California Severance Pay
What Is California Severance Pay?
paid to a California employee by an employer in the event of a
separation of employment is often classified as California Severance
pay, but may also be referred to as California termination pay or
California separation pay. It is important to note that it is not
compulsory for California employers to pay California severance pay or
furnish their employees with benefits and severance unless it is
specifically delineated in an employment contract or is a requirement
of the Warn Act. Often California employees are offered severance pay
in exchange for a general release of all claims and an agreement not to
engage in litigation.
What does a Typical California Severance Pay Agreement Contain?
a California severance pay agreement to be binding, there must an
offer, acceptance and consideration (i.e. compensation), among other
things. Additionally, the employer and the employee must furnish
each other a benefit that is not already required under California or
federal labor laws. Typically the employee may agree to release
all claims known and unknown against the employer, have no loans
outstanding with the employer, and keep the California severance pay
agreement confidential, while the employer may agree to allow the
employee to work up to a certain date and pay out a lump sum of
compensation and benefits through a certain date in exchange for the
conditions fulfilled by the employee as part of their severance
practices. In many instances, one all encompassing California severance
agreement can resolve severance and employment issues between an
employee and employer, as long as the separation agreement does
not provide the employee with a benefit that the employee would
otherwise be entitled to receive upon separation of employment. Such a
benefit could render the agreement unenforceable.
California Severance Agreements: What an Employer Might Expect an Employee to Release
an employer attempts to have the employee release non-waivable state
and federal claims that the employee may have, whether these claims are
known to the employee or not. This release typically includes, but is
not limited to, possible allegations of wrongful termination,
discrimination, sexual or other harassment, and breach of
agreement. It is important to note, however, that in California
release agreements an employee's waiver of a federal claim of age
discrimination is NOT valid, unless the following criteria are met:
- The release specifically includes the Age Discrimination in Employment Act.
- The language in the release or separation agreement is written in readily understandable wording.
employee signing the release agreement is advised to talk to an
attorney before implementing the California severance agreement.
- The employee is given 21 days to consider signing the release agreement (and up to 45 days in certain situations).
employee is given a seven day “cooling off” time period to revoke and
withdraw from the agreement after signing a California severance
agreement that contains a release.
California Unemployment Insurance and California Severance Pay
of unemployment insurance benefits because of accepting a lump sum
severance package from their employer is a common concern of California
employees facing a possible layoff. Under California law,
however, severance pay does not disqualify an employee from
unemployment insurance benefits. Dismissal and severance pay
given to employees by an employer upon termination of employment is not
considered to be “wages” for unemployment compensation purposes and,
therefore, employees should not be denied unemployment benefits because
of receipt of payments under these types of plans (Powell v. California
Dept. of Employment (1965) 45 Cal Rptr 136). it is important for the
employee to be aware, however, that there exists a potential exception
to this ruling. A California severance pay agreement containing an
admission of willful misconduct may impact the granting of California
unemployment insurance or a California unemployment insurance
claim. Although most agreements will not contain such admissions,
it's important to reiterate that an agreement with this type of
language could impact the awarding of unemployment insurance benefits.
California Release Agreements Cannot Release Certain Claims
in California are specifically prohibited from requiring their
California employees to waive claims regarding: (1) payment of minimum
wage; (2) overtime pay; (3) unemployment insurance benefits; or (4)
Workers' Compensation claims or benefits. Any agreement that includes a
general release containing these components is in all probability
These California release agreements can be
intricate and complex, so experienced legal advice from a California
employment attorney is essential. To protect your interests, it would
be prudent to contact a California labor law attorney to evaluate any
California severance pay agreement or California release agreement.
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