Governing Law and Jurisdiction Clauses Explained: What They Decide and What to Ask For
This page is general information, not legal advice.
Most people skip the governing law and jurisdiction clause. It usually sits near the end of a contract in one short paragraph full of boilerplate. But if a dispute ever comes up, this clause can decide whether you can afford to pursue it at all. It sets which place's law is used to read the contract, and where any lawsuit has to be filed. This page explains how the clause works, covers five versions that often work against the person signing, and gives wording you can propose for each.
The example clauses below are illustrative. They are not taken from any real company's contract.
What the clause actually does
The clause usually has two parts, and they do different jobs:
- Governing law (sometimes called "choice of law") says which legal system applies when the contract is interpreted, for example the law of a particular state or country.
- Jurisdiction or venue (sometimes called "forum selection") says which courts can hear a dispute, and often which city or county they sit in.
The two don't have to match. A contract can apply one place's law but send disputes to courts somewhere else. Watch for the word "exclusive" too. Exclusive jurisdiction means disputes can only be brought in the named courts. Non-exclusive jurisdiction means those courts are one option, not the only one. How far a court will enforce these choices depends on where you are and what kind of contract it is, and in some places consumer or employment rules may limit them.
1. Exclusive venue in the other party's home city
A typical clause might read: "Any action arising out of or relating to this Agreement shall be brought exclusively in the courts located in Company's principal place of business, and each party irrevocably submits to the jurisdiction of such courts."
Why it works against you
If you live far away, every hearing means travel, time off work, and possibly a lawyer licensed in that location. For smaller disputes, like an unpaid invoice or a withheld deposit, the cost of going there can be more than the amount at stake. That can quietly stop you from pursuing a claim at all. For freelancers this is one of the most common freelance contract red flags.
What to ask for instead
Sample wording to propose: "Any action arising out of this Agreement may be brought in the courts where the defendant resides or has its principal place of business. Either party may bring claims within the limits of small claims court in its own local court."
2. Governing law from a place with no connection to you
A typical clause might read: "This Agreement shall be governed by and construed in accordance with the laws of [a state or country where neither party is located], without regard to its conflict of laws principles."
Why it works against you
You probably know little about that legal system, and a local lawyer may not either. Basics like how long you have to bring a claim, what counts as a reasonable penalty, or how ambiguous wording gets read can all differ from place to place. A choice like this may also be picked because it favors the drafter on issues such as non-competes or liability limits. See limitation of liability clauses explained.
What to ask for instead
Sample wording to propose: "This Agreement is governed by the laws of the jurisdiction where [Contractor / Tenant / Customer] is located."
3. A one-way clause: they can sue anywhere, you can't
A typical clause might read: "Customer agrees to submit exclusively to the courts of Company's home jurisdiction. Nothing in this Agreement shall limit Company's right to bring proceedings against Customer in any other court of competent jurisdiction."
Why it works against you
You are tied to one forum, but the other side keeps the freedom to pick whichever court suits it best, including one near you when that's easier for them. This mismatch is easy to miss because the second sentence reads like routine filler. It shows up often in software and platform agreements. See SaaS subscription agreement red flags.
What to ask for instead
Sample wording to propose: "The jurisdiction and venue provisions of this Agreement apply equally to both parties."
4. Venue paired with arbitration, jury or class action waivers
A typical clause might read: "Subject to the arbitration provisions below, any claim not subject to arbitration shall be heard exclusively in the courts of Company's chosen county. Each party waives any right to a jury trial and to participate in a class or collective action."
Why it works against you
The jurisdiction clause often works together with other dispute terms. An arbitration requirement may send most disputes out of court entirely, and the venue clause covers whatever is left, still on the drafter's home ground. Waivers of jury trials or group claims can make small individual disputes not worth bringing. Read these sections together, not one at a time. See mandatory arbitration clauses explained.
What to ask for instead
Sample wording to propose: "Any arbitration or court hearing will take place in the county where [the individual party] resides, or remotely by video. Nothing in this Agreement waives a party's right to bring a claim in small claims court."
5. A clause the other party can change later
A typical clause might read: "Company may update these Terms, including the governing law and dispute resolution provisions, at any time. Continued use of the Service after changes constitutes acceptance."
Why it works against you
Even if the forum looks acceptable today, the other side can move it later with a website update you may never see. That's common in online terms of service, where you usually can't negotiate. In that case, knowing the clause is there still helps you decide whether to rely on the service for anything important.
What to ask for instead
Sample wording to propose: "Changes to the governing law or dispute resolution provisions will not apply to disputes arising from events before the change, and Company will give at least 30 days' notice of any such change."
Also worth a look
Check whether the governing law and venue clause matches the rest of the document. A contract that names one place's law in one section and another place's courts in a different section can lead to arguments about which applies. In leases, look at whether the clause sends disputes away from where the property sits. See lease agreement red flags. Also check whether the clause covers claims "relating to" the agreement, which can pull in disputes beyond the contract itself. Whether a given forum or law choice will actually be enforced depends on where you are, so ask a qualified lawyer if a dispute looks likely.
Scan your own contract free
The governing law and jurisdiction clause is short, so it's easy to skim past. Paste your contract or terms into the ScanMyTerms terms of service checker, or use the freelance contract review for client agreements. In about a minute it flags one-sided venue, choice of law and related dispute terms, with the exact wording and what to ask for instead. The free preview shows the risk count and the first two findings, and the full report is a one-time $5 per document.
This page is general information, not legal advice. For decisions about a specific contract, talk to a qualified lawyer where you live.
Sources
- All clause examples on this page are illustrative and written for this guide. They are not quoted from any real company's agreement.
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