Severance pay

Severance Pay in California: What You Need to Know as an Employee

If you’ve recently been laid off, or if your job is on the line due to economic issues or restructuring, you’ve probably wondered about severance. This is a complex issue that raises many questions. Here are the basics you must know, along with expert advice about how to handle severance agreements or an employer who may be asking you to do something illegal to receive your severance package.

What Is Severance Pay?

Severance pay is money paid to an employee when their job is terminated. It’s not typically paid when someone is fired for cause, but it’s common when a worker has been laid off, such as after a merger when they may have a redundant role with an employee in the other company.

Why Do Employers Pay Severance?

Some employers offer severance pay as a courtesy to employees. This is more likely when someone has worked at the business for a long time or when they hold a high-ranking position. It may be negotiated in the terms of a merger with layoffs so that employees who are made redundant are taken care of. It’s meant to compensate them for job loss until they are able to find other employment and thank them for their service.

However, not all severance pay is so altruistically motivated. Sometimes it’s offered with a questionable severance agreement. A severance agreement isn’t necessarily a bad thing, but it can be used against you by your employer. When used improperly, this contract may dictate that the former employee may not discuss certain aspects of their employment or layoff, like things that open the business to lawsuits or make them look bad in the public eye.

How Is Severance Pay Different from a Severance Package?

While severance pay is strictly either a lump sum or regular payment (see discussion about formulas below), a severance package offers additional benefits. For example, you may be able to continue your health insurance for a while, or you may be paid for unused vacation time. Your employer might let you keep home office equipment or pay your mobile phone bill for a predetermined period of time.

Is My Employer Required to Pay Me Severance in California?

There is no law in California that requires employers to pay severance for employees who live or work in the state. Furthermore, there is no federal law either that requires your boss to pay you severance.

Sometimes, though, the terms of your employment may dictate that severance be paid if you are let go. Also, some unions have agreements that require severance for their members. If there’s a written company policy on severance, you may be entitled to severance pay, but that’s not necessarily the case—you should have an employment attorney review the policy.

Can I Collect Unemployment Insurance If I Get Severance Pay?

In most instances, you can receive unemployment even if you are given severance pay or a severance package. The severance you receive is from work in the past. Once you are no longer employed, you are likely eligible for unemployment until you find other work, at which point your unemployment would be reduced or discontinued, depending on your earnings.

Some workers prefer to wait until their severance runs out before filing for unemployment. However, there is a chance you could be denied unemployment, or it may be less than you anticipated. It can also take weeks for the state to approve and begin funding your application. Therefore, it’s best to consult with the California Employment Development Department (EDD) right away if you plan to apply for unemployment.

What Is a Typical Severance Package?

A severance package, and possibly your severance agreement, will usually address the following concerns:

• How much your severance payment is
• How often you will receive severance (whether as a lump sum or other arrangement) and when it will be paid/begin
• If you will continue to receive health or other employer-sponsored insurance benefits or if you have the option of COBRA (insurance as covered by the Consolidated Omnibus Budget Reconciliation Act, which is usually quite costly)
• If outplacement assistance is available to find other work
• How unpaid vacation time or other unused benefits are being paid
• If you are eligible to file an unemployment insurance claim with EDD
• If you will receive any stock options or buyouts of stocks you already own
• What happens to company property in your possession (credit cards, company vehicles, office equipment, etc.)
• How final accounting will be handled (e.g., expense accounts , pending commissions, or money you are due to be reimbursed)
• What happens to your pension and any retirement accounts

Unless it is stipulated by your pre-employment contract or union, your employer will probably have a formula for determining your severance pay, especially if many people are being let go simultaneously. They may offer you a lump sum they think is fair. Or they may pay something like a week’s pay or a month’s pay for every year of your service. If you make a commission, estimated or pro-rated bonus pay may also be offered.

How Can an Employment Lawyer Help with Severance?

It all sounds pretty straightforward, right? But what if your employer doesn’t pay what you think they should for your severance pay? Or what if they ask you to sign a complicated severance agreement, a legally binding contract, or a severance agreement you find morally questionable? If you feel you were wrongfully terminated but sign the agreement, will you lose your right to sue later for wrongful termination?

These questions and confusion about severance are why many workers in California often consult with an experienced employment lawyer. In fact, if you’re over a certain age, the law in California requires your employer to advise you to consult an attorney, and they must give you time to consider signing such an agreement and time afterward should you wish to revoke it.

Some things employers often ask employees to give up the right to via a severance agreement include:

• Discussing trade secrets
• Speaking about the employer negatively
• Discussing the events or terms of your termination (often part of an NDA or non-disclosure agreement)
• Talking to former clients or co-workers
• Suing for defamation, harassment, wrongful termination, discrimination, or failure to receive a promotion

Some unscrupulous employers may even ask you to sign a severance agreement that waives your right to:

• Collect owed wages before signing the agreement
• Bring a lawsuit over unpaid hours or benefits (“whistleblowing”)
• Seek future employment in your industry (a “non-compete” clause)
• Report crimes the employer has committed

Legally, employers are not allowed to have you agree to the four waivers above, but they may pressure you into signing anyway, knowing you need your severance pay. They are also not allowed to threaten you or ask you to commit a crime, such as fraud or perjury.

As you can see, negotiating severance can vary from trying to get the money you believe you are owed to dealing with potentially criminal employers. That’s why having an attorney on your team is essential.

They can offer advice about what to do, tell you if a severance agreement seems fair, or represent you in court if it comes to litigation. An employment attorney has the resources and experience to take on large companies, which can be intimidating for just one person. They can also help if you’ve already signed a severance agreement but feel it may have been illegal or you were coerced.

If you’ve been let go from your job in California and are grappling with severance pay or a severance agreement Employee Law Group is here to assist you. We help workers in California with all kinds of employment issues, including severance, unpaid wages, class action suits, wrongful termination, and bad references.

Call us today at 310-606-0065, or reach out online to let us know your concerns. We offer a free case evaluation, so you know where you stand with no obligation — just the information you need to help with your unique severance situation.