In California, a Separation Agreements is a contract between an employer and an employee who is facing termination. This agreement typically includes a clause requiring the employee to waive any legal claims against the company. In return for this waiver, the employee often receives severance pay. Additionally, many separation agreements impose restrictions on the employee’s post-termination activities. However, there are circumstances under which signing such an agreement may not be advisable.
Is an employee separation agreement a binding contract?
Yes, in California, a separation agreement is indeed a binding contract established between an employer and an employee who is about to be terminated. To form a legally binding separation contract in California, there must be:
- An offer made by the employer,
- Acceptance of that offer by the employee,
- And an exchange of value, known as “consideration,” where both parties give up something in the exchange. The employer provides a severance package, and the employee relinquishes the right to pursue legal claims against the company.
However, it’s crucial that all contracts serve a lawful purpose. If a separation agreement requires an employee to give up rights that legally cannot be waived, or if it otherwise breaks the law, it becomes void.
While not all terminations involve a separation agreement, especially if an employer is not worried about potential lawsuits, these agreements are common. Employers often offer severance not just to mitigate legal risks but also to maintain a positive reputation, particularly in cases of layoffs or downsizing. If a separation agreement contains unlawful provisions, these specific terms may be void and unenforceable, but the remainder of the agreement could still be valid.
What rights does it require workers to relinquish?
In California, separation agreements commonly require employees to relinquish specific rights to receive severance benefits. These rights typically include claims related to:
- Wrongful termination,
- Defamation,
- Discrimination,
- Class action lawsuits,
- Family leave under the Family and Medical Leave Act (FMLA),
- Disputes over retirement benefits under the Employee Retirement Income Security Act (ERISA),
- Continuation of healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA),
- Disability claims against the employer,
- Other potential claims not known at the time of signing.
These rights are detailed in the “waiver of claims” or “release of claims“ section of the agreement. Signing this waiver means you forfeit the ability to pursue these claims later. If you attempt to bring a claim that you have waived, your lawsuit is likely to be dismissed, and you may be responsible for the employer’s legal costs.
Some rights cannot be completely waived. For instance, while you can waive the right to sue for discrimination under Title VII, you cannot waive the right to file a discrimination charge with the Equal Employment Opportunity Commission (EEOC). Similarly, while you can waive participation in a class action lawsuit under federal law, your right to sue under California’s Private Attorney General Act (PAGA) remains intact. Thus, separation agreements often also serve as contracts that settle disputes, but with certain limitations on the scope of rights waived.
Are there any rights that cannot be waived in a separation agreement?
In California, certain workplace rights are non-waivable through a separation agreement. These rights include:
- Workers’ compensation claims and benefits,
- Unemployment benefits,
- Rights to wages or compensation already due, including overtime pay or disputed minimum wage benefits.
Regarding age discrimination claims under the Age Discrimination in Employment Act (ADEA), waivers must be made knowingly and voluntarily to be valid. The Older Workers Benefit Protection Act (OWBPA) stipulates specific requirements for a valid waiver of ADEA rights, including:
- The use of clear, unambiguous language in the waiver, specifically referring to rights under the ADEA,
- The assurance that the waiver does not cover claims that might arise after the agreement is executed,
- Provision of additional value that the employee was not already entitled to in exchange for the waiver,
- Written advice from the employer recommending that the employee consult legal counsel before signing,
- A minimum of 21 days to consider the waiver (or 45 days in cases of mass layoffs),
- A 7-day period in which the employee can revoke the waiver after signing.
If a separation agreement includes waivers of rights that legally cannot be waived, those parts of the agreement will be considered unenforceable in California courts. However, most separation agreements contain a severability clause stating that if one part of the agreement is found invalid, the rest of the agreement remains enforceable. This ensures that the entire agreement does not fail if one provision is invalidated.
What are some common post-termination restrictions on departing workers in California?
Employment separation agreements often contain post-termination restrictions, also known as restrictive covenants. These can include:
- Non-compete clauses, which are generally unenforceable in California, although employers may still include them in agreements to try to restrict former employees’ future employment,
- Non-disclosure agreements, particularly relevant for employees who had access to trade secrets or sensitive intellectual property,
- Confidentiality clauses,
- Non-disparagement clauses, which prevent former employees from making negative statements about their former employer, and
- Non-solicitation agreements that restrict former employees from soliciting the employer’s clients, customers, or other employees, though these are also largely unenforceable in California except under narrow circumstances.
The agreement also details the remedies available to the employer if these post-termination restrictions are violated. Despite the general unenforceability of non-compete clauses in California, employers frequently include them in their contracts as a deterrent against competition from former employees.
What is in the severance package?
The contents of a severance package can vary widely, but typically include various forms of compensation. Common elements that employers often include are:
- A lump sum payment,
- Continued payment of full or partial salaries for a predetermined period, often based on the length of employment,
- Stock options,
- Compensation for unused vacation, personal, or sick leave,
- Continued health insurance coverage for a set period or until new employment is found,
- Paid job counseling or training services.
Negotiability of Severance Packages Severance packages are not mandated by California law, meaning their contents can often be negotiated. This is particularly advantageous for terminated employees facing significant financial difficulties post-employment. If you believe you have leverage, such as potential claims against your employer, it is advisable to engage legal counsel to negotiate more favorable terms.
Impact on Unemployment Benefits It’s important to note that accepting a severance package in exchange for signing a separation agreement does not disqualify you from receiving unemployment benefits in California.
What can happen if a severance agreement is not used?
If no severance or separation agreement is utilized in California, employees retain the right to pursue legal action against their employer for any misconduct experienced during their employment. Potential lawsuits could be filed for issues such as:
- Wrongful termination,
- Workplace harassment, including sexual harassment,
- Discrimination,
- Workplace retaliation.
This potential for litigation often motivates employers to propose separation agreements to employees departing under contentious circumstances. These agreements typically include clauses that waive the employee’s right to sue, thereby providing employers with a measure of security against future claims.
Are employers required to offer a severance package?
In California, there is no legal requirement for employers to provide a severance package when terminating an employee. However, many employers opt to offer severance as a means to encourage an agreement from the employee not to pursue legal action.
Severance agreements are particularly common among employees who hold managerial or supervisory roles. Offering a financial incentive upon termination can attract new talent to the company.
Even in the absence of a severance agreement, employers must ensure that all earned wages, including accrued paid time off and other benefits, are paid to terminated employees.
