Tennessee Passes Major Changes To Noncompete Law: What Employers Need To Know

The Tennessee 114th General Assembly has recently passed significant legislation reshaping how noncompetes are evaluated and enforced. Specifically, the new law introduces bright-line rebuttable presumptions for the permissible duration of covenants not to compete and, for the first time, categorically prohibits noncompete agreements for employees earning less than $70,000 per year. Gov. Bill Lee has not yet signed the bill, but it is expected to be enacted. If signed, the law would take effect July 1, 2026.

For employers with Tennessee employees, these changes will require thoughtful review of existing agreements and careful planning for future hiring and separation practices.

New Rebuttable Presumptions

Until now, Tennessee courts evaluated noncompete agreements — outside the healthcare sector — using a fact-intensive “reasonableness” analysis, with no specific statutory guidance on permissible limits. Moving to a more defined framework, the new legislation creates the following rebuttable presumptions regarding the reasonableness of a restrictive covenant’s duration after the termination of an employment or business relationship:

• Employees and independent contractors – Two years or less is presumed reasonable.
• Distributors, dealers, franchisees, lessees, and trademark licensees – Three years or less is presumed reasonable.
• Sellers of a business or equity interest – The longer of five years or the duration of earn-out or seller payments is presumed reasonable.

Any restraint exceeding these time periods is presumed unreasonable, shifting the burden to the enforcing party to justify the longer duration. For employers, these bright lines provide useful clarity. While courts retain discretion, the statute offers practical guardrails that can be used when drafting or revising restrictive covenants.

What Stays the Same

Importantly, the new law leaves several important protections intact. Employers may still enforce:

• Confidentiality or nondisclosure agreements
• Client or customer nonsolicitation agreements
• Employee nonsolicitation agreements

These tools remain available and, in many cases, may become even more central to protecting business interests — particularly where noncompetes are no longer permitted.

The statute also expressly authorizes courts to modify (or blue pencil) an otherwise unreasonable restrictive covenant to make it reasonable and enforceable, preserving a key feature of Tennessee noncompete jurisprudence.

The $70,000 Line

The most consequential change for many employers: Noncompete agreements are now prohibited for any employee earning less than $70,000 in annualized compensation — regardless of role, access to sensitive information, or business need. Annualized compensation includes wages, salary, commissions, nondiscretionary bonuses, and other remuneration. For hourly employees, annualized compensation is calculated by multiplying their hourly rate by 40 and then multiplying the product by 52. 

Agreements that violate the compensation requirement are void and unenforceable as a matter of public policy. Accordingly, employers’ strategy for protecting sensitive and confidential information for lower-paid employees will need to shift. Rather than relying on noncompete agreements, employers will need to lean on strong confidentiality and nonsolicitation agreements going forward.

When the Law Takes Effect

Assuming Gov. Lee signs the bill, the legislation takes effect July 1, 2026, and applies to:

• Agreements that are entered into, renewed, or amended on or after that date, and
• Proceedings occurring on or after that date.

This prospective application gives employers time to plan — but also means that routine updates or renewals to restrictive covenant agreements could trigger application of the new restrictions.

Practical Takeaways

Between now and July 2026, Tennessee employers should consider:

• Inventorying existing restrictive covenant agreements, taking care to note the total compensation levels of covered employees.
• Revising noncompete templates to align with the new presumptive time limits.
• Evaluating alternative protections, such as strengthened confidentiality and nonsolicitation provisions.
• Training HR and management on when noncompetes can — and cannot — be used.
• Seeking legal guidance before renewing or amending existing agreements.

While the new statute narrows the scope of enforceable noncompetes, it brings greater predictability in return. Employers who adapt early and thoughtfully can continue to protect their legitimate business interests while staying compliant with Tennessee’s evolving legal landscape.

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.