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Tennessee’s New Rules for Noncompetes and Other Restrictive Covenants — Changes Coming July 1
Picture this: Your star sales rep jumps ship to join your primary competitor. Is your noncompete enforceable? What about other restrictive covenants? Tennessee’s new law, effective July 1, 2026, will sharpen answers to these questions.
Over the past few years, some states and the Federal Trade Commission have become increasingly skeptical about the enforceability of noncompetes. Tennessee’s new law doesn’t fully embrace that skepticism. But it creates new boundaries that will add some clarity to the Volunteer State’s longstanding “reasonableness” test.
What’s changing? Two big changes will apply to agreements entered into, renewed, or amended on or after July 1, 2026. First, new noncompetes are void for any employee whose annualized compensation is less than $70,000. Second, the new law creates rebuttable presumptions about the reasonableness of the time limits.
Does this new law apply to agreements existing before July 1? No. Existing agreements will not be affected by this new law unless, for example, they auto-renew on or after that date. Agreements with effective dates before July 1 will be reviewed under Tennessee’s existing rubric of reasonableness.
Does the new law kill all noncompetes? No. The only noncompetes that will be DOA are those with an effective date on or after July 1 that are sought to be enforced against an employee whose annualized compensation is less than $70,000.
What counts toward the $70,000 annualized compensation threshold? Basically everything. Wages, salary, commissions, nondiscretionary bonuses, and “other forms of remuneration.” That catch-all is about as broad as can be. And there are no explicit carveouts. For an hourly employee, annual compensation is calculated by multiplying the employee’s hourly rate by 40 and multiplying that result by 52.
Does the $70,000 threshold apply to restrictive covenants other than noncompetes? And does the threshold apply to situations other than employment relationships? No and no. The sub-$70,000 prohibition applies only to noncompete agreements involving employees. This threshold does not apply to nonsolicits or confidentiality restrictions. Nor does it apply to noncompetes with independent contractors or other non-employees.
What are the time limits that are presumed to be reasonable? Under the new law, the following time limits are presumptively reasonable: two years for an employee or independent contractor; three years for a distributor, dealer, franchisee, and some specified lessees and licensees; and for the seller of a business, five years or the period during which the seller receives payments, whichever is longer.
What happens if the time limit is longer? If the duration exceeds the statutory time limit, then it is presumed unreasonable. That doesn’t automatically mean it’s unenforceable, but it does mean that the party attempting to enforce it should have a specific and compelling business need that justifies the longer time period.
Do the new time limits apply to all restrictive covenants? Or just noncompetes? The time limits appear to apply to all restrictive covenants, not just noncompetes. The statutory language says the time-limit presumptions apply to “restrictive covenants.” But subsection (c) says that this new provision does not prohibit an employer from enforcing: a confidentiality or nondisclosure agreement, a customer nonsolicitation agreement, or an employee nonsolicitation agreement. Noncompetes are conspicuously absent from the list. And it’s unclear how this subsection ties back to the two prior subsections that lay out the various time-limit presumptions. Is it inartful drafting? Yes. Does it create a contradiction or ambiguity? Probably not. Best practice for now is to treat these presumptions as applying to all new restrictive covenants, not just new noncompetes.
Aside from the time restrictions, does the new law impose any geographic restrictions? No. Geographic restrictions, such as those typically found in noncompetes, are not affected by this new law.
What happens if a restrictive covenant is deemed unreasonable? The court may modify it to make it reasonable and enforceable, but it’s not obligated to do so. This has been the established law in Tennessee, and the new law codifies it.
What should businesses do now?
- Audit your existing agreements. Renewals or amendments scheduled to occur on or after July 1 will be governed by this new law.
- Assess the time limits of all restrictive covenants going into effect on or after July 1. This one applies primarily to form agreements for specific job titles and positions. Starting July 1, it’s probably wise to conform the duration of all restrictive covenants to the new presumptions of reasonableness. That doesn’t mean the covenant will be automatically enforceable. But just one small step over that line will result in an uphill battle trying to overcome the presumption that the restriction is unreasonable. And if you lose that battle, you risk a court deciding not to enforce the covenant at all.
- Flag employees making less than $70,000. Two options here: Increase compensation to $70,000. Or consider alternatives to noncompetes, such as NDAs and nonsolicits. Maybe both? Whatever you do, keep those new rebuttable presumptions in mind.
Businesses should consider reviewing restrictive covenant agreements now in advance of the July 1 effective date. For additional guidance or questions about compliance and enforceability, please contact the Chambliss labor and employment team.
