Significant Amendments to Virginia Franchise Law Prohibit Post-termination Noncompete Provisions in Franchise Agreements

Effective July 1, 2026

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At a Glance

Effective July 1, 2026, Virginia's Amended Retail Franchising Act makes it unlawful to offer or enter into a franchise agreement that includes a noncompete provision extending beyond the term of the franchise agreement.
Franchise agreements entered into, extended, or modified before July 1, 2026, are not impacted by this legislation; this amendment applies only prospectively.
Franchises sold by the franchisee to a third party or back to the franchisor are specifically exempted from the prohibition on post-term noncompete provisions.
This amendment also mandates the application of the laws of the Commonwealth to franchise agreements that contemplate or require business in Virginia.

Virginia's Retail Franchising Act applies to any franchise agreement that contemplates or requires the franchisee to establish or maintain a place of business in Virginia. On April 13, 2026, Virginia amended the Act in several key ways.

First, beginning July 1, 2026, it will be unlawful in Virginia "[t]o 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 the termination or expiration of the franchise agreement." In other words, franchisors may no longer include post-termination noncompete agreements in franchise agreements to prohibit former franchisees from competing after the termination or expiration. Notably, however, the Act expressly preserves the ability of parties to restrict a former franchisee from competing for a period of no more than two years "in the event that a franchisee sells a franchise at a mutually agreed upon price to a third party or back to the franchisor." The Act specifies that it is prospective only and does not alter, modify, or impair any franchise agreement entered into before July 1, 2026.

Second, also beginning July 1, 2026, the Act will require that any franchise agreement that contemplates or requires the franchisees to establish or maintain a place of business in Virginia must be governed by the laws of the Commonwealth of Virginia. Again, this requirement is prospective only.

Virginia's ban on post-termination noncompete agreements comes at a time when noncompete provisions are being subjected to increased scrutiny — generally on both the state and federal levels, and also in the context of franchise agreements specifically. The International Franchise Association has long advocated the importance of noncompete agreements between franchisors and franchisees, highlighting that such agreements are "especially critical to prevent former franchisees from unfairly using proprietary information to compete with current franchise small business owners, which would be detrimental to the franchise business model, the brands companies have built, and the local businesses franchisees run." The North American Securities Administrators Association (NASAA) has also offered commentary on the use of post-termination noncompetes in franchising, including in an updated Franchise Advisory in February 2026. NASAA's Advisory recognizes that there are "areas which may reasonably require protection through a reasonable non-compete," such as "[s]ystem goodwill, customer relationships, and protection of other franchisees."

What This Means for Franchisors

Franchisors using post-termination noncompete agreements should review, and update if needed, their existing agreements to ensure they comply with applicable state laws. In Virginia, this will require removal by July 1, 2026, of any post-termination noncompetes or provisions providing for a governing law other than Virginia law.
Even in states that do not ban post-termination noncompete agreements, franchisors should review those provisions to ensure they are reasonable and are applied to achieve legitimate protection of the franchise brand and system.
Franchisors should also consider evaluating and strengthening other ways to protect trade secrets, confidential information, customer lists, and other proprietary assets in situations where post-termination noncompetes are banned or otherwise subject to increased scrutiny.
Work with counsel for more information on how your business will be impacted by Virginia's Amended Retail Franchising Act or for advice on the evolving legal landscape related to noncompetes.

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