Tennessee is the latest jurisdiction to enact legislation restricting and defining the permissible use of noncompete agreements.
Recently, Governor Bill Lee signed House Bill 1034 into law. The legislation makes two significant changes: (1) it prohibits employers from requiring, requesting, or enforcing a noncompete agreement against an employee who earns under $70,000, and (2) it imposes rebuttable presumptions of reasonableness for the duration of restrictive covenants, most notably of two years or less for employees and independent contractors, and five years or less for sales of business (unless the payment period for the sale exceeds five years, in which the longer term applies). The new law takes effect on July 1 and applies prospectively to agreements entered into, renewed, or amended on or after that date.
Background
Until this legislation, Tennessee only regulated noncompetes for health care providers, which, among other things, limited such noncompetes to two years or less in duration and limited their geographic scope to a 10-mile radius from the health care employee’s primary practice site or to the county where the primary practice site is located, whichever is greater. SeeTenn. Code Ann. § 63-1-148.
Otherwise, the reasonableness of noncompetes was only determined by standards formulated by Tennessee courts that required them to examine whether the employee had a legitimate business interest to be protected by a noncompete and whether it was reasonable. The former was a fact-intensive inquiry that required a court to consider several factors, including the harm to the employer absent the noncompete and the economic hardship imposed on the employee. Id. The new law does not eliminate that analysis; rather, it adds statutory guideposts that will affect how courts will enforce noncompete provisions going forward.
Statutory Information
Tenn. Code Ann. §§ 50-1-210, 211, as enacted by House Bill 1034…