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

By Beth Bertelson:

Losing a job can be difficult. There are many decisions to be made, including whether 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 more than 35 years of combined experience, we have come across almost every situation. Deciding whether to sign such an agreement should not be done hastily. 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 these 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 severance package they are offering.

•           If I sign, will I be subject to a noncompete or other restrictions?

Before you started working for the employer or during your employment, you may have signed a restrictive covenant such as a noncompete agreement, a nonsolicitation 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, you should consider such restrictions carefully. Employers can and do place these restrictive covenants into separation agreements. If you sign an agreement with these restrictive covenants, they likely bind you. You should not take these obligations lightly. These provisions often restrict your ability to obtain new employment. Before you sign the separation agreement, you need to consider whether not being able to work in a certain field for a year – the length of many noncompete agreements – makes sense if the employer is only offering you a severance, for example, of two months’ salary.

•           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 that 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 receive unused PTO 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 to that payment even if you do not sign the agreement.

•           Will my benefits continue?

When your employment ends, so do 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 do so.

•           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 affect 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 to the employer?

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 on depends on how the money is designated in the agreement. You should seek the advice of a tax attorney or tax adviser 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 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 that offer severance packages to laid off employees and require those employees to release all potential legal claims in exchange for receiving those benefits must comply with requirements set forth in various laws.

The Age Discrimination in Employment Act (ADEA) protects employees 40 and older from age discrimination. The Older Workers Benefit Protection Act (OWBPA), part of the ADEA, is designed to protect the rights and benefits of older workers and imposes 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. Among other things, the OWBPA requires 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 if I already signed the agreement?  Am I stuck?

Not necessarily. In Minnesota, you have seven 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 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 requirements.

•           Are there other issues to consider?

Yes, because each person’s employment situation is different. Consulting with an attorney before signing any agreement is strongly advised to ensure you are not overlooking any issues specific to your situation.

Corporate decisions to downsize or reorganize have hit employees hard. Many employees who receive news of their termination are in shock and believe that the language in the separation agreement they received is standard and that there is nothing they can do to improve their situation.

Bertelson Law Offices has a successful history of reviewing, evaluating and strategically negotiating severance agreements, buyout packages, executive agreements and noncompete agreements. Because we practice exclusively in the area of employment law, we are able to provide you with knowledgeable and personal service for your individual needs and goals. We get to know our clients well. We can help you assess whether the package you were offered makes sense considering the specifics of your employment. If the package you were offered does not seem reasonable or adequate, we may be able to help you negotiate better terms. We offer a thorough review to help you determine how you would be impacted by signing, or if it would be appropriate to move forward with legal claims. At Bertelson Law Offices, P.A., we are skilled at recognizing if a package was offered because you were wrongfully terminated, and we can help you protect your right to file a discrimination claim when necessary. We accomplish this through a deep understanding of the law and knowledge of the subtleties of the negotiation process and your goals.

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 handled with a degree of expertise that I greatly appreciated.”

“I would recommend (and have recommended) Bertelson Law Offices 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.”