Severability Clause

Severability Clauses: A Key Element In Contract Law

Certain standard clauses are integral to every business. One such provision is severability, which provides parties clarity and protection. Whether you’re drafting a business contract, lease, or any form of legal agreement, understanding the importance of a severability clause can save you from potential pitfalls.

Securing a contract takes significant time and resources. Stakeholders must collaborate endlessly to draft terms that meet everyone’s expectations. Then, there are organizational, industrial, and legal standards to consider. After all these considerations, companies can form contractual relationships with vendors, clients, partners, or employees.

But what happens if one provision is insufficient even with your best efforts? Does the entire contract become void? That would be a blow to the business, halting operations and ruining relationships. Severability clauses can offer parties a buffer in these situations. Learn more about how severability can shield companies from invalidated and unenforceable provisions.

DOCK 365'S FREE E-BOOK CTA - Stages of Contract Lifecycle ManagementWhat is a Severability Clause?

A severability clause states that the remainder of the contract will remain valid and enforceable, even if one part is found illegal, invalid, or unenforceable. Thus, the contractual terms are independent of one another and will continue to be in force despite the undoing of others. 

Complexities and changing regulations can raise questions about the executability of legal agreements. Courts may declare certain terms illegal because they are unconscionable or violate policies. In such cases, severability clauses can preserve the contract's integrity despite these unforeseen obstacles and limitations. As a result, parties can protect their interests and maintain stability even during tumultuous times.

Why are Severability Clauses significant?

Contracts that falter in the middle can lead to tons of issues for all parties. For instance, a company's ability to procure goods depends on the supplier agreement. If a faulty clause brings down the whole contract, it doesn’t benefit anyone. Severability clauses prevent one problematic section from rendering the entire contract void.

It helps avoid unnecessary disputes and litigation. If a part of the contract is unenforceable, the parties don’t have to fight over whether the whole contract should be tossed out. Severability provisions can include a savings section that explains how the remainder of the agreement will be preserved. Additionally, a reformatory section outlining the parties' plans to amend the invalid clause. Thus, the original intent of the contract remains intact. This allows for the preservation of as much of the agreement as possible.

When do you need Severability Clauses?

Businesses can use a severability clause whenever they want to protect the enforceability of their contracts. In case one part of it faces legal challenges or is rendered void, these provisions can ensure the overall agreement remains intact and functioning. These safety clauses can be used in commercial, employment, franchise, lease, investment, and merger and acquisition agreements to preserve their integrity. 

Risk Mitigation: If there's a possibility that certain provisions in the contract might be challenged or deemed unenforceable (e.g., due to changes in law or differing interpretations), a severability clause ensures that the entire agreement isn't voided just because one part doesn't hold up.

Complex Contracts: For contracts with many provisions, such as long-term agreements or intricate partnerships, a severability clause can protect the integrity of the rest of the contract if a single provision is invalidated.

Negotiation Leverage: Including a severability clause can provide peace of mind to both parties, as it reassures them that if any provision faces legal scrutiny, it won't automatically jeopardize the entire deal. This can make negotiations smoother.

Legal and Jurisdictional Variations: If the contract spans multiple jurisdictions (e.g., international agreements), laws can vary greatly. A severability clause can account for the possibility that some provisions might conflict with local laws, without disrupting the rest of the agreement.

Enforceability Concerns: In contracts with provisions that could potentially be overly broad or unreasonable, a severability clause allows a court to modify or remove those parts while leaving the rest of the agreement enforceable.

How do you effectively implement Severability Clauses?

In theory, severability clauses seem like life-saving measures that can salvage any legal agreement. However, businesses must consider all its ramifications before making them a standard part of their commercial contracts. There is no use for a contractual relationship to remain intact if the essential terms aren’t effective anymore. Here are some key points to consider while including severability clauses:

1. Clarity and Specificity

Businesses must ensure the severability clause is precisely written and unambiguous. The clause should specify that if any provision is found to be invalid or unenforceable, the rest of the contract will remain in effect. Vague language may lead to uncertainty or disputes about the intent of the parties. They must consider whether the clause should apply to entire sections or only specific provisions. Sometimes, limiting severability to only a specific part of the contract rather than the entire agreement can prevent unwanted results.

2. Reasonability 

If a provision is overly one-sided or unconscionable (i.e., so unreasonable that it shocks the conscience), it might be struck down by a court regardless of a severability clause. Courts may not enforce provisions that violate public policy or fairness. Some clauses, even with severability, could be unenforceable if they contravene laws or regulations in a particular jurisdiction. For example, restrictive covenants (like non-compete clauses) may not be enforceable in some jurisdictions, and a severability clause may not save them.

3. Impact on Contract Intent

If a critical provision is severed, it could significantly alter the contract's intended balance. For example, if a provision concerning pricing or delivery terms is deemed unenforceable, the remaining provisions might no longer reflect the original intent. In such cases, the remaining provisions may still be enforceable, but the parties might need to renegotiate certain aspects of the contract.

If a party knows that a provision is likely to be challenged or unenforceable, they may be more willing to sign the contract with the assumption that the severability clause will protect the overall agreement. However, this could lead to strategic behavior, where a party tries to push the limits of what is enforceable.

4. Governing Law

The enforceability of severability clauses can vary by jurisdiction, especially in different countries or U.S. states. Some courts may have specific rules about how they handle severability clauses or the invalidation of provisions. The jurisdiction specified in the contract (choice of law) will determine how courts interpret and enforce the severability clause. It's important to ensure that the severability clause is aligned with the laws of the chosen jurisdiction.

While severability clauses allow courts to remove or modify unenforceable provisions, they still give courts discretion in determining whether an entire contract should be voided or just certain parts. Some courts may choose to interpret the severability clause broadly, while others may narrowly focus on the specific provision in question.

5. Alternative Remedies

If a provision is unenforceable, some contracts may allow for the modification of that provision instead of severing it entirely. A severability clause could also allow the parties to renegotiate certain terms to restore the contract’s balance. In some contracts, a provision might benefit third parties. Severing a provision could impact their rights. A business should consider whether the severability clause adequately accounts for such third-party interests.

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Conclusion

In standard or boilerplate contracts, severability clauses are often included as a routine measure. However, it's important to assess whether they apply to all provisions in the contract or whether certain terms might be so integral that their invalidation would render the contract meaningless. There is no universally applicable severability clause.

That is why Dock 365 contract management software allows businesses to maintain an extensive clause library with provisions for all kinds of contract types. They can utilize templates and conditional logic to create contractual agreements with safety terms that suit their purpose. Our centralized platform provides automated workflows to ensure all contracts pass through relevant reviewers and approvers. Thus, only enforceable and profitable contracts make it to the execution stage. Dock 365 offers much more to facilitate a seamless contracting process. Explore our competitive pricing to see our intelligent solution in action.

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Disclaimer: The information provided on this website is not intended to be legal advice; rather, all information, content, and resources accessible through this site are purely for educational purposes. This page's content might not be up to date with legal or other information.
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Written by Deepti Gopimohan

As a creative content writer, Deepti has spent years assisting brands to share their unique voice with audiences, complying with the latest marketing trends and strategies. Her educational background in Literature & Journalism has helped her research and publish content for diverse industries & mediums.
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Reviewed by Naveen K P

Naveen, a seasoned content reviewer with 9+ years in software technical writing, excels in evaluating content for accuracy and clarity. With expertise in SaaS, cybersecurity, AI, and cloud computing, he ensures adherence to brand standards while simplifying complex concepts.