By: Gray Pham
Published on: January 27, 2025
Before April 2024, there was no federal rule across the U.S. regarding the inclusion of non-compete clauses in employment contracts. As of August 21, 2024, there are only four states that have a total ban on non-compete agreements: California, Minnesota, North Dakota, and Oklahoma.[1] In the rest of the country, nine states and the District of Columbia place income restrictions on non-compete clauses to go into effect only at a certain income threshold, twenty-six states have some other form of restrictions, and eleven states have none.[2] Non-compete agreements have long existed in the publishing industry. They are broad and often corner authors into only writing one book in a certain genre or topic with one publisher, thus stymying the authors from different creative ventures.
On April 23, 2024, the Federal Trade Commission (“FTC”) passed a “Non-Compete Rule” (the Rule).[3] As the name suggests, the Rule bans all upcoming and existing non-compete clauses in employment contracts, except in existing contracts for senior executives.[4] In theory, the Rule was to go into effect nationwide on September 4th, 2024, unifying various differing state regulations on non-compete clauses.[5] However, the same day the FTC announced the Rule, lawsuits seeking to enjoin its enforcement appeared throughout the country.
On August 20, 2024, Judge Ada Brown of the United States District Court for the Northern District of Texas, in her Ryan, L.L.C. v. FTC decision, issued a preliminary injunction preventing the FTC from enforcing the Rule.[6] However, the decision does not prevent the FTC from pursuing enforcement on a case-by-case basis. On October 18, 2024, the FTC appealed Judge Brown’s decision to the Fifth Circuit.[7] Similarly, in Florida, less than a week before Judge Brown’s decision, Judge Timothy J. Corrigan of the District Court for the Middle District of Florida granted a preliminary injunction to stymy the enforcement of the Rule for the named plaintiff in Properties of the Villages, Inc. v. FTC.[8] The FTC appealed the Florida decision to the Eleventh Circuit, and currently, both cases are pending review.[9]
A split exists in in the district courts’ application of their injunctions against the Rule, with Ryan applying broadly, and Properties of the Villages applying to only the named plaintiff.[10] But there is a wider split between these two district courts and the District Court for Eastern District of Pennsylvania. On July 23rd, 2024, before either of the Ryan, L.L.C. or Properties of the Villages decisions, Judge Kelley B. Hodge of the United States District Court for the Eastern District of Pennsylvania denied a motion to preliminarily enjoin the FTC from enforcing the Rule in ATS Tree Services, L.L.C. v. FTC.[11] This varied application could significantly increase the chances of the case for the Rule’s enforcement to be heard in front of the Supreme Court, pending Circuit Court decisions.[12]
Despite the different applications of the Rule in courts, the public widely approved of the Rule. One reason for such support is by not having the Rule, creatives bound to existing non-competes cannot freely create, thus maintaining the current suppression of creativity. During the period when the FTC was soliciting public opinions before promulgating the Rule, it received a staggering amount of support –– 25,000 supporting comments among the 26,000 comments received.[13] Among the supporters of the Rule is the Authors Guild (“AG”).[14] According to the AG, authors have been discouraged or prohibited altogether from reusing characters between different book series, writing about a different topic in the same genre but with a different publisher, and from revising earlier works to publish an updated edition.[15] This can be a roadblock for writers who specializes in niche topics to further advance their careers and writings.[16] For example, a true crime author had their first novel published about a specific crime that occurred; however, in their publishing contract, they signed a non-compete agreement with the publisher, preventing them from writing true crime books about other crimes.[17] Without the Rule, this non-compete agreement is binding, and the true crime author’s future creativity is legally stifled. The AG asserts that authors must be free to publish the works they want to write, uninhibited by publishers’ non-compete agreements, as publishers already have other methods to prevent authors from publishing or reselling the same content–such as warranties and copyright law, or a tightly worded, limited-in-scope non-compete agreement preventing authors from publishing a competing work elsewhere for a limited time.[18]
Many authors currently bound by current broad non-compete agreements do not have the resources to litigate to escape the agreements. Even if the Rule is never widely applied and the FTC continues to combat non-compete agreements with case-by-case enforcement, independent publishing and print-on-demand have allowed authors to circumvent the non-compete clauses in traditional publishing. While independent publishing allows for authors to express more creative freedom, and makes more books are being made available to readers, authors still have an uphill battle, where they are competing with everything ever written and the readership has an almost-limitless options for books.[19]
The ban on non-competes would allow a proliferation of books into the market as a result of authors being able to write and create freely. However, the Rule’s future is uncertain, and its unknown future is only keeping authors waiting. It is likely that the Rule will be stopped if it reaches the current Supreme Court and that it will take years before the FTC attempts another ambitious nationwide ban on non-compete agreements.
[1] State Noncompete Law Tracker, Economic Innovation Group (Aug. 21, 2024), https://eig.org/state-noncompete-map/.
[2] Id.
[3] Press Release, FTC Announces Rule Banning Noncompetes, Fed. Trade Comm’n (Apr. 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes [hereinafter FTC Press Release].
[4] Non-Compete Clause Rule, Fed. Trade Comm’n (Apr. 23, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf.
[5] FTC Press Release, supra note 3.
[6] Ryan, L.L.C. v. FTC, No. 3:24-CV-00986-E, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).
[7] Dan M. Forman, FTC Appeals Injunction Against Final Rule Banning Non-Compete Employment Agreements, Cal. Lab. & Emp. L. Blog (Oct. 23, 2024), https://www.callaborlaw.com/entry/ftc-appeals-injunction-against-final-rule-banning-non-compete-employment-agreements.
[8] Props. Of the Vills., Inc. v. FTC, No. 5:24-cv-316-TJC-PRL, 2024 WL 3870380 (M.D. Fla. Aug. 15, 2024).
[9] Alexander Okuliar, David J. Shaw & Helen He, FTC Appeals Texas Court’s Ruling Blocking FTC’s Non-compete Ban, Morrison Foerster (Oct. 22, 2024), https://www.mofo.com/resources/insights/241022-ftc-appeals-texas-court-s-ruling.
[10] See Ryan, L.L.C., 2024 WL 3879954; Props. Of the Vills., 2024 WL 3870380.
[11] ATS Tree Services, L.L.C. v. FTC, No. 24-1743, 2024 WL 3511630 (E.D. Pa., July 23, 2024).
[12] Okuliar et al., supra note 9.
[13] Non-Compete Clause Rule, supra note 4.
[14] Authors Guild Supports FTC’s Proposed Ban on Non-Compete Clauses, Authors Guild (May 8, 2023), https://authorsguild.org/news/ag-supports-proposed-ftc-ban-on-non-compete-clauses/.
[15] Delete the Non-Compete, Authors Guild (Aug. 27, 2015), https://authorsguild.org/news/delete-the-non-compete/.
[16] Id.
[17] This is one of the many examples that the Authors Guild give about authors’ creativity being stifled by non-competes, no matter the genre. See, e.g., Kristine Kathryn Rusch, Business Musings: Long-Term Thinking: The Non-Compete Clause (Contracts/Dealbreakers), Kristine Kathryn Rusch (May 18, 2016), https://kriswrites.com/2016/05/18/business-musings-long-term-thinking-the-non-compete-clause-contractsdealbreakers/ (example of author cannot publish another work until their contract with their previous publisher is fully executed, such as publishing the fifth or sixth book or if the book goes out of print).
[18] Authors Guild, supra note 15.
[19] Mike Shatzkin, Checking Facts With Players Who Are Still in the Game, The Idea Logical Co. (May 8, 2024), https://www.idealog.com/blog/checking-facts-with-players-who-are-still-in-the-game/.