On May 7, 2026, Governor Bill Lee signed into law a new bill recently passed by the Tennessee General Assembly that significantly impacts noncompete agreements. Specifically:
- “[A]n employer shall not require, request, or enforce a noncompete agreement against an employee whose annualized compensation is less than seventy thousand dollars ($70,000)”;
- There is a rebuttable presumption that a 2-year noncompete involving a former employee or independent contractor is reasonable;
- There is a rebuttable presumption that a 3-year noncompete involving a distributor, dealer, franchisee, lessee, or intellectual property licensee is reasonable; and
- There is a rebuttable presumption that a 5-year noncompete involving a sale of a business is reasonable.
The new law goes into effect on July 1, 2026, and only applies to agreements executed after that date. Common questions for employers are answered below.
Q. How is the $70,000 threshold measured?
A. The statute defines “annualized compensation” as “total compensation . . . , including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.” An hourly employee’s annualized compensation is calculated by “by multiplying the employee’s hourly rate by forty (40) and multiplying the product by fifty-two (52).” In instances in which an employee receives sporadic commissions, annualized compensation may become debatable.
Q. What happens to our preexisting noncompetes?
A. They remain unaffected by the new law. However, if they are amended after July 1, 2026, the new law will apply.
Q. Does the new law affect nonsolicitation or nondisclosure restrictions?
A. No. The law only applies to traditional noncompete restrictions (prohibiting an employee from working for a competitor or others in the industry, typically within a certain geographic area). Employers may still seek to restrict employees earning less than $70,000 from soliciting clients/co-workers or from making use of or divulging confidential information. Well-crafted nonsolicitation covenants can often serve as a sufficient substitute for a noncompete covenant.
Q. Are the rebuttable presumptions new?
A. Yes. Before, employers seeking to enforce noncompete agreements bore the burden of demonstrating that the time restrictions are reasonable. Now, the burden will be shifted to the employee to demonstrate that time restrictions falling within the statute are unreasonable. So, in this respect, the statute is employer-friendly.
Q. Does this statute make noncompete agreements entered into with higher-paid employees more likely to be enforced?
A. Not necessarily. Although it creates rebuttable presumptions concerning temporal restrictions, it does not impact Tennessee case law requiring employers to demonstrate a “protectable business interest” to justify imposition of a noncompete restriction. Nor does it create any rebuttable presumptions concerning geographical restrictions set forth in noncompete agreements. Under Tennessee case law, employers must show that a geographical restriction is reasonably designed to protect the employer’s protectable business interest.
Q. Will this statute impact “no-hire” agreements between two companies?
A. Potentially. Employers should consult with legal counsel.
Q. Can a company circumvent the new statute by specifying in a noncompete agreement that another state’s law applies?
A. It is possible, but there generally must be a nexus between the other state’s law and the employment/contracting relationship—such as the employer being headquartered in another state that is selected in the agreement. Unlike legislation enacted in other states (such as California and Massachusetts), no Tennessee statute specifies that an employment contract executed with a Tennessee employee must be governed by Tennessee law. Again, legal counsel should be consulted.
Enactment of this new statute serves as a good time for employers to audit their business protection policies, update noncompete agreement templates, etc. Members of Butler Snow’s Labor & Employment practice group are available to offer guidance.
