Escalator Clause Law and Legal Definition

An escalator clause in general is a contractual provision that increases or decreases the contract price according to changing market conditions, such as higher operating expenses or taxes. For example, an escalator clause may specify that rent due will increase with inflation. In labor law, it is union contract clause that ties wage rates to the cost of living during the period of an agreement, thereby allowing wage to fluctuate with the cost of living.

It is a contract clause generally permitting an increase in the price of goods or services in the event of certain outcomes, such as an increase in the supplier's raw materials or labor costs. Escalation clauses in a contract typically also provide for de-escalation.