California does not require employers to offer severance pay or a severance package to departing employees. However, employers often reward longtime, loyal employees with this benefit. Sometimes, severance is offered in exchange for settling claims employees concerning harassment or discrimination.
Effective January 1, 2022, California law further restricts what employers can include when offering severance benefits in exchange for silence or non-disparagement by a departing employee. If you are an employer who currently uses severance agreements when an employee leaves, consult a knowledgeable attorney at Sparks Law. Our California severance agreements lawyers could advise you and ensure you are complying with the new laws.
Currently, California law forbids severance agreements that restrict employees from disclosing facts related to unlawful acts in the workplace. This could include civil lawsuits or complaints with state and federal regulatory boards related to sexual harassment, discrimination based on sex, or retaliation by an employer.
The new law, Senate Bill No. 331, expands this disclosure prohibition to include all discrimination and harassment regardless of sex, as well as any acts the employee believes are unlawful. Thus, an employer cannot offer a severance package on the condition that the employee must not disclose or disparage the employer over these unlawful acts. The courts will void such contracts because they violate California public policy.
Employers can bargain for confidentiality of the severance amount. However, for severance agreements with general releases, employers must also state that the employee should consult an attorney and has at least five days to do so. Employees who accept the conditions and sign in fewer than five days must acknowledge that they did so voluntarily. A local attorney at our firm could review an employer’s severance agreements and ensure that they comply with California law.
The new California law has similar provisions as federal law regarding severance agreements. Additionally, under the federal Older Workers Benefit Protection Act (OWBPA), employers must adhere to the following provisions if they ask employees to waive the right to sue them. Here is what employers need to know:
Employers should consult a seasoned California lawyer familiar with state and federal restrictions for severance agreements, as there are many legal considerations.
All contracts require a legal concept known as consideration. This means that both parties perform or refrain from performing something of value to the other party.
Employees signing severance agreements usually refrain from disparagement or competition, and employees exchange parting benefits they are not obligated to grant. The trick is the consideration must be something not already owed. For instance, an employee’s final paycheck is already owed and is not consideration. A well-practiced attorney would draft mutual consideration into a severance agreement because without it, there is no contract.
If you are offering additional benefits to departing employees in exchange for their promise not to sue or disparage your company, consult a legal professional at Sparks Law first. You need an agreement that addresses all the nuances of federal and California law.
Do not risk a court challenge to an agreement that violates the law. Learn what you can and cannot ask an employee to do and what you owe that employee. You need experienced counsel who offers the peace of mind that comes with a well-drafted document. Call a California severance agreements lawyer today to schedule your initial consultation.
