MSS Employment Client Alert -- Tennessee Is Open For Business – Or Is It?

Meister Seelig & Schuster’s Nashville office opening coincided with Tennessee’s new law establishing restrictions and guidelines for non-compete agreements in the state. This marks the state’s first non-compete law outside of the healthcare industry and reflects a nationwide trend by states to regulate restrictive covenants.

Background

At the federal level, the Federal Trade Commission (FTC) proposed a sweeping nationwide ban on non-competes in 2024, which faced several legal challenges before it was struck down and ultimately rescinded. Since then, the FTC has announced its policy to regulate non-competes on a case-by-case basis. Various states have jumped in to fill the gap by proposing or enacting their own laws on restrictive covenants. State efforts have varied widely, with some seeking to ban non-competes outright and others prohibiting their use with respect to lower-wage workers. Tennessee’s new law, which went into effect on July 1, 2026, stakes out the middle-ground.

Tennessee’s Approach

Tennessee courts have historically afforded employers broad discretion to enforce non-competes, resulting in inconsistent outcomes throughout the state. The new law seeks to provide employers with greater predictability for enforcing non-compete provisions.

The law prospectively prohibits non-competes for lower-earning employees, banning such agreements for those earning less than $70,000 per year, including wages, salary, commissions, non-discretionary bonuses, and other forms of compensation.

The law also establishes a reasonableness framework for employees who meet the minimum compensation threshold, directing courts to presume that non-compete agreements of two years or less are reasonable. While non-compete provisions for greater than two years are presumed unreasonable, the law affords courts discretion to modify a non-compete to “render it reasonable and enforceable.” The law does not address other reasonableness factors beyond duration such as geographic scope or restricted activities. As such, courts in Tennessee will continue to assess these factors at their discretion to determine enforceability.

The law does not govern confidentiality or non-disclosure agreements or non-solicitation agreements. As a result, employers retain broad discretion to protect their business interests through these agreements.

Other Considerations

The law also addresses non-competes involving franchisees, distributors, and sellers of a business.

For distributors, dealers, franchisees, lessees and certain intellectual property licensees, restrictive covenants lasting three years or less after the business relationship ends will generally be presumed reasonable. Restrictive covenants entered into in connection with the sale of a business lasting up to five years are likewise presumed reasonable, as long as the restriction is a “material part” of the deal.

Takeaways for Employers

Employers and business owners should review business protection agreements and modify accordingly for any non-compete agreements intended to go into effect after July 1, 2026.

Given these significant changes to the law, employers and business owners in Tennessee are encouraged to consult with legal counsel. MSS’s Employment Group and Nashville office are ready to assist businesses to ensure their compliance with employment laws in Tennessee (and multiple other jurisdictions).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.