Tennessee Enacts Significant Changes to Non-Compete Law

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Effective July 1, 2026, Tennessee has joined a growing list of states that impose statutory restrictions and reasonableness presumptions concerning non-competition agreements. The new Tennessee law (House Bill 1034) implemented two new changes to Tennessee’s non-compete law: (i) it sets forth compensation thresholds for the application of non-compete restrictions, and (ii) it established rebuttable presumptions with respect to the reasonableness of temporal scope of non-compete restrictions.

Compensation Threshold Set at $70,000

The statute prohibits employers from requiring, requesting or enforcing a noncompete agreement against an employee whose annualized compensation is less than $70,000. T.C.A § 50-1-211. The law defines annual compensation broadly as “wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration.” T.C.A. § 50-1-211(b)(1). With respect to hourly workers, “annual compensation” is determined by multiplying the employee’s hourly rate by forty (40) and multiplying that number by fifty-two (52). T.C.A. § 50-1-211(c).

Rebuttable Presumptions

The statue also establishes rebuttable presumptions with respect to the temporal scope of non-competes. Courts must now presume that under Tennessee law two (2) years or less is a reasonable duration with respect to non-competition restrictions applicable to employees and independent contractors. T.C.A. § 50-1-210(b)(1). The new law’s presumptions, however, are not limited to workers.  In the sale-of-business context, up to five (5) years or the period during which payments are made to the seller, are presumed a reasonable restriction of time. T.C.A. § 50-1-210(b)(3). Additionally, three years or less is presumed to be a reasonable duration for non-competes enforced against a current or former distributor, dealer, franchisee, and lease of real or personal property. T.C.A. § 50-1-210(b)(2).

The Law Applies to Non-Competes Only

The statute specifies that it does not prohibit an employer from enforcing a confidentiality or nondisclosure agreement or a client, customer or employee non-solicitation provision. Accordingly, such restrictions may become more important with respect to employees that do not meet the salary threshold. T.C.A. § 50-1-210(c).

Recommendations and Takeaways

Employers should review their form restrictive agreements to ensure compliance with the new law by specifically ensuring that the forms are applicable to employees earning at least $70,000 and that the temporal scope is two years or less.

If applicable, employers should determine whether to include non-solicitation restrictions for lower wage earners.

The impact of the new law is that it effectively swaps the parties’ burden of proof with respect to whether the duration of a non-compete is reasonable. The burden is now on the former worker to show that two years is not reasonable.

The new law effectively codifies Tennessee’s longstanding “blue-pencil” approach, by allowing courts the ability to modify overly broad restrictive covenants to render them reasonable, and, therefore, enforceable.

Lastly, the new law does not impact Tennessee’s law applicable to healthcare providers (T.C.A. § 63-1-148).