I often review contracts for clients that are doing business with companies from out-of-state. Inevitably these contracts will have a choice of law provision that says the laws of [insert state] apply. Clients usually take it for granted that a court will apply the laws of the state referenced in the contract.

But a recent post from the Austin Technology Law Blog points out that isn’t always the case and we should consider those contract provisions we often never think about. The post discusses a contract involving truck drivers and whether the truck drivers were employees or independent contractors. The two state laws involved were Georgia and California. Georgia law had a rebuttable presumption that the drivers were independent contractors while California law would favor them being employees. The contract in question chose Georgia law and that’s where the defendant had its principal place of business.

A driver filed a class action claiming violations of the Fair Labor Standards Act and California wage laws. You’d think Georgia law would apply and the drivers would be treated as independent contractors, right? Wrong! The court held that California law ultimately applied. 

An interesting decision to say the least. The case points out it’s important to consider provisions such as choice of law that are often not considered by the parties. Consider whether those provisions are written clearly and properly. I wonder whether it would have made a difference if the contract provision would have said the laws of the State of Georgia applied "without giving effect to conflict of laws principles"? The contract provision in question said only that the laws of the State of Georgia applied.

It appears the court in this case was determined to apply California law since Georgia law directly conflicted with a fundamental California policy. Just goes to show you how important some of these contract provisions can be and why it’s so important to have agreements reviewed by experienced business counsel.

Click for the court’s opinion: Ruiz v. Affinity Logistics Corporation