How Boilerplate Clauses Change Across U.S. States

You use the same contract template nationwide, assuming the standard language means the same thing everywhere. But boilerplate provisions that seem uniform can produce dramatically different results depending on which state's law applies. The governing law in a contract determines which interpretation controls, making this provision far more important than its placement in the miscellaneous section might suggest.

State contract law varies more than most business people realize. Terms that are enforceable in Texas may be unconscionable in California. Provisions that courts in Delaware uphold routinely may be limited or prohibited in other jurisdictions. Understanding these variations helps you draft contracts that work across state lines and choose governing law wisely.

Why State Law Matters

The Patchwork of American Contract Law

The United States does not have a single, uniform body of contract law. Each state has its own common law developed through court decisions, its own statutes regulating particular types of contracts, and its own approach to interpreting contract language. This creates a patchwork where the same words can mean different things depending on where you are.

The Uniform Commercial Code provides some consistency for sales of goods, but even the UCC has been adopted with variations by different states. For services, real estate, employment, and other contracts outside the UCC, state-by-state differences are even more pronounced.

The Role of Governing Law Clauses

The governing law and jurisdiction clause determines which state's rules apply to your contract. A sample governing law clause might read: This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. This provision means Delaware law applies regardless of where the parties are located or where performance occurs.

Without a choice of law clause, courts apply complex conflict of laws rules to determine which state's law governs. These rules consider factors like where the contract was formed, where performance occurs, and which state has the most significant relationship to the dispute. The results can be unpredictable, which is why specifying governing law is important.

Enforcement of Choice of Law

Courts generally enforce governing law provisions, though with some limitations. The chosen state must have some relationship to the transaction or the parties, though courts interpret this requirement broadly. The chosen law also cannot violate the public policy of a state with a materially greater interest in the dispute.

These limitations rarely prevent enforcement of commercially reasonable governing law choices. Selecting Delaware, New York, or the state where one party is headquartered typically survives challenge. More exotic choices, like selecting a distant state with no connection to the transaction, may face scrutiny.

Common Areas of State Law Variation

Limitation of Liability

States differ significantly in how they treat contractual limitations of liability. Some states enforce broad liability caps and damage exclusions between business parties with minimal scrutiny. Others apply unconscionability doctrines more aggressively to strike down limitations they consider unfair.

California, for example, has been more willing than many states to find liability limitations unconscionable, particularly in consumer contracts but also in some business contexts. Delaware courts, by contrast, tend to enforce contractual risk allocations as written between sophisticated parties.

Indemnification

Indemnification provisions face varying treatment across states. Some jurisdictions require specific language to indemnify a party for their own negligence. Others prohibit such provisions in certain contexts or require conspicuous disclosure. Construction indemnification is particularly heavily regulated, with many states limiting the scope of permissible provisions.

Anti-indemnity statutes in some states void provisions requiring one party to indemnify another for the indemnitee's own negligence. If your contract includes broad indemnification and might be governed by such a state's law, the protection you thought you had may not exist.

Non-Compete Agreements

Non-competition covenants illustrate dramatic state law variation. California famously refuses to enforce most employee non-competes, treating them as void against public policy. Texas and many other states enforce reasonable non-competes but apply different standards for what constitutes reasonableness.

A non-compete that is enforceable in one state may be completely void in another. The choice of law clause affects whether your non-compete will be enforced if an employee moves or the business expands to other states. This makes governing law selection critical for agreements containing restrictive covenants.

Arbitration Clauses

While the Federal Arbitration Act provides a federal policy favoring arbitration, state law affects many aspects of arbitration clause enforcement. Some states have enacted consumer arbitration protections. Class action waivers face varying treatment. Discovery in arbitration may be governed by state procedural rules.

States also differ in how they treat arbitration provisions in particular contexts like employment or franchise relationships. A broad arbitration clause may be fully enforceable under one state's law but limited or void under another's.

Consequential Damages

The treatment of consequential damage exclusions varies by state. Most states enforce these exclusions in commercial contracts, but some impose requirements for how such provisions must be drafted or limit exclusions in certain circumstances.

Whether lost profits constitute direct or consequential damages can also vary by jurisdiction. This classification affects whether your damage exclusion works as intended. What you think you excluded may not be excluded under the applicable state's law.

Forum Selection

Forum selection clauses receive different treatment in different states. Some states apply the clauses presumptively, requiring strong evidence to avoid their effect. Others scrutinize forum selection more carefully, particularly in consumer or employment contexts.

The governing law in a contract interacts with forum selection. You might choose Delaware law but require litigation in New York. The New York court would apply Delaware substantive law but its own procedural rules. Understanding this interaction helps you structure dispute resolution provisions effectively.

Industry-Specific Variations

Construction

Construction contracts face extensive state-specific regulation. Mechanic's lien laws, anti-indemnity statutes, prompt payment acts, and licensing requirements all vary by state. A construction contract that works perfectly in one state may violate mandatory laws in another.

Many construction industry provisions cannot be overridden by choice of law. If work is performed in a state with mandatory payment terms, those terms apply regardless of what governing law the contract specifies. Understanding these limitations is essential for construction industry contracting.

Insurance

Insurance contracts are heavily regulated by state law. Policy provisions must comply with the law of the state where the policy is issued and where the insured risk is located. Choice of law provisions in insurance contexts face significant limitations not present in ordinary commercial contracts.

Bad faith insurance claims, which provide remedies beyond contract damages, are creatures of state law that vary dramatically. Some states allow extracontractual damages and punitive damages for insurer bad faith. Others do not recognize the cause of action at all.

Employment

Employment contracts face state-specific regulation of everything from non-competes to wage payment to arbitration. California labor law differs substantially from Texas labor law. These differences often cannot be overridden by contractual choice of law.

Many employment law provisions are mandatory and apply regardless of what the contract says. Wage and hour requirements, anti-discrimination protections, and workers' compensation apply based on where work is performed, not what governing law the contract specifies.

Franchising

Franchise relationships are regulated differently across states. Some states require pre-sale disclosure and registration. Others have relationship laws governing franchise termination and non-renewal. These regulatory regimes often override contractual choice of law provisions.

A franchise agreement governed by Delaware law may still be subject to California franchise laws if franchisees operate in California. Multi-state franchise systems must comply with a patchwork of state requirements regardless of their contracts' governing law provisions.

Strategic Considerations

Choosing Governing Law

Select governing law deliberately, not by default. Consider which state's law is most favorable to your position. Delaware and New York are popular choices because their courts are sophisticated and their laws generally respect commercial contracts as written.

A choice of law clause that serves your interests might specify a state that enforces limitation provisions broadly, interprets indemnification favorably, and has developed case law clarifying common contract issues. Your lawyer can help identify which state's law best protects your interests.

Considering Mandatory Laws

No choice of law provision can override mandatory laws that apply regardless of contract. If you do business in California, certain California laws apply to your California activities no matter what your contract says. Identify mandatory laws that may apply to your transaction and plan accordingly.

This is particularly important for consumer contracts, employment agreements, and regulated industries. The governing law you specify may control interpretation of standard provisions but cannot eliminate mandatory protections in states where you do business.

Multi-State Operations

Businesses operating across state lines must account for legal variations. You cannot assume that your standard contract works the same way everywhere. Consider whether you need state-specific modifications for operations in jurisdictions with particularly different laws.

California often requires special attention because its laws differ from national norms in significant ways. Contracts that work throughout the rest of the country may need California-specific provisions to be effective there.

Dispute Resolution Integration

The governing law and jurisdiction clause should work together with other dispute resolution provisions. Consider how governing law interacts with forum selection, arbitration, and jury waiver provisions. Ensure the combination produces the dispute resolution framework you intend.

A sample governing law clause might be paired with exclusive forum selection in the same state's courts. Or you might choose one state's substantive law but require arbitration in a different location. Understanding these interactions helps you craft an integrated approach.

Drafting Recommendations

Be Explicit

State your choice of law clearly and completely. A typical provision reads: This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to conflicts of law principles. The without regard to conflicts of law language prevents courts from applying choice of law rules that might point to a different state.

Consider Scope

Specify what the choice of law covers. Does it apply only to interpretation of the contract, or also to tort claims, statutory claims, and other matters arising from the relationship? Broad coverage language ensures your choice of law applies to all disputes, not just contract claims.

Coordinate with Forum Selection

If you include forum selection, ensure it works with your governing law choice. Having disputes heard in courts familiar with the governing law has practical advantages. Judges applying their own state's law are more likely to get it right than judges applying another state's law.

Address Mandatory Law

Consider adding provisions acknowledging mandatory laws that may apply regardless of governing law choice. This can prevent claims that you tried to evade protective laws and demonstrates good faith drafting.

Review Periodically

State law evolves. Provisions that were enforceable when your contract was drafted may face new challenges as courts develop doctrine or legislatures enact statutes. Periodically review your standard contracts to ensure governing law provisions still serve your interests.

Conclusion

Boilerplate provisions are not as uniform as they appear. The governing law in a contract determines how standard language will be interpreted, and state law variations can produce dramatically different results. What works in one state may fail in another.

Choose governing law strategically, selecting a state whose law favors your interests and provides predictability. Understand how your choice of law clause interacts with the governing law and jurisdiction clause and other dispute resolution provisions. A sample governing law clause from a form may not suit your specific needs.

Account for mandatory laws that apply regardless of governing law choice. Multi-state operations require attention to jurisdictional differences that cannot be contracted away. Industries with extensive regulation face particular constraints on choice of law effectiveness.

Do not treat boilerplate as standard language that needs no attention. The governing law provision belongs in the miscellaneous section of most contracts, but its effects are anything but miscellaneous. Getting this choice right protects you from unpleasant surprises when disputes arise and courts apply laws you did not expect.