Contract Glossary
Clawback
Definition
A provision that allows one party to reclaim money or benefits already paid out, usually when certain conditions aren't met or wrongdoing is discovered. The money was yours — until it wasn't.
In Practice
Clawback clauses are common in executive compensation, sales commissions, and investment agreements. A sales rep earns a $5,000 commission on a deal that falls through 60 days later — the clawback clause means the company takes that commission back. In startup equity, a clawback might let the company repurchase unvested shares if a founder leaves early.
Common in these contract types
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Frequently asked questions about clawback
Yes, if they're clearly written and agreed to upfront. Courts enforce clawbacks that are reasonable and properly documented. Problems arise when the clawback is overly broad, retroactive to periods before the clause existed, or applied in bad faith. Sarbanes-Oxley and Dodd-Frank even mandate clawbacks for executive compensation in certain situations.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.