Contract Glossary
Compliance Clause
Definition
A contract provision requiring one or both parties to comply with all applicable laws, regulations, industry standards, and sometimes specific compliance frameworks (like GDPR, HIPAA, or SOC 2) throughout the contract term. Compliance clauses shift regulatory risk: if a party violates applicable law while performing the contract, they bear the legal consequences.
In Practice
You hire a payroll company to process employee payments. The compliance clause in your services agreement requires them to comply with all federal and state employment tax laws, data protection regulations, and ACA reporting requirements. If they miscalculate withholdings and the IRS issues penalties, the compliance clause — combined with an indemnification clause — puts the liability on the payroll company, not your business. Without it, you might argue the same result, but the clause makes it explicit and avoids a costly legal fight.
Example Clause
Each Party shall comply with all applicable federal, state, local, and international laws, statutes, regulations, and ordinances applicable to its performance under this Agreement, including without limitation data protection laws, anti-bribery laws, and export control regulations. Each Party shall promptly notify the other Party of any material change in applicable law that affects its obligations under this Agreement.
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Frequently asked questions about compliance clause
It depends on the industry and contract type, but common categories include: data protection (GDPR, CCPA), employment law, tax regulations, anti-bribery/anti-corruption (FCPA, UK Bribery Act), export controls, health and safety regulations, environmental law, and industry-specific standards (HIPAA for healthcare, PCI DSS for payment processing). The clause can be general ('all applicable laws') or list specific frameworks.
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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.