Does Virginia Law on Non-competes Apply to Franchises?

By: Laura Canada Lewis

Virginia has enacted one of the broadest non-compete restrictions in the country, and franchise brands operating — or planning to operate — in the Commonwealth need to pay close attention. The law, which prohibits employers from entering into, enforcing, or threatening to enforce non-compete agreements with "low-wage employees," carries significant implications for the franchise model, where non-compete and non-solicitation covenants are a cornerstone of system protection.

What the Virginia Law Does

Virginia Code § 40.1-28.7:8 prohibits employers from entering into, enforcing, or threatening to enforce a non-compete agreement with any "low-wage employee." The statute defines a low-wage employee broadly — covering workers whose average weekly earnings are at or below the average weekly wage of the Commonwealth — and also extends protections to independent contractors and interns meeting that earnings threshold.

Violations are not merely unenforceable; they carry civil penalties of up to $10,000 per violation, plus attorney's fees and costs. The law also creates a private right of action, meaning employees can sue directly.

Why This Is a Problem for Franchisors

The franchise model depends heavily on restrictive covenants. Franchisors routinely include in-term and post-term non-compete provisions in both the franchise agreement and, often, in ancillary agreements signed by franchisee owners, managers, and key employees. These covenants serve legitimate purposes: protecting proprietary systems, trade secrets, customer relationships, and the integrity of the brand.

Virginia's law creates a direct conflict with that model in several ways:

• Franchisee employees are covered. A franchisee's hourly workers — crew members, technicians, drivers, service staff — almost certainly fall within the "low-wage" definition. Any non-compete in their employment agreement, or any system-wide covenant that purports to bind them, is void and potentially penalized.
• Franchisor-imposed covenants may be implicated. When a franchisor requires a franchisee to obtain non-compete agreements from its employees as a condition of the franchise agreement, the franchisor may be viewed as the party "entering into" or "threatening to enforce" those agreements — even if the franchisee is the direct employer.
• FDD disclosure obligations are triggered. If a franchisor's standard franchise agreement or operations manual requires employee non-competes, and those provisions are unenforceable in Virginia, the FDD must accurately reflect that limitation. Failure to disclose state-specific restrictions can expose franchisors to FTC Franchise Rule violations and state registration issues.
• Multi-state systems face patchwork compliance. Virginia joins a growing list of states — including California, North Dakota, Oklahoma, and Minnesota — that have severely restricted or outright banned non-competes. Franchisors operating nationally must now maintain state-specific addenda and carefully audit which covenants are enforceable where.

What Franchisors Should Do Now

The response to Virginia's law — and the broader national trend toward non-compete restrictions — requires a proactive, multi-layered approach:

1. 1

   Audit your FDD and franchise agreement

   Review every covenant in your franchise agreement, operations manual, and any ancillary agreements that touch Virginia franchisees or their employees. Identify which provisions are affected and whether your FDD Item 17 disclosures accurately reflect state-specific limitations.

2. 2

   Update your Virginia addendum

   If you do not already have a Virginia-specific addendum, create one. It should carve out or modify any non-compete provisions that conflict with the statute, and it should be incorporated by reference into the franchise agreement and disclosed in the FDD.

3. 3

   Consider alternative protections

   Non-solicitation agreements (targeting customers and co-workers rather than competitive employment) and robust confidentiality and trade secret agreements remain viable in Virginia and should be strengthened to compensate for the loss of non-compete protection.

4. 4

   Train your franchisees

   Virginia franchisees need to understand that they cannot require low-wage employees to sign non-competes, and that attempting to do so exposes both the franchisee and potentially the franchisor to civil penalties. Operations and compliance training should be updated accordingly.

5. 5

   Monitor the national landscape

   The FTC has signaled interest in a federal non-compete rule that could supersede state law entirely. Franchisors should track federal regulatory developments and be prepared to adapt system-wide if a federal rule takes effect.

The Bottom Line

Virginia's non-compete ban is not an isolated development — it is part of a sustained national movement to limit post-employment restrictions. For franchisors, the stakes are high: non-compliant covenants can result in civil penalties, litigation, and FDD disclosure deficiencies that jeopardize registration in registration states.

The time to act is before a Virginia franchisee or employee raises the issue. A thorough review of your franchise documents, a well-drafted state addendum, and updated training materials will go a long way toward protecting your system while staying on the right side of Virginia law.

Canada Lewis & Associates regularly advises franchisors and franchisees on covenant enforceability, FDD compliance, and multi-state franchise operations. If you have questions about how Virginia's law affects your franchise system, contact our office.