What is a contract clause?

A contract clause is a provision or section in an agreement that represents one specific part of the subject matter that the agreement deals with. Clauses can come in almost all shapes and sizes and cover anything related to the agreement.

There are many standard contract clauses that are frequently used in all kinds of agreements. It depends on what the parties require. Some agreements may require clauses specifically created to suit the needs.

Examples of common contract clauses

• Statute of limitations: determines the period of time in which a lawsuit may be filed after the agreement was breached
• Confidentiality clause: labels certain information contained in the agreement as confidential and prohibits its disclosure to anyone outside the parties specifically named in the agreement
• Arbitration clause: determines that any legal disputes between the agreement’s parties be settled through arbitration
• Merger clause: establishes that the current written agreement takes precedence over any earlier written or oral agreement regarding the same matter
• Severability clause: after one or more parts of the agreement have been declared invalid, the severability clause states that the rest of the agreement is still valid as is
• Assignment clause: permits or prohibits the complete transfer of rights or obligations under the contract to another party
• Non-compete clause: prohibits employees from working for competitors of their old employer for a certain period of time after resigning or being terminated
  

Contract clauses and legislation

One important thing to keep in mind is that the legislation in the respective country always takes precedence over contract clauses.

One example: an employment contract’s non-compete clause may state that the employee is prohibited from working for a competitor for up until 6 months after leaving the current employment. If local law states that non-compete clauses can only be valid for 3 months, the clause contained in the contract becomes invalid.

Nowadays, a lot of agreements are formed between international partners and some clauses are not valid in all countries. What factors determine where a dispute is to be litigated? This question can be settled by including a choice of law clause in an agreement. If not, then the law of the state applies, where the action took place that is the reason for the dispute.