Before You Sign a Severance Agreement in California: What Are You Giving Up?
Your employer terminates your employment and offers you $10,000 in severance.
The money may be useful immediately. But the payment is rarely offered with no strings attached.
A severance agreement commonly requires the employee to release legal claims arising from employment or termination. Once a valid release becomes effective, the employee may lose the ability to later bring claims that were worth substantially more than the severance payment.
That is why the most important question is not simply, “How much are they offering?” It is also, “What am I giving up in exchange?”
KEY TAKEAWAYS
- California generally does not require employers to provide severance unless another agreement, policy, or law creates that obligation.
- A severance agreement can contain a broad release of existing employment claims.
- California restricts provisions that attempt to silence employees concerning unlawful workplace conduct.
- California separation agreements generally must notify employees of the right to consult an attorney and provide at least five business days to do so.
- Special federal requirements apply to waivers of age-discrimination claims by workers age 40 and older.
What Is the Employer Buying?
Usually, peace.
The employer gives the employee something of value beyond compensation already owed, and the employee agrees to release specified claims.
Those claims may include wage claims, discrimination claims, retaliation claims, wrongful-termination claims, contract claims, and other causes of action depending on the wording.
The release section therefore deserves at least as much attention as the amount of severance being offered.
You Cannot Determine Whether the Offer Is Good Until You Evaluate the Claims
Suppose an employee is offered $15,000.
If the employee has no viable employment claim, $15,000 may represent meaningful additional compensation.
But suppose the employee was terminated one week after reporting sexual harassment, has documented lost wages of $80,000, and possesses damaging management emails. The same $15,000 offer looks very different.
The value of severance is relative to what is being released.
Before You Sign
Do not evaluate the severance amount in isolation. First determine what claims you may have, the evidence supporting them, potential damages, attorney-fee provisions, and whether the agreement prevents those claims from being pursued.
California Restricts Confidentiality and Non-Disparagement Clauses
California’s “Silenced No More” protections restrict employers from using separation agreements to prevent employees from discussing information concerning unlawful acts in the workplace.
A nondisparagement or similar restriction concerning workplace conditions must contain language making clear that the agreement does not prevent disclosure of information about unlawful workplace conduct. California law can still permit confidentiality concerning the amount paid in a severance agreement and protection of legitimate trade secrets or proprietary information.
You Generally Get Time to Consult an Attorney
For covered California separation agreements, Government Code section 12964.5 requires the employer to notify the employee of the right to consult an attorney and provide a reasonable period of at least five business days to do so.
An employee may voluntarily sign earlier under specified circumstances, but the employer cannot improperly pressure the employee into shortening the consideration period.
Employees Age 40 and Older Have Additional Federal Protections
A severance agreement releasing claims under the federal Age Discrimination in Employment Act must satisfy the Older Workers Benefit Protection Act. For an individual waiver, an employee generally must receive at least 21 days to consider the agreement and 7 days after signing to revoke it. Certain group termination programs require at least 45 days and additional disclosures. EEOC These rules specifically concern waiver of federal age-discrimination claims.
Can a Severance Agreement Prevent You From Filing an Agency Charge?
There are limits.
EEOC guidance states that an agreement may waive an employee’s individual right to pursue certain past claims or obtain relief, but it may not prevent the employee from filing a charge with the EEOC or participating in an EEOC investigation or proceeding.
California law similarly places limits on agreements that attempt to prevent employees from reporting unlawful conduct to government agencies. Civil Rights Department
What Else Should You Look For?
Review provisions dealing with:
- General release of claims
- Confidentiality
- Non-disparagement
- Cooperation obligations
- Return of company property
- References
- Non-solicitation language
- Arbitration
- Tax treatment
- Payment timing
- No-rehire language
- Existing restrictive covenants
A seemingly minor clause can create obligations extending well beyond receipt of the severance payment.
Can Severance Terms Be Negotiated?
Often, yes. The fact that an employer calls an agreement “standard” does not mean the terms cannot change. Depending on leverage and the facts, negotiations may concern the amount, payment structure, reference language, confidentiality, non-disparagement, release scope, company-property issues, or other terms.
Whether negotiation makes sense depends largely on what potential claims the employee possesses.
How GS LAW Can Help
GS LAW, APC reviews severance agreements by examining both the written agreement and the circumstances leading to termination.
Before advising an employee about a release, we evaluate possible wage, discrimination, retaliation, harassment, accommodation, whistleblower, and wrongful-termination claims so that the severance offer can be compared with the rights being surrendered.
Once a valid release is signed, it may be too late to pursue claims covered by it.