Anyone who has been through a layoff knows what a frightening and confusing experience it can be. On top of trying to find a new job, employees who are laid off often have unanswered questions about their finances, including whether they're entitled to unemployment benefits and severance, when health benefits will stop, when they'll get their last check, and what happens to the money in their retirement accounts.
This article explains how to deal with the aftermath of a layoff in California. (For information about layoff protections and notice requirements, see Nolo's article, Layoff Protections for California Employees).
In California, there are strict time limits regarding final paychecks. Almost all employees must receive their final checks at the time of being laid off. The final check generally doesn't have to include unused sick leave, but it must include any accrued but unused vacation or undesignated paid time off (PTO). The final paycheck must also include any accrued but unused vacation or paid time off. However, sick leave generally does not need to be included.
If you've had enough advance warning of the layoff, you may choose to have the payment for your accumulated vacation or other leave contributed to your retirement plan. However, you must request this in writing at least five days before your last day of employment.
If your employer fails to pay you on time, you may receive a penalty of your average daily wages for each day that the payment is late, up to 30 days. (Cal. Labor Code §§ 201, 203, 227.3 (2023).)
Employees who are laid off are generally eligible for unemployment benefits, as long as they meet California's earning requirements and make active efforts to look for a new job. If you're eligible, you can receive a portion of your average weekly wages, up to a maximum of $450 per week (for claims filed in 2023). Benefits are usually paid for up 26 weeks.
For more information on eligibility and benefit amounts, see Collecting Unemployment Benefits in California.
California does not have a law that requires employers to pay severance when they lay off employees. Employers are only required to pay severance if they have contractually agreed to do so. So unless your employer promised to pay you severance, you are not entitled to receive any compensation.
Even if you don't have a written contract promising severance, your employer may have promised you severance in other ways. Typically, this would happen through statements in an employee handbook or an established practice of paying out severance to certain employees.
For example, if your employee handbook states that employees who are laid off will receive two weeks' severance, your employer will likely have to fulfill that promise. Or, if your employer has paid two weeks' severance to every employee who has been laid off in the last ten years, you may be entitled to the same treatment.
Some employers choose to provide severance to dedicated employees who are laid off, even if they aren't required to by law. If your employer decides to give you severance, the amount will depend on your employer's policies and practices. Some employers structure their severance policies to reward long-time employees. For example, your employer may pay one week's severance for every year that you have been with the company.
Employers will sometimes condition a severance package on the employee signing a waiver and release: a contract in which the employee agrees not to sue the company for anything that happened during his or her employment. If your employer asks you to sign a release, it's a good idea to at least consult with an employment lawyer before signing. A release is a binding contract, and you may be giving up significant legal claims that you're not even aware of. And, if you do have legal claims, a lawyer may be able to negotiate you a better severance package or file suit against your employer to assert your rights.
In California, receiving severance pay does not affect your eligibility for unemployment benefits.
If you receive health benefits from your employer, you'll want to know when your benefits will end. As part of a severance package, your employer may offer to continue your benefits for a period of time (for example, three months). If your employer doesn't extend your benefits, coverage will typically end on the last day of the month for which your premium has already been paid. For example, if you are let go on June 15, but your premium has already been paid for the month of June, your coverage will end on June 30.
Under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), and California's similar law, most employees who lose their jobs can choose to continue their health coverage for up to 36 months. However, you will be responsible for the full amount of the monthly premium, and COBRA plans can be costly. As an alternative, you may want to look into plans through Covered California; depending on your household income, you could be eligible for a subsidy.
If you have a 401(k) with your employer, you'll need to decide what to do with the funds. If you find a new job relatively quickly, you can transfer the funds into a 401(k) with your new employer.
If you're not able to find a new job right away, you have a few options. You can leave the funds in your employer's account (although you won't be able to make any additional deposits into the account) or transfer the funds to an Individual Retirement Account (IRA).
You can also withdraw the funds, but you will have to pay taxes on the withdrawn amount. If you're younger if you're younger than 59 and 1/2, you may also have to pay a 10% penalty on top of the taxes.
In addition to managing your benefits and finances, you should also take steps to prepare yourself for finding your next job. You may want to request a copy of your personnel file from your manager or the human resources department. Under California law, your employer is required to provide you with your personnel file within 30 days after you request it (Cal. Labor Code § 1198.5 (2023)).
You should also use this time to collect written recommendations from your supervisors and compile a list of people who are willing to serve as references. These items will be invaluable to you as you embark upon your job search.
If your employer fails to meet its obligations under the law, or if you feel that the circumstances around your layoff were suspicious—for example, you were let go soon after making a complaint of sexual harassment—you should speak to a California employment lawyer right away.