Compliance with laws: Overview, definition, and example
What is compliance with laws?
Compliance with laws in a contract refers to a clause that requires parties to adhere to all applicable laws, regulations, and legal requirements relevant to the agreement. This provision ensures that the activities, obligations, and operations under the contract are conducted lawfully.
For example, a manufacturing agreement might require both parties to comply with environmental regulations and workplace safety standards.
Why is compliance with laws important?
Compliance with laws is important because it protects both parties from legal risks and liabilities arising from unlawful activities. It demonstrates a commitment to ethical and legal practices, reducing the likelihood of fines, penalties, or reputational harm.
For SMBs, a compliance with laws clause ensures that all parties involved in the agreement are legally accountable, fostering trust and reducing exposure to regulatory violations.
Understanding compliance with laws through an example
Imagine a software licensing agreement where the licensor provides software for business use. The compliance with laws clause might state: “Each Party agrees to comply with all applicable laws, regulations, and ordinances related to the performance of this Agreement, including but not limited to data privacy and cybersecurity regulations.”
This ensures that the licensor delivers software that meets regulatory standards, and the licensee uses it in accordance with legal requirements.
An example of a compliance with laws clause
Here’s how a compliance with laws clause might appear in a contract:
“Each Party represents and warrants that it shall comply with all applicable laws, statutes, regulations, and ordinances in connection with the performance of its obligations under this Agreement, including but not limited to those relating to anti-corruption, employment, and environmental standards.”
Conclusion
The compliance with laws clause ensures that all parties to a contract adhere to applicable legal requirements, reducing the risk of regulatory violations and promoting ethical practices. It provides a safeguard for both parties, ensuring that their activities under the contract align with legal standards.
For SMBs, including a compliance with laws clause in contracts is crucial for mitigating risks, fostering trust, and ensuring that their agreements are both legally sound and enforceable. This provision is a fundamental part of creating responsible and reliable business relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.