What is buy-out clause?

A buy-out clause is a stipulation in a contract that allows an individual or company to purchase their way out of the agreement through the payment of a predetermined amount. Typically, buy-out clauses are found in employment contracts, sports contracts, or partnership agreements. They are designed to provide a measure of security for both parties, as they offer a way out of a contract should circumstances change. For example, an employee might negotiate a buy-out clause that allows them to leave their job after a specified period of time for a set price. Similarly, a sports team might include a buy-out clause in a player's contract to allow them to terminate the agreement early if the player's performance does not meet expectations. Overall, buy-out clauses can provide a mechanism for parties to extricate themselves from contracts in a mutually agreeable manner.