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October 13, 2023 | CaliforniaEmployment

California Employee Severance Laws

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Each state has its own laws about what type of pay employees are entitled to receive upon termination from employment. In California, employers are not required to offer severance, but they often do in order to limit their potential liability and have employees waive any potential claims they may have against the employer.  What state laws must California employers follow when offering severance pay to a terminated employee?

Pay upon termination

Severance Pay.  There is no requirement under California law that employees be paid severance upon termination from employment.  Severance pay, however, may be offered under a severance pay plan, in an employment agreement or in a collective bargaining agreement for union workers.  Except for the obligation to comply with severance terms in these agreements, employers can offer severance packages to any terminated employees even when it is not required.

Wages.  When an employee is terminated, California employers must pay out all earned wages on the date the employee is terminated.  In general, wages include unused earned vacation time too.  However, the law does not require payment of unused sick time.

Unemployment Insurance.  California employers are required to pay unemployment insurance tax.  If an employee is terminated through no fault of their own, an employee can file a claim with the California Employment Development Department to receive unemployment insurance payments, which they will receive unless the employer successfully challenges the claim or other conditions are not met for the employee to qualify (e.g., employee terminated for misconduct or employee voluntarily resigned).

California severance agreement law

Many employers offer severance packages, even though they are not required to do so, because they help the employer limit liability when terminating an employee.  In a severance agreement, the employer makes a payment to a terminated employee, and in turn, the employee releases her right to make certain claims against the employer.  Common releases include the right to sue for discrimination and wrongful termination, the right to talk publicly about the severance package (A.K.A. a confidentiality agreement), and the right to make public disparaging comments about the employer (A.K.A. a non-disparagement clause).

California law says that some provisions in severance agreements are unenforceable.  This means that even if the provision is written in a signed agreement, a court would not force a former employee to follow that provision.  Examples of unenforceable provisions include:

  • Employee agrees not to pursue claims alleging violations of California wage and hour laws.
  • Employee agrees not to report any alleged criminal violations.
  • Employee agrees not to work for another competing company or in a similar role in the same industry (these are called “non-compete” provisions).
  • Employee promises to do something that may be a violation of the law. For example, if the promise would require the employee to violate a court order or lie under oath, the provision would not be enforceable.
  • Employee agrees not to disclose factual information related to claims of harassment, discrimination, or retaliation under the FEHA (the Fair Employment and Housing Act).
  • Employee agrees to a non-disparagement provision without a proper disclosure that the employee may discuss unlawful acts within the workplace.
  • There is also a prohibition against making an employee sign a severance agreement under duress or undue influence, or through fraudulent activity.

Further, in order to waive certain claims in a severance agreement, the employer must include certain specific language that is required under federal and/or California laws.

When to contact an attorney

Employment terminations can be challenging for everyone involved.  To ensure you are getting the best outcome, consult a California employment attorney.   Feel free to Contact us to speak with a member of our team.


Photo by Mikhail Pavstyuk on Unsplash
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