The days when a person worked at one company for their entire career are largely behind us. In today’s fast-paced global economy it is commonplace for employees to change jobs multiple times. But not every change of employment is entirely voluntary. There are times when an involuntary termination may lead to costly litigation. One way to avoid such conflict is to have a severance agreement in place.
At Valiant Law we assist clients with drafting and enforcing severance agreements. Sometimes these are simply termination provisions in a preexisting employment agreement. But in many cases they are standalone contracts negotiated after the decision has been made to end the employment relationship. Whatever your situation, we will work with you–and the other party–to reach a severance agreement that works for all sides.
California is an “at-will” state. This means that in the absence of an express employment agreement, an employer is free to fire an employee anytime they want without having to give a reason. Conversely, an employee is free to quit whenever they choose.
A severance agreement effectively overrides the at-will rule. A well-drafted severance agreement should specify the exact conditions of termination and under what circumstances an employee is entitled to severance pay. There are two things to keep in mind here: First, in general an employer is not legally obligated to offer severance pay. Second, severance pay is not the same thing as wages. In other words, an employer cannot withhold an employee’s final paycheck for work that has already been performed.
In negotiating a severance agreement, the employer and employee are free to establish the criteria for any severance pay due–within the bounds of California and federal law. Severance need not be limited to cash compensation. It may include other benefits such as reimbursement of health insurance premiums, accelerated vesting of stock options, or even career counseling services, just to name a few examples.
But just as critical as the employee’s severance package, the employer also has the right to seek certain benefits from a severance agreement. This typically involves the employee releasing or waiving any potential legal claims against the employer arising from termination or the overall employment relationship. For example, in exchange for severance, the employee agrees not to sue for wrongful termination.
Severance agreements may also include confidentiality provisions that prohibit the employee from disclosing any trade secrets or proprietary information, as well as non-compete clauses that limit the employee’s ability to work for a direct competitor of the employer. Care must be taken in drafting such clauses, however, because California law substantially restricts their scope. Never assume that as an employer, you have an unqualified right to demand an employee agree to broad non-compete or confidentiality agreements.
In spite of the limits imposed by California law, severance agreements are still a valuable tool when it comes to managing employment transitions. No employer wants to terminate an employee. It imposes additional costs and hardships on the entire business. But with proper legal assistance you can handle a severance situation in a professional manner. Contact Valiant Law today at (909) 677-2270 if you need help dealing with a severance agreement or any other matter involving employment and business law.
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