Not legal advice: This is a franchise diligence guide, not a legal opinion. Non-compete enforceability, franchise registration, renewal, amendment, settlement, governing-law, and sale-of-business rules depend on the actual agreement, parties, state law, timing, and facts. Have qualified franchise counsel review your documents before acting.
What Virginia changed
On April 13, 2026, Governor Abigail Spanberger signed HB 69 and SB 240, amending the Virginia Retail Franchising Act. The amendments take effect July 1, 2026 and make two changes that matter for any franchise system offering or operating units in Virginia.
First, a covered franchise agreement can no longer restrict a franchisee from engaging in the business of offering, selling, or distributing goods or services at retail after the franchise agreement terminates or expires. In plain English: most post-term franchise non-competes are out for covered Virginia deals.
Second, franchise contracts and related agreements covered by the Act must be governed by Virginia law. That matters because many national franchisors historically use one home-state choice-of-law clause across the system. Virginia is telling franchisors: if the franchise is covered by Virginia's Retail Franchising Act, you cannot draft around Virginia protections by pointing the contract to another state.
Most post-termination or post-expiration non-competes in covered Virginia franchise agreements offered or entered into after June 30, 2026.
A non-compete of up to two years when a franchisee voluntarily sells the franchise at a mutually agreed price to a third party or back to the franchisor.
Which franchise agreements are affected?
The Virginia Retail Franchising Act generally applies to franchise offers or sales that contemplate or require the franchisee to establish or maintain a place of business in Virginia. That phrase is broader than a storefront-only concept. A restaurant, salon, fitness studio, repair shop, education center, retail unit, or certain service-territory concepts can all require analysis if Virginia operations are involved.
The effective-date rule is the core timing point. Agreements entered into, extended, or modified on or before June 30, 2026 generally are not altered, modified, or impaired by the new law. But a new offer, new sale, renewal, extension, or amendment on or after July 1, 2026 can pull the relationship into the amended statute.
2026 Virginia franchise law timeline
The grandfathering trap: renewals, extensions, and amendments
The safest but incomplete summary is: old agreements are grandfathered, new agreements are not. The problem is that franchise relationships rarely sit perfectly still. A renewal, extension, amendment, transfer package, settlement, or replacement agreement can create a new legal event after the effective date.
That is why this matters even for existing Virginia franchisees. If your term expires in 2027 and the franchisor asks you to sign its then-current form, the post-term non-compete analysis may change. If you amend territory, add a unit, extend a deadline, settle a dispute, or execute a new related agreement after July 1, 2026, counsel should review whether the amended Virginia statute applies.
This connects directly to franchise non-compete diligence and franchise exit planning. The legal risk is not just whether the clause is enforceable today. It is whether signing the next document changes the exit map.
The voluntary-sale exception matters for buyers
Virginia did not erase every possible franchise non-compete. The key carve-out is a voluntary sale at a mutually agreed price. If a franchisee sells the franchise to a third party or back to the franchisor, the buyer or franchisor may require the selling franchisee to agree to a non-compete lasting up to two years after the sale.
That exception is rational. A buyer paying for local goodwill, customer relationships, staff continuity, and transition help may still want protection against the seller reopening next door under a different brand. For acquisition diligence, the question becomes: is this a true voluntary sale, at a mutually agreed price, with a restriction no longer than two years?
For a failed or terminated franchisee, the exception is narrower. Ordinary expiration, termination for cause, abandonment, or non-renewal is not the same as a voluntary sale. That is the practical franchisee win: a Virginia operator who exits without selling may have more freedom to stay in the category, subject to trademarks, trade secrets, non-solicits, leases, customer data, and other surviving obligations.
What franchisors should do before July 1, 2026
Franchisors with Virginia registrations should not wait until a sale is ready to close. The Virginia State Corporation Commission's Division of Securities and Retail Franchising has issued transition guidance for franchisors whose registrations were approved before the deadline but remain effective afterward. If the franchisor will sell in Virginia after July 1, it should expect to update its FDD and Virginia addendum before doing so.
Franchisor compliance checklist
- ✓Remove post-term non-competes from Virginia-facing franchise agreements for offers or sales after June 30, 2026.
- ✓Add Virginia governing-law language to franchise agreements and related agreements covered by the Act.
- ✓File an amendment application before selling in Virginia after July 1 if the current registration remains effective past the deadline.
- ✓Audit renewals, extensions, amendments, transfers, settlements, and releases for hidden non-compete triggers.
- ✓Strengthen confidentiality, trade secret, trademark, non-solicit, de-identification, and customer-data controls.
- ✓Train development and renewal teams not to use a national form without Virginia-specific addenda.
The bigger system issue is enforcement strategy. If a Virginia franchisee can compete after exit, the franchisor needs clean operational controls while the relationship is active: strong trademark rules, clear confidential-information definitions, customer-data handling, POS and CRM access termination, lease controls, domain and social account controls, de-identification procedures, supplier access rules, and lawful non-solicitation provisions.
What franchisees should do before signing or renewing
Franchisees should not read the headline and stop diligence. Virginia limits one important tool — the post-term non-compete — but other provisions can still shape your exit. A non-solicit can affect employee hiring. Confidentiality and trade secret language can affect customer lists, recipes, processes, pricing data, vendor relationships, and marketing playbooks. De-identification rules can impose real shutdown costs.
Franchisee diligence checklist
- •Confirm whether the agreement is new, renewed, extended, modified, or merely grandfathered.
- •Ask counsel whether the Virginia Retail Franchising Act applies to the specific unit or service territory.
- •Read the choice-of-law clause, forum clause, non-compete, non-solicit, confidentiality, and de-identification sections together.
- •If buying a resale, remember the voluntary-sale exception can still allow a two-year seller non-compete.
- •If exiting after termination or expiration, do not assume every restriction vanished; trademarks, trade secrets, non-solicits, and payment obligations can remain enforceable.
- •Document any franchisor interpretation in writing before signing a renewal or amendment.
Decision tree: Virginia vs. strict-ban states vs. enforcement-friendly states
Multi-state buyers need a state-by-state covenant map. A California, North Dakota, Oklahoma, or Virginia unit is not the same as a Texas or Florida unit. The better diligence question is not “are non-competes legal?” It is: which state law governs, which statute applies, who is bound, what conduct is restricted, and what document event happens after the effective date?
Path 1: Virginia after July 1, 2026
Start with HB 69 / SB 240. If the agreement is covered and offered, entered, renewed, extended, or amended after the deadline, assume post-term non-competes need Virginia-specific review and likely removal unless the voluntary-sale exception applies.
Path 2: CA / ND / OK style strict states
Expect broad skepticism toward ordinary non-competes, but still analyze sale-of-business, confidentiality, non-solicit, franchise-specific, and choice-of-law details.
Path 3: TX / FL style enforcement-friendly states
Expect franchisors to keep using reasonable covenants tied to goodwill, confidential information, trademarks, and system protection. Negotiate scope, duration, geography, and parties bound.
State-by-state comparison for franchise buyers
| State / group | General rule to flag | Buyer takeaway |
|---|---|---|
| Virginia | Franchise-specific post-term non-compete ban effective July 1, 2026; Virginia law must govern covered agreements. | Most important state for franchisee exit rights in 2026; watch renewals and amendments. |
| California | Broad statutory hostility to non-competes, with limited sale-of-business exceptions. | Do not assume a franchisor's home-state law clause controls without counsel review. |
| North Dakota / Oklahoma | Historically hostile to employee non-competes, with narrow statutory exceptions. | Useful comparison states, but franchise covenants still require document-specific analysis. |
| Minnesota | Most employment non-competes entered after July 1, 2023 are banned; business-sale covenants treated separately. | Worker rule is not a complete franchisee safe harbor. |
| Washington / Colorado / Illinois | Compensation thresholds, notice rules, and statutory limits vary by worker category and covenant type. | A multi-unit buyer needs state-by-state covenant diligence, not one generic answer. |
| Texas / Florida | Generally more enforcement-friendly when covenants are reasonable and tied to legitimate business interests. | Expect franchisors to continue using non-competes unless the agreement is governed by a stricter state law. |
Does the FTC non-compete rule change this?
Not as a shortcut. The FTC's broad worker non-compete rule is not currently in effect after federal court litigation, and the franchisee-franchisor relationship has always required separate analysis from ordinary worker covenants. Virginia matters because it is not just a federal employment-policy headline. It is a franchise statute amendment aimed at franchise agreements.
That makes Virginia a clean diligence signal for 2026. If more states follow, franchisors may need to maintain a patchwork of state-specific franchise agreement forms rather than relying on one national post-term covenant.
Red flags to escalate to franchise counsel
- A Virginia renewal after July 1, 2026 that still includes a broad post-term non-compete.
- A governing-law clause selecting the franchisor's home state for a covered Virginia franchise.
- A settlement agreement that restricts future business without court approval.
- A transfer package that uses the voluntary-sale exception but exceeds two years.
- A non-solicit drafted so broadly that it operates like a non-compete.
- A franchisor using the same national FDD and franchise agreement in Virginia after the deadline without a Virginia addendum.
Bottom line
Virginia's HB 69 / SB 240 is not just another employment non-compete headline. It is a franchise-specific statutory change with a hard July 1, 2026 effective date, a mandatory Virginia governing-law requirement, a prospective grandfathering rule, and a narrow voluntary-sale exception.
For franchisors, this is a document and disclosure compliance project. For franchisees, it is an exit-rights and renewal-diligence opportunity. For buyers acquiring Virginia units, it is a deal-structure issue: seller non-competes may still be available in a voluntary sale, but ordinary post-term restrictions after termination or expiration are materially weaker.
The practical move: review the agreement before the deadline, review it again at renewal or amendment, and do not let a generic national covenant decide a Virginia exit strategy.