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Severance package basics in California

A severance package, also known as a severance agreement, is a contract made by a departing employee and their employer. In the agreement, the employee agrees not to sue their employer for wrongful termination. In exchange, the employer gives the employee a severance package, which comprises pay and benefits including paid time off, stock options, transition and outplacement services, non-disclosure agreements and liability releases.

In most cases, employers offer a severance package to executives or employees who are laid off due to restructuring or downsizing. The severance package generally helps to reduce the employer’s legal liability. However, California law does not provide any legal requirement for employers to give severance packages to their employees unless it was in the employment contract.

What are the factors determining severance pay?

The amount of severance pay is usually based on the agreement between the employer and the employee. Common factors that determine the amount to be paid include:

  • The length of time the employee has been with the employer
  • The situation that led to the termination of the job
  • The employer’s financial situation

With this information in mind, negotiations can begin.

Things to consider when negotiating a severance package

The amount of pay and benefits received as a severance package will depend on the agreement between the employee and employer. As an employee, you may need to negotiate for a fair severance package. Here are some tips to help:

  • Before signing the agreement, the employee should ensure that it provides sufficient additional compensation.
  • Employees should also keep in mind that they are not obligated to take the initial offer. It is vital to review the agreement, and if you are not satisfied, you may ask the employer to modify some terms.
  • As an employee, it is important to keep in mind that what you are giving up has real and tangible value, especially if the circumstance that led to your termination could support a claim for wrongful termination. Therefore, you should seek leverage through claiming a fair agreement.
  • Consider more than a lump sum payment. When negotiating, it is wise to consider other options like health benefits, reference and outplacement services. These benefits will help you cope well with life after the job termination.

Remember that you can always get an expert opinion. Consult with a lawyer to help you review any proposed severance package and negotiate your ideal settlement.