Severance Agreements in California: What to Check Before You Sign

A California severance agreement is a contract in which your employer pays you money and, in exchange, you give up your right to sue it, usually for every claim you have, known or unknown. Before you sign, you need to know what claims you might be giving up, which rights the law will not let you waive, and whether the offer is fair for what you are releasing.

The stakes are real. A typical offer might be a few weeks of pay. If you were fired shortly after reporting harassment, taking medical leave, or complaining about unpaid overtime, the claims you would be releasing could be worth far more. Once you sign a valid release, those claims are usually gone for good.

This guide walks through the general release and Civil Code 1542, the rights you cannot sign away, California’s rules on confidentiality, the extra protections for workers 40 and older, other clauses to watch for, and how to negotiate.

Does California require severance pay?

Generally, no. California law does not require employers to offer severance. You may be entitled to it if an employment contract, offer letter, union agreement or written company severance plan promises it. In a large layoff covered by the Cal-WARN Act, an employer that fails to give 60 days’ notice can owe back pay and benefits; see our guide to Cal-WARN layoff rights.

What the law does require is your final paycheck. If you are fired or laid off, all earned wages, including accrued vacation or PTO, are due on your last day (Labor Code 201). Your employer cannot hold your final pay hostage until you sign a release, and a release that requires you to give up wages that are concededly due is void (Labor Code 206.5). Severance is money on top of what you have already earned.

Because severance is optional, employers offer it for a reason: usually to buy certainty that you will not sue. That is the trade you are being asked to make.

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The general release and the Civil Code 1542 waiver

Nearly every severance agreement includes a general release: you release the company, its affiliates, officers and employees from all claims arising out of your employment and its end, including discrimination, harassment, retaliation, wrongful termination, and many wage and contract claims.

California adds a protection that employers then ask you to waive. Civil Code 1542 says a general release does not extend to claims you do not know or suspect exist at the time you sign, if knowing about them would have materially affected your decision. Severance agreements almost always quote Section 1542 in capital letters and state that you waive it.

In plain terms, waiving Section 1542 means you are giving up claims you have not discovered yet. If you later learn that you were paid less than male coworkers for the same work, or that you were selected for layoff because of your age, the waiver may block those claims too. That is why a lawyer’s review before signing matters more than after.

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Rights you cannot sign away

Some rights are protected by statute, and a severance agreement cannot waive them, even if the document says otherwise.

Right	Can a severance agreement waive it?	Law
Wages that are undisputedly owed	No. Only genuinely disputed wage claims can be settled	Labor Code 206.5
Unemployment insurance benefits	No. An agreement to waive them is void	Unemployment Ins. Code 1342
Workers’ compensation benefits	Not without approval by the Workers’ Compensation Appeals Board	Labor Code 5000, 5001
Reimbursement of necessary business expenses	No	Labor Code 2802, 2804
Filing a charge with the CRD, EEOC or another agency	Generally no, though you may waive money recovered in your own name	Federal and state agency rules
Claims that arise after you sign	No	General contract law; OWBPA for age claims

PAGA claims deserve special mention. A PAGA claim is brought on behalf of the State of California, and a private agreement generally cannot waive the state’s claim. The California Supreme Court has held that settling your individual wage claims does not, by itself, strip you of standing to pursue PAGA penalties (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73). How a specific release affects PAGA rights is technical, so have a lawyer review the language.

Confidentiality, non-disparagement and the Silenced No More Act

California sharply limits how far an employer can silence you. Under Gov. Code 12964.5, as amended by SB 331 (the Silenced No More Act), a separation agreement cannot prevent you from disclosing information about unlawful acts in the workplace. Any non-disparagement or confidentiality clause in a covered agreement must include language substantially similar to this:

“Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

The same statute requires the employer to tell you that you have the right to consult an attorney about the separation agreement and to give you at least five business days to consider it. You can sign sooner if you choose.

Separately, Code of Civil Procedure 1001 bars settlement terms that prevent disclosure of facts about harassment, discrimination or retaliation claims that have been filed in court or with an agency. The employer can still keep the amount of a settlement confidential, and you can ask that your own identity be protected.

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Extra protections if you are 40 or older

The federal Older Workers Benefit Protection Act (29 U.S.C. 626(f)) sets strict rules for releasing age discrimination claims. For the release of federal age claims to be valid, the agreement must, among other things:

• Be written in plain language you can understand.
• Specifically refer to rights under the Age Discrimination in Employment Act.
• Not waive claims that arise after you sign.
• Give you something of value beyond what you are already owed.
• Advise you in writing to consult a lawyer.
• Give you at least 21 days to consider it (45 days if offered as part of a group layoff or exit program).
• Let you revoke within 7 days after signing.

In a group program, the employer must also disclose the job titles and ages of the people selected and not selected. That data can reveal whether older workers were targeted, which may be worth far more than the offer.

💡 Example: Ana, 52, earns $1,500 a week and is offered 8 weeks of severance, or $12,000, in a 30-person layoff. The disclosure shows that 22 of the 30 workers selected are over 50, while most of the people kept are under 40. She has 45 days to consider the offer. With a lawyer, she negotiates 12 weeks, or $18,000, plus paid COBRA premiums, or decides the age claim is worth pursuing instead.

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Other clauses to watch for

• Non-compete and customer non-solicitation clauses. These are void in California for nearly all employees, and including one can itself violate the law; see why non-competes are void in California.
• No-rehire clauses. In settlements of claims you have filed, Code of Civil Procedure 1002.5 generally bars terms that prevent you from working for the employer again.
• How your departure is described. Whether it says “resigned” or “terminated” can matter for unemployment and future jobs. Ask for an agreed neutral reference; see what a former employer can say.
• Clawbacks and repayment terms. Watch for clauses requiring you to return severance if you breach vague obligations.
• Cooperation clauses that require unpaid help with future litigation.
• Arbitration or out-of-state law provisions.

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How to negotiate a better severance

1. Do not sign on the spot. Take the document home. You are entitled to time to consider it.
2. Write down why you think you were let go, with dates: complaints you made, leave you took, comments about age, pregnancy, disability or other protected traits.
3. Calculate what you are actually giving up: months of lost pay while you look for work, lost benefits, unvested equity and bonuses.
4. Ask for more than money: longer pay continuation, paid COBRA premiums, accelerated vesting, a neutral reference, a resignation characterization, or outplacement.
5. Remove or narrow problem terms, such as one-sided confidentiality, broad non-disparagement, or unlawful non-competes.
6. Let a lawyer negotiate if you have real claims. An employer often increases an offer when it learns a lawyer has identified specific legal exposure.

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When your claims may be worth more than the offer

A severance offer is often the first sign that an employer is worried about something. If any of these apply, have the agreement reviewed before you sign:

• You were fired soon after complaining to HR, reporting a safety or legal violation, or requesting leave or an accommodation.
• You were pregnant, recently disabled or injured, or over 40, and replaced by someone outside those groups.
• You were not paid all overtime, break premiums or commissions.
• You were pressured to resign or sign quickly.

Our guide on how much an employment case is worth explains how a lawyer values these claims.

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Frequently asked questions

Do I have to sign a severance agreement?

No. If you do not sign, you do not get the severance, but you keep your legal claims and still receive your final paycheck and any wages already earned.

Will severance affect my unemployment benefits?

In California, severance pay generally does not reduce unemployment benefits, but pay in lieu of notice can be treated differently. Report all payments accurately to the EDD. See our guide to unemployment after being fired.

Can my employer withdraw the offer if I try to negotiate?

It can, because severance is generally voluntary, but a professional, specific counteroffer rarely causes an offer to be withdrawn, especially when you have real claims.

Is severance taxable?

Yes. Severance is generally treated as wages and subject to withholding.

I already signed. Is it too late?

Not always. If you are 40 or older, you may still be within the 7-day revocation window. A release can also be challenged if it was obtained by fraud or duress, or if it tried to waive rights that cannot be waived. Talk to a lawyer quickly.

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