When an employee is let go from employment, oftentimes the employer offers a severance agreement (also known as a severance). But what is a severance, and what should I do when I get one?
Money in exchange for a promise not to sue
A severance is a document provided by an employer to an employee which sets forth the terms and conditions upon which the employee will exit from the company. Most importantly, the employer offers to pay the employee a specified sum of money in the severance, including other benefits such as a continuation of health insurance (like COBRA), in exchange for the employee’s promise not to sue the employer for any past events.
In this sense, a severance agreement is like an insurance policy for the employer. The employer agrees to pay an extra amount of money upon discharge, and in return, the employer can have peace of mind that the employee will not file a lawsuit against them later.
Severance agreements are not required or mandatory
While many businesses offer severances to employees who are being terminated or laid off, nothing in the law requires that a severance be provided. Nor is an employee obligated to accept a severance. It is completely within the control of the employer to offer a severance, and it is completely within the control of the employee to decide whether to accept, decline, ignore, or negotiate a severance.
There is no set method for calculating the severance amount
Some companies have written policies specifying how much severance will be offered to employees (for example, “one week’s pay for every year worked”). However, there is no set methodology or requirement as to how much an employer must offer in a severance. Again, this is up to the employer and employee to decide.
Consider consulting with an attorney before signing a severance
Although employees may feel that they should sign a severance because they are being offered free money, employees should be careful to read the severance carefully. Sometimes, severance agreements seek to pay employees money which they have already earned and are owed (which is illegal). Severances may also contain impermissible restrictions like non-compete agreements or non-disparagement clauses that are not enforceable in California.
Even more importantly, severances are usually negotiable, especially if the employer sees that the employee is consulting with an attorney. So if an employee has been offered a severance, it is usually a good idea to bounce it off an attorney first.
If you have questions regarding a severance agreement or want a free consultation regarding your situation, we are here to help. Feel free to reach us at (424) 235-4385.