Severance agreements are often a key consideration at the end of an employment relationship in California.
These agreements can provide benefits to the departing employee while offering employers a degree of legal protection. Crafting a severance agreement that is fair, legal, and beneficial to both parties requires careful negotiation and a thorough understanding of California employment law. (Have questions? See our Severance Agreement FAQs here ›)
Understanding Severance Agreements
A severance agreement is a contract between an employer and an employee that outlines the terms of the employee’s departure.
Typically, severance agreements offer the employee compensation and possibly other benefits in exchange for a release of claims against the employer. The employee may not have claims against the employer, but the employer may wish to compensate the departing employee for the lost employment and settle any disputes, known or unknown, between them in exchange for severance compensation, which settles and compromises claims or potential claims by the employee at a fixed monetary value.
Legal Framework
California law does not require employers to provide severance pay unless it is stipulated in an employment contract or collective bargaining agreement.
However, when employers choose to offer a severance package, it must comply with several legal requirements, including but not limited to the California Labor Code and both California and Federal law.
A typical severance agreement may include:
- Severance Pay: The amount of money offered to the employee upon departure. This pay may be based upon monthly pay at the time of separation from the company and advanced in addition to regular compensation as a payment of wagers. The employee releases any possible employment law claims.
- Release of Claims: A provision where the employee agrees not to sue the employer for issues related to employment and termination
- Non-Disparagement: An agreement that the employee will not make damaging statements about the employer
- Confidentiality: Terms that may prohibit the employee from disclosing certain information about the employer or the terms of the severance agreement
- Return of Property: A clause requiring the employee to return any company property, including deletion of Company electronic data, if any
Making the Severance Agreement
After successful negotiations or by a standard offer from the employer. The agreement should be drafted with clear and specific language.
California law requires that certain waivers, particularly those waiving claims under the Fair Employment and Housing Act (FEHA), be “knowing and voluntary,” and not in violation of public policy.
Employers must also comply with the Older Workers Benefit Protection Act (OWBPA), which requires that employees over 40 years old be given 21 days to consider the agreement and 7 days to revoke after signing.
Reviewing the Severance Agreement
It is advisable for both the employer and the employee to have a severance agreement reviewed or prepared by legal counsel. An attorney can ensure that the agreement complies with all applicable laws and that the terms are clearly understood by the client, whether employer or employee.
Conclusion
Negotiating and drafting a severance agreement in California requires a careful balancing act that takes into account the legal rights and obligations of both parties.
By understanding the legal framework, preparing thoroughly for negotiations, and crafting a clear and compliant agreement, both employers and employees can achieve a mutually beneficial outcome. It is imperative to consult with or retain a knowledgeable employment law attorney to ensure that the severance agreement is fair, legal, and effective.
Always keep abreast of the latest legal requirements and consider consulting with the lawyers at Gallagher Krich APC, experienced California business lawyers to address any company-specific concerns. For more information, contact Gallagher Krich, APC at Telephone: (858) 926-5797 or by email at: info [at] tomgallagherlaw.com
Attorney-Advertising. Tom Gallagher, is the attorney responsible for this advertising.
Thomas F. Gallagher, Esq. is a founding partner of Gallagher Krich, APC, a San Diego law firm focused on business law, civil litigation, and contract disputes. With over 30 years of legal experience, Tom provides strategic counsel to business owners, entrepreneurs, and professionals navigating complex legal challenges across California.
His practice includes drafting and negotiating commercial contracts, resolving business disputes, and advising clients on corporate governance, regulatory compliance, and risk management. Read more »
