A forum clause (also known as a "choice of law" clause) is included in a contract so that only laws of a certain location will apply if there is a contract dispute. For example, a forum clause might state: "This agreement shall only be interpreted under the laws of Arizona and only be litigated in the state courts of Maricopa County, State of Arizona."
Forum clauses are found in a variety of contracts. Here are some examples:
- Employment contract – Many employment contracts will specify exactly what type of forum an employment dispute will take place in. For example, many employment contracts require that a dispute be resolved only through arbitration or mediation.
- Franchise agreement – These agreements often have forum clauses. Forum clauses are included so that the franchisor does not need to answer disputes wherever a franchisee is located. For example, McDonald¿s is a franchisor that has franchisees all over the world. Without a forum clause included in the franchise agreements, McDonald’s could be subject to lawsuits around the world.
It depends on the state and the issue in the lawsuit. For example, when dealing with consumer issues, some states will not enforce the forum or choice of law clauses in consumer agreements even if it is valid. Instead, these states allow a consumer to bring a contract dispute under state consumer protection laws. Courts do this because of fairness; sometimes forum clauses are put in the contract so that a law will favor one party while hurting the other.
Drafting contracts can be risky business. When you are a party to a contract, it is important that the contract is legally valid and the expected benefits from the contract are realized. Consult an experienced business attorney to help you through the contract drafting process and ensure the proper clauses are included and valid.