Non-compliance: Overview, definition, and example
What is non-compliance?
Non-compliance refers to a failure to follow the rules, obligations, or requirements set out in a contract, law, regulation, or internal policy. It can be intentional or unintentional and may involve missed deadlines, breached terms, or ignored legal standards. In contracts, non-compliance is often linked to remedies, penalties, or default provisions, especially in regulated industries or high-risk transactions.
Why is non-compliance important?
Non-compliance is important because it can lead to legal consequences, financial losses, reputational damage, or termination of the agreement. In commercial contracts, non-compliance by one party often gives the other party the right to enforce corrective action, withhold payments, or exit the relationship entirely. Regulatory non-compliance can also trigger audits, fines, or government enforcement actions, making it a key risk area for businesses.
Understanding non-compliance through an example
A company is required under a service agreement to maintain cybersecurity measures that meet industry standards. If it fails to implement those measures and suffers a data breach, the client may claim non-compliance with the contract and pursue indemnification. In regulated sectors like healthcare or finance, similar non-compliance could trigger reporting requirements or regulatory sanctions.
Example of how a non-compliance clause may appear in a contract
Here’s how a non-compliance clause may appear in a commercial services agreement:
"In the event of non-compliance with any material term of this Agreement, the non-breaching Party may provide written notice and require the breaching Party to cure such non-compliance within thirty (30) days. Failure to cure may result in termination or additional remedies as provided herein."
Conclusion
Non-compliance is a core legal and operational concept that identifies when obligations have not been met and defines what happens next. Whether in contracts, regulatory frameworks, or internal policies, addressing non-compliance clearly helps manage risk, enforce accountability, and preserve the integrity of 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.