Severance Pay and Severance Agreements in California: What You Need to Know

Posted by Amy S. Ramsey | Jan 08, 2024 | 0 Comments

Dealing with the termination of employment can be a challenging and uncertain time. One aspect that often happens in these situations is severance pay.

In California, understanding the ins and outs of severance packages and their legal implications is crucial. This guide aims to shed light on common questions regarding severance pay in California, addressing concerns about releases, terminations, and more.

What Is Severance Pay?

Severance pay refers to the compensation or benefits an employer provides to an employee upon termination of employment. It's typically offered out of goodwill to help the employee during the transition period after losing their job. Typically, it is distributed as a lump sum, and the specific amount varies based on individual circumstances.

Instances that might trigger severance pay include:

  • Layoffs Due to Restructuring or Downsizing — Situations where an employee faces termination due to corporate reorganization or downsizing, despite working for the company for an extended period of time.
  • Closure-Related Layoffs —When a business permanently shuts down and has to lay off employees, individuals who lose their jobs in such scenarios might be eligible for severance pay. 
  • Termination Due to Company Bankruptcy —Employees let go following a company's declaration of bankruptcy may be entitled to severance pay as a part of their compensation package.

FAQs About Severance Pay

I'm getting terminated, and my employer wants to pay me a severance in exchange for a release. Should I sign it?

You should make the decision to sign a severance agreement in exchange for a release cautiously. While it can offer immediate financial relief, it often requires you to waive your rights to sue your employer. Consider hiring legal counsel to review the agreement and evaluate the circumstances leading to your termination. If you have a valid claim against your employer, you should be aware of that before signing a release.

Does California law require employers to provide severance pay upon termination?

No, California law doesn't mandate severance pay unless it is explicitly outlined in an employment contract, company policy, or employment agreement.

My employer and I had an agreement that I would be paid severance if the company terminated me. They terminated me and won't pay the severance, claiming it was ‘for cause.' Can I file a lawsuit?

As mentioned above, California law does not mandate severance pay unless it's part of an employment contract or agreement. If the company alleges termination for cause to avoid paying severance, go over your employment contract or employee handbook and seek legal advice. Factors like contractual terms and validity of the “for cause” reasoning can impact your ability to challenge the decision. It is possible that your employer fabricated cause for termination to avoid paying severance. 

How do you calculate severance pay?

The calculation of severance pay is based on many factors, such as length of employment, position, company policy, and any contractual agreements. It may include payment for accrued vacation days, bonuses, or a certain amount per year of service.

Are there any instances where severance pay might be denied?

Yes, an employer may deny severance pay if an employee breaches a contract, engages in gross misconduct, or violates company policies, which are also known as “for cause” termination. However, disputes might happen regarding what constitutes “cause,” requiring legal examination.

What does a reasonable severance package look like?

A comprehensive severance package typically covers more than just severance pay. It also can cover stock options, continuation of health insurance, a severance payment timeline, outplacement assistance, unemployment insurance filing, and compensation for untaken vacation days.

These are just a few potential components in a severance package. Employers might include additional benefits or considerations tailored to their policies.

Note that severance packages and agreements are contracts between the employer and employee. Any legal issues that arise with these agreements fall under California contract law.

How To Navigate and Assess Your Severance Package

When assessing a severance package, it's essential to know that it is a contractual agreement. Simply signing without understanding the terms could bind you to commitments you might not fully grasp.

Your employer's priorities might not align with your best interests, making it necessary for a thorough review. Seeking legal counsel can provide you with clarity and protect your interests before finalizing any agreement. 

Here are some things to consider when going over your severance package:

Consider the Employer's Interests

Don't solely focus on the monetary value being offered; consider what your employer is looking for in return. Sometimes, seemingly generous sums might entail waiving crucial legal rights, potentially diminishing the overall benefit to you.

If you suspect unfair treatment or workplace violations, seek legal advice before signing. Non-compete or non-disclosure clauses could limit future job prospects, so be careful and think before agreeing to these terms.

Comprehending the Agreement Fully

Be wary of any vague or confusing language in the agreement. Understanding the specific rights you're relinquishing and obligations you're assuming is crucial. Seeking legal counsel to clarify violations of your rights before accepting the severance agreement is a good idea.

Evaluate the Fairness of the Offer

While a substantial payout may seem enticing, weigh it against the relinquishment of seeking justice. Negotiation is possible, especially if you have a legitimate legal claim against your employer.

Consider your needs, contributions, and market standards. Can you ask for more or negotiate terms that better suit your future goals?

Assess Restrictive Terms

Beyond the monetary aspect, examine other terms in the agreement. Ensure it accurately represents the circumstances of your departure, particularly if you were laid off, not fired. Consider keeping references or sharing agreement details with potential future employers if the agreement is not confidential.

Legal Guidance and Representation for Severance in California

Understanding severance pay in California requires a comprehensive understanding of employment laws, contractual agreements, and potential legal implications. Considering how complex this can be, seeking legal counsel and a thorough review of any agreements is paramount to protecting your rights and interests during the termination process.

The expert legal team at Advantage Advocates specializes in navigating the complexities of employment law, including discrimination, retaliation, harassment, and more. Whether securing a suitable severance, resolving wrongful termination, or addressing unpaid wages and benefits, we are here to provide dedicated legal guidance and representation. 

Contact us today to ensure your rights are protected and justice is served in your employment dispute.

About the Author

Amy S. Ramsey

Amy S. Ramsey Founder & Attorney [email protected] 626-310-0101 Amy Ramsey works closely with clients to find proactive, practical solutions to employment law disputes, taking an aggressive, measured approach to put employees back into a position of power. Her extensive employ...


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