New Rules on Overtime, Non-Competes, Cookies, and TikTok

And in the wake of these new rules, you can expect a flood of litigation. Or, as Yogi Berra liked to say, it’s never over till it’s over.

Good Morning!

Here are today’s highlights:            

• Millions more workers will now be eligible for overtime pay.

• The FTC wants it to be easier for employees to change jobs.

• With premiums on commercial insurance soaring, Gene Marks has some tips.

• China, the world’s largest exporter of cars, is mothballing car factories.

REGULATION

A new Department of Labor rule will make millions more workers eligible for overtime pay: “The highly anticipated final rule released Tuesday changes the salary threshold used to determine whether a worker is exempt from overtime pay so that workers making less than $58,656 are automatically owed time-and-a-half wages. That threshold will apply to a large swath of industries, but is expected to have the broadest impacts in the retail and hospitality sectors. The figure will be revised every three years, with no cutoff date for the updates. Once published in the Federal Register, the changes will start to take effect on July 1.”

• “‘This rule is another costly hoop for small business owners to jump through,’ said Beth Milito, executive director of the National Federation of Independent Business’ Small Business Legal Center. ‘Small businesses will need to spend valuable time evaluating their workforce to properly adjust salaries or reclassify employees in accordance with this complicated mandate.’”

• “Currently, salaried workers making less than $35,568 annually qualify for overtime pay when they work more than 40 hours in a week, a threshold last set by the Trump administration. The Biden DOL last year initially proposed to raise the salary level to roughly $55,000. The final rule’s $58,656 threshold is based on newer Bureau of Labor Statistics salary data. That ceiling will go into effect on Jan. 1, 2025, following an intermediate bump to $43,888 on July 1.”

• “Notably, the first increase will use the methodology from the Trump-era rule, which sets the salary level based off of the 20th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South. In January 2025, the agency will use new methodology tying the salary level to the 35th percentile of earnings in the poorest Census region.” READ MORE

The FTC has banned non-competes: “The Federal Trade Commission on Tuesday banned employers from using non-compete contracts to prevent most workers from joining rival firms, achieving a policy goal that is popular with labor but faces an imminent court challenge from business groups. ... The rule prohibits companies from enforcing existing noncompete agreements on anyone other than senior executives. It also bans employers from imposing new non-compete contracts on senior executives in the future.”

• “The practice has grown more prevalent in the U.S. economy and now affects nearly one in five American workers. Even lower-wage workers such as restaurant employees and hair stylists, who lack access to intellectual property or trade secrets, have been subject to them. Sales staff, engineers, doctors and salon workers are among the most common types of workers affected by companies’ enforcement of noncompete clauses, according to research published by Cornell University professor Matt Marx in 2022.”

• “Businesses that use non-compete agreements say they are an effective way to protect their intellectual property and other investments. The FTC’s final rule becomes effective in four months. The U.S. Chamber of Commerce plans to sue the FTC as soon as Wednesday over the rule. The suit would argue that the FTC lacks the legal authority to issue the rule and would ask a federal court to invalidate it, Chamber officials said this week.” READ MORE

MARKETING

Google is delaying its phase out of cookies: “Google will miss its end-of-year target for changing the way advertising is delivered in its dominant Chrome web browser, a setback in its years long effort to improve consumer privacy on the internet. Google said Tuesday it would no longer be able to eliminate third-party cookies on its original timeline, citing ‘ongoing challenges related to reconciling divergent feedback from the industry, regulators and developers.’ The changes have been eagerly anticipated by advertisers because almost two-thirds of internet traffic flows through Chrome, making it an important gateway for reaching consumers.”

• “Third-party cookies are bits of software that follow users around the internet. Advertisers use them for everything from targeting ads to measuring the effectiveness of marketing campaigns, making them the basis for much of a $600 billion-a-year industry.”

• “Google has spent years preparing to get rid of cookies following similar moves by Apple and Mozilla, the developer of the Firefox browser. It has promoted the change as a way to improve consumer privacy and developed an alternative set of technologies known as the Privacy Sandbox to replace many of their features.”

• “Ad-tech companies complained to Google and the CMA that the company’s replacement technologies didn’t do enough to make up for lost features from cookies. They have also voiced concerns Google’s plans would reinforce its dominant position in the digital advertising ecosystem.” READ MORE

Meanwhile, the bill that could ban TikTok has passed Congress: “The Senate approved the measure 79 to 18 as part of a sprawling package offering aid to Israel, Ukraine, and Taiwan, sending the proposal to President Biden’s desk — with the House having passed it Saturday. Biden issued a statement minutes after the Senate vote saying he plans to sign the bill into law on Wednesday. Once signed, the provision will give TikTok’s parent company, ByteDance, roughly nine months to sell the wildly popular app or face a national ban, a deadline the president could extend by 90 days.”

• “The measure — which has broad bipartisan support — poses the most significant threat yet to the app’s operations in the United States, where it has more than 170 million users and has become an economic and cultural powerhouse.”

• “Lawmakers pushing for the restriction have cited concerns that the company’s ownership structure could allow the Chinese government to gain access to Americans’ data, claims that TikTok disputes.”

• “TikTok is expected to challenge the measure, setting up a high-stakes and potentially lengthy legal battle that will test the company’s argument that any such law would violate the free speech rights of millions.” READ MORE

INSURANCE

Gene Marks has some advice for business owners looking to keep insurance rates down: “Colleen Terra, who owns Terra Insurance Services in Philadelphia, thinks it’s also important to shop your policies every year. She says that a good broker will always be looking for the best price for their clients. ‘It doesn’t cost us anything to shop policies, and by looking out for our clients’ best interests, we’ll be able to keep them for a longer period of time,’ she says. ‘If you’re seeing an increase in premiums, you should always be pushing your broker to shop around and look for better deals.’”

• “When you find a good carrier, consider bundling policies with them. Many carriers offer business owners’ plans that combine key coverages — liability, property, cyber — in one plan and at a discount. [Brian McCollum, who owns McCollum Insurance in Philadelphia] says that when you bundle your policies, you can often get the best pricing. ‘It also allows a business to work with one broker for all their needs,’ he said. ‘This becomes important when it’s time to report a potential claim.’”

• “Finally, lean in to umbrella coverage. This type of coverage is sold over and above your existing coverage as an extra layer of protection. It tends to be affordable and can be important if ever a big claim is filed. An umbrella policy is a relatively small portion of your total insurance cost and can be very helpful if something goes wrong,’ [Christopher Jones, head of small commercial at The Hartford] said. ‘We’ve been seeing more business owners buy this type of policy over the past few years.’” READ MORE

RETAIL

Foxtrot, the upscale convenience-store chain, is shutting down: “Among three former Outfox employees who spoke with Modern Retail, the sentiment was that Foxtrot was a company that was struggling to figure out what it wanted to be. It struggled to figure out the right balance between brick-and-mortar and e-commerce sales. When it first launched in 2015, one of the big selling points that the company said made Foxtrot different than, say, a 7-Eleven was that it made a point to carry beloved local brands in the markets it operated in, like Ceremony Coffee and Little Sesame hummus in D.C.”

• “But as the company grew — both for the sake of profitability and to ensure a consistent experience across locations — these former employees said that local and emerging brands were deprioritized in favor of national brands.”

• “For example, earlier this year, the company brought in La Colombe — the Philadelphia-founded coffee company that was recently acquired by Chobani — to service its cafes. Previously, Foxtrot used coffee beans from roasters that were local to whatever area it was operating in.”

• “[Co-founder Mike] LaVitola told The New Consumer that he wanted his stores to almost feel like the opposite of a traditional convenience store. That is, ‘it’s a place that you’re excited to go to,’ he told The New Consumer, ‘because you’re going to find something cool, there’s going to be some interesting music on, the folks behind the counter are going to be able to turn you on to something new.’”

• “In turn, its stores — most of which were in urban areas — carried everything that an office worker might want to pick up before, during and after work: coffee and pastries in the morning, freshly made salads and sandwiches in the afternoon and a six-pack of locally brewed beer for after work. The stores also boasted a cafe area that turned into a wine bar at night, making it a comfortable spot to hang out in.” READ MORE

MANUFACTURING

China has a glut of car factories: “On the outskirts of Chongqing, western China’s largest city, sits a huge symbol of the country’s glut of car factories. It’s a complex of gray buildings, nearly a square mile in size. The thousands of employees who used to work there have moved on. Its crimson loading docks are closed. The facility, a former assembly plant and engine factory, had been a joint venture of a Chinese company and Hyundai, the South Korean giant. The complex opened in 2017 with robots and other equipment to make gasoline-powered cars. Hyundai sold the campus late last year for a fraction of the $1.1 billion it took to build and equip it. Unmown grass at the site has already grown knee high.”

• “‘It was all highly automated, but now, it is desolate,’ said Zhou Zhehui, 24, who works for a rival Chinese automaker, Chang’an, and whose apartment looks down on the former Hyundai complex. China has more than 100 factories with the capacity to build close to 40 million internal combustion engine cars a year. That is roughly twice as many as people in China want to buy, and sales of these cars are dropping fast as electric vehicles become more popular.”

• “Last month, for the first time, sales of battery-electric and plug-in gasoline-electric hybrid cars together surpassed those of gasoline-powered cars in China’s 35 largest cities. Dozens of gasoline-powered vehicle factories are barely running or have already been mothballed.”

• “China, the world’s largest car market, became the largest exporter last year, having passed Japan and Germany. China’s auto sales abroad are exploding. Three-quarters of China’s exported cars are gasoline-powered models that the domestic market no longer needs, said Bill Russo, an electric car consultant in Shanghai. Those exports threaten to flatten producers elsewhere.” READ MORE

MANAGEMENT

An op-ed columnist for The New York Times says small-business owners can be tyrants: “It’s the business owner whose livelihood rests on a steady supply of low-wage labor, who opposes unions, who resents even the most cursory worker protections and employee safety regulations, and who views those workers as little more than extensions of himself, to use as he sees fit. The small-business tyrant is, to borrow an argument from the writer and podcaster Patrick Wyman, an especially reactionary member of America’s landowning gentry: local economic elites whose wealth comes primarily from their ownership of physical assets.”

• “Those assets, Wyman explains, ‘vary depending on where in the country we’re talking about: they could be a bunch of McDonald’s franchises in Jackson, Mississippi; a beef-processing plant in Lubbock, Texas; a construction company in Billings, Montana; commercial properties in Portland, Maine; or a car dealership in western North Carolina.”

• “Last summer, for example, in the midst of a dangerous heat wave that put thousands of lives at risk, Gov. Greg Abbott of Texas signed a law nullifying local rules requiring water breaks for outdoor workers. The law targeted provisions passed by officials in Austin and Dallas that gave construction workers a 10-minute break every four hours.”

• “‘For too long, progressive municipal officials and agencies have made Texas small businesses jump through contradictory and confusing hoops,’ said Dustin Burrows, the Republican state representative who introduced the bill. Burrows, it should be noted, is a small-business owner himself.” READ MORE

THE 21 HATS PODCAST

You Need to Accept That You’re the Boss: This week, in episode 193, Sarah Segal takes Paul Downs and Jay Goltz through her recent QuickBooks nightmare. Right before tax season, Sarah ran her P&L, and it showed a profit of $250,000—but she knew right away that that couldn’t be right. It then took a bookkeeping SWAT team to figure out what exactly had gone wrong. “I was literally on the verge of tears,” Sarah tells us. “How am I going to do this and not be late on filing my taxes? And credit to this woman, who, I swear to God, was like my therapist and my bookkeeper. She was like, ‘Don't worry, Sarah. We're going to figure it out.’” Which they did—and which brings an important reminder: Not every dollar that comes in the door should be counted as revenue.

• Plus: What do you do when a new employee isn’t working out? When is the right time to intervene? Do performance improvement plans actually work? Are grace periods a good idea?

• Also: Jay emphasizes a little understood reason why it can be important to fire fast. And Paul explains what he likes about the AI search engine Perplexity.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren