Key Takeaways
- • Virginia's SB 170 (signed April 13, 2026, effective July 1, 2026) voids non-competes for employees discharged without cause unless employers provide severance disclosed at signing, applying to all employees regardless of wage level and creating $10,000 civil penalties per violation plus attorney fees and expert witness costs.
- • Tennessee's House Bill 1034 (signed May 7, 2026, effective July 1, 2026) establishes a $70,000 annual compensation threshold below which non-competes are unenforceable, creates rebuttable presumptions for reasonable durations (two years for employees, three years for distributors/dealers, five years for sale-of-business), and grants courts explicit authority to modify overbroad agreements.
- • Both states preserve enforceability of confidentiality agreements, customer non-solicitation agreements, and employee non-solicitation agreements, allowing employers to protect legitimate business interests through alternative restrictive covenants.
- • The legislation reflects a national trend toward restricting non-compete enforceability while diverging from states like Florida, which expanded non-compete protection under the CHOICE Act (effective July 1, 2025), permitting agreements up to four years for employees earning more than twice the county mean wage.
- • Multi-state employers face an increasingly fragmented compliance landscape requiring jurisdiction-specific agreement drafting and immediate audit of existing non-competes before July 1, 2026 implementation, with particular attention to renewal and amendment dates that trigger new law application.
Summary
Virginia and Tennessee have enacted significant restrictions on non-compete agreements, both effective July 1, 2026, intensifying a national regulatory trend that limits enforceability while preserving alternative protective mechanisms. Virginia Governor Abigail Spanberger signed SB 170 on April 13, 2026, substantially narrowing the conditions under which employers may enforce non-competes. The law renders non-competes unenforceable against any employee terminated without cause unless the employer provides severance or other monetary compensation disclosed when the covenant is signed. This prohibition applies universally across all employees, superseding any existing low-wage worker protections. Additionally, SB 170 expands civil enforcement rights to all employees, permitting them to sue former employers for non-compete violations within a two-year statute of limitations. Courts may void agreements and award injunctive relief, liquidated damages, lost compensation, attorney fees, and expert witness fees. Employers face $10,000 civil penalties per violation and must post the statute or Department-approved summary in the workplace. However, employers retain the right to enforce non-competes against employees discharged for cause.
Tennessee's House Bill 1034, signed by Governor Bill Lee on May 7, 2026, adopts a compensation-threshold approach. The law prohibits employers from requiring, requesting, or enforcing non-competes against employees earning less than $70,000 in annualized compensation (wages, salary, commissions, and nondiscretionary bonuses). Non-competes below this threshold are void. The statute establishes rebuttable presumptions for duration reasonableness: two years or less for employees and independent contractors, three years or less for distributors and dealers, and the longer of five years or the payment period for sale-of-business transactions. Courts receive express statutory authority to "blue pencil" overbroad covenants—modifying rather than invalidating them—though employers should not rely on judicial reformation as a drafting backstop. Both laws apply only to non-competes entered into, renewed, or amended on or after July 1, 2026, offering limited grandfathering for existing agreements.
A critical distinction emerges between restrictive states and jurisdictions moving in the opposite direction. Florida's CHOICE Act, effective July 1, 2025, permits non-competes up to four years and covered garden leave agreements for employees earning more than twice the annual mean wage of the applicable county (excluding health care practitioners), explicitly protecting such agreements from public policy restraint-of-trade challenges. This divergence creates substantial compliance complexity for multi-state employers. Both Virginia and Tennessee preserve employers' ability to enforce confidentiality agreements, customer non-solicitation provisions, and employee non-solicitation agreements, allowing alternative business protections where non-competes become unenforceable. Employers should immediately audit existing non-compete portfolios, evaluate severance disclosures in Virginia agreements, verify compensation thresholds in Tennessee contracts, and consider fortifying alternative protective covenants. The patchwork regulatory environment requires jurisdiction-specific drafting and counsel engagement before July 1, 2026 implementation.
Tennessee's House Bill 1034, signed by Governor Bill Lee on May 7, 2026, adopts a compensation-threshold approach. The law prohibits employers from requiring, requesting, or enforcing non-competes against employees earning less than $70,000 in annualized compensation (wages, salary, commissions, and nondiscretionary bonuses). Non-competes below this threshold are void. The statute establishes rebuttable presumptions for duration reasonableness: two years or less for employees and independent contractors, three years or less for distributors and dealers, and the longer of five years or the payment period for sale-of-business transactions. Courts receive express statutory authority to "blue pencil" overbroad covenants—modifying rather than invalidating them—though employers should not rely on judicial reformation as a drafting backstop. Both laws apply only to non-competes entered into, renewed, or amended on or after July 1, 2026, offering limited grandfathering for existing agreements.
A critical distinction emerges between restrictive states and jurisdictions moving in the opposite direction. Florida's CHOICE Act, effective July 1, 2025, permits non-competes up to four years and covered garden leave agreements for employees earning more than twice the annual mean wage of the applicable county (excluding health care practitioners), explicitly protecting such agreements from public policy restraint-of-trade challenges. This divergence creates substantial compliance complexity for multi-state employers. Both Virginia and Tennessee preserve employers' ability to enforce confidentiality agreements, customer non-solicitation provisions, and employee non-solicitation agreements, allowing alternative business protections where non-competes become unenforceable. Employers should immediately audit existing non-compete portfolios, evaluate severance disclosures in Virginia agreements, verify compensation thresholds in Tennessee contracts, and consider fortifying alternative protective covenants. The patchwork regulatory environment requires jurisdiction-specific drafting and counsel engagement before July 1, 2026 implementation.
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