Every noncompete agreement a Tennessee employer signed with an hourly shift lead, a $55,000 sales rep, or a $68,000 office manager just became void. Not "hard to enforce." Not "risky to litigate." Void, as a matter of law, the moment the clock struck July 1, 2026.
If you run a small business with even one employee in Tennessee — or you're a multi-state employer with a handful of remote workers there — this is not a background legal update you can skim past. House Bill 1034 rewrote the rules for restrictive covenants in the state, and it did so with a bright-line salary test that doesn't care how carefully your attorney drafted the agreement three years ago.
What Tennessee's HB 1034 Actually Says
Governor Bill Lee signed HB 1034 on May 7, 2026. It applies to any noncompete agreement "entered into, renewed, or amended on or after July 1, 2026," and it does two very different things at once.
First, it bans noncompetes outright for lower-earning workers. Any employee making less than $70,000 in annualized compensation cannot be bound by a noncompete. That threshold isn't just base salary — it explicitly includes "wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration." For hourly workers, the law spells out the math: take the hourly rate, multiply by 40, then multiply that by 52 to get an annualized figure. A $32/hour supervisor annualizes to $66,560 — under the line, noncompete void. Bump that to $34/hour and they clear $70,720 — over the line, potentially enforceable.
Second, for everyone still eligible to sign one, the law sets new "presumed reasonable" durations — essentially safe harbors that make certain contract terms much easier to defend in court:
- Employees and independent contractors: 2 years or less is presumed reasonable
- Distributors, dealers, and franchisees: 3 years or less is presumed reasonable
- Sellers of a business: 5 years, or the length of any earn-out/seller-note payments, whichever is longer
Go past those windows and the burden shifts — you're now the one who has to justify why a longer restriction was necessary, instead of the employee having to prove it was excessive.
One important carve-out: nonsolicitation and nondisclosure agreements are untouched. You can still prohibit a departing employee from poaching clients or coworkers, and you can still protect trade secrets and confidential information through an NDA, regardless of what they earned. HB 1034 only reaches true noncompetes — the clauses that stop someone from working for a competitor or starting a rival business at all.
Why the $70,000 Number Matters More Than You'd Think
$70,000 sounds like a threshold aimed at executives and specialists. In practice, it captures a huge share of the roles small businesses actually put noncompetes in front of: assistant managers, licensed technicians, inside sales staff, junior stylists at a salon that also owns two other locations, a bookkeeper who "knows where all the numbers are." Median household income in Tennessee is well below $70,000, and plenty of full-time, salaried positions — the ones owners most worry about walking out the door with client lists — sit comfortably under the new floor.
That's the pattern nationally, too, not just in Tennessee. A growing list of states now use an income test to decide who can be bound by a noncompete at all:
- Complete bans regardless of income: California, Minnesota, North Dakota, and Oklahoma
- Washington State: noncompetes become void and unenforceable statewide effective June 30, 2027
- Income-threshold states (2026 figures): Washington, D.C. ($162,164), Colorado ($130,014, with a separate lower $78,008.40 threshold for non-solicits), Oregon ($119,541), Washington ($126,858.83 for employees, much higher for contractors), Illinois ($75,000 for noncompetes, $45,000 for non-solicits), Virginia ($78,364.52), Maine ($63,840), Maryland ($49,920, varying by county), Rhode Island ($39,900), and New Hampshire ($30,160)
Notice how wide that range is. A $65,000 salary might clear the bar in New Hampshire, sit right at the edge in Maine, and fall well short in Illinois, Virginia, or Tennessee. If you employ people across state lines — even two or three remote hires — a single template noncompete almost certainly isn't valid everywhere you're using it. And these thresholds aren't frozen: several states index them to inflation and recalculate annually, which means a compliant agreement signed in 2024 can quietly become noncompliant by 2026 without anyone touching the contract.
Federal noncompete policy adds another layer of noise here — the FTC's 2024 attempt at a nationwide noncompete ban was ultimately withdrawn, which is why this fight has moved almost entirely to the states. There is no federal floor protecting employers from having to track this state by state.
What Small Employers Should Actually Do Before Enforcing (or Signing) One
You don't need a full employment-law overhaul to get ahead of this. A focused audit covers most of the risk:
1. Pull every active noncompete and sort by annualized pay. For each Tennessee employee under a noncompete, calculate their true annualized compensation using the wages-plus-commissions-plus-nondiscretionary-bonus formula — not just base salary. Anyone under $70,000 has an unenforceable noncompete as of July 1, 2026, whether or not you update the paperwork.
2. Don't assume the whole agreement is dead. If the noncompete clause is void but the same document also contains a nonsolicitation or confidentiality clause, those provisions can often survive independently. Read the agreement's severability language before you scrap it — you may still have real protection, just not through the noncompete piece.
3. Rebuild your template around the safe-harbor durations. New hires and renewals signed after July 1 should use time limits that fall inside the presumed-reasonable windows (2 years for employees, 3 for franchisees/distributors, 5 for business sellers) unless you have a specific, documented reason to go longer — and the willingness to defend that reason in court.
4. Lean harder on nonsolicitation and NDAs for lower-paid roles. For any position that will realistically land under $70,000, a noncompete is no longer a tool available to you in Tennessee. A well-drafted nonsolicitation agreement — no employee, no client — plus a confidentiality agreement covering your actual trade secrets (pricing methodology, supplier lists, proprietary processes) gets you most of the practical protection without running into the ban.
5. If you operate in more than one state, build a simple compliance table, not a single template. List each state you employ people in, its current noncompete rule (ban, threshold, or no restriction), and the threshold amount. Revisit it annually — the thresholds move.
6. Get comfortable with the cost of getting this wrong. Under HB 1034, attempting to enforce a void noncompete can expose an employer to damages and the employee's attorneys' fees. That risk calculus should push most small businesses toward caution rather than trying to enforce an agreement that's arguably borderline.
A Worked Example: Three Employees, Three Outcomes
Picture a Nashville HVAC company with a noncompete clause baked into every offer letter. Here's how HB 1034 sorts three of its employees on July 1:
- A dispatcher paid $22/hour, no bonus. Annualized: 22 × 40 × 52 = $45,760. Well under $70,000 — the noncompete in her offer letter is void. If the company wants any protection at all, it needs a standalone nonsolicitation agreement instead.
- A service technician paid $30/hour plus a nondiscretionary $4,000 annual safety bonus. Annualized: (30 × 40 × 52) + $4,000 = $66,400. Still under the line — his noncompete is also void, even though he's the employee most likely to take customers with him.
- A branch manager earning a $75,000 salary. Over the threshold — her noncompete can still be enforced, but only if its duration falls within (or is separately justified beyond) the two-year safe harbor.
Two of the three "protective" agreements in that offer-letter stack just evaporated, and the one employee most likely to walk out with a client list — the technician — isn't covered anymore. That's the scenario worth auditing for before a resignation letter forces the question.
Frequently Asked Questions
Does HB 1034 apply retroactively to agreements signed before July 1, 2026? No. The law only reaches noncompetes "entered into, renewed, or amended on or after" that date. An existing agreement signed in, say, 2024 is generally governed by the law in effect when it was signed — but any renewal, extension, or amendment after July 1 pulls it into HB 1034's rules, including the $70,000 test.
Can I just raise an employee's pay to $70,000 to keep their noncompete alive? Only if the raise is genuine and the agreement is re-signed (or renewed) after the raise takes effect — and only going forward from that point. You can't retroactively validate a noncompete that was void when signed by giving someone a raise later.
What if the employee works remotely for a Tennessee company but lives in another state? Restrictive-covenant enforceability typically follows the choice-of-law clause in the contract and the employee's actual work location, not just the employer's headquarters — and courts don't always honor a chosen state if it conflicts with the employee's home-state protections. This is exactly the kind of multi-state fact pattern worth a quick call to an employment attorney rather than guessing.
Does this affect contractors, not just W-2 employees? Yes — HB 1034 explicitly covers independent contractors under the same $70,000 annualized-compensation test and the same 2-year presumed-reasonable duration as employees.
The Bigger Pattern: Compliance Now Runs on a Calendar, Not a Filing Cabinet
Noncompete thresholds, minimum wage steps, sales tax nexus rules, pay transparency mandates — a growing share of small-business compliance obligations now change on a schedule instead of sitting still once you've handled them. The employer who checked this box in 2023 and filed the agreement away is often the one caught out in 2026, not because they did anything wrong originally, but because the ground moved.
The same discipline that keeps you ahead of a shifting noncompete threshold — dated, auditable records you can review on demand — is exactly what good bookkeeping gives you on the financial side. When your books are current and organized, an annual "does anything need updating" review (payroll classifications, contractor agreements, restrictive covenants) takes an afternoon instead of a fire drill.
Keep Your Financial Records as Current as Your Contracts
Regulatory deadlines like HB 1034's July 1 effective date are easy to miss when your records are scattered across spreadsheets and inboxes. Beancount.io provides plain-text accounting that's transparent, version-controlled, and easy to audit — so when compliance dates come due, your financial picture is never the thing slowing you down. Get started for free and see why developers and finance professionals are switching to plain-text accounting.