direct deposit and non-compete clause

Can a company require the employee to have his/her check directly deposited?

Can a company require its existing employees to sign a non-compete clause?

Thank you for your help.


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  • State law should govern the answer to both of your qestions.

    Some states allow companies to mandate Direct Deposit. I think in TN you only need the employee to designate the financial institution (Check out TN Code 7-1-609. Payroll deduction savings - Direct deposit of wages.) This may not be the controlling provision. I'd call your state labor department.

    Not sure about non-competes in TN.








  • Melynn,

    Generally, a Tennessee employer can require employees to accept direct deposit, and directly deposited pay is deemed immediately available, as required by law. The federal Electronic Funds Transfer Act says employers cannot require employees to establish accounts with a particular financial institution to accept the direct deposits.

    With regard to requiring existing employees to sign non-compete agreements, this raises at least two issues under Tennessee law. First, it is not wise to require "all" employees to sign a non-compete agreement, because the employer's legitimate needs and interests in having a non-compete should be evaluated on a case-by-case basis. Second, Tennessee law requires that an employee receive some sort of "consideration" in order for a non-compete agreement to be valid and binding. For new employees, merely giving them the job is sufficient consideration. But for existing employees (who already have their jobs), something more must be given in exchange for signing the non-compete agreement. It could be a monetary payment or some other benefit. Tennessee law says that continuing the employment of the employee COULD be sufficient consideration, if the employment continues for a significant enough period of time (there is no magic number).

    Non-compete agreements have benefits, but each state's laws will typically have nuances and tricky issues. Tennessee is no different.

    Feel free to call (423-756-6400) or e-mail (blype@mbgplaw.com) if this raises further questions.


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