Virginia Franchise Non-Compete Ban Takes Effect July 1 With New Governing-Law Rule

Virginia franchisors are approaching a July 1 legal deadline that changes how new franchise agreements can be written in the Commonwealth. House Bill 69 and its Senate companion amended the Virginia Retail Franchising Act to prohibit post-term non-compete provisions in covered franchise agreements and to require Virginia law as the governing law for franchise agreements and related agreements.

The timing makes this a current operating issue, not just an April legislative update. Any franchisor offering or selling franchises in Virginia now has to make sure its current forms, addenda and disclosure processes are aligned before new agreements are signed after the effective date. Legal summaries from franchise law firms have emphasized that the law is prospective. Existing agreements and agreements entered into on or before June 30, 2026, are generally not affected, but later extensions, amendments or renewals can require closer review.

The substance is significant because post-term non-competes are common in franchise contracts. Franchisors have historically used them to stop former franchisees from immediately operating a competing business after leaving the system. The stated rationale is usually protection of brand standards, confidential know-how, customer goodwill and the remaining franchise network. Franchisees and regulators, by contrast, often view broad restrictions as a limit on a former operator's ability to keep earning a living from skills and local market knowledge they built themselves.

Virginia's new rule shifts that balance for covered agreements. Beginning July 1, it will be unlawful to offer or enter into a franchise agreement in Virginia that restricts a franchisee's right to engage in the business of offering, selling or distributing goods or services at retail after termination or expiration of the agreement. The law also limits the ability to choose another state's law as a way around Virginia's franchise protections.

For franchisors, the practical work is immediate. Franchise disclosure documents, state addenda, renewal forms, transfer documents and related agreements may all need a consistency check. A system that sells in many states can easily overlook a clause that sits outside the main franchise agreement but still restricts activity after termination. Operators should also make sure development teams and brokers understand which agreement versions apply in Virginia so a sales process does not create compliance risk at the signing stage.

For franchisees, the change may improve post-exit flexibility, but it does not remove every obligation. Confidentiality, trademark restrictions, trade secret protections, customer data rules, non-solicitation provisions and in-term restrictions may still matter, depending on the contract and applicable law. The most important effect is that Virginia is narrowing one of the most powerful restrictions that can follow a franchisee after the relationship ends.

The broader franchise market should treat Virginia as part of a wider state-by-state shift. Federal non-compete policy has been uncertain, but state franchise laws continue to move. Multi-state franchisors cannot assume one standard non-compete clause will remain acceptable everywhere. The safest operational response is a clean contract review, state-specific addenda that are easy for development teams to use, and franchisee-facing explanations that make the change clear without weakening legitimate brand protections.

"Multi-state franchisors cannot assume one standard non-compete clause will remain acceptable everywhere."