DEFINITION of ‘Grandfather Clause’
An exemption that allows persons or entities to continue with an activity they were engaging in before it became illegal through a change in regulation.
BREAKING DOWN ‘Grandfather Clause’
For example, imagine there’s a passing of a new law that states restaurants can serve only food with less than 10 grams of fat per serving. If accompanied by a grandfather clause, the law would affect only new restaurants. All restaurants that began operating prior to the law would therefore be allowed to continue selling their products, regardless of whether their fat content exceeds the 10-gram limit. Because of the change in regulation, however, new restaurants must abide by the new law. Grandfathering is a debatable practice that often hinders some and benefits others.