Tennessee Governor Bill Lee signed House Bill 1034 on May 7, enacting the state’s first noncompete law outside the healthcare industry. The law will take effect July 1 and applies prospectively. It prohibits employers from requiring, requesting, or enforcing a noncompete agreement against any employee earning less than $70,000 annually.
The legislation is part of a broader trend among states to set minimum pay thresholds for noncompetes. Lawmakers aim to limit the use of such agreements with lower-wage earners while providing more predictability for employers seeking to protect business interests through restrictive covenants.
House Bill 1034 introduces a two-year reasonableness presumption for most employer-employee relationships regarding the duration of noncompetes. Courts are directed to presume that restrictions lasting two years or less after employment ends are reasonable in time. If an employer seeks a longer restriction, it is presumed unreasonable unless modified by a court. The law also shifts the burden of proof: “Defendants must now show that two years is not reasonable, instead of plaintiffs bearing the burden to affirmatively prove the same duration is reasonable.” This change could impact how legal counsel advises clients and how cases are litigated in Tennessee courts.
The statute defines annualized compensation broadly, including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration calculated annually. Unlike some other states’ laws, Tennessee’s measure does not ban hourly employees from signing noncompetes if they meet the income threshold; nor does it apply to independent contractors or cover other types of restrictive covenants such as non-solicitation or nondisclosure agreements.
For contexts beyond traditional employment—such as business sales—different reasonableness presumptions apply: up to five years is presumed reasonable when selling a business if the covenant is material to the deal; three years applies for franchisee or similar relationships. While these presumptions offer clarity on allowable durations for restrictions, questions remain about certain statutory language distinctions between “noncompete agreements” and broader “restrictive covenants.” Litigation may be required before all ambiguities are resolved.
Employers in Tennessee are advised by legal experts that they should immediately review their practices concerning noncompetes with current and future employees earning under $70,000 per year. They may also wish to re-evaluate contract terms related to duration in light of new judicial presumptions favoring longer restrictions within specified limits.
