Five Answers To Common Questions About Severance Pay And Severance Agreements


Severance pay is not required by California law. However, employers who have possible disputes with employees that are leaving should consider offering severance pay in exchange for a signed severance agreement containing a release of claims against the company. This may help the employer avoid a costly lawsuit. Below are answers to five common questions regarding severance.

1. Are employers required to give employees severance pay?

No. If the employee is an at-will employee, the employer is not required to provide severance pay regardless of who ended the employment relationship.

2. Why do employers offer severance pay if it is not required?

There are numerous reasons that employers offer severance pay. If an employer's business has slowed down and needs to layoff employees, the employer may offer severance pay to make the transition smoother for the employee. Also, employers who believe that there is a possible dispute between it and the employee may offer severance pay in exchange for a signed severance agreement. The agreement, if done correctly, can help the employer avoid a potential lawsuit, as the employee would be waiving all and any claims that he/she may have against the company.

3. Is the employer required to pay the employee for a release of claims?

If the employer is asking an employee to release all claims they have against the company, generally the employee should receive something of value in exchange for the release. Although it is common, the severance provided to the employee is not required to be in the form of a payment, but must be something of value agreed upon by both parties.

4. What terms are generally included in a severance agreement?

  • A general release with a Civil Code Section 1542 waiver releasing all known and unknown claims
  • Confidentiality
  • No admission of liability
  • No present or future employment
  • Non-disparagement clause which can also set forth what job reference, if any, will be given to any prospective employers
  • Return of company property and non-solicitation of customers clause

5. Are there any specific considerations required in a release for employees 40 years old or older?

Yes. Individuals 40 years old or older are protected by the Older Workers Benefit Protection Act (OWBPA). The OWBPA has certain requirements for a release of claims in order to prevent age discrimination. The requirements include that the employee is advised to consult with an attorney, the waiver is easy to understand, the individual is provided a minimum of 21 days to consider the agreement, and the individual is given a minimum of 7 days following his/her acceptance of the agreement to revoke the agreement. Although the employee can waive the 21 day consideration period, the 7 day revocation period can not be waived. It is important to consider not paying any money until the 7 day revocation period has expired. If a release is being offered to a group of employees, a longer consideration period as well as additional requirements may apply. It is strongly recommended that employers receive assistance from counsel to ensure employees 40 years old or older effectively waive any rights under the OWBPA.


- California Employment Law Report