Governing law clause
A governing law clause picks which state’s or country’s law will be used to interpret the contract and decide disputes about it.
What it means
A governing law clause, also called a choice of law clause, names the legal system used to read the contract. Contract law differs between states and countries on points like non-competes, limitation periods, implied warranties, and how strictly wording is read. Choosing one law up front removes an argument if a dispute arises.
Governing law is not the same as where a case is heard. A contract can apply Delaware law while requiring disputes to go to a California court, or to arbitration in New York. Location is handled by a forum selection or arbitration clause.
For example, a Texas freelancer signing a client’s template may find it is governed by New York law. That may be fine, but New York rules on some issues may differ from what the freelancer expects. Larger companies often choose Delaware or New York law because their commercial contract rules are well developed and predictable.
Courts usually respect the parties’ choice, but not always. A court may refuse to apply the chosen law if it has no real connection to the deal or would override a strong local policy, such as protections for employees or consumers.
What to watch for
- Check which law is chosen and whether it has any connection to you, the other party, or the work.
- Look for a separate forum selection or arbitration clause and make sure it fits with the chosen law.
- See whether the clause excludes “conflict of laws” rules, which stops the chosen law from pointing back to another place’s law.
- For cross-border sales of goods, check whether the UN Convention on Contracts for the International Sale of Goods is excluded, since it can apply by default.
- Remember that some protections, such as certain employee or consumer rights, may apply whatever law the contract picks.
Example clause
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict of laws principles.
Delaware law will be used to interpret the contract, even if neither of you is based there.