In April 2026, Virginia amended the Virginia Retail Franchising Act making significant modifications to post-termination competition restrictions. Virginia has enacted significant new protections for franchisees regarding post-term competition restrictions.
Key Provisions of the New Law
The legislation includes two main changes:
1. Governing Law Requirement: All retail franchise agreements involving franchises offered or operating in Virginia must now be governed by the laws of the Commonwealth of Virginia. This overrides choice-of-law provisions that might otherwise apply another state’s law.
2. Ban on Post-Term Non-Competes: Effective for franchise agreements signed on or after July 1, 2026, it is now unlawful for any person, in connection with the sale or offer to sell a franchise in Virginia, to offer or enter into a franchise agreement that:
• Restricts the franchisee’s right to engage in the business of offering, selling, or distributing goods or services at retail after the termination or expiration of the franchise agreement; or
• Includes such a restriction as part of the settlement of a controversy (unless the settlement is approved by a court of competent jurisdiction).
Important Exception: The ban does not apply to a restriction that is part of a sale of the franchise—specifically, when a franchisee sells the franchise to a third party or back to the franchisor.
Effective Date and Application
• The law takes effect on July 1, 2026.
• It applies to franchise agreements offered or entered into on or after the effective date.
• Existing franchise agreement entered into prior to July 1, 2026 are exempt including any amendments or extension of those agreements.
Note that this is distinct from Virginia’s separate (and evolving) restrictions on employee non-compete agreements, which have seen recent expansions regarding low-wage/non-exempt workers and termination without severance.
Implications for Franchisors
• Amend FDD: This surprise legislation was passed during the middle of franchise renewal season, so many franchisors already submitted their annual updates to Virginia in the days before the legislation was passed. These franchisors will need to amend their FDD to address these changes in their Virginia state specific addendum before awarding franchises in Virginia after July 1, 2026. Franchisors should consider whether to accelerate or delay their amendment depending on their franchise development pipeline weighing the competing factors that a rush of amendments filings may delay some franchise sales vs. the limited window to sign franchise agreements with non-competes before the July 1st deadline. Failure to comply could result in unlawful offers under the Retail Franchising Act, potentially exposing franchisors to regulatory action by the Virginia State Corporation Commission or private claims.
• Franchise Agreement Audit: These legal developments present franchisors with the opportunity to re-evaluate the use of other protections in the franchise agreement. Non-competes were always just one tool in the franchise attorney’s toolbox to protect the brand. Such provisions as lease riders, liquidated damages, non-solicits, buyout rights, and confidentiality agreements have always and continue to provide important protections to protect franchisors from legitimate competitive harm caused by a franchisee attempting to misappropriate a brand’s intellectual property and equity.
If you have questions about how this affects your specific franchise system, agreements, or operations, please reach out to Manning Fulton’s franchise team for assistance in reviewing and updating your documents.
