Offered a Severance Agreement in California? What to Know Before You Sign

Start with what is usually not illegal:

• No severance at all. There is no legal requirement under California law that employers provide severance pay. Check your handbook or any written severance plan. Some plans are governed by federal law.
• Severance only if you sign. Severance is generally a matter of agreement between you and your employer.
• A broad release. California law allows a general release of all claims in a separation agreement, if the release is otherwise lawful and valid.
• Keeping the amount private. A clause keeping the amount of your severance confidential is generally allowed.

The severance should be something extra. The EEOC explains that the payment for a release must be something of value beyond what you're already owed, like earned vacation.

What saying no means. You generally keep your claims, and their deadlines keep running, but you usually don't get the severance. As the EEOC puts it, the main benefit of signing is the payment, in exchange for signing away your right to bring certain legal claims.

The release is usually a long paragraph that lists laws by name. The EEOC's sample release covers "any and all" claims up to the date of the agreement, including claims about your employment or your termination. It often adds a promise not to sue, and it usually covers related companies and people, not just your employer. Read who is being released.

The section 1542 waiver. California Civil Code section 1542 says a general release does not cover claims you don't know or suspect exist when you sign, if knowing about them would have materially affected your settlement. Many agreements quote section 1542 and then waive it. If you waive it, the release may reach claims you don't know about yet, like overtime you never added up or a pay gap you haven't seen.

What a release generally can't take away:

• Wages already due. Requiring a release for wages that are due, before they're paid, may be illegal, and a release required that way is void.
• Future claims. The EEOC says a valid agreement must not require you to waive future rights.
• Your right to go to the EEOC. You can still file a charge, and no agreement can limit your right to take part in an EEOC investigation. But you may give up the right to collect money from your employer.
• Unemployment benefits. Under California law, a waiver of unemployment rights is generally invalid.
• Workers' compensation. A release of workers' compensation liability generally isn't valid unless the Workers' Compensation Appeals Board approves it.
• Work expenses. Under California law, an agreement to waive reimbursement for necessary work expenses is void.

The EEOC's checklist also suggests confirming that you aren't releasing COBRA health coverage or vested retirement plan benefits.

Payment terms. How much, and how: a lump sum or payments over time, often "less applicable deductions for taxes," as in the EEOC's sample. Check when payment starts and whether it stops if the company says you broke the agreement. If you're 40 or older, a release of age claims doesn't take effect until the 7-day revocation period ends.

Confidentiality. Keeping the amount confidential is generally allowed, and so is protecting trade secrets and business information that doesn't involve unlawful acts at work. But in California, a separation agreement provision that prohibits disclosing information about unlawful acts in the workplace, like harassment or discrimination, may be illegal.

Non-disparagement. A promise not to criticize the company. Under California law, this kind of clause must include, in substance: "Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful." If the promise runs only one way, you can ask for it to be mutual.

No-rehire. A promise not to apply again. If you never raised a claim, it may be allowed. If you filed a claim in good faith, in court, with an agency, in arbitration, or through your employer's internal complaint process, a no-rehire provision in an agreement settling that dispute is generally void. There is a narrow exception when the employer documented, before your claim, a good-faith finding of sexual harassment, sexual assault, or criminal conduct.

Cooperation. A promise to help later with handoffs, lawsuits, or investigations. A clause waiving your right to testify about alleged criminal conduct or sexual harassment, when a court order, subpoena, or written request from an agency or the Legislature calls you, is void. Look for limits on time and notice, and pay for your time.

Return of property. Return the laptop, phone, badge, and files. Keep what's already yours, like your pay stubs and the agreement, but not company files or customer information.

Noncompete. In California, a contract that restrains someone from a lawful profession, trade, or business is generally void, and including a noncompete clause in an employment contract is unlawful unless a narrow exception applies.

Also watch for: a "no admission" line, which is standard; a statement that you've been paid everything or have no complaints, which you shouldn't sign if you believe it's untrue; an arbitration or choice-of-law clause, so ask what it changes; and references, so ask what the company will say. Under California law, a former employer who uses a misrepresentation to keep you from getting a job is guilty of a misdemeanor.

What California law generally requires:

• Telling you that you have the right to consult an attorney, and giving you at least five business days to do so.
• If you sign sooner, it must be your knowing and voluntary choice, not induced by fraud, misrepresentation, a threat to withdraw or change the offer before your time is up, or better terms for signing early.
• The "unlawful acts" language in any clause that limits what you can say about conditions at work.
• Paying wages that are due without requiring a release. Even in a dispute, wages the employer admits are owed must be paid without condition.

What people commonly ask for (none of it is required by law): more money, often figured as weeks of pay per year of service; a lump sum or installments; paid COBRA premiums; a neutral reference; how your departure is described; mutual non-disparagement; limits and pay for cooperation; a bonus or stock award close to being earned; and more time.

How to ask. If you're being rushed, the EEOC suggests asking for more time and putting the request in writing. Get the agreement reviewed first, so you know what matters most. In group layoffs, the EEOC notes the terms are typically non-negotiable. If you're 40 or older, material changes to the final offer restart the 21 or 45 days, unless you and your employer agree they don't.

These rules come from the Older Workers Benefit Protection Act, which amended the federal Age Discrimination in Employment Act (ADEA). The ADEA protects people who are at least 40 and generally covers employers with 20 or more employees. To release age claims, the agreement must at a minimum:

• Be written in a way you can understand
• Refer to the ADEA specifically
• Not waive claims that arise after you sign
• Give you something of value beyond what you're already owed
• Advise you in writing to consult an attorney
• Give you at least 21 days to consider it, or 45 days in a group program like a group layoff
• Give you 7 days after signing to revoke, and not take effect until then

Group layoffs. The employer must also tell you in writing which group was covered, the eligibility factors and time limits, the job titles and ages of those selected, and the ages of those in the same job group or unit who weren't. The EEOC says the point is to let you see whether older workers were let go while younger ones were kept, and that age ranges broader than one year don't meet the rule.

Timing. The 21 or 45 days run from the employer's final offer. You may sign early if it's truly your choice, which starts the 7 days. The 7 days can't be shortened.

If you later challenge it. The EEOC says you don't have to return the severance first, and that it is unlawful for your employer to stop promised payments because you challenge the release. If you win, your award may be reduced by what you were paid for the release, but not by more.

The EEOC also says being 40 or older doesn't entitle you to more severance than younger coworkers.

Final pay:

• If you're fired, wages earned and unpaid are due immediately.
• If you quit and have no written contract for a set term, they're due within 72 hours, or on your last day if you gave 72 hours' notice.
• Vested vacation is paid out at your final rate. A policy that takes it away when you leave may be illegal.
• Unused paid sick leave generally doesn't have to be paid out.
• Necessary work expenses you paid are generally owed to you.
• If final wages are willfully paid late, the employer may owe a penalty of up to 30 days of pay.
• These final pay rules can't be set aside by a private agreement.

Holding final pay until you sign may be illegal. The Labor Commissioner says that even in a dispute, wages that aren't disputed must be paid without requiring a release.

Unemployment:

• EDD says severance pay is not wages for unemployment purposes, so it generally doesn't reduce benefits.
• Pay "in lieu of notice" under a policy, plan, or agreement is treated as wages for the period it covers, whatever it's called.
• If you're told to resign or be fired, EDD's rules say you didn't leave of your own free will.
• Resigning before your employer takes any action, because you expect a layoff or firing, is treated as leaving voluntarily. So is leaving before a firing's effective date without pay past your last day, with narrow exceptions. Quitting without good cause can make you ineligible.

Health coverage. California law requires your employer to tell you about options to continue health coverage when your job ends. COBRA generally applies to employers with 20 or more employees, and you may have to pay the entire premium, up to 102% of the plan's cost.

These are practical signs, not legal tests:

• Timing. The offer came soon after you complained, reported something, took leave, or asked for an accommodation.
• Amount. It is well above the written policy, or above what others received.
• Wording. The release names claims that match your situation, or asks you to confirm you have no complaints.
• Pressure. A same-day deadline, or a hint that you don't need a lawyer. The EEOC calls rushing a red flag.
• Shifting reasons. "Restructuring" in the meeting, "performance" in the letter.
• Replacement. Your job was "eliminated," but someone took it over.

If you already filed a claim in court, with an agency, in arbitration, or through your employer's internal complaint process, some rules change. A negotiated settlement of a claim under California's civil rights law is exempt from some of the separation-agreement rules; "negotiated" means voluntary, deliberate, and informed, with something of value to you and notice and a chance to have a lawyer. And if a claim about workplace harassment, discrimination, or related retaliation was filed in court or with an agency, a settlement provision keeping the facts secret is generally prohibited. The amount, and at your request your identity, can still be kept confidential.

What a claim could be worth depends on the law and the facts. For discrimination and retaliation under California's civil rights law, the Civil Rights Department lists remedies including back pay, front pay, damages for emotional distress, punitive damages, and attorney's fees and costs. The EEOC suggests weighing the offer against the claims you might have, the likelihood of winning, and the probable costs.

In the meeting, you don't have to sign on the spot. Ask for copies of everything, including any plan it mentions and, in a group layoff, the age list. Afterward, write down the reason you were given and who was there.

In the next few days:

• Write down the date you got it and your deadline. California's rule counts business days; the federal age rules count days.
• Check your final paycheck against your own records: hours, overtime, commissions, vacation, and expenses.
• Ask in writing for your personnel file (generally due within 30 days) and payroll records (generally due within 21 calendar days of a request), plus copies of anything you signed to get or keep your job.
• Apply for unemployment with EDD.
• Return company property, and don't forward company files or customer information to yourself.
• Don't agree to terms by text or phone, and don't secretly record anyone. California law generally makes it a crime to record a confidential conversation without everyone's consent.

Working through a notice period? Keep working until your last day. Under EDD's rules, leaving early without pay past your last day worked can turn the separation into a voluntary quit.

Don't wait for the last day. The EEOC suggests getting advice promptly on whether to sign, whether the terms are reasonable, and whether to ask for changes.

What usually doesn't undo a release: changing your mind after any revocation period, or feeling that the deal was one-sided. The EEOC describes a case where money worries and the loss of a job, on their own, were not enough to cancel a release.

What may still help:

• If you're 40 or older, you generally have 7 days after signing to revoke a release of age claims. Follow the agreement's instructions, in writing, and keep proof.
• Some clauses may be unenforceable anyway, like a ban on disclosing unlawful acts at work, a release required for wages that were due and unpaid, a waiver of unemployment rights, a no-rehire clause the law doesn't allow, or a noncompete that fits no exception.
• The EEOC is still open to you. You can file a charge, and you can't be required to return your severance first.
• How it was signed matters. The EEOC says a release of age claims is invalid if fraud, undue influence, or other improper conduct was used to get it signed, or if it contains a material mistake, omission, or misstatement. For other discrimination claims, the EEOC says most courts look at the whole picture, including how clear the agreement was, whether you had enough time, and whether you were encouraged or discouraged from talking to a lawyer.