California Severance Agreements: What Employees Should Know Before Signing

In short A severance agreement usually trades money for your promise not to pursue legal claims against your employer. Some money is owed to you no matter what you decide: your final wages and your accrued vacation, for example. The severance payment is what the employer offers in exchange for your release. Before you sign, the real question is what you would be giving up, and whether the offer is worth it.

On this page

• What a severance agreement is
• Is severance required in California?
• What you are owed whether or not you sign
• What the severance is paying for: your release
• If you are 40 or older
• How long you have to decide
• Arbitration: check more than one document
• Confidentiality, nondisparagement, and your right to speak
• Noncompetes and other restrictions
• Unemployment, taxes, and health coverage
• Negotiating
• Claims you may have
• When an attorney review makes sense
• Before-you-sign checklist
• Common questions

What a severance agreement is

A severance agreement (also called a separation agreement or release agreement) is a contract offered when your employment ends. In the typical agreement, the employer pays something you are not otherwise owed, and you give up the right to pursue claims against the employer. Most agreements also add other promises: confidentiality, not criticizing the company, returning property, cooperating in future matters, and sometimes arbitration of future disputes.

A written release given for new consideration can bar the claims it covers unless it was obtained by fraud, misrepresentation, duress, or undue influence. [S12] That is why the time to understand the agreement is before you sign it, not after.

This guide gives the overview. For what individual clauses mean, see Understanding Your California Severance Agreement: A Clause-by-Clause Guide. For how to decide, see Should You Accept, Negotiate, or Reject a California Severance Agreement?

This guide focuses on private-sector employees. Some rules differ for government employees.

Is severance required in California?

Generally, no. California has no general law requiring employers to offer severance. Without a contract or policy promising it, an employer may decline to pay severance at all. [S1]

But you may have a contractual right to it. A severance obligation can come from:

• an employment agreement or offer letter;
• an employee handbook or written policy;
• a bonus, incentive, or separation plan. [S2]

If one of these promises severance, the terms of that document matter, including any conditions such as signing a release.

Formal severance plans can be governed by federal law (ERISA). Whether a severance arrangement is an ERISA plan depends on whether paying it requires an ongoing administrative program, such as a standing policy with eligibility rules and payment schedules. A one-time lump sum triggered by a single event usually does not. [S8] It matters because an ERISA plan brings federal rules, a claims-and-appeals process, a different standard of review, and a federal forum. [S8]

What you are owed whether or not you sign

This is the most important distinction in any severance decision. Some money and benefits are owed to you by law no matter what you decide. The severance payment is the additional consideration the employer offers in exchange for your release. Employees commonly confuse the two. [S1][S3]

Item	Owed even if you don't sign?	Notes
Final wages	Yes	If you are discharged, earned and unpaid wages are due immediately. If you quit, they are due within 72 hours (or at quitting if you gave 72 hours' notice). An employer that willfully pays late can owe a waiting-time penalty of up to 30 days' wages. [S3]
Accrued vacation / PTO	Yes	Vested vacation must be paid at your final rate and cannot be forfeited. Employers are not required to offer vacation, and a lawful cap can stop further accrual. [S5]
Earned commissions and bonuses	Often, depending on the plan	Commissions and bonuses can be wages. Whether one is "earned" usually depends on the plan's terms, which may require you to be employed on a payout date. When an employee is terminated through no fault of their own after substantially performing, a forfeiture may be open to challenge. [S2][S6]
WARN or Cal-WARN pay	Yes, if the law applies and notice was short	Covered layoffs, relocations, and closings generally require 60 days' advance written notice; if notice was deficient, the remedy is back pay and benefits. [S7]
Access to COBRA or Cal-COBRA	Yes (the right to continue coverage)	Continuation coverage is a legal right if you qualify. An employer subsidy of your premiums is something the agreement may offer, not something the law requires. [S9]
The severance payment itself	No	This is what the employer offers for your release. [S1]

An employer cannot hold back wages that are due to pressure you to sign. California law makes a release of a claim for wages due void unless those wages have actually been paid. [S4]

Commissions and bonuses deserve a careful look. A signed writing is required for commission arrangements for work in California, and it should explain how commissions are calculated and paid. [S6] Whether a particular bonus or commission was earned depends on the plan language and the facts. [S2]

WARN and Cal-WARN. Federal WARN applies to covered plant closings and mass layoffs. California's version reaches a broader set of layoffs. It applies to an establishment that employs, or employed in the past 12 months, 75 or more people, and it treats a layoff of 50 or more employees within 30 days as a mass layoff. It also covers relocations of 100 miles or more and closings. [S7] WARN remedies add to other rights rather than replacing them. Whether a severance payment reduces what the employer owes under WARN depends on how the payment is structured, including whether it is conditioned on a release. [S7]

What the severance is paying for: your release

What you give up. A typical release covers all claims that existed when you signed, within its terms. Broad language releasing "any and all claims under state or federal employment laws" has been held to cover discrimination and harassment claims under California's Fair Employment and Housing Act (FEHA). [S12] Signing generally binds you even if you didn't intend to give up a particular claim, unless the release was obtained by fraud, misrepresentation, duress, or undue influence. [S12]

Unknown claims (Civil Code section 1542). California law says a general release does not cover claims you don't know or suspect exist when you sign, if knowing about them would have materially affected your decision. [S13] Most severance agreements include an express waiver of section 1542 so that the release also covers unknown claims. [S13] See the clause-by-clause guide for what that means in practice.

What a release generally cannot take away:

• wages that are due and unpaid, unless they have been paid; [S4]
• reimbursement of necessary work expenses owed under Labor Code section 2802 (agreements waiving these rights are void under Labor Code section 2804); [S14]
• future claims about things that happen after you sign; [S16][S30]
• your right to file a charge with, report to, or cooperate with government agencies. [S15]

An overly broad "any and all claims" release is not void just because it is broad. It is read not to reach rights the law says cannot be waived. [S14]

If you are 40 or older

Federal law (the Older Workers Benefit Protection Act, or OWBPA) sets minimum requirements before an employee can validly waive age-discrimination claims under the federal Age Discrimination in Employment Act (ADEA). The waiver must be knowing and voluntary. At a minimum: [S16]

1. it is written in a way you can understand;
2. it specifically refers to rights or claims under the ADEA;
3. it does not waive claims arising after you sign;
4. you receive something of value in addition to anything you are already entitled to;
5. you are advised in writing to consult an attorney;
6. you have at least 21 days to consider it (45 days in a group program); and
7. you have 7 days after signing to revoke, and the agreement is not effective until that period ends.

Group layoffs and exit programs. When the employer offers severance in exchange for waivers to two or more employees, as in a reduction in force or a voluntary exit program, the longer 45-day period applies. You must also receive written information about the group: who was covered, the eligibility factors, time limits, and the job titles and ages of those selected and not selected in the decisional unit. Age ranges broader than one year don't satisfy this requirement. [S16]

If the employer gets it wrong. If the waiver doesn't meet these requirements, it cannot bar a federal age claim. You are not required to return the severance before challenging it, and keeping the money does not ratify the waiver. A court may later offset what you received against any recovery, within limits. [S17]

These requirements come from federal law and protect the waiver of federal age claims. California's FEHA separately prohibits age discrimination, and different rules may apply to releasing a California age claim.

How long you have to decide

Situation	Minimum time	Source
Age-claim waiver (40+), individual separation	At least 21 days to consider; 7 days to revoke after signing	[S16]
Age-claim waiver (40+), group program	At least 45 days to consider; 7 days to revoke	[S16]
California separation agreements	Notice of your right to consult an attorney, and at least five business days to do so	[S18]
Other situations	No general legal minimum; the deadline is whatever the offer says	[S31]

Details that matter:

• For age waivers, the 21 or 45 days are minimums the employer cannot shorten. You may choose to sign early if the decision is yours. Early signing induced by a threat to withdraw or change the offer, or by better terms for people who sign early, doesn't count as voluntary. [S16]
• The 7-day revocation period cannot be shortened, by agreement or otherwise. [S16]
• If the employer makes a material change to its final offer, the 21- or 45-day period starts over. Minor changes don't restart it, and the parties can agree that changes won't restart it. [S16]
• Under California's separation-agreement rule, you may also sign before the five business days are up if that choice is knowing and voluntary and wasn't pressured by a threat to withdraw or change the offer. The rule doesn't apply to a negotiated settlement of a discrimination claim you had already filed in court, with an agency, in arbitration, or through the employer's internal complaint process. [S18]
• An offer you haven't accepted can generally be withdrawn by the employer, and it lapses when its deadline passes. If you need more time, ask, and get any extension in writing. [S31]
• Outside the federal age-waiver rules, signing is usually final. Undoing a signed agreement generally requires legal grounds such as fraud, duress, mistake, or undue influence, and usually means acting promptly and giving back, or offering to give back, what you received. [S12][S32]

Arbitration: check more than one document

Arbitration is a private process in which an arbitrator, not a judge or jury, decides a dispute. Many employees signed an arbitration agreement when they were hired, often electronically, and may not remember it. Severance agreements frequently address arbitration too. Any review of a severance agreement should look at both, and at how they fit together.

Situation	What to understand
An arbitration agreement you signed during employment	It may require your claims to go to individual arbitration. Whether it is enforceable depends on whether a valid agreement was formed (including whether an electronic signature can be shown to be yours), whether its terms are fair, and statutory exceptions. [S22][S23]
A new arbitration clause in the severance agreement	A new clause can create arbitration obligations that did not exist before, including for disputes about the severance agreement itself. [S24][S26]
Language reaffirming or incorporating the old agreement	This can bring an earlier arbitration agreement into the new one, but only if the language is clear and you knowingly agree to it. It does not automatically fix problems with the earlier agreement. [S26]
An "entire agreement" clause that replaces earlier agreements	If the severance agreement says it replaces all earlier agreements and doesn't preserve the arbitration agreement, it may end that earlier agreement. Whether it does depends on the exact wording. [S26]
A delegation clause	A clause sending "gateway" questions (such as whether the arbitration agreement is enforceable) to the arbitrator instead of a court. [S24]

Why it matters. Arbitration can change where a claim is heard, how much evidence can be gathered, whether claims can be brought as a group, and how much review a decision gets. Those differences can affect whether accepting, negotiating, or rejecting an offer makes sense. Arbitration does not always disadvantage employees, and in mandatory employment arbitration of statutory claims, the employer generally must pay the costs unique to arbitration. [S22]

Sexual harassment and sexual assault claims. Federal law lets a person alleging sexual harassment or sexual assault choose not to be bound by an arbitration agreement that was made before the dispute arose, and a court decides whether that law applies. [S25] An agreement made after the dispute arose isn't covered. A dispute generally arises when an employee raises a complaint and the employer opposes it or fails to act on it, not simply when the conduct happens. [S25] So if you have already complained, a new arbitration clause in a severance agreement may not be covered by this protection. Have it reviewed before you sign.

For clause-level detail, see Arbitration in your severance agreement. For how arbitration affects your decision, see the decision guide.

Confidentiality, nondisparagement, and your right to speak

Most agreements ask you to keep terms confidential and not to criticize the employer. California limits how far those clauses can go:

• A separation agreement cannot restrict your right to disclose information about unlawful acts in the workplace, such as harassment or discrimination. A confidentiality or nondisparagement provision must include specific carve-out language preserving that right, or it is unenforceable. [S18]
• The amount of the severance can be kept confidential. [S18][S19]
• You cannot be barred from reporting to or cooperating with government agencies, including the SEC. [S15]
• For many non-supervisory employees, federal labor law may also limit overly broad confidentiality and nondisparagement clauses in severance agreements. [S20]

The clause-by-clause guide explains these clauses in detail.

Noncompetes and other restrictions

California law voids employment noncompete agreements, however narrowly written, and it is unlawful for an employer to include one or require one. Employees have a private right to sue over attempts to enforce void noncompetes, with attorney's fees for a prevailing employee. [S21] Clauses limiting the solicitation of customers or coworkers, broad confidentiality clauses that operate like a noncompete, and invention-assignment clauses are covered in the clause-by-clause guide.

Unemployment, taxes, and health coverage

Unemployment. Payments structured as supplemental unemployment benefits under an employer plan do not reduce unemployment benefits, and neither do payments tied to an employer's WARN violation. [S10] How the Employment Development Department (EDD) treats an ordinary lump-sum severance depends on the facts; check with the EDD about your situation. [S10]

Taxes. Ordinary severance is taxable wages, subject to payroll taxes and withholding. [S11] Withholding on a lump sum can be high, but withholding is not the same as your final tax bill. If payments are spread out or delayed, deferred-compensation rules can affect timing, especially for executives of public companies. [S11] For tax questions about your agreement, talk with a tax professional.

Health coverage. If you qualify, federal COBRA (employers with 20 or more employees) lets you continue group coverage, generally for up to 18 months after a termination, at up to 102% of the premium. Cal-COBRA covers many smaller employers (2–19 employees). [S9] Employer payment of your premiums for some months is a negotiable term, not a legal requirement. [S9] Other benefits, such as equity, retirement plans, and bonuses, depend on plan documents.

Negotiating

You can ask to negotiate a severance offer. There is no legal formula for how much severance should be. [S1] Beyond the dollar amount, terms that are often discussed include the length of any COBRA subsidy, the scope of the release and confidentiality terms, arbitration terms, a neutral reference, and the timing of payment.

Asking for changes has tradeoffs. An employer can generally withdraw an offer you haven't accepted, and under California contract law a counteroffer can end the original offer. [S31] The decision guide covers how leverage, timing, and risk fit together.

Claims you may have

A severance agreement is often the moment an employee first asks whether the termination was lawful. Situations worth a closer look before you sign include:

• you were let go soon after complaining about discrimination, harassment, safety, unpaid wages, or other conduct you believed was unlawful;
• you were let go during or soon after pregnancy, medical or family leave, or a request for accommodation;
• you are 40 or older and younger employees were kept;
• you reported conduct you believed was illegal, or refused to participate in it;
• you are owed wages, overtime, commissions, or expense reimbursement.

These facts don't mean you have a claim, and their absence doesn't mean you don't. They are reasons to understand what the release would give up.

Deadlines keep running. Negotiating a severance agreement does not stop the clock on legal claims. California generally allows three years to file a discrimination complaint with the Civil Rights Department, and one year after a right-to-sue notice to file a lawsuit. [S27] A federal charge with the EEOC generally must be filed within 300 days in California. [S28] Wage claims and other claims have their own deadlines. [S29] The decision guide explains why these matter to your choice.

When an attorney review makes sense

For some employees, signing the agreement as offered is the right choice. For others, negotiating or looking more closely at possible claims may make sense. A review is most useful when:

• you think the termination may have been connected to discrimination, harassment, retaliation, leave, a complaint, or whistleblowing;
• you are 40 or older, especially in a group layoff;
• the agreement includes a new arbitration clause, reaffirms an old one, replaces earlier agreements, or you aren't sure whether you signed one;
• the confidentiality, nondisparagement, or restrictive terms are broad;
• you are giving up a bonus, commissions, equity, or other significant compensation;
• the deadline is short or the employer is pressing you to sign quickly;
• the amount offered seems low compared with what you believe you may be giving up.

For employees 40 and over, an agreement waiving federal age claims must advise you in writing to consult an attorney. [S16]

Get a Free Severance Agreement Review

Bryant Workers Law offers a free attorney review of severance agreements for California employees. If we accept your agreement for review, you will receive a short written assessment of the agreement and your options — including any arbitration agreement you signed during employment.

Learn how the free review works

Before-you-sign checklist

• Deadlines: When is it due? Are you 40 or older? Is it a group program (45 days)? Is there a 7-day revocation period? Were you told of your right to consult a lawyer?
• Already owed: Have your final wages and accrued vacation been paid, or are they scheduled to be, separately from the severance?
• Commissions and bonuses: Is anything earned or close to payout? What does the plan say?
• What's new: What exactly are you receiving that you weren't already owed?
• The release: Which claims and which people or companies does it cover? Does it waive Civil Code section 1542?
• Your situation: Did anything happen before your termination that could support a claim (a complaint, leave, pregnancy, accommodation request, age, reporting illegal conduct, unpaid wages)?
• Arbitration: Did you sign an arbitration agreement when hired? Does the severance agreement add one, reaffirm or incorporate the old one, or say it replaces all earlier agreements? Is there a delegation clause?
• Speech: Do the confidentiality and nondisparagement clauses include the required carve-out for information about unlawful acts?
• Restrictions: Any noncompete, nonsolicitation, no-rehire, cooperation, or repayment terms?
• Group layoff (40+): Did you receive the list of job titles and ages?
• Benefits and taxes: COBRA subsidy? Payment timing? Effect on unemployment?
• Your deadlines for claims: Are any filing deadlines approaching?

Common questions

Does my employer have to offer me severance?

Generally no. California has no general requirement to offer severance. An employment agreement, offer letter, written policy, or plan can create a right to it, so check those documents. [S1][S2]

Is severance the same as my final paycheck?

No. Final wages are owed on your last day if you are discharged, regardless of any agreement, and willful late payment can trigger a penalty. Severance is a separate payment offered in exchange for a release. [S3]

Do I still get my accrued vacation if I don't sign?

Yes. Accrued, vested vacation is wages and must be paid when employment ends; it cannot be forfeited. Vacation you haven't yet accrued is not owed. [S5]

Can my employer hold back my final wages until I sign?

No. A release of wages that are due is void unless the wages have been paid. [S4]

Can I be forced to sign right away?

No. California requires that you be told of your right to consult an attorney and be given at least five business days to do so, though you may choose to sign sooner. If the agreement waives federal age claims, you must be given at least 21 days (45 in a group program) and 7 days to revoke. [S16][S18]

I'm over 40. What extra protections apply?

A waiver of federal age claims is valid only if it meets the OWBPA's minimum requirements, including a specific reference to age claims, written advice to consult an attorney, a consideration period, and a 7-day revocation period. [S16]

What information should I get in a group layoff?

If you are 40 or older and the waiver is part of a group program, the employer must provide in writing the group covered, the eligibility factors, time limits, and the job titles and ages of those selected and not selected in the decisional unit. [S16]

Can signing a severance agreement put me into arbitration I never agreed to before?

It can. A new arbitration clause can create arbitration obligations that didn't exist before. Clear language reaffirming or incorporating an earlier agreement can also bring it into the new agreement. On the other hand, a clause saying the severance agreement replaces all earlier agreements can sometimes end an earlier arbitration agreement. Read any arbitration and "entire agreement" language before signing. [S26]

If I'm laid off, do I have other rights?

Possibly. If the layoff was a covered mass layoff, relocation, or closing and you didn't receive 60 days' notice, federal or California WARN law may entitle you to back pay and benefits. Coverage depends on the size of the workplace and the number of employees affected. [S7]

Will signing affect my unemployment benefits?

Payments structured as supplemental unemployment benefits do not reduce unemployment insurance. How an ordinary lump-sum severance is treated depends on the facts; check with the EDD. [S10]

Is severance taxable?

Yes. Ordinary severance is taxable wages subject to payroll taxes and withholding. [S11]

What happens if I miss the deadline to sign?

An offer you haven't accepted lapses when its deadline passes, and the employer is generally free to withdraw it or decline to extend it. [S31] If you need more time, ask the employer before the deadline and get any extension in writing. Missing the deadline does not affect your right to pursue legal claims, but those claims have their own filing deadlines that continue to run regardless of what happens with the severance offer. [S27][S28][S29]