Common Myths & Misconceptions about Severance
"Severance pay is a gift."
"My employer doesn't pay severance."
"Since they made an offer of severance I can always counter for better"
"Since they didn't offer me severance, I have no opportunity to negotiate"
"My employer says they never pay more than one week for each year of service."
"My separation agreement has a 21 day review and 7 day revocation clause; it must be a fair deal."
"The clauses of a separation agreement are always one-way; against me"
"I can't collect unemployment because I was paid severance"
"I'm quitting, so I can't ask for severance."
Do I have a right to Severance Pay?
Generally, no. But...if you have a contract providing for severance or the employer maintains a Severance Pay Program that covers your circumstances, then yes. Additionally, mass lay-offs can trigger a pay in lieu of notice obligation for the employer under the WARN act, (or Cal-WARN), if the scenario falls within the statute's protections.
Most severance pay is voluntarily offered by the employer and is intended to secure the goodwill of a employee that's not voluntarily terminating employment. It also serves the employer's interest in acquiring a release of certain claims that employee might later bring against the employer.
So, does Severance Pay come with a catch?
You might say so, though if you have complaint against the employer ... then giving-up the right to complain is not giving up much. Any new restrictions or agreements which come with severance, like a non-disclosure and non-solicitation agreement, should be carefully scruntinized. Restrictive covenants can interfer with your future employment or other conduct.
Can I negotiate for more Severance Pay?
Yes; but, if you reject the employer's initial offer with a counter-offer there's no guarantee the original offer will still be on the table. However, most employers won't penalize you for asking for more, though you it's mostly about negotiatng leverage. The more eager the employer is to negotiate with you the more suspicious you might be about the release agreement you'll sign. Make sure you fully understand what legal rights you'll be releasing. Many employees will seek the advice of an attorney before responding severance offers or attempting negotiation, and they usually end up better off as a result.
What rights do Severance Agreements usually ask that I give up?
Commonly, releases will require you waive all your legal rights, known and some unknown, to later sue that employer or complain to state of federal employment agencies about your former employment relationship. These may or may not be enforceable depending upon whether you knowingly and voluntarily waive your rights, and whether the release conforms to federal and state law. Regardless, this is a subject better addressed to the competent attorney you've chosen to partner with. Additionally, confidentiality is usually demanded.
What's a fair amount of Severance, what's common practice?
The old time rule of thumb was - nothing for hourly-paid employees, a week a year for salaried employees, a month a year for executives. This means virtually nothing today, an employer may offer severance pay that's significant less or more than any so-called benchmark.
For example, one modern approach / formula is one month of pay for every $10,000 in annual salary to be replaced, for example; $45,000 per year salary = a severance expectation of 4.5 months pay = $16,875.00. Again, this is merely a guideline, in today's economy employers severance practices less generous, be careful of your expectations.
What has been common practice by your employer in past situations is something you might cautiously investigate. And ... it is true that employers are far more likely to pay severance to senior managers and executives.
How can I find out about our employer-sponsored Severance Pay Program?
I your employer has one, you should be able to receive a written copy of the program simply by asking HR.
Why would I need an attorney to review and advise me about a Severance Pay offer?
Just realize you'll likely get one chance at understanding and agreeing to a severance pay offer, and it will likely involve your waiving legal rights against that employer forever. If you have reason to feel uncomfortable about the situation, well, partnering with an attorney will offer some security and third party perspective.
Severance pay is not wages for California unemployment insurance purposes. There is no specific code section in the California Unemployment Insurance Code which declares that severance pay is not wages. Teh EDD cites Section 1265 stating that severance pay is not wages. The authority for doing so is based on a case decided by the California Supreme Court in 1965. The California Supreme Court held in Powell and Byrd vs. California Unemployment Insurance Appeals Board (63 Cal. 2d 103, 1965) that dismissal and severance payments were not wages for unemployment insurance purposes. EDD
Severance pay is wages for FICA withholding. The US Supreme Court concluded that severance payments fall under the broad definition of wages in FICA and that regulations which Congress enacted to address a narrow problem with income tax withholding, did not alter the FICA definition. UNITED STATES v. QUALITY STORES, INC. (2014) 693 F. 3d 605.