What to Do When an Employee Threatens a Lawsuit

What Should an Employer Do First When an Employee Threatens to Sue?

I suggest recording the threat and freezing any change to the employee’s job that the threat could explain. Then preserve records, notify your insurer, investigate the complaint, and route communications, in that order, because each step protects evidence or coverage that a later step cannot recover.

1. Write down the threat the same day. Record who said it, when, the exact words, and what law, claim, or agency the employee named. The content decides which statute protects it (next section).
2. Preserve the records. Stop routine deletion of email, texts, and files about the employee and the dispute (see the preservation section).
3. Hold changes tied to the threat. Leave pay, hours, duties, schedule, and reporting lines unchanged by it, because the Minnesota Human Rights Act treats as reprisal a decision to “depart from any customary employment practice” because of protected activity (Minn. Stat. § 363A.15).
4. Notify your insurer under your employment practices liability policy’s notice terms.
5. Investigate the complaint on its merits, with someone other than the person accused.
6. Pick one channel for the claim. Day-to-day work talk continues normally; anything about the dispute goes through one person you choose.

A decision already in progress, such as a planned write-up or termination, should be reviewed against the record before it goes forward (see the retaliation section).

When Is a Threat to Sue Itself Protected Activity in Minnesota?

A threat can be protected when it reports, in good faith, “a violation, suspected violation, or planned violation of any federal or state law or common law,” or when it asserts a right that a statute shields from retaliation. In Minnesota that reaches discrimination, any reported violation of law, unpaid wages, workers’ compensation, sick time, and wage discussions, and the federal statutes add their own protections.

These are the protections that can apply when an employee threatens legal action against a Minnesota employer:

• Discrimination and harassment complaints. The Minnesota Human Rights Act (MHRA) makes it an unfair discriminatory practice for an employer “to intentionally engage in any reprisal against any person because that person” opposed a practice the act forbids or “has filed a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this chapter” (Minn. Stat. § 363A.15). The act reaches any employer that “has one or more employees” (Minn. Stat. § 363A.03, subd. 16). Its protected classes include race, sex, disability, age, sexual orientation, gender identity, and the other classes listed in Minn. Stat. § 363A.08, subd. 2.
• Any reported violation of law. Under the Minnesota Whistleblower Act, you may not retaliate because an employee “in good faith, reports a violation, suspected violation, or planned violation of any federal or state law or common law or rule adopted pursuant to law to an employer” or to a government body (Minn. Stat. § 181.932, subd. 1). A report may be “a verbal, written, or electronic communication” (Minn. Stat. § 181.931, subd. 6), and the act covers “any person having one or more employees in Minnesota.”
• Unpaid wages and other wage-law rights. Minnesota’s wage-payment statute bars retaliation for asserting wage rights, “including, but not limited to, filing a complaint with the department or telling the employer of the employee’s intention to file a complaint” (Minn. Stat. § 181.03, subd. 6).
• Workers’ compensation. Liability attaches to “Any person discharging or threatening to discharge an employee for seeking workers’ compensation benefits” (Minn. Stat. § 176.82, subd. 1).
• Earned sick and safe time. The statute bars retaliation because the person “made a complaint or filed an action to enforce a right to earned sick and safe time” (Minn. Stat. § 181.9447, subd. 6).
• Wage discussions. An employer may not retaliate against an employee “for asserting rights or remedies under this section,” the wage disclosure statute (Minn. Stat. § 181.172).
• Federal law. Title VII bars retaliation because an employee “has opposed any practice made an unlawful employment practice” or made a charge (42 U.S.C. § 2000e-3), and it covers an employer “who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year” (42 U.S.C. § 2000e(b)). The Americans with Disabilities Act has a parallel rule (42 U.S.C. § 12203) and covers an employer “who has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year” (42 U.S.C. § 12111(5)). The Age Discrimination in Employment Act protects an employee who “has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or litigation” (29 U.S.C. § 623), and it covers an employer “who has twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year” (29 U.S.C. § 630(b)). The Fair Labor Standards Act protects an employee who “has filed any complaint” about wage and hour rights (29 U.S.C. § 215).
• Coworkers acting together. When employees threaten action together, or one speaks for others about pay or working conditions, the National Labor Relations Act may protect it as “concerted activities for the purpose of collective bargaining or other mutual aid or protection” (29 U.S.C. § 157).

Two limits apply. The Whistleblower Act does not protect statements made “knowing that they are false or that they are in reckless disregard of the truth” (Minn. Stat. § 181.932, subd. 3). And a threat about something no statute protects, such as a personality conflict, falls under the at-will rule. Under that rule, as the Minnesota Supreme Court restated it, an employer may discharge an at-will employee for “any reason or no reason” (Dukowitz v. Hannon Security Services, 841 N.W.2d 147 (Minn. 2014)). In Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983), the same court held that “personnel handbook provisions, if they meet the requirements for formation of a unilateral contract, may become enforceable as part of the original employment contract.” A threat that sounds personal can still name a legal violation, so I suggest reading the exact words before deciding which category it falls in. More detail is in my overview of Minnesota’s retaliation statutes.

What Counts as Retaliation After an Employee Threatens to Sue?

Retaliation is any action taken because of the protected threat that could discourage a reasonable employee from complaining, not only a firing. Minnesota’s statutes reach lesser assignments in wages or hours, departures from your usual practice, and even conduct after the employment ends.

The MHRA lists, as reprisal, an employer’s decision to “depart from any customary employment practice; transfer or assign the individual to a lesser position in terms of wages, hours, job classification, job security, or other employment status,” or to “inform another employer that the individual has engaged in the activities” it protects (Minn. Stat. § 363A.15). It adds that “A reprisal includes, but is not limited to, any form of intimidation, retaliation, or harassment.” The Whistleblower Act defines “penalize” as “conduct that might dissuade a reasonable employee from making or supporting a report, including post-termination conduct by an employer or conduct by an employer for the benefit of a third party” (Minn. Stat. § 181.931, subd. 5). Under federal law, in Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53 (2006), the Supreme Court held for Title VII that “the employer’s actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination.”

Timing matters to how a court reads your decision. In Hoover v. Norwest Private Mortgage Banking, 632 N.W.2d 534 (Minn. 2001), the Minnesota Supreme Court stated the elements of a reprisal claim as “(1) statutorily-protected conduct by the employee; (2) adverse employment action by the employer; and (3) a causal connection between the two.” The employee had told her supervisor she would go to the personnel department about her need for accommodation, and she was fired soon after. The court held that “given the events leading up to Hoover’s termination, the timing of her termination, and the fact that no other similarly situated employee suffered the same fate, a reasonable fact finder could infer that there was a causal connection.” The court reversed summary judgment for the employer and sent the claim back for further proceedings, so it did not decide whether reprisal occurred. Hoover applied the reprisal section’s earlier numbering, now § 363A.15.

Before any decision affecting an employee who has threatened to sue, I suggest three checks, because each answers a Hoover question:

1. The reason predates the threat. The problem is documented in records made before the threat, not reconstructed after it.
2. The treatment matches others. Employees with the same problem who made no threat were treated the same way.
3. Someone outside the dispute reviews it. A decision maker who was not accused in the complaint confirms the reason.

If the decision is a discharge, final pay is governed by Minn. Stat. § 181.13. A performance plan started after a threat raises the same questions; see a performance plan that becomes a retaliation claim.

How Does the Duty to Preserve Evidence Apply to a Threatened Claim?

The duty to preserve evidence starts when litigation becomes reasonably foreseeable, not only when a lawsuit is filed. I suggest treating a specific threat to sue as that point and stopping routine deletion of relevant records the day it arrives, because the duty does not wait for a filed case.

In Miller v. Lankow, 801 N.W.2d 120 (Minn. 2011), the Minnesota Supreme Court held that the duty to preserve evidence exists “whenever a party knows or should know that litigation is reasonably foreseeable.” It also reaffirmed that “even when a breach of the duty to preserve evidence is not done in bad faith, the district court must attempt to remedy any prejudice that occurs as a result of the destruction of the evidence.” Miller was a home-sale dispute, decided under the court’s inherent power to sanction lost evidence in a civil case. The court reaffirmed “that custodial parties have a duty to preserve relevant evidence for use in litigation,” and in an employment dispute the employer holds most of the records.

I suggest a short written hold notice to every manager involved, covering:

• email, texts, and chat messages about the employee or the complaint, including messages on personal phones used for work;
• the personnel file, performance reviews, schedules, timekeeping, and payroll records;
• any prior complaints, investigations, and discipline involving the same people;
• video, badge, or system logs that show what happened, if your systems delete them on a schedule.

I also suggest suspending automatic deletion settings that would erase these, because the duty is to “preserve relevant evidence for use in litigation.”

How Should an Employer Investigate the Complaint Behind the Threat?

I suggest treating the threat as a complaint and investigating the facts it alleges, with an investigator who is not the person accused, because the investigation tells you whether there is a real problem to fix, and the fix may resolve the dispute before any claim is filed.

One workable order is the employee who made the threat, then the witnesses, then the person accused. I suggest keeping the questions about events, not about whether the employee intends to sue. A question that pressures the employee about the claim can itself be conduct that “might dissuade a reasonable employee from making or supporting a report” under the Whistleblower Act (Minn. Stat. § 181.931, subd. 5).

Minnesota’s personnel record statute excludes, for a time, “information relating to the investigation of a violation of a criminal or civil statute by an employee or an investigation of employee conduct for which the employer may be liable, unless and until: (i) the investigation is completed and, in cases of an alleged criminal violation, the employer has received notice from the prosecutor that no action will be taken or all criminal proceedings and appeals have been exhausted; and (ii) the employer takes adverse personnel action based on the information contained in the investigation records” (Minn. Stat. § 181.960, subd. 4). That exclusion governs what the employee may review; it does not let you discard the records. If the investigation confirms a problem, I suggest correcting it and documenting the correction. The steps are laid out in my guide to running a workplace investigation.

How Should an Employer Communicate With the Employee and the Employee’s Lawyer?

I suggest keeping everyday work communication with the employee normal and sending anything about the claim through one person, because statements about the dispute become evidence. Minnesota’s lawyer-contact rule limits lawyers, not the parties themselves.

Minnesota Rule of Professional Conduct 4.2 provides that “a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.” Its comment [4], which guides how the rule is read, states: “Parties to a matter may communicate directly with each other, and a lawyer is not prohibited from advising a client concerning a communication that the client is legally entitled to make.” The same comment adds that “A lawyer may not make a communication prohibited by this rule through the acts of another.”

Settlement talk gets some protection, not complete protection. Under Minnesota Rule of Evidence 408, “Evidence of conduct or statements made in compromise negotiations is likewise not admissible” to prove liability, but “This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations.” A fact you admit in a settlement letter can still be proved another way.

If you and the employee voluntarily engage, before any charge or suit, in a dispute resolution process “involving a claim of unlawful discrimination under this chapter,” the MHRA adds a notice step. The process includes “arbitration, conciliation, mediation or grievance procedures pursuant to a collective bargaining agreement,” and “A potential respondent who participates in such a process with a potential charging party before a charge is filed or a civil action is brought shall notify the department and the charging party in writing of the participation in the process and the date the process commenced” and of its ending date (Minn. Stat. § 363A.28, subd. 3).

When Does an Employment Practices Liability Policy Need Notice of a Threat?

Your employment practices liability insurance policy sets the notice rule, not a statute. A policy can define a claim to include a written demand, and it can let you give notice of circumstances before any claim exists, so I suggest reading the definitions, the notice condition, and the consent clause the day the threat arrives.

When I advised an employer whose dispute with an employee had not become a claim, its employment practices endorsement made any payment the company made without the carrier’s written consent the company’s own cost. I prepared a written notice of circumstances to the carrier and a separate written request for its consent to payments the company had already made, because the two requests are answered by different people at a carrier. I also suggested keeping the sent email, because it fixes the date notice was given and coverage can depend on that date.

Three clauses in the policy matter most at this stage:

1. The claim definition. Whether a demand letter, an agency charge, or only a lawsuit counts.
2. The notice condition. How and when notice must be given, and whether notice of circumstances is allowed.
3. The consent clause. Whether settlement offers, severance, or defense costs need the carrier’s consent first.

More on coverage is in my explanation of how employment practices liability insurance works.

What Must an Employer Do With a Personnel File Request After a Threat?

An employee who threatens to sue may ask for the personnel file next, and Minn. Stat. § 181.961 requires you, on written request, to give the employee an opportunity to review it, subject to limits for a recent review and for a request not made in good faith. The statute sets short response times, so I suggest checking its current text the day a request arrives.

“Upon written request by an employee, the employer shall provide the employee with an opportunity to review the employee’s personnel record” (Minn. Stat. § 181.961, subd. 1). An employer “is not required to provide an employee with an opportunity to review the employee’s personnel record if the employee has reviewed the personnel record during the previous six months,” and under subd. 3, “The employer may deny the employee the right to review the employee’s personnel record if the employee’s request to review is not made in good faith,” with the burden of proof on the employer. The statute requires compliance “no later than seven working days after receipt of the request if the personnel record is located in this state,” and “After the review and upon the employee’s written request, the employer shall provide a copy of the record to the employee” (subd. 2). If the employee disputes something in the file and you do not agree to change it, “the employee may submit a written statement specifically identifying the disputed information and explaining the employee’s position” (Minn. Stat. § 181.962, subd. 1). “The position statement must be included along with the disputed information for as long as that information is maintained in the employee’s personnel record.” You may not retaliate “for asserting rights or remedies provided in sections 181.960 to 181.965” (Minn. Stat. § 181.964).

I suggest producing the file as it exists, apart from any position statement the statute requires you to add, because adding your own documents to it after the threat, or editing old ones, creates the evidence of after-the-fact reasons the retaliation section warns about. Timing details are in my page on personnel file requests and timing.

How Do Release Rules Work if the Threat Ends in a Settlement?

A settlement should include a written release, and the rules for each claim it settles decide whether it holds. The MHRA gives the employee a right to rescind a release of MHRA claims, federal law sets conditions for releasing age claims, and wage and workers’ compensation claims carry settlement rules of their own.

Minnesota. A release of MHRA claims for past 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” (Minn. Stat. § 363A.31, subd. 2). The statute requires that “A waiving or releasing party shall be informed in writing of the right to rescind the waiver or release.” A release of claims for acts after signing “is contrary to public policy and void” (subd. 1).

Federal age claims. Under the Older Workers Benefit Protection Act amendments to the Age Discrimination in Employment Act, “An individual may not waive any right or claim under this chapter unless the waiver is knowing and voluntary” (29 U.S.C. § 626). Unless the release settles “a charge filed with the Equal Employment Opportunity Commission, or an action filed in court by the individual or the individual’s representative, alleging age discrimination,” the minimums include that “the individual is advised in writing to consult with an attorney prior to executing the agreement,” that “the individual is given a period of at least 21 days within which to consider the agreement,” and that “for a period of at least 7 days following the execution of such agreement, the individual may revoke the agreement, and the agreement shall not become effective or enforceable until the revocation period has expired.” Where the release settles such a charge or action, the attorney-advice requirement still applies, and the fixed periods give way to a requirement that the individual is “given a reasonable period of time within which to consider the settlement agreement.”

Federal wage claims. For overtime and liquidated damages under the Fair Labor Standards Act, the Supreme Court held in D. A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946) that “neither wages nor the damages for withholding them are capable of reduction by compromise of controversies over coverage.”

Workers’ compensation claims. Under Minn. Stat. § 176.521, subd. 1, an agreement “to settle any claim for compensation under this chapter is valid where it has been executed in writing and signed by the parties and intervenors in the matter, and, where one or more of the parties is not represented by an attorney, the commissioner or a compensation judge has approved the settlement and made an award thereon,” and under subd. 2 a settlement that “purports to be a full, final, and complete settlement of an employee’s right to medical compensation under this chapter or rehabilitation under section 176.102” “must be approved by the commissioner or a compensation judge.”

I suggest building both periods into the payment date, because a payment made before a rescission or revocation period ends can be paid for a release that never takes effect. Drafting points are in my page on drafting a Minnesota severance agreement.

What Is at Stake if the Employee Files a Charge or Lawsuit?

A Minnesota employee can sue directly or file a charge with the Minnesota Department of Human Rights, and the remedies include multiplied damages, punitive damages, attorney fees, and a civil penalty. Those remedies are why the response to a threat matters as much as the complaint behind it.

“Any person aggrieved by a violation of this chapter may bring a civil action as provided in section 363A.33, subdivision 1, or may file a verified charge with the commissioner or the commissioner’s designated agent” (Minn. Stat. § 363A.28, subd. 1). If a charge is filed, the department serves you a copy and a response form, and the statute provides: “The respondent shall file with the department a written response setting out a summary of the details of the respondent’s position relative to the charge within 30 days of receipt of the charge.” I suggest checking the current text of subdivision 1 the day a charge arrives. The MHRA sets its own period for filing claims in subdivision 3, which this page does not restate.

If a court finds a violation:

• MHRA. The court shall order “compensatory damages, including mental anguish or suffering, in an amount up to three times the actual damages sustained,” “may also order the respondent to pay an aggrieved party punitive damages pursuant to section 549.20,” and must order a civil penalty to the state (Minn. Stat. § 363A.33, subd. 8). The court “in its discretion, may allow the prevailing party a reasonable attorney’s fee as part of the costs” (subd. 7), a rule that names the prevailing party rather than only the employee.
• Whistleblower Act. The employee may recover “any and all damages recoverable at law, together with costs and disbursements, including reasonable attorney’s fees,” and the court may order “reinstatement, back pay, restoration of lost service credit, if appropriate, compensatory damages, and the expungement of any adverse records” (Minn. Stat. § 181.935).
• Wage claims. In a wage action, “the court shall order an employer who is found to have committed a violation to pay to the aggrieved party reasonable costs, disbursements, witness fees, and attorney fees” (Minn. Stat. § 181.171, subd. 3), and wage-law retaliation carries “a civil penalty of not less than $700 nor more than $3,000 per violation” (Minn. Stat. § 181.03, subd. 6).

The charge process itself is covered in my page on responding to an EEOC or MDHR charge.

When Should You Call an Attorney After an Employee Threatens to Sue?

Not every threat turns into a claim, but I suggest bringing in an employment attorney before you reply, discipline, or pay anything when one of these signals appears, because each means the dispute already has a deadline, a written record, or a reach beyond one employee:

• A demand letter from the employee’s lawyer. The employee has counsel, and your written answer will be read as your position in any later case.
• A charge or complaint with a government agency, such as the EEOC, the Minnesota Department of Human Rights (MDHR), or OSHA. An MDHR charge carries a 30-day written response (see the section on what is at stake), and what you file becomes part of the record.
• A threat that names a protected class, such as race, sex, disability, or age, because the reprisal protections described above attach to complaints about those practices.
• An employee with access to trade secrets or sensitive company information, because cutting access, collecting devices, and reminding the employee of confidentiality terms all need to happen without looking like a response to the threat.
• Several employees making similar complaints, because a pattern raises the exposure, and employees acting together may be protected under the National Labor Relations Act section above.

Calling early matters most for the steps that are hardest to undo: a termination, a reply letter, and a payment made without your insurer’s consent.

How Can You Protect Your Company From Employee Lawsuits Going Forward?

Most of the facts that decide an employment claim are created long before anyone threatens to sue, so the best protection is a set of standing practices:

• Review your employee handbook every year. Handbook terms can become part of the employment contract (the Pine River rule above), so I suggest confirming the policies match what managers actually do and that the complaint procedure names more than one person an employee can go to.
• Train supervisors. Supervisors make the day-to-day decisions a claim later challenges. I suggest training them to recognize a complaint, including a spoken one, to pass it on rather than answer it, and to make no change to the employee’s job because of it.
• Document performance consistently, as a habit. Write problems down when they happen, for every employee with the same problem, because records made before a dispute are what show a later decision was unrelated to it (the three checks in the retaliation section).
• Hold exit interviews. A short, documented exit conversation records the employee’s view at separation and can surface a complaint while you can still investigate and fix it.
• Revisit your employment practices liability coverage at renewal, including the claim definition, notice, and consent clauses described above.

What Should a Minnesota Employer Check Before Responding to a Threat?

Before responding to an employee’s threat to sue, I suggest confirming these points, because each one answers a question the employee’s lawyer or a judge will ask later:

1. The threat is written down, with the date, the words used, and the law or claim it named.
2. A hold notice went out, and automatic deletion is off for the relevant records.
3. No job change traces to the threat, and any decision already in progress rests on records made before it.
4. The insurer has notice under the policy’s terms, and nothing has been paid without any consent the policy requires.
5. Someone outside the dispute is investigating the complaint on its merits.
6. Claim communications run through one channel, and any pre-charge mediation of a discrimination claim under the MHRA has been noticed to the department and the employee.
7. Any release meets the rules for each claim it settles, including the MHRA, the federal age rules, and the wage and workers’ compensation rules, with payment timed after the rescission and revocation periods.

If you would like me to review a specific threat, the records behind it, and a planned response, email [email protected] with a brief description and the message or letter the employee sent. More on my Minnesota employment law practice is on the practice page.