Virginia Bans Post-Term Non-Compete Provisions in Franchise Agreements

On April 13, 2026, Governor Abigail Spanberger signed legislation amending the Virginia Retail Franchising Act. House Bill 69 and its companion, Senate Bill 240, prohibit the offer or sale of any franchise in Virginia containing a post-term non-compete provision. The ban takes effect on July 1, 2026. Notably, the new law is prospective only—franchise agreements already in effect, as well as those executed on or before June 30, 2026, remain unaffected. The legislation also provides that Virginia law will apply to any franchise agreement offered or entered under Virginia’s franchise statute.

Key Provisions of the New Law

Starting July 1, 2026, it will be unlawful for any person to enter into or offer a franchise in Virginia that restricts a franchisee’s right to engage in offering, selling, or distributing goods or services at retail following the termination or expiration of the franchise agreement. Franchisors doing business in Virginia should therefore expect to remove post-term non-compete clauses from any franchise agreements used for offers or sales on or after that date.

The statute does include one notable exception. Where a franchisee voluntarily sells the franchise at a mutually agreed-upon price—whether to a third party or back to the franchisor—the parties may include a provision restricting the selling franchisee from engaging in the business of offering, selling, or distributing goods or services at retail. Any such restriction, however, may not exceed a period of two years following the date of the sale.

Practical Implications for Franchisors and Franchisees

Although the law does not apply retroactively and leaves pre-July 1 agreements intact, franchisors with active Virginia registrations should be aware of new disclosure obligations. The Virginia State Corporation Commission’s Division of Securities and Retail Franchising (the “Division”) recently notified the franchise community that, on or after July 1, 2026, all franchisors offering or selling franchises in Virginia must incorporate language reflecting these legislative changes into their franchise disclosure documents (FDDs). The Division issued specific guidance and model language addressing the transition, recognizing that some franchise registrations approved or renewed before July 1 will remain in effect beyond that date. The Division has outlined two paths for affected franchisors.

Under the first option, franchisors that do not intend to sell a franchise in Virginia on or after July 1, 2026, are not required to update their FDD immediately. Instead, the required language may be incorporated at the time of their next renewal. Under the second option, franchisors that may or will sell a franchise in Virginia on or after July 1, 2026, must file an amendment application to add the mandated language and must use the updated FDD for all Virginia prospective franchisees beginning on that date.

Franchisors with renewal applications approaching in the near term may also wish to consider including the Division’s specified language in their FDDs at the time of renewal, with a notation that the new provisions apply only to franchise agreements entered after June 30, 2026.

Recommended Next Steps

Franchisors operating or seeking to offer franchises in Virginia should consult with experienced franchise counsel promptly to assess their obligations. Counsel can assist with preparing, updating, and submitting FDDs, franchise agreements, and any necessary state-specific addenda to ensure full compliance ahead of the July 1 effective date. The Division is expected to continue issuing guidance as the effective date approaches, and franchise industry participants should monitor those developments closely.

For more information, please visit map.foley.com