An employee is presumed to be an at-will employee if there is “an employment agreement with no definite expiration date.” Rosenberg v. Heritage Renovations, LLC, 685 N.W. 2d 320, 326 (Minn. 2004). As an at-will employee, “either party may terminate the contract at any time for any reason.” Bakker v. Metropolitan Pediatric, P.A., 355 N.W.2d 330, 331 (Minn. App. Ct. 1984). An employee’s at-will status may be lost either through an employment contract that specifies an employment duration or through limitations created in an employee handbook. See Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983).
Even if an employee is an at-will employee, the employer may face a wrongful termination claim if the termination is illegal, discriminates against a protected class, or is retaliatory. Discrimination claims include discrimination based on “race, color, creed, religion, national origin, sex, marital status, disability, status with regard to public assistance, sexual orientation, [or] age” of the employee. Minn. Stat. § 363A.02 (2014). Additionally, an employer may not terminate an employee for “seeking worker’s compensation benefits;” parental leave requests; or for disclosing non-confidential information. Id. §§ 176.82, subdiv. 1; 181.941, subdiv. 3; 181.932, subdiv. 1.
When it comes specifically to corporate officers, Minnesota Statutes section 302A.341, subdiv. 2 provides that “an officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present” or directly by the CEO if the CEO appointed the officer. Id.
With this background in mind, there are a number of considerations a CEO will want to evaluate when terminating a C-level employee that are discussed in detail below. Ultimately, the more the CEO plans and prepares for the termination the less likely there will be a wrongful termination claim, and if a claim does arise, the company will be in a better position to defend itself against the claim.
Ensure the Termination is Legal
The first thing a CEO will want to consider is the reason for the termination. As mentioned above, Minnesota Statutes section 363A.08, subdiv. 2 provides that an employer may not “discharge an employee” as a result of that employees “race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, familial status, membership or activity in a local commission, disability, sexual orientation, or age” unless the termination is “based on a bona fide occupational qualification.” If an employee is “aggrieved by a violation of this chapter [the employee] may bring a civil action . . . or file a verified charge with the commissioner or the commissioner’s designated agent.” Minn. Stat. § 363A.28, subdiv. 1.
If the CEO is concerned about a potential discriminatory claim, they should have the employee sign a waiver. It is important to note that any provision of an agreement “which purports to be a waiver by an individual of any right or remedy provided in this chapter is contrary to public policy and void if the waiver or release purports to waive claims arising out of acts or practices which occur after the execution of the waiver or release.” Id. § 363A.31, subdiv. 1. Additionally, the employee must be made aware in writing that any “waiver or release of rights . . . arising out of acts or practices prior to, or concurrent with, the execution of the waiver or release may be rescinded within 15 calendar days of its execution.” Id. § 363A.31, subdiv. 2.
Minnesota Statutes section 181.932, subdiv. 1 provides that an employer may not discharge an employee if the employee: (1) reports a violation of any federal, state, or common law; (2) disobeys an order that the employee has objected to on the basis that he/she believes violates a law; or (3) reports “findings of a scientific or technical study.”
If an employee is “injured by a violation of section 181.932 “the employee may bring a civil action to recovery any and all damages recoverable at law, together with costs and disbursements, including reasonable attorney’s fees.” Id. § 181.9359(a). If the court finds that there was a violation of Minnesota Statutes section 181.932, “the court may order any appropriate relief, including but not limited to reinstatement, back pay, restoration of lost service credit, if appropriate, compensatory damages, and the expungement of any adverse records of an employee who was the subject of the alleged acts of misconduct.” Id.
As discussed above, if the CEO is concerned of a potential retaliatory claim the CEO should have the employee sign a waiver.
Proper Termination Procedures
The CEO will then want to determine the employee’s status. The CEO will want to look at the employment contract and/or any other employment related documentation that may create a contractual relationship.
If there is no contract providing a definite term of employment the CEO should look at other documentation that may provide the scope of the employee’s employment. For a C-level employee this information may be found in governing documents. Once the CEO determines the scope of the employee’s employment and determines that the benchmark established is not being met, the CEO will want to review policies and procedures regarding terminations. This information may be found in the governing documents or an employee handbook. In order to reduce the chance of discrimination or other claim, the CEO will want to make sure that the termination complies with the procedures laid out in these documents. These documents may provide that the employer must give the employee written notices or warnings before termination. If this is the case, the CEO must make sure that there is a record of these notices.
In addition to the requirements laid out above, if there is an employee contract, this contract may provide additional termination procedures. The contract may provide that the employee may only be terminated “for cause.” In Hilligoss v. Cargill, Inc, the Minnesota Supreme Court interpreted the meaning of “for cause” and held that “termination for cause is termination based on grounds that a reasonable employer acting in good faith would find to be good and sufficient.” 649 N.W.2d 142, 148 (Minn. 2002). As with documentation of warnings, there must be documentation to back up a “for cause” termination. It is important to note that Minnesota courts “have not read an implied covenant of good faith and fair dealing into employment contracts.” Hunt v. IBM Mid America Employees Federal Credit Union, 384 N.W.2d 853, 858 (Minn. 1986).
When it comes specifically to corporate officers, Minnesota Statutes section 302A.331 provides that “[t]he election or appointment of a person as an officer or agent does not, of itself, create contract rights.” The statute further provides that “[a] corporation may enter into a contract with an officer or agent for a period of time if, in the board’s judgment, the contract would be in the best interests of the corporation.” Minn. Stat. § 302A.331. If a contract is created there may be additional restrictions on the CEO’s ability to terminate the employee.
Lastly, the CEO will want to have someone independently review the proposed dismissal to make sure that the termination is based on valid reasoning.
Weigh the Costs of the Termination
It will also be important for the CEO to adequately weight the costs of terminating a C-level employee. These costs include both actual compensation and severance packages, including severance agreements, pension agreements, stocks, bonuses, or deferred compensation plans, as well as the costs associated with finding and training a replacement employee. If the CEO will want the employee to sign a waiver of rights, the employer will want to offer a severance package that will attract the employee to sign this agreement.
It is important to note that if the employees prior earned and unpaid wages are not paid within 24 hours after demanded by the employee, the employer is in default and the “employee may charge and collect a penalty equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay . . . for each day up to 15 days.” Minn. Stat. § 181.13(a).
Plan for Interim
The CEO will want to ensure that there is a concrete plan for the interim. This plan should lay out how the company will find a replacement employee and who the employee’s direct reports will report to in the interim. In may be a good idea for the direct reports to report to the CEO. It will also be important for the CEO to consider whether it will be better for the company to have a very quick termination or a slower handover process. This decision may be influenced by timing restraints in governing documents, employee contracts, or an employee handbook.
Contact the Board
Once it has been determined that there is legal basis for the termination, the CEO will then need to inform the board of the desire and reasoning to terminate the employee. When it comes specifically to corporate officers, an officer appointed by the CEO “may be removed at any time, with or without cause, by the chief executive officer.” Minn. Stat. § 302A.341, subdiv. 2. The CEO will still want to notify the board of the decision and get the boards input on a severance package. This removal will still be subject to any “provisions of a shareholder control agreement” and must be “without prejudice to any contractual rights of the officer.” Id. The CEO of a corporation, however, may not terminate the CFO as the CFO is a statutorily created corporate office under Minnesota Statutes section 302A.301 (2014). Fisher v. Jeddoloh, 2008 WL 933478 (WEST).
On the other hand, if the officer was appointed by the board the board will have to remove the officer by a “resolution approved by the affirmative vote of a majority of the directors present.” Minn. Stat. § 302A.341. The CEO will want to present the board with well documented reasoning for the desire to terminate the officer.
If applicable, the CEO may also need to file documents with the incorporating state’s secretary of state to remove the employee’s agency authority. If the employee is a board member, the employee will also need to be removed from the board.
The CEO will want to secure all information and documentation for which the employee is responsible. This may include backing up any information on the employees computer or emails. Additionally, the CEO will want to make sure that all confidential information is protected from misuse by the employee. Restrictive covenants and trade secret agreements in the employee contract may need to be amended.
The CEO may want to consider giving the employee the option to voluntarily resign. If the employee chooses to do so they should be made aware of the loss of unemployment benefits. If the employee does voluntarily resign, the CEO will want the employee to sign a release agreement.
Speak with the Employee
Consider things the employee may want in a separation agreement, including: benefits, bonus, unused vacation pay, positive references, departure statement. Any documentation that may need to be prepared for such requests should be prepared in advance.
Clearly and directly tell the employee of the company’s decision to terminate them. To foster an element of good will, the CEO may want to let the employee have an input into how the decision will be communicated to the company.
Go over employment agreements with the employee and have the employee sign a formal separation agreement. This agreement could include a waiver of rights and release of claims, laying out the entire compensation package, and modify the rights and responsibilities to reflect the separation package. It will also be important to remind the employee of a non-compete covenant and the continued obligation to protect trade secrets.
Discuss continued insurance coverage pursuant to Minnesota Statutes section 62A.17 which provides that a “covered employee who is voluntarily or involuntarily terminated . . . [may] elect to continue the coverage for the employee and dependents.”
The CEO will want there to be an observer present at this meeting keeping minutes of the conversation in case an issue arises down the road.
After Termination Conversations
Inform Others of the Termination
Notify customers and supplies of whom the employee was the main contact point that the employee is no longer with the company and go over any contracts that the employee may have signed with these individuals to protect the company from being held to contracts signed by the terminated employee.
Pursuant to Minnesota Statutes section 181.933, subdiv. 1 “[a]n 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.” The employer must respond to such request within ten working days informing “the terminated employee in writing of the truthful reason for the termination.” Id.
Lastly, make sure that the employee is complying with restrictive covenants and any other part of the separation agreement.