Clawback is a provision under which money that's already been paid out must be returned to the employer or the firm. This is a special contractual clause, used mostly in financial firms, for money paid for services to be returned under special circumstances or events as stated in the contract.

What is clawback clause in law?

A clawback is a contractual provision that requires an employee to return money already paid by an employer, sometimes with a penalty. Clawbacks act as insurance policies in the event of fraud or misconduct, a drop in company profits, or for poor employee performance.

Are clawback provisions enforceable?

In both states, the law is clear that penalty provisions in contracts are not enforceable. ... The problem with clawback provisions is that, by definition, they do not select an agreed-upon amount that is a prediction of the actual damages likely to be caused by a breach of contract.