Virginia Bans Post-Term Non-Competes in Franchise Agreements

Virginia has enacted legislation banning post-term non-compete provisions in franchise agreements, according to law firm Foley & Lardner LLP. The measure targets restrictive covenants that bind franchisees after their franchise contracts expire.

The law, analyzed by Foley & Lardner in a client alert titled "Virginia Bans Post-Term Non-Compete Provisions in Franchise Agreements," directly affects franchisors operating in the state. Any franchise agreement clause that restricts a former franchisee's ability to compete once the franchise relationship has ended now falls outside what Virginia will enforce.

The move matters for the franchise sector. Post-term non-competes have long served as a lever franchisors use to protect brand value, trade secrets and territory planning when a franchisee exits the system. By voiding those provisions, Virginia shifts the balance of post-termination leverage toward franchisees, who regain the freedom to open or join competing businesses in their former territories once the contract lapses.

Foley & Lardner flags the development as a compliance issue for national franchisors. Companies that use standard franchise agreements across multiple states now face a patchwork of enforceability rules, with Virginia joining the ranks of jurisdictions that refuse to honor post-term restrictive covenants in the franchise context.

For franchisees in Virginia, the practical effect is straightforward: once the franchise agreement terminates, covenants not to compete contained in that agreement no longer bind them under state law. For franchisors, the change forces a rethink of how they protect system interests — through confidentiality provisions, trademark protections and other tools that remain enforceable, rather than outright competition bans.

The legislation fits a broader pattern of state-level skepticism toward non-compete arrangements, which have drawn mounting scrutiny from lawmakers and regulators in recent years across employment and, now, franchising contexts.

Franchisors with Virginia footprints will need to audit their agreements for post-term non-compete language and adjust deal terms for new and renewing franchisees in the state. How other states respond — and whether franchisors can adequately substitute alternative protections — will determine whether Virginia becomes an outlier or a bellwether.