Can an NDA be enforced across state lines if the governing law is different?

Yes, an NDA is generally enforceable across state lines. However, enforcement depends on the validity of the contract's choice-of-law provision and whether the chosen state has a reasonable relationship to the parties. Courts may override these clauses if they violate the fundamental public policy of the state where the defendant resides.

The Mechanics of Cross-State NDA Enforcement

When a contract specifies that the laws of State A govern an agreement involving a party in State B, courts look to "conflict of law" principles. Generally, courts respect the freedom of contract, meaning they will uphold the governing law clause unless it is unreasonable or contrary to the public policy of the forum state.

The Reasonable Relationship Test

For a choice-of-law clause to be enforceable, the chosen state must have a "reasonable relationship" to the transaction. This is usually satisfied if:

• One of the parties is headquartered in the chosen state.
• The services or work under the NDA are performed in the chosen state.
• A significant portion of the confidential information was developed or stored in the chosen state.

Key takeaway: If your NDA selects a state where neither party has a presence, a court is highly likely to strike down the governing law clause and apply the law of the state where the defendant resides.

Action Item: Review your current NDAs to ensure the governing law state matches your primary place of business or the location where the majority of your proprietary data is accessed.

Public Policy Exceptions: The "California Rule"

The most significant hurdle to cross-state enforcement is the "public policy" exception. If the law of the chosen state is fundamentally at odds with the public policy of the state where the defendant resides, the court may refuse to apply the contract's governing law.

High-Risk Jurisdictions

Certain states have aggressive statutes protecting employees and contractors. For example, California (Business and Professions Code Section 16600) has a strong public policy against restraints on trade. If you attempt to enforce an overly broad NDA against a California resident using New York law, a California court may invalidate the provision entirely.

Action Item: If you operate in states with strong employee protections, consult with local counsel to draft "severability" clauses that allow the court to modify, rather than void, an unenforceable provision.

Checklist for Cross-State NDA Validity

To maximize the likelihood that your NDA will be upheld in a foreign jurisdiction, ensure your agreement meets these four criteria:

1. Reasonable Scope: The definition of "confidential information" must be specific, not a catch-all.
2. Defined Duration: Avoid "perpetual" NDAs. Limit protection to 2–5 years for general information, though trade secrets may be protected indefinitely.
3. Nexus to Jurisdiction: Ensure the governing law state has a legitimate connection to the business operations.
4. Severability Clause: Include language stating that if one part of the agreement is found invalid, the remainder remains in full force.

Action Item: Audit your existing templates to ensure they do not contain "perpetual" confidentiality obligations, as these are frequently struck down in cross-state litigation.

Litigation Risks and Venue Selection

Even if your governing law clause is valid, the venue (where the lawsuit is filed) matters. A "forum selection clause" dictates where the legal battle takes place. If you are forced to litigate in the defendant's home state, you will be subject to that state's procedural rules and potentially biased local judges.

• Forum Selection: Always pair your governing law clause with a mandatory forum selection clause.
• Cost-Benefit Analysis: Litigation across state lines can cost between $50,000 and $250,000 in legal fees. Ensure your NDA includes a "prevailing party" fee-shifting provision to deter frivolous breaches.

Key takeaway: A governing law clause without a corresponding forum selection clause is incomplete. Always specify both the law that applies and the court where disputes must be heard.

Action Item: Update your standard NDA template to include a clear, mandatory forum selection clause that aligns with your governing law choice.

TermScore uses advanced AI to automatically analyze your NDAs for governing law, forum selection, and potential public policy conflicts across all 50 states. By identifying these risks before you sign, TermScore helps you ensure your agreements are enforceable regardless of where your counterparties are located.