Oct 10, 2017

WTF is a Severability Clause?

By Evan Schneyer •

Almost every contract includes a severability clause, which says that if a court rules that part of an agreement is invalid you can just get rid of it (“sever” it) while keeping the rest of the contract intact.

It’s more common than you would probably think for courts to reject some terms found in contracts. This can happen because they are confusingly written, illegal, or for any number of other reasons. By allowing courts to remove the unusable junk from what is an otherwise sound agreement, severability saves deals.

Read also: WTF is an Indemnity clause?

Chuck It or Tweak It

So what does “severability” look like in action? Sometimes it’s as simple as just deleting the word, sentence, or section that’s no good. At other times, eliminating the bad part altogether could mean skipping over important topics that still need to be covered in the agreement. In that case the fix is to sub in a new version of the text that deals with the same subject matter, but in a way that meets the court’s requirements.

For example:

  1. Courts often find “non-compete” terms invalid if they unfairly restrict an employee’s ability to get hired at a new place after finishing a contract or quitting. If a contract restricted competition for two years but the court considered this an unreasonable amount of time, it could replace “two years” with “six months” and keep everything else the same. This is pretty common.
  2. Alternatively, the court in the above example could decide to remove the entire non-compete section, and the former employee would now have no restrictions at all on their ability to get hired somewhere new. This essentially amounts to a court punishing an employer for over-reaching in the first place (this is less common, but it can happen).
  3. Lease agreements can be chock full of illegal terms: requirements that tenants have to pay for the landlord’s attorneys fees if they end up in court against each other; or that the landlord can speed up rent payments if a tenant breaks a rule in the lease; or that the landlord isn’t responsible for injuries that happened because of unsafe conditions they knew about or created. No way! A judge could allow a tenant to terminate the lease (that is, to get out of the agreement completely) on the basis of such nonsense, but if the tenant wanted to stay, a court may just strike out these junk provisions.

Read also: WTF is Consideration in a contract?

It’s Not All-Or-Nothing

If calling into question some bad part of an essentially good deal meant risking implosion of the whole thing, it would inevitably have a chilling effect on people standing up for their rights. Given the choice, most people would rather save their deal—after all they made it because it was valuable to them in some way.

Fortunately, we don’t have to choose. With a powerful tool like a severability clause in our back pocket, we can challenge illegitimate aspects of deals without losing out on what’s great about them. They say “one bad apple spoils the bunch,” but severability lets you to throw out a rotten apple and keep the rest of your deal moving along, healthy as can be.

Written by Evan Schneyer
Co-Founder & CEO of Outlaw

More about Outlaw

Voted G2’s #1 Momentum Leader for contract management, Outlaw provides pioneering end-to-end contracting solutions for the fastest growing companies such as Intrado, BeyondPricing, and Democracy International. From dynamic template-based generation through in-app negotiation, lifecycle management and reporting, Outlaw automates and customizes contract workflows helping companies reach agreement faster. Outlaw has been recognized as a legal technology leader in 2020 by the National Law Journal.

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