How Does Severance Pay Work in California?

Unfortunately, not everyone gets to leave their employment on their own terms. Whether due to downsizing, layoffs, or termination for cause, losing your job can create unexpected hardship and financial stress. Severance pay can be a nice benefit to ease the sting of being terminated. Many employers offer severance packages to certain employees who are terminated against their will. Severance packages offer employees a certain amount of pay in the event of termination so that they are not suddenly left without any income. In exchange for severance, employers typically require employees to waive their right to sue their employer in connection with the termination. Below, our employment law legal team discusses how severance pay works in California.

Severance Pay and Severance Agreements

Not every employee is entitled to severance pay. Unless a contract states otherwise, nothing in California law requires employers to give employees severance pay. Terminated employees are guaranteed pay for the hours they have worked as well as any hours left within the required notice period for termination. Aside from that, whether to offer severance pay is entirely up to employers.

Typically, severance pay is offered as part of a severance agreement. A severance agreement is a contract under which employers agree to pay employees after their termination in exchange for a promise from the employee not to sue the employer in connection with the termination, as well as the employee giving up certain other rights. Employers use severance agreements to limit their liability, essentially “buying” their release from liability from a terminated employee. The agreement might also set certain conditions, such as preventing the employee from discussing the facts of their termination with outside parties.

Severance agreements are generally valid under California law so long as the agreements are entered into voluntarily and do not otherwise violate the law or public policy. Employers often ask employees to waive their right to sue for wrongful termination, harassment, discrimination, as well as their right to disclose company trade secrets, make negative comments about the employer, or sue under other theories of law.

Some Rights Cannot be Waived in a Severance Agreement

Severance agreements can cover a wide range of rights for employees, limiting their right to bring a variety of legal claims. Some provisions in severance agreements will not be enforced, however. These include:

• Waiver of an employee’s right to pursue California wage & hour claims
• A provision requiring an employee to sign the severance agreement in order to collect final owed wages. Severance agreements are meant to pertain to additional payments; employees are due whatever wages they have already earned.
• Overly restrictive non-compete agreements
• Waiver of an employee’s right to report crimes
• Certain age discrimination claims, depending on the employee
• Promises that would require the employee to break the law
• Waivers that are so broad or vague as to prevent the employee from working at a new job

In addition to unenforceable provisions, severance agreements may be unenforceable when they otherwise violate the standards for contract law in California. An employee cannot be coerced to sign an agreement under duress or undue influence. An agreement obtained via fraud on the employee will not be enforceable. Moreover, an agreement that is so unconscionable (unfair or one-sided) as to be against public policy will not be enforced.

If you are a California employer considering severance packages or dealing with employment law issues, or an employee facing employee rights concerns or other employment law issues in Orange, Riverside, San Bernardino, Los Angeles, or San Diego counties, call on an experienced and talented California employment law attorney at Coast Employment Law at 714-551-9930 for a free consultation.