The Drawback of Choice-of-Law Clauses for Employers

A choice-of-law clause is a provision in a contract (e.g., a noncompete) that states what state’s law will apply to the contract, regardless of where the lawsuit to enforce it is filed.  Donald C. Dowling Jr. recently published an article that explains the drawback of such provisions for employers.  Although he focuses mostly on international law, his observations apply with equal force to U.S. law.  He writes that “[l]aws that enforce restrictive covenants [i.e., noncompetes] tend to be ‘mandatory rules’ that apply by force of public policy, and, so, the restrictive covenant interpretation rules of a place of employment or forum court tend to apply by operation of law.”

This means, for example, that a California court, located where noncompetes are generally not enforceable by statute, would be reluctant to apply Massachusetts law through a choice-of-law clause and enforce a noncompete.  So where a lawsuit is filed can be just as important as what’s in the noncompete itself, at least to a certain degree.

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