Severance Agreement Demystified: What Every Employee Should Know

Severance agreements hold significant implications for employees at every level, in every industry. They delineate the terms and conditions under which you will leave your position and outline important financial and legal aspects like monetary compensation, continuation of benefits, and post-employment obligations.

Regardless of your position, job responsibilities, and the industry you work in, you need to understand the intricacies of your severance agreement to protect your rights as an employee and make informed decisions about your future career paths.

At Hershey Law, we know that employers do not always act in the best interest of their employees and often infringe upon the rights of departing employees to protect their interests. If your employer has asked you to sign a severance agreement, we can review it for you and negotiate better terms with your employer to protect your legal rights and professional interests.

Call us today at 310-929-2190 to schedule a free consultation with an established California employment attorney at our firm.

👉Also Read: Understanding Severance Agreements: Insights from Hershey Law

Basics of Severance Agreements in California

A severance agreement – also known as an employment separation agreement – is a formal, legally binding contract between you and your employer. It outlines the terms and conditions under which you will leave your position, the compensation and benefits you are entitled to upon your termination, and your post-employment obligations to your former employer.

While the specific terms of your severance agreement might vary depending on the circumstances of your departure from the company and your employer’s policies, here is a brief overview of the most common components included in severance agreements in California.

Severance Pay: Also referred to as a severance package or severance payment, severance pay is the amount of monetary compensation you will receive upon your termination or separation from the company. It can be a lump sum payment or a series of payments over a time period.

Health Insurance: It is a provision for the continuation of health insurance benefits for a specific period after termination of employment – typically under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and Cal-COBRA (California Consolidated Omnibus Budget Reconciliation Act).

Outplacement Services: It’s a provision for outplacement services like career counseling, resume assistance, and job search support to make your transition easier.

Release of Claims: It’s a provision that requires you to release your employer from any legal claims arising out of your employment or termination.

Non-Disparagement Clause: It’s a provision that prohibits you from making negative or disparaging statements about your former employer.

Confidentiality Clause: It’s a provision that prohibits you from disclosing certain proprietary and confidential information about the company, its business practices, and its products and services.

Non-Compete Clause: It’s a provision that restricts you from competing with your former employer – by starting a business of your own or through certain other means – for a specific period after termination.

Legal Framework: An Overview of California Laws That Govern Severance Agreements

The key laws and regulations that govern severance agreements in California include:

California Civil Code Section 1542: This statute states that a general release of claims does not extend to unknown claims unless the parties specifically agree otherwise. Employers must include specific language in severance agreements to ensure that employees are waiving all known and unknown claims arising out of their employment.

California Fair Employment and Housing Act (FEHA): FEHA prohibits discrimination, harassment, and retaliation based on protected characteristics like race, gender, age, disability, and sexual orientation. Severance agreements must not waive an employee’s right to bring claims under FEHA and any such waiver is generally unenforceable.

California Business and Professions Code Section 16600: This statute prohibits agreements that restrict an employee’s ability to engage in lawful professions, trades, or businesses. Non-compete agreements and certain types of non-solicitation agreements are generally unenforceable in California, except under certain circumstances.

Apart from this, SB 331 (also known as the Silenced No More Act), which was passed on October 7, 2021, greatly limits the rights of employers to add restrictive provisions in severance and settlement agreements – particularly with respect to non-disparagement, non-disclosure, and confidentiality clauses.

Limitations on Confidentiality Provisions: SB 331 prohibits employers from including confidentiality provisions in settlement agreements that prevent employees from disclosing factual information related to claims of workplace discrimination, harassment, or retaliation.

Employee Right to Disclose Information: Under SB 331, employees have the right to disclose factual information related to their discrimination, harassment, or retaliation claims to state and federal government agencies.

Common Pitfalls Associated with Severance Agreements in California

  • Ambiguous Language: Severance agreements often contain complex legal jargon that might be difficult for you to fully understand. Ambiguous language can lead to misunderstandings or unintended consequences.
  • Waiver of Legal Rights: Your severance agreement might include provisions that require you to waive certain legal rights – particularly the right to sue your employer.
  • Non-Compete and Non-Solicitation Clauses: Many severance agreements include non-compete and non-solicitation clauses that restrict the employee’s ability to work for or solicit clients from competing companies. These clauses can limit your employment opportunities and make it harder for you to start a business of your own in the same industry.
  • Confidentiality Requirements: Employment separation agreements often include confidentiality provisions that prohibit you from discussing the terms of the agreement or your employment with the company. It can restrict your right to discuss your employment experience with others.
  • One-Sided Terms: Employers often include terms in severance agreements that heavily favor the company’s interests. It’s paramount to carefully review the terms of the agreement to ensure they are fair and equitable.

What Makes a Severance Agreement Unenforceable in California?

Common factors that can render a severance agreement unenforceable include:

Failure to Provide Consideration: For a severance agreement to be enforceable, it must provide some form of consideration to you in exchange for your agreement to waive certain rights or claims. This could include monetary compensation and benefits (apart from what you are already owed). If the agreement lacks such consideration, it can be deemed unenforceable.

Non-Compliance with Legal Requirements: California has specific legal requirements regarding the waivers of legal claims, non-disclosure provisions, non-compete provisions, and non-disparagement provisions that can be included in severance agreements. Failure to comply with these legal requirements can render the agreement unenforceable.

Lack of Voluntary Consent: Under California law, a severance agreement can be considered valid and enforceable only if the parties entered into it voluntarily. If your consent was obtained through coercion, duress, or fraud, the agreement will be deemed invalid.

Unconscionable Terms: If the agreement contains terms that are extremely one-sided and favorable to the employer, it can be considered unconscionable. Under California law, unconscionable contracts are considered invalid and cannot be enforced.

Public Policy and Statutory Rights Considerations: If the agreement contains terms that violate public policy and infringe on your statutory rights, it can be considered unenforceable.

Fraud or Misrepresentation: If your employer engages in fraud or misrepresentation like providing false information or concealing material facts, the agreement can be deemed unenforceable.

When Not to Sign a Severance Agreement in California

There are certain circumstances under which signing a severance agreement might not be advisable. These include:

  • If the agreement contains provisions that you believe might be unlawful or conflict with your legal rights under California employment laws, such as waiving rights to pursue claims of discrimination, harassment, or wrongful termination
  • If the terms of the severance agreement are unfair or unfavorable to you – including inadequate compensation, overly restrictive non-compete or non-solicitation clauses, or waivers of important legal rights without sufficient consideration
  • If you feel pressured or coerced into signing the agreement – like being threatened with job loss or other adverse consequences if you refuse to sign
  • If you do not fully understand the terms of the agreement or the potential implications of signing and if you have not had an opportunity to review the agreement with your lawyer
  • If you believe that signing the severance agreement could jeopardize your right to pursue legal claims or exercise your rights under California employment laws
  • If you believe that signing the agreement might not be in your best interests in the long term – due to your personal circumstances like financial needs and career aspirations

How the California Employment Attorneys at Hershey Law Can Help You with Your Severance Agreement

Initial Review

We can carefully review the provisions of your severance agreement, analyze each provision to ensure compliance with California employment laws, and assess the overall fairness of the agreement.

Explanation of Rights

We can explain your rights under California employment laws and tell you whether they might be affected by the terms of the severance agreement. This includes rights related to wrongful termination, discrimination, retaliation, and other employment-related issues.

Identifying Concerns

We can identify any potential pitfalls or areas of concern in the agreement that might be unfavorable or disadvantageous to you. This could include ambiguous language, waivers of legal rights, non-compete and non-solicitation clauses, confidentiality requirements, or other unfavorable provisions.

Negotiation Strategy

Based on our assessment of the agreement and your goals, we can develop an effective strategy to negotiate with your employer. This might involve seeking modifications or drafting additional provisions to improve the terms of the agreement and better protect your interests.


We can strategically negotiate with your employer or their legal representatives to secure better terms including a fair severance package, continuation of insurance and other benefits, modification of unfavorable clauses, and other concessions.

Legal Analysis

We can guide you through the negotiation process, explain the potential consequences of accepting or rejecting certain terms, and advise you on the best course of action.

Documenting Changes

If your employer agrees to modify the terms of the severance agreement, we can make sure that these changes are properly documented and incorporated into the final agreement.

Final Review and Approval

Before you sign the revised agreement, we can conduct a final review to ensure that all negotiated changes have been accurately reflected and that the agreement is fair and enforceable.

👉Also Read: 3 Reasons Everyone Needs an Employment Attorney

Our Seasoned California Employment Law Attorneys Can Review Your Severance Agreement and Negotiate Better Terms For You!

At Hershey Law, we believe in fighting for what is just and right. That’s why we are committed to protecting the rights of employees in the Golden State.

If you have been offered a severance agreement by your employer, we can review the terms, make sure the provisions comply with state and federal law, and make sure they do not violate your rights or harm your interests. If we believe the terms are unfair or unfavorable to you, we can negotiate for better terms and protect your interests.

Our legal team includes experienced attorneys who have extensive knowledge of California employment laws and strategic negotiation skills. Our attorneys have received some of the highest recognitions including ‘Rising Star’ by Super Lawyers Magazine and ‘Top 40 under 40’ from the American Academy of Attorneys.

With us on your side, you do not have to worry about your rights and professional interests being harmed by your employer.

Call us today at 310-929-2190 or contact us online to schedule a free consultation with a California severance agreement lawyer at our firm.