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Explaining Non-Compete Laws in Tennessee

What are non-compete laws in Tennessee? Non-compete clauses are difficult to enforce by a former employer given that these clauses contained in contracts are often viewed as being contrary to competition and the freedom of individuals to work where they choose.  However, some employers may have a strong interest in not having a former employee leave with valuable information and then enter into direct competition with them. In light of this tension, non-compete clauses present thorny questions for courts to decide whereby they are forced to balance the rights of the employer against the former employee. Therefore its, important to be careful when using non-compete clauses particularly if they ultimately will not be enforceable. On one hand, a non-compete clause that is too restrictive will not be enforceable, on the other hand, one that is too lenient will allow an ex-employee to gain an unfair advantage.

Non-Compete Clauses Under Tennessee Law

Tennessee courts will enforce a non-compete clause if it is “reasonable” under the particular circumstances. In evaluating whether to enforce a non-compete clause restrictive covenant, a court must consider (1) the consideration exchanged, (2) the threatened danger to the enforcing party, (3) the economic hardship imposed upon the bound party, and (4) whether the covenant is inimical to the public interest. Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (Tenn. 1966).

Defining an Employer’s Protectable Interest and Non-Compete Laws

One of the most important components of an enforceable non-compete clause involves the employer establishing that they have a business interest that requires protection by a non-compete clause. An employer must generally show that without a non-compete clause an employee would have an unfair advantage over their former employer. Tennessee courts recognize analyze these questions through  a three-part analysis which asks: (1) whether the employer provided the employee with specialized training; (2) whether the employee is given access to trade or business secrets or other confidential information; and (3) whether the employer’s customers tend to associate the employer’s business with the employee due to the employee’s repeated contacts with the customers on behalf of the employer.

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