Employers in Tennessee soon will not be able to enforce a noncompetition agreement against an employee whose annual compensation is below a minimum salary threshold.
Under new law enacted by H.B. 1034, an employer cannot require, request or enforce a noncompete agreement with an employee whose annualized compensation is less than $70,000.
Annualized compensation means the total compensation an employee earns from the employer, including wages, salary, commissions, nondiscretionary bonuses and any other forms of remuneration, calculated on an annualized basis. For hourly employees, the annualized compensation is calculated by multiplying the employee’s hourly wage by 40 to determine the weekly wage and then multiplying the product by 52 weeks.
The enacted bill also establishes a statutory presumption that a time restraint of two years or less is reasonable for noncompete agreements with employees or independent contractors. In addition, the law explicitly authorizes courts to modify the terms of a restrictive covenant (blue pencil) to make them reasonable and enforceable.
Other states have also recently amended their noncompete laws. Maine and Utah bar noncompetes with health care providers and Maryland bans them for certain licensed architects.
