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. Where the hiring is for an indefinite term, the employer may dismiss the employee for any reason or no reason, and the employee is under no obligation to remain, subject to limited exceptions (Pine River State Bank v. Mettille, 333 N.W.2d 622, 627 (Minn. 1983)). The most important of those exceptions is the employee handbook: under Pine River, personnel handbook provisions that meet the requirements for formation of a unilateral contract can become enforceable job-security terms that limit an otherwise unfettered right to discharge (a bare promise of “permanent” or “lifetime” employment, by contrast, does not defeat the at-will presumption).

Employers are not legally required to offer severance pay. The federal Fair Labor Standards Act contains no requirement to provide it, and the U.S. Department of Labor confirms that severance “is a matter of agreement between an employer and an employee” (U.S. Department of Labor, 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, 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 is a bedrock contract-law requirement, and it is codified for the age-discrimination claims a severance release commonly waives: the Older Workers Benefit Protection Act permits such a waiver only in exchange for “consideration in addition to anything of value to which the individual already is entitled” (29 U.S.C. § 626(f)(1)(D)).

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: earned, unpaid wages are “immediately due and payable upon demand” after a discharge (Minn. Stat. § 181.13) and by the first regularly scheduled payday after a resignation (Minn. Stat. § 181.14). Holding final pay hostage to a signature does not create a valid release, it creates a wage claim, and it exposes the employer to a statutory penalty equal to the employee’s average daily earnings for each day of default, up to 15 days, both for a discharged employee whose written demand goes unpaid for 24 hours (Minn. Stat. § 181.13(a)) and, under a parallel provision, for an employee who quits or resigns and whose demand goes unpaid for 24 hours (Minn. Stat. § 181.14, subd. 2).
  • 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, and no federal or Minnesota statute requires an employer to pay severance at all. What the statute requires for a valid ADEA waiver is consideration in addition to anything of value to which the individual already is entitled, not a particular amount (29 U.S.C. § 626(f)(1)(D)). As a practical matter, common ranges run 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, Section 1981, ERISA (to the extent waivable)
  • State claims: Minnesota Human Rights Act, Minnesota Whistleblower Act, common law claims (breach of contract, defamation, tortious interference)
  • General release language: All known and unknown claims arising from the employment relationship

Wage and leave claims sit in a different category and should be analyzed separately rather than swept into the general release (see below).

What You Cannot Waive

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

  • Earned wages, and wage and leave claims generally. Earned, unpaid wages are due by operation of Minnesota law regardless of any agreement, both after a discharge (Minn. Stat. § 181.13) and after a resignation (Minn. Stat. § 181.14), so a release cannot reach them. Treat unpaid minimum-wage and overtime claims under the federal Fair Labor Standards Act, and Family and Medical Leave Act rights, as requiring separate analysis before assuming a general release reaches them.
  • Workers’ compensation claims. A general severance release cannot waive a Minnesota workers’ compensation claim. Such a claim is valid only when settled through the statutory process, a written stipulation signed by the parties and any intervenors that, where a party is unrepresented, is approved by the commissioner or a compensation judge and made into an award (Minn. Stat. § 176.521, subd. 1).
  • Unemployment insurance benefits. Any agreement by an individual to waive, release, or commute rights to unemployment benefits is void (Minn. Stat. § 268.192, subd. 1), so a severance agreement cannot take away an employee’s right to apply. Watch the related trap: an employer may not condition its agreement not to contest benefits on the employee quitting, taking leave, or withdrawing a grievance or termination appeal, and any such agreement “has no effect” (Minn. Stat. § 268.192, subd. 1a).
  • EEOC charges. A severance waiver cannot prohibit, or impose any condition precedent, penalty, or other limitation on, an employee’s right to file a charge with, or participate in an investigation or proceeding conducted by, the EEOC (29 C.F.R. § 1625.22(i)).
  • NLRA rights. Employees have the right to engage in concerted activity for their “mutual aid or protection” (29 U.S.C. § 157). Under the NLRB’s McLaren Macomb decision, a severance agreement cannot condition benefits on broadly signing those Section 7 rights away (McLaren Macomb, 372 NLRB No. 58 (2023)).
  • Future statutory claims. Minnesota does allow a clearly written prospective release to discharge liability for a party’s own future negligence, but such clauses are strictly construed against the drafter and will not be enforced if they are ambiguous, purport to release intentional, willful, or wanton acts, or would violate public policy (Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920 (Minn. 1982)). (Schlobohm arises outside the employment context and is offered here by analogy.) In the severance setting, two statutory limits control the future-claims question: an ADEA waiver cannot reach age-discrimination claims arising after signing (discussed below), and any purported waiver of Minnesota Human Rights Act claims based on acts occurring after execution is contrary to public policy and void (Minn. Stat. § 363A.31, subd. 1).

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 minimum mandatory requirements for any waiver of age discrimination claims under the Age Discrimination in Employment Act (ADEA). A waiver “may not be considered knowing and voluntary” unless every one of those requirements is met (29 U.S.C. § 626(f)), so a non-compliant waiver does not release the ADEA claim even if the employee signed it voluntarily. The employer, as the party asserting the waiver’s validity, bears the burden of proving it was knowing and voluntary.

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 (29 U.S.C. § 626(f)(1)(C)).

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, at the start of the consideration period, provide additional written disclosures (29 U.S.C. § 626(f)(1)(H)), 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, a waiver or release of MHRA claims covering acts prior to or concurrent with signing may be rescinded within 15 calendar days of its execution, and the releasing party must be informed in writing of that right (Minn. Stat. § 363A.31, subd. 2). This is separate from and in addition to the 7-day ADEA revocation period under OWBPA. One exception applies: a release given in settlement of a claim already filed with the Department of Human Rights or another administrative agency or judicial body is valid and final upon execution and is not subject to rescission.

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

Because both the 7-day and 15-day periods run from the date the agreement is executed, they run concurrently by default (the 15-day MHRA window fully encompasses the 7-day ADEA window). But the agreement must clearly state both periods. To rescind the MHRA release, the employee must deliver a written rescission within the 15 days, by hand, electronically with consent, or by mail (postmarked in time, properly addressed, and sent certified mail return receipt requested).

For employees under 40: The 15-day MHRA rescission period still applies to the release of state discrimination claims regardless of the employee’s age, even though OWBPA (which covers only workers 40 and over) 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 held in McLaren Macomb that an employer violates Section 8(a)(1) of the National Labor Relations Act simply by proffering a severance agreement whose confidentiality or non-disparagement provisions would restrict employees’ exercise of their Section 7 rights, unless the provision is narrowly tailored to respect those rights (McLaren Macomb, 372 NLRB No. 58 (2023)). The rights themselves come from Section 7 (29 U.S.C. § 157); the rule that they cannot be signed away in a severance release comes from the Board’s interpretation of Section 8(a)(1) (29 U.S.C. § 158). Importantly, the violation occurs upon the mere offer of the agreement, even if the employee never signs.

The Sixth Circuit enforced the Board’s order in full on September 19, 2024, but only on the narrow ground that the severance proffer there accompanied unlawful direct dealing; the court expressly declined to bless the Board’s headline rule that a facially neutral confidentiality or non-disparagement clause, standing alone, violates the Act (NLRB v. McLaren Macomb, Nos. 23-1335/23-1403 (6th Cir. Sept. 19, 2024) (per curiam) (unpublished)).

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, because conditioning benefits on the forfeiture of Section 7 rights has a reasonable tendency to chill them.
  • Narrowly tailored provisions are safer. McLaren Macomb is not a flat ban on confidentiality or non-disparagement clauses. A clause narrowly tailored to respect the range of Section 7 rights, for example one that prohibits only demonstrably false statements of fact, protects proprietary information, or limits public commentary to specific channels, can still be lawful.
  • The enforcement posture has changed. The General Counsel’s guidance implementing McLaren Macomb was rescinded on February 14, 2025 by Memorandum GC 25-05, so the shift is no longer a mere signal but a completed reversal of enforcement guidance. The Board again has a quorum, currently seated as Chairman James R. Murphy, David M. Prouty, and Scott A. Mayer (NLRB, The Board). As of this writing, McLaren Macomb has not been overruled and remains binding Board precedent, so continue to draft accordingly.

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.
  • Employees’ Section 7 rights include the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection (29 U.S.C. § 157). Under McLaren Macomb, conditioning benefits on a confidentiality clause that tends to interfere with those rights is unlawful unless the clause is narrowly tailored (McLaren Macomb, 372 NLRB No. 58 (2023)).
  • Government agencies cannot be excluded from disclosure. A waiver cannot bar an employee from filing a charge with, or participating in an investigation or proceeding conducted by, the EEOC, and cannot impose any condition precedent, penalty, or other limitation on that right (29 C.F.R. § 1625.22(i)). Well-drafted agreements carve out protected communications with government agencies (EEOC, NLRB, DOL).

Post-Employment Restrictions in Severance Agreements

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

Non-solicitation. Minnesota’s non-compete ban expressly excludes nonsolicitation agreements, and agreements restricting the ability to use client or contact lists or to solicit customers of the employer, from the statutory definition of a “covenant not to compete” (Minn. Stat. § 181.988, subd. 1(a)). Because it is covenants not to compete that the statute makes void and unenforceable (Minn. Stat. § 181.988, subd. 2(a)), a nonsolicitation covenant falls outside that ban; the statute does not itself declare such a covenant enforceable. Draft it accordingly: a defined and reasonable duration (commonly 12 to 24 months) and a scope tied to the clients, customers, and employees the departing employee actually dealt with.

Nondisclosure/confidentiality. Trade secret protection is statutory and survives termination on its own. Under the Minnesota Uniform Trade Secrets Act, a former employee who uses or discloses a trade secret “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use” is liable for misappropriation regardless of any agreement (Minn. Stat. § 325C.01, subd. 3). Non-trade-secret confidential information, by contrast, is generally protected after termination only through an enforceable contractual restriction, so including a nondisclosure provision in the agreement gives the employee a fresh, clear reminder of the obligation and creates an additional contractual basis for enforcement.

Non-compete. Effective July 1, 2023, any covenant not to compete contained in a contract or agreement is void and unenforceable in Minnesota (Minn. Stat. § 181.988), and the ban reaches a non-compete drafted into a severance package. The ban applies to contracts and agreements entered into on or after July 1, 2023 (2023 Minn. Laws ch. 53, art. 6, § 1), so a non-compete signed before that date is not voided by this statute, while a covenant newly drafted or reaffirmed in a severance agreement is a new agreement subject to the ban. The statute has only two exceptions, a covenant agreed upon during the sale of a business or in anticipation of the dissolution of a business, neither of which fits a routine employer-employee severance. The ban covers independent contractors, not just W-2 employees, and it cannot be sidestepped through an out-of-state choice-of-law or forum clause for a Minnesota-based employee. A court may also award reasonable attorney fees to an employee who successfully challenges a void non-compete, so a new non-compete in a severance agreement is not just unenforceable but affirmatively costly to include (Minn. Stat. § 181.988, subds. 2, 3).

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.

Effect on unemployment benefits. Severance and separation pay delay Minnesota unemployment benefits where the payment is considered wages under Minn. Stat. § 268.035, subd. 29, or is subject to FICA tax. A lump sum is divided by the employee’s last level of regular weekly pay to determine how many weeks it covers; for each such week the employee is ineligible if the payment equals or exceeds the weekly benefit amount, and benefits are reduced dollar-for-dollar if the payment is less. The payment is applied to the period immediately following the later of the date of separation or the date the employee first becomes aware the employer will be making a payment, and the date the payment is actually made or received, or that the employee must agree to a release of claims, does not affect that (Minn. Stat. § 268.085, subd. 3b). You cannot structure around it.

Tax withholding. Severance pay is “wages” subject to federal income-tax withholding (I.R.C. § 3402(a); wages defined at § 3401(a)). Minnesota requires income-tax withholding on the same wages (Minn. Stat. § 290.92, subds. 1(1), 2a), and a lump-sum severance, as a supplemental wage rather than regular wages, may be withheld at the optional flat supplemental-wage rate (Treas. Reg. § 31.3402(g)-1). Confirm employment-tax treatment, including FICA, with your payroll provider or tax advisor before the payment is issued.

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.

Frequently Asked Questions

Is severance pay required by law in Minnesota?

No. Minnesota is an at-will employment state, and no state or federal law requires employers to provide severance pay. Severance is a voluntary offer, typically made in exchange for the employee’s release of legal claims. If your company has an established policy or practice of providing severance, or if an employment agreement includes a severance provision, those commitments may be enforceable as contractual obligations.

How much severance pay is typical in Minnesota?

There is no statutory formula. 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 employee’s seniority, the litigation risk of the separation, the scope of claims being released, and the employee’s leverage. An employee with strong potential claims (discrimination, whistleblower retaliation) will command more consideration than a routine departure. What the statute requires for a valid ADEA waiver is additional consideration beyond anything of value the employee is already entitled to, not a particular amount.

Do I have to sign a severance agreement to get my final paycheck in Minnesota?

No. On an involuntary discharge, your earned, unpaid wages are “immediately due and payable upon demand,” and only if they are not paid within 24 hours after that written demand is the employer in default and liable for a penalty of up to 15 days’ wages (Minn. Stat. § 181.13(a)). The 24-hour clock runs from your written demand, not automatically from the termination date. If you quit or resign, the employer must pay all earned wages no later than the first regularly scheduled payday following your final day of employment; if that payday is fewer than five calendar days out, payment may be delayed to the second payday but never beyond 20 calendar days after your final day (Minn. Stat. § 181.14, subd. 1). Conditioning final pay on signing a severance agreement does not create a valid release, it creates a wage claim. Severance must be separate, additional consideration beyond what you are already owed.

Can an employee revoke a signed severance agreement in Minnesota?

It depends on the employee’s age and the claims being released. For employees 40 or older, the OWBPA requires a 7-day revocation period for the ADEA waiver, during which the employee can walk away from the agreement (29 U.S.C. § 626(f)(1)(G)). Separately, the Minnesota Human Rights Act requires a 15-day rescission period for the release of state discrimination claims, regardless of age (Minn. Stat. § 363A.31, subd. 2). These periods run concurrently if properly structured.

Are non-disparagement clauses in severance agreements still enforceable?

They are enforceable if narrowly tailored. The NLRB’s 2023 McLaren Macomb decision held that overly broad non-disparagement clauses violate employees’ Section 7 rights under the National Labor Relations Act (McLaren Macomb, 372 NLRB No. 58 (2023)). Clauses that prohibit “any negative statements about the company” are risky. Clauses that prohibit demonstrably false statements of fact, with carve-outs for protected activity and government agency communications, are more defensible. That decision remains binding Board precedent as of this writing, though the General Counsel’s implementing guidance has been rescinded.

Can an employer include a non-compete in a Minnesota severance agreement?

Generally no. Minnesota banned most post-employment non-compete agreements effective July 1, 2023 (Minn. Stat. § 181.988), and the ban applies to contracts and agreements entered into on or after that date (2023 Minn. Laws ch. 53, art. 6, § 1). A non-compete written into a severance agreement today is a new agreement and falls squarely within the ban. Non-solicitation and nondisclosure provisions remain available and are the primary protective tools in severance agreements. The narrow exception allows non-competes only in connection with the sale or dissolution of a business.

What happens if an employee is terminated for performance, do they still get severance?

There is no legal entitlement to severance for performance-based terminations. Federal law does not require severance for any termination; it is a matter of agreement between employer and employee (U.S. Department of Labor, Severance Pay). Employers often offer severance in these situations to obtain a release of claims. An employee terminated for performance issues may still pursue claims for discrimination, retaliation, or breach of contract, particularly if the performance issues were pretextual. The value of a clean release may outweigh the cost of the severance payment.

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

Aaron Hall is a Minneapolis business attorney who represents business owners in employment matters, commercial disputes, and business litigation.