Tennessee employers should revisit their restrictive covenant agreements following the enactment of Tennessee’s first-ever statutory framework governing noncompete agreements. On May 7, 2026, Governor Bill Lee signed House Bill 1034 into law, creating significant new rules governing the enforceability of restrictive covenants in the state.
The law takes effect July 1, 2026, and applies to any agreement entered into, renewed, or amended after that date. Most notably, the statute imposes compensation thresholds and presumptive duration limits on noncompetition agreements.
New Presumptions on Duration
Historically, Tennessee courts analyzed noncompete agreements under a general reasonableness standard, enforcing restrictions that were reasonable in time and scope. The new law now creates rebuttable presumptions regarding the reasonableness of a restriction’s duration.
Under the statute, Tennessee courts will presume the following durations are reasonable:
- Two years for employees and independent contractors;
- Three years for distributors, dealers, franchisees, lessees, and licensees; and
- Five years – or the duration of any payment period, whichever is longer – for sellers of business interests.
Restrictions exceeding those durations are presumed unreasonable. Employers may still overcome that presumption, but should be prepared to articulate a clear business justification supporting the longer restriction.
No Noncompetes for Employees Earning Less Than $70,000
The statute also prohibits employers from requiring, requesting, or enforcing noncompete agreements against employees earning less than $70,000 annually.
Importantly, the law defines “compensation” broadly to include wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration. For hourly employees, compensation is calculated by multiplying the employee’s hourly rate by 40 hours per week and then by 52 weeks per year.
What the Law Does Not Change
The new statute does not eliminate other commonly used restrictive covenant protections. Employers may still utilize and enforce:
- Confidentiality and nondisclosure agreements;
- Customer nonsolicitation agreements; and
- Employee nonsolicitation agreements.
The law also preserves courts’ authority to modify restrictive covenants to render them reasonable and enforceable.