Severance Agreements in California: What to Check Before You Sign

What you usually give up

The central clause is the release. Most agreements release all claims you have or may have against the employer up to the date you sign, including claims you do not yet know about. In California, this usually includes an express waiver of Civil Code §1542, which otherwise protects people from releasing unknown claims.

Some rights generally cannot be waived in a private agreement, such as earned and unpaid wages, workers' compensation benefits or the right to file a charge with a government agency. Agreements also often include confidentiality, non-disparagement, cooperation and no-rehire clauses. Read each one, because they affect what you can do after you leave.

California limits on separation agreements

Under Government Code §12964.5, a separation agreement cannot prevent you from disclosing information about unlawful acts in the workplace. If the agreement contains a non-disparagement or confidentiality clause covering such information, it must include specific carve-out language stating that nothing in the agreement prevents you from discussing or disclosing information about unlawful acts in the workplace.

The same section requires the employer to tell you that you have the right to consult an attorney about the agreement and to give you at least five business days to do so. You can sign earlier if you choose. Separately, settlement agreements of certain sexual harassment, assault and discrimination claims are restricted by Code of Civil Procedure §1001.

Extra protection if you are 40 or older

The federal Older Workers Benefit Protection Act sets conditions for a valid release of age discrimination claims under the ADEA. The agreement must be written in understandable language, refer specifically to age claims, advise you in writing to consult an attorney, give you at least 21 days to consider it, and allow you 7 days to revoke after signing. In a group termination or exit incentive program, the period is 45 days and the employer must provide information about the ages of those selected and not selected.

What is often negotiable

Because severance is usually voluntary, employers often have room to adjust the offer, especially when an employee may have claims. Common points include the amount and timing of the payment, continued health coverage costs, the treatment of equity and bonuses, an agreed reference or neutral reference policy, the wording of confidentiality and non-disparagement clauses, and how the departure is described.

Before you negotiate, it helps to know whether you might have claims for unpaid wages, discrimination, retaliation or wrongful termination, and roughly what they could be worth. That is what an attorney review is for.

• Severance amount and payment schedule
• Health coverage and benefits continuation
• Equity, bonus and commission treatment
• Reference, confidentiality and non-disparagement wording

Severance and unemployment

Signing a severance agreement does not by itself prevent you from applying for unemployment benefits. How severance payments are treated can depend on how they are structured. Report the payment to the EDD as requested and ask the EDD if you are unsure.