Virginia Bill to Ban Post-Termination Non-Competes in Franchise Agreements Advances

Virginia Senate Bill 798, introduced by former franchise owner Sen. Chris Head, was passed unanimously by the Virginia Senate on January 17, 2025. The bill would amend the Virginia Retail Franchising Act to require franchise agreements for a Virginia location to be governed by the laws of the Commonwealth of Virginia and specifically would make it illegal to offer or enter into such 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 termination or expiration of the franchise agreement.”

If this bill becomes law, it would be the most significant legislative development in Virginia franchise law in many years and constitute a major shift in leverage in the franchisor-franchisee relationship. Covenants not to compete are virtually universal in franchising. While many argue that they are necessary to protect a franchisor’s confidential and proprietary information from misuse by former franchisees to the detriment of both the franchisor and its remaining franchisees, others believe such provisions constitute unfair restraints on trade and go too far in preventing franchise owners from earning a living following the end of the franchise relationship.

Very few states have outlawed altogether or restricted post-termination or expiration covenants not to compete in franchise agreements (e.g., California, Illinois, and Indiana have adopted various limitations or restrictions in this context).  If passed into law, Senate Bill 798 would represent the most far-reaching state law in the nation in terms of restricting post-relationship restrictive covenants in franchise relationships.  The next step of the legislative process for the bill will be a hearing in a Virginia House of Delegates Labor & Commerce Committee. Stay tuned for updates.