Tennessee Joins States Regulating Non-Competes by Statute
June 11, 2026
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.
