Savings clause: Overview, definition, and example
What is a savings clause?
A savings clause is a provision in a contract that ensures the remaining terms of the agreement remain valid and enforceable if one part of the contract is found to be invalid, illegal, or unenforceable. This clause helps to preserve the overall agreement, preventing it from being voided entirely due to a single problematic provision.
For example, if a court invalidates one section of a contract because it violates local laws, a savings clause ensures that the rest of the contract continues to be effective.
Why is a savings clause important?
A savings clause is important because it protects the integrity of a contract by ensuring that minor legal or drafting issues do not undermine the entire agreement. It provides flexibility and reduces the risk of a contract being rendered unenforceable due to one problematic term.
For businesses, a savings clause adds security and continuity, allowing the parties to maintain their commitments even if adjustments are needed for legal compliance.
Understanding a savings clause through an example
Imagine a non-compete agreement includes a provision prohibiting an employee from working in any capacity within the same industry for five years. A court determines that this provision is overly restrictive and unenforceable. Because the contract contains a savings clause, the rest of the agreement—such as confidentiality and non-solicitation provisions—remains enforceable.
In another example, a lease agreement includes a term requiring the tenant to pay a penalty that exceeds the legal limit in the jurisdiction. If a court invalidates this penalty provision, the savings clause ensures that the rest of the lease terms, such as rent and duration, remain valid.
An example of a savings clause
Here’s how a savings clause might appear in a contract:
“If any provision of this Agreement is held to be invalid, illegal, or unenforceable for any reason, the remaining provisions shall remain in full force and effect. The Parties agree to amend or replace the invalid provision with a valid and enforceable provision that reflects the original intent to the maximum extent permitted by law.”
Conclusion
A savings clause ensures that a contract remains enforceable even if one part is deemed invalid or unenforceable. It provides stability and reduces the risk of losing the benefits of the overall agreement.
By including a well-drafted savings clause, businesses can protect their contracts, ensure compliance with the law, and maintain the effectiveness of their agreements despite potential legal challenges.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.