SLA penalties and compensation: how to properly distinguish the two in a SaaS contract?

The Service Level Agreement (SLA), or service level agreement, is a central element of SaaS contracts. It clearly defines the expected service levels (availability, response and resolution times, etc.) and often provides for penalties in case of non-compliance with these commitments. But these penalties regularly generate misunderstandings, in particular about their scope and their relationship with other compensation mechanisms.

What exactly does the SLA cover?

The SLA usually includes very specific guarantees on:

• Availability rate: generally expressed as a monthly percentage (typically 99 to 99.99%).
• The deadlines for correcting anomalies: maximum time to resolve technical incidents.
• Business recovery times (Recovery Point Objective/Recovery Time Objective, RPO/RTO): maximum time for restoring the service after a major incident.
• Availability conditions and technical support response times.
• Maintenance windows: dates, times and duration during which the service may be interrupted for maintenance.

The SLA penalty: limited compensation

The penalties provided in the SLA specifically punish non-compliance with agreed service levels. They usually take the form of a credit note or a discount applied to the next bill.

In practice, they cover anticipated situations, such as temporary unavailability or a moderate delay in correcting a problem. However, these penalties are limited to these standard and foreseeable harms. They are generally not designed to compensate for more serious specific damages (for example: significant business losses, damage to customer reputation).

Why is there confusion around SLA penalties?

This confusion stems from the very nature of SLA penalties. Lawyers less familiar with SaaS contracts sometimes think that these penalties are a substitute for other compensation. However, this is not systematic.

So the central question is: are SLA penalties liberatory or not?

• The customer perspective: the customer generally prefers that SLA penalties be non-liberatory. Thus, if he suffers damage that is greater than that provided for by the SLA, he wishes to maintain the possibility of requesting additional compensation.
• The SaaS publisher's point of view: conversely, the publisher often seeks to consider these penalties as liberatory, i.e. as the only possible remedy in case of non-compliance with the agreed service levels.

What are the risks in the absence of contractual clarity?

If the contract is ambiguous on this point, conflict situations will necessarily arise in the event of a major incident. The customer may feel harmed by limited compensation, while the publisher will be exposed to increased legal risk. Friction can be high, damaging the business relationship and generating significant legal costs.

My advice: be explicit in the agreement

To avoid these conflicts, it is essential to clarify this point precisely as soon as the contract is negotiated:

• Explicitly specify in the contract whether the SLA penalties are waiver or not.
• Clearly define the specific conditions under which additional compensation may be requested (for example, in the event of a major incident seriously affecting the customer's activities).
• If possible, identify specific cases where additional compensation may be provided, in particular when the damage suffered clearly exceeds the scope provided for by the SLA.

This approach reassures the customer while protecting the economic interests of the SaaS publisher. It provides a clear basis in the event of an incident, which will greatly facilitate subsequent exchanges.

In conclusion: anticipate to secure the relationship

A well-written SLA is a valuable tool for securing the commercial relationship. SLA penalties and additional compensation should be considered complementary, and not exclusive, unless explicitly stated otherwise. By precisely anticipating this subject as soon as the contract is drafted, you ensure both legal clarity and the fluidity of your exchanges in the event of difficulties.

As a lawyer who regularly works with SaaS publishers, I assist you in drafting and negotiating these clauses. If you want to secure your SaaS contracts and avoid unnecessary friction, I am at your disposal to advise you and write balanced clauses adapted to your business.