What Is a Clawback Provision?

By Beverly Bird
a business executive, a contract

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Some legal terms actually mean what they sound like they mean -- in a colorful way, no less. Clawback provisions are found in many types of contracts, allowing one party or both to drag back and recapture compensation if certain conditions aren’t met.

Employment Contracts

Clawback provisions are typically found in employment contracts, particularly in occupations that involve big bumps of “up front” money, such as a signing bonus. An employer might offer you such a perk because you’re excellent at what you do and he wants you to work for him and not a competitor. The bonus sweetens the pot. If you accept the money, and then quit and go to work for the competitor anyway, a clawback provision safeguards the employer against losing the bonus money. You’d have to give it back if you signed a contract that included such a clause. Some sales contracts also have clawback provisions, providing that you get your money back if you cancel the deal within a prescribed period of time.

About the Author

Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance, divorce and family law, bankruptcy, and estate law, and she writes as the tax expert for The Balance. She is the author of more than 30 novels.

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