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Compliance With Laws Clause

This clause allocates responsibility for complying with laws that apply to the parties, their services, and their use of the contracted product.

GC AI Solutions Team•Updated October 26, 2026

Definition

A compliance with laws clause is a contractual promise to comply with specified laws or laws applicable to a party's performance. It identifies whose conduct the promise covers and may allocate responsibility for permits, personnel, subcontractors, and regulatory changes. The obligation can operate as a continuing covenant, a representation about existing compliance, or both. Its scope depends on the contract's definitions, qualifications, and related provisions. The clause also gives the counterparty a contractual basis for asserting breach, subject to the agreement's remedies and applicable law.

  • Tie the compliance obligation to the party, activity, and locations it covers.
  • Separate a statement about existing compliance from a promise that continues during performance.
  • Allocate responsibility for subcontractors, licenses, and required approvals.
  • Specify how the parties handle a change in law that affects delivery or cost.
  • Connect a breach to the agreed notice, cure, indemnity, liability, and termination provisions.

As the promise extends into customer-specific regulation, the drafting needs a more explicit allocation of implementation costs.

What It Does

Your first redline should identify whose business the promise covers. A supplier can accept responsibility for delivering a lawful service while the customer takes responsibility for its regulated use. Read the compliance promise with the indemnification, limitation of liability, and termination provisions to understand the consequences of a breach.

A practical test: if the customer's regulator changes a requirement next quarter, which party must change its operations, pay for the work, and tell the other party?

When You'll See It

Services and SaaS agreements: Separate laws governing the supplier's service from laws governing the customer's business and use of that service. A regulated customer may need a specific contractual commitment even when the regulation does not apply directly to its supplier.

Outsourcing and transition services: Identify who monitors changes in law and who funds the response. A service provider's existing compliance obligation and a customer-requested change can produce different cost allocations.

Supply contracts: Connect the promise to manufacturing, delivery, import and export responsibilities, and the subcontractors the supplier uses. Identify any permits or approvals needed for the agreed performance.

Representations and continuing covenants: A statement that a party is compliant addresses a fact at the stated time. A promise to comply during the term addresses future conduct. A knowledge qualifier narrows the contractual statement; it does not waive a statutory obligation. A materiality qualifier also changes the promise, so distinguish it from a material-breach threshold for termination.

Governing law and mandatory rules: A governing law clause selects law for interpreting the contract. Applicable mandatory rules may reach the parties because of their activities, locations, or roles. Identify those rules separately from the contract's governing-law provision.

These excerpts come from SEC-filed agreements and one filed form. Bold identifies the operative language; ellipses mark omissions. Read each linked provision with its definitions and related terms.

Examples

NCR Voyix and Cardtronics USA

Master Services Agreement, Exhibit 10.6, Section 7.1(a)Service-performance complianceOne-sided2023
Vendor shall perform the Services in compliance with all Laws applicable to Vendor in its performance and delivery of the Services.
Source

Invacare and Birlasoft Solutions

IT Services Agreement, Exhibit 10.1, Section 16.8(d)Provider bears law-change costsOne-sided2019
For clarity, Provider shall bear the costs and expenses associated with compliance with changes in Laws.
Source

Relativity and KLDiscovery Ontrack

Master Terms, Exhibit 10.26, Section 5.2(b)Customer operations and data warrantyOne-sided2023
it will comply with all Laws applicable to its business operations and its provision of Customer Data to Relativity; …
Source

Kellogg Company and WK Kellogg

Transition Services Agreement, Exhibit 10.6, Section 1.02(a)Provider unlawful-service exclusionOne-sided2023
Nothing in this Agreement … shall require Service Provider … to perform … any Service if the provision of such Service violates … any applicable Law …
Source

General Electric and GE Vernova

Transition Services Agreement, Exhibit 10.1, Section 6.09Each party's own performanceMutual2024
Each Party shall be responsible for its and its Affiliates’ own compliance with … Laws applicable to its and their performance under this Agreement.
Source

Novartis and Alcon

Filed Form of Transitional Services Agreement, Exhibit 4.6, Section 10.1(a)Materiality-qualified complianceMutual2019
Each Party shall: … comply in all material respects with Applicable Law …
Source

Negotiate

Read the compliance promise with the remedy provisions. A compliance breach does not by itself establish an immediate termination right, an indemnity, or uncapped damages. The Invacare and Birlasoft agreement addresses compliance, indemnities, liability limits, and termination in separate sections.

Customer Positions

Ask for commitments that protect the service you are buying and give you a workable response when compliance fails.

  • Require the supplier to comply with laws applicable to its performance and maintain the approvals needed to provide the service.
  • Address subcontractor conduct expressly, including which obligations the supplier must pass through and where it remains responsible.
  • State any customer-specific regulatory requirements the supplier must support, with the relevant services and responsibilities.
  • Require notice of a compliance problem that affects performance, with remediation information and appropriate protection for privileged material.
  • Set remedies for the breach you care about, including cure periods, third-party claims, liability treatment, and an exit right where continued performance would be unlawful.

Supplier Positions

Accept a promise you can deliver and price, with a defined process for requirements that depend on the customer's business.

  • Limit the covenant to laws applicable to your performance, and allocate lawful use of the service to the customer.
  • Identify customer policies by version and subject matter, with a change process for later requirements.
  • Use knowledge and materiality qualifications deliberately; identify the people, inquiry, and conduct a qualification covers.
  • Allocate the cost and timing of changes in law, including customer-specific requirements introduced after signature.
  • Preserve a lawful alternative or suspension process where necessary, and make termination, indemnity, and liability provisions consistent with that process.

Red Flags

  • A promise covering every law worldwide without a connection to the party's performance or use.
  • Customer policies that can change unilaterally and carry the same remedies as a statutory violation.
  • A knowledge qualifier with no agreed meaning where the parties expect a defined inquiry.
  • A materiality qualifier that excuses a violation the customer needs the supplier to prevent.
  • A change-in-law obligation with no allocation of cost, implementation time, or continued service.
  • An indemnity, liability carveout, or immediate termination right that expands the exposure beyond the negotiated covenant.

Compliance With Laws Clause FAQs

Does a Compliance With Laws Clause Give the Customer Audit Rights?
Not automatically. Specify audit access, including records, notice, confidentiality protections, and costs, in an express contractual right.
Do Compliance Obligations Survive Termination?
Survival depends on the agreement's terms and the obligation involved. Distinguish continuing duties from accrued claims for an earlier breach.
Can a Change in Law Excuse Delivery Under a Goods Contract?
It can, subject to the governing law and the obligation the seller assumed. New York UCC Section 2-615 addresses delivery made impracticable by good-faith compliance with a governmental regulation or order, with allocation and notice requirements. A higher compliance bill alone does not establish those conditions. Assess a services contract under its own terms and applicable law.
Can a General Compliance Clause Replace Specific Data Protection Terms?
A general promise can leave specific processing duties unstated. Identify the required instructions, safeguards, and responsibilities, then resolve conflicts between provisions. The GE and GE Vernova agreement addresses privacy law and a data schedule separately from its general compliance allocation.
Is a Commercial Compliance Clause Enough for Federal Procurement?
Not necessarily. Check the required federal procurement clauses before using a private commercial form. FAR 52.212-4 separately addresses laws applicable to performance in paragraph (q) and specified laws unique to government contracts in paragraph (r). The applicable solicitation, contract, and incorporated clauses determine the required commitments.

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This content is for informational purposes only and does not constitute legal advice.