Can Severance Waive a Wrongful Termination Claim?

You were fired, handed a severance agreement, and offered money in exchange for your signature. But what exactly are you giving up if you sign?

A severance agreement can include a release that prevents an employee from pursuing certain legal claims based on events that occurred before the agreement was signed. That may include a wrongful termination claim.

However, a severance agreement’s effect in California depends on what it says, the claims involved, and whether the waiver satisfies applicable state and federal requirements.

What Is a Release of Claims in a Severance Agreement?

A release of claims in a severance agreement means the employee agrees not to pursue specified legal claims against the employer in exchange for severance pay or another benefit.

Severance pay and a release of claims serve different purposes. The California Department of Industrial Relations states that California law does not require employers to provide severance pay when an employee is terminated. As a result, California severance pay and employee rights can vary by employer, employee, and termination circumstances.

The U.S. Equal Employment Opportunity Commission (EEOC) refers to this type of provision as a waiver. It explains that an employee may waive the individual right to sue over certain past discrimination claims if the agreement meets applicable legal requirements.

A release cannot waive federal discrimination claims based on events that occur after the employee signs it.

What Employment Claims Might a Severance Agreement Release?

A broadly drafted employment claim release may cover claims the employee already knows about as well as some the employee has not considered.

Depending on the agreement and applicable law, released claims could include:

• Wrongful termination
• Employment discrimination
• Retaliation
• Harassment
• Certain wage-and-hour claims

For example, an employee who is fired after reporting discrimination may have potential retaliation or discrimination claims in addition to a wrongful termination claim.

Employees considering whether they may have a wrongful termination case in California should look at more than the severance amount. They should also understand which legal claims and rights the agreement asks them to give up.

Does Signing Severance Always Waive a Wrongful Termination Claim?

No. Wrongful termination and severance in California do not produce the same result in every case.

For example, an employee must knowingly and voluntarily agree to give up certain federal discrimination claims. The EEOC also says the employee must receive something of value in return that they were not already entitled to receive, such as severance pay or additional benefits offered in exchange for signing the release.

The specific wording also matters. Employees should identify:

• Who is covered by the release
• Which claims or laws are listed
• What time period the release covers
• What compensation is being provided in exchange
• Which rights are specifically excluded
• Whether the agreement contains special provisions concerning unknown claims

These are some of the details employees should review before signing a severance package.

What Does California Civil Code Section 1542 Have to Do With Severance?

California Civil Code Section 1542 protects people from unknowingly giving up claims they do not know about when they sign a release.

However, a severance agreement may ask an employee to give up that protection. If the employee agrees, the release may cover both claims they know about and claims they discover later that existed when they signed the agreement.

For example, an employee might sign a severance agreement and later learn facts that suggest they had a discrimination or retaliation claim. If the agreement includes a waiver of Section 1542, that previously unknown claim may already be covered by the release.

That is why employees should check whether a severance agreement includes a Section 1542 waiver and understand what it covers before signing.

Are There Special Rules for Employees 40 and Older?

Yes. Federal law provides additional protections when an employee age 40 or older is asked to waive a claim under the Age Discrimination in Employment Act (ADEA).

Under the Older Workers Benefit Protection Act, a waiver of ADEA claims must meet specific requirements to be considered knowing and voluntary. Among other requirements, it must:

• Be written in understandable language
• Specifically refer to ADEA rights or claims
• Cover only rights or claims arising before the agreement is signed
• Provide consideration beyond anything the employee is already entitled to receive
• Advise the employee in writing to consult an attorney
• Give the employee at least 21 days to consider an individual agreement
• Provide at least 45 days in certain group termination programs
• Give the employee at least 7 days after signing to revoke the agreement

What Rights May Survive a Severance Agreement?

A broad release does not necessarily eliminate every employment-related right.

For example, the EEOC states that an agreement cannot prevent an employee from filing a discrimination charge with the agency or from testifying, assisting, or participating in an EEOC investigation, hearing, or proceeding. However, a valid waiver may still limit the employee’s ability to recover money for a claim they agreed to release.

Workers’ compensation claims also follow their own settlement process in California. The Workers’ Compensation Appeals Board reviews Compromise and Release agreements to determine whether they should be approved.