The restrictive covenant landscape continues to shift — and the latest development comes from a state that may surprise you. Tennessee, a state not typically associated with employee-friendly regulation, has moved to establish new statutory parameters for non-compete agreements. With the bill now awaiting the Governor’s signature, Tennessee employers should take notice and begin preparing for significant changes effective July 1, 2026. 

Tennessee adopts non-compete restrictions

The Tennessee General Assembly has passed House Bill 1034, which amends the Tennessee Code to introduce two key changes to the law governing restrictive covenants. 

First, the bill establishes statutory rebuttable presumptions for the reasonableness of time restrictions in restrictive covenants. Under the new framework, a court must presume that a time restraint exceeding the applicable statutory period is unreasonable. For former employees and independent contractors, a restraint of two years or less is presumed reasonable. For distributors, dealers, franchisees, and similar business relationships, the presumptively reasonable period is three years. For covenants tied to the sale of a business or equity interest, the presumptively reasonable period is the longer of five years or the period during which payments are made to the seller.

Importantly, the bill preserves employers’ ability to enforce confidentiality and nondisclosure agreements, client or customer non-solicitation agreements, and employee non-solicitation agreements. Courts also retain the authority to “blue pencil” an overbroad covenant to render it reasonable and enforceable. 

Second, the bill categorically prohibits non-compete agreements for employees earning less than $70,000 in annualized compensation, including wages, salary, commissions, and nondiscretionary bonuses. Any non-compete executed in violation of this threshold is void and unenforceable. 

As of this writing, the bill is awaiting Governor Lee’s signature. The Tennessee General Assembly adopted the legislation with strong bipartisan margins, and enactment is widely expected. The law is slated to take effect July 1, 2026, and will apply to proceedings and agreements entered into, renewed, or amended on or after that date. 

What this means for Tennessee employers

For Tennessee employers, this legislation introduces important new compliance considerations. The $70,000 compensation floor will narrow the universe of employees to whom non-compete agreements may apply going forward. Employers who have relied on non-competes across a range of roles — including hourly workers, administrative staff, or entry-level employees — will need to identify which agreements fall below this threshold and adjust their approach accordingly. 

The rebuttable presumptions on duration, while employer-friendly in some respects, also establish defined outer limits that employers should build into their planning. On the positive side, the bill’s preservation of non-solicitation, nondisclosure, and no-hire agreements gives employers continued access to critical tools for protecting trade secrets and client relationships.

Practical takeaways 

Audit existing agreements. Review all current non-compete, non-solicitation, and nondisclosure agreements across the organization. Identify any non-competes that apply to employees earning below $70,000 annually, as those will become void and unenforceable for agreements entered into or renewed on or after July 1. 

Revise templates. Update standard form restrictive covenant agreements to ensure that non-compete durations fall within the presumptively reasonable periods and that compensation thresholds are incorporated into eligibility criteria. 

Recalculate annualized compensation carefully. The bill defines annualized compensation to include wages, salary, commissions, and nondiscretionary bonuses, and it specifies that hourly employees' compensation is calculated by multiplying the hourly rate by 40 hours and then by 52 weeks. Employers should ensure that compensation calculations are consistent with this formula.

Train HR teams and hiring managers. Frontline stakeholders need to understand the new rules, particularly that non-competes may no longer be presented to or required of employees below the $70,000 threshold. 

Consider alternative protections. Where non-competes are no longer available or advisable, employers should evaluate whether strengthened non-solicitation, nondisclosure, or intellectual property assignment agreements can adequately protect legitimate business interests.