A Severance Agreement with a Release is a great way for employers to prevent getting sued by a former employee. Severance pay, also called separation pay, termination pay and continuation pay, is money and benefits provided by the employer to an employee who is laid off, fired, or resigns. An employer is not required to pay the employee a severance upon termination of employment, unless there is a written agreement to do so, but it should be considered.
There is no set amount that an employer can offer to pay as a severance. Assuming the employer’s financial condition is not an issue, the amount of severance is usually a week or two of pay, on up to a month or more. But, the amount is usually arrived at by considering how long the employee has been with the employer and then relating that time to a dollar amount, e.g., 5 years of employment equals five weeks of pay. It’s completely up to the employer.
One obvious factor that needs to be considered when arriving at an amount is how likely is it that the employee will file a lawsuit against the employer and what amount of money would the employee accept now in exchange for releasing all claims. But the actual amount of the severance does not necessarily have to be substantial. The needs of a soon to be unemployed worker with bills to pay and possibly a family to support means that the actual amount he or she would accept at termination, to bridge the gap between jobs, may not be as much as one might first think.
As part of an employer’s agreement to pay a severance, the employer will require the employee to waive all known and unknown claims that the employee has against the employer. This includes claims of discrimination, harassment, sexual harassment, wrongful termination, breach of contract, privacy violations, defamation, and intentional infliction of emotional distress.
It should be noted that not all claims can be waived by an employee. A California employer cannot ask an employee to waive claims pertaining to:
- Minimum wage;
- Overtime—Unless it is recognized that there is a genuine dispute as to overtime, then it can be released;
- Unemployment insurance benefits; or
- Workers’ Compensation benefits.
So, if a severance agreement containing a general release of claims including any of the above, it is not enforceable.
Other than payment of the severance, the agreement should be written in clear and understandable language, the agreement must advise the employee to seek the advise of an attorney before signing and there has to be what is called a “cooling off” period. Specifically, the employee has up to 21 days to sign the agreement and 7 days after signing in which the employee can change his or her mind.
Employers should consult with an attorney before presenting a Severance Agreement and Release to ensure that it is valid and enforceable. Similarly, employees would be well advised to consult with an attorney if presented with a Severance Agreement and Release to ensure they are getting what they deserve. If the soon to be former employee does have a discrimination, harassment, sexual harassment, wrongful termination claim and accepts a severance package, the employee could have made a big mistake.
If you have an employment law question, such as wage and hour laws, overtime, discrimination, sexual harassment, or retaliation, you need to talk to an attorney that is knowledgeable about worker’s rights and employment law. We can help you—Initial consultations and evaluations for employment related violations are confidential and free, so there is no cost to you to find out if you have a valid concern and are entitled to compensation.