One of the most common mistakes business people make when reading a contract is to overlook the Choice of Law clause. While this may sound like a mere technicality, in fact, it is critical to the contract’s enforcement.
A Choice of Law contract clause states that the agreement will be enforced under the law of a particular state. That is especially important when the state in which the contract was entered into is not readily apparent. For example, what if someone in Pennsylvania signs an employment contract with a company based in California. And what if that person will work out of a satellite office in New York? It is not clear which state’s law would apply. That is a major problem if, for example, the restrictive covenant in that contract is enforced to bar the employee from working in the industry for a certain period of time. The law of California is radically different than the law of New York or Pennsylvania in this regard. California is notoriously hostile toward restrictive covenants.
Interestingly, the Choice of Law Clause is generally binding regardless of the state in which the Court hearing the dispute is sitting. So, in our example, the contract might say that New York law applies, yet the suit might be instituted in Pennsylvania since that is where the former employee resides and has assets subject to collection in the event a judgment is entered. In such a case, the Pennsylvania court would enforce New York law.
© 2011 Nissenbaum Law Group, LLC