Effective July 1, 2026, Tennessee employers will be prohibited from requiring, requesting or enforcing a noncompete agreement against an employee whose annualized compensation is less than $70,000. The new law puts Tennessee within the trend of states across the country regulating the use of noncompete agreements depending on an employee’s earnings. How Annualized Compensation Is Calculated Under the New Law The new law defines annualized compensation as total compensation received from the employer on an annual basis; for hourly employees, annualized compensation must be calculated by multiplying the hourly rate by 40, then multiplying the product by 52. New Standards for Enforcing Noncompete Agreements Helpfully for employers, the new law requires courts to presume reasonable any non-compete restrictions of two years or less in duration (measured from the date employment ends). Anything longer in the employment context is presumed unreasonable, but a court is authorized to judicially modify the restriction to make it reasonable. In the sale of business context, restrictions up to five years are presumed reasonable, so long as the covenant is a “material part” of the deal. Notably, the law does not appear to apply to other common types of restrictive covenants, like non-solicitation or non-disclosure agreements. Effective Date and Impact on Existing Agreements While this law does not apply retroactively to contracts entered before July 1, 2026, it does apply to proceedings occurring and agreements entered into, renewed or amended on or after July 1, 2026—making now a good opportunity for Tennessee employers to review their restrictions. What the New Law Signals for Employers Nationwide This enactment shows that the nationwide trend of increasing regulation of noncompete agreements is reaching jurisdictions that are not typically on the forefront of enacting new employment laws. These laws emphasize the need for employers who rely on noncompetes to protect their business interests to consult with experienced counsel in drafting, implementing and enforcing these agreements. Contact your Polsinelli attorney if you have any questions or need assistance regarding this or other restrictive covenant issues.

Key Highlights The U.S. Supreme Court unanimously held that the FAA’s transportation worker exemption may cover last-mile delivery drivers who deliver goods that originated out of state. The exemption can apply even when the driver’s own route is entirely intrastate. The ruling may narrow the enforceability of arbitration agreements for employers in logistics, delivery, retail and e-commerce operations. It is likely to increase challenges by workers tied to interstate supply chains. Employers should review arbitration agreements covering drivers, couriers and delivery personnel in light of the Court’s continuous-movement analysis. They should also assess whether affected worker groups may require alternative dispute resolution provisions under state law. In Flowers Foods, Inc. v. Brock, the United States Supreme Court issued a significant decision that will impact employers who utilize arbitration agreements for delivery drivers. In a unanimous ruling, the Court held that the Federal Arbitration Act’s (“FAA”) transportation worker exemption can extend to delivery drivers who deliver goods originating out of state, even if their involvement is purely intrastate. The decision continues the Court’s recent trend of closely examining the scope of the FAA’s transportation worker exemption and may have substantial implications for employers in the logistics, delivery, retail and e-commerce sectors. Background The FAA generally requires courts to enforce valid arbitration agreements. Section 1 of the FAA, however, exempts certain “workers engaged in foreign or interstate commerce” from coverage under the statute (the “Section 1 Exemption”). The question decided by the Court was whether workers who complete the final leg of a delivery of goods intrastate, often referred to as “last-mile” drivers, are subject to the Section 1 Exemption of the FAA when the goods they deliver originated out of state. The worker at issue was an independent distributor who delivered goods from a warehouse in Colorado to retail outlets within Colorado. The goods, however, were shipped to the warehouse from out of state.  The Supreme Court’s Decision The Supreme Court concluded that the exemption may apply to last-mile delivery drivers if their work constitutes a direct part of the continuous interstate movement of goods. The Court thus declined to adopt a brightline rule that a worker must move interstate or even interact with a vehicle that moved across state lines, to fall within the Section 1 Exemption. Rather than looking at whether the worker personally engages in interstate movement, the Court explained that the relevant inquiry should be focused on the journey of the goods themselves to determine whether they are moving in a continuous interstate stream. Still, for the Section 1 Exemption to apply, the worker must play a direct, active and necessary role in that continuous interstate movement of the goods. What the Decision Means for Employers The ruling is likely to increase litigation over the scope of the Section 1 Exemption and may limit the effectiveness of arbitration agreements for certain categories of transportation workers involved in distribution and delivery operations. Employers that rely on arbitration agreements should be cognizant of the fact that workers who themselves do not cross state lines can still fall within the Section 1 Exemption. Industries potentially affected include: Package and parcel delivery services; E-commerce fulfillment and distribution operations; Retail delivery networks; Food and beverage distribution companies; and Third-party logistics providers. The decision may also encourage transportation workers to challenge arbitration agreements in wage-and-hour, discrimination and other employment-related disputes where the workers are connected to interstate supply chains. Steps Employers Should Consider In light of the Court’s ruling, employers should consider: Reviewing arbitration agreements applicable to drivers, couriers and delivery personnel; Assessing whether particular worker groups may qualify for the Section 1 Exemption; Evaluating alternative dispute resolution provisions under applicable state law; and Reexamining litigation strategies in pending matters involving transportation-related employees. Because the Court’s analysis focused heavily on the worker’s role within the broader movement of goods, future litigation will likely center on how closely particular job duties are tied to interstate commerce and the cross-state movement of goods. Employers should expect continued judicial scrutiny of arbitration programs involving transportation workers. Looking Ahead The Supreme Court’s decision represents another important development in the evolving landscape of employment arbitration. As businesses continue to rely on increasingly complex supply chains and delivery networks, courts will likely face additional questions regarding which workers fall within the Section 1 Exemption. Employers should work closely with counsel to evaluate arbitration agreements and workforce classifications to ensure dispute resolution programs remain enforceable and aligned with current legal developments. Contact your Polsinelli attorney for further guidance regarding the implications of this decision and other employment-related matters.

On July 17, 2025, President Trump announced his selection of two choices for the National Labor Relations Board (NLRB). The President tapped Scott Mayer and James Murphy to fill those seats. If confirmed, Mayer and Murphy would fill two seats that have been vacant since President Trump returned to the White House. Mayer currently serves as Boeing’s Chief Labor Counsel and has been in that role since 2022. Murphy is a longtime NLRB official who first clerked for the NLRB in 1974 and most recently served as Chief Counsel to Marvin Kaplan, chair of the NLRB. Both bring strong management-side credentials to the table. Subject to Senate confirmation, Mayer and Murphy filling two of the three vacant seats will provide the NLRB with a quorum and enable it to issue decisions, engage in rulemaking, and fulfill its statutory duties. The NLRB has lacked a quorum since President Trump’s controversial termination of former member Gwynne Wilcox. Those in opposition to their nomination argue that, procedurally, they should not be confirmed until the validity of the termination of Wilcox is resolved by the federal courts. For questions regarding these nominations, the anticipated impact of the NLRB regaining a quorum, or other labor-related issues, please contact a member of Polsinelli’s Management-Labor Relations Practice Group.

Key Takeaways Disparate impact liability holds employers accountable for policies that appear neutral, but disproportionately harm a particular race, sex or a protected group, even without discriminatory intent. This EO significantly reduces federal agency enforcement of disparate impact claims, but importantly, does not impact the risk of a class or individual claim under federal or state laws. Businesses should continue to review hiring and promotion policies for unintentional bias, ensure compliance with federal law and any applicable state laws, and await updated federal guidance from the EEOC. On April 23, 2025, President Trump issued an Executive Order entitled “Restoring Equality of Opportunity and Meritocracy” (“EO”) mandating the elimination of disparate impact liability within Title VI and VII of the Civil Rights Act of 1964. The EO further emphasizes the importance and focus of this administration on the concept of equal employment opportunity. Disparate impact liability is a means by which employers can be held liable for discrimination when their facially neutral policies or practices result in a disproportionate adverse impact on a particular race, sex or a protected class. This theory of liability was recognized by the Supreme Court in 1971 in the case of Griggs v. Duke Power Co., and was later codified by Congress in the Civil Rights Act of 1991. This EO seeks to eliminate the use of this theory of liability to the “maximum degree possible.” To effectuate this goal, the order takes several key steps. First, it revokes several former presidential actions that approved of disparate impact liability. Second, it directs all agencies to deprioritize enforcement of statutes and regulations to the extent that they include disparate impact liability. This order directs the Attorney General to initiate appropriate action to repeal or amend the implementing regulations for Title VI of the Civil Rights Act of 1964 for all agencies to the extent they contemplate disparate-impact liability. In addition, within 30 days of the date of the EO, the Attorney General is to report to the President, in coordination with the chairs of all other agencies, all existing regulations, guidance, rules or orders that impose disparate impact liability and detail steps for their amendment or repeal. This EO also directs the Attorney General and EEOC Chair to assess all pending investigations, civil suits or positions taken in ongoing matters that rely on a theory of disparate impact liability and to take appropriate action consistent with this EO. Further, the Attorney General is to determine whether Federal Authority preempts State laws that impose disparate impact liability. Finally, the EO directs the Attorney General and the EEOC Chair to issue guidance or technical assistance to employers regarding appropriate methods to promote equal access to employment regardless of whether an applicant has a college education, where appropriate. Practically, this EO signals a continued shift in enforcement at the EEOC. It seems unlikely the EEOC will bring any new litigation relying on disparate impact. However, a private right of action for disparate impact still exists under the precedent of Griggs and similar cases, allowing employees to bring claims of discrimination relying on a disparate impact theory. Moreover, state laws may also provide for disparate impact liability. Employers should monitor further guidance that is expected to be issued following this EO. If you have any questions about how these changes may impact you or your organization, please feel free to reach out to Erin Schilling, Gabriel Gomez, Polsinelli’s Executive Action Working Group or your regular Polsinelli attorney.