Terminated employees in California are often handed multiple documents from their employer upon termination. These papers will commonly include a three to ten-page “Severance Agreement”. Understanding the ramifications of a Severance Agreement, especially in the emotional blur of a termination, is very difficult without help.
So what is a Severance Agreement?
In plain English a Severance Agreement is a contract between an employer and a soon-to-be terminated or an already terminated employee. In the contract, the employer agrees to pay the employee money in exchange for a promise from the employee never to sue the employer. That’s the basic idea.
The amount of money offered—or negotiated—between the employer and the employee may range from several thousand dollars to tens of thousands of dollars. The amount offered depends on the employer’s actual or perceived exposure to a lawsuit from the employee, the employee’s salary, their length of employment, as well as other factors.
For legal background, no California law requires private employers to offer a Severance Agreement. Unless previously obligated under contract, employers are legally permitted to fire employees and offer them $0.00 in Severance.
So then, why would employers want to pay more money to an employee that they have already decided to fire? Well, because it requires employees to give up something very valuable in return: the right to sue.
Employees have a host of legal rights in California. These rights include the right to not be terminated for an illegal reason, such as a discriminatory or retaliatory reason. It also includes the right to be paid overtime in many situations. Employers who violate employment laws face expensive and drawn out lawsuits. But not if the employer can get the employee to sign a Severance Agreement. That’s why an employer wants you to sign the Severance Agreement.
If offered a Severance Agreement, employees should not sign the agreement without knowing if they have a legal claim against their employer and the value of those claims. The only way to do that is to contact an employment law attorney. Plaintiffs’ employment law attorneys often provide a discounted initial consultation to review Severance Agreements.
As a hypothetical but common example, let’s take the case of Ryan. Ryan works at a bustling restaurant in Monterey as a waiter. Ryan is given the job “Front House Manager”. Ryan regularly arrives at work at 10:00 a.m. and does not leave until 11:00 p.m. Despite Ryan’s title, Ryan spends just 10% of his time managing other employees. 90% of Ryan’s time is spent cleaning and waiting tables. Ryan is never paid overtime, despite working 13 hours per shift. Nor is Ryan provided the opportunity to take duty-free rest and meal breaks.
After a particularly long shift, Ryan asks the hotel owner about getting overtime pay. In response, the employer angrily tells Ryan, “You should be thankful to have a job at all! I’m not paying you overtime.” When Ryan shows up the next day, he is fired and is handed a Severance Agreement offering $2,500.
Luckily, Ryan immediately calls an employment law attorney. During a free initial phone consultation, Ryan is surprised to learn that he has three potentially large claims against his former employer: an overtime claim worth $45,000; a meal and rest break case worth $6,000; and a retaliation case for firing him in response to asking for overtime. After Ryan learns that he has a case worth $75,000, he refuses to sign the Severance Agreement.
Ryan may now negotiate for a greater amount of money in the Severance Agreement, or proceed with a lawsuit against his employer.
Are you a Monterey, Salinas, or Santa Cruz County employee who has been offered a Severance Agreement? Contact the Law Office of Brian Mathias for a consultation.