When Severance Agreements Go Wrong
Common Disputes and How to Avoid Them
Severance agreements are meant to provide closure at the end of an employment relationship—but when they’re poorly drafted or one-sided, they can spark more conflict than they prevent.
At Derderian Law, PC, we’ve seen firsthand how severance agreements can go wrong, costing employees their legal rights and employers their reputations. Whether you’re an employee asked to sign a severance package or an employer trying to avoid legal pitfalls, this blog will break down how these agreements work, common disputes that arise, and how to negotiate fair, enforceable terms that protect your future.
What Is a Severance Agreement?
A severance agreement is a legally binding contract between an employer and an employee that outlines the terms of separation, typically in exchange for a waiver of legal claims. These agreements often come with severance pay, continuation of benefits, or other incentives.
But here’s the catch: most severance agreements are written by the employer’s legal team, not yours. That means what appears to be a generous offer might actually be a tool to prevent future lawsuits or silence valid concerns.
Severance Pay Isn't Always Fair or Required
Contrary to popular belief, California law does not require employers to offer severance pay. That’s up to company policy, contract obligations, or the employer’s discretion. However, once severance is offered, the agreement must comply with state and federal employment laws—or risk being invalid or challenged in court.
We often see employees presented with take-it-or-leave-it offers during a stressful time, especially after layoffs or sudden terminations. Many sign without understanding the full extent of the rights they’re giving up.
How Severance Agreements Go Wrong
Let’s walk through some of the most common severance agreement disputes that we encounter:
1. Unlawful Waivers of Legal Rights
One of the biggest red flags in a severance agreement is when it asks an employee to waive non-waivable rights.
For example, Federal law (including the Older Workers Benefit Protection Act, or OWBPA) prohibits employers from requiring a waiver of age discrimination claims unless very specific conditions are met. California’s Labor Code and FEHA provide additional protections.
Employees cannot be forced to waive:
- The right to report unlawful conduct to a government agency
- The right to unpaid wages or minimum wage violations
- The right to pursue claims not yet known at the time of signing, unless the agreement includes special language required by California Civil Code § 1542
If these waivers are included, the agreement may be unenforceable—and employers can be exposed to litigation despite the agreement.
2. Non-Disparagement Clauses That Cross the Line
A non-disparagement clause is meant to prevent either party from making negative statements about the other. But when these clauses are overly broad, they may violate employee speech protections under California law.
In fact, California Labor Code § 1102.5 protects employees who disclose illegal activity, even after their employment ends. And starting in 2022, SB 331 prohibits employers from using non-disparagement clauses to prevent workers from discussing harassment, discrimination, or unlawful workplace behavior.
Bottom line? If a non-disparagement clause tries to silence legitimate whistleblowing or shield unlawful conduct, it’s not only unethical—it may be illegal.
3. Inadequate Consideration
“Consideration” refers to what the employee receives in exchange for signing the agreement, typically money or extended benefits. However, if the severance offer is not truly separate from what the employee is already entitled to, it may not be enforceable.
Employees are often owed:
- Final wages
- Accrued but unused vacation pay
- Commissions earned prior to termination
If an agreement tries to wrap these in as part of the severance—without offering something new or extra, it may be legally weak.
4. Pressure Tactics and Lack of Time to Review
Employers sometimes rush the process, pushing employees to sign immediately or lose the offer. This creates an environment where meaningful review and negotiation are impossible.
Under federal law, employees over 40 years old must be given 21 days to consider a severance agreement and 7 days to revoke it after signing, if the agreement includes a waiver of age discrimination claims. But for employees of all ages, pressuring someone to sign quickly, especially under emotional stress can undermine the agreement’s enforceability.
Pro tip: If you weren’t given a reasonable time to review, the agreement may be challenged later in court.
5. Unclear or Confusing Language
Many severance agreements are loaded with legal jargon that’s nearly impossible for a non-lawyer to understand. When clauses are vague or poorly worded, disputes are bound to follow.
For example, a non-compete clause might sound routine, but in California, most non-compete agreements are completely unenforceable under Business and Professions Code § 16600.
The more ambiguous the language, the more risk for misinterpretation, especially if the employee is being held to terms they didn’t understand.
Negotiating a Better Severance Package
Here’s something many employees don’t realize: you have the right to negotiate. You’re not obligated to accept the first version of the agreement and if it’s not in your best interest, you shouldn’t.
A skilled employment attorney can often:
- Increase the severance amount or add benefits (like extended health insurance or job placement assistance)
- Strike or limit harmful clauses like overreaching non-disparagements or waivers
- Ensure compliance with California and federal law
- Add confidentiality protections for the employee, not just the employer
Even if you’re not planning to pursue your rights in court against your former employer, you still deserve a fair deal and the opportunity to move on with peace of mind.
How Employers Can Avoid Legal Landmines
If you’re an employer, severance agreements are a valuable risk management tool—but only if they’re done right. The worst thing you can do is download a generic template and assume it will hold up under California law.
We recommend employers:
- Review all agreements with legal counsel
- Avoid overly broad waivers or non-disparagement clauses
- Ensure transparency and provide employees enough time to review
- Make sure the severance is in addition to what is legally owed
- Clearly explain terms in plain English whenever possible
A properly drafted severance agreement should protect your business—without setting the stage for future litigation.
Protect Yourself Before You Sign
Severance agreements can be a helpful tool for both sides, but they’re not always fair, and they’re not always legal. Before you sign anything that affects your rights, take the time to consult with an experienced employment law attorney, you may be entitled to more than the benefits in your severance package.
At Derderian Law, PC, we review, negotiate, and litigate severance agreements across California. Whether you’re unsure about what you’re being asked to sign or want to explore your options after a termination, we’re here to protect your rights and fight for your future.
Contact Derderian Law, PC Today
Don’t leave your future to chance or to fine print. If you’ve been offered a severance package, let us help you review it with confidence. We’ll make sure the agreement works for you, not against you.