When you’re drafting a contract, you may need to include a severability clause. It is a common provision in contracts that ensures if one provision is deemed unenforceable, the rest of the contract remains intact. It is often used in a business context, though it also can 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.
Always speak with an attorney experienced in your legal matter about what should be included in your contract. If a severability clause is included without much thought, it can lead to unintended negative consequences.
When a provision is unenforceable
Whether a provision is unenforceable or not is typically determined by a court after the contracting parties have 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 it.
Provisions can be deemed unenforceable for a variety of reasons, including that a clause is too vague, violates a law of the jurisdiction, violates public policy, or is impossible to enforce due to a change in circumstances.
“You wouldn’t want any other part of the contract to be invalidated, such as indemnity provisions or provisions that would protect one or the other party’s intellectual property, property rights, confidential information,” says Dan Rose, a business attorney and a founding member of Rose Grasch Camenisch Mains PLLC. “It’s just basically a precautionary provision you include so one slight defect in one part of your contract doesn’t result in the baby being thrown out with the bathwater.”
The negative impact of an unenforceable provision within a contract is usually that one or more parties do not benefit 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 financial loss. A recent example is the litigation regarding the structure of the Consumer Financial Protection Bureau (CFPB), which was created with one director who could only be terminated for cause. A court found this structure to be unconstitutional, and that the severability clause within the statute creating the CFPB cannot save it. A severability clause “does not give the court power to amend” a statute, wrote Senior U.S. District Judge Loretta A. Preska. “Nor is it a license to cut out the heart” of a statute. Judge Preska determined she could not use the severability clause to modify the statute and make the CFPB’s structure constitutional. The question of the CFPB’s structure may reach the U.S. Supreme Court.
While it’s unlikely that an everyday business dispute will lead to questions of constitutionality, it is a good example of how a severability clause is too important to use a boilerplate provision.
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 does something the other two do not. 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.
Drafting strong severability clauses
Severability clauses are used to ensure agreements move forward, even if an immaterial provision in the contract is deemed unenforceable. For instance, both parties may be frustrated if a court throws out an entire contract because an immaterial provision choosing the venue of a dispute is unenforceable. However, boilerplate severability clauses like those above may not be helpful to you—or as helpful as you’d prefer. If the clause is not thoroughly drafted in regard to your specific circumstances and intentions, it could be harmful and may force you to remain in an agreement that was not what you and the other 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, according to Eric Fishman and Robert James of Pillsbury Winthrop Shaw Pittman LLP.
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.
Contact a lawyer for help
If you’re unsure of whether you need a severability clause, speak with an experienced business lawyer. If you do not add a severability clause and a provision is determined unenforceable by a court, then your entire contract may be deemed invalid. If you add a boilerplate clause and a material provision is deemed unenforceable, you could end up in an agreement that is detrimental to your business.