Governing Law Clauses: Why the Fine Print on Jurisdiction Matters

What Is a Governing Law Clause?

A governing law clause (also called a "choice of law" clause) specifies which state's or country's laws will be used to interpret the contract and resolve any disputes. This determines the legal framework that applies to your agreement.

Why It Matters

Different states have different laws on the same issues. The choice of governing law can affect:

• Non-compete enforceability: A non-compete governed by California law is likely unenforceable, while the same clause governed by Florida law may be fully binding
• Statute of limitations: Your deadline to file a claim can vary by years depending on the state
• Consumer protections: Some states have stronger consumer protection laws than others
• Damage calculations: How damages are calculated can differ significantly
• Contract interpretation rules: Some states favor the party that did not draft the contract; others do not

Governing Law vs. Venue/Forum Selection

These are related but distinct:

• Governing law: Which state's laws apply to interpret the contract
• Venue/forum selection: Where (which court or arbitration location) disputes must be resolved

A contract might apply New York law but require disputes to be resolved in Delaware courts. Both clauses deserve attention.

What to Watch For

• The governing law is a state where you have no connection, making it harder to understand your rights
• The chosen state's law is significantly more favorable to the other party on key issues (non-competes, liability limitations, consumer protections)
• The venue is in a distant location, making it expensive or impractical for you to pursue claims
• The clause conflicts with mandatory local law that cannot be waived by contract

Do Courts Always Honor Governing Law Clauses?

Generally yes, but courts may refuse to apply the chosen law if:

• Neither party has a meaningful connection to the chosen state
• Applying the chosen law would violate a fundamental public policy of the state with the most significant relationship to the dispute
• Mandatory local statutes override the choice of law

When to Consult a Lawyer

Consider consulting an attorney if the governing law is from a state unfamiliar to you, if the clause is paired with a distant forum selection, or if the contract involves significant obligations like non-competes or large financial commitments.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.