Severance Agreement Review in California: Red Flags Before You Sign

Before you sign a severance agreement in California, you need to know what you’re giving up. Most employees don’t realize that the document HR hands them after a layoff or termination is a contract designed by the employer’s lawyers to protect the employer, not you. The language is deliberate, the traps are subtle, and the consequences of signing too quickly can cost you tens of thousands of dollars or more.

I’ve reviewed hundreds of severance agreements at Mister Wolf P.C. for workers across California’s tech sector, entertainment industry, financial services firms, and healthcare systems. The pattern is always the same. The employer offers a lump sum or a few weeks of continued pay. In exchange, the employee signs away the right to sue, the right to talk about what happened, and sometimes the right to work in their own industry for months. Most people sign within 48 hours because they’re scared, exhausted, and eager to move past a bad experience.

That’s exactly what the employer is counting on.

What does a general release of claims actually give up?

The core of every severance agreement is the general release. This clause says you’re giving up the right to bring any legal claim against the employer, including claims you don’t even know about yet. A typical release covers wrongful termination, discrimination under the Fair Employment and Housing Act (Government Code section 12940), retaliation under Labor Code section 1102.5, harassment, breach of contract, and wage claims.

Read that list again. If you were fired because of your age, your disability, your pregnancy, or because you reported illegal activity, the release can wipe those claims off the table. Before you treat the offer as “free money,” compare it against the facts that might support wrongful termination, discrimination, retaliation, or unpaid wage claims.

How broad is too broad

Some releases go even further. I’ve seen language that attempts to release claims under the Private Attorneys General Act (PAGA), future claims that haven’t arisen yet, and claims against individuals like your former supervisor. California courts have limits on how broad these can go. A vague release may be challenged later, but unwinding a signed agreement is expensive and uncertain. Catch the problem before you sign.

Pull out any severance agreement you’ve received and highlight every instance of “release,” “waive,” or “forever discharge.” Count how many categories of claims are listed. If the list covers more than ten types of claims and you don’t understand what half of them mean, get a lawyer to read it before you sign.

Are you over 40? Do you know about the ADEA waiver rules?

The Older Workers Benefit Protection Act (OWBPA) adds a layer of protection for employees 40 and older who are asked to waive age discrimination claims under the Age Discrimination in Employment Act (29 U.S.C. section 626(f)). The EEOC’s fiscal year 2026 budget materials report 16,223 ADEA charges with concurrent claims filed in fiscal year 2024. That volume matters in California layoffs, especially in tech, entertainment, finance, and healthcare, where older employees are often selected during “restructuring” rounds and then pressured to sign broad releases.

The 21-day and 7-day rules (and why they matter)

Under the OWBPA, if you’re 40 or older and the severance agreement asks you to waive age discrimination claims, the employer must give you at least 21 days to consider the agreement. If the severance is part of a group layoff (what the law calls a “decisional unit”), that consideration period extends to 45 days, and the employer must provide additional disclosures about the ages and job titles of everyone who was and wasn’t selected for the layoff.

After you sign, you have a 7-day revocation period during which you can change your mind. The agreement can’t become effective until that 7-day window closes.

I represented a 52-year-old product director at a Bay Area tech company who was given a severance package during a reduction in force. The HR team told her to sign by Friday. No mention of the 21-day period. No disclosure of who else was laid off. No mention of the 7-day revocation right. The agreement she was pressured to sign would release her age discrimination claim. Under the OWBPA, that waiver was defective. We used that defect to reopen negotiations, and she recovered six figures more than the original offer. She almost signed away that claim for two weeks of pay.

What makes an OWBPA waiver valid

The agreement must specifically refer to rights under the ADEA. It must advise you in writing to consult an attorney. It must provide the consideration period. And the consideration you receive (the severance payment) must be something beyond what you’re already entitled to. If the employer owes you unused vacation pay under Labor Code section 227.3, that money can’t double as severance consideration, because you’re already owed it.

Can you be forced to release unpaid wage claims?

No. California Labor Code section 206.5 prohibits employers from requiring an employee to release a claim for wages already earned as a condition of receiving wages that are due. This statute is specific and powerful. If your employer owes you overtime, commissions, accrued vacation, or any other earned compensation, they cannot make you sign a release of those claims in order to get paid.

This comes up constantly in severance situations. The employer bundles unpaid final wages with severance pay and wraps it all in a release. The employee thinks they’re getting a generous package. In reality, part of that money was already legally owed to them.

Separation pay vs. owed wages (know the difference)

Your severance agreement should clearly separate any consideration (the actual severance) from wages and benefits you’re already entitled to receive. Final wages, accrued vacation, expense reimbursements under Labor Code section 2802, and vested stock options are yours whether or not you sign. If the agreement doesn’t draw this line, you’re being shortchanged. The question is: what am I getting beyond what I’m already owed?

Pull your most recent pay stubs and compare them against the severance offer. Calculate any unpaid overtime, unreimbursed expenses, and accrued vacation. Subtract those from the total package. The remainder is your actual severance, and you need to decide whether that number is worth what you’re giving up.

What’s hiding in the non-disparagement clause?

Almost every severance agreement includes a non-disparagement provision. On paper, it sounds reasonable. You agree not to say anything negative about the company, and the company agrees not to say anything negative about you. In practice, these clauses are almost always one-sided and dangerously broad.

One-way vs. mutual (usually it’s one-way against you)

A well-drafted mutual non-disparagement clause restricts both sides equally. But many agreements only bind the employee. The company’s obligation, if it exists, is limited to what HR will say in response to a reference check. Your obligation extends to any statement, to anyone, at any time, that could be considered negative. That includes conversations with friends, posts on LinkedIn or Glassdoor, and truthful statements about why you left.

The National Labor Relations Act protects certain types of speech about working conditions, and California Labor Code section 1102.5 protects employees who report violations of law. California Code of Civil Procedure section 1001 and Government Code section 12964.5 also restrict confidentiality and non-disparagement provisions in agreements involving harassment, discrimination, or retaliation claims. A non-disparagement clause can’t override those protections, but enforcing your rights after you’ve already signed a bad agreement means litigation, and that’s a fight most people want to avoid.

Confidentiality traps (they can clawback your entire severance)

Closely related to non-disparagement is the confidentiality clause. The employer typically requires you to keep the existence and terms of the agreement secret. Violating this provision can trigger a clawback of the entire severance payment. I’ve seen clawback provisions that require repayment of the full severance amount if you tell anyone other than your attorney or tax advisor about the deal.

Before you sign, think about who you might need to discuss this with. A future employer who asks why you left. A therapist. A spouse. If the confidentiality clause doesn’t carve out exceptions for these situations, negotiate one in writing.

How does COBRA work in a severance package?

When your employment ends, you lose employer-sponsored health insurance. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you have the right to continue your existing coverage for up to 18 months, but you pay the full premium yourself, including the portion the employer used to cover. That can easily run $600 to $2,000 per month for an individual or family plan.

Employer-paid COBRA as severance (read the fine print)

Many severance agreements include a period of employer-paid COBRA continuation. This is valuable, but read the fine print. Some agreements only cover the employer’s share of the premium, leaving you to pay the employee portion. Others cap the benefit at a fixed dollar amount that may not cover the actual premium. And some offer a lump-sum health insurance stipend instead of actual COBRA continuation, which can create tax complications.

If the severance offers three months of paid COBRA and you have a medical condition that requires ongoing treatment, push for six months or twelve months. Health insurance is one of the most concrete, measurable benefits in a severance negotiation, and employers often agree to extend it because the cost to them is lower than increasing the cash payout.

What are acceleration clauses and garden leave provisions?

Acceleration clauses

If you have unvested stock options or restricted stock units (RSUs), an acceleration clause in the severance agreement can allow some or all of those shares to vest immediately upon termination. In California’s tech industry, where equity can represent a significant portion of total compensation, this is a big deal. Without acceleration, you forfeit unvested equity when you leave.

Some agreements include partial acceleration (one additional quarter of vesting, for example). Others include full acceleration tied to a change of control or termination without cause. If the agreement is silent on acceleration, you should raise it. Your unvested equity is a bargaining chip, and the employer knows its value.

Garden leave

Garden leave provisions require you to remain “employed” (on the books, receiving pay) for a period after your effective termination, during which you can’t start working for a competitor. California’s strong public policy against non-compete agreements (Business and Professions Code section 16600, reinforced by SB 699 effective January 2024) limits the enforceability of these provisions. But a garden leave clause that pays you to stay idle is different from a traditional non-compete, and courts haven’t fully resolved where the line falls.

If your severance includes a garden leave provision, calculate the actual cost. How many months of lost opportunity are you accepting? If you’re being paid your full salary during that period, it may be worth it. If you’re being paid a fraction while locked out of your industry, you’re subsidizing the employer’s competitive advantage with your career momentum.

Is the severance consideration actually adequate?

A severance agreement is a contract, and like any contract, it requires consideration. Both sides must give something up. The employer gives you money (or benefits, or both). You give up legal claims. If the consideration is inadequate relative to the claims you’re releasing, the deal is bad for you.

How to evaluate the offer (is it worth what you’re giving up?)

Start by assessing the strength of your potential claims. If you were fired after complaining about sexual harassment and you have emails documenting the complaint and the retaliatory response, your claims could be worth six or seven figures. A severance offer of two weeks’ pay to release those claims is absurdly low.

Consider the following factors: your age (which affects how long it may take to find comparable work), your tenure, the strength of your legal claims, the employer’s ability to pay a judgment, and the cost and time involved in litigation. A client was offered $15,000 in severance after being terminated from a mid-level position at a Los Angeles entertainment company. We reviewed the facts and identified viable claims for disability discrimination and failure to accommodate under FEHA. The case settled for over $200,000. That $15,000 offer would have been the most expensive mistake of her career.

Industries where severance is common (and why)

In California, severance is especially common in tech (where mass layoffs have become seasonal events), entertainment (where production cycles create constant hiring and firing), and financial services. WARN Act obligations (Labor Code section 1400 et seq.) sometimes drive severance offers in large layoffs, because employers use severance agreements to limit litigation exposure from workers who might otherwise bring class or collective claims.

What should you negotiate before signing?

Everything in a severance agreement is negotiable. The employer drafted the first version. You can counter. Treat the initial offer as a starting point, not a final answer.

Key negotiation targets

Cash amount. Push for more. If the initial offer is two weeks per year of service, ask for four. If they offer a flat amount, counter with a higher number tied to the strength of your claims.

COBRA extension. As discussed above, extending the period of employer-paid health insurance is often easier to get than a larger cash payout.

Equity acceleration. If you have unvested RSUs or options, request partial or full acceleration.

Neutral reference. Get a written agreement about exactly what the employer will say when future employers call. Specify the person who will respond and the exact language they’ll use.

Scope of the release. Narrow it. Remove specific claims you don’t want to waive. Carve out wage claims protected by Labor Code section 206.5. Limit the release to claims arising from your employment, not future claims or claims against affiliates you never worked for.

Non-disparagement. Make it mutual and specific. Both sides should be bound, and both sides should have the same exceptions (truthful statements required by law, testimony in legal proceedings, communications with government agencies, and disclosures protected by California’s Silenced No More Act).

Cooperation clause. Many agreements require ongoing cooperation with the employer’s legal matters after you leave. If this clause exists, make sure it includes reasonable compensation for your time, travel reimbursement, and advance notice requirements.

How do California courts treat disputed severance agreements?

If a dispute arises over a severance agreement, it will typically be resolved in California Superior Court unless the agreement contains an arbitration clause (many do). Courts apply standard contract interpretation principles. If the language is ambiguous, the court may consider extrinsic evidence about what the parties intended.

California Civil Code section 1654 provides that ambiguities in a contract are interpreted against the drafter. Since the employer almost always drafts the severance agreement, ambiguous language gets read in the employee’s favor. This is a real tool in litigation, and it’s one reason employers try to make their releases as specific and all-encompassing as possible.

Arbitration clauses (they limit your options)

Watch for mandatory arbitration provisions. If the severance agreement includes one, you’re waiving your right to a jury trial on any dispute arising from the agreement itself. California law (Code of Civil Procedure section 1281 et seq.) generally enforces arbitration agreements, though the Federal Arbitration Act and recent California case law (particularly Iskanian v. CLS Transportation, as modified by Viking River Cruises v. Moriana) create some exceptions, especially for PAGA claims.

What’s your next move?

Don’t sign a severance agreement under pressure. Don’t sign it the day you receive it. Don’t sign it without understanding what claims you’re giving up and what they might be worth.

At Mister Wolf P.C., we review severance agreements for California employees across every industry. We read the agreement, assess your potential claims, identify the red flags, and tell you exactly what to negotiate. Many clients walk away with a counter-proposal that produces a significantly better outcome.

If you think your termination was unlawful, read our guide on what constitutes wrongful termination in California. If you’ve been handed a severance agreement and the clock is ticking, send it to our intake team along with a brief description of why you were terminated. We’ll tell you whether the deal is fair, whether you have claims worth preserving, and what specific changes to request before you sign.