Last month, Tennessee passed a law limiting non-compete agreements for low-wage workers. The law takes effect July 1, 2026, and applies to any non‑compete entered into, renewed, or amended on or after that date.
At a high level, the law: (1) prohibits non-compete agreements for employees earning less than $70,000 annually; (2) preserves a court’s ability to modify overly broad non-competes (for employees earning more than $70,000 annually), rather than voiding them entirely; (3) introduces rebuttable presumptions about how long a non‑compete may last; (4) does not ban non‑competes outright; (5) does not prohibit other common restrictive covenants such as confidentiality agreements, customer non‑solicitation provisions, and employee non‑solicitation provisions; and (6) is not retroactive.
Calculating the Annual Earnings Threshold
Earnings that count toward the $70,000 annualized income threshold include wages, salary, commissions, and non‑discretionary bonuses. For hourly employees, annualized compensation is calculated by multiplying the hourly rate by 40 hours per week and then by 52 weeks per year. This threshold applies regardless of an employee’s title, access to confidential information, or perceived competitiveness.
What Makes a Non-Compete Reasonable?
Currently, Tennessee courts evaluate most non-compete agreements for reasonableness under a fact-specific framework. The new law, by contrast, clarifies this inquiry by specifying rebuttable presumptions about the reasonableness of the duration of a non-compete. From July 1, 2026 onward, the type of work an individual performs will dictate the de facto “reasonable” duration of a non-compete, which ranges from two to five years. If a non-compete extends beyond the corresponding statutory reasonable duration, it is presumed unreasonable and the burden of proof shifts to the other party to prove its reasonability. These presumptions are not absolute, but they give courts and employers clear guideposts.
Notably, the statute creates a distinct tier of rebuttable presumptions specifically for non-competes related to sales of business. For these non-competes, a duration of five or fewer years is presumed reasonable, measured from the time of sale or a period equal to the time during which payments are made to the owner or seller—whichever is longer. Any noncompete exceeding a five-year duration is presumed unreasonable.
Tennessee employers should review existing non-compete agreement templates and practices before the law goes into effect on July 1, 2026.
