Quick Hits
- On May 7, 2026, Tennessee Governor Lee signed into law legislation that bans noncompete agreements for workers who earn less than $70,000 per year.
- The law will apply to agreements entered into, renewed, or amended on or after July 1, 2026.
- Noncompetes executed after July 1, 2026 for employees who do not meet the minimum annualized compensation will be void and unenforceable.
Under House Bill (HB) 1034, total annual earnings includes wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration. Annualized compensation for an hourly employee must be calculated by multiplying the employee’s hourly rate by forty and multiplying the product by fifty-two.
The legislation also introduces new rebuttable presumptions for the permissible duration of covenants not to compete. For employees and independent contractors, a noncompete clause lasting two years or less is presumed reasonable. For distributors, dealers, franchisees, lessees, and trademark licensees, three years or less is presumed reasonable. For sellers of a business or equity interest, either five years or the duration of earn-out or seller payments (whichever is longer) is presumed reasonable. In addition, the legislation notes courts may modify a restrictive covenant to render it reasonable and enforceable.
Tennessee previously limited noncompete agreements for physicians to a duration of two years or less.
The new legislation does not affect the enforceability of nonsolicitation and nondisclosure agreements in Tennessee. The new law codifies existing common law that permits courts to modify a restrictive covenant to make it reasonable and enforceable.
Tennessee’s action is part of a growing trend with more states restricting the use of noncompete clauses. Maryland, Minnesota, Oregon, Virginia, and Washington recently enacted laws to limit restrictive covenants.
Next Steps
The legislation will take effect for noncompete agreements entered into, renewed, or amended on or after July 1, 2026. To ensure compliance with applicable state laws, employers in Tennessee should examine their existing noncompete agreements, evaluate their practices regarding which employees and positions are subject to noncompete agreements, and identify any employees making less than $70,000 per year. Standard forms and templates may need to be updated so that the stated duration will be deemed presumptively reasonable.
Nonsolicitation agreements and nondisclosure agreements remain important tools for employers seeking to protect trade secrets, proprietary information, and business interests.
Ogletree Deakins’ Unfair Competition and Trade Secrets Practice Group will continue to monitor developments and will post updates on the State Developments, Tennessee, and Unfair Competition and Trade Secrets blogs as additional information becomes available.
William S. Rutchow is a shareholder in Ogletree Deakins’ Nashville office.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.
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