California Severance Agreements: What Employees Must Know

What Is a Severance Agreement in California?

Receiving a severance agreement from your employer can feel overwhelming — especially when you are already navigating the stress of a job loss. But before you sign anything, it is critical to understand what you are agreeing to and what California law says about your rights. Severance agreements in California are governed by a layered web of state and federal protections, and signing one without fully understanding its terms can mean permanently giving up significant legal rights.

This article provides a general educational overview of California severance agreement law. It is not legal advice. If you have received a severance agreement, consulting a qualified California employment attorney before signing is strongly recommended.

Is Severance Pay Required in California?

The short answer is no. California law does not require employers to provide severance pay when they let an employee go. As the California Labor Commissioner has stated plainly, "There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment."

However, severance may be legally owed in certain circumstances, including:

Written employment contracts or company policies: If an employment agreement, offer letter, or written company policy — such as an employee handbook — promises severance pay, that promise may be legally enforceable.
The Cal-WARN Act: Under the California Worker Adjustment and Retraining Notification Act (Cal-WARN Act), employers may be required to provide severance or similar compensation in cases involving mass layoffs or plant closures. Specifically, the Cal-WARN Act requires employers with 75 or more employees to give at least 60 days of advance written notice before conducting qualifying large-scale employment actions. If an employer violates this law by laying off workers without proper notice, affected employees may be entitled to back pay and benefits.
Union agreements: Collective bargaining agreements may independently obligate an employer to pay severance.

It is also worth noting that severance agreements are entirely separate from your final paycheck. California Labor Code §§ 201 and 206.5 require your employer to pay all earned wages in full upon termination — regardless of whether you sign a severance agreement.

Key California Laws That Govern Severance Agreements

California imposes specific, non-negotiable rules on what employers can and cannot include in a severance agreement. Here are the most important statutes to know:

The Silenced No More Act (SB 331 — Government Code § 12964.5)

Effective January 1, 2022, California's Silenced No More Act fundamentally reshaped what employers may include in severance and separation agreements. Under Government Code § 12964.5, a separation agreement cannot prevent an employee from disclosing information about unlawful acts in the workplace — including harassment, discrimination, and retaliation. Any non-disparagement or confidentiality clause in a covered agreement must include specific carve-out language preserving the employee's right to discuss unlawful conduct.

Importantly, there is one confidentiality restriction the law still permits: the specific dollar amount of the severance payment itself may still be kept confidential under Government Code § 12964.5(e).

California Civil Code Section 1542 — The "Unknown Claims" Waiver

Most California severance agreements include a release of all claims — including a waiver of Civil Code § 1542. That statute provides that a general release does not extend to claims you do not know or suspect exist at the time you sign, if knowing about them would have materially affected your decision. When employers ask employees to waive § 1542, they are asking them to give up not just known claims, but also claims they may not even know they have yet. Employees should understand exactly what this means before agreeing.

California Business and Professions Code Section 16600 — Non-Competes Are Void

Non-compete clauses have been void in California for decades, and this prohibition has only been strengthened in recent years. A 2023 amendment to Business and Professions Code § 16600, effective January 1, 2024, directs courts to read the non-compete ban broadly. Additionally, under AB 1076 and SB 699, employers who included a non-compete in an agreement signed after January 1, 2022, were required to send written notice by February 14, 2024 informing affected employees that the clause is void. If your severance agreement contains a non-compete clause, it should be flagged for legal review immediately.

California Fair Employment and Housing Act (FEHA)

FEHA prohibits discrimination, harassment, and retaliation based on protected characteristics such as race, gender, age, disability, and sexual orientation. Severance agreements generally cannot waive an employee's right to bring claims under FEHA, and any such waiver is typically unenforceable. Moreover, a settlement agreement cannot bar an employer from disclosing information relevant to any FEHA-related claims.

How Long Do You Have to Review a Severance Agreement in California?

California employees are protected by both state and federal review period rules — and these timelines can overlap depending on your age and the circumstances of your separation.

The California Rule: At Least Five Business Days (Gov. Code § 12964.5)

Under Government Code § 12964.5(b)(4), an employer offering a separation agreement must notify the employee of their right to consult an attorney and provide a reasonable time period of not less than five business days in which to do so. Employees may choose to sign before the five-day period expires, but the employer cannot pressure or require them to do so sooner.

Special Rules for Employees Age 40 and Older: The OWBPA

If you are 40 or older and your employer is asking you to waive rights under the federal Age Discrimination in Employment Act (ADEA), the Older Workers Benefit Protection Act (OWBPA) imposes strict additional requirements. The OWBPA governs waivers of age-discrimination claims and sets the following mandatory review periods:

Individual termination: At least 21 days to consider the agreement before signing.
Group layoff or reduction in force (RIF) affecting two or more employees: At least 45 days to consider the agreement before signing.
Revocation period: In both cases, the employee has at least 7 days after signing to revoke the agreement. The agreement does not become effective until this 7-day period expires.

Failing even one of these OWBPA requirements makes the entire ADEA age waiver invalid and unenforceable. An employer cannot satisfy the OWBPA by pointing to California's shorter five-business-day window — the federal requirement stands independently.

Under OWBPA, any ADEA waiver must also:

Be written in plain language the employee can understand.
Specifically refer to rights and claims arising under the ADEA by name.
Not waive claims that arise after the date of signing.
Provide something of value beyond what the employee is already owed.
Advise the employee in writing to consult an attorney before signing.

Rights You Cannot Sign Away in California

Even a fully executed California severance agreement cannot take away certain fundamental rights. These include:

Undisputed earned wages: Labor Code §§ 201 and 206.5 make any agreement to waive undisputed earned wages void.
Unemployment insurance benefits: Employees cannot waive their right to claim unemployment benefits.
Workers' compensation benefits: These cannot be waived without court approval.
The right to file a charge with the EEOC or California Civil Rights Department (CRD): Severance agreements generally cannot prevent employees from filing administrative charges, participating in agency investigations, or cooperating with government inquiries into unlawful workplace conduct.
The right to discuss unlawful conduct: Per the Silenced No More Act, no agreement can bar you from disclosing information about workplace harassment, discrimination, or other illegal acts.

Tips for Negotiating Your California Severance Package

Severance agreements are rarely take-it-or-leave-it. Here are practical steps California employees can take when evaluating or negotiating a severance offer:

Use your review period. Do not let an employer pressure you to sign quickly. You are entitled to at least five business days under California law — and potentially 21 or 45 days if you are 40 or older and an ADEA waiver is involved.
Assess your legal claims first. The strength of any employment law claims you may have — such as unpaid wages, discrimination, or retaliation — is often the most significant driver of a severance agreement's value.
Identify what factors give you leverage. These may include facts suggesting discrimination or wrongful termination, unpaid wages or commissions, long tenure, or if your layoff is subject to Cal-WARN requirements.
Negotiate the amount and formula. Severance is often calculated as a set number of weeks of pay per year of service. If that formula seems to shortchange your tenure or a recent promotion, it may be negotiable.
Consider additional benefits. Negotiated severance packages may include continued health insurance coverage, outplacement services, or extended payment over time — which can have important tax and cash-flow implications.
Check for Cal-WARN entitlements. If your layoff was part of a group termination at a company with 75 or more employees, ask specifically whether 60-day Cal-WARN notice was given. A violation may create liability for back pay entirely independent of the severance offer on the table.
Watch for problematic clauses. Look carefully for clawback and repayment provisions, arbitration requirements, out-of-state choice-of-law clauses (note: California Labor Code § 925 generally prohibits requiring California employees to adjudicate California claims under another state's law), and no-rehire clauses.
Consult an employment attorney early. An attorney can compare the offer with your employment records, potential claims, and applicable waiver rules — and identify terms that may warrant negotiation before you sign.

Conclusion: Don't Sign Until You Know What You're Giving Up

A California severance agreement can offer meaningful financial support during a difficult transition — but it almost always comes at the cost of releasing important legal claims. California's robust employee protections, including the Silenced No More Act, Civil Code § 1542, non-compete prohibitions, and Cal-WARN rights, give workers in this state meaningful tools to push back and negotiate.

The most important thing you can do is not sign until you fully understand what you are agreeing to. If you have received a severance agreement and are unsure of your rights, the experienced employment law attorneys at Leeds Law Firm are here to help. Contact us today for a confidential consultation.

This article is for general informational and educational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. For advice specific to your situation, please consult a licensed California employment attorney.