Is an Employer Required Offer Severance Pay When an Employee Leaves in California?
Severance packages typically include pay and/or other benefits for workers who leave companies or organizations. As an employer operating a business in California, you may want to ask: Am I required to provide severance to outgoing employees? In California, the answer is “no”—severance pay is not required.
That being said, many employers do offer severance. There are a number of potential advantages to doing so. Further, state law does regulate the use of severance agreements—with certain provisions being prohibited. Here, our Riverside County employment lawyer for employers explains what companies should know about severance pay laws in California.
Employers are Not Required to Offer Severance Packages in California
Businesses and organizations in California should know that employers in California are not legally obligated to provide severance packages to workers who leave the company. In other words, there is no state-mandated requirement for companies to offer severance pay or benefits when an employee is terminated. Likewise, federal law does not require severance pay. To be clear, it does not matter how long an employee worked at your company; severance pay is never a legal obligation.
Employers May Offer Severance for Several Reasons
Many employers voluntarily opt to provide severance to employees. There are a number of different reasons why a business or organization in California may choose to offer workers a severance package. Here is an overview of some of the most notable reasons employers provide severance:
- Legal Protection: Legal protection matters. Most often, severance agreements include clauses whereby a former employee waives their right to sue the company and releases specific claims against the company, in exchange for a payment in addition to final wages due. Some separating employees may have potential claims about which the employer is not aware, and severance agreements “buy peace.”
- Goodwill: Providing severance can help maintain a positive company image and employer brand. Goodwill is particularly important in competitive job markets.
- Voluntary Departures: Severance may be offered to encourage voluntary resignations when an organization needs to reduce headcount but wants to avoid forced layoffs.
California Law: Legal Requirements for Severance Agreements
Although California does not mandate severance pay for employees, it does regulate the use of severance agreements more comprehensively than most U.S. jurisdictions. In October of 2021, California Governor Gavin Newsom signed Senate Bill 331 in law. The bill expanded the scope of the existing state law regulating workplace agreements, including severance packages.
Most notably, SB 331 largely prohibits the use of non-disclosure provisions in settlement agreements related to workplace harassment or discrimination based on sex, race, religion, national origin, or other protected characteristics. In other words, the separating employee still has the right to complain about workplace conditions, and may have the right to report to others facts about the payment for their release of potential claims, after entering into a severance agreement.
Beyond that, the law mandates a minimum 5-day period for employees to consider a severance agreement and seek legal counsel. An employer in California that offers a worker a severance package should ensure full compliance with state law. These agreements should be drafted and reviewed by an experienced employment law attorney.
Contact Our Riverside County Employment Lawyer Today
At the Law Office of Karen J. Sloat, APC, our California employment attorney is committed to putting the interests of clients first. If you are an employer with questions about severance pay, we are here to help. Contact us today for your completely confidential consultation. Our firm works with employers in Coachella Valley, Riverside County, and throughout California.