Tennessee Sets New Limits on Noncompete Agreements

On May 7, 2026, Tennessee enacted House Bill 1034 (Public Chapter 934), establishing a new statutory framework for noncompete agreements.

The law introduces a compensation threshold for employee noncompetes and creates presumptions on reasonable duration.

This update applies to Tennessee employers, and the law takes effect on July 1, 2026, for agreements entered into, renewed, or amended on or after that date.

What Employers Need to Do

• Review all restrictive covenant agreements, especially noncompetes, for compliance with new duration limits and rules.

• Identify employees below the $70,000 compensation threshold and remove or avoid noncompete requirements for those roles.

• Reassess noncompete durations to align with the new presumptive limits or prepare to justify longer periods.

• Shift emphasis to alternative protections, such as confidentiality and nonsolicitation agreements, where appropriate.

• Update contract templates and onboarding practices for new or renewed agreements after July 1, 2026.

Overview

Tennessee adopted its first comprehensive statutory framework for restrictive covenants, replacing a more flexible, case-by-case approach. The law introduces clear limits on when and how noncompetes can be used, while still allowing them in certain circumstances.

Compensation Threshold for Employees

• Employers may not require or enforce noncompetes for employees earning less than $70,000 in annual compensation.
• Compensation includes wages, salary, commissions, and nondiscretionary bonuses.
• Any noncompete that violates this rule is unenforceable.

Presumptions on Duration

• For employees and independent contractors, two years or less is presumed reasonable, while longer periods are presumed unreasonable.
• For certain commercial relationships, such as franchise or distribution arrangements, three years or less is presumed reasonable.
• For sale-of-business agreements, five years (or the payment period, if longer) is presumed reasonable, with longer terms subject to challenge.

Rebuttable Standard and Enforcement

• Duration limits are not strict caps, but presumptions that can be challenged or justified.
• Longer restrictions place the burden on the employer to demonstrate a legitimate business justification.
• Courts retain authority to modify overly broad agreements (“blue pencil”) rather than voiding them entirely.

Other Restrictive Covenants Still Allowed

• The law does not prohibit confidentiality or nondisclosure agreements (NDAs).
• Employers may still enforce customer and employee nonsolicitation agreements.
• These tools remain key alternatives where noncompetes are restricted or unavailable.

Scope and Application

• The law applies to agreements entered into, renewed, or amended on or after July 1, 2026.
• It applies to employees, independent contractors, and certain business relationships.
• Existing agreements entered before that date are generally not affected.

Why This Matters

This law changes how employers use noncompetes by replacing a flexible, case-by-case standard with a more structured and predictable framework.

For employers, this means noncompetes must be used more selectively, with greater attention to compensation levels, duration, and defensibility, while alternative protections like nonsolicitation agreements may become more important.

Key Risks for Employers

• Using noncompetes for employees below the $70,000 threshold, rendering agreements unenforceable.

• Maintaining overly long noncompete durations without clear business justification.

• Failing to update legacy templates, leading to noncompliant new agreements.

• Over-reliance on noncompetes instead of alternative protections (NDAs, nonsolicits).

• Risk of challenges where restrictions are challenged as unreasonable.

Additional Information

The law preserves Tennessee’s “blue pencil” doctrine, allowing courts to modify restrictive covenants to make them enforceable rather than invalidating them entirely.

Employers should treat this as a shift toward more targeted and defensible restrictive covenant strategies, not a complete prohibition on noncompetes.

Source References

• Tennessee HB 1034 – AN ACT to amend Tennessee Code Annotated, Title 50; Title 63 and Title 68, relative to covenants not to compete.
• Tennessee SB 995 – Companion Bill

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