When drafting a contract, you may need to include a severability clause. A severability clause is a commonly enacted provision in business contracts that ensures if one provision is deemed unenforceable in a court setting, the rest of the contract remains fully intact. Often used in a business context, severability clauses can also be utilized in drafting statutes.
If you own or work for a business and use contracts with your employees, independent contractors, suppliers, vendors, customers and other parties, then you should understand what a severability clause is, when to include it and how it may impact future contract litigation. If you are an individual working on a non-business agreement, such as a will or parenting plan, then you may not need a severability clause.
What Determines a Provision as Unenforceable
Whether a provision is unenforceable or not is typically a matter determined by a court, after the contracting parties arrive at a disagreement. There may be times when an agreement is reviewed through an administrative proceeding. The parties themselves cannot unilaterally decide a provision is unenforceable, though they can mutually agree to walk away from the contract or modify a specific point.
Provisions can be deemed unenforceable for a variety of reasons, including a clause being too vague, in violation of a law, public policy or is impossible to enforce due to a change in circumstances.
The negative impact of an unenforceable provision within a contract is usually that neither party benefits from an agreement as intended. Between changes in a contract and the litigation regarding the dispute, a business could lose out on a great deal of money. However, a severability clause could have a more profound impact than just taking a financial toll.
Examples of Severability Clauses
Some examples of boilerplate severability clauses that may be included in a variety of contracts include:
• “If any part of this agreement is declared unenforceable or invalid, the remainder continues to be valid and enforceable.”
• "If any provision of this agreement is held illegal or unenforceable in a judicial proceeding, such provision shall be severed and shall be inoperative, and the remainder of this agreement shall remain operative and binding on the parties."
• “If any term of this agreement is to any extent invalid, illegal, or incapable of being enforced, such term shall be excluded to the extent of such invalidity, illegality, or unenforceability. All other terms hereof shall remain in full force and effect.”
These provisions say essentially the same thing: if one part of the contract is determined to be unenforceable, the rest remains intact. Both parties must fulfill their obligations stated in the valid remainder of the contract. However, the third example is slightly different.
It uses language that may support an argument that an unenforceable provision should be modified and not simply deleted in its entirety. This is an important distinction, and it can be a good or a bad thing. Not all severability clauses are created equal, which is why it is important to speak with an attorney before you add one to your contracts.
How to Draft Strong Severability Clauses
Severability clauses are used to ensure agreements move forward, even if both parties involve reach a disagreement. Boilerplate severability clauses, such as the ones above, may not be as helpful as you may think. If the clause is not thoroughly drafted in regard to your specific circumstances and intentions, it could be potentially harmful, in some cases forcing you to remain in an agreement that was not what either party intended. A good severability clause should be clear as to how parties intend to handle a situation in which a provision is declared unenforceable.
The severability clause may specifically state:
• An unenforceable provision is removed from the agreement and the rest of the contract is enforced without any modifications;
• An unenforceable provision should be modified or replaced in such a way as to make it valid and in line with the original intention of the agreement, and the modification should be determined in a specific way (such as by a judge or through arbitration); or
• An unenforceable provision is removed, and the rest of the contract is valid unless specific, material provisions to the contract are found unenforceable, in which case the entire contract is invalid.
Contacting a Lawyer
If you’re unsure of whether you need a severability clause, speak with an experienced business lawyer. In some cases, if you fail to add a severability clause and a provision is determined unenforceable by a court, then your entire contract may be deemed invalid. When a provision is deemed unenforceable, you could end up in an agreement that is detrimental to your business.