Parts of a Severance Pay Package

Some employers offer employees severance pay packages to encourage the employee to leave the company on a friendly basis. The reasons employers may offer severance pay include minimizing the need to fire people due to budget constraints, a way to get an unproductive employee to voluntarily leave, and prior contract obligations.

Employees may be asked to waive certain rights in return for the severance pay. Employees should review these rights and waivers with skilled severance pay lawyers before they agree to sign any releases or the severance agreement.

The amount of severance pay

There is no mandatory amount that California or federal laws require – other than that employees have the right to be paid any wages for past work that are due. Employees can generally ask for pay for vacation days they didn’t use but they can’t ask for pay for sick days they didn’t use.

Most companies offer one week’s pay for each year the employee worked for the company. So, if an employee worked for 10 years, the offer would be for 10 weeks’ pay – based on the employee’s most recent salary or weekly wages.

Most employees do not have a written employment contract. Executives and workers with unique skills may have an employment contract. If so, then the employment contract sets the terms for how much the severance pay should be. Executive severance pay packages can be quite substantial – sometimes in the millions of dollars.

Regular workers and executive employees may also be offered additional benefits including assistance in getting a new job. Workers should, if possible, work to get a letter or recommendation for a new job

Insurance and severance pay

Unless insurance was covered in a written employment contract, workers who can’t obtain new insurance through a new employment contract or their spouse’s policy should be offered COBRA insurance. COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. Employers are required, through COBRA, to offer insurance to employees who leave the company or who are terminated.

The insurance allows these employees to buy insurance of the same type as they had before they left the company. Employees do have to pay the premiums for insurance. They may be able to obtain subsidies through the Affordable Care Act depending on a variety of factors. There are time limits on how long employees can take advantage of COBRA.

California has it owns state limited COBRA plan for employees who worked with larger companies.

Severance pay and unemployment compensation

The severance pay may be a factor in whether a worker is eligible for unemployment compensation. As a general rule, it is better to get a lump-sum severance paycheck than to spread the checks out over a period of weeks. With a one-time payment, the worker may be ineligible for unemployment compensation for just that one week. With multiple checks, the employee can lose the right to unemployment compensation for each week he/she gets a severance paycheck.

Talk with a California Severance Agreement Attorney before You Sign any Agreement

You may be leaving money on the table or sacrificing valuable rights if you sign a severance contract before having a legal review. At the law office of Stephen Danz & Associates, we have numerous offices throughout California to help you understand and enforce your rights.

To learn more, call (877)789-9707 to schedule an appointment with an experienced lawyer.

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