California Severance Package, Wage, Bonus, and Commission Attorneys
Severance pay is financial compensation paid to an employee when that employee is dismissed or discharged from his or her job. Severance pay may come through unemployment compensation, a severance pay plan, voluntary severance pay, or bargained severance by agreement. There may also be no severance pay at all, as it is not a requirement of employment in the state of California.
In general, companies are not required to provide severance pacakges. Often, however, they will pay severance either as a standard policy, or when they realize they have violated the law, and are trying to terminate you by means of a severance package, or to “package” you into a company wide layoff.
The key is to determine whether a public policy has been violated, whether there is some underlying age, or racial discrimination, or if you have asserted other rights, and they are retaliating and trying to get rid of you.
Below we explain some severance basics, and for more detail please review our severance FAQ. (link?)In some instances, a terminated employee whose termination was due to a facility closing or the employee’s company laying off a large number of employees may be eligible for severance pay. A second scenario in which severance pay could be required is when an employer leads an employee to believe he or she will be paid severance upon termination. Other situations which could require a severance package include:
- An oral promise from the employer to the employee stating severance pay would be available upon termination;
- A history of the company giving severance packages to other employees in a similar position as the terminated employee;
- A written promise in the employee handbook stating employees would receive severance pay if terminated, or
- A written contract between employee and employer clearly calling for a severance package including what is known as an “ERISA” plan. Some companies have particularized plans that govern severance rights-however, not all employees are aware of these
At-will employees usually do not receive severance packages upon termination; however, these employees may be able to receive unemployment benefits unless they were fired for cause. Some employers will give a severance package to an employee who has been with the company for a significant length of time, more as a courtesy than because of a legal requirement. These employers may feel a severance package is the right thing to do to repay loyalty and hard work. The employer may also feel a severance package can head off a potential lawsuit for wrongful termination.
Employers must be careful when handing out severance packages to some and not others that there is a clear “cut off” line. The policy may differentiate based on length of employment or salary, but may not differentiate based on gender, age, or other protected statuses. In other words, an employer who routinely gives male employees a 40 percent larger severance package than females (when salaries and length of employment are similar) is risking a discrimination lawsuit.
What is Included in a Severance Package?
Absent a contract or promise stating what will be in the severance package, the employer can include anything they like with the severance, including:
- Financial compensation is in most all severance packages; including one or two weeks’ pay for each year the employee worked for the company is considered fairly standard.
- Employee services such as career counseling, job leads or resume’ writing seminars are often included in severance packages, particularly for older workers who may not have engaged in job hunting for decades.
- A letter of recommendation is often included in severance packages. While including a letter of recommendation can protect employers from lawsuits, they carry their own set of risks. (If a glowing recommendation is given, the question as to why the employee was terminated arises);
- Insurance and other benefits may be included in the severance package for a terminated employee. The insurance benefits can include health, life and disability for a specific period of time following termination.
- An employer may agree to allow an application for unemployment benefits to go uncontested as a part of the severance package if the employee was terminated for any reason other than serious misconduct.
- There are a variety of other benefits which an employee could ask for, or the employer could offer. An employee might want to keep their company gym membership, a laptop they have used exclusively or may ask to be released from a non-compete clause as a part of their severance package.
What is Included in a Severance Agreement?
In the state of California, employees may be asked to sign an employment severance agreement when terminated. These releases and waiver of claims agreements generally require the employee to surrender all legal rights in return for the severance package. The actual document could be called a Termination Agreement, an Exit Agreement, a Separation Agreement or a General Release, and will usually include specific terms and clauses such as:
- A no admission of liability agreement;
- A general release, which includes a waiver that releases all known or unknown claims;
- A confidentiality agreement;
- No present or future employment is offered or implied;
- A non-disparagement clause may be included in the agreement which sets forth the type of job reference which will be provided to prospective employers;
- A clause which dictates what company property must be returned, and
- A clause which dictates non solicitation of customers.
Should an Employee Sign a Severance Agreement?
Severance agreements almost always favor the employer, and often the agreement is written in such broad language as to protect the employer from any future lawsuit or legal liability. Employees who are offered a severance package should not sign it without fully understanding all the legal obligations and consequences and should never allow their employer to pressure them into signing the severance agreement.
You should ask for a copy of the agreement, then have an experienced employment attorney look through it to ensure you are not giving up important rights. A severance agreement is like any other contract, meaning it is negotiable. You certainly have the right to counter with you own requests, and if any of the following are true, you absolutely should not sign a severance agreement until you have spoken to an attorney.
- Employees who believe their rights in the workplace were violated, or those who witnessed significant wrongdoing in the workplace, should not sign a severance agreement;
- Employees who feel they were wrongfully terminated, should not sign a severance agreement until they fully understand what rights they are potentially giving up;
- Employees who are quitting or are being laid off from their job as a result of harassing or retaliatory behaviors or other employment law violations should not sign a severance agreement;
- Employees whose severance agreement has a non-disclosure or a non-compete clause should think long and hard before signing the document, depending, of course, on your line of work. These documents could potentially limit the scope of work you are allowed to do for your next employer, and could make job-hunting extremely difficult, and
- Employees whose severance agreement has admissions of fault should strongly consider not signing the severance agreement, most especially if those admissions are for issues the employee feels he or she is not at fault for. Signing such an agreement could harm future employment prospects.
What if an Employer is Holding the Employee’s Last Paycheck Hostage?
Employers sometimes require the employee to sign the severance agreement before they will release wages which are owed to the employee. This is a clear violation of California Labor Code 2802. Any money the employee has earned must be paid regardless of whether the employee agrees to sign the severance agreement. An employee may feel they were pressured to sign a severance agreement, however unless the agreement was obtained through duress, fraud or undue influence and was not knowing and voluntary, it will be difficult to challenge later on once the employee signs.
What Must a Severance Agreement Include?
Severance agreements will ordinarily be in writing, and should be written in plain, clear language. The severance agreement cannot exaggerate the benefits offered, and cannot mislead or misinform. Severance agreements may not require the employee to waive rights or claims which could arise following the date of the signed release. Severance agreements will usually imform the employee he or she should consult an attorney prior to signing, and under the ADEA, when an employee is over 40 years old, the employer must give the employee at least 21 days to consider and make a decision whether to sign the agreement.
In the end, if you are offered a severance package after being terminated from your employment, you should promptly consult a California employment attorney who can determine whether the agreement is legal and fair, and explain your rights. Your attorney will be looking out for your rights and your future and will ensure you don’t sign something which will end up taking away important rights.