Understanding Severance Agreements

Author: Nicki Malekadeli
Posted on: March 29, 2019

When you exit a company or an organization you work for, you may be asked to sign a severance agreement. This is a contract provided by the employer which details the responsibilities and rights of each party when an employee leaves the job position. Along with this detailed agreement, it also provides the amount of the severance package an employee will receive after leaving the company.

Although there are benefits to signing this contract, severance agreements are often made to favor the employer or company more than the employee. Together with the provisions for healthcare and insurance, the document may also state a non-compete clause which bars you from working for a direct competitor for a certain period of time. There are also agreements that disallow you from filing a lawsuit for wrongful dismissal.

Understanding severance agreements before signing them is essential in maximizing the compensation you receive after leaving a company. It is also vital to know the severance package your employer is offering and discerning whether or not it is worth accepting together with other clauses in the written agreement.

What is a Severance Package?

A severance package or severance pay is the compensation provided to employees after an employer removes them from a job. This is usually offered when a company or an organization needs to downsize or eliminate a position. Employers provide a severance package so that employees can search for new career opportunities without financial trouble.

It is also important to note that not everyone who leaves a company is eligible to receive a severance package. One exception is when an employee is terminated for cause.

Terminated vs. Laid-Off: What’s the Difference?

According to section 1400 of the California Labor Code, termination means ending the commercial or industrial operations from the employee. In other words, it means being “fired.” Employers may terminate an employee for a variety of reasons. Termination for cause often happens when an employee is not performing well at work, while other common reasons are misconduct, insubordination, property damage, and record falsification among other things.

A layoff, on the other hand, is defined as “the separation from a position due to lack of funds or lack of work,” according to the same code. This means that employees are released from duty simply because the company can no longer compensate them for their service, not their performance. The California Labor Code also defines “mass layoff” as releasing “50 or more at a covered establishment.” For this instance, the Worker Adjustment and Training Notification (WARN) Act requires employers to provide severance packages to everyone laid-off unless 60 days notice is given before the employees are laid-off.

Is There a Standard Severance Pay in California?

There is no state that requires employers to provide severance packages to their employees. In California, it’s also not mandated by law to require business owners to offer one to their parting employees. However, employers must provide a severance package if it’s part of their company policy and legal rights have been set forth upon laying off. Failure to fulfill these obligations can lead to a breach of contract claim from the employee.

The amount of the severance package usually depends on how long the employee has worked for the company. Most companies give one or two weeks of the package for each year worked along with the unused vacation and sick leaves. On the other hand, some businesses provide the severance pay in one lump sum.

What to Know Before Signing a Severance Agreement

  • Know your leverage. No employer or company wants to have their name tarnished in public. Social media and online reviews of companies, for example, have provided platforms for regular workers and employees to speak out about their experiences at work.
  • Never forget to negotiate. A lot of employees hesitate to negotiate their severance agreements because they believe they have no leverage. While not all arrangements are negotiable, understand that your employer is asking you to sign the document for a reason. Take the opportunity to maximize your compensation based on your rights and contributions to the company or organization.
  • Understand the agreement carefully. One of the most important things you can do before signing a severance agreement or any other contract is to understand what it says first. Read the document and discern if this is what you want and what you’re willing to give up. You have a choice not to sign the document if you don’t agree with it. Here, you can also negotiate with your employer if you believe that you want something else.
  • Take your time before signing the document. Know that you should be given time to review the agreement. The law requires employers to provide at least 21 days to read and understand the severance agreement before signing it. Take the opportunity as well to look for an attorney to help you with this process and make sure you are not being exploited or put in an unfavorable position.

Consult Severance Package Lawyers in Los Angeles

The severance agreement between you and your employer determines the amount of your severance package once you leave your position. Therefore, it’s imperative that you find an experienced severance package lawyer in Los Angeles to negotiate for you and assist you with the process. Having a skilled legal professional for this situation is also beneficial for you if your employer has wrongfully terminated you from your job.