Minnesota Executive Employment and Severance Attorney

What Should an Executive Agreement Say About Pay, Bonus, and Commissions?

An executive agreement should state your base salary and define how each bonus and commission is earned, in terms someone outside the company could measure. That definition matters when you leave, because Minnesota’s final-pay statutes require payment of what is earned and unpaid, and a bonus left to the company’s judgment may never become earned.

For commissions, Minn. Stat. § 181.101 requires an employer to pay “all commissions earned by an employee at least once every three months.” The statute adds: “This section provides a substantive right for employees to the payment of wages, including salary, earnings, and gratuities, as well as commissions, in addition to the right to be paid at certain times.” Your commission plan sets the event that earns a commission, such as a signed contract, a shipment, or the customer’s payment. My page on when sales commissions are earned and paid covers how plan terms and the statute fit together.

A bonus works the same way, because its written terms decide whether the bonus is earned and when it is paid. My page on discretionary and earned bonuses covers the difference between a bonus left to the company’s discretion and one tied to a target.

The definitions decide what you can collect at exit. When an employer discharges you, Minn. Stat. § 181.13 provides that “the wages or commissions actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee.” The demand “must be in writing but need not state the precise amount of unpaid wages or commissions,” and an employer that does not pay “within 24 hours after demand” is “in default.” When you resign, Minn. Stat. § 181.14 requires payment “not later than the first regularly scheduled payday following the employee’s final day of employment,” with an exception for a collective bargaining agreement. Subdivision 1 adds: “If the first regularly scheduled payday is less than five calendar days following the employee’s final day of employment, full payment may be delayed until the second regularly scheduled payday but shall not exceed a total of 20 calendar days following the employee’s final day of employment.” Where “the discharged or quitting employee was, during employment, entrusted with the collection, disbursement, or handling of money or property,” Minn. Stat. § 181.14, subd. 4, gives the employer “ten calendar days after the termination of the employment to audit and adjust the accounts of the employee” before paying.

How Do Equity Grants, Vesting, and Acceleration Work for an Executive?

Your equity plan and award agreement decide what vests, what happens to unvested equity when your employment ends or the company is sold, and what you must do to keep vested equity. Acceleration on a sale is a negotiated term, and federal golden parachute rules can tax change-in-control payments that reach “3 times the base amount.”

Before signing, I suggest reading the plan, the award agreement, and your employment agreement together, because each can define termination and change in control differently. The questions to answer are these:

• What vests, and on what schedule?
• Is unvested equity forfeited on any termination, or only on a termination for cause?
• How long do you have to exercise vested options after you leave?
• Can the company repurchase vested shares, and at what price?
• If the grant is restricted stock, will you make a section 83(b) election? 26 U.S.C. § 83(b) lets you include the stock’s value, less any amount you paid, in income for the year it is transferred instead of when it vests. The election “shall be made not later than 30 days after the date of such transfer,” and “if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture.” Check the current text of section 83(b) before relying on that period.

Acceleration comes in two forms. Single-trigger acceleration vests equity when the sale closes. Double-trigger acceleration vests it only if the sale closes and you are then terminated without cause, or resign for good reason, within a stated period. A double trigger protects you from losing unvested equity to a buyer who replaces the leadership team.

Large change-in-control payments carry a federal tax cost. Under 26 U.S.C. § 280G, a payment to a “disqualified individual,” a term the statute defines, is a parachute payment when “such payment is contingent on a change” either “in the ownership or effective control of the corporation” or “in the ownership of a substantial portion of the assets of the corporation,” and the total “equals or exceeds an amount equal to 3 times the base amount.” The excess parachute payment “means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment.” The person who receives an excess parachute payment owes a tax “equal to 20 percent of the amount of such payment” under 26 U.S.C. § 4999, and the company loses its deduction for it. Section 280G(b)(5) exempts payments by a corporation that, immediately before the change, “was a small business corporation,” and by some private corporations when “the shareholder approval requirements of subparagraph (B) are met,” so the company’s form and ownership affect whether the rule applies. Two terms address this exposure: a cutback, which reduces payments below the threshold, and a gross-up, in which the company pays the tax. My page on stock options and other equity in a severance agreement covers how equity is handled when you leave.

What Counts as Cause, Good Reason, and a Change in Control?

Your agreement’s definitions of cause, good reason, and change in control decide whether you are paid severance when your job ends, because the agreement itself supplies those definitions. A vague cause definition can give the company room to call a termination one for cause and pay nothing.

Cause. I suggest asking for a definition that lists specific conduct, such as fraud, a criminal conviction, or a material breach of the agreement. It should also require written notice and a chance to cure anything that can be cured. Loose phrases such as poor performance or conduct detrimental to the company leave the decision with the company. A discharge for gross misconduct can also cost you continuation coverage. Minnesota’s continuation statute, Minn. Stat. § 62A.17, covers “Every group insurance policy, group subscriber contract, and health care plan included within the provisions of section 62A.16,” and it states: “Termination shall not include discharge for gross misconduct.”

Good reason. A good reason clause lets you resign after a listed change, such as a pay cut, a demotion, or a forced move, and still collect the severance paid on a termination without cause. Federal tax rules shape these clauses. For a good reason resignation to count as an involuntary separation under 26 C.F.R. § 1.409A-1, good reason “must be defined to require actions taken by the service recipient resulting in a material negative change to the service provider in the service relationship.” The regulation also weighs whether good reason payments match those for an actual involuntary separation in amount, timing, and form, and whether you must give the company notice and “a reasonable opportunity to remedy the condition.” Clauses written to fit that rule include notice and cure steps, and a resignation that skips a step the clause requires may not qualify. My page on resignation for good reason covers how to define the clause and how to invoke it.

Change in control. This definition decides which deals trigger acceleration and change-in-control severance. I suggest checking whether it covers a sale of most of the company’s assets as well as a stock sale or merger. It is also worth checking whether a financing round or an internal reorganization could trigger it by accident.

What Restrictive Covenants Can a Minnesota Employer Still Require?

A Minnesota employer cannot enforce a noncompete in an employment agreement entered into on or after July 1, 2023, unless the covenant was “agreed upon during the sale of a business” or “in anticipation of the dissolution of a business.” Even those must stay “within a reasonable geographic area.” Minn. Stat. § 181.988 provides: “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” The statute also says a covenant not to compete “does not include a nondisclosure agreement” or “a nonsolicitation agreement.”

The statute defines a covenant not to compete as “an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing” any of three things: “work for another employer for a specified period of time,” “work in a specified geographical area,” or “work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.” It excludes “a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information,” and “a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.” Minnesota court decisions decide whether a particular nonsolicitation clause holds up, as my page on non-solicitation agreements in Minnesota explains.

Four more points from the statute matter to an executive:

1. Two exceptions. A noncompete remains enforceable when “agreed upon during the sale of a business” or “agreed upon in anticipation of the dissolution of a business.” An executive who is also a selling owner can be asked for one under the first exception. For a sale, the statute allows “a temporary and geographically restricted covenant not to compete” that bars the seller from “carrying on a similar business within a reasonable geographic area and for a reasonable length of time,” so the length and area of one are worth negotiating.
2. The rest of the agreement stays. “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.”
3. Attorney fees. The statute provides that “a court may award an employee who is enforcing rights under this section reasonable attorney fees.”
4. Choice of law and forum. An employer “must not require an employee who primarily resides and works in Minnesota, as a condition of employment,” to agree to a provision that would “require the employee to adjudicate outside of Minnesota a claim arising in Minnesota” or “deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.” Such a provision “is voidable at any time by the employee,” and the statute says “This subdivision applies only to claims arising under this section.”

The ban has a start date. The 2023 session law that enacted the ban made it effective July 1, 2023, for contracts and agreements entered into on or after that date. A noncompete in an older agreement is outside the ban, so the date of each agreement you signed matters. For an older noncompete presented after you had already agreed to the job, the Minnesota Supreme Court stated that where a covenant “is not ancillary to the initial oral employment contract, it can be sustained only if supported by independent consideration.” National Recruiters, Inc. v. Cashman, 323 N.W.2d 736 (Minn. 1982).

An executive agreement may also assign your inventions to the company. Minn. Stat. § 181.78 says such a clause “shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee’s own time,” subject to the statute’s further conditions about the employer’s business and your work. The employer “must also, at the time the agreement is made, provide a written notification to the employee” of that limit. My page as a Minnesota non-compete attorney covers the ban from the employer’s side.

How Is Executive Severance Negotiated in Minnesota?

Unless your agreement or a company plan already promises severance, an executive package is a negotiated price. The company pays for your release of claims, your help with the transition, and the terms it wants you to keep. Your bargaining power comes from what the company needs from you and from the claims a release would end.

The first step is knowing what you are owed anyway. Earned and unpaid wages and commissions are due under Minn. Stat. § 181.13 and § 181.14. A release of federal age claims is valid only if you give up claims “only in exchange for consideration in addition to anything of value to which the individual already is entitled,” under 29 U.S.C. § 626(f). The package should therefore add value beyond your earned pay.

Two Minnesota statutes help you gather facts before you answer:

1. The reason for the termination. Under Minn. Stat. § 181.933, “An employee who has been involuntarily terminated may, within 15 working days following such termination, request in writing that the employer inform the employee of the reason for the termination. Within ten working days following receipt of such request, an employer shall inform the terminated employee in writing of the truthful reason for the termination.”
2. Your personnel record. Under Minn. Stat. § 181.961, “With respect to employees who are separated from employment, upon the employee’s written request, the employer shall provide a copy of the personnel record to the employee.” The definition in Minn. Stat. § 181.960 “includes any person who has been separated from employment for less than one year.”

What the company needs from you can be the stronger bargaining point: a smooth handoff of clients and staff, your cooperation in a pending matter, or simply a signed release. In one negotiation, the executive also held a second role at the company. The proposal asked that the executive role end on one date while the second role continued for a transition period, which would keep the executive on the company health plan. It also asked that the severance run through payroll with the match applied, and that the company treat the executive as it had treated other departing employees in the second role. My page on the executive severance package describes the terms such packages can include.

What Are the Rules for Signing a Release at 40 or Older?

If you are 40 or older and your employer has “twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year,” a release of federal age discrimination claims is valid only if it meets 29 U.S.C. § 626(f). That section starts: “An individual may not waive any right or claim under this chapter unless the waiver is knowing and voluntary.” Minnesota adds a separate right to rescind a release of Human Rights Act claims within 15 calendar days, except a release “given in settlement of a claim filed with the department or with another administrative agency or judicial body.”

The federal age law reaches individuals “at least 40 years of age” under 29 U.S.C. § 631(a), and the employer test above comes from 29 U.S.C. § 630(b). For a release outside a filed charge or lawsuit, section 626(f)(1) lists minimum conditions, including these:

• The release “specifically refers to rights or claims arising under this chapter.”
• You give up claims “only in exchange for consideration in addition to anything of value to which the individual already is entitled.”
• You are “advised in writing to consult with an attorney prior to executing the agreement.”
• You have “a period of at least 21 days within which to consider the agreement,” or 45 days when the release is part of “an exit incentive or other employment termination program offered to a group or class of employees.”
• You have “a period of at least 7 days following the execution of such agreement” to revoke, and the agreement “shall not become effective or enforceable until the revocation period has expired.”
• In a group program, the employer must disclose “the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.”

A release that settles a filed age charge or lawsuit is valid only if “subparagraphs (A) through (E) of paragraph (1) have been met,” which include the first three conditions above, and “the individual is given a reasonable period of time within which to consider the settlement agreement.” Section 626(f)(4) protects charges with the Equal Employment Opportunity Commission: “No waiver may be used to justify interfering with the protected right of an employee to file a charge or participate in an investigation or proceeding conducted by the Commission.”

Minnesota’s rule is in Minn. Stat. § 363A.31, subd. 2. A release of Human Rights Act claims for past or current acts “may be rescinded within 15 calendar days of its execution,” except that “a waiver or release given in settlement of a claim filed with the department or with another administrative agency or judicial body is valid and final upon execution.” You must be “informed in writing of the right to rescind,” and “To be effective, the rescission must be in writing and delivered to the waived or released party by hand, electronically with the receiving party’s consent, or by mail within the 15-day period.” A mailed rescission must be “(1) postmarked within the 15-day period; (2) properly addressed to the waived or released party; and (3) sent by certified mail return receipt requested.” Minn. Stat. § 268B.09 applies the same rescission right, with the same exception for a release settling a filed claim, to paid leave rights. Those rights can be released only by “a voluntary settlement agreement resolving disputed claims or a valid separation agreement releasing putative claims.” A separation agreement can condition the payment on the release becoming final, so rescinding the release can cost you the payment. Check the current text of these statutes before relying on these periods.

What Else Belongs in a Separation Agreement Besides the Payment?

A separation agreement also decides what you can say, what help you owe the company, how your departure is described, what happens to your equity and bonus, and how long your health coverage continues. Each of those terms has its own cost, and each is negotiable.

• Non-disparagement. I suggest asking that it run both ways and name who on the company side it binds, such as the board and named officers. A promise by the company alone may not reach what an individual executive says about you.
• Cooperation. A clause requiring help with litigation or the transition should cap your time and pay you for it, with expenses covered.
• Reference and announcement. An agreed description of your departure and an agreed internal announcement protect your next search.
• Equity and bonus. You can ask for a prorated bonus for the current year, continued vesting, or a longer exercise period for options, and each should be written into the agreement rather than left to the plan. For incentive stock options, 26 U.S.C. § 424(h) provides that if an option’s terms “are modified, extended, or renewed, such modification, extension, or renewal shall be considered as the granting of a new option,” and 26 C.F.R. § 1.424-1 adds that “A statutory option may, as a result of a modification, extension, or renewal, thereafter cease to be a statutory option.”
• Health coverage. Under 29 U.S.C. § 1162, federal COBRA coverage “must extend for at least the period beginning on the date of the qualifying event and ending not earlier than the earliest of” several dates. For a termination, those dates include “the date which is 18 months after the date of the qualifying event,” the date the employer “ceases to provide any group health plan to any employee,” a missed premium, and new group or Medicare coverage. For a qualified beneficiary determined under the Social Security Act “to have been disabled at any time during the first 60 days of continuation coverage under this part,” the statute treats the 18 months as “a reference to 29 months (with respect to all qualified beneficiaries), but only if the qualified beneficiary has provided notice of such determination” before “the end of such 18 months.” Under 29 U.S.C. § 1166, that beneficiary “is responsible for notifying the plan administrator of such determination within 60 days after the date of the determination.” Check the current text of 29 U.S.C. § 1162 and § 1166 before relying on the disability extension. However, 29 U.S.C. § 1161 does not apply when all employers maintaining the plan “normally employed fewer than 20 employees on a typical business day during the preceding calendar year.” For the plans it covers, and while the plan remains in force for active employees, Minn. Stat. § 62A.17 lets you continue coverage “until the employee becomes covered under another group health plan, or for a period of 18 months after the termination of or lay off from employment, whichever is shorter,” at a premium that cannot “exceed 102 percent of the cost to the plan.” The agreement decides whether the company pays any of that premium. Continuation is not automatic. Each qualified beneficiary is entitled “to elect, within the election period, continuation coverage,” and § 62A.17 likewise permits you “to elect to continue the coverage,” so I suggest electing on time even while the agreement’s premium terms are still being negotiated.

A document a release brings in can bind you as much as the release itself. In one release I analyzed, a paragraph made a separate severance plan document part of what the employee would be agreeing to, so I asked for that plan. My page on drafting a Minnesota severance agreement, written for employers, shows what the company’s side checks before it sends one.

How Do Tax and Unemployment Rules Affect Severance Timing?

Severance paid in installments and bonuses paid after you leave can be deferred compensation under 26 U.S.C. § 409A, which adds a 20% tax when a plan fails its rules. Separately, Minnesota delays unemployment benefits for the weeks your severance covers, whatever date the company pays it.

The federal regulation under section 409A, 26 C.F.R. § 1.409A-1, says a plan “does not fail to provide a deferral of compensation merely because the right to payment of the compensation is conditioned upon a separation from service.” When a deferred compensation plan fails section 409A’s rules, the deferred amounts become includible in gross income “to the extent not subject to a substantial risk of forfeiture and not previously included in gross income,” and the tax increases by “an amount equal to 20 percent of the compensation which is required to be included in gross income,” plus interest. The regulation excludes some payments. One exclusion is a payment made soon after the right to it vests, which the regulation calls a short-term deferral. Another covers a plan that “provides for separation pay only upon an involuntary separation from service” (or under a window program) “to the extent that the separation pay, or portion of the separation pay, provided under the plan meets the following requirements,” including that it “does not exceed two times the lesser of” your annualized pay and a federal compensation limit. That pay must also arrive by a deadline the regulation sets. If you work for a public company and are a “specified employee,” compensation “deferred under the plan” and paid on separation is subject to a delay: “distributions may not be made before the date which is 6 months after the date of separation from service (or, if earlier, the date of death of the employee).” Separation pay that fits the exclusion above “does not provide for a deferral of compensation,” so the delay does not reach that portion.

For unemployment benefits, Minn. Stat. § 268.085, subd. 3b, provides: “An applicant is not eligible to receive unemployment benefits for any week the applicant is receiving, has received, or will receive separation pay, severance pay, bonus pay, or any other payments paid by an employer because of, upon, or after separation from employment.” The rule reaches a payment that is wages under the unemployment law or subject to Social Security and Medicare tax. The payments “are applied to the period immediately following the later of the date of separation from employment or the date the applicant first becomes aware that the employer will be making a payment.” Choosing installments over a lump sum does not change that result, because “The date the payment is actually made or received, or that an applicant must agree to a release of claims, does not affect the application of this paragraph.” Subdivision 3b “does not apply to earnings under subdivision 5, back pay under subdivision 6, or vacation pay, sick pay, or personal time off pay under subdivision 3,” and subdivision 3, paragraph (a), does not apply “upon a permanent separation from employment.” For a week when the payment is less than your weekly benefit amount, the statute reduces benefits by the payment instead of eliminating them.

A CPA or financial advisor can model the tax effect of a lump sum against installments, and of exercising options in one year or another. That work may cost less with them than with me. Writing the payment terms so they fit section 409A, and the release that the payment buys, stays legal work.

What Are Your Options When Leaving, and What Does Each Cost?

When you leave, you can accept the package as offered, negotiate directly with the CEO or board, have an attorney draft your requests behind the scenes, have an attorney negotiate openly, or pursue a claim. Each fits a different situation and carries a different cost and risk.

1. Accept as offered. This fits when the package matches what your agreement or plan promises, you have no claim you value, and a quick, clean exit matters more than more money. It costs nothing in fees. The risk is that you give up whatever the release was worth and stay bound by terms you did not read, including documents the release brings in.
2. Negotiate directly with the CEO or board. This fits when the relationship is good and you have one or two specific requests. It costs your time and no fees. The risk is that you negotiate alone against people who have their own attorney, and anything you say in the conversation can be repeated later.
3. Attorney-drafted requests, behind the scenes. An attorney analyzes the documents and drafts requests you send under your own name. This fits when the relationship matters and a letter from a lawyer would change the tone. I quote a fixed fee for analyzing or marking up an agreement before the work begins. The risk is that the company can still say no, and you carry the conversation yourself. In one separation, I drafted an employee’s request for release from a noncompete in an agreement signed long before the 2023 ban, in a form the employee could adapt and send. The company declined, but its reply gave the employee a written statement. I suggested keeping that email with the separation papers as a record of what the company said.
4. Attorney-led negotiation in the open. Your attorney writes to the company or its attorney directly. This fits when the money is significant, the company already has an attorney involved, or the relationship has broken down. The fee can be higher than for behind-the-scenes work, and the exchange becomes formal, which can make the company more careful in both directions.
5. A claim. If the company refuses severance, equity, or a bonus the agreement promises, the remedy is a contract claim, and unpaid earned wages and commissions can be demanded under Minn. Stat. § 181.13 after a discharge. After a resignation, Minn. Stat. § 181.14, subd. 2, provides: “Wages or commissions not paid within the required time period shall become immediately payable upon the demand of the employee.” That demand “must be in writing but need not state the precise amount of unpaid wages or commissions.” Severance promised by a company severance plan is claimed differently: 29 U.S.C. § 1133 requires the plan to “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review,” and 29 U.S.C. § 1132 lets a participant sue “to recover benefits due to him under the terms of his plan.” A lawsuit adds litigation fees and time, makes the dispute public, and can affect references. For unpaid wages and commissions, Minn. Stat. § 181.171 lets you sue directly in district court. When the employer is found to have violated the final-pay or commission statutes, “the court shall order” it to pay your “reasonable costs, disbursements, witness fees, and attorney fees.” If what you want is a lawsuit for discrimination, or for reprisal under Minn. Stat. § 363A.15, I may refer that work to other attorneys, depending on the claim.

Working With a Minnesota Executive Employment Attorney

I suggest settling the agreement’s definitions when you join, because cause, good reason, change in control, and the earning terms for each bonus and commission decide what you collect when you leave. At exit, I suggest first learning what you are owed anyway and gathering the reason for the termination and your personnel record. I then suggest checking every document the release brings in before choosing how to negotiate, because a plan or an older agreement the release brings in can still bind you.

If you are weighing an offer or a separation package and want to know which terms to ask for on your facts, email [email protected] with a brief description. I can start an intake and conflict check before you send any confidential documents. My broader material on employment law for Minnesota employers shows how the company’s side approaches the same agreements.