The Basics of Severance Agreements in CA
Posted by Jacob I. Kiani | Sep 18, 2013 | 0 Comments
III. SEVERANCE AGREEMENTS.
From an employer's perspective, severance agreements are beneficial because every termination of an employee presents a potential wrongful discharge action.
If an employer offers a discharged employee severance pay, it is advisable to obtain in exchange an agreement from the discharged employee that states that any claims the discharged employee might have in connection with his or her employment with or termination from the Company are settled and satisfied.
B. In general, severance agreements must be voluntary and knowing.
- A release is voluntary and knowing if it clearly provides actual notice of the nature of the rights waived and it is freely negotiated without fraud or duress.
C. Contents of the Agreement.
- Considering Whether To Specifically Identify Matters Being Released By the Discharged Employee.
a. A specific and detailed severance agreement offers an employer greater protection against future legal action by a discharged employee.
b. An employer who is overly specific regarding the matters being released, however, may run the risk of educating a discharged employee to the degree that the employee chooses not to execute the severance agreement and instead chooses to proceed in legal proceedings. See S. Pepe & S. Dunham, Avoiding and Defending Wrongful Discharge Claims §16:03 (describing case where discharged employee was offered $18,000 in exchange for executing a release of all claims “including, but not limited to, rights under federal, state or local laws prohibiting age or other forms of discrimination" but declined to sign the release and was allowed to use the document to demonstrate coercive behavior by the employer in age discrimination case filed by the employee).
c. The level of detail to include in a severance agreement should be evaluated on a case-by-case basis.
- Waiver of Unknown and Unsuspected Claims.
a. If the employer wishes to have a discharged employee release every conceivable claim, whether known or unknown, suspected or unsuspected by the discharged employee, the severance agreement should contain an express waiver of California Civil Code § 1542.
b. Cal. Civ. Code § 1542 provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor."
c. Thus, in order to release unknown claims of a discharged employee, severance agreements should include an express waiver of California Civil Code § 1542.
d. Sample language of express waiver of Cal. Civ. Code § 1542:(1) I hereby expressly waive any and all rights and benefits conferred upon me by the provisions of Section 1542 of the California Civil Code. Section 1542 provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THIS RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
- Miscellaneous Provisions.
a. Severance agreements should also include the miscellaneous provisions specified above, such as severability, choice of law, waiver, modification, integration, joint construction clauses.
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