Severance Pay

Employees who are terminated or laid off from their jobs may receive severance payments from their employer, which act as compensation after they leave the company. To receive the payments, the employee typically must sign a complicated severance agreement.

When you are offered a severance, you may be put under pressure to sign the agreement immediately. But beware of the fine print and strings attached. For example, employees are often required to waive all rights to sue the employer in order to receive the payment (this is known as a “release”). 

When an employee signs a release, it is difficult to overturn it, even if it is discovered that the employer used fraud, duress, or undue influence to pressure the employee. Our employment attorneys at Valerian Law can help you understand the fine print and negotiate a better deal for severance pay.

Frequently Asked Questions About Severance Pay

When you are under time pressure and stress, a lawyer can help you weigh your options. Immediately following a layoff, there are many things to consider, and you may feel pressured to make major decisions quickly. Note that in California, a severance agreement must provide the employee notice about their right to consult an attorney. At least 5 business days should be given for the client to consult a lawyer if they choose to do so. A lawyer can help ease some of the burden during this time by answering your questions and helping you navigate the severance process. It’s common to have a lot of questions after being offered a severance package. 

For example, you may be wondering: How much severance pay am I entitled to? Are the terms reasonable? Is this legal? Is it worth fighting this layoff? Am I allowed more time to think about it? An experienced attorney will evaluate your specific situation and answer all of these important questions. They may be able to offer perspectives on the quality of the severance package you have been offered and how it compares to market-rate severance pay in various circumstances. At the very least, a lawyer may be able to buy you more time to consider the offer by intervening to negotiate on your behalf.

Severance Pay Negotiations

An attorney can help you negotiate for more money or better terms. With a lawyer involved, an employer may be more willing to negotiate than before, especially if you have significant legal complaints against them. In the event of layoff, you may lose your bonuses, stock options, and variable compensation. You might be able to salvage at least some of that value with the help of a lawyer. In addition to negotiating compensation, a lawyer may be able to get you better terms on other aspects of the severance package. 

For example, an employer may propose terms that are one-sided (meaning the employee agrees to do or refrain from doing certain things, but the employer is not held to the same standard). By negotiating for mutuality, a lawyer can ensure the agreement is a two-way street. Additionally, a lawyer might be able to negotiate for favorable terms for the departing employee, including a letter of reference from the employer. Employees sometimes try to negotiate a higher severance payment or better terms on their own. However, this is usually only feasible if you want a minor improvement to what has already been offered. The reason is simple: lawyers can help you convince employers you are serious about pursuing your legal claims by framing them in a persuasive manner.

Guidance on Severance Pay Legal Claims

It is important to understand what rights you are giving up by accepting a severance package from your company. Many companies use severance agreements to prevent lawsuits. As a condition of receiving severance pay, most severance agreements require employees to waive their right to sue their employer. An attorney can help you examine the merits of your potential legal claims. Depending on your legal claims, they can help you decide whether you should pursue a better severance package, or decline the one you have been offered. 

A careful assessment is necessary to determine whether you have legal claims worth pursuing. Consider the following: Do you believe you were wrongfully terminated or selected for layoff? Were you paid all wages, including overtime, that you were legally owed? Were you harassed or discriminated against at work? Were you denied a reasonable accommodation, or medical or family leave rights? Are there other claims you may have? If so, you may have claims worth pursuing. There may be instances when these claims are worth far more than the severance amount being offered to you, in which case you may wish to decline the employer’s offer. A lawyer can help you evaluate.

Implications of Severance Pay

An attorney can advise you on the practical and financial implications of a severance agreement. Severance payments are subject to taxation. In general, employees have to pay local, state, and federal income taxes on their severance pay because it is considered income. A skilled severance pay lawyer will determine whether the agreement can be structured to reduce the amount of taxes owed by the employee. 

If the employer wants to pay the severance in installments instead of one lump sum, an attorney can assess how those installments will affect the employee. Installment payments, for example, can impact the employee’s eligibility for unemployment benefits. It is also possible that company installations will force employees to purchase new insurance policies or to switch to COBRA insurance (a type of insurance that stems from a federal law that gives employees the right to keep their employer’s group health plan after it ends due to a job loss). Additionally, you should consult a lawyer to determine whether there is a possibility that the employer will go out of business before they can make all of the installment payments. An experienced lawyer can advise you on these and other practical matters.

Enforceability of  Severance Pay Agreement Clauses

In most severance agreements, the employee has obligations. By working with an attorney, you will be able to understand what your rights and obligations are so that you will not violate them. Many of the terms in the agreement can be confusing. Severance agreements usually cover the following topics: 

  1. Confidentiality
    Confidentiality is often required in agreements, but the level of restrictions can vary. Usually, the parties to a severance agreement are restricted in what they can and cannot reveal about the agreement itself. In many cases, the content of the agreement is completely confidential, with the exception of disclosures to family members, financial advisors, and tax authorities. Likewise, trade secrets may be subject to confidentiality restrictions. A lawyer can work on securing the appropriate confidentiality terms for you.
  2. Non-disparagement 
    Many agreements limit your ability to say negative things about your employer, so your speech may be restricted by the agreement. You can discuss these limits with an attorney to make sure you understand and feel confident about them. 
  3. Limitations on post-termination conduct
    In many agreements, the employee is required to promise not to solicit the employer’s existing employees to leave the company or to solicit the employer’s customers to take their business somewhere else. This is known as a non-solicitation clause. Employees are also commonly required to promise that they will refrain from using any information obtained during their employment with the company. This can have significant implications in the tech industry, for example, where the use of certain data and intellectual property can be very valuable.

A lawyer can explain these limitations to you and how they will impact you going forward. It is important that you understand both the terms you are agreeing to and the consequences of not keeping your end of the agreement. If you agree not to disparage the company and do so anyway, your former employer may claim a refund of any severance money and/or additional damages. Should there ever be a dispute regarding your breach of the agreement, and your former employer is found to be correct, then you may be liable for legal fees. Your lawyer can explain these consequences in your contract.

Consequence of Breaching a Severance Pay Agreement

An attorney can help you determine if your severance agreement is legally enforceable. California law protects employees by declaring certain terms in employment contracts unenforceable, even if the employee agrees to them. The purpose of these protections is to fight back against employers who use legal means to silence survivors of workplace harassment and discrimination. For example, in California effective January 1, 2022, it is unlawful for an employer to include in any agreement a non-disparagement clause that prohibits an employee from disclosing information about illegal workplace conditions, unless the agreement includes language to this effect:

“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.”

This means that a non-disparagement clause cannot have the purpose or effect of denying an employee the right to disclose information about unlawful acts in the workplace. If it does, it is not enforceable.

You can read our blog post on California’s “Silenced No More Act” for more information. An attorney can help you determine which clauses in your agreement are unenforceable and explain what legal rights you still retain, even if it appears on paper that they have been released.

Our California Severance Pay Lawyers are Here 

to Help

A skilled attorney can provide valuable assistance during the severance process by helping you weigh your options, negotiate a better deal, understand your legal rights, make sense of the practical and financial issues, and identify potentially unlawful clauses in the severance agreement. If you are considering signing a severance agreement, contact one of our experienced California attorneys to discuss your rights. Call us at 888-686-1918 to speak with one of our employment attorneys today.

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