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Evaluating a Severance Offer

You have been let go from your employment—perhaps unexpectedly—and your employer has presented you with a severance offer. Should you sign it? What exactly are you giving up if you do? The following may help to explain your rights and options.

First, there is no "right" to severance pay except in very limited circumstances involving mass layoffs at large companies without notice. This means that any amount in severance offered is probably already more than the baseline requirement of zero. That's a positive.

In determining whether to accept an offer of severance, it's useful to understand that an employer's primary motive in offering this discretionary payment is usually getting a release of claims. This eliminates the risk that you may sue them later, as even if you don't have a good case the cost and time spent on defending a lawsuit is something every employer wants to avoid. So, in assessing what amount in severance your employer might be willing to offer, you have to consider what "litigation risk" they feel you pose.

In assessing what litigation risk your employer might perceive, it is essential to first understand the principal of at will employment, which is the default rule in CA unless you have an agreement to the contrary. At will employment can be terminated for any reason not amounting to discrimination on the basis of a legally protected trait (race, religion, gender, etc.) or retaliation for engaging in certain forms of legally protected conduct (filing a wage claim, taking FMLA leave, etc.). It doesn't matter whether the basis for termination is fair, reasonable or even true.

In light of the rule of at-will employment, unless you have evidence that you were terminated because of a protected trait or activity, your termination probably does not pose much in the way of a serious litigation risk for your employer. This means they may not be all that motivated to offer you larger amounts in severance.

A standard "baseline" rule of thumb for calculating severance when there are no substantial litigation risks for the employer is something in the area of 1-2 weeks pay for each year of employment. However, this formula tends to break down at the extremes of the spectrum (i.e. if you've only been employed for 6 months I would still expect an offer of at least a couple weeks pay).

Lastly, you can always attempt to negotiate. Technically, employers can revoke severance offers at any time, but it's fairly uncommon they would do that in response to a reasonable counteroffer.

In conclusion, accepting or negotiating a severance offer requires careful consideration of your legal rights, your employer's motives, and the amount of litigation risk you pose. If you have any doubts or concerns, it's advisable to consult with an experienced employment law attorney who can help you navigate this complex situation.


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