Virginia enacts prohibition of post-termination non-competes in franchise agreements

On April 13, 2026, the Commonwealth of Virginia amended the Virginia Retail Franchising Act (Va. Code §§ 13.1-557 et seq.) (the Act) through House Bill 69 and its companion, Senate Bill 240. The amendments take effect July 1, 2026, and make two major changes that apply to most franchises operating in Virginia: 

1. They prohibit post-termination non-competition provisions in franchise agreements covered by the Act; and
   
   
2. They require covered franchise agreements to be governed by Virginia law.

Virginia franchise law

First enacted in 1972 to govern the offer and sale of franchises in Virginia, the Act regulates the offer, sale, and termination of franchises. Among other things, it mandates franchise registration with the State Corporation Commission Division of Securities and Retail Franchising and prohibits fraudulent and deceptive practices by franchisors. The Act applies to any franchise whose performance contemplates or requires the franchisee to establish or maintain a place of business in Virginia.

Prior to the recent amendments, the Act did not expressly address post-termination non-competition provisions or require Virginia law to govern franchise agreements covered by the Act.

Prohibition of post-termination non-competition provisions

The amendments add a new subsection to Va. Code § 13.1-563 that makes it unlawful for a franchisor to “offer or enter into a franchise agreement that restricts the right of a franchisee to engage in the business of offering, selling, or distributing goods or services at retail after termination or expiration of the franchise agreement.” As a result, effective July 1, 2026, franchise agreements covered by the Act may no longer include post-termination or post-expiration non-competition clauses. 

The amendments include one narrow carve-out for situations in which a franchisee voluntarily sells its franchise at a mutually agreed-upon price – whether to a third party or to the franchisor. In those circumstances, the sale transaction may include a non-competition provision for a period of up to two years following the sale. 

Mandate of Virginia governing law

The amendments add a new subsection D to Va. Code § 13.1-559, which provides: “Any franchise contract or agreement offered or entered into pursuant to the terms of this chapter shall be governed by the laws of the Commonwealth.” As a result, effective July 1, 2026, franchise agreements covered by the Act must be governed by Virginia law, regardless of a franchisor’s typical governing law provision. 

Application of the amendments

The legislation expressly provides that “nothing in this act shall be construed to alter, modify, or impair any contract entered into, extended, or amended prior to July 1, 2026.”  This grandfathering provision preserves franchise agreements that are in place before July 1, 2026.  However, it is unclear whether the use of the words “extended” and “amended” in this provision will be interpreted to mean that any extension or amendment of an existing franchise agreement on or after July 1, 2026 would cause the entire agreement to become subject to the amendments. Franchisors may therefore wish to consider this possibility when planning renewals, amendments, or extensions of existing franchise agreements covered by the Act.

Immediate action items

Franchisors that have sold or plan to sell franchises in Virginia may wish to take steps to prepare for the amendments. This may include working with counsel to revise Virginia-specific addenda or form agreements, updating Franchise Disclosure Documents to reflect the new requirements, and addressing upcoming renewal, amendment, and extension timelines for Virginia franchises. 

In addition, because the amendments eliminate post termination non competition provisions for covered franchise agreements, franchisors may wish to consider other contractual and legal mechanisms that remain available under the amended law. For example, the amendments do not appear to affect non-solicitation provisions, confidentiality obligations, non-disclosure requirements, trade secret protections, or other intellectual property protections.

For more information, please contact the author or your usual DLA attorney.