Understanding California’s Severance Pay

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 employment separation terms and severance pay rates. 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.

While no law requires employers to offer severance packages, employers who provide severance pay 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.

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 has a severance policy or a severance agreement in California that guarantees compensation, the employer must follow that agreement. For example, if severance pay is included in your contract or union agreement, your employer must legally pay it to you upon termination. 

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 the severance amount on factors such as the employee’s length of service, job title, and salary—typically applying a formula to determine a 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 worked. 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, pay for unpaid vacation time, or medical insurance. It is also important to note that receiving severance does not disqualify employees from unemployment benefits.

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. As advocates for employee rights, we have tirelessly fought against unlawful employment practices and have won 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 your desired resolution.

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David Bibiyan is a distinguished attorney at Tomorrow Law, renowned for his expertise in employment law. With a strong focus on representing employees in various workplace disputes, he has become a trusted advocate for those facing discrimination, harassment, wrongful termination, and wage and hour issues. Bibiyan’s approach is characterized by a deep understanding of both state and federal employment laws, ensuring that his clients receive knowledgeable and effective representation. His commitment to justice is evident in his dedication to each case, where he meticulously works to secure the best possible outcomes for his clients. Bibiyan’s reputation is built on a foundation of successful case resolutions, marked by his skillful negotiation and, when necessary, aggressive litigation strategies. His work at Tomorrow Law reflects a genuine passion for defending workers’ rights and promoting fair employment practices.

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