When an employee’s position within a company ends, severance agreements are signed before the employee receives any severance pay. These legal agreements are meant to protect the company from future legal claims, but they can be detrimental if you don’t know what you’re signing.

California employment laws do not require companies to offer severance pay. Other rules in place dictate when you must receive your final pay. There are also WARN Act rules that determine how much notice you’re given before your job is terminated and if you receive severance pay.

Areas of an Agreement to Carefully Examine

When you’re given a severance agreement to sign, look specifically for clauses related to these issues.

1. Non-Compete Clauses

Non-compete clauses are designed to keep workers from going to work for the competition. California strives for employee-friendly policies. As a result, California laws make most non-compete clauses illegal. 

If there is a non-compete, they’re not enforceable except for limited exceptions allowed with the sale of your interests in a business or partnership. If an employer demands that you sign a non-compete, talk to an attorney. If an employer tries to enforce a non-compete and the above exceptions don’t apply, you can sue.

2. Non-Disclosure, Confidentiality, and Non-Disparagement Clauses

If you sign the agreement and there is a non-disclosure clause, it’s important that it is fair and doesn’t break any employment laws.

SB 331 is California’s law regarding gag orders. If you know of any workplace discrimination or harassment claims and are told to sign a disclosure preventing you from ever talking about it, it’s a violation of SB 331. A company cannot retaliate against you for speaking out.

Confidentiality clauses are only allowed if the information you’re being asked to never disclose follows the law. You might be asked to never share trade secrets. That’s allowed. 

You may be asked to never say anything negative about the company. Non-disparagement clauses are allowed as long as the things being shared aren’t related to workplace violations like discrimination, harassment, or retaliation.

3. Release of Claims

In a severance agreement, the employer asks you to give up your right to sue for several reasons. You cannot waive your right to collect workers’ compensation or unemployment. If you’re asked to, that’s a violation of your rights. You also cannot sign a release of claims for things you’re unaware of at the time you sign it. 

For example, you sign a severance agreement that waives your rights to sue for age discrimination. Six months later, a former coworker informs you that the employer is being sued for age discrimination, and some of the evidence points to the employer’s admission that you were terminated because of your age. You were unaware when you signed the severance agreement and waived your rights. The release of claims protects.

4. Severance Pay and Benefits

Is the severance pay fair? Is it going to cover your expenses using reasonable estimations for how long it will take to find a new job? The agreement should clearly state if taxes and other withholdings are going to be taken from the severance pay and whether the payment is coming as a lump sum or in installments.

Do you still receive your key employment benefits? Will you keep your health insurance for a specified period or time, or are you only extended COBRA coverage? Who pays for that COBRA coverage? Is your employer going to help, or do you have to pay the full amount on your own?

Also look at benefits like dental and life insurance, 401k and pensions, bonuses, and stocks. Make sure you’re not losing a lot if the company doesn’t extend those benefits after you leave.

Understanding the WARN Act

If your job is ending as part of a mass layoff, your severance agreement must consider the rules of the WARN Act, too. The Worker Adjustment and Retraining Notification (WARN) applies to any company that has at least 75 full- or part-time employees. 

There are rules a company must follow. Any employees who have been with the company for at least six of the past 12 months need to be provided with at least 30 days of notice of a layoff of 50 or more workers or relocation of at least 100 miles. If the relocation involves a call center moving to a new country, 30 days must be provided, no matter how many workers are affected.

If you’re asked to sign a severance agreement with your job ending before 30 days is up, it’s a violation of the WARN Act. Penalties of up to $500 per day are possible. The penalties are calculated using your final pay rate or an average rate of your past three years’ paychecks. 

Did you accrue any medical expenses after your position was terminated? If so, your employer is liable for the cost that your company’s health insurance would have usually covered. This rule covers up to 60 days after your termination or 50% of the amount of time you were employed with the company, whichever number is smaller.

Don’t sign a severance agreement that waives your rights to the protections the WARN Act provides. If you are asked to sign agreements waiving your right to have health costs covered after a mass layoff or waiving your right to 30 days’ notice, don’t. Talk to an employment law specialist in California.

Steps to Take Before You Sign

Before you sign a severance agreement, make sure you carefully read it. If anything is hard to understand or doesn’t seem fair, consult an expert.

California laws provide you with a minimum of five business days before you must act. There are a few extensions.

• If you’re 40 or older, the Older Workers Benefit Protection Act (OWBPA) provides you with up to 21 days.
• Older workers who are part of a group layoff have 45 days instead of 21. 
• Older workers also have a 7-day period in which they can change their minds after signing a severance agreement.

These deadlines give workers time to consult a California attorney specializing in termination agreements. Make sure you talk to a lawyer to ensure your rights are not violated.

Schedule a Free Consultation

Our advice is to talk to an attorney as soon as you’re asked to sign a severance agreement. Don’t let your employer pressure you to sign the same day you’re notified your job is ending. Bring a copy of the severance agreement with you.

Shegerian Conniff specializes in California employment law. Our legal team is happy to look over your severance agreement and point out any issues or areas of concern. Schedule a free consultation today.