Non-compete Agreements Under the Microscope: What Makes Them Enforceable
Monday, January 26th, 2026
Approximately one in five workers in the United States are bound by a non-compete agreement. In response, the Federal Trade Commission attempted to implement a nationwide non-compete covenant ban in early 2024. The ban immediately met constitutional challenges in federal court and was quickly enjoined from enforcement1. However, as of September 2025, the Federal Trade Commission has vacated the Non-Compete Clause Rule and dismissed all pending appeals2. Unfair labor practices are still subject to regulation by the U.S. Department of Labor, but employers can rest assured that no nationwide non-compete ban is currently in effect.
Earlier this year, U.S. Senators submitted a bipartisan bill entitled the “Workforce Mobility Act of 2025” that seeks to limit the use of certain non-compete covenants. The bill bans most non-compete covenants, except for the limited circumstances of the dissolution of a partnership or the sale of a business. If enacted, the bill could significantly reshape the landscape of non-compete enforceability. For now, however, the enforceability of non-compete covenants remains governed by state law.
There is currently a bill pending in Tennessee that would broadly prohibit non-compete covenants3. The action has been deferred to the 2026 legislative calendar. Thus, the legal state of non-compete covenants is subject to change in the coming year. What follows is an introduction to non-compete covenants and the key to enforceability based on the current legal state.
There is no general Tennessee statute regulating non-compete covenants, except for a statute permitting non-compete covenants for certain healthcare workers4.
Signing an agreement does not automatically make it enforceable. Rather, the specific terms of the agreement will be closely examined. Generally, a non-compete covenant must be: (1) reasonable in duration, type of work restricted, and geographic scope; (2) necessary to protect the employer’s legitimate business interests; and (3) not harmful to the public5. Courts may modify the covenant or hold it entirely unenforceable6. Enforceability is determined at the time an agreement is executed. Subsequent conduct by the employer or employee is not relevant in determining the covenant’s enforceability.
There are certain elements which should always be considered in ascertaining the reasonableness of such agreements. Among these are: (1) the consideration supporting the agreements; (2) the threatened danger to the employer in the absence of such an agreement; (3) the economic hardship imposed on the employee by such a covenant; and (4) whether or not such a covenant is harmful to public interest7.
A non-compete signed prior to, contemporaneously with or shortly after employment begins is part of the original agreement and is supported by adequate consideration8. Where a non-compete is signed during the employment relationship, continued employment is not sufficient consideration9. Compensation increases, promotions, and other favorable changes in the terms and benefits of employment can constitute sufficient consideration for a non-compete signed during employment if such benefits are bargained for by the employee in exchange for the covenant10.
Whether an employer has a legitimate business interest to protect is perhaps the most important factor to be considered when analyzing enforceability. The covenant must aim to actually protect something, not just reduce ordinary competition11. Courts consider whether the employee had access to confidential information, specialized training, or key customer relationships12. Confidential information generally must meet the definition of a trade secret to be considered a protectable business interest13.
Tennessee law defines a trade secret as “information, without regard to form, including but not limited to technical, nontechnical or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy14.” Generally, courts have ruled that an employee’s knowledge of a company’s policies, procedures, and client relationships is not considered a trade secret. General knowledge and skill appertain exclusively to the employee, even if acquired with expensive training, and thus do not constitute protectable interests of the employer15.
A business desiring to impose a noncompete covenant should: (1) draft the covenant specific to the company’s legitimate business interest; (2) keep duration and geographic restrictions narrow; (3) assure the covenant is supported by adequate consideration; and (4) explicitly define what counts as a violation of the covenant. It is also wise to consider whether a non-solicitation, confidentiality, or non-disclosure covenant might be more appropriate.
Courts have consistently advocated for less-restrictive alternatives than non-compete covenants, such as a non-solicitation agreement. These provisions can be enforced absent a geographic restriction if they prohibit the employee from “soliciting the business of and working for a specific group of persons.” The specific group of persons usually refers to customers or clients of the employer. This protection only applies to present customers or clients of the employer. Past or future clients are not considered a protectable interest of an employer16.
A non-disclosure agreement may be more appropriate if the goal is to protect proprietary information, such as potential business partnerships, product development, research data, sensitive financial information, and client data, rather than unfair competition.
Employers must remain mindful that enforceability of non-compete covenants in Tennessee continues to be governed by state law. Current Tennessee law imposes no general statutory prohibition or permission on non-compete covenants. However, courts scrutinize these covenants closely to ensure they are narrowly tailored, supported by legitimate business interests, and not harmful to the public or unduly burdensome on employees. With legislation that could significantly alter the landscape deferred to 2026, employers should keep informed of potential developments while ensuring any restrictive covenants are reasonable, supported by adequate consideration, and focused on preventing unfair, not ordinary, competition.
Whether you are seeking to impose, enforce, or defend against a non-compete covenant, Lipsey Morrison is here to help. Please contact us at (865) 546-6321 if you need assistance with a non-compete covenant.
This communication is for general informational purposes only and does create or constitute legal counsel. Please consult a qualified attorney for legal advice tailored for you.
1 See Ryan LLC v. Federal Trade Comm’n, 746 F.Supp.3d 369 (N.D. Tex. 2024) (enjoining the FTC from enforcing the rule); Properties of the Villages, Inc. v. Federal Trade Comm’n, No. 5:2024cv00316 (M.D. Fla. 2024).
2 Notice of Appeal, Ryan LLC v. Federal Trade Comm’n, 746 F.Supp.3d 369 (5th Cir. 2024) (No. 3:24-CV-00986-E); Notice of Appeal, Properties of the Villages, Inc. v. Federal Trade Comm’n, No. 5:2024cv003116 (11th Cir. 2025); Unopposed Motion to Voluntarily Dismiss Appeal, Properties of the Villages, Inc. v. Federal Trade Comm’n, No. 5:2024cv003116 (11th Cir. 2025)
3 See HB1034/SB0995.
4 T.C.A. § 63-1-148.
5 Central Adjustment Bureau v. Ingram, 678 S.W.2d 28 (Tenn. 1984).
6 Central Adjustment Bureau v. Ingram, 678 S.W.2d 28 (Tenn. 1984).
7 Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (Tenn. 1966).
8 Ramsay v. Mutual Supply Co., 427 S.W.2d 849 (Tenn. 1968).
9 See Di Deeland v. Colvin, 347 S.W.2d 483 (Tenn. 1961).
10 Central Adjustment Bureau v. Ingram, 678 S.W.2d 28 (Tenn. 1984).
11 Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984).
12 Vantage Tech, LLC. v. Cross, 17 S.W.3d 637 (Tenn. Ct. App. 1999).
13 Heyer-Jordan & Associates, Inc. v. Jordan, 801 S.W.2d 814 (Tenn. Ct. App. 1990).
14 Tenn. Code Ann. § 47-25-1702(4).
15 Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984).
16 Thompson, Breeding, Dunn, Creswell & Sparks v. Bowlin, 765 S.W.2d 743 (Tenn. Ct. App. 1987).