An Employee’s Guide to Separation Agreements in California

Every year, thousands of California employees will be confronted with a document that most hope never to see: the separation agreement.

Many employees facing the unexpected loss of a job are too overwhelmed to know how to evaluate these agreements, which dictate the terms of their separation from the organization.

In California, professionals and executives in industries as diverse as biotech, entertainment, finance and more will often sign these agreements without a full understanding of the potential risks and rewards involved.

In this guide, we’ll walk through everything that California employees need to know about separation agreements.

Like, how they’re handled under California law, the benefits, and obligations they involve, the most important terms to look out for, and how an employment lawyer can help you negotiate with your employer to maximize the total compensation you receive.

If you have questions or would like to speak with a separation agreement lawyer in California, please contact us online today.

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I. An Employee’s Guide to Separation Agreements in California
II. What Is An Employment Separation Agreement In California?
III. What Terms Are Included In Separation Agreements In California?
IV. Are There Limits To The Rights That California Employees Can Waive In Separation Agreements?
V. Do I Have To Sign My Employer’s Separation Agreement?
VI. Can I Negotiate The Terms Of My Separation Agreement In California?
VII. When Should I Not Sign A Separation Agreement In California?
VIII. How Can I Reach A California Employment Lawyer Who Can Review My Employer’s Separation Agreement?

What Is An Employment Separation Agreement In California?

A separation agreement, also known as a severance agreement, is a legal contract between an employer and an employee who has been (or will be) terminated. Essentially, the purpose of a separation agreement is to facilitate an employee’s smooth exit from the company.

Employers typically extend separation agreements by offering an employee payment and other benefits in exchange for their agreement to cooperate with the transition.

For instance, an employee receives severance pay, continued health insurance coverage, and/or cash payouts from unused benefits, if they agree not to sue their employer, to publicly spread negative information about the company, or to share trade secrets. 

Most often, these agreements are presented to higher-level employees, such as business executives or managers.

But companies may also offer them to individuals who are let go for reasons not entirely within their control, like in the case of downsizing or lay offs.

It’s far less common for employees who voluntarily resign or who are fired “for cause” (i.e. poor performance, inappropriate behavior) to receive separation agreements. 

There’s no law in California or at the national level requiring employers to offer terminated employees the benefits included in a separation agreement.

The only way someone could be legally entitled to a separation package is if it’s required by another contract, like a collective bargaining agreement or as a stipulation in your employment contract.

What Terms Are Included In Separation Agreements In California?

California doesn’t have any specific legal requirements for what kinds of benefits employee separation agreements should offer, so the contents of a severance package are largely up to your employer. 

Here are the most common benefits employees will find in separation agreements in California:

  • Severance pay: This will typically appear as a portion of your salary paid out over a period of time, usually calculated in weeks or months of pay. For instance, an agreement could offer an IT executive in Palo Alto their monthly salary for up to three months after they leave the company. This payment can be paid in installments or as a lump sum. Your employer may also have their own formula for calculating the monetary portion of your severance package, which might also take into account your position in the company or your years of service.
  • Health benefits: Federal law requires your employer to offer you health insurance at the corporate rate for 18 months after your departure. These are called COBRA benefits, after the 1985 Consolidated Omnibus Budget Reconciliation Act. Be aware: COBRA ensures that you still have access to health benefits, but they don’t guarantee that you’ll still pay the same rate that you did as an employee. Instead, former employees are offered the “corporate” rate, i.e. the amount that your company paid for your health insurance. So, if you previously received health benefits for $800 a month, but your company was paying $2,000 a month to the insurer, continuing your health coverage will cost you $2,000 a month for the next 18 months. 
  • Money owed independent of severance pay: Any previously promised compensation could also be included as a separate payout: for example, unpaid commissions, bonuses, reimbursed business expenses, unused vacation days, or personal/sick time. 
  • Other financial benefits: These could include pensions, profit sharing, 401(k), loan repayments, and stock options, among others. Departing employees usually have 90 days to exercise their vested stock options before they expire.  
  • Outplacement services: Employees could receive funds intended for connecting with programs or agencies that provide assistance in a job search. These services can include guidance in resume writing or editing, interview preparation, or targeted company searches. 

In exchange for these benefits, separation agreements also lay out certain obligations for departing employees. These can include:

  • Confidentiality or non-disclosure agreements: If you had access to client lists, trade secrets, or intellectual property, you may be prohibited from sharing certain information once you’ve left your former company. These are more common in industries like tech or pharmaceuticals, where employees are often privy to proprietary research and/or development.
  • Non-disparagement clauses: This prevents you from making any public statements that reflect negatively on your former employer, including on social media.
  • Return of property: If your company provided any tools or technology as part of your role (laptop, phone, other technology), they may ask for their return upon termination.
  • Non-solicitation clauses: This could prevent you from doing business with your former employer’s clients, customers, or other employees in your future professional pursuits. For instance, a finance consultant who starts a new position with a different firm in San Diego could be prohibited from taking on clients she’d worked with at her previous company. 
  • Non-compete agreement: These clauses put restrictions on when and where an individual can find future employment in order to prevent employees from working with a company’s competitors. Fortunately, non-compete agreements are often legally unenforceable under California state law. This means that even if your employer includes this clause in a separation agreement, they typically can’t enforce its restrictions on you in court.

Most separation agreements will also include a clause outlining “general release of claims and covenant not to sue.” This part of the agreement requires an employee to waive their right to sue their employer in state or federal court in the future over certain issues. 

Any claims to be waived will have to be listed by your employer in the separation agreement. These could include the right to sue for breach of contract, privacy violations, defamation, or a violation of the Family and Medical Leave Act (FMLA).

They could also require you to waive your right to sue for claims that are specific to California law, like wrongful termination in violation of public policy, or for discrimination and harassment under California’s Fair Employment and Housing Act. 

In California, an employer might also request that employees waive CA Civil Code section 1542, which normally prevents individuals from relinquishing their right to claims that they’re not aware of at the time.

Under CA Civil Code section 1542, even if an individual agrees to a general release of claims against another party, they still retain the possibility of bringing a future suit over issues that were “unknown” at the time of the agreement.

For instance, if a software sales executive isn’t aware that she was terminated for illegal and discriminatory reasons until months after she agreed to her company’s severance agreement, Civil Code section 1542 would allow her the ability to sue her employer for wrongful termination.

However, if she had agreed to an explicit waiver of Civil Code section 1542 as part of that severance agreement — willingly giving up her right to future claims “known and unknown” — then unfortunately, her case would be dismissed.

Are There Limits To The Rights That California Employees Can Waive In Separation Agreements?

California and federal law do protect employees from waiving certain workplace rights in separation agreements. These include the rights to:

For employees who are over 40, there are also some limits to the circumstances around which you can waive your right to an age discrimination claim.

According to the Age Discrimination in Employment Act (ADEA), an employer must meet certain requirements before legitimately accepting an employee’s waiver of their right to an age discrimination suit, including:

  • Providing them with a waiver that uses clear, unambiguous language and specifically references the employee’s rights under the ADEA
  • Ensuring the waiver does not affect claims that can arise after the agreement is signed
  • Offering the employee something of value that they were not already entitled to in exchange for their waiver
  • Advising the employee in writing to consult with legal counsel before signing the separation agreement
  • Giving the employee at least 21 days to consider whether to waive their ADEA rights (or 45 days if it is a part of a mass layoff)
  • Allowing the employee at least 7 days to revoke their waiver, once it was given

In all of these cases, regardless of age, it’s wise to have an employment lawyer evaluate the terms of your employer’s separation agreement and ensure that you understand what’s involved in any waivers therein.

Do I Have To Sign My Employer’s Separation Agreement?

Just as there’s no law requiring that your boss offer you a severance package, California employees are under no legal obligation to sign a separation agreement as it’s written. 

It’s important to remember: a severance package is not a gift. A separation agreement is a legally binding contract in which both you and your employer promise to fulfill certain terms.

In order to receive the financial and other benefits listed in the agreement, you have to fulfill certain obligations. Companies offer these agreements not out of generosity, but with their liability and business interests in mind. 

That’s why it’s important to carefully consider the separation agreement before you sign it. Take time to read it through entirely to ensure you understand all the terms and obligations involved.

Since these contracts can often be complex, dense, or filled with technical legal language, it’s a good idea to have an employment attorney review them before signing. 

Can I Negotiate The Terms Of My Separation Agreement In California?

As a legal contract, a separation agreement is technically open to potential negotiation and revision between the parties before signing. 

Here are five areas where California employees are most successful in improving their separation agreement benefits:

  1. Severance Pay. You can always ask for more pay, especially if you were laid off because of a merger or acquisition. If you receive continuation of salary in lieu of severance pay, ask that it continue even upon disability or death. Ensure there are no offsets or mitigations if you’ll be paid in installments. Also, look out for mitigation offset clauses. These provisions require you to pay back your severance if you get a new job during the severance period. Ask to have these removed.
  2. Severance Pay Schedule. Many companies will propose a payout in 30 or 45 days after execution of the separation agreement. There is no reason to wait that long, and companies will often shorten the payout date to 10 or 15 days upon request. Also, if your company proposes an incremental pay schedule, consider asking them for a lump-sum payout instead. Payouts over time can be disrupted if something comes up, while a lump sum payment ensures that you receive all the money immediately.
  3. Medical benefits via COBRA. You’re entitled to continual medical/dental coverage for up to 18 months after a job termination (or 29 months if you are disabled). You can save money by asking that a taxable lump sum payment is made directly to you instead of having the employer pay the insurance policy. If this is agreed upon, you may be able to switch to a more affordable plan.
  4. Outplacement assistance. Employers commonly include these career development programs as part of a severance package, but many employees may not find them useful or necessary. If so, you can request to receive the cash equivalent of the services instead.
  5. References. How will the employer respond if and when you ask for references or recommendations? Depending on your situation, it’s possible to get your former company to agree to provide neutral to positive recommendations, should the situation arise in a future job search. If they agree to write a letter, have the letter attached to the agreement.

Of course, whether or not your company is open to negotiation will depend on your relationship to the employer and the circumstances of your termination. 

Having a positive work history, meaningful relationships inside the organization, and documented strong performance reviews can give you increased bargaining power in negotiating your separation agreement in California.

On the other hand, having evidence of employer misconduct or potential wrongful termination can also give you significant leverage in improving your separation agreement. Under California law, it’s illegal for a company to fire someone for:

If you suspect that you were fired for illegal or discriminatory reasons, you should get in touch with an employment lawyer immediately.

An employment attorney who specializes in California employment law can assess your situation and determine if you have grounds for a wrongful termination lawsuit.

If that is the case, an experienced advocate can also advise you on the best case of action and advocate for you if the issue goes to court. 

When Should I Not Sign A Separation Agreement In California?

Evaluating an employer’s separation agreement can be overwhelming and confusing for employees who are already facing the uncertainty of a recent job loss. You should never feel pressured into signing a document that you don’t fully understand. 

Fortunately for employees in California, you don’t have to take on the stress of evaluating and negotiating employer separation agreements alone.

Ottinger Employment Lawyers offers a review and consultation for employees facing separation agreements.

Our team of attorneys will review your separation agreement and meet with you over the phone, or in one of our offices in Los Angeles or San Francisco to discuss the package.

Our experts in federal, California state, and local employment law can identify potential problems in the agreement, suggest ways to improve the separation terms, and can even conduct negotiations with your employer on your behalf. 

How Can I Reach A California Employment Lawyer Who Can Review My Employer’s Separation Agreement? 

If you work in California and are concerned about how to handle your employee separation agreement, contact our office today to set up a review and consultation.