCM) added some additional details and clarity every aspiring cannabis entrepreneur should note.

In May, the Legislature defined the process applicants will need to go through to obtain a cannabis business license. It also set limits on the number of licenses OCM may award between now and July 1, 2026 for certain categories of operations.  Specifically, OCM may issue licenses to up to 25 cultivators, 12 manufacturers, 75 retailers, and 50 mezzobusiness operators who qualify as “social equity applicants.”  Once social-equity licenses are awarded, OCM may grant up to that same number of additional licenses to the population at-large (including social-equity applicants who were not awarded licenses in the social-equity round).

In recent days, OCM released additional information, adding a sense of urgency to the application process.  Specifically, OCM will open an online portal where prospective applicants may submit information to verify whether they qualify for social-equity status.  That online process will be open from June 24 through July 10 at 11:59 p.m.  Those who receive verification of their social-equity status will be eligible to apply for one of the social-equity licenses described above.  An application portal for qualified social-equity applicants will then be open from July 24 through August 12 at 11:59 p.m.

The last twelve months have been a period of “hurry up and wait” for many Minnesotans interested in starting a cannabis enterprise.  If you are interested in being part Minnesota’s legal cannabis market, the wait is now over.  Let one of our experienced cannabis lawyers help you navigate the process.

Several new and revised statutes passed by the Minnesota Legislature significantly impact the rights and responsibilities of employers. Understanding these changes is important in helping employers minimize the risk of litigation and better handle any employment litigation that does occur. These statutory changes affect the following areas: (1) pre-employment drug testing; (2) salary postings; (3) restrictive employment covenants; (4) access to personnel files; (5) sick and safe time; (6) paid family and medical leave; (7) independent contractor misclassification; (8) pregnancy accommodations; and (9) employees’ rights posters.

Question: Are there any notable changes to pre-employment drug testing methods?

Answer: For otherwise permissible pre-employment drug testing, employers may now use “oral fluid drug testing” for drug, alcohol, and cannabis use. This amendment to the Drug and Alcohol Testing in the Workplace Act becomes effective August 1, 2024. Oral fluid drug testing relies on saliva to provide an accurate and rapid response, rather than expensive and time-consuming laboratory testing at pre-approved labs. At the time of testing, employers must immediately inform the applicant of the test results. If the fluid test result is positive, inconclusive or invalid, the applicant has 48 hours to request testing at an approved testing laboratory, paid for by the employer. An applicant can request subsequent re-tests, but any additional tests must be paid by the applicant.

Question: Are Minnesota employers now required to post salary ranges?

Answer: Yes. Starting January 1, 2025, Minnesota employers, both public and private, with 30 or more employees, must include a “good faith estimate” of the salary range for any job posting, whether the posting is printed or electronic. “Salary range” is defined as the minimum or maximum salary or hourly range of compensation for a job at the time of posting. Beyond monetary compensation, the employer must also include “a general description of all of the benefits and other compensation” the applicant would receive, including all health and retirement benefits. Where an employer does not intend to offer a salary range, a fixed pay rate may be listed instead.

Question: Are service providers permitted to continue to use restrictive employment covenants?

Answer: No. Starting July 1, 2024, service providers can no longer limit customers from directly or indirectly hiring or soliciting their employees in any way. If a service provider held restrictive covenants before July 1, 2024, it must inform its employees that the contract provisions are void and unenforceable. Exempt from this law are workers who provide business consulting through service providers to customers in the computer software development field and intend to receive a permanent job with the customer in the future.

Question: Are all private employers now required to provide employees and former employees access to personnel records?

Answer: Yes. Previously, only private employers with 20 or more employees were required to provide access to personnel records, but now all private employers must provide access if the request is made in good faith. Existing restrictions and protections for personnel records still apply, as set forth in Minnesota Statutes sections 181.960 -181.966.

Question: What changes did the Legislature make to Minnesota’s Sick and Safe Time law?

Answer: Initially passed last year, Minnesota’s new Sick and Safe Time law was amended this year to provide additional protections for workers. Effective immediately, employers who fail to sufficiently provide or allow use of sick and safe time to employees are liable for the time the employees should have been provided, as well as liquidated damages in an equal amount. Employers that keep insufficient records for accurate sick and safe time calculations are also now liable for 48 hours of such time and an equal amount of in liquated damages. The changes also add additional reasons for which an employee can use sick and safe time, namely, making funeral arrangements and addressing financial or legal matters regarding the death of a family member. In a win for employers, they are no longer required to specify sick and safe time on pay statements; instead, employers can “choose a reasonable system” for providing this information. Records must be kept for three years, and sick and safe time usage may now be tracked in increments ranging between fifteen minutes and four hours.

Question: What are the revisions to the Minnesota Paid Family and Medical Leave law?

Answer: The Paid Family and Medical Leave law was amended to make various technical, clarifying, and substantive changes to paid family and medical leave benefits under Chapter 268B. The most significant change is an increase in the payroll tax from 0.77% to 0.88% beginning January 1, 2026. Additionally, the amended law allows employers with 30 or fewer employees to pay lower premium rates if the employer’s average wage is not more than 1.5 times the state’s average wage. Premium rates for employers falling under this threshold are reduced by 25%. These reduced premiums are then further divided into employer and employee portions. Employers must pay at least 25% of the premium and cannot deduct it from employee’s pay. The employee must pay the remaining premium via employer-made wage deductions.

Question: Are there now harsher penalties on employers for misclassifying employees?

Answer: Yes. Effective July 1, 2024, officers or agents responsible for independent contractor misclassifications can be held personally liable for violations of applicable law. Compensatory damages may be available to misclassified workers, plus additional penalties of up to $10,000 for each violation and up to $1,000 for each act of obstruction into misclassification investigations. Moreover, Minnesota Statute, Section 181.723, which formerly provided a separate independent contractor definition for “contractors,” was modified to be applicable for all “construction employees.” Employers in the construction industry must carefully review the new requirements of Section 181.723 to ensure they remain compliant with worker classifications.

Question: What change was made to Minnesota’s Pregnancy Accommodation law?

Answer: When an employee is on leave for an accommodation related to pregnancy, childbirth or related health conditions, employers are required to maintain insurance coverage. This includes coverage under a group insurance policy, group subscriber contract, or health care plan for the employee and any dependents, so long as the employee pays their share of the benefits’ cost.

Question: Is there a new employees’ rights poster required for employers to display at work?

Answer: Yes. The legislature directed the Department of Labor and Industry to create an educational poster providing notice of employees’ rights regarding employer-sponsored meetings or communications on the employer’s opinion about religious or political matters. When available, the notice must be posted in English and the five most common languages spoken in Minnesota.

For more information about these updates and their applicability to you or your business, or if you have questions about your employment policies and documents in light of these changes, please reach out to any member of our Employment team.

A new Minnesota law came into effect on April 27, 2024, which flags the importance of addressing insurance coverage within your estate plan, especially if your plan utilizes transfer on death deeds. A transfer on death deed (“TODD”) is a conveyance instrument by which a property owner may provide for his or her interest in real property to be transferred to a certain individual or entity (a “grantee beneficiary”) upon the property owner’s death.

WHAT HAPPENED: THE CASE

The new law results from the facts of a 2019 federal court case, Strope-Robinson v. State Farm Fire and Casualty Company:[1]

• A property owner executed and recorded a TODD to transfer his house to his niece.
• Shortly thereafter, the property owner passed away, and just six days after his death, the property owner’s ex-spouse intentionally set fire to the home.
• As the grantee beneficiary of the TODD, the niece took ownership of the property upon her uncle’s death and filed a claim with his homeowner’s insurance provider for the fire damage.
• The insurer denied the claim for any damage to the real property because the niece was not the named insured under the policy.

The Court ultimately found that, because the insurer had no contractual relationship with the niece as the owner of the property, and the uncle’s estate no longer had an insurable interest in the property at the time of the fire, the insurer was not required to cover the property damage.

WHAT’S NEXT: A WARNING REGARDING COVERAGE

This case exposed a contractual and legal loophole in property insurance coverage that the Minnesota Legislature sought to close with this new law. Minnesota Statutes Section 507.071 subd. 2 now clarifies that:

“Until a transfer on death deed becomes effective, it has no effect on title to the real property … but it does create an insurable interest in the real property in favor of the designated grantee beneficiary for purposes of insuring the real property against loss or damage that occurs on or after the transfer on death deed becomes effective.”

To ensure property owners are aware of this insurable interest, all TODDs executed on or after August 1 must contain a new warning to property owners and their grantee beneficiaries:

“Warning to Grantor Owner: Temporary extended coverage of any fire and casualty insurance policy on the property under Minnesota Statutes, chapter 65A, will exist only if the grantor owner has given notice to the insurer under Minnesota Statutes, section 507.072, subdivision 3, including the existence of a transfer on death deed and the names and contact information of all designated grantee beneficiaries. Any temporary extended coverage terminates on the earlier of (1) 30 days after the date of the grantor owner’s death, (2) the expiration date of the policy, or (3) upon placement of a replacement insurance policy.

 Warning to Grantee Beneficiary: A grantee beneficiary shall not presume insurance coverage continues after the death of the grantor owner. Upon the death of the grantor owner, the grantee beneficiary should determine whether the provisions of Minnesota Statutes, section 507.072, apply and consult with an insurance agent or attorney.”

WHAT TO DO: PROVIDE NOTICE TO INSURERS

Finally, to avoid a future situation like the arson case, the new law requires insurers to provide thirty (30) days of temporary extended coverage on the real property in favor of the grantee beneficiary after the death of the property owner who granted the TODD, or after expiration of the property owner’s existing insurance policy, whichever is sooner.

However, this coverage is only applicable if the property owner notifies the insurer of the existence of the TODD and the names and contact information for the grantee beneficiary.

To pay a claim pursuant to such coverage, an insurer may also require proof that:

• the claimant is the grantee beneficiary under a TODD from the property owner;
• the TODD was recorded as required by law; and
• an Affidavit of Survivorship and Certificate of Death for the deceased property owner was recorded as required by law, to establish that the grantee beneficiary is the current owner of the property.

Therefore, providing notice to your property insurance provider(s), and your grantee beneficiaries, of TODDs within your estate plan is a new and crucial step in the estate planning process for those who wish to pass real property to their loved ones using this type of conveyance instrument. We recommend reviewing your estate plan documents and contacting your insurance agent to provide notice of any TODDs.

Specifically, if you have executed a TODD for estate planning purposes, you may have named a revocable trust as the grantee beneficiary under the TODD.  Your insurance company may be able to add each revocable trust named on the TODD as an additional insured on your insurance policy, so that coverage would continue to extend to the trust in the event the property ultimately passes under the TODD upon the death of the grantor(s).  This ensures that coverage for a trust extends beyond the thirty (30) days granted under the new law.  Please review your TODD and contact your insurance agent to determine what updates may be necessary to your insurance coverage.

FOR MORE INFORMATION:

If you have additional questions, please feel free to reach out to any member of our Estate Planning or Real Estate teams below.

[1] Strope-Robinson v. State Farm Fire & Cas. Co., 429 F. Supp. 3d 634 (D. Minn. 2019), aff’d, 844 F. App’x 929 (8th Cir. 2021)