Severance Pay Laws and Employee Rights in California

severance pay california

Receiving notice that you are losing your job can be emotionally and financially devastating. In certain circumstances, you may qualify for severance pay, which can help you through this transition until your next job.

Having an employment law attorney with experience exclusively representing employees in your corner can help you understand your rights, negotiate better severance packages, and smoothly transition into your next chapter.

Employers Are Required to Provide Severance Pay in Certain Situations

Under California’s WARN (Worker Adjustment and Retraining Notification) Act, employers of a certain size, typically 50 or more workers, must provide 60 days written notice for mass layoffs or closings. If they fail to do so, they can be subject to fines and penalties, including a possible civil penalty of $500 per day for each day of violation.

Employment Agreement or Company Policies

Employment agreements or company policies may also include required severance packages should termination occur. For example, executive employment agreements often include previously negotiated severance provisions. Review your employment agreement carefully for any clauses addressing separation compensation.

Employers May Offer Severance in Certain Situations

If an employer violates California employment or labor laws or wrongfully terminates you, an experienced employment lawyer can help negotiate severance deals. In these situations, the employer may offer and negotiate severance packages to avoid costly litigation. For example, if you faced unlawful discrimination or harassment in the workplace, severance may be offered by the employer to secure a general release from you of your potential legal claims in exchange for severance pay.

In situations where there is a company policy to offer severance based on tenure, employers may reference tenure when creating severance packages. Long-term managers might receive more weeks of pay compared to recent hires, depending on the company’s policy. Industry standards, precedents set for other employees, and company financial health may also factor in.

The one catch is that severance often does not apply to employees fired “for cause” due to misconduct like violence, harassment, or policy breaches. However, questionable or wrongful claims of cause can be disputed with the help of an employment lawyer.

How Severance Pay Amounts Are Determined

If severance applies in your situation, how much should you receive? There is no universal formula outlining exact sums; however, factors may include the merits of the employee’s potential legal claims, the tenure of the employee, and the damages (both monetary and non-monetary) that the employee suffered.

For senior-level and executive roles, common benchmarks range from half a year to a full year’s compensation and up to two years or more for high-ranking employees.

Of course, factors like company size, financial struggles, your leverage in negotiations, and industry benchmarks will shape the final deal as well. Smaller businesses or startups that lack financial resources may cap offered packages around one month of pay.

Some employees who qualify for WARN Act notification pay can expect roughly eight weeks of normal compensation. However, the law only requires the continuation of standard pay and benefits during the violation period – so negotiate beyond that minimum if possible.

Review employer policies, precedents, and market norms, and consult an experienced employment law firm like TONG LAW to target the maximum fair severance for your situation.

Understanding and Negotiating Key Severance Agreement Terms

After negotiating the monetary amount of the severance pay, the employer will send you an updated severance agreement spelling out the additional non-monetary terms, which include other responsibilities you may need to abide by in exchange for the monetary severance pay.

It is critical that you read closely and understand every section of the severance agreement before you sign a severance agreement, as you will likely forfeit any future claims and leverage. Pay particular attention to:

The payment amount and schedule

Map out exactly how much the employer will pay and when you will receive the payment. Ensure you understand the gross sum, tax obligations, and any conditions or clauses that could disrupt scheduled disbursements.

Included benefits

Some companies may agree to cover health insurance premiums for a period of time after the termination date or provide job search resources. If the agreement omits benefits that are industry standard for your level, negotiate to match precedents.

Waivers and releases

These critical clauses require you to relinquish the right to sue over employment issues like discrimination, wrongful termination, wage violations, and more. Severance agreements serve as settlements for those potential claims. Review it carefully, as sweeping “general release” clauses leave little to no avenue for future legal action should disputes emerge over the termination or agreement terms themselves. It is important to note that additional laws apply for California employees who are over the age of 40, so make sure you understand those rights.

Restrictive covenants

Severance agreements might include non-poaching or non-solicitation provisions that restrict your recruiting of former colleagues. Additionally, non-disparagement, non-disclosure, and confidentiality clauses may be included in some severance agreements aimed at limiting company criticism and preserving trade secrets. Assess the scope of these covenants to avoid limiting your future career.

Navigating these verbose and legalistic agreements feels daunting. But TONG LAW helps level the playing field by reviewing the severance agreement with you, assessing the enforceability of restrictive clauses, strategizing negotiation points, and outlining legal leverage you may have available to help you negotiate fair compensation.

Frequently Asked Questions

How much severance pay am I entitled to in California?

California law does not require private sector employers to provide severance pay, except in cases of mass layoffs or plant closings under the federal WARN Act.

The amount of severance pay depends on whether the employment agreement provides for it at the time of hire, company policy, tenure, and negotiation. Industry benchmarks can range from weeks to years, the equivalent of pay for some employees.

What should I negotiate for in a California severance agreement?

When negotiating a severance agreement in California, aim to maximize the severance pay amount and schedule favorable payment terms.

Also, negotiate extended health insurance coverage, career transition services, letters of recommendation, advanced vesting of stock options, delayed exercise period of vested equity, and narrow confidentiality/release of claims provisions.

Can my employer fire me without severance pay in California?

Yes, California employers can terminate employment without offering severance pay, except for mass layoffs covered by the WARN Act.

However, wrongful termination based on discrimination, retaliation, or contract violations may still entitle you to monetary damages. Consult an experienced employment attorney regarding your workplace rights.

Contact Our California Employment Lawyers Today

Losing a job, regardless of tenure or performance, deals a financial and emotional blow. But taking time to process the grief, understand your rights, and thoughtfully negotiate severance packages or alternative remedies empowers you to start healing.

As employment lawyers well-versed in California severance pay laws, TONG LAW stands ready to answer your questions, review agreements, negotiate enhanced packages, and get you back on steady footing. Every journey has chapters of tragedy and triumph. While this career setback may feel like your darkest hour, a new dawn awaits. Contact us today to start writing your comeback story.

Author Bio

Vincent Tong

Vincent Tong is the CEO and Managing Partner of TONG LAW, a business and employment law firm located in Oakland, CA. Vincent is a fierce advocate for employees facing discrimination and wrongful termination. With several successful jury trial victories and favorable settlements, he has earned a strong reputation for delivering exceptional results for his clients.

In addition, Vincent provides invaluable counsel to businesses, guiding them on critical matters such as formation and governance, regulatory compliance, and protection of intellectual property assets. His depth of experience allows him to anticipate risks, devise strategies to avoid legal pitfalls, and empower clients to pursue their goals confidently.

Vincent currently serves as the 2021 President of the Board of Directors for the Alameda County Bar Association and sits on the Executive Board for the California Employment Lawyers Association. Recognized for outstanding skills and client dedication, he has consecutively earned the Super Lawyers’ Rising Star honor since 2015, reserved for the top 2.5% of attorneys. He also received the Distinguished Service Award for New Attorney from the Alameda County Bar Association in 2016. He is licensed to practice before all California state courts and the United States District Court for the Northern and Central Districts of California.

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