Not everybody is able to quit a job on their own terms. Being let go from a job, for whatever reason—be it a termination, a business downsizing, or a layoff—can be a traumatic experience. Employers often give severance packages to retiring workers to make it less stressful. If you've been asked to sign a severance agreement, it's a good idea to get it reviewed by an California Employment Lawyer first. Consider one of our prescreened California Lawyers in your Cal Bar Attorney Search.

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A severance package is a payout made by an employer to an employee when the latter is fired. It is normally granted in exchange for a written assurance from the employee that he or she will not sue the employer. A severance agreement is a name given to this written promise.

When an employee's job is terminated, most workers do not have a legal right to a severance package. Many businesses provide severance packages regardless of whether they are obliged to do so, and they can help mitigate an employer's legal liability.

What Are Severance Agreements and What Do They Do?

A severance agreement, as previously stated, is a contract that an employer can require an employee to sign when they are fired from their job. In a severance arrangement, the employer pays the employee a lump sum to relinquish those rights, such as the right to sue the company.

Staff in California and the United States have the right to sue their employers for a variety of civil breaches, which gives rise to severance agreements. By securing a waiver of the employee's pending allegations, employers may avoid certain forms of litigation. Employers are enticed to "buy" this release from workers when they are terminated.

Severance agreements, in general, are legally binding and would be enforced by judges if they were entered into knowingly and the terms are lawful. Even if it seems that the boss is getting a better offer, this is valid.

Employees could be asked to curtail their actions in other respects as part of a severance agreement. For example, the severance agreement can stipulate that the employee not discuss why they were fired, speak negatively about the company, or reveal trade secrets.

A severance arrangement that restricts an employee's post-employment conduct, like an employee's agreement to waive a complaint, is often upheld in court.

Some of the Common Benefits of a Severance Package

The majority of people believe that severance packages only contain your income. Although this is valid, a severance package may include a variety of other pay and benefits. Keep in mind that each employee's severance package is special.

A severance arrangement can provide the following benefits:

Insurance for health care

Some employers offer health care to full-time workers before they find a new career. Employees should be able to use their health care plan 18 months after being laid off, according to the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Programs for pensions

If an employee is old enough, a pension plan will be an option when they are laid off. Along with a severance package, pension benefits may be provided. Companies occasionally encourage employees to retire at the age of 55. For more details, consult your employee handbook or employment contract.

Sick leave/vacation period

The amount of holiday and sick leave included in a severance package varies by state. Employees laid off in California who has unused sick days must be paid for it as part of their severance plan.

Assistance in finding a job

When a worker is laid off, an employer will sometimes provide assistance in finding a new job. The employee would profit from not having to apply for unemployment if they were able to find another job quickly. The employer will help with the job search by referring you to potential employers, developing your resume, or writing a letter of recommendation.

Stock Options

Employers can include an Employee Stock Option Plan to their employees. An ESOP serves as a motivator for workers to stay loyal and stay with the organization for a long time. When an employee is fired, they must give up their stock, however as part of their severance package; they might be able to sell it back to the company.

Common Law Rights That Cannot Be Waived

In a severance arrangement, only lawsuits for civil violations—not crimes—can be legally waived. Although several legal rights can be waived, the following are the ones that are most frequently used in severance agreements:

Suing for wrongful termination, assault, or defamation
The right to sue for unfair discrimination based on an employee's gender, ethnicity, sex, age, religion, sexual orientation, and other factors.
The freedom to speak with third parties about the terms of the severance agreement or other matters (this is called a confidentiality provision).
The right to talk about a company's trade secrets. The right to make disparaging remarks about an employer (this is called a non-disparagement provision).
The willingness to speak frankly about the events that led to the employee's firing.
The right to sue over a variety of other allegations, both known and unknown.

Of course, there are a variety of other issues that an employer can require workers to waive.

Severance Agreements are subject to such restrictions.

Provisions that aren't enforceable
In a severance arrangement, there are also legal rights that cannot be waived. The following are a few examples, but they are not exhaustive:
A waiver of the employee's right to sue for wage and hour violations in California, such as the right to demand earned benefits, unemployment insurance, minimum wage, or overtime pay.
Before paying unpaid salaries, an employer does not ask an employee to sign a severance agreement. Whether or not they consent to the severance arrangement, employers must pay their employees any unpaid wages.
An employee's right to report crimes is waived.

Any commitment that requires the employee to violate the law (for example, committing perjury if called to testify in court against the company).
A contract that prohibits a former employee from working for a competitor of the former employer (commonly referred to as a "non-compete clause").
Waivers that are so broad or ambiguous that they prevent an employee from exercising their right to work.
If the employee is 40 years old or older, the employer will not be able to force the employee to waive age discrimination claims unless the employee is given at least 45 days to accept the waiver (and at least 7 days to revoke it).

In addition to these laws, an employer should not use fraudulent acts, duress, or unfair influence to persuade an employee to sign a severance agreement. A severance arrangement cannot even include provisions that are unconscionable. Each of these terms has a legal definition that is discussed further down.

Fraud

Fraud occurs when an employer misleads an employee about a critical fact or makes a commitment that they do not intend to uphold. It may also happen when an employer fails to report a significant fact if the employer has a legal obligation to do so.
When a severance agreement was negotiated as a consequence of the employer's dishonest misrepresentations, it is always unenforceable.

Under duress

When an employer assaults an employee in some way, the employee is compelled to sign a severance agreement out of fear. To meet the criterion of duress, the employer's threat must normally be illegal.
When an employee signs a severance agreement under duress, he or she has the right to revoke it.

Undue Influence

Undue interference is a legal term that refers to coercive persuasion of some kind. When an employer puts undue pressure on an employee to sign a severance agreement, the employee's mental, moral, or emotional shortcomings are exploited.
An employee who has been coerced to sign a severance agreement by unfair influence may be able to revoke it.

Unacceptability

Unconscionability is a difficult legal concept to grasp. To decide if a severance arrangement is unconscionable, courts look at two aspects of it:

Procedural Inconsistency

The severance arrangement is more likely to be considered unconscionable if one side has considerably more bargaining power than the other or if the terms of the agreement were unfair to the employee.

Unconscionability

A court can find one or more guarantees in the contract to be substantively unconscionable if they are one-sided or harsh.
Courts have the authority to refuse to execute any or part of an unconscionable contract.

Additional Issues

Other legal restrictions can exist in addition to these conditions. There are special provisions for severance agreements, for example, that cover discrimination claims.
Similarly, if severance arrangements are found to be in violation of public policy, they could be unenforceable.

If you're not sure if the waivers in your severance agreement are true or legally enforceable, talk to an experienced California Employment Lawyer about it.

What are the Benefits to the Employer

Even if an employer has done nothing wrong, severance pay will benefit them legally, socially, and financially.

Legal Advantages

Severance compensation is a common practice in the legal world to keep potentially litigious workers from appealing in the future. It's difficult to know what kind of complaints an employee might have or how valid those grievances are.

For example, an employee might have been given too much work and continued to work after hours without informing anyone. It's possible that they were sexually assaulted and didn't mention it. Alternatively, they might believe that the termination was motivated by discrimination. In any of these scenarios, an employee may file a complaint without the employer being aware of it. It's also likely that the employee really dislikes the boss and is willing to fabricate a claim in order to file a complaint.

Many, if not all, companies would err on the side of caution and offer a severance package to terminated workers.

Other Advantages

Severance pay will help ensure a smooth transition in addition to the legal benefits. Employees who are given a severance package are less likely to be resentful of their boss. They're much less likely to criticize their boss in front of clients, colleagues, customers, or coworkers.

Other workers can feel more comfortable in their jobs if they learn about the circumstances of the termination and that severance pay was given. Established workers will see severance as a sign that their employer values them even after they leave. It also shows that their employer appreciates their dedication to the business. Severance pay could help to improve employee satisfaction in this way.

Finally, from a moral perspective, severance pay will make an employer feel less guilty because the person would have money to live on as they look for a new career.

Consider you've just been fired. Of course, you're upset, but what are your initial thoughts? You might be preoccupied with your family, your mortgage, or your bills at first. If you don't have any savings, you may be concerned about what you'll eat.

If these fears are running through your mind, your first reaction might be to point the finger at your boss. It's a lot harder to be mad with your boss if they just gave you a good severance package. You'll also feel less helpless and angry if you have enough money to get by before you find a new job.

Severance compensation is, in general, the best thing to do.

Is there any significant risk for employers to give severance pay?

There are risks in every business transaction. Offering a severance package to an employee can imply that the employer is worried about being sued. It can also serve as a reminder to an employee of future litigation that they had not intended to pursue.

The most common danger is that a severance pay offer would encourage an employee to consult a California Labor Lawyer in order to obtain a better severance package. The problem with assessing these risks is that it's impossible to know if the employee might have sought legal advice anyway.

On the other hand, an excessively litigious employee is likely to respond the same way to being fired regardless of the circumstances. On the other hand, other workers can be deterred from seeking legal recourse if severance is offered. As a result, most people who carefully consider the topic of severance packages decide to offer severance.

Furthermore, an offer of severance cannot be used to establish liability under California's proof code. As a result, even if employers run the risk of warning workers that they may be facing a lawsuit, the offer itself cannot be used against them.

Is there a legal requirement for severance pay?

In most cases, employers are not obligated to provide severance packages to their workers. Private parties enter into severance arrangements, which are regulated by California contract law. In California, there is no regulation requiring employers to include severance packages.

If you have a prior arrangement to accept severance pay, your employer is only required to give it to you. For example, your pre-employment contract may include a severance pay clause, or your union agreement may require it. You may be entitled to severance pay in these situations.

How is severance pay calculated?

Even though severance payments are not necessarily required by law, employers often follow some general guidelines when calculating them. One week of the employee's current rate of pay compounded by the number of years served is a common formula for severance pay.

Naturally, some employers may use a different formula. Other employers will choose a number at random that they believe fair. Others may be bound by a particular calculation outlined in the employee's employment contract or the employer's previously implemented policies.

More generous severance packages can provide two weeks' pay for each year of service with the company. For each year of employment, certain severance packages can include an incentive of one month's salary. Other incentives, such as pro-rated bonuses or medical insurance, can be included by the employer in addition to salaries.

Is there an Exact Amount for Severance Pay?

In every case, the answer to this question is different. From a strictly tactical perspective, the employer should think about how much convincing the employee to sign the severance agreement is needed. Some workers will need more money than others and be willing to sign for a lower salary.

At the same time, the employer must determine how much is reasonable. If the employer is afraid that the employee may say hurtful things to clients or coworkers, a generous severance package could be a good way to ensure that the employee leaves happy.

For deciding what types of severance packages to sell, the employer should follow some measurable norms. For example, an employee might discover that a different employee received a severance package that differs significantly from the recipient.

Employees can refuse or even be offended by severance offers that are not reasonable and reasonably consistent (based on an ascertainable standard). This issue can be mitigated to some extent if the employer establishes a framework to base their severance packages.

Many companies use a norm based on the length of time an employee has worked for them. Employers who follow this requirement can provide two weeks of severance pay for each year an employee has worked for them. During this time, the employer can still keep the employee's health insurance active.

Severance Agreements: What to Look for

Employees who wish to change careers can find that severance agreements are a blessing in disguise. The most important thing to keep in mind is that a severance arrangement is a contract. If you sign a contract without reading any or all of the clauses, you are still obligated to follow the contract's terms.

It's also worth remembering that when your employer gives you a contract, it's in their best interest for them to give you terms that benefit their business. The interests of your boss are often at odds with your own. So, just as you wouldn't depend on your car salesperson to negotiate equal terms for you, you shouldn't rely on your boss to do so.

What Do You Get From Your Boss?

The first thing to keep an eye out for is what your boss expects of you. Although it's easy to focus on the bottom line and how much money you'll earn, this may distort the perception of the severance agreement.

Finally, what they are offering can seem to be a substantial sum of money, but at what cost? You might not be getting such a good deal after all if you are waiving essential legal rights that would entitle you to even more money. Consider the following recommendations:

If you believe you've been Wrongfully Terminated, you should be wary of agreeing to a severance agreement.

Suppose you are being laid off or leaving your job because of discrimination, retaliation, or any breach of the law at work. In that case, you can consult a Los Angeles Employment Lawyer about any legal claims you may have before signing the severance agreement.

If the severance agreement includes a non-compete or non-disclosure clause, you should think twice before signing it. Although the enforceability of these provisions is debatable, agreeing to a non-compete and non-disclosure agreement could severely restrict the work you do with your next employer, making it far more difficult to find another job.

If the severance agreement requires you to admit liability, you should reconsider signing it. This is particularly valid if you're confessing or accepting workplace issues that you didn't cause or aren't to blame for. These admissions of fault can jeopardize your future job prospects and benefits.

You should be wary of signing a severance agreement if you experienced misconduct at work or feel your employee rights were violated.

Read Your Contract

Using language that is ambiguous, broad, or vague is another red flag to watch out for. You must understand precisely which rights you're giving up and which responsibilities you're taking on. Signing a severance agreement without completely knowing the terms is typically a bad idea.

Before you sign the severance package, you can consult an California Employment Law Attorney to determine whether your rights were violated.

After that, take a look at what you're being given. It may be worthwhile for you to accept a significant severance payment in return for giving up your right to pursue justice. However, you are not obligated to accept your employer's bid. When you have a legitimate legal argument against your employer, severance packages will also be negotiated.

While a lump sum payment will seem to be a large sum of money, consider your needs, your commitment to the business, and your willingness to find another job. Is this enough, or can you ask for something else? Do you know if someone else has received more? ⁠

Finally, you should consider the agreement's other terms. If you've been laid off, for example, you'll want your severance agreement to state that you weren't fired. You will also want to find out whether your boss or employer will provide you with a reference or a letter of recommendation. You will also want to be able to show prospective employers the terms of your severance agreement to confirm that you were not fired.

Should You Try to Work Out Your Severance Pay?

A number of factors will influence whether or not you can discuss your severance pay. There could be space for discussion because you have already signed an employment contract with all of the terms set down.

When deciding whether or not to discuss your severance pay, ask yourself the following questions:

What is the reason for your dismissal?

If you've been fired because of your own poor conduct or success, you're in a weaker position to bargain. If you are a good employee who is being laid off, you will have more negotiating power.
If your employer is aware that you will have a lawsuit against them for wrongful termination or other misconduct, you may be entitled to a larger severance package.

How long have you been with the company?

The longer you work for an organization, the more valuable you are. When you retire, you are leaving behind not only your qualifications but also your unique expertise, experience, and training, none of which can be easily replaced by a new employee.

What is the current financial situation of your employer?

You may not have a precise understanding of your company's net worth, cash flow, or assets, but you can generally estimate how much your boss can afford to pay you.
There is a lower risk of receiving a large severance package if you work for a small business with just three workers than if you work for a large multinational corporation. If, on the other hand, you are being laid off because your company is closing offices, they may not be able to pay you much money, regardless of their size.

How An California Employment Lawyer Can Help You?

You are not required to sign a severance agreement, regardless of what the boss tells you, and you are not required to do so immediately. Even if you are certain that you understand the terms, you have the right to consult with a California Employment Lawyer.

Being fired is a traumatic and frustrating experience, and you will not be able to read the severance agreement objectively. When you read the severance agreement in an emotional state, you will be influenced to accept unfavorable terms.

If a severance agreement allows you to relinquish your right to sue, you should seek legal advice before signing. A L.A. Employment Law Attorney will tell you if the severance arrangement is legal and what you'll be giving up if it is.

Finally, negotiating a favorable severance agreement is an art, just like any other contract. This is where a Los Angeles Employment Lawyer can really help you out, particularly if you've never negotiated before.

Disputes over severance pay

Employers also underpay workers with insufficient severance pay, hoping that shocked employees would soon embrace their fate and move on. What's more frustrating is that errors can fall through the cracks over time, and it's not unusual for laid-off employees to miss out on their severance pay.

How do you know if you're in a severance pay dispute?

Fraud, duress, or unfair control are examples of severance pay disputes. If your employer has broken the arrangement that both parties agreed to, you will be able to file a petition for work. In most cases, an employer would not agree to or break a contract in order to favor the company. Make sure you're disputing the kit within the time frame allotted to you. Do not let the window of opportunity to contest your severance pay pass you by.

Negotiation of a Severance Package

Understanding the contract after receiving a severance pay package can be difficult. Our prescreened L.A. Labor Lawyers use their superior negotiating abilities to assist clients in obtaining a reasonable severance package that will ideally provide them with a much-needed fresh start. A California Employment Law Attorney will also analyze your severance pay, including the financial terms of your pay, to see if it is reasonable and correct.

Your California Employment Lawyer will be able to negotiate directly with your boss or provide you with background details and pointers to help you get the best severance pay possible. It's crucial to remember that a severance agreement is a legal document. Do not sign it until you have thoroughly read and comprehended the terms and their consequences.

Wrongful Termination & Severance Pay

To escape a complaint, employers compel workers to sign severance pay arrangements as well as release forms. A worker is asked to sign forms waiving their civil rights to sue, work for a rival, or even receive unemployment benefits.

It's important to note not to sign a severance agreement if the terms are vague or if you disagree with the material. It's possible that you're giving up your rights without even realizing it. Employers also assume that workers will be unable to adequately and successfully negotiate severance pay when they are fired.

A wrongful termination occurs when an employee is fired for reasons that are not legitimate. If a worker's severance arrangement is being violated, they will file a lawsuit. If you have been wrongfully dismissed or have been the victim of abuse, discrimination, retaliation, or a hostile work atmosphere, contact a Los Angeles Employment Law Attorney to discuss your case.

Severance Pay Implications and Deadlines

Employees must also be aware of how their severance pay would impact their eligibility for unemployment benefits. If severance is paid in a lump sum, the employee's right to unemployment insurance is unaffected; but, if it is paid out bi-weekly as if the employee is already earning a paycheck, the employee's ability to receive unemployment benefits will be delayed.

When negotiating severance pay with your boss, it's important to keep this detail in mind. Employers typically expect employees to promise not to file any charges or litigation as part of the severance agreement.

The time it takes to sign and approve your severance agreement may be as little as one day to as much as 21 days or more. Your California Employment Law Attorney might be able to extend the time limits or deadlines for severance pay.

Find A Severance Pay Lawyer in Los Angeles

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