Understanding What Is and Is Not Acceptable
When you are being dismissed from a job, some employers will offer a financial incentive in the form of a severance package to compel you to sign a severance agreement. This is a legal contract that typically includes provisions prohibiting you from doing and saying certain things involving the company you are exiting. Severance agreements exist to protect the employer first and the employee second, so it is fair to be cautious when evaluating whether you should sign.
This is especially true in circumstances where an employer is not obligated to offer you a severance package in the first place. Some unions and employment agreements mandate some form of severance, but if neither of those situations apply to you, your employer wants something in exchange for the money they are offering in a package.
Many common elements of severance agreements have proven to be legally enforceable in California, even provisions that overwhelmingly benefit the employer. Still, some employers will attempt to sneak in legally unenforceable or outright illegal terms in a service agreement in the hopes employees may not understand their rights or know to enforce them. Below, we cover some of the conditions an employer CANNOT include in a severance agreement.
What Employers CAN Include in a Severance Agreement
It can sometimes be confusing what is appropriate to include in a severance agreement and what is unlawful, or at least not enforceable. This is especially true because employers are often able to restrict you from suing for some types of otherwise illegal and prosecutable actions.
Employers can include any of the following terms in a severance agreement in California:
- Non-disparagement provisions, meaning you are prohibited from saying anything negative about your employer
- Nondisclosure provisions, where you are barred from revealing trade secrets to anyone, including future employers in the same industry
- Confidentiality provisions, where you are unable to speak about the terms of your severance agreement or the factors that led to your dismissal
- Restrictions on lawsuits involving wrongful termination, workplace harassment, discrimination in the workplace, or any other known or unknown claim
All of these conditions, despite overwhelmingly favoring the employer, are common to many severance agreements. An employer hopes you will agree to relinquishing these rights through the financial incentive of the corresponding severance package.
An employer cannot include any term in your severance agreement that might bar you from collecting any unpaid wages. Severance agreements must be in accordance with California’s wage and hour laws, including those governing overtime, meal breaks, and minimum wage.
An employer also cannot use unpaid wages to pressure an employee into signing a severance agreement. Regardless of whether or not an employee agrees to take a severance package, an employer is obligated to pay out any unpaid earnings in accordance with state law. For example, your boss cannot claim they cannot settle persisting unpaid overtime concerns until you sign your severance agreement. Even if you choose not to sign the agreement, you are still owed those wages, and your employer can face penalties for not efficiently paying them.
Even if you do sign a severance agreement that claims to restrict your ability to collect unpaid wages, such terms are unlawful and unenforceable. Say you worked a salaried job in which you were misclassified as a worker exempt from overtime pay. After a year of working there, you were offered a severance package and associated agreement that allegedly prohibited you from pursuing any claims relating to unpaid wages. If you signed the agreement and later discovered you were misclassified, you can still potentially pursue a claim to collect the unpaid overtime you accrued over the course of your employment.
Breaking the Law and Reporting Crimes
Your employer cannot put any condition in a severance agreement that would require you to break the law. The agreement also cannot prohibit you from reporting a crime.
Possibly the most common problematic provision in this category is some form of gag order. The condition tends to somehow imply you may not testify against your company in court. This is patently illegal, as it would require you to commit perjury in omitting or changing details to remain in compliance with your severance agreement.
Say you witnessed some unscrupulous behavior on the part of your boss during your employment, and, upon exiting the company were given a severance package. The severance agreement specified you may not testify against them in court. No matter what your employer tells you, these sorts of terms are unlawful, and even if you signed the agreement, you will be expected to appear in court and speak truthfully. It is important to not perjure yourself in attempting to remain compliant with a severance agreement; an employment lawyer can help discuss your options if you have already signed an agreement with suspect terms.
Similarly, a company might be aware that you were witness to one or more crimes in the course of their employment and are seeking to protect themselves. Perhaps you saw numerous workplace safety violations, and they are now attempting to tacitly hush you up via a generous severance package with conditions in the agreement specifying you cannot report them. Again, no matter what a severance agreement says and even if you sign one, you are always permitted to report crimes.
As we mentioned above, there are instances where your employer can legally include terms that prevent you from filing a lawsuit for wrongful termination, workplace harassment, discrimination in the workplace, or certain other types of claims. This does not mean you cannot report that the crimes existed to the relevant government authorities. Speak to an employment attorney if you are concerned about what you can and cannot disclose.
Employers will sometimes attempt to include provisions in a severance agreement that prohibit you from working for competitors in your industry for a certain amount of time – or even indefinitely. In most circumstances, employers cannot enforce non-compete agreements and California courts have typically not honored them.
This is not to be confused with nondisclosure provisions, which can lawfully restrict you from revealing a former employer’s trade secrets. This line can sometimes get blurry and has been the subject of some number of legal disagreements – at what point does not divulging trade secrets preclude you from seeking work in your industry?
Consider an example where you work for a rideshare software company. You helped build the software that runs the company’s rideshare app, which is proprietary; the elements you helped build are “trade secrets” and, in many cases, the property of your employer. You are then laid off and sign a severance agreement stating you will not share trade secrets with competitors. However, your primary and most relevant experience is working in rideshare apps, and a company with a similar product wants to hire you. There may be some dispute over whether you can work for them due to how your inherent knowledge of your former employer’s trade might impact your work for the new company.
These problems are often resolved on a case-by-case basis, but a good rule of thumb is that the courts have favored employees in situations where terms of a severance agreement are so broad that they prevent an employee from seeking similar work in their industry. In other words, if a non-compete term in your severance agreement is preventing you from seeking meaningful employment, it is probably unenforceable.
While employers can include terms that restrict employees’ ability to file lawsuits for many forms of discrimination, there are specific exceptions for age discrimination. If you are 40 years of age or older, in many circumstances, your boss is required to give you at least 45 days to contemplate the age discrimination portion of the severance agreement. You may also have up to 7 days to revoke this term, even after signing, should you change your mind.
Fraud, Duress, and Undue Influence
On top of all of the above restrictions, a severance agreement becomes invalid if it is signed under certain conditions. These include fraud, duress, and undue influence.
If your employer lies or misrepresents terms of the severance agreement, it will not be considered valid. Your employer must make no effort to deceive you in negotiating or explaining the agreement’s terms. Try to get answers to your questions regarding specific conditions in writing.
If your employer successfully threatens you into signing a severance agreement, meaning you signed it under duress, you may be able to rescind it. In order to successfully invalidate a signed agreement, the threats will likely need to be specific in nature. Threats involving an illegal act – such as an employer claiming they will defame you if you do not sign – tend to be more actionable.
Finally, if you are forced to sign a severance agreement as a result of undue influence, there may be an opportunity for you to rescind it. Undue influence means your employer exerted an extreme level of pressure to compel you to sign. This defense in attempting to rescind a severance agreement tends to require proving your employer’s actions were abusive. For example, they may have frequently and consistently gotten in your personal space while asking you to sign, or they may have emotionally derided you for not signing.
If You Are Concerned About Terms in Your Severance Agreement, We Can Help!
Attorney Bill Marder has spent more than 25 years fiercely advocating for employee rights. Our team at Marder Employment Law has a full understanding of California law surrounding severance agreements and will be able to advise you on what is permissible and what is not. If you are worried about the contents of your severance agreement, whether you have already signed or not, our employment lawyer can work with you to make sure your rights are protected.
Do not wait to get in touch. Call (888) 796-4010 or contact us online.