Severance Agreements in California in CA — Employment… | CGMIMM
Employment Law · CA
Severance Agreements in California
California severance agreements are negotiable contracts trading severance pay for a release of claims. Federal OWBPA gives age-40+ employees 21 days to consider + 7 days to revoke.
Published May 8, 2026
## Severance agreements in California
When you leave a job — voluntarily or involuntarily — your employer may offer a **severance agreement**. The deal: payment + benefits in exchange for releasing claims and (usually) confidentiality. California severance agreements are negotiable contracts.
## Common provisions
**1. Severance pay.** Cash payment, often calculated as:
- Weeks per year of service (e.g., 1-2 weeks/year)
- Lump sum or installments
- Tied to non-compete duration
**2. Continuation of benefits:**
- Health insurance (COBRA subsidies)
- Bonus / commission true-up
- Vesting acceleration
- Outplacement services
**3. Release of claims.** Employee waives claims against employer:
- Discrimination / harassment / retaliation
- Wage / hour claims
- Wrongful termination
- Defamation
- Breach of contract
- Some claims CAN'T be waived (workers' comp, unemployment, future claims)
**4. Confidentiality.** Don't disclose:
- Severance amount
- Reasons for separation
- Internal company information
- Now restricted by Speak Out Act (2022) for harassment / sexual assault claims
**5. Non-disparagement.** Mutual or one-way.
**6. Non-compete / non-solicit.** Restrictions on future employment / customer contact.
**7. Cooperation clauses.** Assist with future investigations / litigation.
**8. Return of property.** Devices, documents, ID badges.
**9. Reference policy.** What employer will say to future employers.
**10. Tax allocation.** How payment is structured (W-2 vs 1099 etc.).
## Federal protections — OWBPA
**Older Workers Benefit Protection Act (OWBPA, 1990)** applies when employee is 40 or older:
- **21 days to consider** the agreement
- **7 days to revoke** AFTER signing
- **45-day consideration** for group layoffs (2+ employees over 40)
- **Written agreement** must specifically waive ADEA claims
- **Advised to consult attorney**
- **Consideration** beyond what employee was already entitled to
- **Disclosure** of employees terminated / retained in group layoffs (job titles + ages)
Releases that don't satisfy OWBPA do NOT waive age-discrimination claims.
## What can't be waived
Even with valid release:
- **Workers' comp claims**
- **Unemployment benefits**
- **Future claims** (claims arising after the agreement)
- **Vested ERISA benefits**
- **NLRB charges** (concerted activity)
- **Right to file with EEOC / state agencies** (though employee may waive monetary recovery)
- **Whistleblower claims** under SEC, IRS, FCA (varies)
- **Future sexual harassment claims** (post-Speak Out Act)
## Negotiation strategies
Almost everything is negotiable:
**More money:**
- Higher severance (especially if you have leverage)
- Bonus / commission true-up
- Stock vesting acceleration
- Reimbursement of unused PTO
**Better terms:**
- Longer COBRA coverage
- Outplacement services
- Mutual non-disparagement
- Neutral reference language (specific job title + dates only)
- Confidential settlement filed under seal
- Soft non-compete
- Right to public disclose certain claims
**More time:**
- 21 days minimum (OWBPA) for 40+
- Often negotiate up to 45+ days
- More time to explore other claims
## When you have leverage
- **Pending claims** (EEOC charge, complaints filed)
- **Documented misconduct** by employer
- **Long tenure**
- **Mass layoff** (WARN Act notice issues)
- **Executive role**
- **Group of similarly-situated employees**
- **Pending whistleblower / SEC complaint**
## When you have less leverage
- **At-will firing for documented performance issues**
- **Short tenure**
- **No discrimination claims**
- **Already received generous package**
- **Confidentiality essential to employer**
## Tax considerations
- **Severance is W-2 wages** — taxed as ordinary income, withholding applies
- **Section 409A** governs deferred compensation; mistakes can trigger 20% penalty
- **Lump sum vs payments** — affects tax bracket year
- **"Cliffs" of severance** — try to negotiate timing
## Common mistakes
- **Signing too quickly** without legal review
- **Not asking for more** — employer's first offer is usually negotiable
- **Waiving valuable claims** without understanding value
- **Missing the OWBPA 7-day revocation window**
- **Accepting ambiguous reference language**
- **Forgetting unused vacation / PTO**
- **Not understanding non-compete restrictions**
## Recent legal trends
**Speak Out Act (2022)** — bans pre-dispute NDAs covering sexual harassment / assault. POST-DISPUTE NDAs in severance are still allowed but employee can choose to disclose.
**Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022)** — gives whistleblowers right to invalidate pre-dispute arbitration clauses.
**State NDAs in employment harassment** — many states (CA, NY, NJ, IL, WA) restrict NDAs covering harassment / discrimination.
**Non-compete reform** — many states have restricted non-competes; FTC ban (struck down 2024 but still pending).
## What you should do
Don't sign a severance agreement without legal review. Most California employment attorneys offer flat-fee severance review ($300-$1,500). The investment usually pays for itself many times over through better terms. If you have potential claims (discrimination, harassment, retaliation, whistleblower), severance review is even more critical.
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*This guide is general information about federal and California employment law as of early 2026 and is not legal advice. Severance agreements are complex contracts. Talk to a licensed California employment attorney about your specific situation.*
This guide is for general information only and does not constitute legal advice. Laws change and outcomes depend on your specific situation — talk to a licensed attorney before acting on anything you read here.