Grace Buczak

Associate Editor 

Loyola University Chicago School of Law, JD 2027

In recent years, employment contracts have become increasingly laden with procedural clauses that dramatically shape where and how disputes are resolved. While mandatory arbitration agreements that require private dispute resolution remain common, employers are increasingly turning to forum selection and choice of law clauses as an alternative or supplement. The questions are whether these clauses are functionally becoming the new mandatory arbitration agreements, and whether they hide compliance traps that both employers and employees should be paying attention to.

What are forum selection and choice-of-law clauses and why do employers use them?

At their core, forum selection clauses are contract terms, where parties agree on which court will hear disputes arising from their contract. A forum selection clause might require all disputes be brought in a specific state or federal court, or even in a specific county within a state. Meanwhile, a choice-of-law clause dictates what substantive law will govern the contract. For example, the application of New York law rather than Illinois law, even if a claim is filed elsewhere. Together, these provisions can operate to steer litigation both in terms of location and legal standards that will apply.

Traditionally, employers have turned to mandatory arbitration agreements to reduce litigation costs, limit class actions, and keep disputes out of public courts. Forum selection clauses offer a different tactical advantage: they allow employers to centralize litigation in favorable venues and avoid litigating in multiple states where employees might reside. This is especially important for companies with remote workforces or multi-state operations, because without a forum selection clause, employees can often sue in their home state.

Are forum selection clauses as powerful as arbitration clauses?

In some respects, forum selection clauses can mimic the effects of arbitration clauses, by steering disputes away from convenient or favorable venues for employees to litigate. In that sense, they function like a procedural control mechanism. They narrow where claims may be filed, they can limit employees’ access to courts likely to apply favorable laws, and they reduce litigation uncertainty, especially for national employers.

However, forum selection clauses are not identical to arbitration agreements. Arbitration agreements are enforced under the Federal Arbitration Act (FAA), which creates a strong federal policy favoring arbitration of covered disputes. Forum selection clauses, by contrast, have historically been enforced under contract and venue law, with key federal precedent like Atlantic Marine Construction Co. v. U.S. District Court holding that valid forum selection clauses should be enforced via transfer or dismissal absent extraordinary circumstances.

Unlike arbitration provisions (which are broadly enforced by federal law), forum selection clauses can run into public policy exceptions in state law, particularly if they are used to evade a state’s mandatory worker protections. For example, California’s Labor Code §925 allows employees to void forum selection and choice-of-law clauses that force litigation outside California or deprive employees of California’s protections, unless the employee was represented by counsel in negotiating the contract.

Compliance traps: what employers and employees must watch for

Vague or ambiguous forum selection language can undermine enforceability or invite costly litigation over whether the clause applies at all, a risk absent in clearer arbitration provisions.

Additionally, statutory changes can render dispute-resolution provisions ineffective or partially unenforceable. For example, recent developments under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) show how statutory change can unravel procedural clauses previously thought to control dispute resolution. In Olivieri v. Stifel, Nicolaus & Co., a Second Circuit case arising out of New York, the court held that the plaintiff could elect to void her employer’s arbitration agreement under the EFAA because her hostile work environment and retaliation claims continued past the law’s effective date. Under the “continuing violation” doctrine, her claims accrued after a certain date, so the arbitration clause was deemed unenforceable as to those claims.

So, are forum selection clauses the new mandatory arbitration agreements? In function, but not in form. Forum selection clauses are not replacing arbitration, but they are becoming a parallel procedural tool employers use to manage risk and control litigation exposure. Unlike arbitration agreements, they don’t eliminate court resolution, but they can narrow where and under what substantive laws disputes are heard, which can be just as strategically significant.

Forum selection and choice-of-law clauses are no longer boilerplate in employment contracts. They are strategic dispute-resolution tools that can significantly alter the legal landscape for employment disputes. For employers, sloppy drafting or ignorance of statutory limits can lead to expensive challenges and unexpected litigation outcomes. For employees, understanding these clauses is crucial in asserting rights and challenging unfavorable contractual terms.