What is a Severability Clause?

A severability clause is a provision included in a contract designed to ensure that if one specific part of a contract is declared illegal, unenforceable, or void by a court, the rest of the contract remains valid and binding on the parties.

Why Are They Used?

Contracts are inherently complex, and even clauses inserted with the best intentions can sometimes inadvertently conflict with legal or regulatory standards. Furthermore, a provision that is initially compliant can become problematic due to subsequent changes in the law, leading to its unenforceability. In jurisdictions operating under common law, and in various courts, the absence of a severability clause exposes the entire contract to significant risk. Specifically, if a part of the contract is found unenforceable, the lack of a severability provision could lead to the contract being voided in its entirety. In such cases, without a severability clause, a single non-compliant provision could nullify an entire agreement, disregarding the overall intent and agreement of the parties involved.

Severability clauses are included as boilerplate language in most contracts, but they are especially important, and therefore should be more specific in the way they are drafted, with respect to the following types of business arrangements:

• Contracts Spanning Multiple Jurisdictions: If your contract involves parties or performance in different states or countries, a severability clause is vital. Laws can vary significantly, so a clause that's valid in one place might be unenforceable in another. A severability clause increases the chances that large portions of your agreement stay intact even if localized problems arise.
• Clauses with Potential Risks: When you're including a clause that's innovative, pushes legal boundaries, or is likely to be tested in the future, a severability clause protects the rest of your contract from being invalidated if that specific clause faces challenges.
• Long-Term Agreements: Severability clauses are included as boilerplate language in most contracts, but they are especially important, and therefore should be more specific in the way they are drafted, with respect to the following types of business arrangements:
• Contracts Spanning Multiple Jurisdictions: If your contract involves parties or performance in different states or countries, a severability clause is vital. Laws can vary significantly, so a clause that's valid in one place might be unenforceable in another. A severability clause increases the chances that large portions of your agreement stay intact even if localized problems arise.
• Clauses with Potential Risks: When you're including a clause that's innovative, pushes legal boundaries, or is likely to be tested in the future, a severability clause protects the rest of your contract from being invalidated if that specific clause faces challenges.
• Long-Term Agreements: Contracts covering extended periods are more susceptible to having parts of them affected by changing laws and regulations. A severability clause acts as insurance for the future.

Industry-Specific Applications

While severability clauses have are useful, if not indispensable, across industries all industries, certain sectors face specific scenarios where these clauses are particularly useful including:

• Technology and Software: Contracts in these sectors often include provisions that may push the boundaries of current laws or regulations. For example, terms dealing with data privacy, AI use, or digital ownership could face legal challenges later even if perfectly valid when the contract is signed.
• Employment: Employment contracts often have provisions on non-competes, confidentiality, and termination which vary heavily by jurisdiction. A severability clause increases the likelihood that large portions of the contract remain enforceable even if one locality's laws render a specific clause invalid.
• Finance and Lending: Interest rates, fee structures, and other financial terms can be subject to strict regulation. Severability clauses help ensure that if one provision regarding a specific fee runs afoul of the law, it doesn't invalidate the entire loan or financing agreement.
• Healthcare: Patient privacy laws, restrictions on certain treatments, or billing regulations can be complex and change over time. Severability clauses provide a safeguard for healthcare contracts, ensuring core elements remain intact even if specific provisions face challenges.
• International Trade: Contracts that involve multiple countries face a complex patchwork of laws and regulations. A robust severability clause can prevent a single problematic provision based on one country's laws from jeopardizing the entire agreement.

Key Components of a Severability Clause

While severability clauses can vary in their wording, they generally share these core elements:

• Statement of Independence: This section establishes that each provision (or clause) within the contract is considered separate and distinct. It should clearly state that the validity of one provision does not rely on the validity of any other.

Example: "Each provision of this agreement shall be considered severable and independently enforceable."

• Continuation of Enforceability: This part states the intention of the parties for the rest of the contract to remain intact even if a particular section is deemed unenforceable.

Example: "...and the remaining provisions shall continue in full force and effect."

• Modification or Removal: Well-drafted severability clauses often address how invalid provisions should be handled. These options include:
  • Deletion: The problematic clause is simply struck out, leaving the rest of the contract unaffected.
  • Reformation: Grants the court the power to rewrite the invalid provision to align it with the law and the parties' original intent, if possible.

Example: "...such invalid provision shall be deemed modified to the extent necessary to be valid and enforceable, or if it cannot be so modified, then it shall be severed."