Severance Pay

If you have recently lost your job or believe you might be laid off soon, you probably have many questions about severance pay. Here’s what you need to know about severance in California, including red flags to watch out for, collecting unemployment and severance simultaneously, and how an employment attorney can be helpful in situations where severance is offered.

How Is Severance Pay Defined?

Is Severance Pay the Same Thing as a Severance Package?

Severance pay is just money paid to former employees, whether as a lump sum or a series of scheduled payments. A severance package is more comprehensive and may include items like:

• Being able to keep your health insurance through COBRA
• Cashing out unpaid vacation days and other paid time off
• Stock options in addition to cash
• Keeping certain company-owned items, like cell phones, laptops, printers, etc.
• Pension and retirement accounts

What Is a Severance Agreement?

A severance package, because of its scope, frequently comes with a severance agreement, which is a contract between you and the employer regarding the details of the package. You might also be asked to sign a severance agreement simply to receive severance pay without a package.

In 2021, Governor Newsom of California signed Senate Bill (SB) 331, which included new laws about severance agreements, such as:

• You must be given at least 5 days to consider a severance agreement.
• If you are over 40, you may take up to 21 days to evaluate a severance agreement.
• You have the right to review a severance agreement with an attorney.
• Neither the severance agreement itself nor a nondisparagement clause in a severance agreement (saying you may not speak badly about the employer) may prohibit you from reporting harmful or illegal acts on the employer’s part. They may also not forbid from disclosing factual information under the FEHA (Fair Employment and Housing Act) regarding discrimination, harassment, and the like.
• A severance agreement may forbid you from discussing trade secrets and proprietary information, as long as this is not related to illegal acts.
• It is permissible for severance agreements to release or waive all further claims on your part and to require that the terms and amount of severance remain confidential.
  

What Is the Purpose of Severance Pay?

Typically, severance pay is offered as a courtesy to employees who have performed well for a company, especially those who have been employees for a long time. It gives workers money to live on while they look for other employment after layoffs, whether due to downsizing or redundancy after a corporate merger.

Many businesses offer severance pay with high-profile layoffs in order to preserve their image in the public eye. They want to retain the workers they keep and be able to recruit job candidates again in the future without people fearing they don’t take care of their employees.

Sometimes, however, severance pay can be linked to “keeping employees in line.” A business might threaten to not give severance if they speak ill of the company or don’t perform well until their last day of work. Or, it might be part of a threat to prevent employees from whistleblowing about a toxic or dangerous work environment, which is illegal.

Are Employers Legally Required to Pay Severance in California?

Generally speaking, employers are not required to pay severance under California law. It’s up to them to decide whether or not to offer the cash or the items listed above as part of a severance package.

However, there are certain circumstances where employers are contractually obligated to pay severance. Your union may have negotiated a deal where any laid-off employees get severance pay. Also, your individual employment contract may stipulate that severance is to be paid if you are laid off. Sometimes a board of directors will make severance part of a merger or acquisition, in which case it is included in the legal documents pertaining to the transaction.

How Do Some Employers Try to Cheat Workers Out of Severance Pay?

Do employers sometimes attempt to rob workers of their rightfully earned severance pay that they are legally obligated to pay? Unfortunately, yes. Some tricks they may use include:

• Saying you were fired for cause, not laid off, and therefore ineligible for severance pay
• Cutting off communication after your last day of work and refusing to pay severance as promised
• Claiming you can’t get severance because you applied for unemployment benefits (see more below)
• Incorrectly calculating severance pay if it is based on a formula related to longevity, number of hours worked, or base salary
• Tying severance pay to punitive or illegal acts, like covering up unsafe work practices, committing fraud, or forbidding you from talking to your coworkers about layoffs
• Alleging that you violated your severance agreement and aren’t entitled to severance pay or a severance package

If You Get Severance Pay, Can You Still Collect Unemployment in California?

Yes, in most cases, you may receive severance pay and apply for unemployment. Some people prefer to wait until they use up their severance to request unemployment benefits. But severance pay is not considered wages in California, so it won’t disqualify you from unemployment, and you can receive them concurrently. In fact, it’s often wise to have your severance pay overlap with your unemployment application, as it can take several weeks before you are approved and may get unemployment payments. If you have questions about unemployment benefits in California, the Employment Development Department (EDD) can answer them for you.

Can an Employment Attorney Help With Severance Pay?

As discussed above, there are many situations where employers engage in unscrupulous or even illegal acts related to severance pay. You should definitely contact an experienced employment attorney if you are being asked to sign a severance agreement that offers severance in return for waiving your rights about:

• Whistleblowing or exposing illegal workplace practices
• Bringing a lawsuit about workplace issues, like discrimination, harassment, unpaid overtime, or wage theft
• Reporting crimes committed by the employer

You should also consult with an employment lawyer if you have not been paid severance as promised or if you believe you have been somehow cheated out of your severance pay or package components. An employment attorney can help determine if you have a case or if laws have been broken. They can assist you with overlapping issues, such as nonpayment of severance and illegal employer acts like discrimination or wrongful termination.

If necessary, an attorney can enlist help from state agencies or help you file a claim. They can also represent you in court, if it comes to it, helping to ensure your rights are protected and you get the severance you deserve.

There are also many gray areas where being asked to waive your rights is questionable, such as signing a non-compete or non-solicitation agreement (generally unenforceable in California because they can keep you from earning a living) or forbidding you from even contacting former clients or colleagues.

Severance agreements can be complicated even if the employer has the best of intentions. As with other contracts, it’s always a good idea to have a lawyer review them.

Have you been asked to sign a severance agreement? Are you struggling to receive severance to which you believe you’re entitled? Employee Law Group is here to help you in the Los Angeles area, and there is no charge for an initial consultation to discuss your case. Call us today at 310-407-7358, or get in touch online to let us know how we can help.