Legal Definitions - ex gratia payment

An ex gratia payment is a payment made voluntarily by one party to another, not because there is a legal obligation or contractual requirement to do so, but often out of goodwill, compassion, or to maintain good relations. It is a payment "by grace" rather than "by right," meaning the payer is not legally compelled to make it.

• Example 1: Customer Service Gesture

  A major airline experiences a system-wide computer outage, causing significant delays and cancellations for thousands of passengers. While their terms and conditions might limit their liability for such disruptions, the airline decides to offer a voucher for a future flight or a monetary credit to all affected passengers. This payment is ex gratia because the airline might not be legally obligated to provide compensation beyond a refund for the canceled flight, but chooses to do so to apologize, mitigate negative public perception, and retain customer loyalty.

• Example 2: Employment Termination

  A long-term employee is made redundant as part of a company restructuring. Their employment contract specifies a certain amount of severance pay based on their years of service. However, the company decides to offer an additional lump sum payment beyond this contractual amount, perhaps as a gesture of appreciation for their dedicated service or to assist them during their job search. This additional payment is ex gratia because it exceeds the legally or contractually mandated severance. The company is not required by law or their agreement to pay this extra amount, but does so out of goodwill.

• Example 3: Insurance Company Goodwill

  A business owner's property insurance policy explicitly excludes coverage for damage caused by certain types of cyberattacks. After a sophisticated and unprecedented cyberattack causes significant operational disruption and data loss, the insurance company, despite the clear exclusion in the policy, decides to make a partial payment to the affected business. They do this to maintain their reputation, demonstrate customer care in an unusual circumstance, and potentially influence future policy renewals. This payment is ex gratia because the insurance company is not legally bound by the policy terms to cover this specific type of damage.