Severability Clauses: Review and Negotiate with AI

What is a Severability Clause?

A Severability clause is a vital legal provision in contracts that serves as a safeguard for the overall agreement. Its primary function is to ensure that the entire contract remains valid and enforceable even if specific sections or provisions are deemed invalid or unenforceable.

Here's how it works: If a part of the contract is legally problematic, that section can be removed without invalidating the entire agreement. This preserves the rest of the contract and the intentions of all parties involved.

A typical Severability clause might read:

If any Section of this Agreement or the application thereof is held to be invalid or unenforceable for any reason and to any extent, then that Section shall be considered removed from this Agreement. However, the remaining Sections shall continue to be valid and enforceable according to the intentions of all Parties and to the maximum extent permitted by law.

Where to Use Severability Clauses

Severability clauses are widely applicable and can be found in various types of contracts and agreements:

• SaaS (Software as a Service) Terms of Service 
• Sales Agency Agreements (SAAs)
• Master Purchase Agreements
• Non-Disclosure Agreements (NDAs)
• Letters of Intent (LOIs)
• Master Services Agreements (MSAs)

In each of these contexts, the Severability clause serves a crucial role in maintaining the integrity and enforceability of the agreement. For instance, in a SaaS Terms of Service Agreement, if a specific provision about data usage is found to violate privacy laws, the Severability clause would allow the rest of the agreement to remain in effect, ensuring continuity of service and protection for both the provider and the user.

Similarly, in a Sales Agency Agreement, if a provision regarding commission rates is deemed unenforceable due to changes in labor laws, the Severability clause would protect the overall structure of the agency relationship, allowing business to continue while the problematic provision is addressed.

Negotiating Severability Clauses

When negotiating Severability clauses consider these key points:

1. Scope: Decide which parts of the agreement can be severed.
2. Materiality Consideration: Include language that addresses the materiality of the severed provision. For instance: "provided, however, that enforcement of the Agreement without the illegal, invalid, or unenforceable provision does not substantially impair the value of the whole Agreement to either Party."
3. Replacement Provisions: Consider including a clause that requires parties to negotiate in good faith to replace any severed provisions. This can help maintain the original intent of the agreement. For example: "the Parties agree to use their best efforts to promptly negotiate a replacement provision that is consistent with applicable laws and achieves, as closely as possible, the original intention of the Parties."
4. Blue Pencil Doctrine: Be aware of the "blue pencil" doctrine, which allows courts in some jurisdictions to modify rather than completely sever unenforceable provisions. Depending on your jurisdiction and preferences, you may want to explicitly allow or disallow this practice in your Severability clause.
5. Exceptions to Severability: Consider specifying any provisions that, if found unenforceable, would render the entire agreement void. This is particularly important for provisions that are central to the purpose of the contract.
6. Compliance with Laws: Ensure that the Severability clause itself complies with relevant laws and regulations. While there may not be specific statutes governing Severability clauses, they should align with general contract law principles in your jurisdiction.
7. Uniform Commercial Code (UCC) Considerations: For agreements involving the sale of goods, be aware of the UCC's guidance on severability. The UCC generally supports the divisibility of contracts, allowing enforcement of valid provisions while disregarding unenforceable ones.
8. Material Breach Exception: Address how the Severability clause interacts with the concept of material breach. In some cases, a material breach might override the Severability clause and allow for termination of the entire agreement.

A good Severability clause balances protecting the overall agreement with staying flexible for unexpected situations. It's always a good idea to consult a lawyer to make sure your clause fits your needs and follows all applicable laws.

AI Contract Review for Negotiating Severability Clauses

To give you a sense of the benefits of leveraging AI Contract Review Software trained by lawyers, we’ve selected some sample language our software presents to customers during a review of Severability clauses in Master Service Agreements (MSAs). Keep in mind that these are static in this overview but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

If you’d like to see more, we invite you to book a demo.

Sample Severability Clause in Master Services Agreement (MSA)

If any provision of this Agreement or an SOW, or the application thereof, is held to be illegal, invalid, or unenforceable for any reason and to any extent, then that provision shall be considered severed therefrom and this Agreement or the SOW, as applicable, shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part thereof; provided, however, that enforcement without the illegal, invalid, or unenforceable provision does not substantially impair the value of the whole Agreement to either Party, in which case the Parties agree to use their best efforts to promptly negotiate a replacement provision that is consistent with applicable laws and achieves, as nearly as possible, the original intention of the Parties. No such holding, reformation, or severance shall affect the legality, validity, or enforceability of any other provision of this Agreement or an SOW.

Sample Guidance

In an MSA, it is vital to incorporate a severability clause to preserve the contract's enforceability, even if certain provisions are deemed invalid or unenforceable. This legal principle protects the parties' intentions and the overall integrity of the agreement, preventing the entire contract from being invalidated due to a single unenforceable provision.

A practical example of the importance of severability is when a provision in the agreement requires the use of a specific material that later becomes prohibited by new environmental regulations. In this case, a severability clause would allow the remaining provisions to remain enforceable, enabling the project to continue with an alternative material.

Simplifying Your Severability Clause Negotiations with AI

AI-powered tools like LegalOn can help legal teams:

1. Quickly spot important issues
2. Give alerts based on your situation
3. Suggest improvements
4. Ensure you're following relevant laws

The sample AI-powered insights we've shared demonstrate how LegalOn can enhance your contract review process, making it more efficient, thorough, and aligned with best practices.

To experience the power of AI in Severability clause negotiations, we invite you to see it in action. Book a demo today to explore how our AI-powered contract review software can transform your approach to drafting and negotiating Severability clauses.