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Understand why governing law provisions are used in contracts

There's a phrase or two that's commonly seen in contracts called a governing law provision or conflict of laws provision. Many people read over this part of the contracts that they sign without fully understanding its meaning.

That could be a mistake that could haunt them later if there's a dispute down the line that ends up in court.

Generally speaking, a governing law phrase reads something like, "This agreement will be governed by the laws of Florida, without regard to any conflicts of laws provisions --" and may or may not go on from there with additional information or statements.

Here's why it is important to note this provision and understand its meaning: It can determine which jurisdiction, or court, ends up hearing the case if a dispute arises over the contract.

Since the laws of each state can vary drastically, that's a significant power. For example, Florida is generally considered a pro-employer state, not a pro-employee state -- especially when compared to states like California, which tends to favor employees in court. A clause like that in an employment contract could very well give the employer a better legal argument than it does the employee.

Florida is also generally very proud of its pro-business climate, which encourages companies to locate their headquarters there quite often.

If you live and work in Florida and are making a contract with a business entity or person also located in Florida, the governing law provision will likely make no difference to you. However, when contracts are made between parties in different states, that can create jurisdictional issues that can be resolved by these governing law rules.

Before you sign any contract with a governing law clause, it may be wise to talk to an attorney who handles contract disputes so that you fully understand what ramifications it has for you.

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