Severance Agreement in California

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A severance agreement in California outlines terms for employee departure and issues like compensation, confidentiality & the right to consult an attorney. A California severance agreement grants employees a mandatory 5-business-day consideration period regardless of age and ensures they are informed of their right to consult an attorney. California's robust laws protect against unauthorized use and disclosure of confidential information, necessitating careful drafting to avoid silencing employees on workplace issues. Also, non-compete provisions are generally unenforceable and face heightened scrutiny, making it challenging to tailor agreements to protect both employer and employee interests. Let's learn about several aspects of the California severance agreement.

Considerations for Drafting a Severance Agreement in California

Here are some fundamental legal considerations for drafting a severance agreement.

• Claim Waivers and Consideration Periods: Severance agreements must navigate the complexities of claim waivers, especially those requiring consideration and specific revocation periods. The federal Older Workers Benefit Protection Act imposes specific requirements for employees over 40, including written disclosures and a 45-day consideration period (with an additional 7 days for revocation) in group terminations.
• State-specific Considerations: Certain states, such as California, introduce their own considerations and revocation periods. In California, regardless of age, employees are entitled to a 5-business day consideration period effective January 1, 2022. Employers must inform them of the right to consult an attorney for most severance agreements.
• Successors and Liability Issues: Ensuring that the release explicitly includes successors to the seller is essential to cover downstream liability. However, caution should be exercised in avoiding language that inadvertently acknowledges the buyer as a successor-in-interest.
• Property Obligations and Confidentiality: Severance agreements should remind employees of obligations related to the seller's tangible and intellectual property. Identifying confidential and proprietary information and outlining protective measures against unauthorized use are imperative. California law, for instance, may impact the extent of confidentiality provisions.

Employers’ Issues Regarding a Severance Agreement in California

Even though severance pay is not required under California law, employers facing disputes with existing employees should consider offering severance pay in exchange for releasing claims to preempt potential litigation. Here are five issues employers need to understand about severance agreement terms:

• Release of Claims : In severance agreements, employers should prioritize obtaining a clear and comprehensive release of known and unknown claims to minimize the risk of post-employment litigation. Courts emphasize the importance of a written release, barring fraud, deception, misrepresentation, duress, or undue influence (Skrbina v. Fleming Cos., 1996). In California, parties must expressly address unknown claims in the agreement, referencing California Civil Code section 1542, which stipulates that a general release does not extend to unknown claims the releasing party was unaware of when executing the release.
• Choice of Law and Venue: Employers must carefully consider the choice of law and venue in severance agreements, especially when dealing with employees primarily residing and working in California. California Labor Code section 925 prohibits employers from compelling such employees to adjudicate claims outside of California, ensuring substantive protection under California law. Although the statute doesn't apply to contracts negotiated with legal counsel representation or those entered into before January 1, 2017, careful consideration is needed, particularly as the severance agreement is executed after the employment relationship.
• No Rehire Provisions: Employers face restrictions on including no rehire provisions in severance agreements under specific circumstances. Code of Civil Procedure section 1002.5 invalidates provisions preventing workers from future employment with the settling employer or its affiliates, applying to employees who have filed claims through various channels, including internal complaints. Exceptions exist for cases involving a good faith determination by the employer that the individual engaged in sexual harassment or assault.
• Confidentiality: Severance agreements may incorporate limited confidentiality provisions, restricting the employee from disclosing the agreement's amount or terms. California employers, however, must exercise caution, as state law prohibits confidential settlement agreements or the nondisclosure of allegations related to workplace sexual harassment.
• Special Provisions for Release of Age Claims: For employees aged 40 or older, severance agreements releasing age discrimination claims must adhere to the Older Workers Benefit Protection Act (OWBPA). Compliance includes advising the employee to consult with an attorney, ensuring the waiver's clarity, providing a 21-day consideration period (which can be waived by the employee), and allowing a non-waivable seven-day revocation period post-execution. Employers, especially when offering releases to groups or classes of employees, should seek legal counsel to ensure compliance with the OWBPA. The EEOC website offers additional guidance and examples.

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Benefits of Hiring a Lawyer for a Severance Agreement in California

The following are the benefits of engaging a lawyer for a severance agreement in California:

• Negotiating Optimal Terms: Engaging a lawyer ensures skillful negotiation and securing favorable terms in the severance agreement, such as enhanced financial benefits or specific clauses to protect the employee's interests.
• Mitigating Legal Risks: Lawyers excel in identifying and mitigating potential legal risks associated with severance agreements. Their expertise helps avoid common pitfalls and ensures compliance with California's stringent employment laws.
• Crafting Robust Agreements: A lawyer adept at drafting severance agreements ensures precision and clarity in language, minimizing ambiguity and potential disputes. This meticulous drafting protects both parties and upholds the agreement's integrity.
• Navigating Complex Laws: California's intricate employment laws require nuanced understanding. A lawyer's familiarity with state-specific regulations enables them to navigate complexities, ensuring the agreement aligns seamlessly with legal requirements.
• Safeguarding Employee Rights: Legal professionals prioritize protecting employee rights. In the context of severance agreements, lawyers advocate for fair treatment, ensuring that employees receive the entitlements they deserve under California law.
• Providing Strategic Counsel: Lawyers offer strategic counsel beyond legalities, guiding clients on the broader implications of severance agreements. It includes advice on career transitions, potential impacts on future employment, and overall strategic decision-making.

Key Terms for a Severance Agreement in California

• Consideration Period: The time frame during which an employee, regardless of age, in California has the right to review and consider a severance agreement before signing.
• Age Discrimination Disclosures: Specific written disclosures mandated by the federal Older Workers Benefit Protection Act for employees over 40 releasing claims under the Age Discrimination in Employment Act.
• Revocation Period: The period, often 7 days, within which an employee over 40 has the right to revoke a signed severance agreement, even if initially agreed upon within the 45-day consideration period.
• Confidentiality Provisions: Clauses in severance agreements outline obligations and restrictions on disclosing confidential and proprietary business information, considering California's limitations.
• Non-compete Restrictions: Provisions addressing restrictions on an employee's ability to compete with the employer post-termination, considering California's general unenforceability of non-compete agreements.

Final Thoughts on a Severance Agreement in California

Navigating severance agreements in California demands meticulous attention to state-specific nuances, such as the mandatory consideration period and the need to respect employees' rights to consult an attorney. Careful drafting is essential, particularly regarding confidentiality provisions, as state laws safeguard employees' freedom to speak out against workplace misconduct. Employers should refrain from incorporating unenforceable provisions like non-competes and non-solicitations, recognizing that California's robust legal framework provides alternative means to protect confidential business information. Lastly, the administrative burden may necessitate tailored state-specific agreements, underscoring the importance of collaboration with legal counsel to ensure compliance and mitigate potential risks.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.