Tennessee employers often use restrictive covenants to protect customer relationships, confidential information, workforce stability, and the value of a purchased business. As of July 1, 2026, those agreements operate under a new statutory framework.
Public Chapter 934 bars an employer from requiring, requesting, or enforcing a noncompete against an employee whose annualized compensation is less than $70,000. It also creates rebuttable presumptions for the duration of restrictive covenants involving employees, independent contractors, certain commercial relationships, and sellers of businesses.
The change does not make every noncompete above the compensation threshold enforceable. Nor does it make every agreement of two years or less automatically valid. Tennessee employers still need a legitimate business reason for the restriction and terms that are reasonable for the particular relationship. The new law adds important rules to that analysis—and makes a contract review worthwhile before the next hire, promotion, renewal, acquisition, or enforcement decision.
What changed on July 1, 2026?
Public Chapter 934 added Tennessee Code Annotated §§ 50-1-210 and 50-1-211.
Section 50-1-211 provides that an employer may not require, request, or enforce a noncompete agreement against an employee whose annualized compensation is less than $70,000. An agreement executed in violation of that section is void and unenforceable as a matter of public policy.
“Annualized compensation” includes wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration earned from the employer. For an hourly employee, the statute uses the employee’s hourly rate multiplied by 40 hours and then by 52 weeks. Using that formula, an hourly rate must be at least approximately $33.66 to annualize to $70,000 or more.
The compensation restriction is written for employees. The separate duration rules expressly address both former employees and independent contractors. Businesses should not treat that difference as a reason to relabel an employee as a contractor. Worker classification depends on the actual relationship and carries separate wage, tax, benefit, and liability consequences.
New presumptions address time—but not every enforceability issue
Section 50-1-210 establishes rebuttable presumptions about duration:
A restriction of two years or less is presumed reasonable in time for a former employee or independent contractor when it is not associated with the sale or ownership of a material part of a business.
A restriction of three years or less is presumed reasonable in time for a current or former distributor, dealer, franchisee, lessee, or licensee of a trademark, trade dress, or service mark when it is not tied to a qualifying business sale.
For an owner or seller of all or a material part of a business or equity interest, the presumed reasonable period is the longer of five years or the period during which payments are made to the owner or seller.
A longer period is presumed unreasonable. The statute permits a court to modify a restrictive covenant to make it reasonable and enforceable.
These are presumptions, not automatic outcomes. They address reasonableness in time. They do not eliminate the need to evaluate the activity being restricted, the geographic reach where relevant, the employer’s protectable interest, the burden on the worker, the public interest, and profession-specific rules. A two-year restriction can still be too broad for a particular role; a longer restriction may be supported in an unusual case, but the employer begins with an adverse presumption.
The effective-date language deserves careful attention
The act took effect July 1, 2026. Its final section states that it applies to proceedings occurring and agreements entered into, renewed, or amended on or after that date.
That language makes ordinary contract administration important. A compensation change, promotion, revised commission plan, new confidentiality agreement, acquisition-related amendment, or automatic renewal may raise questions about whether an agreement has been renewed or amended. The reference to proceedings occurring after July 1 also creates a potential issue when a company seeks to enforce an older agreement.
The statute does not answer every question about how those phrases apply to pre-July 1 agreements. Employers should avoid assuming that an older form is insulated from the new law merely because of its original signature date.
Confidentiality and nonsolicitation provisions remain important—but must be tailored
Section 50-1-210 states that its duration provisions do not prohibit enforcement of confidentiality or nondisclosure agreements, customer nonsolicitation agreements, or employee nonsolicitation agreements. Those narrower protections can be more closely connected to the actual business risk than a broad prohibition on working for a competitor.
That does not mean any clause with one of those labels is automatically enforceable. A confidentiality provision should identify genuinely confidential information without attempting to prohibit use of an employee’s general knowledge and skills. A customer restriction should be tied to relationships or information the business has a legitimate reason to protect. An employee nonsolicitation clause should be written and used with competition-law concerns in mind.
Federal context also matters. The Federal Trade Commission removed its nationwide Non-Compete Clause Rule from the Code of Federal Regulations in February 2026 after federal-court decisions vacated it. There is therefore no operative FTC rule imposing a blanket national ban. But the FTC continues to pursue particular noncompete and no-hire practices through case-specific competition enforcement. Compliance cannot be reduced to checking the Tennessee compensation threshold alone.
Practical steps for Tennessee businesses
1. Inventory existing restrictions
Identify every agreement containing a noncompete, customer or employee nonsolicitation clause, confidentiality provision, repayment obligation, forfeiture provision, or other term that may limit post-employment activity. Record the worker’s role, compensation method, signature date, renewal date, governing law, and any later amendment.
2. Stop using one form for every employee
Separate positions that genuinely expose an employee to trade secrets, pricing strategy, key customer relationships, or other protectable interests from positions where a noncompete adds little value. A role-specific agreement is easier to explain, administer, and defend than a companywide restriction copied into every offer letter.
3. Build a compensation check into the workflow
Before presenting, renewing, amending, or enforcing a Tennessee noncompete, confirm how annualized compensation is calculated under the statute. For commissioned or bonus-eligible employees, document which components are included and the basis for the calculation. Do not assume a job title or exempt status answers the question.
4. Review duration, scope, and business purpose together
The new time presumptions are only one part of the analysis. Define the specific risk being protected and draft no more broadly than necessary. Consider whether confidentiality, trade-secret, customer nonsolicitation, invention-assignment, or return-of-property terms address the risk more directly.
5. Review before enforcement—not after filing
Enforcement decisions should consider the employee’s current compensation, the agreement’s history, the alleged conduct, available evidence, business harm, and the practical value of relief. A demand letter based on a void or overbroad restriction can escalate a dispute and create unnecessary cost. Preserve evidence first, then decide whether the strongest claim involves a noncompete, confidentiality, trade secrets, solicitation, fiduciary duty, or another obligation.
Key takeaways
Since July 1, 2026, Tennessee employers may not require, request, or enforce a noncompete against an employee earning less than $70,000 in annualized compensation.
The statute supplies a specific formula for hourly employees and includes commissions, nondiscretionary bonuses, and other remuneration in annualized compensation.
Two years or less is presumed reasonable in time for many employee and independent-contractor restrictions, but that presumption does not decide whether the agreement is reasonable in every other respect.
Different presumptions apply to specified commercial relationships and to sellers or owners of a business.
Agreements entered into, renewed, or amended after July 1—and proceedings occurring after that date—require careful effective-date analysis.
Narrower protections may be more appropriate than a noncompete, but labels alone do not guarantee enforceability.
Primary sources
Jewell Law Group advises Tennessee and Arkansas businesses on employment agreements, confidentiality protections, workforce policies, transactions, and risk management. To discuss a focused review of your restrictive-covenant forms or a specific enforcement decision, request a consultation.
This article provides general information and is not legal advice. Reading it does not create an attorney-client relationship. Laws, regulations, and agency guidance can change, and their application depends on the particular facts and jurisdiction. Businesses should consult qualified counsel about their specific circumstances. Do not send confidential or time-sensitive information before the firm confirms an engagement. See the Website Legal Notice.
