Source: https://www.worklawyers.com/severance-agreement-law-california/
Timestamp: 2019-04-19 12:35:34+00:00

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This article explains California law as it relates to employment severance agreements and severance packages.
Not everyone leaves a job on his or her own terms. For whatever the reason—be it a firing, company downsizing, or a lay-off—being let go from a job can be a stressful experience. To make things less stressful, employers sometimes offer severance packages to departing employees.
The rest of this article takes a closer look at the law governing severance agreements in California. If you have been asked to sign a severance agreement, it is often a good idea to have an employment lawyer take a look at it first.
1 What Do Severance Agreements Do?
4 Is Severance Pay Required By Law?
6.1 What Is Your Employer Getting?
6.2 Do You Fully Understand the Agreement?
6.3 How Favorable Is the Offer?
6.4 How Restrictive Are the Other Terms?
7 Should You Negotiate Your Severance Pay?
7.1 Why Are You Being Let Go?
7.2 How Long Have You Worked There?
7.3 What Is Your Employer’s Current Financial State?
What Do Severance Agreements Do?
As mentioned above, a severance agreement is a contract that an employer may ask an employee to sign when they are terminated from a job. In a severance agreement, the employer offers the employee a sum of money in exchange for the employee giving up certain rights, such as the right to sue the employer.
Severance agreements arise because, under California and federal law, workers have the right to sue their employers for many types of legal violations.3 Employers can prevent these types of lawsuits by obtaining a release of the employee’s existing claims. This incentivizes employers to “buy” this release from employees at the time of their termination.
An employer terminates a worker and asks her to sign a severance agreement stating that she will not sue the employer for wrongful termination. In return, the employer pays her $10,000.
In general, severance agreements are legally valid and will be upheld by courts, as long as the agreement was entered into voluntarily and the terms are legal.4 This is true even if it seems that the employer is getting the better deal.
Severance agreements may also ask employees to limit their behavior in other ways. For example, the severance agreement may require the worker to not talk about why they were terminated, to not speak poorly about the company, or to not share trade secrets.
As with an employee’s agreement to waive a lawsuit, a severance agreement that limits the employee’s post-employment behavior will often be upheld in court.
An employer may not require an employee to sign a severance agreement before paying owed wages.10 Employers must pay their workers any owed wages whether or not they agree to the severance agreement.
In addition to these rules, an employer may not induce an employee to sign a severance agreement through fraud, duress, or undue influence.15 Nor may a severance agreement provide terms that are unconscionable. Each of these words have a specific legal meaning, which are explained below.
Is Severance Pay Required By Law?
In most cases, employers are not required to provide employees with severance packages. Severance agreements are contracts between private parties and are governed by California contract law. There is no law in California requiring employers to offer severance packages.
An employer is only obligated to give you severance pay if you have a previous agreement to receive it. For example, there may be a severance pay clause in your pre-employment contract, or your union agreement might mandate it. In those kinds of cases, you might have a right to severance pay.
Even though the law does not usually require employers to provide severance packages, there are some general conventions that employers often follow in calculating them. A typical formula for severance pay may be: one week of the employee’s regular rate of pay, multiplied by the number of years worked.
Of course, some employers will follow a different calculation. Other employers might arbitrarily choose a number they believe is fair. And still others might be bound by a specific calculation laid out in the worker’s employment contract or the employer’s previously-adopted policies.
More generous severance packages can include two weeks of pay for every year the employee has worked for the business. Some severance packages can also include an offer of one month’s salary for every year of employment. The employer may also include benefits other than wages, such as pro-rated bonuses or medical insurance.
It is also worth remembering that when your employer provides you with a contract, it is in their interest to provide terms favorable to their business. Your employer’s interests are often at odds with your interests. So you should not rely on your employer to create fair terms for you any more than you would rely on your car salesperson to negotiate fair terms for you.
What Is Your Employer Getting?
The first thing to look out for is what your employer wants from you. While it can be tempting to look at the bottom line and see how much money you are getting, this can skew your view of the severance agreement.
If you feel your termination was unfair, you should be cautious about signing the severance agreement.
If you are being laid off or quitting your job due to harassment, retaliation, or some other employment law violation, you should consider consulting an employment lawyer about any legal claims you have before signing the severance agreement.
If the severance agreement contains a non-compete clause or non-disclosure clause, you should consider not signing the agreement. Although it may be questionable whether these clauses are enforceable, agreeing to a non-compete and non-disclosure clause could significantly limit the work you perform for your next employer and thus make searching for another job much more difficult.
If the severance agreement involves admissions of fault, you should consider not signing the agreement. This is especially true if you are admitting or acknowledging workplace problems that you did not commit or weren’t your fault. These admissions to fault could harm your future employment prospects and job benefits.
If you witnessed wrongdoing in the workplace or you believe your employee rights were violated, you should be cautious about signing the severance agreement.
Do You Fully Understand the Agreement?
Another red flag to look out for is language that is confusing, broad, or vague. It is important that you understand exactly which rights you are waiving, and which obligations you are undertaking. It is usually unwise to sign a severance agreement without fully understanding its terms.
It might be a good idea to consult an employment attorney to understand if your rights were violated before you accept the severance agreement.
How Favorable Is the Offer?
Next, look at what you are being offered. It may be worth it to you to get a large severance payout in exchange for waiving your right to seek justice. But you do not have to simply accept what your employer is offering. Severance agreements can often be negotiated—especially if you have a valid legal claim against your employer.
How Restrictive Are the Other Terms?
Finally, you should evaluate the other terms in the agreement. For example, if you have been laid off, you would want your severance agreement to indicate that you were not fired. You may also want to know if you can get a reference or a letter of recommendation from your supervisor or the employer. You may also want to be able to share the details of your severance agreement with future employers, to prove that you were not fired.
Does the agreement, as written, permit you to do the things you might want to do in the future?
Should You Negotiate Your Severance Pay?
Whether you should negotiate your severance pay will depend on a few factors. Unless you have previously signed an employment contract with the terms laid out, there may be room for negotiation.
Why Are You Being Let Go?
If you are being let go due to your own negative behavior or performance, you are in less of a position to negotiate. If, however, you are a good employee but you are being laid off, you may have more room to negotiate.
You may also get a bigger severance package if your employer knows that you know that you may have a claim against them for wrongful termination or some other wrongdoing.
The longer you have been with a company, the more value you may have. When you leave, you are not just taking your skills away from the employer, you are also taking your specific knowledge, experience, and training, none of which can be easily replaced by a new employee.
What Is Your Employer’s Current Financial State?
You may not specifically know your company’s net worth, cash flow, or assets, but you can probably make a reasonable guess about how much your employer can afford to pay you.
If you work for a small company with only three employees, there is less of a chance you will get a large severance package than if you work for a large international corporation. However, if you are being laid off because the corporation is closing offices, they may not be willing to give you much money—regardless of their size.
No matter what your employer tells you, you are not required to sign a severance agreement, and you are not required to do so immediately. You always have the right to consult with a lawyer, even if you are sure you understand the terms.
Being terminated is often an upsetting, stressful event, and you may not be very objective when you are reading the severance agreement. Reading the severance agreement while in an emotional state might influence you to agree to unfavorable terms.
If a severance agreement requires you to give up any right to sue, you should consider consulting with an attorney before signing. An attorney can explain to you whether the severance agreement is legal and, if so, what you will be giving up.
Is the language too broad or too vague?
Are you being pressured to sign it?
Does your employer know that you are in a tight financial spot and need the money?
Is your employer refusing to negotiate the terms with you?
Are you being asked to give up your rights and receive little or nothing in return?
Do you suspect fraud, or that your employer is lying to you?
Are you specifically being discouraged from consulting with an attorney?
If you are over 40 years old, does your severance agreement instruct you to consult an attorney?
Ultimately, negotiating a favorable severance agreement is like negotiating any other contract: it’s an art. This is where a lawyer can greatly help you, especially if you have little experience with negotiation.
See, e.g., 29 U.S.C. § 216(b); Labor Code, § 2699, subd. (a); Gov. Code, § 12940; Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1117.
See Civ. Code, § 1541 [“An obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without new consideration.”]; Skrbina v. Fleming Cos. (1996) 45 Cal.App.4th 1353, 1366; Shaw v. City of Sacramento (9th Cir. 2001) 250 F.3d 1289.
Smith v. Occidental & Oriental S.S. Co. (1893) 99 Cal. 462, 470-471 [“The general rule is that when a person with the capacity of reading and understanding an instrument signs it, he is, in the absence of fraud and imposition, bound by its contents, and is estopped from saying that its provisions are contrary to his intentions or understanding; but it is also a general rule that the assent of a party to a contract is necessary in order that it be binding upon him, and that, if the circumstances of a transaction are such that he is not estopped from setting up his want of assent, he can be relieved from the effect of his signature if it can be made to appear that he did not in reality assent to it.”].
You might not, as it is fairly common for severance agreements to specifically bar talking about how much the severance agreement is worth.

References: § 216
 § 2699
 § 12940
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 § 1541
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