Tennessee created a new noncompete statute1 that protects lower-wage employees while simultaneously providing employers with additional certainty concerning the enforceability of restrictive covenants.
Specifically, the new law makes two important changes, both of which will become effective July 1, 2026 – but see below for what that really means. First, noncompetes for employees earning less than $70,000 annually will be prohibited. Second, there will be rebuttable presumptions concerning the permissible duration of restrictive covenants.
Wage Threshold for Noncompetes
As of July 1, 2026, Tennessee will prohibit the use of noncompetes for employees earning less than $70,000 annually. Specifically, the employer cannot “require, request, or enforce” a noncompete from an employee earning under $70,000 in “annualized compensation.”
The law defines “annualized compensation” broadly to the “total compensation an employee earns from the employer, including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.”
In the case of hourly employees, compensation is “calculated by multiplying the employee’s hourly rate by forty (40) and multiplying the product by fifty-two (52).” But note that, because the calculation doesn’t account for overtime, an hourly employee who earns (well) over $70,000 because of overtime, but whose base rate falls under the 2,080-hour calculation (~$33.66/hr), might still be entirely exempt from a noncompete.
Any noncompete entered into in violation of the statute is “void and unenforceable as a matter of public policy.”
Importantly, the restriction applies to noncompetes only – not any other restrictive covenants, in contrast to the presumptions discussed below.
Further, the restriction applies to employees only – not independent contractors, also in contrast to the presumptions discussed below.
Also notably, Tennessee chose the path of some of the other states, selecting a somewhat arbitrary fixed dollar threshold rather than tying the restriction to a multiple of minimum wage, median wage data, or other inflation-adjusted metric. Accordingly, whether the legislature will periodically revisit the amount (or change to or add another metric) remains to be seen.
Presumptively Reasonable Time Limits
The new law creates a framework of statutory rebuttable presumptions concerning the temporal reasonableness – and unreasonableness – of restrictive covenants, primarily noncompetes, though it’s not limited to noncompetes.
For employees and independent contractors, Tennessee will presume that a restriction lasting two years or less is reasonable. Conversely, a court must presume that a restriction exceeding that period is unreasonable.
For distributors, dealers, franchisees, lessees, and certain licensees, the presumptively reasonable period is three years.
For sale-of-business transactions, Tennessee (like most, if not all, states) adopts a considerably more permissive rule. A restriction will be presumed reasonable if it lasts five years or less or, if longer, for the duration of the seller’s payment stream.
Importantly, these are rebuttable presumptions, not absolutes. Courts will retain flexibility to enforce longer restrictions when justified by the facts and to reject shorter restrictions when unreasonable under the circumstances.
That distinction matters.
In practice, presumptions often become anchors. While employers will undoubtedly continue to argue that longer restrictions are appropriate in particular cases, it is difficult to imagine that many employers will voluntarily choose to litigate from a position that begins with a statutory presumption of unreasonableness. In contrast, as noted by Alex Schramkowski and Tim Rybacki of Littler, these presumptions relieve employers of the burden of proving reasonableness in time. They are, in that way, similar to presumptions adopted in some other states, including, for example, Massachusetts.
What the Law Does Not Do
The statute has an odd way of differentiating noncompetes from other restrictive covenants. While the wage threshold is clearly limited to noncompetes, the presumptions are not.
But rather than simply say what restrictive covenants it applies to and doesn’t apply to, it lists a small set of restrictive covenants that it “does not prohibit an employer from enforcing:” confidentiality agreements/NDAs; customer nonsolicitation agreements; and no-recruits (i.e., employee nonsolicitation agreements). This creates an immediate interpretive problem. The statute does not say what restrictive covenants it governs. Instead, it says only that it “does not prohibit” enforcement of certain restrictive covenants. That formulation raises several questions:
- Does that mean that the statute prohibits other restrictive covenants (e.g., no-service agreements)?
- Does it mean that the listed covenants are subject to the presumptions?
- Or does it mean that they are not subject to the presumptions?
- Or does it mean that other covenants are subject to the presumptions?
We shall see.
Reformation Authority Remains
The statute also expressly authorizes courts to modify restrictive covenants to render them reasonable and enforceable.
That provision is particularly significant when viewed alongside the new presumptions.
Suppose an employer seeks to enforce a three-year employee noncompete. Under the statute, the restriction begins with a presumption of unreasonableness. But rather than invalidating the restriction entirely, a court has express statutory authority to modify the covenant and enforce it as revised. (That is consistent with existing common law.)
That combination may reduce some of the risk associated with testing the boundaries of the presumptive limits. But it is a curious rule. The legislature has now created a presumptive boundary while simultaneously authorizing courts to modify agreements that exceed it. The practical effect seems to be that companies can ignore the bright-line presumption with impunity and without consequence – a process seemingly endorsed by the legislature. That said, the authority to modify is permissible, not mandatory, so a judge can (and likely would) consider what is appropriate in the particular facts and circumstances.
More fundamentally, it is unclear whether the statutory modification authority supplements Tennessee’s existing common-law reformation authority or displaces it. The statute addresses only temporal reasonableness. Does that mean courts retain their existing authority to reform other aspects of a restrictive covenant? I suspect the answer is yes. But the statute does not say so expressly, leaving room for argument.
Retroactivity
Taking a page out of Washington state’s book, Tennessee’s law purports to apply not just to agreements entered into, renewed, or amended starting July 1, 2026, but to “proceedings occurring” on or after July 1, 2026. So an agreement entered into in 2020, violated in 2025, but being litigated after July 1, 2026, will be subject to the new law. That said, it’s unclear if “occurring” means commenced or includes cases already in process, and whether Tennessee courts will ultimately apply the statute to preexisting litigation remains to be seen.
Takeaways
Tennessee has adopted a two-sided legislative compromise, providing a compensation threshold for lower-paid workers, while providing employers with presumptions of reasonableness for noncompetes (and perhaps other restrictive covenants) limited to two years and express judicial authority to modify unreasonable restrictions.
For employers, the practical implications are straightforward: Review all Tennessee restrictive covenant agreements (and any restrictive covenant litigation) before July 1, 2026. In particular:
- confirm whether affected employees satisfy the $70,000 compensation threshold; and
- evaluate whether existing durations exceed the new presumptive limits; and
- determine what existing litigation may be affected by the statute, if so, how and whether changes in strategy need to be made in advance.
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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the recent noncompete and trade secret legislative and caselaw developments.
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[1] Until this new statutory framework takes effect, Tennessee restrictive covenant law has been the subject of common law only, with one exception: certain healthcare providers have been governed by a statute concerning the use of noncompetes since 2008, though it has been amended several times since.