7 Things to Know When You’re Offered a Severance Package in California (2024)

While California has no laws that specifically address severance packages in California, a severance offer can still require a careful review by your attorney. You cannot be coerced into accepting compensation when leaving a job, and any final payments must comply with previous contract agreements. An employment lawyer can help you better understand seven things to know when you’re offered a severance package in California:

1. Release of Claims

Do not be surprised if the severance package comes with a type of agreement called release of claims. This release form means that by accepting the severance package, you waive all rights to sue the employer for past issues, such as discrimination or wrongful termination.

If your employer engaged in serious misconduct, you could lose your ability to hold them accountable through the courts. Consulting with an attorney can help prevent any premature waiving of important rights.

2. Severance Packages Are Negotiable

Although many people associate severance packages with a “take it or leave it” proposition, the agreements are usually negotiable. Negotiating is often easier when you have an attorney representing your interests.

Severance pay, benefits, and other terms of the agreement may be negotiable in part.

3. Review Period for Older Workers

Under the Older Workers Benefit Protection Act, workers over 40 should be given a minimum of 21 days to review a severance agreement before signing it. Once they have signed the agreement, they must be given an additional time to revoke their acceptance.

This law is designed to ensure that older workers have sufficient time to consider the terms of the severance agreement and to seek legal or other advice if needed.

4. Carefully Review Non-Compete and Non-Disclosure Agreements

Your severance agreement may include non-compete or non-disclosure language. Non-compete agreements could limit your ability to make future income in the areas where you have the most experience. If you witnessed unethical behavior, a non-disclosure agreement could limit your ability to take civil action or act as a witness during someone else’s lawsuit.

5. Unemployment Benefits

Accepting a severance package can limit your eligibility to accept unemployment benefits. You may still be able to collect unemployment after the severance period ends, but you should still consult with an attorney to make sure you do not do anything that violates rules and guidelines from the California Employment Development Department (EDD).

6. Tax Implications

Your taxable income could rise considerably under a severance agreement payout. This could also temporarily place you in a higher tax bracket. Make sure that you understand all of the tax implications tied to your severance package. Otherwise, you may end up paying much more in taxes than you intended to.

7. Review Your Original Contract

It may have been years or decades since you first signed an employment contract with your current place of work. Either way, go back and review the original contract to see if there are any contradictions between that agreement and your severance package. If certain things that were promised are not included in the severance agreement, you may have grounds for legal action.

FAQs

What Are the Rules for Severance Pay in California?

California does not have rules and protections specifically for severance packages, but those final payments cannot break previous contract agreements or violate any state or federal law. If you are being offered a severance package that does not honor your original agreement with your employer, you can hire an attorney who can look into filing a breach of contract lawsuit.

Do I Need to Hire an Employment Lawyer to Review My Severance Package?

You don’t have to hire an attorney to review your severance package, but having legal representation has many benefits. Most workers go their entire careers without ever seeing a severance package agreement.

If you are unfamiliar with the language and terms used in these types of contracts, you may miss important details. Once you sign the agreement, you will likely have to live with the terms of the agreement. An attorney can review the document and let you know the full implications of signing the contract.

What Is the Rule of 70 for Severance?

The Rule of 70 is a provision that allows employees to extend their medical plan coverage beyond the severance pay period under specific conditions. To take advantage of the Rule of 70 benefits, you must meet certain criteria. Your age plus your years of service with the company equals at least 70. You must not have any other group medical coverage available to you, and no other group medical coverage should become available during this period

Can You Collect Unemployment in California If You Get a Severance Package?

You can generally collect unemployment in California after accepting a severance package, but the type of severance package you accept may affect when you begin accepting unemployment.

Lump-sum payments or those tied to signing a release of claims generally do not affect eligibility. If severance is paid out over time and considered wages for those periods, it might delay or reduce your benefits during those times.

What Is Normally Included in a Severance Package?

The largest and most important component of a severance package is usually the lump sum payment that takes into account how many years you worked for your company. Beyond severance pay, you may be offered a temporary continuation of benefits, which are health benefits.

Your company may also pay into your pension or retirement plan as part of the final agreement, and you may be offered stock options.

Schedule Your Severance Package Consultation Today

A severance package can provide important benefits that help you move onto another job or properly fund your retirement. It can be well worth the time to allow an attorney to review any severance package offer to make sure that your company is honoring your past agreements and not violating any state or federal law.

The lawyers at Shirazi Law Firm, PC, bring many years of experience when reviewing severance package proposals. We can carefully read through the document and give you a clear and honest assessment of whether you should accept the current agreement, make a counteroffer, or take other measures. To schedule your severance package agreement consultation, contact our office today.