In the vast majority of business, consumer, and other types of contracts, there is one or several clauses in the contract that reference the parties’ agreement on “choice of law,” “venue,” and — often — “jurisdiction.” A sample contract clause containing all three might look like this (choosing New York for convenience):

“CHOICE OF LAW, JURISDICTION, AND VENUE — The parties hereto agree that the Laws of the State of New York shall apply to the interpretation, execution, and enforcement of this Contract. The State of New York shall have exclusive jurisdiction to hear disputes related to this contract and all suits or actions related to this Contract shall be filed and proceedings held in the State of New York. Further, the exclusive venue for any suits or actions related to this contract shall be in the City of XXXX, County of XXXX, State of New York.”

As can be seen, the first sentence designates the statutes, case law, rules, and regulations of New York as the controlling law (choice of law) with respect to how the contract is interpreted, executed, and enforced. The second sentence states that any lawsuit must be filed in New York (jurisdiction), and the final sentence states that the location of the courthouse (venue) will be in the chosen New York city and county.

Generally speaking, where the parties are from different States or countries, each party will want to select choice of law, jurisdiction, and venue provisions that reflect where they live or have their principal place of business. The power relationship between the negotiating parties generally determines which party “wins” this disputed contract point. If the parties cannot agree, it is possible to simply leave this provision out of the contract, with the parties accepting that, in the event of litigation, the courts involved will decide choice of law, jurisdiction, and venue. The courts in the U.S. have all evolved complex rules on how to make these determinations where the parties do not indicate their choices for choice of law, jurisdiction and venue. The factors involve questions like where was the contract signed, where was it performed, where are most of the witnesses and evidence located, does one jurisdiction have a particularly significant reason for having its laws applied, etc. In some cases, the parties’ selections can be overridden on these grounds.

Why are these provisions important?

Convenience and cost are two of the more important reasons for imposing your selection on your contracting partner. If you do business in New York and make a contract with a business in California — hundreds of miles across the country — it is convenient (and, therefore, less costly) to litigation any contract dispute in New York. The opposite is, of course, true for the California contracting party. Further, New York laws may be sufficiently different from the laws of California to make the difference between which party is victorious in the outcome of the case.

However, the importance of these types of clauses becomes magnified when dealing with international contracts. As just one example, consider the differences in court rules and procedures. Typical U.S. court procedures may be very, very different from the court procedures used in China, India, or Japan. These procedures may impact important legal issues like service of process, pretrial discovery, use and availability of evidence, how a judgment can be collected, etc. Substantive laws may also be different, and those differences might determine which party “wins” the case. So, as can be seen, choice of law, jurisdiction, and venue must be carefully considered.

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Enforceability: When Courts Override Party Selections

Even where parties have agreed on choice of law, jurisdiction, and venue, courts retain the power to override those selections under certain circumstances. Understanding those circumstances helps businesses negotiate and draft these provisions effectively.

For choice of law, most states apply the Restatement (Second) of Conflict of Laws test, which generally upholds a contractual choice of law unless: (1) the chosen state has no substantial relationship to the parties or the transaction, and (2) there is no other reasonable basis for the parties’ choice, or (3) application of the chosen law would be contrary to a fundamental policy of a state with a materially greater interest in the dispute. Courts frequently enforce choice-of-law clauses in commercial contracts where the parties are sophisticated businesses, even where the chosen state’s law is less favorable to one party.

For venue, the Supreme Court addressed forum-selection clauses in Atlantic Marine Construction Co. v. U.S. District Court, 571 U.S. 49 (2013), holding that a valid forum-selection clause should be given controlling weight in all but the most exceptional cases. Courts applying Atlantic Marine have consistently enforced forum-selection clauses in commercial contracts, transferring cases to the chosen forum even where most witnesses and evidence are located elsewhere.

Consumer Contracts: Heightened Scrutiny and Unconscionability

The enforceability analysis changes substantially when one party to the contract is a consumer rather than a sophisticated commercial actor. Courts in many jurisdictions — and certain state statutes — subject choice of law, jurisdiction, and venue clauses in consumer contracts to heightened scrutiny. A clause that selects a distant, inconvenient forum in a take-it-or-leave-it adhesion contract may be challenged as procedurally or substantively unconscionable.

California courts, for example, have been particularly active in striking down forum-selection clauses in consumer contracts that would require California residents to litigate in a distant state, particularly where the clause would effectively preclude the consumer from asserting California’s unwaivable statutory rights. Under California Labor Code § 925, employers cannot require California employees to adjudicate claims in a jurisdiction other than California or apply law other than California’s to claims arising primarily in California — with certain exceptions.

Employment Contracts: State-Specific Mandatory Protections

Employment agreements present some of the most heavily litigated choice-of-law disputes. Many states have enacted statutes that expressly void choice-of-law clauses in employment contracts that would deprive employees of the protections of the employee’s home state law. These provisions exist because employers frequently attempt to use choice-of-law clauses to avoid states’ stronger employee protections — particularly around non-compete enforceability, wage and hour law, and anti-discrimination statutes.

Minnesota’s non-compete ban (Minn. Stat. § 181.988), which took effect for agreements entered into on or after July 1, 2023, illustrates the tension. A Minnesota employer cannot circumvent this ban by including a clause selecting the law of a state that enforces non-competes. The statute expressly voids such choice-of-law provisions for Minnesota employees. Similar statutes exist in California (Labor Code § 925), Massachusetts, and other states.

International Contracts: The Hague Choice of Court Convention and the New York Convention

In contracts involving parties in different countries, the choice of law and forum provisions carry even greater weight because enforcement of a judgment in a foreign country is a separate, often difficult process. The Hague Convention on Choice of Court Agreements (to which the United States has signed but not yet ratified) would provide a framework for enforcing exclusive choice-of-court agreements internationally. In its absence, enforcement of U.S. court judgments abroad depends on the laws of the specific foreign jurisdiction and bilateral treaties.

Where international commercial contracts include arbitration clauses, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (to which over 170 countries are party) provides a robust framework for enforcing arbitral awards internationally. This is one reason why sophisticated parties in cross-border transactions often prefer international arbitration — with a seat in a neutral jurisdiction — over domestic court litigation.

Practical Drafting Recommendations

Based on how courts interpret these provisions, here are concrete drafting recommendations for business contracts:

• Be specific about venue. Specifying “the State of New York” is insufficient — identify the specific county and federal district. Vague venue provisions can be challenged and require courts to exercise discretion.
• Include both state and federal courts where possible. Specify whether jurisdiction is exclusive to state courts, federal courts, or both, and whether federal jurisdiction is based on diversity, federal question, or both. Ambiguity about which court has jurisdiction has derailed enforcement of otherwise valid forum-selection clauses.
• Address mandatory law conflicts expressly. If the contract involves employees or consumers in a jurisdiction with mandatory protective statutes, acknowledging those mandatory provisions — rather than attempting to waive them — reduces the risk that a court will void the entire choice-of-law clause.
• Pair with an arbitration clause if finality is the goal. Choice-of-law and venue clauses govern litigation. If the real goal is to avoid protracted public litigation, combine these provisions with a well-drafted arbitration clause specifying the applicable rules, the seat of arbitration, and the number of arbitrators.

Contact the Business Contract Attorneys at Revision Legal

Drafting and negotiating choice of law, jurisdiction, and venue provisions requires careful attention to both the specific jurisdictions involved and the type of transaction at issue. The experienced Business Contract Attorneys at Revision Legal help businesses structure commercial agreements that protect their interests and hold up in court. Contact us through the form on this page or call (855) 473-8474.