How Long Do I Have to Review My Severance Agreement?

Terminations of employment often come as a sudden surprise to the affected employee. In this context, employees who are offered a “severance package” or “severance agreement” must relatively quickly understand the meaning of the underlying agreement and decide whether or not to sign. 

How much time does the employee have to decide whether or not to sign a severance agreement? This will depend on what terms of the underlying agreement, the age of the employee, the legal claims that the employee would release by signing the agreement, and if the employee is terminated because of a lay off. Depending on these factors, the employee will have between five and 45 days to sign the agreement. 

The Five Day Deadline:

California recently enacted a five day minimum deadline for employees to review a severance agreement. (Cal. Gov’t. Code § 12964.5(b)(4).) This means, that no matter what the employee’s age or the reason for the termination, the employee must be given a minimum of five business days to consider the severance agreement. Importantly, the employee may sign and return the agreement before the five days have elapsed if he chooses to do so. 

However, this new five-day requirement was enacted under the California Fair Employment and Housing Act, which only applies to employers of five or more employees. (Cal. Gov’t. Code § 12926 (d).) Therefore, employers with one to four total employees would not be subjected to this minimum requirement.

The Twenty-One Day Deadline:

The vast majority of severance agreements impose a deadline of twenty-one (21) days for the employee to sign the severance agreement. This deadline is used because a federal law prohibiting age discrimination, called the Older Worker Benefit Protection Act (“OWBPA”), requires the underlying employee to be given at least 21-days to consider a severance agreement if the employer wants the employee to release any legal claims for age discrimination; i.e. discrimination against employees older than 40. (29 C.F.R. 1625.22 (e) (6).) Because employers almost always want a general release of all possible or theoretical employment law claims, including age discrimination, this means that most severance agreements have twenty-one day deadlines. 

This 21-day deadline does not apply if the employer does not want a release for age discrimination, if the employee is under forty years old, and the agreement provides a shorter amount of days.

The Forty-Five Day Deadline:

Occasionally employees will be given a severance agreement with a forty-five (45) day period for the employee to consider the agreement. This deadline is arises when the employee is part of larger layoff, or a “mass firing”, where a whole department or group of employees (called a “decisional unit”) are terminated. 

This highly particular requirement again comes from federal law prohibiting age discrimination.  when releasing claims of age discrimination. (29 C.F.R. 1625.22 (e) (1)(ii).) If an employer wants to release any claims of age discrimination from an employee who has been terminated as part of a larger layoff, the forty-five day period must be used. 

The Seven-Day Revocation Period:

In addition to the twenty-one and forty-five day deadlines, employees releasing claims of age discrimination are also given a seven-day “revocation period”. (29 C.F.R. 1625.22 (e) (1)(2).) During the revocation period, an employee who has already signed the severance agreement is given the opportunity to revoke or cancel the agreement if they change their mind; i.e. a “cooling off” period. The underlying severance agreement then becomes effective after the seven day period passes without the employee having revoked it.

Although rarely used by employees, this revocation period essentially extends the underlying deadline by an additional seven days. 

Longer Periods Are Possible:

Notwithstanding the minimum deadlines provided by law, longer periods of time are still possible by way of an agreement between the employee and the employer. If, for example, the employee needs a longer period of time to consider a severance agreement, he may request additional time to do so. If this is done the employee should confirm that the deadline has been extended in writing via an email to the employer. 

Have you been provided with a severance agreement? Contact the Law Office of Brian Mathias. 

Severance Agreements: Give Me My Stuff Back!

Severance agreements will almost always have language requiring, as a condition of receiving a severance payment, that any company property be returned to the employer. Typical employer property can include keys, uniforms, cars, emails and even intellectual property and work emails. This article discusses some common issues related to the return of company property in California severance agreements.

Why is the employer insistent about getting their property back?

Employers often include this language to keep company secrets from getting in the hands of competitors and to reinforce existing legal obligations that the employee already owes the employer. 

For legal background, the employee in most situations will already be obligated by law to return employer property to the employer at the end of his or her employment. This is for multiple reasons. First, employees will oftentimes sign documents, usually called “Acknowledgments”, at the inception of their employment, promising that customer lists, inventions, physical property, and other intellectual property acquired by the employee through his or her work belong exclusively to the employer. These acknowledgments are independently enforceable contracts even without a severance agreement. 

Second, the common law of agency, which has largely been adopted in California, states that inventions created or things made by an employee during his or employment, belong to the employer and not the employee. Therefore, independent of a severance agreement or any other contract, the law would very likely compel the return of company property to the employer. The employer’s demand in the severance agreement itself is simply a reminder to the employee of a pre-existing legal obligation and incentivizes the employee to follow through with it.

What type of company property typically must be returned?

The type of company property that must be returned very much depends on what the employee did while employed. For blue collar workers, the employee will oftentimes be in possession of tools, keys, or uniforms, but never in possession of emails, electronically stored property, or intellectual property. For white collar or remote workers, company property can include phones, laptops, printed papers, emails, spreadsheets, PowerPoint presentations, and any other form of electronically stored information.

How does the employee return company property?

Larger and more sophisticated employers who regularly terminate employees will typically be proactive in recovering company property from their former employees, even making efforts to do so before a severance agreement is agreed upon. This can include recovering this property from the employee in-person on his or her last day of work. For remote employees, it is customary for the employer to send the employee a postage prepaid box or envelope for the employee to mail the company property back to the employer. Employees are arguably not obligated legally to incur costs or expenses to return company property. (Lab. Code § 2802.) Moreover, requiring the employee to drive a long distance to return property in-person would require the employer to pay the employee the minimum wage.

For employers who are unclear on how company property is to be returned, employee’s should be proactive and ask their employer via email how the property is going to be collected by the employer. 

Have you been abruptly fired and been given a severance agreement? Contact the Law Office of Brian Mathias today. 

Severance Agreements: This is Top Secret

Ninety-nine percent of all severance agreements will contain a confidentiality clause. While severance agreements, at their essence, are an exchange of money in return for a promise not to sue the employer, the employee will often have to agree to other substantive requirements as well, including confidentiality. 

Why do employers want confidentiality?

Before explaining what confidentiality actually means in the context of a severance agreement, it is important to understand why confidentiality is viewed as important by the employer. The inherent value of severance agreements from the employer’s view is to buy the peace and quiet between the former employer and employee, to prevent lawsuits before they can ever start, and to keep legal costs predictable and as low as possible for the employer.

However, if an employee is legally allowed to tell other current employees that the employer offers severance agreements, or that generous severance payments are paid, additional legal claims from other employees could be encouraged. In other words, employers are fearful that other employees would smell “blood in the water” and leverage this against the employer in response to their own future terminations. 

What do confidentiality agreements usually say?

Confidentiality provisions typically state that the employee (but not the employer) is prohibited from disclosing 1) the terms, including the amount of the severance agreement, and/or 2) the sheer existence of the severance agreement to others. Depending on the exact language, this means that the employee is legally barred from even telling others that a severance agreement exists, let alone the specific amount that was paid by the employer. Again, employers do not want other employees to believe that severance agreements are readily offered because this creates a sense of legal entitlement and could make future severance packages more expensive for the employer. 

Are there any exceptions to confidentiality?

Confidentiality provisions are typically subject to a short list of exceptions, including certain people that may be told about the amount and/or existence of the severance agreement or specific circumstances where confidentiality does not apply. 

Most, if not all, confidentiality provisions will state that the employee may disclose the nature and existence of the severance agreement to the employee’s attorney, CPA, or financial advisor. This is necessary because the severance agreement itself will often state that the employee is encouraged to speak with an attorney before signing it; a tactic employers use to make the severance agreement enforceable if it is later challenged. Next, some, but  not all, confidentiality provisions will state that the employee may disclose the severance agreement to immediate family members, such as spouses and children. 

Importantly, many confidentiality clauses will state that even if the disclosure of the agreement’s terms to certain people is allowed, those additional people are also bound by the agreement’s confidentiality provision, and that if those additional persons breach confidentiality the employee bears the consequences. This means that family members that are allowed to know about the severance agreement must treat confidentiality as seriously as the employee herself. If not, the employee can be penalized or sued for breach. 

Lastly, disclosure of the severance agreement’s existence and terms to certain government entities is another common “carve out” to confidentiality clauses. These will often include the California Employment Development Department (“EDD”) or government entities in charge of collecting taxes. In essence, these government entities can compel the employee by law to disclose the terms of the severance agreement and are not themselves bound by the agreement. For example, in response to an application for unemployment benefits with the EDD, the EDD can require the employee to disclose what other sources of income have been received, if severance payments were made, and the amount of those payments. 

What happens if the employee breaches confidentiality?

Severance agreements usually specify what occurs if the employer or employee violates or “breaches” the terms of the settlement agreement, including its confidentiality clause. These penalties can range from a penalty of multiple thousands of dollars called “liquidated damages” or also forfeiture of part or all of the severance payment itself. 

Many severance agreements also include an attorney’s fees provision called a “fee hook”. This means that if a severance agreement is breached and court action is required to enforce the agreement that prevailing party gets their attorney’s fees paid back. This can be extremely significant because attorney’s fees could easily match or exceed the amount of the severance payment itself. These fees would be in addition to whatever penalties or damages are recovered as a result of a breach. 

For these reasons, employees should take confidentiality very seriously and thoroughly understand the terms of the severance agreement before signing it. 

Have you been terminated and been handed a severance agreement? Contact the Law Office of Brian Mathias today for an affordable consultation. 

Severance Agreements: How Long Do I Have to Sign?

Severance agreements, when offered, are given to the employee under frequently chaotic circumstances. Terminations often come as a surprise to the employee being fired, and being fired can be an emotionally and financially difficult time for the employee. Adding to this difficulty, employers typically require that severance agreements (if one is offered at all) be accepted and signed by the employee in a relatively short period of time.

How long do I have to accept a severance agreement?

In short, the severance agreement itself will state how long the employee has to accept whatever severance package is offered by the employer. Accepting is typically accomplished by signing the severance agreement and returning it to the employer by email. 

Because of a federal age discrimination law, most severance agreements will give the employee twenty-one (21) days to accept the agreement. (29 CFR § 1625.22 (d).) However, since age discrimination only protects employees that are age 40 and older, employers will sometimes put a much shorter time period for younger workers, such as seven days. 

What if I need more time to think about it?

If the employee needs more time to think over the terms of a proposed severance agreement, the employee should politely ask the employer to extend the stated time period. If the employer agrees, this should be confirmed with a follow-up email. This can be a risky move for the employee if the employer views the extension request as a rejection of the employer’s offer. 

What is the seven day revocation period all about?

Some severance agreements will contain a paragraph that says even if a severance agreement is signed by the employee, the employee has a period of seven days to change his or her mind and revoke their acceptance. This, again, is due to a federal age discrimination law that mandates how age discrimination claims can be voluntarily waived or released. Age discrimination waivers are not legally viewed as voluntarily unless seven-day revocation is allowed. (29 CFR § 1625.22 (e).)

The employee’s revocation, if exercised, is typically done by emailing the employer as specified in the severance agreement itself. If the employee does not revoke the agreement, the severance agreement takes effect on the eighth day after the severance agreement is signed. 

As a practical matter, the underlying employee will not want to have to rely on the seven-day revocation period, and should make a firm decision within the specified time period. 

Doesn’t a 45-day deadline apply?

Some severance agreements have a forty-five (45) day deadline. This, once again, is because of a federal law intending to protect employees affected by a mass lay off, legally called a “group termination.” Although mass layoffs do occur, 21-day severance agreements are far more common. 

What should I do If I am given a severance agreement?

The employee should not delay taking substantive action when a severance agreement is offered. This includes reading and understanding the requirements of the severance agreement itself, and most importantly, understanding the appropriate value of the severance agreement. Employees should strongly consider hiring an attorney for a one-time consultation to review the severance agreement and determine the potential value of any potential legal claims. This can be surprisingly affordable for the employee. 

If the employee decides to negotiate for a larger severance agreement, the employee must budget for adequate time to do this before the expiration date of the severance agreement. 

Have you been given a severance agreement? Contact the Law Office of Brian Mathias for a consultation today. 

Severance Agreements: How Much is My Severance Agreement Worth?

Sometimes terminated employees are offered a Severance Agreement by their soon-to-be former employer. A severance agreement, in essence, consists of a payment of money to the employee in exchange for a promise to never sue the employer for most employment laws. It buys the peace and prevents lawsuits before they ever can start.  

Since employees are often terminated abruptly and without warning, the decision to sign or reject a severance agreement can be a difficult one. Adding to this difficulty, most employees do not know how much money is acceptable, normal, or appropriate in their particular circumstance. 

The short answer is that severance agreements can range from $3,500 to $150,0000 or even larger, but the appropriate amount of money in a severance agreement ultimately depends on the particular case based on a number of factors and the willingness of the employer and employee to agree on a specific amount. 

First, in the big picture employers do not have to offer severance agreements at all. An employer may offer severance packages to some employees, but not others, and may offer similarly situated employees different amounts of money. The amount of the severance package is not set by law and the amount can be negotiated between the employee and employer. 

If a severance agreement is actually offered the biggest factor in determining the appropriate value is whether the employer believes it has violated any employment laws or not, or believes it has legal exposure because of the employee. For example, an employee who was fired for an unquestionably legal reason (such as a factory closure, resulting in a mass layoff), a severance agreement could be very low. This is because the employer believes its legal exposure to be minimal. However, if an employee is fired in legally questionable circumstances, for example after making legally protected complaints, after requesting reasonable accommodations, or after demanding that overtime be paid, the employer may be willing to offer a much larger sum of money. 

Because the appropriate value of a severance agreement is largely determined by the viability of the employee’s legal claims, employees should first consult with an employment attorney before signing them. An attorney can identify potential legal claims, a practice called “issue spotting”, to ascertain the value of any legal claims the employee would be giving up. For an employee with a potentially strong legal claim, rejecting the offer of a severance agreement entirely is often the best choice.  

Second, although the dollar amount of severance agreements are not set by law or other fixed standard, employers oftentimes rely on the length of the employee’s employment and/or the amount of the employee’s salary in determining the dollar amount of the severance agreement. Employees of very high rank will frequently be offered more than low level employees, even if the higher ranking employee worked for only a short period of time. 

Have you been offered a Severance Agreement by a soon-to-be former employer? Contact the Law Office of Brian Mathias for a consultation before signing. 

Severance Agreements Part II: What Can't Be Included in a Severance Agreement?

Many terminated employees are presented with a Severance Agreement by their former employer. The purpose of  a Severance Agreement is to prevent employment litigation before it ever begins. Legally speaking, a Severance Agreement is a written contract; in exchange for money, the employee promises to never sue the employer, legally called a “release of claims.” Employers are legally permitted to seek a release for almost every type of conceivable legal claim from the employee by way of a Severance Agreement. This article discusses several important rights that employees cannot legally release in their Severance Agreement. Part One of this article, discussing Severance Agreement basics, may be found here.

Non-Competition Clauses:

In most cases, a Severance Agreement cannot include a non-competition clause. In short, a non-competition clause is an agreement that the employee will not open a competing business or work for a future employer that is in competition with the former employer.  California has close to a total ban on non-competition clauses, which are considered a “restraint on trade.” (Bus & Prof Code § 16600.) No other state has as absolute a prohibition on non-compete clauses as California. The public policy behind this statute is to encourage open competition, employee mobility, and to protect the legal right to pursue lawful employment and business. (Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937, 946.) Courts will broadly construe this right to compete and will disallow non-competition clauses in all but the narrowest of circumstances. 

Since most other states affirmatively allow non-competition clauses, employers headquartered outside of California are far more likely to include unlawful non-competition clauses in their Severance Agreements. Notably, California’s prohibition on non-competition clauses does not affect an employer’s rights to protect their own intellectual property and trade secrets. 

Workers' Compensation Claims:

California has a  separate and robust judicial system for litigating and resolving legal claims for on-the-job injuries called the Workers' Compensation Appeals Board (“WCAB”.)  The WCAB has the exclusive power to resolve workers' compensation claims and a WCAB judge must approve any agreement between the employer and employee to resolve a workers' compensation claim. Accordingly, employers cannot resolve a workers' compensation  claim by way of an ordinary Severance Agreement outside of the WCAB. 

Notwithstanding this prohibition, employers will frequently have the employee verify by way of a Severance Agreement that the employee has not suffered an on-the-job injury. This language can easily be missed in a 10-15 page, single spaced Severance Agreement packed with unfamiliar legal language and run-on sentences. This affirmation -that the employee was not injured- can be used against the employee in a subsequent workers' compensation claim. 

Employees who have been injured on-the-job or who have filed a workers' compensation claim should contact an attorney before signing a Severance Agreement. Employees who have been terminated following an on-the-job injury (called an “industrial injury”) are among the most common groups subjected to unlawful disability discrimination.

Unemployment Insurance Benefits:

Employees who are terminated, without good cause, are eligible for Unemployment Insurance benefits. Unemployment Insurance is not insurance at all. Rather, the benefits are a form of welfare or government assistance, paid for by the employer, and administered by the California Employment Development Department (“EDD”.) Unemployment Insurance benefits are temporary in nature and normally last up to six months. The amount of the weekly benefits are only a fraction of what the employee actually earned while employed. The total amount depends upon how much money the employee earned while employed and the length of their employment with a $450.00 per week maximum payment. The benefits are available for workers who are “unemployed  through no fault of their own.” (Unemp. Ins. Code § 100.) Employees who have been fired for poor performance or other legitimate cause can still receive Unemployment Insurance benefits. Only employees who were terminated for misconduct may be denied the benefit (i.e. absenteeism, insubordination, fighting/ arguing.)  

Employees cannot waive their right to receive Unemployment Insurance benefits in a Severance Agreement. (Unemp. Ins. Code § 1342; Citronen Cars Corp. v. Unemployment Ins. Appeals Bd. (1980) 107 Cal. App. 3d 945, 949 fn. 6.)  As a matter of public policy, California mandates that employers and employees cannot enter into a contract that affects the employees right to receive a benefit.

Unpaid Wages:

Employers are prohibited from requiring an employee to sign a Severance Agreement (or any other type of release of legal claims)  as a pre-condition of receiving wages that are indisputably owed to the employee. (Lab. Code § 206.5.) Any such release is deemed “null and  void” as a matter of law. (Id.) The only instance in which an employer may condition a release upon payment of wages is if the employer can establish that there is a bona fide or good faith dispute over the wages. (Chiandrah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796, 803.) Employers cannot retroactively fabricate pretextual reasons to not pay owed wages. If wages are concededly due, and there is no dispute over the amount of hours worked by the employee, the employer must issue payment without delay and without the condition the employee sign a Severance Agreement or other release. 

Despite the clear language of Labor Code § 206.5, most Severance Agreements will contain multiple references to the employee’s wages, including representations from the employee that they have been paid their regular wages and that any money offered in the Severance Agreement is over and above what they actually earned as wages. 

In conclusion, severance Agreements are lengthy, complicated, and are almost always given to an employee when the employee is under some level of mental distress  or shock from a recent termination. Notwithstanding the clear prohibitions of what things cannot be legally included in a Severance Agreement, employers and their attorneys will often push the limits.   This behooves many employees to seek legal representation as soon as they have been presented with a Severance Agreement. 

Have you been presented with a Severance Agreement? Contact the Law Office of Brian Mathias for a consultation. 

Employment Law 101: What's a Severance Agreement?

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.