California employers who offer a severance agreement to induce you to waive your rights must follow strict legal rules—especially if you are 40 years old or older.
Both federal law and California law place important limits on severance agreements. If you are age 40 or older and are being asked to waive age-discrimination claims under federal law, the agreement must be clear, knowing, and voluntary.
California law separately requires employers to give employees certain notices and protections in agreements related to separation from employment.
If your employer violates these rules, you may have claims for age discrimination, retaliation, or wrongful termination.
Overview of Severance Agreements
In California, severance agreements (also called separation agreements) are contracts offered after layoffs, terminations, or reductions-in-force (RIFs). In exchange for severance pay, employees are typically asked to:
- waive their right to sue (such as for wrongful termination or discrimination),
- agree to confidentiality or nondisparagement terms, and
- accept other post-employment restrictions.
If you are 40 or older, and the employer wants you to waive rights under the federal Age Discrimination in Employment Act (ADEA), the agreement must also comply with the Older Workers Benefit Protection Act (OWBPA). To be valid, the waiver must:
- be written in plain, understandable language,
- specifically refer to ADEA rights,
- not waive future claims,
- provide something of value in exchange (such as severance pay),
- advise you in writing to consult a lawyer,
- give you adequate time to review, and
- allow you to revoke after signing.1
Even a broad severance agreement cannot lawfully prevent you from filing a charge with the EEOC or participating in an agency investigation.2
Time to Consider the Agreement
The amount of time you get depends on which law applies.
If you are age 40 or older and are being asked to waive ADEA rights, federal law gives you:
- 21 days to review the agreement if you are the only employee being terminated, or
- 45 days if the waiver is requested as part of an exit incentive or other employment termination program offered to a group or class of employees.
After signing an ADEA waiver, you have seven days to revoke it. If the employer makes material changes to the offer, the applicable review period restarts.
Separately, under California law, an employer offering an agreement related to an employee’s separation from employment must notify the employee of the right to consult an attorney and provide a reasonable period of at least five business days to do so. The employee can sign sooner only if the decision is knowing and voluntary and is not induced by fraud, misrepresentation, or an improper threat to withdraw or change the offer.4
The Right to Counsel
If you are age 40 or older and are asked to waive ADEA rights, the agreement must advise you in writing to consult an attorney before signing.
California law also requires employers offering a separation agreement to notify the employee of the right to consult an attorney and to provide at least five business days to do so.5
This is especially important in California because many agreements contain terms that may be unenforceable under state law.
Group Layoffs
In a group layoff involving an ADEA waiver, the employer must:
- give covered employees 45 days to consider the agreement, and
- provide written disclosures about the decisional unit involved.
These disclosures generally must include:
- the job titles and ages of employees selected for the program, and
- the ages of individuals in the same job classification or organizational unit who were not selected.
This information helps employees evaluate whether age may have been a factor in the layoff.6
Waiving Rights
In California, severance agreements often require employees to waive claims such as:
- discrimination,
- wrongful termination,
- sexual harassment,
- retaliation,
- wage and hour violations, and
- class or collective action participation.
However, even if the agreement says otherwise, it generally cannot lawfully require you to waive your right to:
- earned wages,
- unemployment benefits,
- workers’ compensation benefits,
- file a charge or administrative complaint with the EEOC or the California Civil Rights Department (CRD), or participate in an agency investigation,
- disclose information about unlawful acts in the workplace where California law protects that disclosure, or
- work for a competitor or start your own competing business, because most non-compete agreements are void in California.7
California law also restricts nondisparagement provisions in separation agreements. If a provision restricts your ability to disclose information about workplace conditions, it must include language making clear that nothing in the agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or other conduct you reasonably believe is unlawful.
In addition, pre-dispute waivers of representative PAGA claims are generally unenforceable under California law (though arbitration may affect how certain PAGA claims proceed).
California courts have also been skeptical of employee and customer non-solicitation provisions that restrict a former employee’s ability to work. Whether a particular clause is enforceable depends on its wording and context, but broad restraints are especially vulnerable in California.8
Frequently Asked Questions
Can I refuse to sign a severance agreement in California?
Yes. You generally do not have to sign a severance agreement. However, unless a contract, policy, or bargaining agreement requires severance, your employer usually does not have to offer severance pay if you refuse to sign.
Can a severance agreement take away my right to sue in California?
It can waive many existing claims if the waiver is lawful and valid. But it generally cannot waive future claims, bar you from filing an administrative charge, or prevent protected disclosures about unlawful acts in the workplace.
Are non-compete clauses enforceable in California severance agreements?
No. With limited statutory exceptions, non-compete clauses are void in California, even if they appear in a severance agreement.
Can I still bring a PAGA claim after signing a severance agreement?
In many situations, yes. Pre-dispute waivers of representative PAGA claims are generally unenforceable under California law, though arbitration rules may affect how the claim is litigated.
Should I have a lawyer review my severance agreement?
Yes. Severance agreements can contain technical waivers, confidentiality terms, tax issues, and restrictions that may be unenforceable or negotiable. A California employment lawyer can help you understand your rights and try to improve the terms.
Additional Resources
For more information, refer to the following:
- Severance Pay – Short description by the U.S. Department of Labor.
- Severance Pay: What It Is and Why You Should Negotiate a Package Before Accepting a Job – Article by the Wall Street Journal.
- What to know about severance pay, insurance and benefits if you’re laid off from your job – Guide by CNBC.
- Severance pay laws by state 2023 – Overview by Workforce.com.
- Severance and Taxes: Is Severance Taxable? – Discussion by H&R Block.
Legal References
- 29 U.S.C. §§ 621 et seq., 626(f); Older Workers Benefit Protection Act; 29 C.F.R. § 1625.22.
- EEOC, Q&A: Understanding Waivers of Discrimination Claims in Employee Severance Agreements.
- 29 U.S.C. § 626(f)(1)(F)-(G); 29 C.F.R. § 1625.22(e)(4), (e)(6).
- California Government Code § 12964.5.
- 29 U.S.C. § 626(f)(1)(H); 29 C.F.R. § 1625.22(f).
- 29 U.S.C. § 626; 29 C.F.R. § 1625.22.
- California Business and Professions Code § 16600.
- Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348; Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104.
