The Tennessee 114th General Assembly has recently passed significant legislation reshaping how noncompetes are evaluated and enforced. Specifically, the new law introduces bright-line rebuttable presumptions for the permissible duration of covenants not to compete and, for the first time, categorically prohibits noncompete agreements for employees earning less than $70,000 per year. Gov. Bill Lee has not yet signed the bill, but it is expected to be enacted. If signed, the law would take effect July 1, 2026.

For employers with Tennessee employees, these changes will require thoughtful review of existing agreements and careful planning for future hiring and separation practices.

New Rebuttable Presumptions

Until now, Tennessee courts evaluated noncompete agreements — outside the healthcare sector — using a fact-intensive “reasonableness” analysis, with no specific statutory guidance on permissible limits. Moving to a more defined framework, the new legislation creates the following rebuttable presumptions regarding the reasonableness of a restrictive covenant’s duration after the termination of an employment or business relationship:

• Employees and independent contractors – Two years or less is presumed reasonable.
• Distributors, dealers, franchisees, lessees, and trademark licensees – Three years or less is presumed reasonable.
• Sellers of a business or equity interest – The longer of five years or the duration of earn-out or seller payments is presumed reasonable.

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