Employers' Common Mistake With Severance Agreements and Wage Claims

If you are considering bringing a case against your employer for wrongful termination, discrimination, or any wage violations, cashing your final paycheck will generally not hurt your potential case in any way, unless you sign a document that actually states that you agree that the employer doesn't owe you any other wages and that you release any and all claims you might have against that employer.  

A tricky situation occurs when an employee signs a severance agreement and general release of all claims in exchange for accepting a certain amount of money from the employer as severance, but while still not being paid correctly his regular wages. Under California law, an employee cannot waive by agreement his right to wages earned. Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.” Therefore, unless the severance agreement specifically provides that the severance paid also covers wages which should have but not have been paid, the employer will still be liable for those wages, even if they pay severance, and even if that severance is significant.    

A typical mistake that employers make is assuming that by having a terminated employee sign a general release form and severance agreement, which doesn't contain specific language concerning unpaid wages, they effectively settle any and all potential disputes. While claims for discrimination, wrongful termination, harassment, retaliation and similar claims are waived by this type of agreement, as noted above - an employee will still likely be able to make a claim for wages earned but not paid correctly.