Tag Archives: noncompete

May 2026
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competition, Employment Law

Tennessee Passes a Noncompete Law

Several years ago, Tennessee passed a law which sets presumptions of reasonableness for noncompete agreements entered into with certain healthcare providers.  Tenn. Code Ann. § 63-1-148.  On May 7, 2026, Governor Bill Lee signed a bill establishing Tennessee’s first law governing noncompete agreements other than for healthcare providers.  The law becomes effective July 1, 2026, and applies to any restrictive covenant agreement entered into, renewed or amended after that date. 

$70,000 Threshold for Employees

The new noncompete statute prohibits noncompete agreements for employees who earn less than $70,000.00 annually in total compensation.  The law defines “annualized compensation” as the total compensation an employee earns from the employer, including wages, salary, commission, nondiscretionary bonuses and other forms of renumeration, calculated on an annualized basis.  For hourly employees, annualized compensation is calculated by multiplying the employee’s hourly rate by 40 and multiplying that product by 52. 

Rebuttable Presumptions

The new law also creates rebuttable presumptions that courts must apply when determining the reasonableness in time of a restrictive covenant sought to be enforced after the termination of an employment or business relationship.  The law draws distinctions between employees and independent contractors, those involved in a business relationship such as distributors, dealers, franchisees, lessees and licensees, and owners of a business. 

A court must presume as reasonable in time all of the following restrictive covenants:

  1. For employees and independent contractors, a restraint of 2 years or less in duration, measured from the date the employment or business relationship terminates. 
  2. For current or former distributors, dealers, franchisees, lessees of real or personal property or a licensee of trademark, trade dress or service mark, 3 years or less in duration, measured from the date of termination of the business relationship. 
  3. For an owner or seller of all or a material part of the assets of a business, professional practice or other commercial enterprise, the shares of a corporation, a partnership interest, a membership interest in a limited liability company or any other equity interest or right to receive profits, the longer of five years or a period equal to the time during which payments are made to the owner or seller. 

Notably, in the context of a sale of all or part of a business the restrictive covenant must be “a material part” of the deal. 

The new law uses the term “restrictive covenants” with respect to the presumptions but uses the term “noncompete” with respect to the minimum annual compensation that an employee must earn.  Tenn Code Ann. § 50-1-211.  

What Did Not Change?

The new law does not prohibit employers from using and enforcing confidentiality and nondisclosure agreements, customer nonsolicitation agreements and employee nonsolicitation agreements. Tenn Code Ann. § 50-1-210(c). Based on the language in Tenn Code Ann. § 50-1-210, employers should assume that those types of restrictive covenants will be subject to the time duration presumptions of reasonableness set forth above. 

The new statute also preserves the court’s authority to “blue pencil” restrictive covenants and modify them to the degree the court determines is reasonable. 

The statute also does not alter the other facts a party must prove to enforce a restrictive covenant.  A party seeking enforcement still must prove a legitimate business interest for the restrictive covenants.  In Tennessee, this requires proof of (a) specialized, unique training; (b) access to, or knowledge of, confidential information/trade secrets; (c) customer contact such that customers view the employee (or contractor) as the face of the business. 

If a legitimate business interest is proven the party seeking enforcement must still also prove that the restrictive covenant is supported by adequate consideration, the covenant is not overbroad in scope of activities prohibited and the covenant is not overbroad with respect to the geographic or customer limitation. 

What Should You Do Now? 

With the July 1, 2026 effective date fast approaching employers and businesses who have restrictive covenants with contractors and other business associates should take the following steps now:

  • Review existing restrictive covenant agreements for compliance with the new reasonableness presumptions. 
  • Ensure that employees earning less than $70,000.00 in total annual compensation are not subject to noncompete agreements entered into, renewed or amended after July 1, 2026. 
  • Consider whether a noncompete agreement is the most effective restrictive covenant to use going forward, or would you be better served with provisions protecting confidential information and prohibiting customer and employee solicitation. 

As always, if we can be of assistance, please do not hesitate to contact us. 

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August 2024
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competition, Employment Law

FTC Noncompete Ban Enjoined Nationwide

On August 20th Judge Ada Brown issued a Memorandum Opinion and Order setting aside the FTC’s Non-Compete Rule. In doing so Judge Brown expanded the preliminary injunction she had previously issued. Judge Brown issued a nationwide, permanent injunction and stated the “Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter”.

Employers can breathe a sigh of relief because their noncompete agreements will now not automatically be null and void. But, employers should still make sure their existing and proposed noncompete and other restrictive covenant agreements ( like non-solicitation agreements and confidentiality agreements) comply with applicable state law. Employers should also consider whether a noncompete is really the best way to protect the business from unfair competition, or are other means a better choice.

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April 2024
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Employment Law

Can I Still Have a Noncompete Agreement With Employees After The FTC Announcement? What Employers Need To Know And Do.

Last week the FTC announced its long anticipated final rule on noncompete agreements. The final rule largely follows the previously published draft and bans noncompete agreements in most circumstances. There are, however, some exceptions. Furthermore, the rule is not yet law and may not become law.

First, the exceptions. Under the final rule a noncompete agreement is impermissible except for noncompetes entered into pursuant to a bona fide sale of: a business entity; all or substantially all of the entity’s assets; or the person’s ownership interest in the entity. The rule also does not apply to existing noncompete agreements with “senior executives”. The rule applies to employees and independent contractors or other “workers”.

“Senior executive” means a worker who, at the time the noncompete was signed, was in a policy-making position and received total annual compensation of at least $151,164 in the preceding year, or when annualized if the worker was employed during only part of the preceding year. Salary, commissions and nondiscretionary bonuses count towards the total, but the cost of lodging, board and fringe benefits do not. Since the bonus must be nondiscretionary an employer cannot pay a large discretionary bonus in an effort to make an existing noncompete enforceable against a departing employee.

Policy-making position means president, CEO or equivalent , or any other officer who has policy-making authority. Policy-making authority is defined as final authority to make decisions that control significant aspects of a business entity or common enterprise. This does not include those executives who have authority for policy decisions for only a subsidiary or affiliate of a common enterprise.

The rule does not specifically refer to non-solicitation provisions. Additionally, in a change from the previously published draft, broad confidentiality provisions are no longer specifically included in the definition of noncompetes. However, as discussed below this does not mean that overbroad nonsolicits and confidentiality provisions would automatically survive a challenge under the FTC final rule.

Unless one of the exceptions applies, it is illegal to enter into or attempt to enter into a noncompete clause, to enforce or attempt to enforce a noncompete clause or to represent that the worker is subject to a noncompete clause.

Within 120 days from publication of the final rule in the Federal Register employers must give notice to non-Senior Executives subject to a noncompete that the noncompete is no longer in effect and will not be enforced. The final rule contains a model notice for employers to copy or use as a guide.

Will the rule become law? To be determined. There are already two lawsuits pending in Texas seeking to enjoin the rule from becoming law. More litigation could follow.

To prepare for the rule possibly becoming law employers should do the following:

  1. Review existing noncompetes to see if the rule bans them.
  2. Review other restrictive covenants (non-solicits and confidentiality agreements) to see if they could be legitimately viewed as noncompetes. If the clause prohibits or prevents a worker from seeking or accepting work in the U.S. then it could be considered a prohibited noncompete.
  3. Prepare a notice for any noncompete that is prohibited. Employers should generally follow the model notice to avoid any argument that they failed to comply.
  4. Before the effective date of the final rule (120 days from Federal Register publication) enter into a noncompete with any Senior Executive that does not have one.

And, when in doubt, call your employment lawyer!

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January 2023
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Employment Law

The 411 on the FTC’s Proposed Noncompete Ban

On January 5th the Federal Trade Commission (FTC) issued a proposed rule that would ban noncompete agreements between employers and their workers in most circumstances. While the proposed rule will almost certainly be met with legal challenges and ultimately get resolved in the courts, let’s take a look at what you need to know now.

The proposed rule would make it illegal for an employer to enter into or attempt to enter into a noncompete with a worker.

The proposed rule covers all employers.

“Worker” is broadly defined as a natural person who works, whether paid or unpaid, for an employer and specifically includes independent contractors.

Existing noncompete agreements are covered by the ban. Employers must rescind the noncompete by the “compliance date” and are required to notify the worker of the rescission. The compliance date is 180 days after publication of the final rule in the Federal Register, which has not yet occurred.

The FTC has published model language that can be used to communicate the rescission.

The proposed rule makes no mention of non-solicitation agreements. It does, however, specifically state that a non-disclosure agreement that is so broad that it effectively precludes the worker from working in the same field is prohibited, as is an agreement to repay training costs if the worker’s employment terminates within a specified period if the required repayment is not reasonably related to the costs incurred for training.

Presumably, a narrowly tailored agreement that prohibits the solicitation of customers, the solicitation/recruiting of employees and the disclosure of trade secrets and confidential information will still be valid.

A noncompete entered into as part of a sale of business (asset or stock/ownership interest sale) is allowed provided that the individual being asked to sign the noncompete owns at least 25% of the entity being sold.

Although the proposed rule is not yet in effect and will likely be resolved in the courts, there are certain steps employers should take now.

First, if you are asking lower wage or lower level workers to sign noncompete agreements, stop. Those are most likely not enforceable under the applicable state law now, and are even less likely to survive the final outcome of the FTC’s proposed rule.

Second, ask yourself if a non-solicitation and nondisclosure agreement will give you the protection you need. If so, use that instead of a noncompete, as that will likely be enforceable.

Finally, review your existing noncompete, nonsolicit and nondisclosure agreements to see if these comply with applicable state law and if there is adequate protection in the event the noncompete is banned. If not, or if you need assistance, please contact us or call your attorney.

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