California Severance Pay: What Is It?
California Severance pay, also known as California termination pay and California separation pay is compensation paid to an employee by an employer in the event of a separation of employment. Unless an employment contract exists, or a requirement of the Warn Act, employers are not required to pay California severance pay or provide their employees with employee benefits and severance. For employees who work in California, severance pay is often offered in exchange for a general release of all claims and an agreement not to litigate.
What is Typically Contained in a California Severance Pay Agreement?
For a California severance pay agreement to be binding, among other things, there must an offer, acceptance and consideration (i.e. compensation). This means that the employer and the employee are required to provide each other a benefit that is not a requirement pursuant to California or federal labor laws. It is common for the employee to release all claims known and unknown against the employer, have no loans outstanding with the employer, keep the California severance pay agreement confidential or agree to a variety of other things.
On the other hand, the employer may agree as part of its severance practices to allow the employee to work up to a certain date, and pay out a lump sum of compensation and benefits through a certain date in exchange for conditions fulfilled by the employee. Many severance and employment issues between an employee and employer can be resolved in one all encompassing California severance agreement. The separation agreement will not be enforceable should the employer not provide the employee with a benefit that the employee would not otherwise receive upon separation of employment.
California Severance Agreements: What an Employer Might Expect an Employee to Release
It is common for an employer to attempt to have the employee release non-waivable state and federal claims the employee may have, whether these claims are known or unknown. This release is to include but is not limited to any claim of discrimination, wrongful termination, sexual or other harassment, breach of agreement and other possible allegations. In California release agreements it is important to note that an employee's waiver of a federal claim of age discrimination, however, is NOT valid, unless: 1) the release specifically includes the Age Discrimination in Employment Act; 2) the release or separation agreement is written in easily understandable verbiage; 3) the employee signing the release agreement is advised to talk to a lawyer before executing the California severance agreement; 4) the employee is allowed 21 days to think about signing the release agreement (and up to 45 days in certain situations); and 5) the employee is provided a seven day “cooling off” time period to rescind and cancel the agreement after signing the California severance agreement if it contains a release.
California Unemployment Insurance and California Severance Pay
A common concern of California employees facing a potential layoff is the disqualification of unemployment insurance benefits if they accept a lump sum severance package from their employer. Under California law, severance pay is actually not grounds for disqualification from unemployment insurance benefits. Dismissal and severance pay received by employees from an employer upon termination of employment was deemed to not be “wages” for unemployment compensation purposes and unemployment benefits should not be denied because of receipt of payments under such plans (Powell v. California Dept. of Employment (1965) 45 Cal Rptr 136). A potential exception exists to this ruling. The granting of California unemployment insurance or a California unemployment insurance claim can be impacted by a California severance pay agreement if there is an admission of willful misconduct. Although most agreements will not contain such admissions, it is important for the employee to be wary of this type of language which could impact the awarding of unemployment insurance benefits.
California Release Agreements Cannot Release Certain Claims
California employers cannot require California employees to waive claims relating to: (1) payment of minimum wage; (2) overtime pay; (3) unemployment insurance benefits; or (4) Workers' Compensation claims or benefits. Any agreement containing a general release containing these items is likely unenforceable.
It is very important to contact a California labor law attorney to review any California severance pay agreement or California release agreement. These agreements can be complicated and as such getting legal advice from a California employment attorney is essential to protect your interests.
