A new law in Tennessee will create tighter restrictions surrounding noncompete agreements, including new policies surrounding compensation thresholds and length of agreements.
Tennessee Governor Bill Lee signed House Bill 1034 into law May 7, The National Law Review reported May 11. The law takes effect July 1, 2026, and applies to agreements entered into, renewed or amended on or after that date, according to the legislation summary.
Under the law, noncompete agreements are void and unenforceable for employees earning less than $70,000 in annualized compensation, including wages, salary, commissions, nondiscretionary bonuses and other forms of remuneration. For hourly employees, annual compensation must be calculated by multiplying the hourly rate by 40 and multiplying the product by 52.
The statute also establishes rebuttable presumptions for restrictive covenants. Agreements with employees and independent contractors are presumed reasonable if they are two years or less in duration and presumed unreasonable if they exceed that period. The presumption shifts to three years or less for distributors, dealers, franchisees, lessees and licensees.
In the sale of business interest context, restrictive covenants are presumed reasonable if they last five years or less, or for the period during which payments are made to the owner or seller. The law also allows courts to modify restrictive covenants to make them reasonable and enforceable.
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