Severance Agreements

Severance agreements are governed by general contract principles. Most severance agreements can be generously worded and can cover a large range of topics. Many severance agreements are delivered to employees with no input by the employee. Common questions that come up for California employees after receiving a severance contract are:

1. What am I giving up if I sign the severance agreement?
2. When am I entitled to more money if I am going to sign this agreement?
3. What does Evidence Code Section 1542 about waiving known and unknown claims mean?
4. Do I have to sign this agreement within the amount of time my employer told me to?
5. What happens if I do not sign this agreement, or I do not sign within the time period I was told to?
6. What does “trade secrets” mean?
7. What documents or information may I take with me?
8. If I have been a victim of retaliation, should I sign this contract?
9. If I have suffered discrimination at my place of employment, is this agreement going to silence me in the future?
10. Do I have a right to get a positive reference or letter of recommendation from an employer before signing my severance agreement?

Signing a severance agreement has serious implications for these questions, and not all agreements are alike. If you sign a severance agreement granting you two weeks of pay, the agreement likely prevents you from later suing the employer for retaliation or discrimination. Severance agreements usually have a “catch all” provision that states you are waiving all claims you currently know, and all claims you might later learn about in the future. It is critical to have a skilled employment attorney review your severance agreement to make sure you are not leaving money on the table or foreclosing your personal rights to take further action.

It is unlawful for a severance agreement to include a provision that states you may not file a complaint with a government agency, such as the Fair Employment and Housing Department or the Occupational Safety and Health Administration. The agreement may, however, lawfully preclude you from obtaining money or any other sort of penalty or compensation after you do file a complaint.

Pay particular attention to severance agreements that reference other contracts, agreements or employment policies. In some cases, an employer’s agreement might state that by signing their severance contract, you are also acknowledging compliance with documents signed at the start of employment, or contracts you signed while employed with them. If you do not have a clear understanding of what other documents are referenced in a severance agreement or its attachments or exhibits, ask for clarification or request copies of those documents.

You are entitled to receive a copy of all documents you signed under California Labor Code Section 432. You are entitled to a copy of your personnel file per California Labor Code Section 1198.5. You are also entitled to a copy of your pay records pursuant to California Labor Code Section 226.

It is generally unlawful in California for an employer’s severance agreement to state that you may not compete against the employer in a future job. The general prohibition about non-compete clauses is intended to protect an employee’s right to work in their chosen field, allow them to earn an income and remain professionally relevant. If you have been asked to sign a severance agreement that says you can not work in a similar job within a certain geographic area, or for a certain amount of time after you leave your job, it is important to have a qualified employment lawyer review the agreement and advise you on your employment rights.

There are some exceptions to non-compete agreements. For example, non-compete agreements in California can be lawful when a person sells the good will of a business, when an owner sells his or her entire assets of a business, or when an owner sells all of the assets of a business along with the good will of the business. In essence, if you sell your business, it may be lawful to have a non-compete clause in a contract (generally not a severance agreement) as long as there is sufficient consideration (fair payment), it relates to a reasonable geographic area, and the duration of time is reasonably stated.

we assist all manner of employees in reviewing their severance agreements and are often able to not only get more future wages, but also protect their future employment rights. We also regularly counsel small businesses so that their agreements remain enforceable. If you have questions about whether to sign or how to write up a severance contract, call now for a free consultation.