How to review a governing law clause

A governing law clause picks the law that will interpret the contract. It usually sits next to a forum or dispute resolution clause that picks where disputes are heard. Both look like boilerplate, but they decide which rules apply to every other clause in the agreement. This guide covers how to read them, the US rules that limit them, and how to review them in Word with LexDraft.

Last checked: 18 October 2026. The law changes; check the current position before relying on this page.

When a court will follow the parties' choice

• The general rule. Most states follow section 187 of the Restatement (Second) of Conflict of Laws. The chosen law applies unless it has no substantial relationship to the parties or the deal and there is no other reasonable basis for the choice, or applying it would be contrary to a fundamental policy of a state with a materially greater interest.
• New York. General Obligations Law section 5-1401 lets parties choose New York law for transactions of $250,000 or more even without any other connection to New York (with some exceptions, such as labor and personal services contracts). Section 5-1402 lets parties to deals of $1 million or more who chose New York law also choose New York courts.
• Delaware. Title 6, section 2708 of the Delaware Code supports a choice of Delaware law in contracts involving $100,000 or more.
• Sales of goods. Under UCC section 1-301, parties can choose the law of a state or nation that bears a reasonable relation to the transaction.
• Employment in California. Labor Code section 925 bars employers from requiring an employee who primarily lives and works in California to agree, as a condition of employment, to non-California law or a non-California forum for claims arising in California, unless the employee was individually represented by a lawyer in negotiating the terms.

Clause checklist

• Scope. Does the clause cover only the contract, or also related tort and statutory claims ("any dispute arising out of or relating to")? Narrow wording can leave fraud and other non-contract claims to a different law.
• Conflict-of-laws rules. Most clauses exclude the chosen state's conflict-of-laws rules so the choice cannot loop back to another state's law.
• International sales of goods. The UN Convention on Contracts for the International Sale of Goods (CISG) can apply to sales between parties in different contracting states even when the contract names a US state's law. Article 6 lets the parties exclude it, and the exclusion should be express.
• Forum selection. Exclusive or non-exclusive? Federal courts give a valid forum-selection clause controlling weight in most cases (Atlantic Marine Construction Co. v. U.S. District Court, 571 U.S. 49 (2013)). Check that the named court can actually hear the dispute.
• Arbitration. If disputes go to arbitration, check the rules, seat, number of arbitrators, carve-outs for injunctive relief and whether class claims are waived. The Federal Arbitration Act generally supports enforcement.
• Jury waiver. Usually enforced if knowing and voluntary, but California courts will not enforce a pre-dispute contractual jury waiver (Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944 (2005)). Make the waiver conspicuous.
• Consistency. Check that order forms, SOWs, NDAs and side letters do not name a different law or forum.

A governing law clause review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. Run the review on the whole agreement. For NDAs, SaaS MSAs, DPAs and services agreements, run the matching playbook on the whole agreement; for other contracts LexDraft runs a general review against the governing law you chose. LexDraft has no separate clause-only playbook.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

The governing law you select in LexDraft does not have to match the clause, but it should. If the clause names New York law, choose New York so the state-specific checks look for the right issues.

What LexDraft does not do

LexDraft does not give legal advice or predict whether a court will honor a choice of law. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.