Restrictive covenant legislation is growing in popularity across the United States. Tennessee, a state long regarded as business-friendly, is among the list of states creating statutory definitions of what is reasonable for non-compete agreements.

Other states with recent legislative non-compete developments include Virginia, Washington, Utah, and South Dakota. The current state effort to develop restrictions coincides with increasing federal enforcement actions against companies that impose blanket restrictions on workers.

Tennessee Draws a Line: House Bill 1034

Tennessee has long been regarded as an employer-friendly state, making it all the more notable that its legislature has now chosen to impose meaningful guardrails on post-employment restrictions. However, the guardrails are generally consistent with the current Tennessee common law regarding non-compete agreements and will provide more certainty for the parties entering into such agreements. House Bill 1034 passed through the General Assembly with bipartisan support and is expected to be signed by Governor Lee, with an effective date of July 1, 2026. The legislation does two things: sets parameters for what will be presumed as “reasonable” time durations for non-competes, and sets a compensation floor that employees must receive before a non-compete agreement may be enforced against them.

Limitations on Temporal Reasonableness

House Bill 1034 creates a system of rebuttable presumptions governing the permissible duration of restrictive covenants. A court must presume reasonable a duration of the longer of five (5) years or less, or a period equal to the time during which payments are made to the owner or seller, in the case of a restrictive covenant sought to be enforced against the owner or seller of all or a material part of any of the following:

1. The assets of a business, professional practice, or other commercial enterprise
2. The shares of a corporation
3. A partnership interest
4. A membership interest in a limited liability company
5. Any other equity interest or right to receive profits in a business, professional practice, or other commercial enterprise

A duration of two years or less following the termination of an employment or independent contractor relationship that is unconnected with such transactions will be presumed to be reasonable.  Similarly, in the absence of one of the foregoing transactions, a duration of three years or less measured from the date of termination of the business relationship will be presumed to be reasonable in the case of a restrictive covenant sought to be enforced against a current or former distributor, dealer, franchisee, lessee of real or personal property, or licensee of a trademark, trade dress, or service mark.

$70,000 Income Floor

Perhaps more consequentially, House Bill 1034 erects a compensation floor: employers may not “require, request, or enforce a non-compete against an employee whose annualized compensation is less than [$70,000].” “Annualized compensation” means “the total compensation an employee earns from the[ir] employer, including wages, salary, commissions, nondiscretionary bonuses, and other forms of remuneration, calculated on an annualized basis.” Agreements that violate this rule are void on their face.

Employers will retain full use of confidentiality agreements, client or customer non-solicitation agreements, and employee non-solicitation provisions, all of which remain enforceable so long as they are reasonable in scope and otherwise in compliance with the law.

Assuming House Bill 1034 is signed as expected, these new rules apply to proceedings occurring and agreements entered into, renewed, or amended, on or after July 1, 2026.

Other Noteworthy State Developments

Tennessee is not the only state that has seen recent legislative changes relating to non-compete agreements.

• Washington. Washington state already has existing state legislation restricting the use of non-competes to high-income employees and other narrow circumstances. On March 23, 2026, House Bill 1155 was signed into law, banning non-compete agreements between employers and employees or independent contractors, effective June 30, 2027. Exceptions are carved out of the new law for non-competes related to the sale of a business or franchise agreements.
• Utah. Utah’s existing legislation limits post-employment non-compete agreements to one (1) year. On March 24, 2026, House Bill 270, the Healthcare Worker Post-Employment Amendments, was signed into law, banning new non-compete agreements for a broad array of specified healthcare workers, including doctors, advanced practice nurses, dentists, therapists, counselors, and others, effective May 6, 2026. The law provides limited exceptions for workers whose jobs do not utilize their healthcare license, non-compete clauses in reasonable severance agreements mutually and freely agreed upon in good faith at or after the time of termination, and non-compete agreements in connection with the sale of a business if the restricted person receives value for the sale.
• Virginia. Virginia already bans non-compete agreements for non-exempt and low-wage employees. Effective July 1, 2026, non-compete agreements will also be unenforceable against employees who are discharged without cause and do not receive severance benefits or other monetary payment, pursuant to Senate Bill 170, which was signed into law on April 13, 2026. For an employee who is terminated for cause, no severance benefits are required for the enforcement of a non-compete.  
• South Dakota. House Bill 1180 was signed into law on March 12, 2026, expressly permitting agreements that prevent a selling owner from competing in the same business within the entity’s specific geographic area for up to three (3) years after the transfer.

Many other states have pending legislation related to non-compete agreements, including but not limited to New Hampshire, New York, Vermont, and Indiana.

The FTC’s Targeted Actions Against Overbroad Non-Compete Agreements

The latest illustration of the FTC’s campaign against overly broad non-compete agreements came on April 15, 2026, when the FTC secured a proposed consent order against Rollins, Inc., one of the country’s largest pest-control operators, barring the company from enforcing non-competes against more than 18,000 current and former employees. The FTC’s statement reasoned that the non-competes were overbroad in part because Rollins’ methods were publicly accessible online, most of its workforce consisted of technicians without meaningful exposure to proprietary information, and narrowly drawn non-solicitation clauses would have adequately protected any customer-relationship interests.

Key Takeaways for Employers

• Employers that regularly renew non-compete agreements should ascertain whether there is state legislation banning or limiting non-competes entered into after a certain date, such as in Tennessee and Utah, in which case, the employer may want to cease agreement renewal in those states.

• Employers entering into new non-compete agreements should ensure that temporal and geographical restrictions are within a “reasonable” scope as defined by applicable state legislation or case law. Non-compete agreements for employees exceeding two years or exceeding the geographic scope where the employee actually worked deserve special review for legal compliance.

• Employers should limit the use of non-compete agreements to appropriate roles for which a legitimate protectable interest arises and use the least restrictive contract terms that can reasonably provide protection for such interests.