Severance pay is a form of compensation that employers sometimes offer employees when terminating their employment. Though severance is not mandatory, some rules and regulations govern California’s severance pay. This article will explore California’s severance pay requirements and basics and help you understand what you can expect if you are eligible to collect it. Contact us today to speak with an experienced employment attorney in LA at Bibiyan Law Group!
What Is Severance Pay in California?
Companies may provide severance pay to employees they permanently lay off or terminate due to job eliminations or restructuring. An employer may offer severance pay as part of an employee package or severance agreement. A formal severance agreement outlines the terms of employment separation and the severance pay rate. It is a contract between private parties governed by California contract law.
Severance agreements usually include payment in exchange for the employee’s consent to specific terms. For example, agreements may contain clauses preventing workers from suing the company, discussing their termination, speaking negatively about the company, or sharing confidential information. Additionally, it is not uncommon for severance agreements to include provisions that remove certain career support benefits previously offered by the employer, such as outplacement services, resume assistance, or job training, as part of the termination terms.
While no law requires employers to offer severance packages, those that do must adhere to certain rules and regulations. For example, severance agreements cannot ask employees to break the law, provide unconscionable terms, or waive rights that violate public policy. Similarly, employers cannot require employees to sign a severance agreement before paying them their owed wages or induce them to do so through fraud, duress, or undue influence. However, as long as both parties enter the agreement voluntarily and the terms are lawful, courts consider severance agreements legally binding, regardless of whether the employer benefits more than the employee.
Is Severance Required in California?
California law does not require employers to provide severance pay upon termination. Employees should check their employer’s severance policy.
Who Is Eligible for California’s Severance Pay?
Generally, it is up to the employer to determine who receives severance pay and how much. However, if an employer outlines a severance policy or agreement in its employee handbook, contract, or union agreement, the employer must follow that policy and pay the employee in accordance with those terms. For example, if severance pay is included in your contract or union agreement, your employer must legally pay it to you upon termination.
Example of Severance Pay
A big entertainment company in Los Angeles is expanding its streaming services. To grow, it buys a smaller film studio in the city that specializes in local movies.
The big company wants to keep most of the smaller studio’s staff because they know the local market well. However, the smaller studio’s finance team does the same work as the big company’s, which already has more experience and handles larger projects. So, the big company decides to close the smaller studio’s finance department.
The 8 employees in the finance department are told their jobs will end, but the company offers severance pay to help them. Each employee will get one month of pay for every year of service they completed at the studio. For example, someone with three years of service will receive three months of pay.
How Is California’s Severance Pay Calculated?
There is no set formula for calculating severance. However, employers must follow specific rules and regulations when calculating an amount. For example, if an employer has a policy or agreement that outlines how they determine severance pay, they must adhere to it.
Employers often base severance pay on factors such as the employee’s years of service, job title, and salary, and typically apply a formula to calculate the total. For example, an employer might use this formula: One week or month of the employee’s regular pay rate multiplied by the number of years of service. Other companies arbitrarily choose a figure or include a predetermined severance formula in the employment contract that dictates the amount.
Employers typically pay severance in a lump sum in addition to an employee’s regular pay.
Severance packages may also include more than just wages. For example, a package could consist of stock options, prorated bonuses, payment for unused vacation time, or continued medical insurance coverage. It is also important to note that receiving severance does not disqualify employees from collecting unemployment insurance, as these benefits are typically treated separately under California law.
Bibiyan Law Group, PC, Can Help
If you have questions about your severance package or agreement, Bibiyan Law Group, P.C., can review its terms and provide counsel. We also help clients understand their rights under California law and federal Department of Labor guidelines. As advocates for employee rights, we have tirelessly fought unlawful employment practices and secured millions of dollars for our clients. Our success has earned us a perfect Avvo rating and a prestigious place in the Multi-Million Dollar Advocates Forum. If you would like to schedule a free phone consultation, please contact us at 310-438-5555. Our experienced negotiators will work hard to ensure you receive the resolution you desire.