Choice-of-Law Clauses in Minnesota Contracts

What does a Minnesota choice-of-law clause actually do?

A choice-of-law clause tells a court which state’s substantive law to apply to questions arising under your contract. That covers interpretation, gap-filling, statute-of-frauds analysis, the measure of damages, and most enforceability doctrines like unconscionability and adequacy of consideration. It does not, by itself, decide where the case is filed; that is the job of a separate forum-selection clause. It also does not control procedural rules of the court that ends up hearing the case, which apply the forum’s procedure regardless of whose substantive law governs.

The clause matters most when the two states’ rules diverge on something specific to your dispute: a liquidated-damages cap, a fee-shifting rule, a statute the other side wants to invoke, an implied covenant the parties did not anticipate. In those cases, the clause is the difference between a winning and a losing argument on the same facts.

When will a Minnesota court enforce a clause picking another state’s law?

Minnesota courts generally enforce a contract’s choice-of-law clause when three conditions are met. First, the chosen state has a reasonable basis for being chosen, usually some real-world connection like a party’s headquarters, place of incorporation, or place of performance. Second, applying that state’s law would not violate a fundamental public policy of Minnesota. Third, no Minnesota statute strips the parties’ freedom to choose for the type of contract at issue. The third condition is where most cases fail; the first two are usually satisfied in arm’s-length business contracts.

Minnesota’s analysis for non-UCC contracts borrows the analytical structure of the Restatement (Second) of Conflict of Laws § 187. That structure asks whether the chosen state has a substantial relationship to the parties or transaction, whether there is some other reasonable basis for the choice, and whether applying the chosen state’s law would offend a fundamental policy of a state with a materially greater interest in the issue. The analysis is fact-specific, which is why the drafting choices below matter even when the clause looks routine.

What is the “reasonable relation” test under the UCC for goods contracts?

For contracts for the sale of goods, the controlling rule is statutory. Under Minn. Stat. § 336.1-301(a), parties to a transaction that “bears a reasonable relation to this state and also to another state or nation” may agree that “the law either of this state or of such other state or nation shall govern their rights and duties.” The chosen state must have an actual connection to the transaction; you cannot pick the law of a state with no relation to anything in the deal merely because you like the substance.

When parties make no choice, subsection (b) supplies a default: the Minnesota UCC applies “to transactions bearing an appropriate relation to this state.” That is textually a lower threshold than “reasonable relation,” though Minnesota appellate construction of that phrase is sparse.

Subsection (c) is the trap. It lists specific UCC provisions, including the secured-transactions choice-of-law rules in §§ 336.9-301 through 336.9-307 and the negotiable-instruments rules in § 336.4-102, where the parties’ freedom to pick is limited or removed. A contrary agreement in those areas is “effective only to the extent permitted by the law so specified.” For a financing statement filed in Minnesota or a check drawn on a Minnesota bank, the parties’ label on the contract does not change the rule.

What public-policy limits does Minnesota recognize on choice-of-law clauses?

Even where the parties have validly chosen another state’s law, Minnesota courts will refuse to apply the chosen law if doing so would override a fundamental Minnesota public policy. The legislature has identified the categories that matter most by enacting the statutory carve-outs catalogued in the next H2: rules protecting employees, franchisees, dealers, and parties to Minnesota construction contracts (§§ 181.988, 80C.21, 325E.37, 337.10). Two private-law doctrines also matter: unconscionability and the rule that no party may use a foreign law to enforce a contract that is illegal under Minnesota law in a way that affects Minnesota residents or operations. Our legality doctrine article covers the related principle that Minnesota courts will not lend the state’s enforcement machinery to contracts the legislature has voided.

In my practice, the public-policy override rarely comes up in two-sophisticated-party commercial deals where both parties had counsel and the chosen state has plausible substantive law. It comes up almost exclusively where one side is a Minnesota employee, franchisee, dealer, sales representative, or small-business owner and the other side has drafted away protections the legislature has specifically enacted. The legislature has done much of the work in advance through the statutory carve-outs in the next section.

Which Minnesota statutes override a contrary choice-of-law clause?

Several Minnesota statutes void a choice-of-law clause that tries to circumvent them. Reading these as a list helps identify when your clause has a real risk of being struck.

• Noncompete agreements with Minnesota employees. Under Minn. Stat. § 181.988 subd. 3, an employer may not require a Minnesota-resident employee, as a condition of employment, to agree to a clause that requires the employee to adjudicate a Minnesota claim outside Minnesota or that deprives the employee of the substantive protection of Minnesota law. The employee can void the offending provision at any time. Subdivision 2 separately voids most postemployment noncompetes. For the practical mechanics, see our noncompete article.
• Building and construction contracts performed in Minnesota. Under Minn. Stat. § 337.10 subd. 1, any provision making a Minnesota construction contract subject to another state’s law, or requiring litigation, arbitration, or other dispute resolution outside Minnesota, “are void and unenforceable.”
• Franchise agreements with Minnesota residents or for Minnesota franchises. Under Minn. Stat. § 80C.21, any clause, “including any choice of law provision,” that has the effect of waiving any provision of the Minnesota Franchise Act for a Minnesota-resident franchisee or a franchise to be operated in Minnesota, is void. The statute reaches both express waivers and indirect waivers operating through a foreign-law selection.
• Sales-representative contracts. Under Minn. Stat. § 325E.37 subd. 7, a manufacturer, wholesaler, assembler, or importer cannot include in a sales representative agreement a term applying another state’s law, a term selecting venue in another state, or a waiver of any provision of the section; any such term is void and unenforceable. The mechanics are covered in our sales representatives termination article.

These four are the most common, but not the only, statutory carve-outs. The pattern is consistent: where the legislature has decided that a Minnesota worker, franchisee, dealer, contractor, or small operator needs protection, it has stripped the parties of the freedom to contract around that protection.

How do choice-of-law and choice-of-forum clauses interact?

The two clauses are independent. Choice-of-law decides which substantive rules apply; choice-of-forum decides which courts hear the case. A Minnesota court can refuse to apply the chosen state’s law while still enforcing the chosen forum, and a court in the chosen forum can apply Minnesota law if its own conflict-of-laws rules direct it there.

As a general matter, forum-selection clauses are typically enforced when freely negotiated, but courts will sometimes refuse to enforce a forum-selection clause that effectively denies a party a meaningful hearing or that contravenes Minnesota public policy. Where Minnesota statutes lock in Minnesota law (the noncompete, construction, and franchise statutes above), they typically also lock in Minnesota as the forum, because routing the dispute to another state would be the practical mechanism for waiving Minnesota’s substantive protections. Our coverage of the overlap between arbitration and venue clauses explains how these issues compound when arbitration is selected.

What law applies if my clause is unenforceable?

If a Minnesota court refuses to enforce your choice-of-law clause, the court applies Minnesota’s general conflict-of-laws rules to decide which state’s law governs. For UCC sales-of-goods contracts, the default in § 336.1-301(b) directs the Minnesota UCC to “transactions bearing an appropriate relation to this state.” For other contracts, Minnesota’s analysis weighs predictability of results, the maintenance of interstate order, simplification of the judicial task, the forum’s governmental interests, and the better rule of law, and asks which state has the most significant relationship to the transaction.

The practical consequence: if you write an aggressive clause that gets struck for trying to evade a Minnesota statute, you usually end up with Minnesota law applied anyway. The drafter’s gain from the override is asymmetric, which is why the carve-out statutes work as a deterrent. A more measured clause, picking a state with a real connection and not aimed at evading Minnesota’s protective statutes, is far more likely to do what you wanted.

How should I draft a choice-of-law clause to maximize enforceability?

Five drafting choices reliably move the clause from contestable to durable.

1. Pick a state with a real connection to the deal. A party’s headquarters, place of incorporation, or principal place of performance is the safest anchor. A neutral state chosen purely for predictability is permissible but invites a closer look on the public-policy step.
2. Use broad scope language. “This agreement, and any claims arising out of or relating to it, including any tort, statutory, or equitable claims,” reaches further than “this agreement shall be governed by.” As a drafting matter, a bare “governed by” clause may be read narrowly, so many practitioners broaden the language to keep fraud, tortious-interference, and statutory claims inside the clause rather than back in the forum’s default conflict analysis.
3. Address procedural-versus-substantive law explicitly. The chosen state’s substantive law, but the forum’s procedural law, will apply absent contrary contract language; saying so clearly avoids litigated ambiguity over things like statutes of limitations (some treated as procedural, some substantive).
4. Recognize the carve-outs. If the contract touches Minnesota employees, Minnesota construction projects, Minnesota franchisees, or Minnesota sales representatives, build the clause around the statutory carve-outs rather than against them. A clause that says “to the extent not preempted by mandatory Minnesota law” preserves enforceability of the rest of the clause if a court strikes a piece. Severability language is your friend; our integration-clause discussion explains a related drafting habit.
5. Pair the clause with a forum-selection and dispute-resolution choice that fits. A choice-of-law clause without a forum-selection clause leaves you arguing Minnesota’s conflict-of-laws rules in whatever court the other side picks. Pairing the two reduces the surface area of disputes about which rules apply.

In my practice, the clauses that hold up are not the most aggressive ones. They are the ones drafted by counsel who knew the carve-out statutes and wrote the clause to coexist with them rather than challenge them.

Bottom line

A Minnesota choice-of-law clause will usually do what you wrote it to do, provided the chosen state has a real connection to the deal, the chosen law does not offend a fundamental Minnesota public policy, and no statute carves the topic out of the parties’ freedom to choose. The traps are not subtle: the noncompete statute, the construction statute, the franchise statute, and the sales-representative statute each strip the clause of effect for the categories they cover. For a fuller view of how these clauses sit alongside the rest of a commercial contract, the contracts practice area is the entry point. If you would like a second set of eyes on a specific clause, or on a contract where one of the carve-outs may apply, email [email protected] with the contract and a short description of the deal.