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What is a Severance?

Man holding severance agreement

Alice was recently let go from her company due to downsizing after working for the company for several years. When gathering her belongings and leaving the office, Alice wonders if she’s entitled to any other extra pay. If so, when will she get paid? 

This is a very common scenario in almost every employer and employee relationship in America. There are various reasons for terminating an employee. This may include downsizing, laying off, or for cause termination. Some companies offer a type of payment called severance pay for employees who are terminated from their employment. This termination could occur voluntarily by the employee, or involuntarily by the employer. Severance pay, also known as a severance package, refers to the payment by the employer to the employee when the employee is terminated. Usually, the severance package is determined at the time of starting employment in the severance agreement. If you have found yourself in this type of situation, it is very important to seek advice of an experienced attorney practicing in a city near you. Each state, even city, has different rules and employee regulations regarding severance pay.

Severance pay can occur in four different ways. These ways include:

  • Unemployment compensation: when an employee has been terminated, the employer could offer a package of payment titled “unemployment compensation.” This essentially also works as severance pay.
  • Severance pay plans: This is a method outlined in the employment contract that specifies how and when exactly the employee will be paid.
  • Severance pay agreement: This is usually some type of bargain that occurs before the employee begins working. This type of bargaining process occurs at the same time as the salary agreement. This type of bargaining could last a couple weeks between the employer and employee.
  • Oftentimes, in many cases employers do not even offer severance pay. Employees could ask for a package from their employers prior to starting work, but, it is up to the discretion of the employer and whether they do engage in that type of practice.

 What do Severance Payments do?

Severance payments are usually meant to prevent the employee from potentially suing their employer in the future. Oftentimes, employees are entitled to filing a lawsuit against their employers. But severance pay offers some type of consideration in exchange for the employee giving up their rights. An employee could still sue for criminal matters though. The non-compete agreement will not limit any criminal actions brought against the company. Other than preventing the right to sue, the severance agreement may also include other rights such as talking about the employer after the employment period or going into a non-compete agreement with another company. For more information on what a non-compete agreement is, please contact one of our litigation attorneys.

For example, when an employee is terminated, her employer will approach her with an offer of $20,000 to the employee in exchange for a promise she does not sue the company for wrongful termination. Should the employee take the severance payment, she will be prevented from bringing in a future wrongful termination lawsuit. 

Severance Payment Agreement Limitations

Under California law, severance payment agreements could only limit employees’ rights to a certain amount. Instances where severance pay agreements could potentially be invalid include:

  • When the severance agreement forces the employee to accept an income lower than the minimum wage
  • When the severance agreement forces the employee to give away their future unemployment insurance payments
  • When the severance agreement prevents the employee from filing any criminal lawsuit against the company
  • When the severance agreement has a very strict and unreasonable non-compete clause
  • When your employer threatens to fire you unless you sign the severance agreement

Other than these above, there are other several ways in which a severance agreement could Be determined to be unlawful. To best determine if your severance pay agreement is unlawful, please visit our experienced attorneys at Heidari Law.

Are you Entitled to Severance Pay in California?

Under California rules, there is no specific legal requirement that companies offer severance pay to employees. The state leaves it up to the specific employers to determine if they should or should not offer severance pay. Employers use severance pay as leverage to get employees to work for them.

California does have state unemployment insurance programs though. These insurance programs are meant to compensate the employee when they are terminated involuntarily. When the employee is terminated through no fault, they’re entitled to unemployment insurance under California laws. For more information on California severance pay rules, we advise you to seek an experienced attorney. You can contact us for a free consultation today.

 Are you Entitled to Severance Pay in Nevada?

Similar to California, Nevada does not offer or make mandatory severance pay companies should offer to their employees. However, they do offer unemployment benefits for those who have been terminated from their employment.

How to Calculate Severance Pay

There are certain factors that go into how Severance pay is calculated. Factors include:

  • How long the employee has worked there
  • How much the employee was making
  • Whether there was a specific calculation in the severance pay contract or in their company policies

An example of a severance package is paying the former employee for three weeks for each year the employee worked for the company. This number could increase or decrease depending on the company.

Severance Pay Promised

If your employer made a promise to you that they would give you a severance pay, however never did and then proceeded to fire you, you could have a potential lawsuit. If an employer made a verbal promise to pay the employee severance pay, the federal laws legally require that the employer actually do provide the severance pay. Failure to provide that package after that promise is grounds for a potential lawsuit.

Further, if the employment contract said that there would be a severance pay but never did create one for the employee, the employee could also potentially bring a lawsuit against the employer. The employer could be held liable for violation of a breach of contract.

Our attorneys are experienced in several types of workplace discrimination and workers compensation lawsuits. For more information, please contact one of our attorneys. If you or someone you know is experiencing difficulties with their employer regarding a severance package, or drafting and executing a valid severance package for their employees, contact our experienced Los Angeles attorneys today for a free consultation.

A severance package has many requirements that must be met whether you are located in California or Nevada. If you are a business owner and need assistance drafting a severance package, contact our experienced workers compensation attorneys for a free consultation today. We are always readily available for our clients with accessible offices in Los Angeles, Fresno, Sacramento, Irvine and Las Vegas. Heidari Law Group will be there to assist you.

***Disclaimer: This page is created by Heidari Law Group for educational purposes. This article provides a general understanding of the law. It does not provide specific advice. By using this site and reading through this page, there is no attorney-client relationship created between you and any member of Heidari Law. Further, due to the constant change of the law, some parts of the information above may no longer be good law.

Sam Heidari

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Sam Heidari

Sam Ryan Heidari

Sam Heidari is the founding principal of Heidari Law Group, a law firm specializing in personal injury, wrongful death, and employment law with offices in California and Nevada. Sam Heidari has been practicing law for over 11 years and handles a wide range of cases including car accidents, wrongful death, employment discrimination, and product liability. The Heidari Law Group legal firm is known for its comprehensive approach, handling cases from initial consultation through to final judgment. Sam Heidari is dedicated to community involvement and advocacy for civil liberties.

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