Severance Negotiations & Disputes

Not Getting the Severance You Deserve?

Our Orange County based lawyers can help you receive the termination pay you're entitled to.

The concept of severance was created to smooth the transition of a terminated employee out of a job. In theory, severance should allow both employee and employer to receive some benefit and move on—but it doesn’t always work out that way in practice.

Whether an employee has been terminated because of budgetary constraints, a buyout, or misconduct on their part or the part of their employer, severance negotiations can quickly turn sour when one party doesn’t hold up their end of the deal.

If you aren’t getting the outcome you deserve in your severance negotiations, here are some things to keep in mind.

What Is Severance Pay?

Severance refers to compensation paid to an employee at the time of their termination from their job. It is typically paid out in a lump sum on an employee’s last day.

Severance pay can be just one part of a severance package. In addition to a lump sum based on the employee’s salary, a severance package may include benefits such as stock options, continuing health insurance coverage, unemployment, or help finding a new job.

In the case of layoffs, severance pay might be given to long-time employees as a show of good faith. When the separation is more contentious, the employer may offer severance to placate an employee who was wrongfully terminated, or who might have a legal claim against the company.

What Is a Severance Agreement?

In order to receive payment, an employee may need to sign a severance agreement, a contract by which an employee gives up some rights in exchange for benefits. When entered into voluntarily by both parties, these contracts are usually valid and upheld by California courts, even if the agreement seems to favor the employer.

A severance agreement may ask the employer to give up:

  • The right to sue the employer for harassment, discrimination, wrongful termination, or another legal issue (release of liability)
  • The right to talk about their termination or negative experience working for the company (non-disparagement clause)
  • The right to share the details of their severance package (confidentiality clause)
  • The ability to share trade secrets

Some employees feel comfortable giving up these rights in exchange for severance pay. Others may wish to preserve their rights, especially if they have the grounds for a lawsuit. Still, in other cases, the employee may sign the severance agreement, but the employer fails to follow through on its promise—or vice versa, if the employee signs the contract but breaks it. In these situations, it may be necessary to bring legal action.

California Severance Laws

Part of the reason why severance negotiations can become tense is because the Fair Labor Standards Act (FLSA), the federal law that governs labor and wage standards, says absolutely nothing about it. Employers are not mandated by CA or federal law to offer pay or benefits to terminated employees, leaving both employers and employees with little guidance. However, there are three situations when an employee is generally entitled to severance:

  • When the company previously agreed to pay severance in an employment contract or in the employee handbook
  • When the employee’s union mandates it
  • When the employer did not give the employee at least 60 days’ notice before a lay off (only applies to companies with 100+ employees)

Additionally, employers must pay accrued vacation time and wages until the employee’s last day. Companies are also required to provide COBRA, so the terminated worker and their dependents can continue their health insurance coverage.

Outside of these situations, termination pay is left entirely up to the employer’s discretion and the employee’s negotiation skills.

Is Your Company Refusing to Pay a Legitimate Severance Request?
What Employees Need to Know If Severance Is Being Denied

If you were promised a severance package in your employment contract, or if your employer entered into a severance agreement with you but hasn’t held up their end of the bargain, it may be time to seek legal guidance. Many companies are more concerned with saving money than ensuring good employees are taken care of—but the good news is that these companies often change their tune when a lawyer gets involved.

If you are not getting the termination pay and benefits you are entitled to, the best thing you can do is talk to a lawyer. Remember these key points:

An unfair severance agreement may be invalid.

Companies that are contractually obligated to offer a severance package may offer an extremely one-sided termination agreement in an attempt to pressure employees to leave the offer on the table. Although most severance agreements will require workers to give up some of their rights, there are a few rights that companies cannot force employees to give up. Your employer cannot ask you to give up:

  • Your right to report fraud or criminal conduct happening at your workplace
  • Your right to file a wage violation claim (e.g., overtime violations, minimum wage violations)
  • Your right to work for a competing company (although employers may include a non-compete clause in severance agreements, they are usually unenforceable in California)
  • Your right to uphold the law (i.e., your employer cannot force you to perjure yourself if you are called to testify against it)
  • Your right to find another well-paying job in your industry

Additionally, your employer has a duty to give you a “reasonable” amount of time to review and sign an agreement. You are even more protected if you’re over age 40 under the Older Workers Benefit Protection Act (OWBPA). Employees over 40 years of age must be given 21 days to decide whether to sign the offered contract. Finally, if you were forced to sign a fraudulent agreement, or if you were forced to sign an agreement under duress, the contract is unenforceable under the law.

If you believe your employer presented an invalid severance contract, talk to a lawyer. They can help you determine your next steps and ensure your rights and compensation are preserved.

If your company fails to deliver the promised severance, you may be able to sue for breach of contract.

Although there is no law requiring businesses to pay severance, once you’ve entered into a valid severance contract with your employer (either through negotiation or through an existing employment contract), they are bound to abide by its terms. If your employer fails to hold up its end of the bargain, that opens the door to a breach of contract lawsuit.

Even if your employer doesn’t have an explicit severance policy—usually found in your employee handbook—the company may have a history of paying severance to terminated employees. In this case, your employer might have an implied duty to offer you termination pay. If you think you are entitled to severance, or you believe your employer isn’t giving you the severance pay you are owed, the best thing you can do is speak to an experienced severance lawyer.

Contact a lawyer as soon as possible.

When given the opportunity, many large companies will take advantage of workers in an effort to save their profits and reputation. Employers know they have an HR department and in-house legal team backing them up, while an individual employee is just one person who may not know their rights. The longer you let negotiations drag on without the help of a lawyer, the greater the chance you will lose your severance compensation. Engaging a lawyer early all but guarantees you’ll reach a satisfactory conclusion more quickly and efficiently.

In fact, the best time to contact a lawyer is before you are ever terminated. A skilled lawyer will advocate for you during the severance package negotiation process, and they will lay out all your legal options (for example, if an employee has a valid discrimination claim against the employer, it might be more beneficial to reject a severance offer and simply file a lawsuit). No matter where you are in the termination process, working with an experienced severance lawyer will help take the burden off of you.

David Kani & Steve Hochfelsen are represented by Elite Lawyer Management, managing agents for America's best attorneys.