Franchise non-compete clauses are facing increased regulatory scrutiny following NASAA’s January and February 2025 advisory urging registration states to evaluate post-term non-compete provisions for reasonableness. The North American Securities Administrators Association (NASAA) Franchise and Business Opportunities Project Group issued guidance recommending that state franchise regulators push back on non-compete provisions that are broader than necessary to protect a franchisor’s legitimate business interests. At Lopes Law LLC, we review franchise agreements for both franchisors and franchisees, and this advisory is changing how non-competes are drafted, negotiated, and enforced across the franchise industry.

This guide explains what the NASAA advisory says, how states are responding, how the American Bar Association (ABA) published a counter-analysis, and what both franchisors and franchisees should do in response.

What Did the NASAA Advisory Actually Say?

NASAA’s Franchise and Business Opportunities Project Group released its guidance in two parts during early 2025. The advisory is not a binding regulation; it is guidance directed at state franchise examiners who review FDDs during the franchise registration process. However, its practical impact is significant because it shapes how state regulators evaluate franchise agreements submitted for registration in the 15 franchise registration states.

The core recommendations include:

• Reasonableness standard: State examiners should evaluate franchise non-compete provisions using the same reasonableness analysis courts apply: geographic scope, duration, and scope of restricted activities must each be reasonable and no broader than necessary to protect the franchisor’s legitimate business interests.
• Duration limits: Non-competes exceeding two years post-termination should receive heightened scrutiny. The advisory notes that one to two years is the range most courts consider presumptively reasonable for franchise non-competes.
• Geographic scope: Non-competes with geographic restrictions broader than the franchisee’s protected territory (or a reasonable radius around the franchise location) should be questioned. Nationwide non-competes in franchise systems with local or regional territories are flagged as potentially unreasonable.
• Activity restrictions: Non-competes that prevent the franchisee from working in any capacity in the industry (rather than limiting competition to the specific type of business operated under the franchise) are identified as overly broad.
• Involuntary termination: The advisory raises particular concern about non-competes that apply when the franchisor terminates the franchise agreement, especially without cause. The advisory suggests that enforcing a non-compete against a franchisee whose agreement was terminated by the franchisor raises fairness issues that regulators should consider.

How Are States Responding to the NASAA Advisory?

The response among franchise registration states has been meaningful. Several states have increased scrutiny of non-compete provisions during FDD registration review:

California remains the most restrictive jurisdiction. Under Business and Professions Code Section 16600, California broadly prohibits non-compete agreements. While franchise non-competes have historically received more judicial tolerance than employment non-competes in California (because franchise non-competes protect trade secrets and goodwill associated with the franchise system), the trend is toward stricter enforcement. Franchise registrations in California that include broad non-competes face comment letters requiring modification or deletion.

Illinois enacted the Illinois Freedom to Work Act in 2022, which restricts non-competes for employees earning below certain thresholds. While the Act does not directly apply to franchise relationships, Illinois franchise examiners have cited its policy rationale when questioning broad franchise non-competes during registration review.

Maryland, Minnesota, and Washington have also increased the frequency and specificity of comment letters addressing non-compete provisions. Franchisors report longer registration review cycles and more requests for non-compete modifications than in prior years.

What Was the ABA’s Counter-Analysis?

The American Bar Association’s Forum on Franchising published a response to the NASAA advisory that presents the franchisor perspective on non-compete reasonableness. The ABA’s analysis makes several key arguments:

• Franchise non-competes are distinct from employment non-competes: The ABA argues that franchise non-competes protect different interests than employment non-competes (system goodwill, trade secrets, customer relationships developed through the brand) and should not be subject to the same restrictive analysis.
• Longer durations may be justified: The ABA contends that franchisors invest heavily in training, systems, and brand development, and that a two-year non-compete may be insufficient to protect these investments, particularly in industries with long sales cycles or relationship-based customer acquisition.
• Geographic scope should track the competitive impact: The ABA argues that a franchisee’s competitive impact may extend beyond the defined territory, particularly in digital or e-commerce enabled franchise systems, and that geographic restrictions should reflect actual competitive reach rather than being limited to the territory alone.
• State regulators should defer to courts: The ABA’s position is that non-compete reasonableness is traditionally a judicial determination, and that franchise regulators should not preemptively narrow non-competes during the registration process.

The NASAA advisory and the ABA counter-analysis represent the two poles of the franchise non-compete debate. The practical reality for franchisors is that regardless of the ABA’s arguments, state franchise examiners are following NASAA’s guidance and applying heightened scrutiny.

A Client Scenario: Negotiating a Non-Compete Before Signing

A prospective franchisee considering a fitness franchise contacted our firm to review the franchise agreement before signing. The agreement contained a post-term non-compete with the following terms: three-year duration after termination or expiration, 25-mile radius from any franchise location in the system (not just the franchisee’s location), restriction on owning, operating, or being employed by any fitness, wellness, or health-related business.

Our analysis identified multiple issues. The three-year duration exceeded the one-to-two-year range that most courts consider presumptively reasonable. The 25-mile radius from any system location, rather than just the franchisee’s location, effectively created a nationwide restriction because the franchise system had locations in 38 states. The activity restriction covering “any fitness, wellness, or health-related business” was broader than necessary to protect the franchisor’s specific business model.

We negotiated the following modifications: duration reduced to two years, geographic scope limited to a 10-mile radius from the franchisee’s specific location only, activity restriction narrowed to operating a business “substantially similar to” the franchised business (eliminating the prohibition on employment and passive investment). The franchisor agreed to all three modifications. The negotiation took approximately two weeks and was completed before the franchise agreement was signed. This is the kind of outcome that demonstrates why having a franchise attorney review the agreement before signing is critical. For more on this topic, see our guide on franchise agreement red flags.

What Should Franchisors Do in Response to the NASAA Advisory?

Franchisors should take proactive steps to address the NASAA advisory before it creates registration delays or legal challenges:

1. Audit current non-compete provisions. Review the post-term non-compete in your franchise agreement against the NASAA reasonableness factors: duration, geographic scope, and activity restrictions. If any element exceeds what courts in your key markets have enforced, consider narrowing it.
2. Prepare state-specific modifications. Some franchisors maintain a base franchise agreement with state-specific addenda that modify the non-compete for states with stricter requirements. This approach preserves broader protections in states that permit them while avoiding registration delays in more restrictive states.
3. Document the business justification. State examiners are more likely to accept a broader non-compete if the franchisor can articulate a specific business justification. Prepare a written explanation of why the non-compete’s scope, duration, and geographic reach are necessary to protect the franchisor’s legitimate business interests.
4. Consider the involuntary termination issue. The NASAA advisory specifically flags non-competes that apply when the franchisor terminates the agreement. Consider whether your non-compete should include a carve-out or reduced duration when the franchise relationship ends due to franchisor-initiated termination. For comprehensive guidance on structuring franchise systems, see our article on how to franchise your business.

What Should Franchisees Know About Non-Compete Negotiation?

The NASAA advisory provides franchisees with additional leverage when negotiating franchise agreement terms. Here is what current and prospective franchisees should know:

• Non-competes are negotiable. Despite what many franchisors suggest, the non-compete clause is one of the most commonly negotiated provisions in franchise agreements. The NASAA advisory strengthens the franchisee’s negotiating position by establishing that state regulators themselves consider many existing non-competes to be overbroad.
• Timing matters. Negotiate the non-compete before signing the franchise agreement. Once signed, you have limited leverage to modify the provision. The FTC Franchise Rule requires the franchisor to provide the FDD at least 14 calendar days before signing, giving you time to review and negotiate with counsel.
• Focus on the worst-case scenario. A non-compete only matters if the franchise relationship ends. Consider what you would do after leaving the franchise: Would you want to open a similar business? Would you want to work in the industry? If the answer is yes, the non-compete terms directly affect your future options.
• Know your state’s law. Non-compete enforceability varies dramatically by state. California broadly prohibits them. Other states enforce them if reasonable. Understanding your state’s specific rules helps you assess the real risk of the non-compete provision. For questions about franchise disputes involving non-compete enforcement, see our guide on franchise dispute resolution.

How Does This Advisory Interact with the Broader Non-Compete Reform Movement?

The NASAA franchise non-compete advisory exists within a larger national trend toward restricting non-compete agreements. The FTC proposed a near-total ban on employment non-competes in 2023, though the rule was struck down in federal court in August 2024 (Ryan LLC v. FTC). Multiple states have enacted or strengthened non-compete reform legislation in recent years.

For the franchise industry specifically, the key question is whether franchise non-competes will continue to be treated differently from employment non-competes. Historically, courts have been more willing to enforce franchise non-competes because the franchisee is a business owner who received trade secrets, operating systems, and brand value, rather than an employee. The NASAA advisory does not eliminate this distinction, but it narrows the range of what regulators consider acceptable even within the franchise context.

At Lopes Law LLC, we expect this trend to continue. Franchisors who proactively adjust their non-compete provisions to meet reasonable standards will avoid registration delays and position themselves favorably if litigation over non-compete enforcement arises. Franchisees who understand the current regulatory environment have better leverage to negotiate terms that protect their future flexibility. For a broader discussion of franchise agreement provisions, see our article on flat fee vs. hourly franchise lawyer and why flat-fee representation makes legal review accessible for every franchise buyer.

Frequently Asked Questions About Franchise Non-Compete Clauses

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Last updated: March 13, 2026