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Topic: Contractual clauses

governing law and jurisdiction clause
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Governing law and jurisdiction clause

Governing law and jurisdiction clause

Our clause says that the contract is governed by the laws of England and Wales and the courts of England and Wales have jurisdiction to settle disputes. Whilst you can select the governing law, you can’t contract out of “mandatory rules”. There’s also little benefit in having a jurisdiction clause because you can’t generally enforce it.

What’s the difference?

Governing law and jurisdiction are two different matters. A governing law clause states what country’s laws are to apply to the contract, whereas a jurisdiction clause is a dispute resolution provision which enables the parties to agree which country’s courts are to have jurisdiction to hear disputes arising out of the contract. Normally, you’d provide for the same country in both cases, but that might not always be the case. The fact that a country’s law is the governing law of a contract doesn’t necessarily mean that claims under that contract can be brought in that country’s courts. Governing law and jurisdiction clauses aren’t essential in most employment contracts and they have limited effectiveness for the reasons explained below. However, they’re often used for employees whose work involves international travel or temporary postings abroad.

Governing law

An employment contract can be governed by the law chosen by the parties. However, a governing law clause can’t be used to avoid a country’s “mandatory rules” - these apply automatically and can’t be contracted out of. Under UK employment law, these include statutory employment rights, such as protection against unfair dismissal and discrimination. Likewise, where an employee working abroad has the benefit of mandatory rules in the country they’re working in, the choice of UK law in the contract won’t prejudice those rights. Our Governing Law and Jurisdiction Clause is drafted on the basis that it’s governed by the laws of England and Wales. Where you don’t have a clause, the employment contract will generally be governed by the law of the country in which, or from which, the employee carries out their work. If the employee doesn’t habitually carry out their work in or from one country, the contract will be governed by the law of the country where the business through which the employee was engaged is situated. However, where it appears from the circumstances that the contract is more closely connected with a different country, the law of that country will apply instead.

Jurisdiction

You can decide to confer either exclusive or non-exclusive jurisdiction on the chosen courts. Exclusive jurisdiction prevents one party bringing a claim against the other in the courts of any country other than the selected country. Non-exclusive jurisdiction enables either party to bring a claim against the other either in the courts of the selected country or in the courts of any other country that has jurisdiction over the dispute under its own jurisdictional rules. Our clause specifies the courts of England and Wales as the selected countries. Although you’re free to agree with your employee the jurisdiction for hearing disputes, a jurisdiction clause in an employment contract will in fact only be valid if either invoked by the employee (i.e. not by you) or if it’s been entered into after the dispute has arisen. This massively limits the benefit to you of such clauses.

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