California Severance
Agreement Lawyers

A Severance Agreement Is Not a Formality — It’s a Trade

When an employer offers you a severance package, they are buying something: your signature on a binding contract that waives your right to sue them. In exchange you may receive severance pay, employer-paid COBRA, equity acceleration, or a neutral reference — and in return you typically release every legal claim you have, agree to confidentiality and non-disparagement terms, and commit to cooperating with future litigation. Many employees sign without understanding what they gave up, or how much more they could have received.

What Makes a Severance Agreement Valid in California

Consideration. The agreement must give you something of value beyond what you are already owed. Wages earned, accrued PTO, and vested benefits are yours regardless — an employer offering only those has given no valid consideration for a release.

A knowing and voluntary waiver. Courts examine whether you had time to review, whether you were advised to consult counsel, your business experience, and whether the release was obtained through pressure or misrepresentation.

OWBPA compliance (age 40+). To release federal age discrimination claims, the agreement must give you at least 21 days to consider (45 in a group layoff), a 7-day post-signing revocation period, written advice to consult an attorney, and — in layoffs — disclosure of the ages and job titles of who was and wasn’t selected. Skip any element and the age-claim release is invalid even if you signed.

What a Release Can Never Waive

• Future claims — a release covers only what happened before you signed
• The state’s share of PAGA penalties (Iskanian v. CLS Transportation, 59 Cal. 4th 348 (2014))
• Workers’ compensation rights
• Your right to file a charge with the EEOC or CRD — the release can waive your monetary recovery, not your right to report
• Unemployment insurance and other government benefits

SB 331: The Silenced No More Act

Since January 1, 2022, California employers cannot buy your silence about unlawful conduct. Settlement and separation agreements cannot prohibit you from disclosing the facts underlying a FEHA claim — discrimination, harassment, or retaliation — even when money changes hands, and every non-disparagement clause must carry an explicit carve-out saying so. A clause without the carve-out is void, and using one exposes the employer to penalties.

Red Flags to Catch Before You Sign

• The general release + § 1542 waiver: language waiving even claims you “do not know or suspect to exist” can extinguish discrimination, unpaid wage, and whistleblower claims you haven’t yet identified — claims that may be worth far more than the severance
• Non-disparagement without the SB 331 carve-out: unlawful on its face — and a sign the rest of the agreement deserves scrutiny
• Mandatory arbitration of future claims: enforceable only if it satisfies Armendariz (neutral arbitrator, adequate discovery, employer pays the costs)
• IP overreach: clauses claiming work you do after separation, or inventions made on your own time without employer resources, run into Labor Code § 2870
• “Sign or no final paycheck”: flatly illegal — final wages are owed at termination no matter what (Labor Code §§ 201, 221)
• Open-ended cooperation clauses: negotiate limits on scope and duration, and compensation for your time

How to Negotiate a Better Package

The standard “one week per year of service” is a floor, not a ceiling — and your leverage is the strength of your potential claims. If your termination looks wrongful — it followed a protected complaint, the layoff skewed older, or earned commissions conveniently vanished — an attorney’s demand letter identifying those claims, without filing anything, routinely moves employers to improve offers severalfold. A FEHA claim with back pay, emotional distress, and punitive exposure makes four weeks of severance look very different.

Strong negotiations address the whole package, not just the number: extended employer-paid COBRA, equity acceleration and longer option-exercise windows, a pre-agreed neutral reference, mutual (not one-sided) non-disparagement, removal of unenforceable restrictions, outplacement support, and tax-efficient allocation of the payment.

Equity, Tech, and Finance: Where Severance Gets Complicated

In technology and entertainment, the equity terms are often worth more than the cash: post-termination option windows (typically 90 days — negotiable to years), single- vs. double-trigger acceleration, and clawback provisions whose enforceability collides with California’s § 16600 ban on non-competes. In financial services, the language of your FINRA Form U-5 termination disclosure can matter more than the money — a negative U-5 follows a broker for years, and neutral U-5 language is a negotiable severance term.

The Tax Side

Severance is ordinary income — taxed like wages, and a lump sum can push you into a higher bracket. But agreements can allocate payments between categories with different treatment (wages vs. emotional-distress damages under IRC § 104), and that allocation is negotiable. Watch for severance restructured as “consulting fees”: it shifts roughly 15.3% in self-employment tax onto you.

After You Sign

If you are 40+, the agreement is not final until the 7-day revocation window passes — written notice to the employer revokes it. File for unemployment with the EDD immediately: a lump-sum severance generally doesn’t reduce UI benefits, though salary-continuation structures can delay eligibility. And map your health coverage: COBRA runs up to 18 months (Cal-COBRA extends coverage for small employers), so know exactly when any employer-paid period ends.

When You Shouldn’t Sign at All

Sometimes declining is the right move: when your claims are worth substantially more than the offer, when the employer refuses to remove unlawful provisions, when you intend to pursue a CRD or EEOC case, or when the “consideration” is just money you’re already owed. Declining a severance offer never forfeits your right to sue — California law does not make accepting severance a condition of pursuing your claims.

Why Bluestone Law

Founding attorney Rotem Tamir spent years on the employer side, so we know exactly how companies price severance against litigation risk — and when their offer doesn’t reflect yours. We review and negotiate severance agreements on flat-fee or contingency arrangements, assess whether your termination was wrongful, and move quickly: your OWBPA review window is already running.