In this article 13 sections
Effective July 1, 2026, Tennessee employers may not require, request, or enforce a noncompete agreement against an employee whose “annualized compensation” is less than $70,000. That single sentence will attract most of the attention. But it is only half of the story.
Tennessee’s new law, Public Chapter 934, also gives employers and courts clearer rules for evaluating the duration of restrictive covenants. It creates rebuttable presumptions favoring restraints of up to two years in ordinary employment and independent-contractor relationships, up to three years in certain franchise and distribution relationships, and up to five years—or the period during which the seller receives payments—in connection with the sale of a business. For covenants governed by the duration provision, courts retain authority to narrow an overbroad covenant rather than invalidate it altogether; a below-threshold noncompete prohibited by the separate compensation provision is void. The act is codified at Tennessee Code Annotated sections 50-1-210 and 50-1-211. Read the enacted text and legislative history.
The result is not a general ban on noncompetes. It is a compromise: Tennessee has categorically removed one group of employees from employment-based noncompetes while adding more predictable rules and presumptions supporting the reasonableness of certain durations for other restrictive covenants.
What the new law does
For employees earning less than $70,000 in annualized compensation, a noncompete executed in violation of the statute is “void and unenforceable as a matter of public policy.” The operative phrase is less than $70,000. An employee at exactly $70,000 is not within the statutory prohibition, although the covenant must still satisfy Tennessee’s other enforceability requirements.
“Annualized compensation” includes wages, salary, commissions, nondiscretionary bonuses, and other remuneration earned from the employer. For hourly employees, the statute requires the employer to multiply the hourly rate by 40 hours and then by 52 weeks. The dividing line is therefore approximately $33.65 per hour, before accounting for other covered compensation. The statute does not index the $70,000 threshold for inflation.
The income-based prohibition is expressly written for employees, not independent contractors. Independent contractors are included, however, in the separate duration provision.
The new presumptions are:
- Former employee or independent contractor, outside a business sale: two years or less is presumed reasonable in time; a longer restraint is presumed unreasonable.
- Distributor, dealer, franchisee, certain lessees, or trademark, trade-dress, or service-mark licensees: three years or less is presumed reasonable in time; a longer restraint is presumed unreasonable.
- Seller of all or a material part of a business or ownership interest: five years or less, or the seller-payment period if longer, is presumed reasonable in time; a longer restraint is presumed unreasonable.
These are rebuttable presumptions about time only. A two-year employee noncompete is not automatically enforceable. The employer must still establish a legitimate protectable interest, and the covenant’s activity and geographic restrictions must remain reasonable under Tennessee law. Conversely, a restraint longer than the stated period is not automatically void; the party seeking enforcement may attempt to rebut the presumption, and a court may modify the covenant to make it reasonable.
The act also preserves the use of confidentiality and nondisclosure agreements, customer or client nonsolicitation agreements, and employee nonsolicitation agreements. Those provisions remain important, but “preserved” does not mean unlimited: they should still be tied to legitimate business interests and drafted with reasonable scope.
How many Tennesseans fall below the threshold
There is no official count of Tennessee employees covered by the new statute. Payroll data do not use the statute’s definition of annualized compensation, and no government database tracks how many Tennessee workers have signed noncompetes.
The best available approximation nevertheless shows that the law has broad potential reach. In its May 2025 Occupational Employment and Wage Statistics, the U.S. Bureau of Labor Statistics estimated 3,278,760 wage-and-salary jobs in Tennessee. The statewide median annual wage was $47,380, and the 75th-percentile annual wage was $71,050. Because the statute’s $70,000 line falls just below that 75th-percentile figure, roughly three out of four Tennessee payroll jobs—about 2.4 million jobs—appear to fall below the new threshold. See the BLS May 2025 state data and methodology.
That is an estimate of potential coverage, not a count of people who will experience a practical change. BLS counts jobs rather than unique residents, excludes the self-employed, and uses a wage definition that is similar to—but not identical with—the statute’s definition. Its annual figures also generally annualize hourly wage rates using a 2,080-hour year, which happens to parallel Tennessee’s statutory formula.
Most importantly, only a subset of those 2.4 million jobs involves a noncompete. National research reviewed by the U.S. Government Accountability Office estimated that approximately 18% of workers were subject to a noncompete, while one study estimated a 13.3% rate among workers earning less than $40,000. Tennessee-specific prevalence is unknown. The available data therefore support only the conclusion that the law potentially protects approximately three-quarters of Tennessee wage-and-salary jobs; the number of existing or future noncompetes actually displaced is likely much smaller and cannot yet be measured reliably. See the GAO’s review of noncompete prevalence and effects.
Why Tennessee restricted noncompetes
Because “pro-business” considerations exist on both sides of the issue. Employers use noncompetes to protect confidential information, customer goodwill, specialized training, and investments in their workforce. At the same time, employee mobility allows established businesses to recruit experienced workers and allows workers to form new businesses. A rule that protects incumbents can also make it harder for the next Tennessee business to hire or launch.
The legislative history illustrates that tension. House Bill 1034 began in 2025 as a much broader proposal that would have invalidated most occupational noncompetes for employees and contractors. Its sponsor, Representative Rebecca Alexander, explained that the proposal arose from a constituent’s experience: a longtime medical-sales employee was eliminated during a reorganization, received one year of severance, but remained subject to a two-year noncompete and had difficulty obtaining comparable work.
The General Assembly did not enact the original blanket ban. The sponsor instead worked on a narrower proposal with stakeholders that included the Tennessee Chamber of Commerce, the National Federation of Independent Business, representatives of the music industry, and the court system. She described the final approach as adapted from Georgia law to provide clearer and more predictable rules for courts and businesses while preventing noncompetes from being imposed on workers for whom they are difficult to justify. Another legislator emphasized small-business formation and the concern that noncompetes had sometimes been used to restrict ordinary trades rather than protect special business interests. Watch the House Banking and Consumer Affairs Subcommittee discussion beginning at 2:07.
A committee member also pointed to recent federal uncertainty as a reason for state action. The Federal Trade Commission adopted a nationwide noncompete rule in 2024, but a federal court set it aside, and the FTC later dismissed its appeals and accepted the rule’s vacatur. The federal rule is not in effect, leaving the enforceability of most noncompetes to state law while federal antitrust laws continue to apply. See the FTC’s current status statement.
The structure of Tennessee’s act reflects both sets of business interests. It limits blanket restraints for lower-compensated employees, but it also gives employers presumptively reasonable time periods, preserves less restrictive protections, permits judicial modification, and provides longer presumptions for franchises and business sales. The measure passed 74–8 in the House and 28–4 in the Senate. See the official vote history.
What the law means for Tennessee employees
An employee below the threshold generally should not be asked to sign a new noncompete after July 1, 2026, and an employer may not enforce a prohibited noncompete. That does not mean the employee is free to take company files, use trade secrets, divert opportunities while still employed, or disregard enforceable confidentiality or nonsolicitation obligations.
Employees earning $70,000 or more also should not assume that their noncompetes are valid merely because they clear the threshold or last no more than two years. The new law creates only a presumption concerning duration. Tennessee courts have long required an employer to show more than a desire to avoid ordinary competition. Protectable interests may include genuine trade secrets or confidential information, specialized training, and customer relationships closely associated with the employee. Courts also consider hardship to the employee and the public interest. See, e.g., HCTEC Partners, LLC v. Crawford.
The act states that it applies to proceedings occurring and to agreements entered into, renewed, or amended on or after July 1, 2026. At minimum, employers should treat post-July 1 renewals and amendments as covered. Because the text also refers separately to “proceedings occurring” after that date, employers and employees should not assume that every older agreement is categorically outside the statute; courts may need to clarify how that language applies to enforcement proceedings involving preexisting agreements.
How employers should respond
Employers can reduce the law’s operational impact, but attempts to recreate a prohibited noncompete under another label may fail. A lower-risk approach is to identify the business interest at issue and use a lawful, targeted tool that directly protects it.
1. Stop using one agreement for everyone
Create separate templates and approval rules for employees below the threshold, employees at or above it, independent contractors, franchise or distribution relationships, and business-sale transactions. A blanket noncompete in a standard onboarding packet now creates avoidable risk.
2. Audit compensation and agreements together
For every employee subject to a noncompete, document how annualized compensation is calculated. Pay particular attention to commissioned employees, recent hires, part-time and hourly employees, and workers whose compensation fluctuates near $70,000. Build a review into renewals, promotions, compensation changes, and separation decisions.
If a position genuinely warrants a noncompete and market economics support it, an employer may consider setting reliably documented compensation at or above $70,000. But the statute does not specify precisely when compensation must be measured or how every form of “other remuneration” should be treated. A speculative bonus, one-time payment, or temporary increase should not be assumed to cure the problem, and paying severance does not create an express statutory exception.
3. Replace broad restraints with targeted protections
For below-threshold employees, use carefully drafted provisions addressing the actual risk: confidentiality and nondisclosure obligations, customer or client nonsolicitation, employee nonsolicitation, return of property, ownership of work product and intellectual property, and appropriate restrictions on access to and use of company systems. Avoid provisions so broad that they function as a noncompete despite their label.
4. Treat information security as a legal strategy
An employer claiming that information is confidential should act as if it is confidential. Use role-based access, multifactor authentication, download and forwarding controls, device-management tools, clear classification rules, and periodic access reviews. At separation, promptly disable access, collect devices, preserve relevant evidence when warranted, and obtain written confirmation that company information has been returned or deleted. These measures both reduce loss and strengthen a later trade-secret or contract claim.
5. Narrow noncompetes that remain permissible
For employees at or above the threshold, do not treat two years as the default simply because it is presumptively reasonable in time. Use the shortest period, smallest territory, and narrowest activity restriction that protects the identified interest. A restriction limited to customers the employee actually served or confidential products the employee actually handled is generally easier to defend than a prohibition on working for any competitor in any capacity.
6. Review older agreements before relying on them
Inventory agreements signed before July 1, 2026, but flag any later amendment, renewal, promotion document, compensation agreement, or other instrument that may constitute a renewal or amendment. Because of the act’s reference to post-effective-date proceedings, obtain a current enforceability assessment before sending a demand letter or seeking an injunction based on an older covenant.
7. Improve hiring and offboarding discipline
When hiring from a competitor, ask the candidate to disclose existing restrictive covenants, instruct the candidate not to bring confidential information, and structure initial duties to reduce avoidable disputes. When an employee leaves, focus first on evidence and protectable interests—not the fact that the employee joined a competitor. Ordinary competition remains different from misuse of confidential information or diversion of protected customer relationships.
The practical bottom line
Tennessee has not abandoned noncompetes. It has drawn a compensation line that potentially covers about three-quarters of the state’s wage-and-salary jobs while giving businesses clearer rules for higher-compensated employees and commercial relationships.
For employers, the lesson is not simply to delete one paragraph from the employment agreement. It is to move from blanket contracting to a tiered protection strategy: reserve noncompetes for employees who clear the statutory threshold and present a genuine competitive risk; use targeted nonsolicitation, confidentiality, and trade-secret protections elsewhere; and align contracts with real information-security and offboarding practices.
Because the statute leaves important questions unanswered—including the measurement date for compensation, the meaning of an undefined “noncompete agreement,” and the effect of its proceedings language on older contracts—employers should review particular agreements and enforcement decisions with Tennessee counsel.
This article is for general informational purposes only and is not legal advice. It does not create an attorney-client relationship. The application of Tennessee’s restrictive-covenant law depends on the agreement, compensation structure, job duties, business interests, and other facts involved.
