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Why Have a Compliance with Laws section in your contract?

Posted by Zehra Mahid | Jul 11, 2019 | 0 Comments

A client recently asked me why I include a “Compliance with Laws” section in all of her company's contracts given that we're all required to comply with the law. 

Good question.

Compliance with Laws provisions typically state that each party will comply with all applicable laws, regulations, rules and ordinances and that neither party will take any actions that violate this requirement.  

Here's the reason a “Compliance with Laws” section should appear in every agreement your company ever enters into with another party: failing to follow the law is not the same thing as breaching a contract. A “Compliance with Laws” section isn't there to remind everyone that they are supposed to follow the law. It is there to ensure that failing to comply with the law is a breach of contract. You can't hold the other side liable for any violations of law that negatively impact your business without this clause. 

What exactly does this mean? Suppose your organization handles highly sensitive business and customer information. You hire a shredding company to handle your document and hard drive destruction needs. If that company fails to follow all of the laws, regulations, rules and ordinances that it is subject to, then your organization could be jointly liable for something that you have no control over, which is their shredding practices. Your customers could sue you. Your organization could become the target of negative publicity that damages your reputation. There is a very good chance that you will have no adequate financial recourse against the shredding company if your contract lacks a “Compliance with Laws” section that makes failure to follow the law a breach of their contract. You then have a breach of contract claim against the other party and the right to seek damages your business may have suffered as a result of their violations.

rotect yourself and your business. Make sure there is a "Compliance with Laws" section in all of the agreements your business executes with other parties.

About the Author

Zehra Mahid

I am the owner of the Mahid Law Firm, a privacy and cybersecurity law firm. I graduated from the University of Maryland School of Law in 2002. I began my legal career with the American Bar Association in Washington DC. I then went on to spend the majority of my legal career working for Humana I...

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