Stronger Franchisee Protections Emerging in 2026 State Laws
It appears that franchisors will remain targets of state governments in 2026. Although a franchise system may not call a state with new legislation its home, franchisors and franchisees should stay informed about the potential ramifications of statutes in other jurisdictions.
Maryland
Starting on the East Coast, the Maryland General Assembly recently endorsed the Franchise Reform Act (MD Senate Bill 415/House Bill 730), “fully overhauling and reforming the franchise process in Maryland,” according to one of its members.
The Maryland Franchise Reform Act introduces a series of changes to franchisee protections and simplifies registration procedures. These changes include:
- Statutes of Limitation – Increasing the statute of limitations for franchisee claims from three years after the franchisor grants the franchise to either four years, or two years after the franchise opens.
- Franchisee Associations – Protecting franchisees’ right to join franchise associations.
- Actions Against Franchisors – Allowing franchisees to bring legal action against franchisors that directly or indirectly restrict their right of free association. Franchisees may seek injunctive relief, damages, and costs of suit, including attorney’s fees.
- Violations – Giving the Securities Commissioner more time to act against violations.
- Fast Track – Codifying Maryland’s pilot fast-track review program for analyzing franchise disclosure documents.
The bill awaits action from Maryland’s governor. If passed, the bill would take effect on Oct. 1.
Virginia
Virginia’s franchise-related bill, House Bill 90/Senate Bill 240, will apply to all Virginia franchise agreements signed on or after July 1. Virginia’s Retail Franchising Act will:
- Govern all franchise agreements – Franchise contracts for franchises located in Virginia must comply with the state’s franchising law.
- Ban post-termination non-compete provisions – Franchise agreements cannot prohibit franchisees from operating a competing business after termination or expiration.
There is an exception to the non-compete ban that depends on how the franchisee exits the system. Virginia’s Division of Securities and Retail Franchising did issue guidance for franchisors.
Vermont
Franchisor or Franchisee – Beginning on Jan. 1, 2027, Vermont’s H.733 requires individuals conducting new businesses in Vermont to designate if they are operating as a franchisor or franchisee and disclose specific information. The law is intended to help Vermont lawmakers understand the number of franchises that operate in the state, enabling them to accurately address franchising issues and regulate franchise relationships in the future.
Vermont Gov. Phil Scott signed the bill into law on April 20.
Arizona
Termination Restrictions – Arizona lawmakers will consider a significant change in franchisee terminations to prevent franchisors from early terminations of Franchise Agreements before the expiration of their term, except in cases of good cause. Currently, this bill sits in the Arizona House Commerce Committee.
Substantial Compliance – This legislation, HB 2038, defines good cause to be a situation where a franchisee fails to substantially comply with the legal requirements outlined in the franchise agreement. Termination for good cause would require 90 days’ prior notice from the franchisor and 120 days’ notice of non-renewal.
Franchisee Associations – Like the Maryland Franchise Reform Act, HB 2038 would protect franchisees who want to join an association.
California
California, another franchisee protective state, consistently updates its franchise laws.
Franchise Fee Regulation – Assembly member Josh Hoover recently introduced and subsequently revised a bill concerning franchise fee regulation. The bill would have prevented franchisors from using collected fees on anything other than the purpose listed in the franchise disclosure document or franchise agreement.
The bill remains in the Assembly committee stage and has not yet advanced.
Franchise Brokers – Separately, California passed legislation, SB 919, that requires franchise brokers and third-party sellers to register with the state.
Evolving Landscape of Franchising Law in America
Lawmakers in many different states continue to assess and amend their franchising laws, so the nature of the franchise relationship continuously transforms. In many instances, new legislation will give franchisees more leverage over franchisors, requiring franchisors to navigate additional measures to ensure compliance in various jurisdictions.
Ignorance of state-specific laws, incomplete franchise disclosure documents, missed disclosures, or late refusals to renew can expose franchisors to increased legal liability.
Knowledgeable franchise counsel can keep franchisors and franchisees from guessing about the increased burden of multi-state compliance by keeping them familiar with new laws across the United States that may impact their franchise.
Barry Kurtz is the Chair of our Franchise and Distribution Practice Group, a Certified Specialist in Franchise & Distribution Law by the State Bar of California Board of Legal Specialization. He has been recognized by his peers as among the top 5% of attorneys nationwide for his work in franchise law in The Best Lawyers in America®.