What Tennessee's New Noncompete Law Means for Workers and Employers

On May 7, 2026, Tennessee Governor Bill Lee signed House Bill (HB) 1034 into law, placing new limits on noncompete agreements in the state. The key change: noncompetes are banned for workers earning less than $70,000 per year in total compensation (including all wages, salary, commissions, and nondiscretionary bonuses). The law took effect on July 1, 2026, and applies to any noncompete agreement entered into, renewed, or amended on or after that date.

Importantly, the law is not retroactive. Noncompete agreements signed before July 1, 2026, remain in effect and are not impacted by this legislation.

How Annual Earnings Are Calculated

To determine whether an employee meets the $70,000 threshold, the law looks at total annual earnings. This includes wages, salary, commissions, nondiscretionary bonuses (meaning bonuses that are guaranteed or based on set criteria, rather than awarded at the employer's discretion), and other forms of payment.

For hourly employees, the calculation is straightforward: the employee's hourly rate is multiplied by 40 hours per week, and that figure is multiplied by 52 weeks. For example, an employee earning $34 per hour would have an annual compensation of $70,720 under this formula, placing them above the threshold.

New Guidelines on Noncompete Duration

The legislation also addresses how long a noncompete agreement can last. It introduces what the law calls a "rebuttable presumption" regarding duration. In plain terms, this means the law establishes a default assumption that a court will accept unless one side presents evidence to the contrary.

Under the new rule, in the traditional employer-employee context, a noncompete clause lasting two years or less is presumed to be reasonable. In the context of a sale of business, a noncompete duration of up to five years is presumed to be reasonable. If challenged in court, the burden shifts to the person contesting the agreement to prove that the duration is unreasonable. Conversely, a noncompete lasting longer than two years may face greater scrutiny.

The new law only speaks to noncompete agreements and specifically states that it does not prohibit an employer from enforcing nonsolicitation or nondisclosure agreements.”

What Employers Should Do Now

Tennessee employers should review their existing noncompete agreements and standard templates in light of this new law. Taking proactive steps now will help ensure that noncompete provisions remain enforceable going forward.

What Employees Should Do Now

We get calls all the time from individuals who believe that noncompete agreements are not enforceable in Tennessee because Tennessee is a “conservative” or “red” state. That assumption is actually the opposite: While Tennessee courts have long held that noncompete agreements are “disfavored” because they are “restraints in trade,” they will enforce them so long as they are reasonable in terms of duration and scope. Before signing a noncompete or other restrictive covenant agreement, speak with a lawyer.  We also work with a lot of employers in drafting and enforcing such agreements. Employers now have an opportunity to revisit their existing agreements and modify them to bring them in line with this new law.

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