A California severance agreement is usually a trade: you release legal claims against your employer in exchange for pay or benefits you are not already owed. Before you sign, confirm what you are getting, what you are giving up, and whether any terms are unenforceable. Your final paycheck and accrued vacation are owed whether or not you sign.
Severance offers tend to arrive at a stressful moment, often with a short deadline and a reassurance that the document is “standard.” Some terms are. Others are void under California law, and a few can quietly cost you rights you did not know you had. Here is what to look for.
What You Are Owed Whether or Not You Sign
When an employer ends your employment, California generally requires all final wages to be paid immediately (Labor Code §201). If you quit without notice, the deadline is 72 hours (§202). Final wages include accrued, unused vacation or PTO under most policies (§227.3), and late payment can trigger waiting time penalties of up to 30 days of wages (§203).
None of that is severance. An employer cannot make those payments conditional on your signature, and a release cannot wipe out wages that are concededly due. If your final pay is late or short, our guide on how to file a California wage claim explains next steps.
Severance Must Be Something Extra
A release is a contract, so it must be supported by consideration: something of value you were not already entitled to. Common forms include:
- A lump-sum payment or salary continuation
- Employer-paid health insurance premiums for a set period
- Accelerated vesting of equity or a longer window to exercise stock options
- An agreed neutral reference, a “resignation” characterization, or outplacement support
Read the payment mechanics closely. Many agreements pay only after any revocation period ends, pay in installments that stop if you breach, or treat the payment as wages subject to withholding.
The Release of Claims
The release is the heart of the agreement. You typically give up claims such as discrimination, harassment, retaliation, wrongful termination, and breach of contract, including claims you do not yet know about. California agreements usually add a waiver of Civil Code §1542, a statute that otherwise protects people from unknowingly releasing unknown claims. Once you waive it, unknown claims are released too.
Some rights cannot be given up in a private severance agreement, including:
- Wages that are actually owed
- Unemployment insurance benefits
- Workers’ compensation benefits, which can only be settled through the workers’ compensation system
- Vested retirement and benefit-plan rights
- The right to file a charge with, or cooperate with, a government agency such as the EEOC or California Civil Rights Department, although the agreement may limit your personal monetary recovery in some cases
Non-Disparagement and Confidentiality Carve-Outs
Most agreements ask you not to criticize the company and to keep the agreement confidential. If the non-disparagement clause binds only you, it is reasonable to ask the employer to instruct specific executives not to disparage you.
California also limits these clauses. Under Government Code §12964.5 (amended by SB 331, the “Silenced No More Act”), a non-disparagement or confidentiality provision in a separation agreement must include language confirming that you may still discuss or disclose information about unlawful acts in the workplace, such as harassment, discrimination, or other conduct you have reason to believe is unlawful. The employer must also tell you that you have the right to consult an attorney and give you at least five business days to do so. You may sign sooner if you choose.
Non-Competes and Non-Solicitation Clauses
Business and Professions Code §16600 makes most employee non-compete agreements void in California. Narrow exceptions apply mainly to owners who sell a business or their ownership interest. Recent amendments strengthened the rule. Section 16600.5 (SB 699) provides that a void non-compete is unenforceable regardless of where or when it was signed and gives employees a right to sue an employer that tries to enforce one. Section 16600.1 required employers to notify current and certain former employees, by February 14, 2024, that unlawful non-compete clauses are void. For more detail, see our article on California’s non-compete agreements.
Non-solicitation clauses get similar treatment. Clauses barring former employees from soliciting customers are generally unenforceable, and California appellate courts, including in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., have held employee non-solicitation clauses unenforceable as well.
That does not mean anything goes. Misusing trade secrets, including confidential customer data, remains actionable. Return company property, do not take files or lists, and expect the agreement to restate your existing confidentiality obligations.
Health Coverage: COBRA and Cal-COBRA
Federal COBRA generally applies to employers with 20 or more employees. Cal-COBRA covers employers with 2 to 19 employees and can extend coverage for some people who exhaust federal COBRA. Continuation coverage is usually expensive because you pay the full premium plus an administrative charge, which is why employer-paid premiums for three to six months are a common severance term. Check whether that subsidy ends early if you become eligible for a new employer’s plan.
Extra Protections for Employees 40 and Older
If you are 40 or older, the federal Older Workers Benefit Protection Act sets conditions for a valid release of age discrimination claims. The agreement must be written in plain language, specifically mention the Age Discrimination in Employment Act, advise you in writing to consult an attorney, and give you:
- At least 21 days to consider it, or 45 days if the termination is part of a group program, along with information about who was selected and who was not
- Seven days after signing to revoke
Other Terms Worth Reading Closely
- Equity: what happens to unvested shares and how long you have to exercise vested options
- Cooperation: whether you must assist with future litigation, and whether you are paid for your time
- Repayment or clawback: whether a breach requires you to return the severance
- References: who will respond to reference checks and what they will say
The Takeaway
A severance agreement should give you something real in exchange for a broad release. In California, final wages are owed regardless, employee non-competes are void, and separation agreements must preserve your right to speak about unlawful workplace conduct. Take the time the law gives you, read every clause, and negotiate where it matters. Employers preparing these agreements should review our guide on how to let an employee go.
Frequently Asked Questions
Do I have to sign a severance agreement?
No. If you do not sign, you generally will not receive the severance payment, but your employer still owes your final wages and accrued vacation. Signing is a choice you should make after reviewing the terms.
How long do I have to review a severance agreement in California?
California requires employers to give you at least five business days to consult an attorney before signing. If you are 40 or older, federal law generally requires 21 days to consider the agreement, or 45 days in a group termination, plus seven days to revoke after signing.
Can a severance agreement stop me from working for a competitor?
Generally not in California. Employee non-compete clauses are void under state law, and employers may not try to enforce them. You must still protect your former employer’s trade secrets.
Can I negotiate my severance agreement?
Often, yes. Employees commonly negotiate the amount of pay, the length of health premium coverage, equity treatment, and the wording of non-disparagement and reference terms. Your leverage depends on the claims you would be releasing and the employer’s priorities.
How Sutter Law Can Help
Sutter Law reviews and negotiates severance agreements for employees and drafts compliant separation agreements for employers as part of our employment law and compliance practice. If you have received a severance offer or need to prepare one, contact us to schedule a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
