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Specifically with regard to a UK/England employment contract. I am used to seeing clauses in contracts which state crudely that if one clause is found unreasonable, that clause alone will be struck out and the remainder of the contract left to stand. From this question, I gather this is termed a 'reading down' clause. From comments, it can also be a Salvatorian Clause or Severability Clause.

Is this form strictly necessary (i.e. one unreasonable clause in a contract has significant risk to invalidate the whole), or is it simply additional security in capturing something which would typically occur regardless?

  • Do you mean England-and-Wales or Scotland? The law of contract is very, very different in the two jurisdictions. (To the extent that the law in New York is closer to that of England than the law in Scotland.) – Martin Bonner Mar 14 at 17:14
  • @MartinBonner, to limit the question, England-Wales. – Sean Houlihane Mar 14 at 17:16
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    It tips the balances in figuring out what to do in a close case. The default rule is not the invalidate a contract with an illegal term but to invalidate a contract with an illegal essential term. – ohwilleke Mar 15 at 18:14
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I find that Petri Mäntysaari: The Law of Corporate Finance: General Principles and EU Law: Volume II, p. 115-140 can pretty much explain the reasoning for this. It is in chapter 5.3 on Terms non-binding as intended. The contract might not contain all legal requirements for some reason, or a clause might become invalid due to law changes. Sometimes the contract becomes unenforceable for some reason or another in part or full.

The salvatorian clause is there to fix the defective clause to become the closest estimate to the written form that is legal and not deficient instead of being just dropped from the contract. This can save a contract from becoming unenforceable or making it void in whole. Especially look at Page 140:

If a contract term is invalid because of a mandatory provision of law, it will be replaced by legal background rules(§306(2) BGB). One of the standard ways to address the situation is to use a so-called salvatorian clause. [...] This [reinterpretation/fixing of deficiencies] would not happen without a specific contract term. (See §139 BGB. On the other hand see also §140 BGB. Compare DCFR II.-7:302 and II.-7:303)

A caveat though: if the alteration to the clause needed is too big and substantial, the contract as a whole can become void and null, no matter what the salvatorian clause said. It cannot overcome some burdens and there are regularly courts (I know this for Germany) voiding contracts due to such serious deficiencies.


Notes

  • BGB is the German "Bürgerliche Gesetzbuch", an english translation exists
    • §139 says "If a part of a legal transaction is void, then the entire legal transaction is void, unless it is to be assumed that it would have been undertaken even without the void part."
      Example: a sale lacking any payment is not a sale (which starts a legally required warranty)
    • $140 says "If a void legal transaction fulfils the requirements of another legal transaction, then the latter is deemed to have been entered into, if it may be assumed that its validity would be intended if there were knowledge of the invalidity."
      Example: a sale lacking any payment can be interpreted as a gift if the intent was to do so (and does not grant warranty)
  • DCFR is the EU Draft Common Frame of Reference, so the above rules are to be found in the document as follows
    • II.–7:302: Contracts infringing mandatory rules - p. 565. Paraphrased: "if a clause in a contract violates a law, substitute the law for it, courts shall decide if that alters or voids the contract. They may fix contracts to cure them."
    • II.–7:303: Effects of nullity or avoidance - p. 574. Paraphrased: "void contract (parts) can constitute unjustified enrichment, transfer of items might not have happened, courts may fix contracts to cure."

From the DCFR document one can read what happens in absence of a Salvatorian clause, especially for UK law.

II.–7:302:

I. Contracts contrary to law

1 All European systems deal with contracts which contravene some rule of law, as opposed to contracts which are contrary to fundamental principles of morality or public policy.

5 In ENGLISH, IRISH and SCOTTISH law the standard texts all include chapter headings such as “Illegality”, or “Statutory Invalidity”. See further Enonchong, McBryde, Law of Contract in Scotland1 , paras. 19.28-19.36, and, for the confused development of Scottish law, Macgregor in Reid & Zimmermann vol. II, chap. 5.

II. Effects of infringement

8 The general starting point in most European legal systems is that contracts violating legal rules are void. There is often, however, considerable flexibility in the law.

14 In ENGLISH and SCOTTISH law, while an illegal contract may be void, it is more often presented as “unenforceable”, in that neither specific performance nor damages are available to the parties. Thus a party may withdraw from an illegal contract with impunity. Courts will take notice of illegality of their own motion and dismiss actions accordingly (Chitty on Contracts I27, no. 16-199; MacQueen and Thomson, Contract Law in Scotland, § 7.15; McBryde, Law of Contract in Scotland1 , paras. 13.31-13.34, 19.17-19.27).). Again, however, there is flexibility in the law on contracts infringing statutory provisions. There are several cases in which the courts have considered whether giving effect to the statute requires the nullity of the contract as a supporting sanction (see e.g. St John Shipping Corp. v. Joseph Rank Ltd. [1957] 1 QB 267; Archbolds (Freightage) Ltd. v. S Spangletts Ltd. [1961] 2 QB 374, CA). English law is currently under review by the Law Commission: see its Consultation Paper on Illegal Transactions. The Commission’s provisional proposals were to the effect that courts should have the discretion to decide whether or not illegality should act as a defence to a claim for contractual enforcement. But the discretion should be structured by requiring the court to take account of specific factors: (1) the seriousness of the illegality involved; (2) the knowledge and intention of the party seeking enforcement; (3) whether denying relief will act as a deterrent; (4) whether denial of relief will further the purpose of the rule rendering the contract illegal; and (5) whether denying relief is proportionate to the illegality involved.

II.–7:303:

Notes

5 In ENGLISH law the general rule is against restitution but it is possible in exceptional cases where the claimant is not in pari delicto with the recipient, or the transaction has not been completely executed, or if the claim can be formulated without reference to the prohibited contract (Treitel, The Law of Contract9 , 490-504). IRISH law is similar (Clark 314-19), and so is SCOTTISH law (Stair Memorial Encyclopaedia vol. 15, paras. 764-765), although in one Scottish case where, by statute, contracts using old Scottish measures were void, restitutionary recovery was allowed in respect of a sale of potatoes by the Scottish acre, on the ground that there was no moral turpitude in such a transaction (Cuthbertson v. Lowes (1870) 8 M 1073; see further Macgregor, (2000) 4 ELR 19-45; McBryde, Law of Contract in Scotland1 , paras. 13.31-13.34, 19.22-19.26). The English Law Commission in its Consultation Paper on Illegal Transactions suggested that a court should have discretion to decide whether or not illegality should be recognised as a defence to a claim for restitution, various factors being taken into account. In addition the court should have a discretion to allow a party to withdraw from an illegal contract and to have restitution where this will reduce the likelihood of the completion of an illegal act or purpose, although it must be satisfied that the contract could not be enforced against the claimant, that there is genuine repentance of the illegality, and that it is not too serious.

  • This answer only tangentially answers possibly making the contract in whole void. I read your answer as saying that one of the 'standard ways' is necessary to avoid replacement of the term. – Sean Houlihane Mar 14 at 9:58
  • @SeanHoulihane I tried to say "Without a SC the defective clause is not reinterpreted but *dropped, which can make the contract unenforceable or void."* Clarified it some. – Trish Mar 14 at 10:05
  • Writing an answer explicitly asking about United Kingdom contract law (by which the OP almost certainly means English-Welsh law), is unlikely to be helpful. The rules are not the same. – Martin Bonner Mar 14 at 17:16
  • @MartinBonner Read the DCFR document that contains the EU Lws, including Britain/england. – Trish Mar 14 at 18:17

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