In California employment law, a separation agreement is a written contract between an employer and a worker who is about to be terminated. The agreement generally requires the worker to waive all legal claims that they may have against the company. In exchange, the worker receives severance pay.
Many separation agreements in California also restrict what the worker can do after the termination. There are situations where it is not advisable to sign a severance agreement.
Here at Shouse Law Group, I have a long track record of negotiating favorable separation agreements so that you waive the minimum or rights while reaping the greatest financial benefits upon termination. Plus I handle the entire negotiation process so you never have to bargain directly with your employer.
Yes, a separation agreement is a binding contract in California. It is formed between an employer and an employee who is about to be terminated. The employer offers a severance package. In order to receive it, though, the employee has to give up certain rights against the employer.
To be a binding separation contract in California, there must be:
By creating and submitting the separation agreement, your employer is making the offer. By signing it, you are accepting that offer. Because you and your employer are both giving something up in the exchange, there is consideration:
However, all contracts must be for a lawful purpose. If the contract would break the law, it is a void contract. 2
Separation agreements in California can be void if they would force you to relinquish certain rights that you cannot legally give up. By trying to get you to give these rights up, the agreement would violate the law. However, if an unlawful provision in the separation agreement would be void and unenforceable, the rest of the agreement may still stand without it.
Because some employers may not be concerned by a potential lawsuit, not all terminations involve a separation agreement. Even when employers are unconcerned about a lawsuit, though, they may still offer severance in order to protect their reputation. I see this most often when the employee was laid off or if the employee’s termination was due to downsizing.
Not all separation agreements in California are the same. Employers often change the terms in the agreement based on their needs and concerns. In my experience, some common rights that workers have to give up in order to receive the severance package are claims concerning:
The details about the employee’s rights that they are relinquishing are laid out in the waiver of claims section of the severance agreement. This section may also be titled “release of claims.”
If you sign a separation agreement that waives these rights, you cannot invoke them later on. If you try to bring a claim that you had waived in the agreement, your lawsuit will be dismissed. You may have to cover the employer’s attorney’s fees and the costs of defending against your claim, as well.
However, some of these waivers may not be all-encompassing. For example, you can legally waive your right to file a lawsuit for workplace discrimination under Title VII, but not your right to file a discrimination charge with the Equal Employment Opportunity Commission (EEOC). Sometimes separation agreements double as contracts settling disputes.
Additionally, while you may waive your anti-discrimination rights under federal law, similar California law claims may survive. For example, you can waive your right to be in a class action lawsuit against your former employer. However, your rights to sue your former employer in a class action under the Private Attorney General Act (PAGA) will survive this waiver.
Some of your workplace rights cannot be waived in a separation agreement in California. Some of these rights include:
You can only waive your rights to file an age discrimination claim under the Age Discrimination in Employment Act (ADEA) if you do so knowingly and voluntarily. Under the Older Workers Benefit Protection Act (OWBPA), in order to be a knowing and voluntary waiver, the following requirements must be met:
If you signed a separation agreement in which you agreed to waive one of these rights that cannot legally be waived, that portion of the agreement will not be enforced by California courts. If you waived them and then invoke these rights later on, the court will ignore the waiver.
However, most separation agreements include a severability provision. This provision states that, if one part of the agreement is found to be unenforceable, it is severed from the rest of the contract. The remainder of the agreement can still be enforced.
In addition to a provision where you waive your rights to sue your former employer, employment separation agreements in California also tend to include other post-termination restrictions on your conduct. Also known as restrictive covenants, some of the most common are:
The separation agreement will also include details about the employer’s remedies, should you violate one of these post-termination restrictions.
Just because a restrictive covenant is in the severance agreement, though, does not mean that it will always be enforceable. In California, non-compete agreements are unenforceable. 4 Nevertheless, I see employers all the time still including them in their employment contracts in an attempt to control their former employees.
The benefits included in the severance package can include a wide variety of types of compensation. Some common things that I ensure that employers include are:
There are no legal obligations in California for what has to be in a severance package. In many cases, terminated employees can negotiate their severance. Especially if you have serious financial concerns from losing your job and have leverage against your employer, I strongly advise you to retain legal counsel to negotiate for better terms.
Because the severance payment is paid in exchange for you signing the separation agreement, it does not affect your eligibility for unemployment benefits in California.
If there is no severance or separation agreement in California, you will have rights to sue your employer for any misconduct that happened during your time in their service. This can include lawsuits for:
These concerns often push employers to use separation agreements for employees who are leaving the company after a contentious time.
California law does not mandate employers to offer severance upon terminating employees. Though many companies choose to offer severance in exchange for the ex-employee agreeing not to sue them.
In many companies, severance agreements are standard for employees in a supervisory or managerial capacity. The promise of a financial payout upon termination serves as an inducement for new talent to join the company.
If there is no severance agreement, employers are still required to pay terminated employees all earned wages, including accrued paid time off and other benefits.
