Tennessee bans non-competes based on employee income

May 15, 2026

Alert

On May 7, 2026, Tennessee’s Governor signed House Bill 1034 (HB 1034) into law, prohibiting employers from requiring, requesting, or enforcing non-compete agreements with workers who earn less than $70,000 annually. The law takes effect July 1, 2026, making Tennessee one of a growing number of states that restrict the use of non-compete agreements based on salary thresholds.

Who is covered under HB 1034?

The law protects workers earning less than $70,000 in annualized compensation. The statute defines “annualized compensation” as “the total compensation an employee earns from the employer, including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.”

For hourly workers, annualized compensation is calculated by multiplying the worker’s hourly rate by 40 (hours per week) and then multiplying that amount by 52 (weeks per year). Under this formula, employers cannot require, request, or enforce non-competition agreements with hourly workers earning approximately $33.65 per hour or less.

Agreements that remain permissible

While HB 1034 restricts non-compete agreements for workers earning less than $70,000, it does not prohibit employers from protecting their legitimate business interests through other restrictive covenants (even with workers earning less than $70,000 in annualized compensation). The law expressly permits employers to continue enforcing:

Confidentiality or nondisclosure agreements;
Client or customer non-solicitation agreements; and
Employee non-solicitation agreements.

Rebuttable presumptions for non-compete duration

Effective July 1, 2026, courts will presume as reasonable the following non-compete durations:

For former employees and independent contractors (not involving a sale of business): A restraint of two (2) years or less.
For distributors, dealers, franchisees, lessees of real or personal property, or licensees of intellectual property (not involving a sale of business): A restraint of three (3) years or less.
For sellers of a business or ownership interest: A restraint of five (5) years or less, or a period equal to the time during which payments are made to the seller (whichever is longer).

Consequences for non-compliance

Non-competition agreements that violate HB 1034 will be considered void and unenforceable after July 1, 2026. Employers who attempt to enforce a void and unenforceable non-compete may be subject to damages, attorneys’ fees, or other penalties.

What employers should do now

With the July 1, 2026, effective date approaching, Tennessee employers should review their existing agreements, update their employment templates, and, before July 1, 2026, contact their McDonald Hopkins attorney to ensure compliance with Tennessee’s new restrictions on non-compete agreements.

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