New federal rules are banning non-compete agreements and grant overtime pay protection to workers who previously lacked it. One rule will likely have more of an impact than the other.

In April, the Federal Trade Commission (FTC) issued a final ruling to ban noncompetes. In the same month, the U.S. Department of Labor announced a move to grant more workers overtime protections under the Fair Labor Standards Act’s (FLSA).

Although both moves could substantially alter how some employers operate, legal experts and operators told Senior Housing News it’s the overtime rule that could lead to companies having to shift their footing.

That said, leaders of operating companies including Lee Cory, founder of Portland, Oregon-based Paradigm Senior Living, believe that they will be able to make do with tweaks to staffing levels and schedules.

“I think most people are just going to get in line and march,” Cory said. “Because it’s the path of least resistance and it’s the right thing to do.”

‘We’re just going to have to see’ about overtime

Under the Dept. of Labor’s overtime rule changes, the maximum threshold for exempt employees on a salary is moving to $844 per week, or around $43,900 annually. Previously, the threshold was $684 per week, which is around $35,600 per year.

The ruling also notes that on Jan. 1, 2025, the threshold will increase again to $1,128 per week, or $58,656 per year.

In effect, the rule would make more senior living employees eligible for overtime pay. If employees are salaried at or below the threshold, they will likely need to either receive a salary raise or be converted back to hourly employees, allowing for the opportunity to make overtime pay in order to remain in compliance with the Dept. of Labor’s ruling, according to Christine Thelen, shareholder at Lane Powell PC and a member of the law firm’s labor employment team

Last year, industry associations Argentum and ASHA urged the Labor Dept. to rescind the then-proposed overtime rule, citing “a disproportionate and potentially devastating impact on the long-term care industry.” The industry associations made several suggestions, including setting salary levels for overtime “no higher than the 20% threshold in the lowest-income states.”

Barring any complications, the rule will go into effect on July 1, and Sinceri Senior Living President and CEO Chris Belford said the impact will be unclear until operators have a chance to grapple with it first-hand.

While he tries to avoid getting “too excited” about regulatory changes, Belford said he believes the overtime rule will lead to higher labor costs across the industry that will ultimately be passed on to residents. But there are still plenty of unknowns surrounding the ruling’s rollout, he said.

“We’re not going to make major cuts elsewhere in expenses, I think we’re pretty efficient as we are right now,” Belford said. “We’re just going to have to see how it all washes out.”

Another operator in wait-and-see mode is Tucson, Arizona-based Watermark Retirement Communities. According to the company’s general counsel, Ben Scoll,  the overtime rule likely won’t have a large impact on the company’s payroll given that many community staff are either already on an hourly pay status or salaried above the threshold. Still, Scoll does anticipate some higher labor costs for Watermark once the rule is in effect.

That said, he is anticipating a minimal pushback from the senior living industry as a whole. He believes that most operators affected by the rule will raise the wages of affected employees above the thresholds laid out by the Dept. of Labor.

Only a handful of workers at Paradigm Senior Living are affected by the overtime rule. On the rare occasion it is needed, Corey said he plans to increase the salaries for roles where more flexibility is needed, such as chefs and nurses, while moving others back to a non-exempt hourly pay.

Thelen said that there may be challenges to the overtime rule. That occurred during a previous attempt to change the rule in 2016 with a similarly large threshold increase.

But while operators might have clear fixes for dealing with the overtime rule, they will likely have to pass at least some costs on to residents to maintain their margins. According to Gabriela Sanchez, shareholder and senior living and long term care team co-chair at Lane Powell, that is a potential pain point given the sensitivity that many residents have around the price of senior living.

“There’s so many regulations and rules that are coming down that are affecting the sector, that are creating such incredible costs to our client, that it’s affecting the affordability of care and senior living situations for the consumer,” Sanchez said.

No ‘huge ripple effect’ expected from noncompete rule

In addition to the Dept. of Labor’s overtime changes, the FTC’s rule banning noncompetes has caused some consternation in certain industries. Senior living is not one of them due to the scarcity of such agreements.

Part of the reason non-competes are largely nonexistent within the industry is because the majority of industries have “bottom- heavy staffing,” according to Thelen.

She noted that C-suite employees such as CEOs and COOs do often have noncompetes, but those workers only represent a fraction of the total workforce. Another area that could see an impact from the rule is in how operators work with staffing agencies who employ nurses and certified nursing assistants (CNAs).

The ruling also states that alternatives to non-competes, such as non-disclosure agreements (NDAs), can still be utilized.

But “on the whole, I don’t think there’s going to be a huge ripple effect,” Thelen said.

“Quite frankly, I think the overtime rule is going to potentially have more of an impact than a noncompete in this industry,” she added.

Paradigm doesn’t utilize noncompete agreements and Cory noted some of the difficulties in enforcing them to begin with.

“My theory is always if you don’t want to be here, you should be where you want to be,” Cory said. “And I’m not going to stop you from doing that. And if I could have done better to entice you to be here, I should have done that before it got to that point.”

Scoll told Senior Housing News that non-competes are not prevalent within the senior housing industry to begin with, though the company has on occasion utilized non-solicitation agreements between operators, which lie outside the FTC’s ban.

The reason for doing so is to “ensure continuity of leadership when properties or operators transition,” but non-competes for individual employees are not used.

“I don’t think there will really be winners or losers in our industry as a result,” Scoll said.