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…