Choice of Law Clause
A contract provision specifying which state's (or country's) laws will govern the interpretation and enforcement of the agreement.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Choice of Law Clause?
A choice of law clause designates which state's or country's laws will be used to interpret the contract, determine what obligations exist, and resolve any disputes. In a business with operations or customers in multiple states, contracts can create ambiguity about which state's rules apply - the choice of law clause eliminates that uncertainty.
Without one, courts apply complex "conflict of laws" rules to figure out which state's law governs. This analysis can be unpredictable and expensive. A clear choice of law clause gives both parties certainty and lets them structure their rights based on well-understood legal rules.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Designated Governing State
The specific state (or country) whose laws apply - e.g., "This Agreement shall be governed by the laws of the State of New York." Courts generally honor this choice if there is a reasonable basis for it.Reasonable Basis Requirement
Courts require some connection between the chosen state and the contract or the parties. If neither party is based there and the contract has no connection to the state, courts in some states will override the choice.Exclusion of Conflict of Laws Rules
Standard language excludes the chosen state's conflict-of-laws principles to prevent courts from overriding the choice by applying those principles to select a different state's law.International Contracts
For cross-border contracts, the clause may designate a country's law (e.g., "laws of England and Wales") and may exclude the UN Convention on Contracts for the International Sale of Goods (CISG) which otherwise applies automatically to international goods contracts.Real-World Example
A Texas-based company signs a software license agreement with a California vendor. The contract has no choice of law clause. When a dispute arises, the California vendor sues in California, arguing California law (which provides broader warranty protections) applies. The Texas company argues Texas law applies because that is where it operates.
Without a choice of law clause, a court applies conflict of laws analysis to determine which state has the most significant relationship to the contract. This adds cost, uncertainty, and delay. A single sentence designating the governing state would have avoided this entire dispute.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Standard Choice of Law ClauseWatch Out For
Choice of law vs. jurisdiction
These are two separate clauses. Choice of law determines which state's rules apply. Jurisdiction determines which court hears the dispute. You can have New York law applied by a Texas court. Understand and negotiate both.Some states override choice of law for their residents
California and a few other states have strong policies protecting their residents from unfavorable law choices. A California employee or consumer may be able to invoke California protections regardless of what the contract says.Consumer and employment law carve-outs
Choice of law clauses in consumer contracts and employment agreements face heightened scrutiny. Many states will apply their own consumer protection or employment laws regardless of a contractual choice.CISG opt-out for international sales
If you sell goods internationally, the UN CISG applies automatically unless explicitly excluded. The CISG has different rules on acceptance, warranties, and remedies than US common law. Most US businesses exclude it.Don't let choice of law clause deadlines catch you off guard
Key dates tied to choice of law clauses - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Choose Delaware or New York for commercial contracts
Delaware and New York have well-developed, predictable, and business-friendly commercial law. Courts in both states have deep experience with complex business disputes. They are the default choice for sophisticated commercial contracts.Pair with a matching jurisdiction clause
Your choice of law and jurisdiction clauses should point to the same state. Having New York law but California courts creates procedural complications - both should align.Include a conflict of laws exclusion
Always add "without regard to its conflict of laws principles" to prevent courts from using the chosen state's own rules to override your choice and substitute a different state's law.Specify exclusion of CISG in goods contracts
For any contract involving the sale of goods, add explicit CISG exclusion language. Failing to do so exposes you to an international treaty regime most US lawyers are unfamiliar with.Frequently Asked Questions
Can I choose any state's law, even if neither party is based there?
In most states, yes - as long as there is a reasonable basis for the choice. Under the Restatement (Second) of Conflict of Laws, courts will honor a chosen state's law unless: the chosen state has no substantial relationship to the parties or transaction, or applying that law would violate a fundamental public policy of the state with the most significant relationship.
What is the difference between choice of law and jurisdiction?
Choice of law determines whose rules apply when interpreting the contract. Jurisdiction determines which court system (and in which location) hears any dispute. They are independent. You can have New York law applied by a Florida court, or California courts applying Nevada law. In practice, most contracts align both clauses to the same state.
Do choice of law clauses apply to tort claims too?
Generally only to contract claims. If a dispute involves both breach of contract and tort claims (like fraud or negligent misrepresentation), courts may apply the contractual choice of law to contract claims but use a separate conflict of laws analysis for tort claims. Specify whether the clause covers "all claims arising from or related to this Agreement" to maximize coverage.