Background
On April 13, 2026, Virginia Governor Abigail Spanberger signed HB 69 / SB 240 into law. The legislation, which takes effect July 1, 2026, amends Virginia’s Retail Franchising Act (Va. Code §§ 13.1-557 et seq.) in two significant ways. The Act applies to any franchise system that contemplates or requires the franchisee to establish or maintain a place of business in Virginia. Until now, the Act did not expressly address post-term non-competition covenants or require that Virginia law govern franchise contracts. The new legislation changes both.
Key Change #1: Ban on Post-Term Non-Compete Provisions
Post-Term Non-Competes are Statutorily Unenforceable.
The most consequential amendment adds a new subsection to §13.1-563, the Act’s “unlawful offers” provision. It is now unlawful for any person, in connection with the offer or sale of a franchise in Virginia, to offer or enter into a franchise agreement that restricts a franchisee’s right to engage in the business of offering, selling, or distributing goods or services at retail after the franchise agreement terminates or expires. In practical terms, franchise agreements offered to franchisees operating or intending to operate in Virginia may no longer contain post-term non-compete clauses. The prohibition applies broadly by covering restrictions triggered by both termination and expiration of the franchise agreement.
The New Rule Includes an Important Albeit Narrow Exception.
The new law includes one important carve-out. If a franchisee voluntarily sells the franchise at a mutually agreed-upon price—whether to a third party or back to the franchisor—the sales transaction (transfer) may include a non-compete restricting the selling franchisee from engaging in a competing retail business for a period of no more than two years after the sale (Va. Code § 13.1-563(B)).
The exception is narrow. It applies only when there is a voluntary sale at a mutually agreed-upon price. It does not extend to franchisor-initiated terminations, non-renewals, or expirations where no sale occurs. Franchisors and purchasing franchisees should also note that the two-year cap may be shorter than durations typically seen in existing agreements or traditional business sale transactions.
Alternative Protections Remain Available.
The new law does not affect non-solicitation provisions, confidentiality and non-disclosure requirements, trade secret protections, or other intellectual property tools. Franchisors will need to ensure that their agreements and internal practices are structured to maximize the protection these tools provide in the absence of enforceable post-term non-competes.
Key Change #2: Mandatory Virginia Governing Law
The April 13, 2026, amendment also add a new subsection D to § 13.1-559 providing that any franchise contract or agreement offered or entered into under the Act shall be governed by the laws of the Commonwealth of Virginia. This is a significant development for franchise systems that have historically designated the law of another state as the governing law in their franchise agreements. For any franchise within the scope of the Act that is entered into on or after July 1, 2026, and contemplates a Virginia place of business, Virginia law will now govern the contract, regardless of any contrary choice-of-law provision.
Important Caveat: Existing Agreements Do not Need to Be Amended Until Renewal
The legislation expressly provides that nothing in the act shall be construed to alter, modify, or impair any contract entered into, extended, or amended prior to July 1, 2026. Franchise agreements already in place before the effective date are therefore protected.
That being said, the statute’s use of the words “extended” and “amended” suggests that any extension or amendment of an existing franchise agreement on or after July 1, 2026, could bring the entire agreement within the scope of the new requirements. Franchisors should map out upcoming renewal and amendment timelines for Virginia franchisees and plan accordingly.
Remedies and Enforcement
Because the post-term non-compete ban and the governing-law mandate are embedded in the Act’s existing enforcement framework, violations carry the same consequences as other Act violations which include: (i) revocation or refusal to renew a franchise registration; (ii) imposition of civil penalties of up to $25,000 per violation, and (iii) the issuance of injunctions. Franchisees retain private civil remedies, including actions for damages and reasonable attorney’s fees.
April 14 Guidance from the Division of Securities and Retail Franchising
On April 14, 2026, the Division of Securities and Retail Franchising issued guidance addressing franchisors currently in the process of updating their franchise disclosure documents and franchise agreements for the current cycle, many of whom have already filed or will shortly file amendment applications in Virginia. The Division has also addressed franchisors whose registrations were approved prior to July 1, 2026, but do not expire until after that date. According to the Division, such franchisors have two options:
- Franchisors that do not anticipate selling any franchises in Virginia before their current registration expires may defer the required amendments until renewal, at which time the necessary changes must be incorporated.
- Franchisors that anticipate making, or that will in fact make, any franchise sales in Virginia on or after July 1, 2026, must submit an amendment application to the Division in advance of doing so and must ensure that all franchise disclosure documents provided to prospective Virginia franchisees on or after that date include the required language addressing the new statutory provisions.
Recommended Action Steps
- With July 1, 2026, approaching, franchisors with Virginia franchisees or those contemplating franchise sales in Virginia should consider the following steps promptly:
- Update Virginia addenda to add language removing all post-term non-compete clauses from your franchise agreements, including provisions triggered by termination, expiration, or non-renewal of the franchise agreement.
- Confirm that the Virginia addendum to your franchise agreements (or the base agreements, if no separate addendum exists) designates Virginia law as the governing law and does not incorporate a choice-of-law clause pointing to another state.
- Ensure that franchise agreements contain robust confidentiality, non-disclosure, non-solicitation, and trade secret provisions that survive termination or expiration. Review operational practices to ensure proprietary information is adequately protected.
- It is important that you work with franchise counsel to finalize revised addenda well in advance of July 1, 2026, so that no Virginia franchise agreements are offered or executed after that date with non-compliant provisions in place.
If you have questions about franchise agreements or need further assistance addressing this recent change to the law, please contact Joshua at josh.becker@gknet.com or (602) 530-8465.
about the author
Joshua Becker is a forward-thinking adviser who anticipates how to best position his clients relative to regulatory changes, evolving market conditions, and the competitive landscape. He brings 20 years of experience in franchising and intellectual property law to clients that include companies of all sizes from a myriad of industries, among them established and fast-growth franchisors, technology development companies, service providers, and distributors.