A restaurant group with locations in Nashville and three neighboring states just found out that a noncompete clause it's used for years — the one every assistant manager signs on day one — is now void for most of that same staff in Tennessee. Not because a court struck it down, but because the state legislature moved the goalposts, and nobody in HR was tracking the salary math closely enough to notice.
That's the situation a lot of small, multi-state employers are waking up to in 2026. Noncompete law used to be simple enough to ignore: draft one agreement, use it everywhere, and only worry about it if someone actually left for a competitor. That approach doesn't survive contact with the current legal landscape, where more than a dozen states now tie noncompete enforceability directly to how much an employee earns — and Tennessee just joined the list with one of the more employer-relevant thresholds in the country.
What Tennessee's Law Actually Does
Effective July 1, 2026, Tennessee voids noncompete agreements for workers earning less than $70,000 per year in total annual earnings — a figure that includes wages, salary, commissions, nondiscretionary bonuses, and other forms of compensation, not just base pay. The rule applies to any noncompete entered into, renewed, or amended on or after that date; agreements signed before July 1 aren't automatically invalidated, but any renewal or amendment after that date pulls them under the new threshold test.
The law reaches further than a typical W-2 employee statute. It explicitly covers independent contractors, distributors, dealers, franchisees, lessees, and trademark licensees, plus sellers of a business or an equity interest in one. For agreements that do meet the salary threshold, Tennessee treats certain durations as presumptively reasonable rather than automatically enforceable:
- Employees and independent contractors: two years or less
- Distributors, dealers, franchisees, lessees, and trademark licensees: three years or less
- Sellers of a business or equity interest: five years, or the duration of any earn-out payments, whichever is longer
Anything longer than these windows doesn't become void outright, but it shifts the burden onto the employer to justify why a longer restriction was necessary — a fight most small businesses would rather not have. Critically, the law doesn't touch nondisclosure or nonsolicitation agreements, which remain fully enforceable tools for protecting trade secrets and client relationships regardless of an employee's salary.
Why This Isn't Just a Tennessee Problem
Tennessee is now one of at least thirteen jurisdictions — eleven states plus Washington, D.C. — that condition noncompete enforceability on a minimum compensation threshold. The thresholds vary widely and several are indexed to inflation, which means they change every year without any new legislation:
- Washington, D.C.: $162,164
- Colorado: $130,014 for noncompetes, $78,008.40 for non-solicitation agreements
- Oregon: $119,541
- Washington State: $126,858.83 for employees, $317,147.09 for independent contractors
- Illinois: $75,000 for noncompetes, $45,000 for non-solicits
- Maine: $63,840
- Tennessee: $70,000 (new for 2026)
Washington State has gone further still: nearly all noncompete agreements there become void starting June 30, 2027, with employers required to notify affected employees by October 1, 2027. The direction of travel across states is consistently the same — toward more restriction, not less.
Meanwhile, the federal picture has resolved in the opposite direction from what many employers expected a couple of years ago. The FTC's proposed nationwide noncompete ban never took effect: a federal court blocked it in 2024, and the agency formally withdrew its appeal in late 2025. In early 2026, the FTC signaled it's abandoning the categorical-ban approach entirely in favor of case-by-case enforcement against specific noncompete practices it considers unfair. The practical result is that there is no federal floor or ceiling here — the states are writing the rules, one legislative session at a time, and a business operating in five states is now subject to five different tests.
For a small business with locations or remote employees in more than one state, this means the "one noncompete template for everyone" approach is no longer defensible. What's enforceable for a $90,000 regional manager in Georgia (no salary threshold) may be completely void for the same role's counterpart in Tennessee, Illinois, or Colorado.
Why Legislatures Keep Moving in This Direction
Tennessee's threshold didn't appear in a vacuum — it tracks a body of economic research that state lawmakers have been citing for years when they debate these bills. Studies examining state-level noncompete bans have found that new-hire wages rise by roughly 4% after a ban takes effect, and workers who start jobs in states with strongly enforceable noncompetes end up earning nearly 5% less after eight years than comparable workers in states without them. Oregon's ban specifically was tied to hourly wage increases of 2–3% on average, climbing as high as 6% over seven years, with the largest gains among female workers. Broader estimates of what a full ban does to average earnings range from roughly 3% to as much as 14%.
The mobility numbers tell a similar story: employees bound by noncompetes stay in their current jobs about 11% longer than they otherwise would, and since changing jobs is one of the most reliable ways workers grow their earnings, that extra tenure comes at a direct cost to their pay trajectory. There's a small-business angle here too, and it cuts both ways. Noncompetes make it harder for a would-be entrepreneur bound by one to leave and start a competing business — which is exactly the protection an existing employer wants. But research also links widespread noncompete use to reduced new-firm creation overall, meaning the same laws that protect an incumbent business from a departing employee also suppress the formation of new small businesses across an industry. Lawmakers weighing these tradeoffs have increasingly landed on the salary-threshold compromise: let noncompetes stand for the highly-compensated executives and specialists who negotiated them with real leverage, and void them for the hourly and lower-salaried workers who signed a standard-issue employment packet on their first day with no ability to push back.
A Worked Example
Go back to the Nashville restaurant group from the opening. Say it employs a general manager at $95,000, an assistant manager at $58,000 base plus a nondiscretionary quarterly bonus that averages $9,000 a year, and a kitchen manager at $52,000 flat. After July 1, 2026, only the general manager's noncompete is unaffected by the new law — $95,000 clears the $70,000 threshold with room to spare. The assistant manager's total compensation of roughly $67,000 falls just under the line, voiding that noncompete the moment it's renewed or amended, even though the base salary alone might have looked close to compliant on paper. The kitchen manager's noncompete is void outright.
None of this means the restaurant group is left unprotected. Its nondisclosure agreements covering recipes, supplier pricing, and internal financials remain fully enforceable regardless of salary, as does a properly drafted nonsolicitation clause preventing a departing manager from poaching staff or actively soliciting the restaurant's regular customers to a new location. What changes is the legal tool doing the work — and if the business hasn't updated its agreements to reflect that shift, it may be relying on paperwork that a court simply won't enforce.
What to Audit Right Now
If your business has any employee, contractor, franchisee, or business-sale agreement touching Tennessee — or any of the other threshold states — a few concrete steps close most of the exposure:
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Pull every active noncompete and sort by state and by compensation. You can't apply a salary threshold test without accurate, current compensation figures for each covered person — this is where clean payroll and compensation records matter as much as the legal language itself.
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Flag anyone below $70,000 in total Tennessee earnings. Remember the definition includes commissions and nondiscretionary bonuses, so a base salary of $62,000 plus a guaranteed year-end bonus could still push someone over the line — or keep them under it, depending on how the bonus is structured.
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Check renewal and amendment dates, not just original signing dates. An agreement signed in 2023 that gets renewed or modified after July 1, 2026 is now subject to the new threshold test, even though the original agreement predates the law.
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Lean harder on nondisclosure and nonsolicitation agreements. These aren't touched by the noncompete restrictions in any threshold state, and research suggests over 95% of workers with a noncompete already have a separate NDA in place. A well-drafted NDA protecting trade secrets and confidential information, paired with a narrowly tailored client non-solicit, covers most of what a noncompete was doing anyway — without the enforceability risk.
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Build a recurring review into your calendar, not a one-time fix. Seven of the thirteen state thresholds adjust annually for inflation. A threshold that's compliant this January can be out of date by next January without a single word of the underlying statute changing.
The Bookkeeping Connection Nobody Mentions
Here's the detail that gets missed in most legal write-ups of this law: whether a noncompete is enforceable for a given employee in Tennessee is, at its core, an accounting question. "Total annual earnings" pulls together wages, salary, commissions, and bonuses — figures that live in your payroll and compensation records, not in the noncompete agreement itself. A business that can't quickly pull an accurate, up-to-date compensation total for each employee is flying blind on which of its agreements are even enforceable.
This is one more argument for keeping compensation data clean and current rather than reconstructed from memory when a dispute arises. Beancount.io gives small businesses plain-text, version-controlled financial records — so when a question like "was this employee over the threshold in the twelve months before their agreement was signed" comes up, the answer is a query away, not a scramble through pay stubs. Get started for free and keep the numbers that matter, including the ones your legal team will eventually need, organized from day one.