On May 7, 2026, House Bill 1034 was signed into law, officially enacting the first general employment noncompete statute in the state of Tennessee. HB 1034 became effective July 1, 2026. Because certain violations could void noncompete agreements, it is imperative for Tennessee employers to familiarize themselves with the statute’s new requirements. The two most noteworthy changes are (1) the compensation provisions and (2) the new presumptions when assessing the reasonableness of a noncompete agreement.
While there is a general trend across the country to minimize the use of noncompetes for low earners, Tennessee HB 1034 marked a notable shift for Tennessee. Prior to its enactment, Tennessee’s courts relied heavily on common-law reasonableness analysis without a brightline rule on duration. Accordingly, the statute, which prohibits noncompetes for lower-income employees across all industries and codifies presumptive reasonableness periods for noncompete agreements, represents a significant transformation as to how noncompetes are analyzed and deemed reasonable in Tennessee.
The statute provides that “an employer shall not require, request, or enforce a noncompete agreement against an employee whose annualized compensation is less than seventy thousand dollars.” Tenn. Code Ann. § 50-1-211(a). “Annualized compensation” is defined as “the total compensation an employee earns from the employer, including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.” Id. at § 50-1-211(b)(1). Notably, for hourly employees, annualized compensation is found “by multiplying the employee’s hourly rate by forty (40) and multiplying the product by fifty-two.” Id. at § 50-1-211(b)(2). Noncompete agreements that violate this provision are “void and unenforceable as a matter of public policy.” Id. at § 50-1-211(c). Further, the minimum compensation threshold applies only to employees—it does not cover independent contractors.
As to the statute’s new framework for analyzing the reasonableness of a noncompete agreement, the statute establishes a brightline “presumption” addressing the appropriate temporal length of noncompete agreements: restraints of two years or less are presumed to be reasonable for former employees and independent contractors, “measured from the date the employment or business relationship terminates.” Tenn. Code Ann. § 50-1-210. However, the statute does not stop there. For certain commercial relationships including distributor, dealer, franchisee, trademark license, or lessee of real property, a three-year restraint is presumed reasonable. Further, for the sale of a business or other equity interest, a restraint that is five years or less, or for “a period equal to the time during which payments are made to the owner or seller,” is presumed reasonable. Id. at § 50-1-210(b)(3). Restraints beyond these temporal limits are presumptively unreasonable. Consistent with the preference of Tennessee’s courts to reform rather than invalidate restrictive covenants, the statute permits a court to “modify a restrictive covenant . . . to render it reasonable and enforceable.” Id. at § 50-1-210(d).
The bill does not address any geographic restrictions or define what satisfies adequate consideration; thus, Tennessee’s existing common-law standards continue to govern this issue. Therefore, courts will continue to determine whether a noncompete agreement’s geographic restrictions are no greater than necessary to protect the business and will look to factors such as the clients serviced and the territory covered by the employee. Finally, the statute does not apply to other categories of restrictive covenants such as nondisclosure agreements, client non-solicitation agreements, and employee non-solicitation agreements, so employers still have protective tools available when employees fall below the statutory compensation threshold.
Although the contours of the statute will continue to take shape as courts interpret and apply its provisions, the legislation marks a significant shift toward greater predictability and structure in Tennessee noncompete law. Employers should take this opportunity to review their existing restrictive covenant agreements. Our Bricker Graydon Wyatt Labor & Employment team is ready to assist in navigating the new statutory framework.
