It is said that the law is the fabric of society, without it we would have nothing but unruly human beasts roaming the earth’s surface. However in business, sometimes the law actually gets in the way. Yes you read that right. English law believes in freedom of contract, however there is always a risk that a contractual clause may be invalid or illegal – e.g. it offends against public policy or competition law – often this is the case with non-compete clauses and restrictive covenants (clauses that tell a party what they cannot do). This is why clever lawyers make use of “severance clauses” when drafting contracts.
A severance clause (or severability clause) tries to mitigate the damage that may be caused by the interference of the law in a contract. How does it do this? It ensures that a contract will continue to be enforceable even if one of its terms is found to be illegal, invalid or unenforceable. Severance clauses assist in helping a contract to SURVIVE. Pretty cool right? For example, if a contract for the sale and purchase of various vegetables is suddenly subject to a new law stating that no one can sell or purchase carrots (ridiculous but it’s an example), why should the contract die just because the sale and purchase of carrots is illegal? A severance clause would carve out or sever the ILLEGAL part of the contract and require the parties to continue to perform the remaining LEGAL part of the contract i.e. the selling and purchasing of courgettes (zucchinis), potatoes, aubergines (eggplants), peas and so forth. In other words, business shouldn’t stop if it doesn’t have to stop. This is why a severance clause is simply beautiful.
Let’s look at an example of a basic severance clause:
“If a Clause of this Agreement is determined by any court or other competent authority to be unlawful and/or unenforceable, the other Clauses of this Agreement will continue in effect.”
The above clause severs the illegal part of the contract. BETTER versions of a severance clause will try to sever as little of the illegal clause as possible. Here is an example:
“If any unlawful and/or unenforceable Clause would be lawful or enforceable if part of it were deleted, that part will be deemed to be deleted, and the rest of the Clause will continue in effect (unless that would contradict the clear intention of the parties, in which case the entirety of the relevant Clause will be deemed to be deleted).“
Even BETTER severance clauses will give the parties the option to modify or correct the would be severed clause, in order to make it legal. Here is an example:
“If any provision or part-provision of this agreement is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable. If such modification is not possible, the relevant provision or part-provision shall be deemed deleted. Any modification to or deletion of a provision or part-provision under this clause shall not affect the validity and enforceability of the rest of this agreement.
If any provision or part-provision of this agreement is invalid, illegal or unenforceable, the parties shall negotiate in good faith to amend such provision so that, as amended, it is legal, valid and enforceable, and, to the greatest extent possible, achieves the intended commercial result of the original provision.“
Severance clauses are usually included in any contract as a boilerplate (standard) clause – however don’t take that for granted. Go check your contracts and flag this magical clause with your lawyer. Get your lawyer to advise you – could your severance clause be better? Do not rely/use the examples in this post, they are EXAMPLES. Your lawyer will draft a robust severance clause tailored to YOU.
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One thought on “Cut it out: the beauty of a severance clause.”
this is useful – particularly the examples! More examples please i find these so helpful at least to start off a contract with before getting my lawyer to view and amend if necessary! Thanks for this post and glad you’re back 🙂