Legal Definitions - cost-of-living clause

A cost-of-living clause is a provision in a contract or lease that automatically increases wages, rent, or benefits based on the rise in the cost of living in the economy. This means that if the cost of living goes up, the wages, rent, or benefits will also go up to keep up with the increased expenses.

For example, if a company has a cost-of-living clause in their employee contracts, and the cost of living in the area goes up by 3%, the employees' wages will also increase by 3% to help them keep up with the increased expenses.

It is important to note that cost-of-living clauses may also cover a decrease, but this is rare. This means that if the cost of living goes down, the wages, rent, or benefits may also decrease to reflect the lower expenses.

Overall, cost-of-living clauses help to ensure that individuals and businesses can keep up with the rising cost of living and maintain their standard of living.