Tennessee Establishes First Statutory Framework for Non-Compete Agreements

Who: Tennessee employers

When: Effective July 1, 2026

Tennessee Governor Bill Lee signed House Bill 1034 on May 7, 2026, establishing the state’s first comprehensive statutory framework governing restrictive covenant agreements. The law takes effect July 1, 2026, and applies to any agreement entered into, renewed, or amended on or after that date, as well as any proceedings occurring on or after that date.

Tennessee courts have looked at non-compete agreements on a case-by-case basis, focusing on whether they’re reasonable—without clear rules about how long they can last. The new law helps bring more clarity, offering starting assumptions about their duration and explicitly banning non-competes for employees earning below a certain amount.

Rebuttable Presumptions on Duration

The law establishes a tiered framework of rebuttable presumptions for whether a restrictive covenant’s duration is reasonable:

• Employees and independent contractors: Restraints of two years or less are presumed reasonable. Restraints longer than two years are presumed unreasonable.
• Distributors, dealers, franchisees, lessees, and trademark licensees: Restraints of three years or less are presumed reasonable.
• Sellers of a business or equity interest: Restraints of five years or less—or equal to the duration of earn-out or seller payment periods, whichever is longer—are presumed reasonable.

These are rebuttable presumptions, meaning that an employer can still argue that a longer duration is reasonable under specific circumstances. Courts also retain the authority to modify (commonly referred to as “blue penciling”) an otherwise unreasonable restrictive covenant to render it enforceable rather than void it entirely.

The $70,000 Compensation Floor

One of the most important updates for many employers is the clear ban on non-compete agreements for employees earning less than $70,000 annually. This includes wages, salary, commissions, and nondiscretionary bonuses. For hourly workers, the annualized compensation is figured by multiplying the hourly rate by 40 hours per week, then by 52 weeks in a year. Non-compete agreements that violate the compensation threshold are void and unenforceable.

What Remains Enforceable

The new law does not affect the enforceability of confidentiality and nondisclosure agreements, client or customer non-solicitation agreements, or employee non-solicitation agreements. Employers will need to rely more heavily on these tools to protect business interests for employees who fall below the $70,000 compensation threshold. Violations will render noncompete agreements unenforceable.

How:

• Conduct a full inventory of all existing restrictive covenant agreements for Tennessee employees, noting the annualized compensation of each covered employee and the duration of any non-compete provisions.
• Identify any employees—current or newly hired after July 1, 2026—who earn less than $70,000 in annualized compensation.
• Update your standard non-compete templates so that the time restrictions fall within the allowed rebuttable presumption thresholds for each category.
• Train HR personnel and hiring managers on the new requirements.
• Consult employment counsel before renewing or amending any existing restrictive covenant agreement.

Additional Resources:

HB 1034