California Severance Agreements: What to Know Before You Sign

Losing a job can be stressful—but being offered a severance agreement can add a new layer of confusion. For many California employees, it’s not clear what a severance agreement really means, what it might include, or what signing it could cost in terms of future rights.

At JusticeGuys, we believe every worker deserves to make informed decisions. This guide walks you through the non-legal essentials of reviewing a severance agreement in California—covering timelines, clauses, and what signing could waive—so you can approach the process with confidence and clarity.

What Is a Severance Agreement?

A severance agreement is a written contract between an employer and an employee that outlines what the employee receives after employment ends—often in exchange for certain conditions, such as waiving future legal claims.

Employers typically offer severance to:

• Ease the transition after layoffs or terminations.

• Reduce the risk of future lawsuits.

• Maintain goodwill and protect company reputation.

Severance can include not just money, but also benefits continuation, outplacement assistance, or references.

Key point: California law does not require employers to offer severance. It’s a voluntary agreement—but once you sign, it becomes binding.

The Common Components of a California Severance Agreement

While each agreement varies, most California severance agreements share similar parts. Understanding these sections helps you know what’s being offered—and what’s being asked of you.

A. Payment Terms

This is the section most people focus on first. It outlines how much money you’ll receive and how it will be paid.
Look for:

• Lump sum or installments: Will it come all at once or spread over time?

• Tax withholding: Severance pay is taxable income.

• Timing: California law requires final paychecks promptly, but severance is separate—it may arrive later based on the contract.

B. Benefits Continuation

This section often explains whether your health insurance or other benefits will continue temporarily under COBRA or through employer-paid extensions.
Confirm:

• How long your coverage lasts.

• Who pays the premiums.

• When benefits officially end.

C. Non-Disparagement and Confidentiality Clauses

Many agreements restrict what you can say about your employer or the terms of the deal.
Understand:

• Whether you can discuss your experience with family or future employers.

• If confidentiality applies to the amount of severance or just the circumstances of your departure.

D. Non-Compete and Non-Solicitation Clauses

Non-compete clauses are generally unenforceable in California, but some agreements still include them. Non-solicitation clauses, however, may restrict contacting former clients or coworkers.
Review carefully to ensure these clauses don’t limit your ability to work in your field.

E. Release of Claims

This is one of the most critical sections. It typically states that in exchange for severance pay, you waive the right to pursue legal claims against your employer.
These may include:

• Discrimination or harassment claims.

• Wage and hour disputes.

• Wrongful termination allegations.

Note: Once signed, this release is usually final—you can’t reverse it later, even if new information surfaces.

Timelines and Decision Windows

In California, most employees have some time to review a severance agreement, though the exact period can vary.

Typical Review Periods

• General employees: Often given 5–7 days to review.

• Employees over 40 (covered by the Older Workers Benefit Protection Act): Must be given at least 21 days to consider and 7 days to revoke after signing.

Never feel pressured to sign on the spot. Ask for the full agreement in writing and take the time to review it calmly.

Why Rushing Can Be Risky

Signing too soon could mean overlooking:

• Restrictive clauses that limit your job search.

• Missing out on owed wages or accrued vacation pay.

• Accepting terms that waive important rights.

You have the right to read carefully, ask questions, and make an informed decision.

What Signing Might Waive

The most significant consequence of signing a severance agreement is the release of claims—essentially giving up your right to sue your employer for issues that may have occurred during your employment.

Here’s what that might include:

• Discrimination claims (based on age, race, gender, disability, etc.).

• Harassment or retaliation claims.

• Wage disputes, including unpaid overtime or missed breaks.

• Contract claims tied to employment terms.

Once you sign, these claims are typically considered settled—even if they weren’t discussed in detail.

Key takeaway: Severance pay compensates you for waiving potential claims, not for work already performed.

Questions to Ask Before You Sign

Before agreeing to any terms, consider these practical questions:

1. What am I getting—and what am I giving up?
   Be clear about both sides of the exchange.

2. Is there anything missing?
   For example, unused vacation pay, commissions, or expense reimbursements should be handled separately from severance.

3. Are the terms consistent?
   Ensure the payment schedule, benefits, and dates match across all sections.

4. Can I still apply for unemployment?
   Severance pay doesn’t always disqualify you from unemployment benefits in California—but confirm with the Employment Development Department (EDD).

5. What happens if I don’t sign?
   Know whether the offer is conditional, time-limited, or negotiable.

Taking time to clarify these points can prevent future confusion and ensure you understand the full picture.

Common Clauses That Deserve a Second Look

Even well-written severance agreements can contain hidden implications. Here are a few clauses worth reading twice:

• Arbitration Clause: Requires disputes to be handled privately instead of in court.

• Future Cooperation Clause: Some agreements require you to assist in future company matters or investigations.

• Return of Property Clause: Outlines how and when to return company equipment or data.

• Rehire Eligibility: Some agreements state you’re not eligible for reemployment.

Pro Tip: Highlight every section that references “release,” “waiver,” or “confidentiality.” These often have lasting effects on your rights and reputation.

Non-Legal Considerations That Matter

While much of a severance agreement sounds technical, the practical realities are equally important:

A. Emotional Timing

If your job ended suddenly, take a breath before making any decisions. Signing under stress often leads to regret later.

B. Future Opportunities

Make sure the agreement doesn’t include restrictions that could limit your career path. Non-competes are void in California, but other restrictions can still cause trouble.

C. References and Reputation

If possible, confirm whether your employer will provide a neutral or positive reference. You may even request that language be added to the agreement.

D. Tax Implications

Severance payments count as income and may be subject to standard withholding or additional taxes depending on timing.

E. Personal Goals

If you’re planning a career shift, self-employment, or a relocation, consider how severance funds fit into your next steps.

How to Approach a Severance Agreement Strategically

• Take your time. There’s no prize for signing first.

• Ask questions. HR should explain unclear sections upon request.

• Compare offers. If peers are being laid off too, discreetly compare terms.

• Document communication. Keep records of all discussions about your severance.

• Seek input if needed. Whether from a trusted mentor, career coach, or attorney, get perspective before committing.

Remember: this isn’t just a formality. It’s a binding document that affects your finances, your rights, and your future.

Downloadable Resource: “Severance Review Checklist”

Review Your Severance Agreement with Confidence

Download JusticeGuys’ Severance Review Checklist — a free, easy-to-follow PDF that outlines:

• The most common clauses to review.

• Key deadlines and decision windows.

• Smart questions to ask before signing.

• Practical steps to protect your interests and peace of mind.

At JusticeGuys, we believe knowledge is power—especially when it comes to protecting your employment rights.

Whether you’re facing a job loss, negotiating a severance, or navigating workplace challenges, we connect Californians with the information and resources they need to make smart, confident decisions.

Explore More Employment Insights at JusticeGuys.com

5 FAQs About Severance Agreements in California

1. Is severance pay required by law in California?
No. Employers are not legally obligated to offer severance, though many do to maintain goodwill or reduce potential disputes.

2. Do I have to sign a severance agreement?
No. Signing is optional. However, refusing may mean you won’t receive the offered compensation.

3. Can I negotiate my severance terms?
In some cases, yes. You can ask about adjustments to payment timing, confidentiality, or benefits coverage.

4. What rights do I waive by signing?
You typically waive your right to sue for past employment-related issues, including discrimination, harassment, or unpaid wages.

5. How long do I have to decide?
Many employees have 5–7 days, while workers over 40 have 21 days (plus 7 days to revoke) under federal law.

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