Tennessee Sets New Limits on Noncompetes Effective 2026
Tennessee's new law will limit noncompete agreements for workers starting July 1, 2026.
Why it matters: Tennessee employers and legal counsel must now update employment contract practices and litigation strategies as noncompete rules tighten, especially for lower-wage earners. This continues a national trend impacting recruitment, employee retention, and risk management for in-house legal teams.
- Governor Bill Lee signed House Bill 1034 into law on May 7, 2026.
- Noncompetes will be void for employees making under $70,000 a year.
- Two-year limits for employment noncompetes will be easier for courts to enforce.
- Law covers agreements entered, renewed, or amended after July 1, 2026.
Ahead of a national wave of regulatory scrutiny, Tennessee has enacted House Bill 1034, transforming how noncompete agreements will be enforced across the state. Signed by Governor Bill Lee on May 7, the law sets out clear rules for when noncompete clauses are permitted and for how long.
- Starting July 1, 2026, employment noncompetes are void for workers earning less than $70,000 annually. This includes all forms of regularly paid compensation, such as wages and nondiscretionary bonuses. The law spells out an objective calculation for hourly wages as well.
- For employees and independent contractors, courts will presume a two-year restriction as reasonable. Anything longer will not be allowed for employment noncompetes. In the context of business sales, courts can consider longer noncompetes—up to five years—reasonable.
- The Tennessee Department of Labor and Workforce Development has confirmed the new law focuses on transparency and predictability for both employers and workers.
- Court involvement is expected to be more consistent, according to attorneys Alex Schramkowski and Tim Rybacki of Baker Donelson: "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."
The law applies only to agreements made, renewed, or changed after July 1, 2026. Existing contracts remain under the old rules, so in-house teams should audit template agreements and plan updates before the deadline.
This move comes as both Tennessee legislators and the Federal Trade Commission press for more uniform worker protections. For legal departments and firms advising Tennessee businesses, the changes demand proactive contract review and align with broader compliance priorities.
By the numbers:
- $70,000 — Annual wage threshold below which noncompetes are void
- 2 years — Maximum employment noncompete courts will presume reasonable
- July 1, 2026 — Effective date for new law
Yes, but: Existing noncompete contracts signed before July 1, 2026, are not affected and remain subject to current law.
What's next: Employers and in-house legal teams should prepare agreement revisions ahead of the July 2026 effective date.