Accrued rights: Overview, explanation and example
Introduction
In business contracts, accrued rights are benefits or entitlements that have been earned over time but haven’t yet been received. They act as a safeguard, ensuring that what’s already been achieved under the contract is protected, even if circumstances change. For example, these could include unpaid wages, completed project milestones, or unused vacation days that remain owed when a contract is terminated or adjusted.
Accrued rights are like the "you’ve earned it" clause in agreements—they ensure that any work completed or obligations fulfilled don’t go unpaid or unrecognized. Understanding how they work is essential for ensuring fairness and protecting your business interests.
Why are accrued rights important?
Accrued rights are important because they protect what someone has already earned, even if the contract ends or changes. They make sure everyone gets what they’re owed, like payments for completed work, unused vacation days, or bonuses tied to performance milestones.
If accrued rights aren’t clearly defined in a contract, things can get confusing. Disagreements over what’s owed might arise, or payments could be delayed. By understanding and properly including accrued rights in your agreements, you can avoid these issues, keep things fair, and ensure smoother business relationships.
Understanding accrued rights through an example
Let's say you own a consulting firm and sign a contract with a client for a project that lasts six months. The contract includes milestone payments—your firm gets paid when you complete certain stages of the project. Halfway through, you successfully finish the first two milestones, and those payments become “accrued”—they’ve been earned, even though the client hasn’t paid yet.
Now, imagine the client wants to cancel the contract before the project is completed. Because your accrued rights protect what you've already earned, your firm is still entitled to the payments for those completed milestones, even if the rest of the project is canceled. The work was done under the terms of the contract, so those payments need to be honored, regardless of what happens next.
This example shows how accrued rights can protect your business from losing out on payments for work that’s already been completed.
An example of an accrued rights clause
Here’s how an accrued rights clause might be written in a contract:
“Termination of this Agreement, for any reason, shall not affect the accrued rights, obligations, or liabilities of either party as of the date of termination. All rights to payments, benefits, or remedies earned under this Agreement prior to termination shall remain enforceable.”
Conclusion
Accrued rights are about fairness—they protect what’s been earned, even if a contract changes or ends. They play a key role in financial responsibilities, keeping both parties clear on what’s owed and ensuring disputes are minimized.
So, next time you’re working on a contract, remember to look out for any references to accrued rights. They’re the earned benefits that could impact your business in important ways.
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.