Thumb on the Scale: Tennessee Enacts New Reasonableness Presumptions for Noncompete Agreements While Outlawing Covenants for Lower-Wage Earners

Tennessee Governor Bill Lee signed House Bill 1034 on May 7, 2026, enacting Tennessee’s first noncompete law outside the healthcare industry. The law becomes effective July 1, 2026, with a strictly prospective application. Some may highlight the new ban on noncompetes for employees earning under $70,000 annually as a limitation on employers. But the law’s primary impact likely will be enhancing the consistency of court rulings enforcing restrictions of up to two years in the employment context—a practical boon for employers in noncompete litigation.

Tennessee Joins a Trend of States Imposing Minimum Pay Thresholds for Noncompetes

Curbing overuse of noncompetes with lower earners is a growing trend in statehouses across the county. Over a dozen states have imposed minimum income thresholds in recent years, and the Federal Trade Commission attempted to justify its failed 2024 nationwide noncompete ban by focusing on a perceived overuse of noncompetes for lower-paid employees. Tennessee’s new law sees it become the latest state to place a compensation floor on those who may properly be required to sign noncompetes. 

The original text of Tennessee House Bill 1034 focused on further limiting the enforceability of noncompete agreements with healthcare providers within the state. But the legislative process saw the bill shift to a minimum compensation threshold applicable to employers across all industries. As enacted, the new Tennessee law prohibits employers from requiring, requesting, or enforcing “a noncompete agreement against an employee whose annualized compensation is less than seventy thousand dollars ($70,000).”

The statute defines “annualized compensation” to include “total . . . wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.” Unlike recently enacted laws in some states, the new Tennessee law does not prohibit employers from requiring hourly employees to sign noncompetes altogether; it merely requires the employee to meet the $70,000 “annualized compensation” threshold “by multiplying the employee’s hourly rate by forty (40) and multiplying the product by fifty-two (52).” 

House Bill 1034’s minimum compensation threshold applies only to employees. It does not cover independent contractors. Nor—unlike some other states’ recent legislation—does it apply to other common types of restrictive covenants, like non-solicitation or non-disclosure agreements. These exclusions leave in place the vast majority of Tennessee employers’ available tools to curb unfair competition and protect business interests, like client relationships and confidential information.

New Reasonableness Presumptions Aim to Provide More Certainty for Employers

Floor remarks from House and Senate sponsors of Tennessee’s new law make clear that a primary objective was not to curb noncompetes but to secure more consistent outcomes in enforcement actions in court. Prior to House Bill 1034, Tennessee courts wielded wide latitude when assessing the duration of a noncompete under all relevant facts and circumstances. The test amounted to a highly discretionary “rule of reasonableness” analysis, through which some courts readily enforced two-year restraints, while others carved down the enforceable duration to something shorter—e.g., a one-year post-employment period. The bill’s sponsors recognized such disparate outcomes left employers unclear as to how long they could protect their legitimate business interests through noncompetes with key employees.

House Bill 1034 addresses this observed uncertainty by implementing a series of presumptions to rein in judicial discretion on the proper temporal length of noncompetes. For typical employer-employee relationships, courts “shall presume to be reasonable in time” restrictions of “two years or less in duration, measured from the date the employment or [independent contractor] business relationship terminates.” Anything beyond two years in those contexts is presumed unreasonable, but a court may “modify a restrictive covenant . . . to render it reasonable and enforceable.” The statute’s approach to permissive modification codifies preexisting Tennessee common law, at least as to duration. The law has no bearing on the reasonableness of the geographic scope or description of off-limits activities—two other continuing essential terms for all noncompetes in Tennessee. 

Uniformity in court rulings may increase as a result of House Bill 1034, but the new presumption that a two-year noncompete is reasonable may have an even larger practical impact on practitioners and litigants. Tennessee’s new law effectively swaps the plaintiff and defendant’s burden of proof regarding the reasonableness of the post-employment duration of a noncompete. Defendants must now show that two years is not reasonable, instead of plaintiffs bearing the burden to affirmatively prove the same duration is reasonable. While subtle on the surface, this burden shift will impact how Tennessee counsel advise on, draft, and litigate noncompetes on a daily basis.

The new law’s presumptions of a reasonable duration are not limited to employment-centered restrictions only. In the sale of business context, up to five years is presumed reasonable, so long as the covenant is “a material part” of the deal. Three years is presumed reasonable for franchisee, dealer, property-lease, and trademark-license relationships. As in the employer-employee context, these presumptions put a “thumb on the scale” for drafters to include and enforce lengthier covenants.

The Statutory Text Leaves Open Questions, but its Impact Is Immediate

New legislation rarely is a model of crystal clarity. House Bill 1034 is no exception. Most notably, the new section implementing reasonableness presumptions on the duration of restrictions (Tenn. Code. § 50-1-210) speaks broadly of “restrictive covenants” and “restraints” without reference to noncompetes, while the part of the new law imposing a minimum compensation threshold (Tenn. Code. § 50-1-211) speaks just of “noncompete agreements” without broader reference to restrictive covenants or restraints. Section 50-1-210(c) states “[t]his section does not prohibit an employer from enforcing” non-solicitation or non-disclosure agreements. But the location of that provision is awkward, given that it follows those installing the tiered reasonableness presumptions—not the minimum compensation threshold.

Does the compensation threshold apply only to noncompetes? It appears so given the inclusion of Section 210(c) and the express reference to “noncompetes” as opposed to restrictive covenants in Section 211. Do the reasonableness presumptions apply to all types of restrictive covenants? The answer to that query may be less clear, and arguments could exist on both sides as to the legislative intent. Litigation often is necessary to bring clarity to such questions. 

What is clear is that House Bill 1034 directs Tennessee employers to halt immediately any going-forward practice of requiring noncompetes of all employees. While ensuring no employee earning less than $70,000 annually receives a noncompete, employers further should consider which roles provide access to confidential information, specialized training, or relationships that a departing employee could leverage at a competitor. One size does not fit all for noncompetes and other restrictive covenants. Thoughtful, targeted use enhances the likelihood of enforcement in court.  

On the other hand, Tennessee employers may also now re-evaluate the duration of noncompetes and non-solicitation agreements to maximize the benefit of the two-year reasonableness presumption enacted in House Bill 1034. That presumption, together with Tennessee courts’ now-codified ability to modify overbroad restrictions, incentivizes lengthier restrictions for employers that previously chose shorter periods. But employers still should balance non-legal factors, like potential difficulties in securing top candidates in the talent marketplace caused by their possible reluctance to agree to lengthier restrictions.

Noncompete considerations are complex and often present “more than meets the eye” in the black and white of the statutory text. Employers are advised to consult with counsel to help optimize their use of noncomplete and other restrictive covenants.