When separating from employees in California, organizations must follow California’s employee separation laws. Organizations need to understand the state-specific regulations and how to fulfill their employer obligations.
This employee separation guide and checklist provides an overview of California’s final paycheck requirements, separation notices, severance agreements, and, if applicable, reporting employee termination and withdrawing registration to do business in the state.
Given California’s reputation as having some of the most complex employment laws in the country, compliance with these separation guidelines is critical to avoiding fines and other penalties.
California Employee Separation Checklist
- Provide final paycheck
- Issue separation notice
- Execute severance agreement
- Report termination
- Withdraw registration to do business
1. Final Paycheck Requirements in California
Under California state law, employees who are terminated must receive their final paycheck immediately. Employees who resign must be paid within 72 hours of resignation unless they provide at least 72 hours’ notice. In that case, payment is due on the separation date.
All earned and unpaid wages, including premium pay for missed meal and rest periods, must be paid. Any accrued and unused vacation time must be compensated upon separation as per Cal. Lab. Code § 227.3.
Final paychecks for discharged employees must be provided at the place of discharge, while resigning employees should receive their pay at their last place of work. If requested, wages may be mailed. Employers who fail to pay the final wages on time may face penalties, including the unpaid amount plus an additional 30 days’ wages at the employee’s regular pay rate.
2. Firing Employees in California
All California employees must receive several important notices upon termination. These include the California unemployment pamphlet DE 2320, as required by the California Employment Development Department, and a notice about changes in the employment relationship in accordance with Section 1089 of the California Unemployment Insurance Code.
If the organization employs 20 or more individuals, employees must also be provided with notice about California’s Health Insurance Premium Payment (HIPP) program. Additionally, employees should be informed about their Cal-COBRA continuation rights, as well as all continuation, disability, and conversion coverage options available to them after termination.
Under the California WARN Act, certain employers also must give 60 days’ notice for plant closures, mass layoffs involving 50 or more employees, or relocations of operations more than 100 miles away. A “covered employer” is defined as any person or entity owning and operating a covered establishment, which is any facility with 75 or more employees in the past year, including contractors. Notice must be delivered to affected employees, the Employment Development Department, local workforce investment boards, and city and county government officials.
Exceptions to the 60-day notice requirement include situations involving a faltering company, physical calamities, acts of war, or temporary projects. The notice must include detailed information such as the site address, contact details, the nature of the action, and job classifications affected.
3. Severance Agreements in California
When firing employees and drafting severance agreements, employers must clearly specify the claims being waived under both federal and state laws. In California, this includes claims related to wrongful termination (Tameny claims), breach of contract, breach of the implied covenant of good faith and fair dealing, privacy violations, defamation, intentional infliction of emotional distress, and discrimination or harassment under the California Fair Employment and Housing Act.
California law also mandates that if a release is intended to cover both known and unknown claims, it must include a waiver of California Civil Code Section 1542. Furthermore, there must be independent evidence showing that the employee intended to release unknown claims.
It is important that any claims release only covers claims that arose before the agreement’s effective date, not those that may arise afterward. Employers must also inform employees of their right to consult an attorney about the severance agreement, and provide at least five days to do so.
Finally, federal regulations, including recent NLRB decisions, impose restrictions on non-disparagement and confidentiality clauses in severance agreements.
4. Reporting Employee Termination in California
If an employee has an Income Withholding for Support Order (IWO), you must immediately notify the child support agency, court, or attorney who issued the IWO about the employee’s termination. If you would prefer online reporting, you can register with the Federal Office of Child Support Enforcement.
Alternatively, you can report the termination by completing the Notification of Employment Termination or Income Status section of the IWO and sending it via fax or mail to the issuing child support agency.
Include the following information:
- Employee Name
- Employee Case Identifier
- Last Known Home Address
- New Employer Address (if known)
- Date of Employee Separation
5. Withdraw Registration to do Business in California
Should an organization stop doing business in California, they may formally withdraw their registration to do business in the state by filling out certain forms. This often occurs when the organization separates from their last in-state employee. The forms are submitted to the California Secretary of State, and they vary depending on the legal structure involved.
For-Profit Corporations and Non-Profit Corporations must file this Certificate of Surrender and pay all required state taxes before withdrawing. Limited Liability Companies (LLCs) must file this Certificate of Cancellation. They are also required to pay all state taxes before withdrawing.
Stay Compliant with California Employee Separation Requirements
Understanding specific California Employee Separation Agreement requirements is a crucial step in mitigating risk and respecting employee rights—especially considering California’s reputation as having the most complex employment law requirements in the country.
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