Are You Entitled to Severance Pay in California?

When an employer decides to terminate an employee’s employment, they sometimes offer a form of compensation known as severance pay. This pay supports the employee for a short while after their employment ends. When you sign an employment contract in California, a clause may address severance pay upon termination. As an employee, you may wonder if you are entitled to this compensation when faced with job loss and need clarification on your rights regarding severance pay. Let’s dive into this topic to help bring clarity to this situation.

Understanding Severance Pay in California

A severance package, or severance pay, is financial compensation provided to employees when they lose their jobs due to layoffs, position eliminations, or as part of a negotiated exit. However, not all employment contracts contain this because severance pay is not required by any California law. This, therefore, implies that your employer is not obligated to provide you with a severance package. However, if a company has an established severance policy or has included severance terms in an employment contract, it must honor those commitments. 

The U.S. Department of Labor (DOL) also considers a severance agreement a contract between an employer and a departing employee. However, while severance pay is not mandated nor enforced, the DOL can intervene if an employer illegally withholds your final pay. For instance, if your employer delays your final paycheck to pressure you into signing an unfair severance agreement, the DOL can help because this practice is unlawful in California.

How Severance Pay is Determined in California

As earlier mentioned, severance pay is not mandated by California law. If an employer offers to provide severance pay, several factors can influence the structure and amount, including the following:

• Tenure and Position

The severance calculation is usually based on your years of service at the company. Many companies offer one week’s pay for each year worked, while others provide up to four weeks per year. Your position and salary level can also influence the final amount.

• Unused Paid Time Off

A severance package may also include payment for accrued but unused vacation days and sick leave.

• Health and Other Benefits

Some severance packages extend health insurance coverage for a set period after termination, allowing employees and their dependents to maintain access to medical care. Employers may also offer continued access to other perks, such as gym memberships or employee assistance programs (EAPs).

• Retirement Account Considerations

In a severance agreement, you should also know how retirement funds, such as 401(k) contributions, will be handled after separation. Understanding rollover options and continued benefits is crucial for long-term financial planning.

How To Negotiate a Better Severance Package

While negotiating severance pay can be challenging, here are some strategic steps you can take to improve your package:

• Review the offer carefully to understand the terms before making a decision
• If you have potential legal claims or are highly valuable to the company, you may have more negotiation power.
• Determine your key benefits, such as a higher payout, extended healthcare, or job placement services.
• Consider additional benefits like positive references or career counseling, as these can be as valuable as cash.
• Be ready with a counteroffer with clear reasons, and be prepared to negotiate.
• Before signing a severance agreement, take the time to review the terms and consult an employment lawyer to ensure your rights are protected. 

Contact a California Employment Lawyer Today

If you are unsure about your severance rights, contact a California employment lawyer for guidance.