Severance Agreement in California: Should You Sign?

The envelope lands on your desk with a number in it and a deadline attached. Before you sign a severance agreement in California, understand this: that document is a contract, and once you sign it, you are almost always giving up the right to sue your employer for anything that happened during your employment.

Severance is not charity. It is a purchase — your employer is buying your legal claims, your silence in some areas, and a clean exit. Whether the price is fair depends on facts most people never stop to look at.

Does California Require Employers to Pay Severance?

No. There is no California or federal law requiring an employer to offer severance pay when it ends your employment. California severance pay becomes mandatory only when something else creates the obligation, such as:

• An employment contract or executive agreement promising severance
• A written company policy, employee handbook, or severance plan
• A collective bargaining agreement
• A consistent past practice the employer has followed with similar employees

That said, employers routinely offer severance voluntarily — and the reason matters. When a company offers a meaningful payment on the way out, it is often because it sees legal exposure: an age-related layoff, a termination that followed a complaint, unpaid overtime, or a manager who behaved badly. The size of the offer is sometimes a rough measure of how nervous the company is.

What Your Employer Is Actually Buying

Most separation agreements contain a general release of all claims, plus a waiver of California Civil Code section 1542, which normally preserves claims you did not know about when you signed. Together, those two clauses wipe out claims you may not even realize you have — discrimination and harassment under the Fair Employment and Housing Act, wrongful termination, retaliation, and more.

Some things, however, cannot be signed away in California:

• Wages you already earned. Labor Code section 206.5 voids a release of wages that are indisputably due. Your final paycheck, accrued vacation, and earned commissions are yours regardless — see our guide to final paycheck law in California.
• Unemployment benefits. An agreement purporting to waive your right to unemployment insurance is void.
• Workers' compensation claims, which generally require separate approval to resolve.
• The right to file a charge with a government agency such as the California Civil Rights Department, the EEOC, the Labor Commissioner, or the NLRB, or to cooperate in an investigation.
• Noncompete clauses. Under Business and Professions Code section 16600 and related 2024 amendments, noncompete provisions are void in California, even if signed elsewhere.

Deadlines: How Long You Have to Decide

Deadlines in severance agreements come from different sources, and employers do not always explain them.

1. Age 40 or older. Federal law (the Older Workers Benefit Protection Act) requires at least 21 days to consider a release of age discrimination claims, or 45 days if the offer is part of a group layoff or exit incentive program, plus a 7-day revocation period after signing that cannot be waived.
2. Agreements touching harassment or discrimination claims. California's Government Code section 12964.5 requires that you be notified of your right to consult an attorney and given at least five business days to consider the agreement.
3. Everyone else. If neither applies, the deadline is whatever the employer sets — but "this offer expires at 5 p.m. tomorrow" is a negotiating tactic, not a law. Ask for more time in writing. Most employers grant it.

Clauses That Deserve a Second Look

Non-disparagement and confidentiality

California's Silenced No More Act limits these clauses. A separation agreement cannot stop you from disclosing factual information about unlawful acts in the workplace, including harassment, discrimination, or retaliation. Non-disparagement provisions that restrict speech about workplace conditions must include specific statutory language preserving that right. If yours does not, that is a red flag about how the agreement was drafted.

The scope of the release

Does it cover only claims through the signing date, or does it try to release future claims? Does it release claims against individual managers and parent companies? Does it require you to waive your right to any monetary recovery from an agency charge?

Everything else buried in the back

Cooperation clauses that obligate unpaid time in future litigation. Return-of-property provisions. Clawbacks if you breach a term. Liquidated damages. Arbitration clauses that survive the agreement. Tax allocation — severance is taxable wages subject to withholding, and how the payment is characterized affects your net.

What Is Actually Negotiable

More than most people assume. Common asks that employers grant:

• A larger payment or additional weeks of pay
• COBRA premium coverage for a defined number of months
• A neutral reference and agreed departure language
• Extended stock option exercise windows for equity holders
• Removal or narrowing of overbroad non-disparagement, cooperation, or clawback terms
• Treatment of the separation as a layoff rather than a for-cause termination

Leverage comes from the strength of the claims you would be giving up. That is exactly why a severance agreement review by an employment attorney before you sign is worth far more than it costs — a lawyer can tell you whether the offer is roughly what your claims are worth, or a fraction of it.

Frequently Asked Questions

When should you not sign a severance agreement?

Do not sign if you believe you were fired because of a protected characteristic, after reporting illegal conduct, or after requesting leave or an accommodation; if you are owed unpaid wages, overtime, or commissions; if the release language is broader than the payment justifies; or if you simply do not understand what you are giving up. Get advice first — after signing, your options narrow sharply.

Can I still sue after signing a severance agreement?

Usually not for claims covered by the release. There are narrow exceptions, including claims that cannot legally be waived, situations where the agreement was signed under fraud or duress, and age discrimination releases that fail the strict federal requirements. Those exceptions are harder to win than most people expect.

Can you negotiate a severance agreement?

Yes. Nothing obligates you to accept the first offer, and a counteroffer rarely causes an employer to pull the deal entirely. Negotiations go best when they are professional, specific, and supported by facts.

Does severance affect unemployment benefits in California?

Generally, the California Employment Development Department does not treat severance pay as wages that reduce unemployment benefits — but payments characterized as wages in lieu of notice or continued salary can affect eligibility. Confirm your specific situation with the EDD.

What deadlines apply to employment claims if I do not sign?

Deadlines vary by claim type. FEHA discrimination, harassment, and retaliation claims generally require filing a complaint with the California Civil Rights Department within three years of the last unlawful act, followed by a right-to-sue notice and a one-year window to file suit. Most wage claims run three years, and wrongful termination in violation of public policy generally two. Statutes are found at California's official legislative site, and enforcement information is available from the California Department of Industrial Relations. Because exceptions apply, confirm the deadlines for your own situation promptly.

Have the Agreement Reviewed Before You Sign

A few hours of review before signing can be the difference between accepting a token payment and recovering what your claims are actually worth. MMG Law Firm reviews severance and separation agreements for employees across California, explains in plain language what you would be giving up, and negotiates directly with employers when the offer falls short. Consultations are free and carry no obligation — contact us before your deadline runs, or learn more about our employment law practice.

This article is general information about California law, not legal advice for your situation. Deadlines and rights depend on specific facts — consult an attorney about your own case.