California workers: What you need to know about your layoff rights
After almost a decade of kombucha bars and ball pits, the surface-level view of what it means to work in tech has changed drastically—especially with the past three years of intense layoffs. A career that seemed like a sure bet for financial security is now rife with instability.
Is it because of the encroachment of artificial intelligence? Is it because companies want to replace direct hires with contract workers whom they can pay less and have less responsibility over? Is it to drive up stock prices?
Whatever the reason, these layoffs have been devastating for workers and their families. On Thursday, October 17th, we gathered for an informational session on navigating a layoff and what rights you have as a worker—both direct employees and contract workers—in California. Read on for a summary of what we learned from Christina Le, Partner at Clarkson Law Firm, and Zarrina Ozari, Senior Associate Attorney at Clarkson Law Firm.
NOTE: this webinar and blog provide information for educational purposes only and do not constitute legal advice. Please contact Clarkson Law Firm, or another attorney, if you have legal questions.
What kind of worker am I?
In order to know your rights as a laid-off worker under state and federal law, you have to know your employment classification, since different classifications of workers have various rights.
All of this only applies if you work in California, which can be tricky in the age of remote work. If you do 50% or more of your work in California, then you’re a California worker.
Under California Assembly Bill 5, anyone who performs a service for another is assumed to be an employee—unless the employer can prove that the worker is an independent contractor via the ABC test:
- The worker must be free from the control and direction of the hirer in connection with the performance of the work.
- The worker must perform work outside the “usual course” of the hirer’s business.
- The worker must be customarily engaged in an independent established trade, occupation, or business of the same nature as the work performed.
In some cases, people who are considered “independent contractors” may actually be employees under this law. In fact, there have been court cases debating this. If you feel you have been misclassified as an independent contract worker based on this definition, you may want to talk to a lawyer about your rights.
Independent contractors also pay their own taxes (instead of doing so through their company) and often receive fewer benefits, if any.
Then there are contract workers who are hired through third-party staffing agencies. These workers are direct employees of the staffing agency but not the company they’re contracted to for work.
What is a layoff? When does it become a mass layoff?
A layoff, in any case, simply is when employees are terminated for business purposes unrelated to an employee’s performance.
Mass layoffs are defined under the federal WARN Act as terminations that impact anywhere from 50 to 499 full-time employees being laid off (if they represent at least 33% of the total active workforce at a single employment site) or 500 or more full-time employees. However, under the California WARN Act, a mass layoff is defined as more than 50 employees being laid off in 1 month. These definitions are key to determining your rights as they differ within the context of a smaller layoff.
Layoffs can also be defined as permanent or temporary (furlough). A layoff is temporary when the laid-off employees are expected to return to work.
These definitions only apply to direct employees.
While they’re often laid off in the same swoop as direct employees, contract workers aren’t laid off in the same way. The company they are contracted out to terminates their contract with the worker through the third-party staffing agency.
For independent contractors, the company usually terminates their contract directly.
What are my rights in the face of a layoff?
The rights of different categories of workers are distinct under these different types of layoffs.
Employment in California is at-will, meaning that an employer or the employee generally can terminate the employment relationship at any time, for any reason and without notice—except for discrimination based on a protected class.
So, in the case of the simply defined layoff, an employer doesn’t owe its employees severance, extension of benefits, or warning unless that’s included in the employee’s contract, the agreement made between the company and the employee’s union, or it’s the employer’s policy or practice.
However, employers must ensure prompt payment of final wages and pay out any unused accrued vacation time upon termination. The same applies to a temporary layoff if there is no official return date at the time of the layoff. If they don’t pay a laid-off worker on time, they may be entitled to additional penalties and can reach out to an attorney for support.
In both the cases of contract workers and independent contractors, those impacted will likely want to see what their contract says with respect to early termination. Even if not included in the contract, the company does have to pay laid-off workers for the entirety of the work performed before the termination of the contract. Workers also still have protections against discrimination. If workers suspect that discrimination was a factor in their layoff they can talk to a lawyer to understand their rights and remedies.
If the layoff is a mass layoff, as defined by the California WARN Act, companies must give their employees 60 days’ notice of a layoff. This also includes mass temporary layoffs.
Some companies might choose to essentially turn that notice time into paid time off. Others may require soon-to-be laid-off workers to use that time to transition their work to somebody else.
These 60 days give employees time to look for new jobs and California safety net departments to prepare for an influx of claims. In 2023, TechEquity co-sponsored the Protect Laid-Off Workers Act (AB 1356), which would have extended the notice to 75 days and expanded these rights to contract workers, but Governor Newsom vetoed that bill.
Certain exemptions apply to specific industries, unforeseeable business circumstances, or natural disasters.
Wait, but what about severance?
Employers aren’t obligated by California law to give employees any severance package unless it’s included in your contract or is a part of the employer’s policy or practice.
Severance packages may include the continuation of benefits like health insurance or regular or partial pay for a certain amount of time. They also typically include a release of claims against the employer.
In our informational session, Le and Ozari highlighted that workers impacted by a layoff may want to consider NOT signing a severance package right away and, instead, consider negotiating for more money, extended benefits, or a provision in which the employer would provide a positive or neutral reference to future employers. Often, a severance agreement is about more than money—it usually includes a clause that waives the worker’s right to file a lawsuit against the company. Employment lawyers are an excellent resource to help workers parse and negotiate severance agreements.
Workers may be asked to sign non-disclosure agreements (NDAs) in exchange for severance packages that prohibit them from talking about their experiences with the company laying them off. They can also be asked to release general or specific discrimination-related claims. However, California workers can publicly disclose workplace discrimination without violating their NDA, thanks to the Silenced No More Act (SB 331).
Note that severance agreements can’t waive minimum wage or overtime claims, worker’s compensation claims, and unemployment insurance claims.
There’s no specific time for an employee to consider rejecting a severance agreement. But if an employee over the age of 40 is asked to release claims, they have to be given at least 21 days to consider and have 7 days to revoke their acceptance
If the employer doesn’t pay out severance in an agreed-upon manner, workers have to exhaust administrative remedies by a timely appeal and claim denial within 60 days. They can then file a lawsuit if the appeal is denied.
If a severance plan is covered by the Employee Retirement Income Security Act (ERISA)—meaning that the employer is supposed to pay severance over time, rather than in one payout—workers can file claims with the Division of Labor Standard Enforcement or in court, including small claims court.
I’ve been laid off—what do I do now?
Whether or not a worker receives severance pay, the next step after a layoff is filing for unemployment benefits—unless they have another job secured. When filing, it’s important to note that severance pay is not wages for unemployment insurance purposes.
To qualify for unemployment benefits, workers must be unemployed through no fault of their own, actively seeking other employment, and be able to work (otherwise, they can apply for disability).
Workers can file online, over the phone, or by mail. There should only be a one-week waiting period until they receive benefits. Then they have to re-certify every 2 weeks. Sometimes, the Employment Development Department (EDD) will require workers to do interviews and report information such as income.
As for health insurance, that depends on company policy and employment agreements. Typically, coverage ends on the last day of the month when the employment is terminated, though some employers may offer extended coverage. If that’s something a worker really needs but is not offered, the worker can ask for it during severance negotiations.
Once health insurance is up, workers can check out what Covered California has to offer or continue on the same plan they had for up to 18 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA)—but then they have to pay the full premium.
Ze and Ozari shared that it’s also important to review any existing 401K or retirement plans. Review rollover options, withdrawal penalties, vesting impacts, loan possibilities, decision deadlines, and associated fees. If a worker has stock options or equity in the company, they can review their stock option agreement.
How can I help protect other workers facing a layoff?
If you feel the layoff was unlawful—for example, if an employer decides to lay off all women from a company—report it to HR and let them know that this activity could be unlawful. You should also consider consulting with an attorney to determine the scope of your claims. Certain laws protect workers against retaliation by an employer after they report an illegal activity. If you face retaliation after you’ve reported, an employment attorney would be a helpful person to connect with.
If you’re an employee or contract worker who has experienced a layoff, you can also help by telling your story. At TechEquity, stories of real people shape our work. By sharing your experience as a worker who struggled after a layoff due to a lack of protections, you help lawmakers and the public understand what change needs to happen. Consider sharing your story today.
