What Should I Do If I Am Offered a Severance Package or Separation Agreement Under Minnesota Law?

What Should I Do If I Am Offered a Severance Package or Separation Agreement Under Minnesota Law?

Losing a job can be very difficult. There are many decisions to be made, including whether or not to sign a severance or separation agreement. When you sign these agreements, you are giving up your right to pursue legal action against your employer in exchange for the money the employer is offering you.

In over 35 years of experience, we have come across almost every situation and deciding whether to sign such an agreement should not be a hasty decision. While the employer may be pressuring you to make a decision right away, you have the right to talk to an attorney before signing the agreement. An attorney can help you figure out whether it makes sense to pursue additional benefits or give up your right to pursue legal action against your employer in exchange for the money offered in the agreement.

There are many things to consider, such as:

• Do I have legal claims against my employer?

A careful review of the agreement is important. When you sign the agreement, you are most likely releasing all employment law claims you may have against your employer. If you release claims, you cannot sue the employer for wrongful termination or for anything else related to your employment. It is important to take the time to review the agreement and to understand how signing it may impact you going forward.  An attorney can help you determine whether you have potential employment law claims such as discrimination, harassment, retaliation, violations of leave laws, failure to accommodate, defamation, owed wages, and others. If you do have legal claims, you may be able to negotiate with the employer to increase the package it is offering.

• If I sign, will I be subject to a non-compete or other types of restrictions?

Before you started working for the employer or during your employment, you may have signed a restrictive covenant such as a non-compete agreement, a non-solicitation agreement, and/or a confidentiality agreement. In most cases, the language in these agreements continues for a period of time after your employment ends.

However, if you did not sign any restrictive covenant during your employment and you work in MN, you want to make sure your severance agreement does not contain any non-compete provision.  As of July 1, 2023, under MN law, new non-compete provisions are illegal (except under very limited circumstances).  

• Is the agreement mutual?

You should review the agreement to consider if there is mutual language in terms of nondisparagement and confidentiality of the agreement. If the employer requires you to keep the agreement confidential and to not say bad things about it, you may want to also require the employer to do the same. Nondisparagement language may be important if you want to ensure your reputation is protected - meaning there is specific language in the agreement outlining what the employer will say to a prospective employer who contacts them.

• If I sign, when will I receive the payment?

Review the agreement to determine the payment schedule. Will you receive a lump sum payment or payments over time? You want to make sure there is language in the agreement stating when you will be paid.

• If I sign, will I have any ongoing obligations to the employer?

 Some employers include language in the agreement stating that you will provide assistance to the employer with legal matters or other matters on which you have knowledge, even though the employer has ended your employment. Often, the agreement will not provide details that are favorable to you.

• Will the employer pay me for outstanding business expenses?

The agreement may include language stating that you agree you have been paid all owed monies. Before you sign, make sure that you have been paid for all expenses owed to you. If not, you want to include language that ensures that the employer will pay you for any unreimbursed business expenses by a certain date.

• Will I receive payment for unused Paid Time Off (PTO)?

In Minnesota, whether you received unused PTO time upon the end of your employment is controlled by the employer’s policies. If the employer’s policy provides for such payment, you are entitled that payment even if you do not sign the agreement.

• Will my benefits continue?

When your employment ends, so do your benefits such as medical, dental, and life insurance. Under federal law, you are eligible to sign up for COBRA benefits. If the employer has not offered to pay part of your COBRA benefits, you may wish to try and negotiate for the employer to part of your COBRA benefits.

• If I sign the agreement, can I still get long-term disability benefits?

If you suffer from a health condition that may entitle you to long-term disability benefits, you need to make sure that you are not releasing ERISA (Employee Retirement Income Security Act) claims. You also need to review the long-term disability policy. Some policies require an applicant for long-term disability benefits to be an employee at the time of application. Signing an agreement that ends employment may foreclose an opportunity to get long-term disability benefits.

• Can I get unemployment compensation benefits?

In Minnesota, the state unemployment office determines whether you are eligible to receive unemployment benefits. Generally, if you lose your job through no fault of your own, you are entitled to unemployment compensation. How the employer designates the money you receive can effect the timing of when you are eligible to receive unemployment compensation.

• If I find a new job, will I have to give the money back?

Beware of language in the agreement that states if you get a new job, you have to pay back some or all of the money you received for signing the agreement.

• Do I have to pay income taxes on the money I receive as a severance or settlement payment?

Generally yes. The amount you will be taxed depends on how the money is designated in the agreement. You should seek the advice of a tax attorney or tax advisor to learn how the money you receive will impact your taxes.

• Can I still bring a charge of discrimination with a government agency if I the sign the agreement?

Yes. An employer cannot include language in the agreement that forbids you to file a charge of discrimination with a governmental agency. However, the employer can include language that says if you sign the agreement, you are releasing your right to receive any monetary damages if you do file a charge with a governmental agency.

• I was terminated in a group layoff. What paperwork does the employer have to give me?

Employers who offer severance packages to laid off employees and require that in exchange for receiving those benefits, the employee must release all potential legal claims, must comply with requirements set forth in various laws.

The Age Discrimination in Employment Act (ADEA) protects employees, age 40 and older, from age discrimination. The Older Worker’s Benefit Protection Act (OWBPA), part of the ADEA, is designed to protect the rights and benefits of older workers and imposes mandatory requirements for waivers of ADEA rights.

The OWBPA was enacted to ensure that employees receive the information necessary to evaluate any potential age claim they may have before giving up that claim. The OWBPA requires, among other things, employers to include disclosures with the severance package that list the job titles and ages of the employees terminated and retained, the decisional unit from which employees were selected for termination, the criteria the employer used to select employees for termination, and, in some cases, if the employer has done prior layoffs, information about those layoffs. Failure to comply with the OWBPA makes it difficult to determine whether there is age discrimination and can invalidate a release.

In our experience, terminated employees often do not receive the required OWBPA disclosure information or the information they receive is inadequate.

• What should I do at the termination meeting?

Listen, pay attention, and stay calm. As upsetting as these meetings are, it will not help to yell. You do not want to storm out or threaten legal action. Doing so will not help with a lawsuit and may burn bridges.  You want to have the smoothest exit possible.

Take notes about what is said during the meeting or, if you are not able to take notes during the meeting, after the meeting write down what you remember being said.

Ask the employer why you are being terminated. No matter the answer, do not argue. Trying to change their mind or convince them that they are mistaken will not work to change their minds.

If you are being terminated as part of a layoff, ask why you were selected for termination. Take notice of the other employees laid off and kept: Younger or older employees? Men or women? Race and ethnicity? Disabled? After the meeting, spend time reflecting on the employer’s rationale for selecting you in the layoff. Does it really make sense?

If you do seek legal advice, this information will be helpful to the attorney reviewing your legal claims.

Ask the employer about next steps: When will I receive my final paycheck and vacation pay? When can I collect my personal items? When will I receive information about COBRA benefits? How do I turn in any badges, keys, or other company property?

Remember not to sign any type of separation agreement at the termination meeting. It is better to take documents home with you to review and calmly process.

• What if I already signed the agreement. Am I stuck?

Not necessarily. In Minnesota, you have 7 days to rescind the agreement under the Age Discrimination in Employment Act (ADEA) and you have 15 days to rescind the agreement under the Minnesota Human Rights Act. Be aware of requirements in the agreement related to rescission.

We have experience in successfully challenging the release agreements that do not comply with the OWBPA. In Peterson v. Seagate US, LLC, 2008 U.S. Dist. LEXIS 42179, No. 07-2502 (D. Minn. May 28, 2008) the court found that the release agreements were invalid as a matter of law because they failed to meet all of the OWBPA mandatory requirements.

• Are there other issues to consider?

 Yes, because each person’s employment situation is different. It is strongly advised that you consult with an attorney before signing any agreement.

Bertelson Law Offices, P.A. has over 35 years of combined experience reviewing, evaluating and strategically negotiating severance agreements, separation agreements, buy-out packages, executive agreements and non-compete agreements.

Because we practice exclusively in the area of employment law, we are able to provide you with knowledgeable and caring experience, as well as personal service for your individual needs and goals. We get to know our clients well. We offer a thorough review to help you determine how your particular situation would be impacted by signing, or if it would be appropriate to move forward with legal claims or with negotiating changes to the agreement, such as increasing the amount the employer is offering and language changes to the agreement. At Bertelson Law Offices, P.A. you will receive personal service yet assertive advocacy of your rights.

What clients have said about Bertelson Law Offices, P.A.:

“Beth [Bertelson] has the ability to assess a situation, consider the options, and then team with you to strategize toward a solution.”

“The entire process was handling with a degree of expertise that I greatly appreciated.”

“I would recommend (and have recommended) Bertelson Law Office to others!”

“The best part of my experience with Beth was that she genuinely cared about me as a person not just as another employment law case.”

 Please feel free to contact us at 612-278-9832 or by email at [email protected].

 *This material is educational only. It does not constitute and should not substitute for legal advice.