What Changed: Overview of the New Law
Virginia has enacted one of the most significant changes to its franchise laws in recent years. On April 13, 2026, Governor Abigail Spanberger signed House Bill 69 and Senate Bill 240 into law, substantially amending the Virginia Retail Franchising Act (the “Act”). Effective July 1, 2026, the amendments prohibit franchisors from including most post-termination noncompete provisions in franchise agreements offered or entered into in Virginia.
Specifically, the amended Act makes it unlawful for a franchisor to offer or enter into a franchise agreement that restricts a franchisee, following the expiration or termination of the franchise relationship, from engaging in the retail sale, offering, or distribution of goods or services similar to those offered by the franchisor. As a result, franchisors generally may no longer require Virginia franchisees to refrain from operating a competing business after their franchise rights have ended.
The amendments also impose new choice-of-law requirements, mandating that certain franchise agreements involving a franchise location in Virginia be governed by Virginia law. Together, these changes represent a significant shift in the legal framework governing franchise relationships in Virginia and may necessitate revisions to franchise agreements, state-specific addenda, and compliance protocols. Franchisors with existing or prospective Virginia franchisees should carefully assess the implications of these amendments and take appropriate steps to ensure compliance before offering, renewing, extending, or amending franchise agreements in the Commonwealth.
Why It Matters for Franchisors
For decades, post-term noncompete provisions have been a standard feature of franchise agreements and a key tool for protecting franchise system goodwill, proprietary business methods, confidential information, and customer relationships. Virginia’s amendment significantly alters that framework. Franchisors that have traditionally relied on post-term restrictive covenants to safeguard their brands and business interests must now reevaluate their contractual protections and compliance strategies. Going forward, franchisors operating in Virginia should expect that traditional post-term noncompete provisions in covered agreements will be unenforceable if included in franchise agreements offered or entered into on or after July 1, 2026.
Limited Exception for Franchise Sales
Virginia’s prohibition on post-termination noncompete provisions is not without exceptions. The amended statute permits a limited noncompete restriction when a franchisee voluntarily sells its franchise business at a mutually agreed-upon price, whether to a third party or back to the franchisor. In those circumstances, the parties may agree to a noncompete covenant lasting up to two years following the sale.
Importantly, the amendments are forward-looking and do not invalidate existing franchise agreements. Franchise agreements entered into before July 1, 2026 generally remain subject to the law in effect when they were executed. However, franchisors should carefully evaluate renewals, amendments, transfers, extensions, and other franchise-related agreements entered into on or after July 1, 2026, as such transactions may trigger application of the amended Act.
The statutory exception for franchise sales reflects the long-recognized legal distinction between restrictive covenants imposed on franchisees during or following a franchise relationship and those arising from the sale of a business. Courts have historically afforded greater protection to noncompete agreements associated with the sale of a business because the purchaser is acquiring valuable assets, including goodwill, customer relationships, and other proprietary business interests, and has a legitimate interest in protecting the value of that acquisition.
Virginia Law Must Govern Virginia Franchise Agreements
As previously noted, the amendments do more than prohibit post-termination noncompete provisions. They also require that any franchise agreement involving the establishment or operation of a franchised business in Virginia be governed by Virginia law. As a result, franchisors may no longer rely on governing-law provisions that designate the law of another state for covered Virginia franchise relationships.
Because many franchisors utilize standardized franchise agreements that select the law of the franchisor’s home state, this change may require revisions to existing franchise documentation and state-specific addenda. Franchisors offering franchises in Virginia should carefully review their governing-law provisions and related disclosure documents to ensure compliance with the amended Act before July 1, 2026.
Practical Implications for Franchisors
The loss of post-termination noncompete protections does not mean franchisors are without remedies. Instead, franchisors should consider strengthening alternative contractual protections that remain enforceable.
Areas that deserve particular attention include:
- Confidentiality and trade secret protections.
- Non-disclosure obligations regarding proprietary operating systems and manuals.
- Customer and vendor non-solicitation provisions, where permitted.
- Robust trademark de-identification requirements upon termination.
- Technology access restrictions and data security measures.
- Strong post-termination transition obligations.
- Rights to purchase assets or leasehold interests under appropriate circumstances.
Franchisors should also evaluate operational controls that help protect system goodwill and confidential information during the franchise relationship, rather than relying primarily on post-term restrictive covenants.
What Franchisors Should Do Now
With the July 1, 2026 effective date approaching, the immediate practical response is clear. Franchisors should proactively review their franchise disclosure documents, franchise agreements, state-specific addenda, and related agreements. Franchise systems that sell or plan to sell franchises in Virginia after July 1 should ensure that their documents comply with the new statutory requirements before making any offers or sales in the Commonwealth.
Franchisors should also consult franchise counsel regarding the treatment of renewals, transfers, amendments, and other transactions that may trigger application of the amended statute.
If you have questions or would like counsel on how to comply with Virginia’s recent changes in its franchise law, contact us to see if we can assist you. Call Michelle Murray-Bertrand, Esq. at 212-705-0855 or [email protected].
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