Severance pay in California is not legally mandated, but many employers opt to use it for other reasons. One of the main reasons to utilize severance pay (also called a separation payment) is to get the employee to sign a release of claims against the organization. Here are some general points to understand if utilizing severance pay in California:
- The difference between severance and separation pay.
- What claims cannot be released by the employee, even if they sign off on “all” claims.
Severance pay in California: Severance versus separation
What is the difference between severance pay and separation pay? Actually they have the same meaning. However, for departing employees it might be good to call any payment in exchange for release “separation” unless there is a contractual requirement that states they are due “severance” pay. This is because the term “severance” has a connotation of something that is owed whenever an employee is terminated. This can lead to the misunderstanding that employees perceive it as an entitlement. Even though most employers do not have a severance policy, departure package, or any other required payment upon leaving, this connotation still exists. If you call it a separation package, it reduces this misconception of entitlement. It’s a nuance, but could make a difference.
Either way, severance pay or separation pay refers to any payment made to assist in the transition to their next position (beyond the standard final paycheck).
Severance pay in California: Released claims
The main rationale for an employer to offer a separation package (beyond simple goodwill) is to get a signed release of claims from the departing employee.
“Clearly, if you’re going to give any money to someone that they’re not otherwise required to have, put it in writing and get released claims.” Michelle Flores told us in a recent CER webinar.
Some claims cannot be legally released, but if you want the employee to waive as many claims as you can in California, you have to quote Civil Code section 1542 in the release document. It says that the employee is recognizing that they’re waiving all of the rights except those which are legally protected.
Employers need to remember, however, that some claims cannot be released no matter what—not even with an employee signature. Some examples are indemnifications, reimbursements owed, any type of claim under workers’ compensation, or any wages due.
The above information is excerpted from the webinar “Final Pay Obligations in California: Tips for Minimizing Your Legal Risks When Employees Leave.” To register for a future webinar, visit CER webinars.
Michelle Lee Flores is a partner in the Los Angeles office of Fisher & Phillips LLP. She focuses her practice on all aspects of employment litigation including jury and bench trials; arbitration; mediation and pre-litigation negotiations; sex, race, religion, age and disability harassment and discrimination; wage and hour violations including class actions; and wrongful termination.
It’s startling how many employees believe they are entitled to “severance pay” anytime they are let go. Their disappointment and/or bitter feelings upon learning the truth can lead to lawsuits.