A severance agreement is one of the most practical tools a Minnesota employer has for managing the risk of an employee departure. Done well, it provides a clean separation: the employee receives compensation beyond what the law requires, and the employer receives a release of claims and clarity on post-employment obligations.

Done poorly—or with missing elements—the agreement may be unenforceable, leaving the employer with the worst of both worlds: they paid severance and still face litigation.

Here is what Minnesota employers need to know to structure severance agreements that hold up.

Why Severance Agreements Matter

Minnesota is an at-will employment state. With limited exceptions, either party can end the employment relationship at any time, for any lawful reason. Employers are not legally required to offer severance pay.

So why offer it?

A release of claims. The primary value of a severance agreement is the employee’s release of legal claims against the company. Without a severance agreement, a terminated employee can pursue claims for discrimination, retaliation, wrongful termination, breach of contract, wage theft, and more—even if the claims are weak. Litigation is expensive regardless of the outcome.

Controlled separation terms. A severance agreement allows you to define the terms of departure: what the employee will (and will not) say about the company, how client transitions will be handled, what information remains confidential, and what post-employment obligations the employee will honor.

Finality. For the business owner, the value of a signed severance agreement is the ability to close the chapter and move forward. Without one, the risk of a future claim remains open for years.

The Foundation: Adequate Consideration

For a severance agreement to be enforceable, the employee must receive consideration—something of value that they are not already entitled to.

This means:

  • Wages already earned are not consideration. You cannot condition the final paycheck on signing a severance agreement. Minnesota law requires final wages to be paid regardless (Minn. Stat. § 181.13 and § 181.14). Holding final pay hostage to a signature does not create a valid release—it creates a wage claim.
  • Benefits the employee already has a right to are not consideration. If your policy already provides severance pay as a matter of course, that existing obligation alone may not constitute adequate consideration for a release of claims.
  • New value must be provided. Common forms of consideration include: a lump-sum severance payment, continuation of salary for a defined period, extended health insurance coverage beyond what COBRA requires, outplacement services, accelerated vesting of equity, or a positive reference agreement.

How much severance is enough? There is no statutory minimum. Courts will look at whether the consideration is proportional to the claims being released. An employee releasing significant potential claims in exchange for one week’s pay may argue the agreement was not supported by adequate consideration. Common practices range from one to four weeks of pay per year of service, but the right amount depends on the specific situation—including the risk profile of the separation and the employee’s leverage.

Releases of Claims: What You Can and Cannot Waive

The core of any severance agreement is the employee’s release of legal claims. A well-drafted release covers:

  • Federal claims: Title VII discrimination, ADA, ADEA, FMLA, FLSA, Section 1981, ERISA (to the extent waivable)
  • State claims: Minnesota Human Rights Act, Minnesota Whistleblower Act, Minnesota wage and hour statutes, common law claims (breach of contract, defamation, tortious interference)
  • General release language: All known and unknown claims arising from the employment relationship

What You Cannot Waive

Certain rights are non-waivable by statute or public policy:

  • Workers’ compensation claims — An employee cannot waive the right to file a workers’ compensation claim in a severance agreement.
  • Unemployment insurance benefits — The right to apply for unemployment benefits cannot be waived.
  • EEOC charges — An employee can waive the right to recover damages based on an EEOC charge, but cannot waive the right to file the charge itself.
  • NLRA rights — Section 7 rights under the National Labor Relations Act cannot be waived.
  • Future claims — A release covers claims that exist at the time of signing. It cannot waive claims arising from events that have not yet occurred.

OWBPA Compliance: Employees Age 40 and Over

If the departing employee is 40 years of age or older, the Older Workers Benefit Protection Act (OWBPA) imposes mandatory requirements for any waiver of age discrimination claims under the Age Discrimination in Employment Act (ADEA). If you do not comply with these requirements, the age discrimination waiver is void—even if the employee signed it voluntarily.

OWBPA Requirements for Individual Separations

  • The waiver must be written in plain language understandable to the employee.
  • The waiver must specifically refer to rights or claims arising under the ADEA.
  • The employee must be advised in writing to consult an attorney before signing.
  • The employee must be given at least 21 days to consider the agreement.
  • The employee must be given at least 7 days after signing to revoke the agreement. The agreement does not become effective until the revocation period expires.
  • The employee cannot waive rights or claims that arise after the date the agreement is signed.

OWBPA Requirements for Group Separations (RIF, Layoff)

When severance is offered in connection with a reduction in force, early retirement program, or other group termination:

  • The consideration period extends to 45 days (instead of 21).
  • The employer must provide additional disclosures, including:
  • The class, unit, or group of individuals covered by the program
  • The eligibility factors and time limits of the program
  • The job titles and ages of all individuals eligible or selected for the program
  • The ages of all individuals in the same job classification or organizational unit who are not eligible or selected

These disclosure requirements are detailed and technical. Errors in the disclosures can invalidate the ADEA waiver for every employee in the group—creating significant liability exposure.

Minnesota-Specific Rescission Periods

Beyond OWBPA, Minnesota adds its own rescission requirement.

Under the Minnesota Human Rights Act, any release of claims under the MHRA must allow the employee a 15-day rescission period after signing. This is separate from and in addition to the 7-day ADEA revocation period under OWBPA.

Practical impact: For a Minnesota employee over 40, the severance agreement must provide:

  • At least 21 days (or 45 days for group terminations) to consider the agreement
  • 7 days to revoke the ADEA waiver after signing
  • 15 days to rescind the MHRA release after signing

The 7-day and 15-day periods run concurrently if the agreement is structured to allow that. But the agreement must clearly state both periods.

For employees under 40: The 15-day MHRA rescission period still applies to the release of state discrimination claims, even though OWBPA does not apply. Do not assume that agreements with younger employees require fewer protections under Minnesota law.

Non-Disparagement Clauses: Current Considerations

Non-disparagement clauses—provisions prohibiting the departing employee from making negative public statements about the company—have long been standard in severance agreements. Recent developments have complicated their use.

The NLRB’s McLaren Macomb Decision

In February 2023, the National Labor Relations Board ruled in McLaren Macomb that overly broad non-disparagement and confidentiality provisions in severance agreements violate Section 8(a)(1) of the National Labor Relations Act. The Board held that employers may not offer severance agreements with provisions that would restrict employees from exercising their Section 7 rights—including the right to discuss working conditions and organize.

What This Means for Employers

  • Broad non-disparagement clauses are risky. A provision that prohibits the employee from making “any negative statements about the company” is likely overbroad under the McLaren Macomb framework.
  • Narrowly tailored provisions are safer. A clause that prohibits false statements of fact, protects proprietary information, or limits public commentary to specific channels is more defensible.
  • The regulatory landscape is shifting. The current NLRB general counsel has signaled a different approach than the Biden-era Board. But the McLaren Macomb decision remains binding precedent, and prudent employers should draft accordingly until it is overturned.

Practical Drafting Guidance

  • Define “disparagement” narrowly—prohibit demonstrably false statements of fact, not opinions or complaints about working conditions.
  • Include a carve-out for truthful statements made to government agencies, in legal proceedings, or in response to subpoenas.
  • Include a carve-out for discussions about wages, hours, and working conditions protected under the NLRA.
  • Consider making the non-disparagement obligation mutual—the company agrees not to disparage the employee as well.

Confidentiality of Agreement Terms

Employers frequently include a provision requiring the employee to keep the terms of the severance agreement confidential. This remains generally enforceable, with the following caveats:

  • The employee must be permitted to disclose terms to their attorney, tax advisor, and spouse or domestic partner.
  • The confidentiality provision must not interfere with NLRA Section 7 rights (the right to discuss wages and working conditions).
  • Government agencies (EEOC, NLRB, DOL) cannot be excluded from disclosure.

Post-Employment Restrictions in Severance Agreements

A severance agreement is an opportunity to reinforce—or establish—post-employment restrictions:

Non-solicitation. Minnesota continues to enforce post-employment non-solicitation agreements. A severance agreement can include or reaffirm a non-solicitation covenant preventing the employee from soliciting the company’s clients, customers, or employees for a reasonable period (typically 12-24 months). Courts evaluate reasonableness based on duration, geographic scope, and the scope of restricted activity.

Nondisclosure/confidentiality. Trade secret and confidential information protections survive termination regardless of whether they are in a severance agreement. But including them in the agreement ensures the employee has a fresh, clear reminder of the obligation—and creates an additional contractual basis for enforcement.

Non-compete. Minnesota banned most post-employment non-compete agreements effective July 1, 2023 (Minn. Stat. § 181.988). There are narrow exceptions for agreements entered into in connection with the sale of a business or the dissolution of a business. New non-competes in severance agreements are generally void.

Structuring the Payment

How you structure severance payments has tax and practical implications:

Lump sum vs. salary continuation. Lump-sum payments are simpler and provide clean finality. Salary continuation keeps the employee “on payroll” for a period, which can simplify benefits administration but complicates matters if the employee finds new employment during the continuation period.

Consideration for unemployment benefits. Severance payments may affect the employee’s eligibility for unemployment benefits in Minnesota. Lump-sum payments generally delay benefits for the period the payment represents.

Tax withholding. Severance pay is subject to federal income tax, FICA, and Minnesota income tax withholding. If paid as a lump sum, it may be subject to supplemental wage withholding rates.

Benefits continuation. If the severance package includes extended health coverage beyond COBRA, structure it to comply with applicable group health plan rules. Direct payment of premiums on behalf of the employee is often cleaner than a cash equivalent.

A Checklist for Enforceable Severance Agreements

Before presenting a severance agreement, verify:

  • [ ] The agreement provides adequate consideration beyond what the employee is already owed
  • [ ] The release of claims is comprehensive but does not attempt to waive non-waivable rights
  • [ ] If the employee is 40 or older, all OWBPA requirements are met (plain language, ADEA reference, attorney consultation advisory, 21/45-day consideration period, 7-day revocation period)
  • [ ] The 15-day Minnesota Human Rights Act rescission period is included
  • [ ] Non-disparagement provisions are narrowly tailored and include appropriate carve-outs
  • [ ] Confidentiality provisions permit legally required disclosures
  • [ ] Post-employment restrictions are limited to non-solicitation and nondisclosure (not non-compete, unless a statutory exception applies)
  • [ ] The agreement specifies the method and timing of payment
  • [ ] The agreement includes a return of property provision
  • [ ] Both parties have signed and the revocation/rescission periods have expired before the agreement is treated as effective

When to Use a Severance Agreement

Not every departure warrants a severance agreement. Consider one when:

  • The termination carries litigation risk — The employee belongs to a protected class, recently complained about workplace conditions, or has a factual basis for a claim.
  • The employee has significant institutional knowledge — A severance agreement can include cooperation, transition, and knowledge-transfer provisions.
  • Client relationships are at stake — Non-solicitation and transition provisions protect the company’s business relationships.
  • The employee has access to confidential information or trade secrets — Reinforcing confidentiality obligations at separation reduces the risk of misappropriation.
  • You want finality — For high-level employees or contentious departures, the certainty of a signed release has tangible business value.

A well-structured severance agreement is an investment in closure. The legal requirements are specific, but the payoff—a clean separation with mutual finality—is worth getting them right.

For guidance on structuring severance agreements for your company, contact Aaron Hall, attorney for business owners, at aaronhall.com or 612-466-0040.