Severance Pay

Severance pay (also called separation pay, termination pay or continuation pay) is money that an employer gives to an employee when that employee is laid off or fired. Severance pay is also sometimes given when an employee resigns.

The Right to Receive Severance Pay
The law normally does not require employers to give severance pay. However, severance pay may be made in the following circumstances:

• workers with employment contracts that require their employers to pay severance have the right to receive the amount of severance promised in the contract;
• employees of companies with policy manuals or practices that provide for severance may have the right to recover this money (some severance policies have “strings attached--for example, a policy might say that employees must give at least two weeks notice before quitting the job in order to get severance pay);
• employers may negotiate with employees to give up (or “release”) their actual or potential legal claims (such as discrimination claims) in exchange for severance pay; and
• under the WARN Act, if a company closes down or has a “mass layoff” of a large number of employees in a short period of time without giving at least sixty (60) days notice, the company may have to continue paying wages after the employees are laid off for up to sixty days.

Amount of Severance Pay
No set amount of severance pay is required unless specified in a statute, union contract, company policy manual or employment contract. However, severance pay is frequently based on length of service (for example, a severance agreement might give each worker the right to one week’s pay for each year of service to the employer--other benefits, such as job counseling, might be included in an overall severance “package”).

If you are protected by the WARN Act the amount of severance will depend on how much notice you received. For example, if you only receive 5 days notice before being laid off, your employer must continue your wages for 55 days after you leave.

Since severance pay is usually part of a legal contract; you have the right to either, accept it, reject it, or negotiate a different contract. Keep in mind, however, that if you make a “counter offer,” the initial offer from your employer has been rejected and your employer is under no obligation to make the offer again.

Enforcing Severance Agreements
If you are entitled to severance pay, you can file a claim with the Labor Commissioner or file a claim in court. In many cases, it is necessary to go to court to obtain your severance pay. For instance, if an employer’s severance pay policy is paid for by a fund that is covered by the Employee Retirement Income Security Act (ERISA), the Labor Commissioner will not accept a case to enforce this agreement. If the Labor Commissioner will not hear your case, you can usually go to court. If you are protected by the WARN Act and your employer refuses to pay continued wages or severance, you will have to go to court, not the Labor Commissioner, to recover the money. ERISA claims and WARN Act claims can only be filed in Federal court. Kletter Law Firm is experienced in determining your eligibility for pay, and in obtaining it from employers in court.

Release of Claims
Often, employers will provide severance pay only if you sign a release of claims. A release of claims is a contract “waiving,” or giving up, any potential legal claims you may have against the employer based upon any legal theory for past acts. These contracts are generally legal and enforceable. Whether these releases are valid depends on the language in the release and the types of claims that the employer asks the worker to waive. There are several types of releases, and some claims that cannot be released.

In the case of a release, the employee normally gives up the right to file potential legal claims.  Sometimes, the consideration given by the employee could be something else, such as simply agreeing to work extra hours or stay on the job longer when he/she is not legally required to do so or agreeing to never seek employment with the company in the future. In return, the employer pays the employee something to which she is not already entitled, such as severance pay. It is a violation of the California Labor Code for your employer to ask you to release your claims in exchange for paying you for hours you have already worked, or in exchange for giving you benefits you are already owed.

It is important that employees be aware of all claims they may have before agreeing to release them. You should contact a lawyer before signing a release of claims. The Kletter Law Firm can advise you as to whether it is in your best interests to sign a release.

If your employer is offering severance pay and/or is asking you to sign a release of claims, contact Kletter Law Firm today by calling us at 415.434.3400 or you can schedule a no-fee consultation.