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What to think about before signing a severance agreement

On Behalf of | Apr 26, 2022 | Employment Disputes |

Periodic layoffs and terminations are part of most industries.

Understanding this, many employers in the Twin Cities have adopted practice of offering severance agreements to their employees whom they have chosen to let go.  Even if letting an at-will employee go, many Minnesota businesses still will choose to offer that employee a severance agreement.

As the name implies, a severance agreement is a contract between a former employee and his or her former employer that will set out certain rights, responsibilities and concessions.

Severance agreements can benefit both the employer and the employee alike. For an employee, it gives them some certainty and, possibly, some ongoing compensation and benefits as they go about looking for a new job.

Employers on the other hand can use severance agreements to protect themselves from lawsuits. They also may be useful in keeping sensitive information out of the hands of competitors.

However, both sides need to think about a number of things before signing a severance agreement.

Severance agreements must follow federal, Minnesota law to be enforceable

Employers and employees have some leeway to negotiate a severance agreement with terms of their choosing, but this freedom is not absolute.

In general, a severance agreement has to be beneficial in some way to both the employer and the employee. In other words, an employer cannot base a severance agreement on paying an employee what the employer already owes.

Otherwise, employers would be able to hold back wages or other benefits just to get an employee to sign a severance agreement.

There are also certain legal rights under federal and state law which an employee may not validly waive, even in a written severance agreement. In other cases, an employee may only waive certain legal rights by following some explicit requirements.

Employers and employees who are considering offering, or signing, a severance agreement should understand the legal consequences of doing so and the possible alternatives.