What is a severance agreement? A severance agreement is a legally binding contract between a (former) employer and a departing employee. Severance agreements are generally enforceable in California.
Severance Agreement FAQs
Here are a few quick answers to some frequently asked questions (FAQ):
Q: How do severance agreements work?
A: Typically, the employer will prepare a written summary of the departing employee’s final pay, vacation hours, and sick days along with a proposed severance agreement. The departing employee will be given the opportunity to review the severance agreement independently with their own lawyer or waive that opportunity and simply accept the agreement.
Q: Is a departing employee who accepts a severance agreement and receives money still entitled to receive unemployment benefits?
A: Yes. The employee may still collect unemployment benefits, which will not be affected by the employee’s acceptance of a severance agreement regardless of whether the employee receives a lump-sum payment or payment by installments. Most employers will pay the departing employee in a single lump-sum payment. However, installment payments are also legally valid.
Q: Can an employer use a non-compete clause in California?
A: Generally, no. A California employer cannot enforce a post-termination non-compete agreement in an employment contract or a severance agreement unless the departing employee had an ownership interest in the business and receives reasonable compensation for a reasonably limited time and geography, e.g. if the employee/equity owner agrees not to compete for two (2) years and two hundred (200) miles. However, an employer may limit an employee’s direct competition with the company during their employment. An employer may also limit an employee’s use of its “trade secrets” and proprietary information, such as the “secret sauce” in a restaurant chain.
Q: Does the employee have the right to review the severance agreement with my lawyer?
A: Yes. Generally, it is wise for the employer to allow the departing employee to review the severance agreement with independent counsel to be deemed “freely negotiated.”
Independent counsel protects the departing employee by giving them the right to remove improper or unenforceable terms, such as a clause prohibiting the employee from discussing sexual harassment in the workplace (since January 1, 2022) or unlawful working conditions.
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