Tennessee Rewrites Non-Compete Rules

Tennessee has joined a growing list of states imposing statutory guardrails on non-compete agreements. With the passage of Public Chapter No. 934 (House Bill 1034), effective July 1, 2026, the General Assembly has introduced clear presumptions governing enforceability and, notably, an outright prohibition for certain employees. For employers, insurers, and defense counsel evaluating risk, these changes warrant immediate attention.

The Law’s Most Significant Changes

The law amended Tenn. Code Ann. §§ 50-1-210 and 50-1-211 as follows:

Rebuttable Time-Based Presumptions

The law creates defined “safe harbor” timeframes for restrictive covenants. Courts must now presume certain durations are reasonable under the following circumstances:

• Employees and independent contractors: Restrictions lasting two years or less are presumptively reasonable for employees and independent contractors. The law expressly applies to both categories, likely to prevent employers from avoiding its application by classifying workers as independent contractors.
• Commercial relationships, such as franchisees, distributors, and dealers: Restrictions lasting up to three years are presumed reasonable.
• Sale-of-business contexts: Restrictions lasting up to five years, or for the duration of installment payments, are presumed reasonable.

Longer restrictions, however, are presumed unreasonable, shifting the burden to the party seeking enforcement.

Low-Wage Worker Prohibition

The statute prohibits non-compete agreements for employees earning less than $70,000 annually, including wages, commissions, and nondiscretionary bonuses. Such agreements are void as a matter of public policy.

Blue-Pencil Authority Preserved

Importantly, courts retain the authority to modify overly broad covenants to render them reasonable, preserving a degree of flexibility in enforcement. The statute effectively codifies Tennessee’s longstanding “blue-pencil” approach to non-compete litigation.

Non-Competes Distinguished From Other Protections

The statute does not restrict confidentiality agreements, customer non-solicitation clauses, or employee non-solicitation provisions. As a result, these protections may become increasingly important tools for employers following the law’s enactment.

Claims and Enforcement Considerations

From a claims and litigation standpoint, the statute introduces greater predictability. It also represents a clear legislative pronouncement that, subject to the statute’s provisions, non-compete agreements remain enforceable in Tennessee.

At the same time, the law creates new exposure points that businesses and carriers should address:

• Improved early case valuation: Clear presumptions reduce uncertainty in enforcement disputes, helping adjusters evaluate the likelihood of injunctive relief or damages more effectively.
• New invalidity arguments: Wage-based challenges will likely become a threshold defense, particularly in employee-mobility disputes.
• Risk of overreach: Employers that continue using legacy agreements without revision may face findings of unenforceability and potential counterclaims.

What the Law Does Not Change

Importantly, neither existing Tennessee law nor the newly enacted statute establishes a bright-line rule for determining a reasonable geographic restriction. Courts therefore will continue to evaluate geographic scope on a case-by-case basis, considering the specific facts at issue and the employer’s legitimate business interests.

In addition, the statute does not displace existing non-compete laws governing certain regulated professions, such as healthcare providers, where additional statutory restrictions may apply. See Tenn. Code Ann. § 63-1-148.

Compliance and Risk-Mitigation Recommendations

1. Audit existing agreements now. Employers should review all current restrictive covenants to ensure compliance with the statute’s time limitations and compensation threshold. Agreements extending beyond the presumptive limits should be reassessed and narrowed where appropriate.
2. Segment the workforce. Employers should implement tiered restrictive covenant strategies based on employee compensation. For employees earning less than $70,000 annually, non-compete agreements should be replaced with robust confidentiality and non-solicitation provisions.
3. Revisit template agreements. Standard form agreements should be updated before July 1, 2026, to reflect the statute’s presumptions and avoid reliance on outdated or potentially unenforceable provisions.
4. Document legitimate business interests. Although the statute focuses heavily on duration, courts will continue to analyze whether employers have protectable business interests. Employers should maintain contemporaneous documentation supporting restrictions, particularly for high-level or customer-facing roles.
5. Coordinate with insurers and counsel. For clients seeking to enforce non-compete agreements, these changes may affect litigation strategy, reserving practices, and settlement posture in employment disputes.

Tennessee’s new non-compete law strikes a balance between enforceability and employee mobility while creating clearer litigation benchmarks. For employers, the shift is less about whether non-compete agreements remain viable and more about how carefully they are drafted and applied going forward. Proactive updates now may reduce future disputes and strengthen enforceability when these agreements are tested after July 1, 2026.

Contact Chartwell’s Labor & Employment Team

For more information about how these changes may affect your business, or for assistance reviewing and revising restrictive covenant agreements, contact Chartwell Law’s Labor & Employment Practice Group.