Effective July 1, 2026, Tennessee introduced a new framework for non-compete agreements. HB 1034 reshapes the state’s approach to restrictive covenants by limiting when employers may use non-competes based on employee compensation and providing clearer guidelines for evaluating whether the duration of a restriction is reasonable.
A New Compensation Threshold
One of the most significant changes is a new compensation-based limitation. Under HB 1034, employers cannot require or enforce a non-compete agreement against workers whose annualized compensation is less than $70,000. This annualized compensation includes wages, salary, commissions, and nondiscretionary bonuses. If an employee’s combined annualized earnings fall below the $70,000 mark, any non-compete agreements are void.
Tennessee joins eleven states and Washington D.C. in enacting wage-based restrictions on non-competes. This change reflects a growing trend across the country to limit non-compete agreements to higher-earning workers while giving lower-wage employees greater freedom to pursue new opportunities.
Drawing the Line on Duration
HB 1034 also provides clearer guidance on how courts should evaluate the length of a restrictive covenant by creating different presumptions based on the relationship between the parties.
For former employees and independent contractors, a restrictive covenant lasting up to two years after the relationship ends is presumed reasonable. For distributors, dealers, franchisees, lessees, and licensees, the presumed reasonable period extends to three years. For individuals who sell a business interest or substantially all of a business’s assets, a restrictive covenant is presumed reasonable for up to five years following the sale or for the duration of any payment period owed to the seller, whichever is longer.
These time periods are not absolute limits. Instead, they establish benchmarks that courts will use when determining whether a restrictive covenant is enforceable. If a restriction extends beyond the applicable timeframe, the presumption shifts, making it more difficult for an employer or business to demonstrate that the restriction is reasonable. Agreements that fall within these presumptive periods will generally put employers and businesses in a stronger position when defending enforceability.
Courts Can Still Redraw the Lines
Employers may find some additional flexibility in another provision of the new law: courts retain the authority to modify restrictive covenants that go beyond the new limits. Rather than invalidating an overly broad agreement entirely, a court may narrow the restriction by adjusting its geographic scope, duration, or other terms to bring the covenant within acceptable bounds.
Practically speaking, this means a non-compete that is drafted too broadly may not be automatically unenforceable. Instead, courts have the ability to reshape the restriction and preserve the agreement in a less restrictive form.
Employers: Knowing Where the Lines Fall
Employers should take a close look at existing non-compete agreements and restrictive covenants. Agreements covering employees below the new compensation threshold need to be eliminated and broader restrictive covenant programs should be evaluated against the new standards and presumptions established by HB 1034.
The new framework does not eliminate other tools employers may use to protect legitimate business interests. Confidentiality agreements, customer non-solicitation agreements, and employee non-solicitation agreements remain available, provided they are reasonable in scope and satisfy Tennessee’s existing requirements for enforceability.
As Tennessee draws new lines around non-compete agreements, employers should take this opportunity to reassess their restrictive covenant practices and ensure they remain aligned with the law. Our attorneys are available to help employers navigate these changes, evaluate existing agreements, and develop strategies to protect their business interests.