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Am I Entitled To A Severance Package?

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If you have been laid off from your job, you may be curious about what compensation you are entitled to under California law. Beyond getting paid for your unused vacation time and the hours that you have worked, does your employer have to pay you severance?

In California, severance pay is not required by law. However, employers may put together a severance package, complete with pay and benefits, for certain employees that are laid off. Severance pay is often reserved for employees who have been with the company for a certain amount time, or for certain executives.

To receive a severance package, most employees will require you to sign a severance agreement. Doing so often means giving up important rights, such as the ability to sue for wrongful termination or discrimination. If you are considering a severance package, it may be best to consult with an employment lawyer before signing any contract or release.

What Is Severance Pay?

Severance pay is the actual monetary compensation paid by an employer to an employee in exchange for the employee signing and executing a waiver of rights to sue. It is made when the employee is terminated, whether it occurs as part of a broader lay off or if the employee is fired for cause. Severance pay is technically meant to offer employees a financial cushion after losing their jobs and is often given in a lump sum. However, most employers are also incentivized to offer severance, as doing so will give them “peace of mind” that the employee cannot later bring a wrongful termination lawsuit, which can be many times more expensive than the severance itself.

Severance pay may be offered in a number of situations.

For Example:

Mike has worked for his company for more than 30 years. However, due to the economic downturn associated with the coronavirus, he was laid off from his job. His employer offered him severance pay of $10,000. This amount is in addition to the final paycheck that Mike received on his last day of work for the hours that he worked and his unused vacation time.

California does not require employers to pay severance. Similarly, there is no requirement to pay severance under Federal law. Employee handbooks or an employee’s contract will typically specify whether severance pay is offered, but do not guarantee that the employer must agree to pay.

Because severance is not required under State or Federal law, there is no standard method for employers to calculate severance. Some companies may simply offer an amount that they think is fair, while others may base the severance pay on a calculation using the employee’s typical wages times the number of years that they worked for the company. If the employee has a contract, then the amount of severance pay may be laid out in that agreement.

In addition to pay, employers may also offer certain benefits to employees who are terminated. Together, the pay and benefits are referred to as a severance package. These benefits may include items such as health insurance or help with finding a new job (such as training).

Understanding A Severance “Agreement”

In order to receive severance package or pay, employees are usually required to sign a severance agreement. The agreement is a legal document that generally requires an employee to give up certain rights in exchange for a severance payment.

While each agreement is different, an employer may ask an employee to give up the right to:

  • File a lawsuit for employment discrimination or harassment;
  • Sue for wrongful termination;
  • Talk about the events leading up to termination or the agreement itself (which may be referred to as a non-disclosure or agreement or “NDA”); or
  • Disclose the company’s trade secrets.

Importantly, employees cannot waive some rights under California and federal law. This includes the right to bring a wage and hour lawsuit against their employer, to seek new employment, or to be a whistleblower. However, as long as the parties entered into the agreement voluntarily, then courts will generally uphold a severance agreement that waives the employee’s rights.

Because severance agreements are legally binding, it is important to consult with an experienced lawyer before signing any contract or agreement. Your attorney can review the agreement and advise you of your rights and options, including whether it is a good idea to sign the contract at all.

For Example:

Mike’s employer offered him $10,000 after he was laid off from his job. In order to receive this money, he is asked to sign a severance agreement that explicitly waives his right to sue for discrimination. He takes it to a lawyer, and explains his situation. The attorney points out that Mike may have a claim for age discrimination, as he is over 40 and all of the employees who were terminated were Mike’s age or older. Mike didn’t realize that filing a lawsuit would even be possible.

Based on the details of Mike’s termination and the attorney’s advice, he decides not to sign the agreement. Instead, he and his attorney file a complaint with the California  Department of Fair Housing and Employment (DFEH) and eventually file a lawsuit against his employer. He is ultimately awarded more than $100,000 in damages based on his employer’s illegal age discrimination and wrongful termination.

While filing a lawsuit is not always a possibility, it is vital that you fully understand your rights before signing any contract, including a severance agreement. An attorney who is experienced in California employment law can review a proposed severance agreement, offer their opinion, and assist you with filing a claim, if the facts of the case warrant it.

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