Last Updated on June 22, 2026 by MyHRConcierge

Non-compete agreements have long been used by employers to protect confidential information, customer relationships, and other legitimate business interests. However, the use of these agreements has faced increased scrutiny as states continue to introduce new restrictions around when employers can limit an employee’s ability to work for a competitor.

Tennessee is joining this evolving landscape with a new law that limits the use of non-compete agreements for employees earning less than $70,000 annually. The change creates new compliance considerations for Tennessee employers reviewing employment agreements, onboarding processes, and restrictive covenant strategies.

Tennessee Restricts Non-Compete Agreements for Employees Making Less Than $70,000

On May 7, 2026, Tennessee Governor Bill Lee signed House Bill 1034 into law, creating new restrictions on non-compete agreements. Effective July 1, 2026, employers will no longer be permitted to require, request or enforce a non-compete agreement against an employee whose annualized compensation is less than $70,000.

Under the new law, any non-compete agreement entered into, renewed or amended on or after July 1, 2026, that applies to an employee below the compensation threshold will be considered void and unenforceable.

It is important to note that Tennessee’s law does not eliminate all non-compete agreements. Employees who meet the compensation threshold may still be subject to enforceable non-compete restrictions, provided the agreement meets applicable requirements.

How the $70,000 Compensation Threshold Is Determined

The new law uses an employee’s annualized compensation to determine whether a non-compete restriction may apply.

Annualized compensation includes wages, salary, commissions, nondiscretionary bonuses and other forms of remuneration received from the employer. For hourly employees, annualized compensation is calculated by multiplying the employee’s hourly rate by 40 hours per week and then multiplying that amount by 52 weeks.

Employers should carefully review compensation structures, especially for employees who receive variable compensation such as commissions or bonuses, to determine whether they meet the required threshold.

The Law Does Not Eliminate Other Employee Protection Agreements

While Tennessee’s new law limits non-compete agreements for certain employees, it does not prohibit employers from using other agreements designed to protect business interests.

Confidentiality and nondisclosure agreements, customer or client non-solicitation agreements and employee non-solicitation agreements may still be used when properly drafted. These agreements can continue to help employers protect trade secrets, confidential information, customer relationships and workforce stability.

Employers should evaluate whether their current agreements rely too heavily on non-compete provisions and consider whether other restrictive covenant tools provide appropriate protection.

New Standards for Non-Compete Duration

In addition to restricting non-competes for employees earning under $70,000, Tennessee’s new law provides additional guidance regarding the length of restrictive covenants.

For employees and independent contractors who are subject to enforceable restrictive covenants, non-compete restrictions lasting two years or less are presumed reasonable under the new law. Restrictions lasting longer than two years are presumed unreasonable, although these presumptions may be challenged depending on the circumstances.

This change provides employers with clearer guidance when drafting agreements and may impact how courts evaluate the reasonableness of restrictive covenant terms.

What Tennessee Employers Should Do Next

Employers should begin reviewing their current employment agreements and practices before the law takes effect. This includes identifying employees currently subject to non-compete agreements, evaluating compensation levels and updating agreement templates where necessary.

Organizations should also consider whether confidentiality agreements, non-solicitation agreements or other protections can help safeguard business interests without relying solely on non-compete restrictions.

A Continued Shift in Restrictive Covenant Regulations

Tennessee’s new law reflects a broader movement among states to place additional limits on non-compete agreements, particularly for lower-wage employees. However, restrictions vary widely by state, and employers must continue monitoring applicable laws based on where employees work.

As employment regulations continue to evolve, proactive agreement reviews and compliance updates can help employers reduce risk while maintaining appropriate protections for their businesses.

For more information on how to enhance your organization’s compliance efforts, contact MyHRConcierge at 855-538-6947, sales@myhrconcierge.com. Or, schedule a convenient consultation below: