Although statistics vary, it’s clear that the majority of cases settle before trial. Documentation of the parties’ settlement agreement falls most often on the lawyers who handled the case: trial lawyers become transactional lawyers. The trial skills needed to prepare the case differ from the drafting skills needed to document its resolution. And nothing sours the successful resolution of a case faster than a settlement agreement that generates new litigation. So even trial lawyers must hone their drafting skills.
One overarching purpose of a settlement agreement is to address possible future events. Such events include a term or provision of the agreement being declared invalid or unenforceable. Parties often draft severability provisions, which establish that any term or provision ruled invalid or unenforceable shall be severed and become ineffective and the remaining terms and provisions shall continue in full force and effect. A severability provision seeks to preserve the parties’ agreement in the face of a future determination that could pose a threat to the entire agreement. The facial attraction of these provisions lies in their intended preservation of the underlying agreement even if one of its terms cannot be enforced.
But in the context of settlement agreements, severability provisions can pose a hazard. For example, if the release provision is deemed unenforceable, a severability provision would eliminate the unenforceable release from the agreement but preserve the effectiveness and enforceability of the rest of its terms, including the payment provision. Obviously, the party that paid to obtain the release would no longer receive the benefit of its bargain. It would be far better for that party if the entire agreement failed if the release provision is deemed unenforceable. The releasing party would take a similar view if the payment provision were unenforceable.
In the context of settlement agreements, severability provisions should be used with great caution. The inability to enforce even one term of the agreement can undermine the entire purpose of the parties’ agreement. If used at all, severability provisions should be limited in their application to provisions that the parties agree in advance can be severed and ignored without defeating the purpose of the parties’ agreement. And, if the parties can identify terms that they agree would be unimportant to enforce, they should consider why those terms are included in the agreement. But that’s a thought for another time. For now, beware the severability provision in your settlement agreements.