Common Severance Pay Myths in Minnesota

Here are a few common severance pay myths, which are not generally true:

• Long-term employees have the legal right to severance pay;
• An employer can label accrued benefits such as vacation, sick leave, or commissions payable as “severance” in order to get a release;
• Keep the release language simple – a one-sentence acknowledgement should do; and
• It’s a good idea to have the employee release his or her right to unemployment compensation in exchange for a release.

Employment counsel hear these a lot. Here are the legal realities:

• Unless there is a contract or enforceable severance policy, there is a no legal obligation to provide severance pay for an at-will employee in Minnesota.
• In most cases, severance pay is paid to obtain a resignation and release or reward an employee for service and loyalty over the years;
• Severance pay sufficient for a legally enforceable release needs to constitute separate consideration and not be end-of-employment compensation already owed to a departing employee;
• To be effective, a release must have certain legally required consideration and rescission periods; and
• It is illegal for an employer to require an employee to waive his or her right to unemployment compensation even in exchange for severance.

Takeaway: Watch out for these severance myths – and there are plenty others! Many a severance pay agreement has been unsuccessful in meeting its legal objectives due to the employer not being aware of these and several other fundamental legal realities. It is a good idea for employers to invest some time in determining the needs and goals for offering severance and to have a professionally written, legally enforceable severance agreement and release.