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California Severance Pay & Employee Rights

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When you leave a job in California, you may receive a severance package to help you transition. Severance pay in California is often provided upon termination and includes financial compensation to support you for a short period after your employment ends.

When you sign a California severance pay contract, you and your employer must abide by the terms of the severance agreement. While this offers monetary benefits, it also prevents you from bringing legal action if you believe you were mistreated under state employment laws.

Learn more about California severance laws to know what you can expect as part of your termination package, what rights you give away when you accept it, and your legal options if you refuse to sign the agreement.

What is Severance Pay?

Severance pay is the compensation employees receive when they leave a job, whether due to layoffs, job elimination, or negotiated exits. It usually includes a lump sum payment and continued benefits like health insurance or retirement contributions. The specifics of the agreement can differ, influenced by existing contracts, company policies, or through negotiation.

When you depart from your job, you might meet with your employer to discuss the details of your severance package. Usually, you and your employer can collaborate to determine the financial support and benefits included in your package, tailored to your unique needs and what the company is prepared to provide.

What to Expect as Part of a Reasonable Severance Package

In California, severance pay is based on internal negotiations or company policy. Your severance package in California will typically include:

  • Lump sum payment. This is the main element of a severance package and is often based on your tenure with the company. This payment helps provide financial stability while you search for new employment.
  • Continued health benefits. A reasonable severance package might extend healthcare benefits for a set period to ensure you and your dependents remain covered during the transition.
  • Outplacement services. These services support your job search and can include resume writing assistance, career coaching, and job placement services. Providing outplacement services helps you find a new position more quickly and eases the transition.
  • Unused vacation and sick pay. A fair severance package compensates for unused sick days and accrued time off, providing a financial boost that acknowledges your earned benefits.
  • Retirement account benefits. You should receive details about how your contributions to retirement accounts (such as a 401(k)) are handled post-employment. This includes information on managing your accounts and the impact on your retirement savings.
  • Non-compete and confidentiality agreements. Some severance packages include terms restricting your ability to work for competitors or share confidential information. These agreements should be clearly explained, including any limitations on future employment and the duration of these restrictions.
  • Legal release of claims. Employers often include a clause where you agree not to pursue legal action against the company. This legal release may cover various claims related to the employment and its termination.

How Do Employers Calculate Severance Pay in California?

Because no laws mandate minimum severance pay in California, employers may use one of three methods to calculate your lump sum payment.

  • Length of service. Employers usually offer more severance pay the longer an employee has been with the company. For instance, an employee with 10 years of service could receive $10,000 if the policy is $1,000 for each year worked.
  • Company position. Employees in higher-ranking positions often receive larger severance packages. This acknowledges their level of responsibility and the challenges they may face in finding similar roles. For instance, a manager might get a severance package larger than an entry-level employees.
  • Negotiated agreements. The severance terms can also come from direct negotiations between the employee and employer or union contracts. An employee might negotiate a severance that includes six months’ salary, regardless of their length of service or position.

What Rights Do You Give Up as Part of a Severance Agreement?

When you agree to a severance package, you usually give up specific legal rights to take action against your employer. Typical terms in these agreements include:

  • Right to sue. Your contract may include a clause terminating your right to initiate a lawsuit against your employer. This may prevent you from filing a claim against them for wrongful termination, discrimination, or unpaid wages.
  • Non-disparagement clause. Some severance agreements require you not to make negative or disparaging statements about your former employer. These clauses apply to public statements, such as social media posts.
  • Confidentiality agreements. You may be required not to disclose the exact terms, conditions, and circumstances of your departure from the company. Some agreements may also require you to keep your severance terms secret.
  • Work restriction clauses. Some agreements require you to agree not to work for competitors (non-compete), solicit the former employer’s clients (non-solicitation), or seek employment from the same employer again (non-rehire). Severance laws in California make non-compete clauses unenforceable in the state.

Can You Still Collect Unemployment if You Receive Severance Pay?

You can typically receive severance pay and unemployment in California. If you are eligible to receive unemployment benefits, California severance pay laws allow you to receive severance benefits simultaneously.

Review your severance agreement’s terms and conditions, as some may prevent you from seeking unemployment benefits. For example, California laws provide benefits to individuals who were laid off or lost their jobs through no fault of their own.

If your severance agreement requires you to state you resigned, you may be unable to claim unemployment benefits.

What are Your Legal Options if You Waive a Severance Agreement?

If you believe your managers have wrongfully terminated your employment, you can refuse the severance package to protect your right to sue. Examples of wrongful termination could include being asked to resign because of your race or sex or because of your involvement in a workplace harassment claim.

Refusing to sign the agreement allows you to take action with the help of a wrongful termination lawyer to hold your employer responsible. They can assist you in filing a claim with the California Department of Civil Rights (CRD) or a civil lawsuit, where you can seek compensation for your losses, including:

  • Lost wages and benefits, including salary, bonuses, and health benefits
  • Funds for the mental suffering caused by the wrongful termination
  • Reimbursement for the cost of legal representation and court fees
  • Compensation for reputational damage suffered due to the circumstances of the termination

Typically, the claims process involves gathering evidence, such as employment records, HR documents, and witness statements, and submitting it with your claim. If the CRD finds reasonable cause that a workplace violation occurred, they can investigate further and file a lawsuit on your behalf.

If needed, your attorney can help throughout this process, gathering evidence or representing you in an appeal if the CRD doesn’t find sufficient proof to continue its investigation.

Protect Your Rights After Terminating Employment in California

Understanding California severance pay laws can help you know what to expect if you are terminated and what your rights are before signing. This safeguards your ability to hold your employer accountable in civil court if you’ve experienced harassment or discrimination at work.

Working with an employment law attorney can provide the guidance and support you need if facing termination in California. A skilled lawyer can review your severance package to ensure fairness, help you negotiate effectively, and hold the employer accountable in the complaint process if they have violated your rights.

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