Compliance
Adherence to all applicable laws, regulations, industry standards, and contractual obligations relevant to the performance of a contract.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Compliance?
In a contractual context, compliance refers to two related concepts: (1) contractual compliance - performing all obligations specified in the agreement (delivery, payment, quality standards, reporting); and (2) legal compliance - ensuring that the contract's performance adheres to all applicable laws, regulations, and regulatory requirements. Most business contracts include explicit compliance representations, warranties, and ongoing covenants.
A "compliance with laws" clause is a standard provision requiring each party to comply with all applicable federal, state, local, and international laws and regulations in performing the contract. The clause typically covers anti-corruption laws (FCPA, UK Bribery Act), data protection (GDPR, CCPA), employment laws, export controls (EAR, ITAR), environmental regulations, and industry-specific rules.
Compliance can appear both as a condition precedent (a party must demonstrate compliance before receiving payment or triggering a right) and as an ongoing covenant (a continuous obligation throughout the term). Breach of a compliance obligation can give the non-breaching party grounds to terminate the contract, withhold payment, or seek indemnification.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Compliance with Applicable Laws
The obligation to obey all laws and regulations relevant to the contract - including laws that may change after signing.Anti-Corruption Compliance
Representations and covenants related to the Foreign Corrupt Practices Act, UK Bribery Act, and similar anti-bribery laws - typically required for any contract involving international business.Data Protection Compliance
Obligations related to data privacy laws (GDPR, CCPA) - particularly in contracts involving personal data processing.Compliance Audit Rights
A right for one party to audit the other's compliance with specific contractual or regulatory obligations - common in supply chain, financial services, and government contracts.Real-World Example
A US company contracts with an overseas supplier. The contract includes a compliance with laws clause requiring the supplier to comply with all applicable laws, including anti-corruption laws. The supplier later pays a bribe to a government official to secure a permit needed for the contract.
The supplier has breached the compliance with laws covenant. The US company faces potential FCPA exposure if it knew or should have known about the bribe. The compliance clause gives the US company grounds to terminate the contract and seek indemnification for any regulatory penalties it incurs. This example highlights why compliance due diligence on suppliers is critical.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Compliance with Laws ClauseWatch Out For
Laws Change During the Contract Term
A compliance with laws clause is a continuing obligation. If the law changes during the term, parties must adjust their performance accordingly - even if this increases costs.Supply Chain Compliance Liability
Companies are increasingly held responsible for their suppliers' compliance failures - particularly in anti-corruption, human trafficking (FCPA, California Transparency in Supply Chains Act), and environmental law.Compliance Failures Can Trigger Termination
A material compliance failure - particularly in regulated industries - typically gives the other party the right to immediately terminate the contract. Include appropriate cure periods for minor compliance issues.Don't let compliance deadlines catch you off guard
Key dates tied to compliances - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Include Compliance Representations at Signing and Ongoing
Build in both an upfront compliance representation (as of the execution date) and an ongoing covenant (throughout the term) to provide maximum protection.Require Compliance Certifications for High-Risk Suppliers
For supply chain contracts involving international parties or regulated industries, require annual compliance certifications and audit rights to verify ongoing compliance.Related Terms
Frequently Asked Questions
Does a compliance with laws clause cover laws enacted after the contract is signed?
Yes - a broadly written compliance with laws clause covers all applicable laws, including those enacted or amended during the contract term. Parties should track regulatory changes in their industry throughout the contract.
What is the difference between compliance and performance?
Performance refers to fulfilling the specific contractual obligations (delivering goods, paying invoices). Compliance refers to the broader obligation to act in accordance with all applicable laws and the contract's regulatory requirements.
Can parties contractually agree to non-compliance with a law?
No - parties cannot contract around mandatory legal requirements. Agreeing to violate a law does not make such violation permissible, and courts will not enforce such provisions.