Legal Glossary
Governing Law
The clause specifying which state's or country's laws will be used to interpret and enforce the contract.
Legal Definition
A governing law clause (also called a choice of law clause) specifies which jurisdiction's legal system will apply to the interpretation and enforcement of a contract. It may also specify the exclusive jurisdiction and venue — meaning disputes must be filed in courts in a particular location. Governing law clauses are standard in contracts where the parties are in different states or countries, because different legal systems have significantly different rules for how contracts are interpreted, what remedies are available, and which clauses are enforceable.
In Plain English
The governing law clause answers: 'Whose rules do we play by?' If your employment contract says 'governed by the laws of Delaware,' then Delaware courts apply Delaware contract law to any dispute — even if you work in California. This can matter enormously: a non-compete that's unenforceable in California might be enforced in Delaware. An arbitration clause might have different rules under Delaware law. Consumer protections that exist in your home state may not apply if the governing law is elsewhere. Always check what state's law governs your contract — and look up whether that state's laws are more or less favorable for the specific clause you're concerned about.
Real-World Example
Sofia lives in California and signs a remote work employment contract with a company headquartered in Texas. The governing law clause says: 'This agreement shall be governed by the laws of the State of Texas.' Sofia's employment contract includes a non-compete. Under California law, non-competes for employees are essentially banned. Under Texas law, reasonable non-competes are enforceable. The governing law clause could determine whether Sofia's non-compete is enforceable when she leaves — which is exactly why companies in non-compete-friendly states choose their home state as governing law.