Category Archives: Terminations
“Hey, I was Just Trying to be a Nice Guy!” – Don’t be Inconsistent When Discussing An Employee Termination
A case out of the Eleventh Federal Circuit provides a cautionary tale for any employer who is trying to cut a terminated former employee a break in references. Maybe don’t be a “nice guy”:
In Kragor v. Takedo Pharmaceuticals of America, Inc., 702 F.3d 1304 (11th Cir. 2012), the Appellate Court reversed and set for trial an age discrimination case in which a manager who had terminated an employee for misconduct disavowed the reason in a subsequent reference call. He apparently wanted to help out the former employee—who learned about the kindness and brought it into evidence as proof that the reasons given for the termination were pretextual. The Appeals Court found this contradiction created a triable case to allow the age discrimination case to proceed:
When the employer’s actual decisionmaker, after terminating an employee for misconduct (or the appearance of misconduct), says without qualification that the employee is exceptional, did nothing wrong, did everything right, and should not have been fired, that contradiction—when combined with a prima facie case—is enough to create a jury question on the ultimate issue of discrimination.
So much for trying to be a “nice guy.”
Takeaways: Be cautious in staying consistent with the reasons provided for a termination and statements to third parties. Good intentions do not always lead to good results. When you want to give a more positive reference after a troubled termination, work with legal counsel on maintaining consistency with the company’s reasons for termination.
Receipt of severance pay will typically either delay an applicant’s eligibility for unemployment benefits or will reduce the amount of benefits they receive. Minnesota law provides that an applicant is ineligible for unemployment insurance benefits during any week in which the applicant receives “severance pay … paid by an employer because of, upon, or after separation from employment” if the severance pay is “equal to or in excess of the applicant’s weekly unemployment benefit amount.” Minn. Stat. § 268.085, Subd. 3(a)(2).
The severance payments will affect the applicant’s eligibility for “all the weeks of payment.” When the severance payments are made periodically, the “weeks of payment” are calculated by dividing the total amount of the payments by the applicant’s last level of regular weekly pay from the employer. When the severance payment is made in a lump sum, the “weeks of payment” are calculated by dividing the amount of the lump sum by the applicant’s last level of regular weekly pay from the employer. See Minn. Stat. § 268.085, Subd. 3(b).
If the severance payment amount per week is equal to or greater than the applicant’s weekly unemployment benefit amount, the applicant is not eligible to receive unemployment benefits that week. If the amount of severance payment per week is less than the applicant’s weekly unemployment benefit amount, the applicant’s unemployment benefits are reduced by the amount of the severance payment for that week.
Takeaway: The impact of severance payments on a former employee’s eligibility for unemployment benefits is one factor, among many, that an employer may want to consider when determining whether to offer severance pay to an employee and, if so, how much.
When an employer presents a separation agreement to an employee, the basic equation is severance to the employee in exchange for a release to the employer. But sometimes employers put more care into structuring the severance than to making sure that what they are getting out of it, the release, is correct and complete.
Often the language of the release is taken from stock agreements or previous releases. But each release needs to be carefully reviewed and legal counsel consulted, if necessary, to make sure it is up-to-date, sufficient in scope, and legally enforceable.
Touchstones in reviewing a release include:
- Compliance with the applicable state employment discrimination laws;
- Compliance with state unemployment compensation and workers compensation laws;
- Sufficiency of the scope of the released parties;
- Use of the required consideration and rescission periods under federal employment discrimination laws;
- “Carve-outs” for preserved claims and indemnification rights, if any;
- Reference in the release to the laws and causes of action that actually apply to the employer’s situation;
- Clarity on the preservation of claims that may arise after the release;
- Clarity on the consequences of a rescission to released claims not subject to statutory rescission; and
- A determination of whether the release is to be mutual and, if so, how that is phrased.
This is just a beginning inventory.
Takeaway: Beware of “off-the-shelf” releases that run the risk of paying severance for an unenforceable or ineffective release. For the release to be a complete and secure “walk-away” requires careful review of each release, which likely includes review of counsel, under the always important “ounce of prevention” doctrine.
Minnesota law provides protection to employers who disclose certain types of information in response to requests for employment references. If an employer stays within the confines of the statute, a current or former employee must make a heightened evidentiary showing to prevail on a lawsuit against the employer related to the disclosure.
The types of information that employers can generally disclose under Minnesota’s employment reference law without an employee’s authorization are:
- Dates of employment;
- Compensation and wage history;
- Job description and duties;
- Training and education provided by the employer; and
- Acts of violence, theft, harassment, or illegal conduct documented in the personnel record that resulted in disciplinary action or resignation and the employee’s written response, if any, contained in the employee’s personnel record. (Note: For this type of disclosure to qualify for protection under the statute, the disclosure must be in writing with a copy sent contemporaneously by regular mail to the employee’s last known address).
If the employer has a written authorization from the employee, the employer may also disclose the following types of information about the employee:
- Written employee evaluations conducted before the employee’s separation from the employer, and the employee’s written response, if any, contained in the employee’s personnel record;
- Written disciplinary warnings and actions in the five years before the date of the authorization, and the employee’s written response, if any, contained in the employee’s personnel record; and
- Written reasons for separation from employment.
With limited exceptions, in order to maintain a cause of action against an employer for disclosure of the above-listed information, a current or former employee must be able to prove by clear and convincing evidence that: (i) the information was false and defamatory; and (2) the employer knew or should have known the information was false and acted with malicious intent to injure the current or former employee.
Takeaway: Employers can minimize potential liability for employment references by limiting their disclosures to include only the information that is authorized under the statute.
Sometimes an employer needs to ask an employee to leave the premises immediately after being informed of his or her termination. These types of terminations can often be difficult and may result in business disruptions. Here are six tips for employers to make this process easier:
- Arrange the timing of the termination to minimize the risk of business disruption.
- Conduct the termination meeting in an area that will allow the employee to leave immediately and quietly.
- Create a checklist and make sure to collect from the employee all items that may pose security risks, such as keys, access cards, computer passwords, thumb drives, etc…
- Arrange for a neutral individual to escort the employee off of the employer’s premises.
- Be prepared to pay the employee his or her final wages.
- If necessary, make arrangements for the employee to return to the premises with an escort at a time that is comfortable for him or her in order to retrieve personal belongings.
Takeaways: Terminations in which the employee must immediately leave the premises can be difficult for any employer. Careful planning in advance can minimize the potential for business disruptions.
Poking a coworker can potentially constitute employment misconduct and render an employee ineligible for unemployment insurance benefits. The Minnesota Court of Appeals addressed this question in Potter v. Northern Empire Pizza, Inc., 805 N.W.2d 872 (Minn. Ct. App. 2011).
In Potter, the court emphasized that, while Minnesota law used to recognize an exception for a single “hotheaded” incident, that exception is no longer the law. Current Minnesota law “does not provide a single-incident exception” for employment misconduct determinations. The court further held that “angry physical contact between employees constituted employment misconduct regardless of frequency.” Accordingly, the employee’s single incident of poking another coworker constituted employment misconduct and rendered the employee ineligible for unemployment benefits.
Takeaway: Employers should not tolerate violence in the workplace. Even a single incident that does not result in any harm may be grounds for termination and may constitute employment misconduct under Minnesota law.
Here are a few common severance pay myths, which are not generally true:
- Long-term employees have the legal right to severance pay;
- An employer can label accrued benefits such as vacation, sick leave, or commissions payable as “severance” in order to get a release;
- Keep the release language simple – a one-sentence acknowledgement should do; and
- It’s a good idea to have the employee release his or her right to unemployment compensation in exchange for a release.
Employment counsel hear these a lot. Here are the legal realities:
- Unless there is a contract or enforceable severance policy, there is a no legal obligation to provide severance pay for an at-will employee in Minnesota.
- In most cases, severance pay is paid to obtain a resignation and release or reward an employee for service and loyalty over the years;
- Severance pay sufficient for a legally enforceable release needs to constitute separate consideration and not be end-of-employment compensation already owed to a departing employee;
- To be effective, a release must have certain legally required consideration and rescission periods; and
- It is illegal for an employer to require an employee to waive his or her right to unemployment compensation even in exchange for severance.
Takeaway: Watch out for these severance myths – and there are plenty others! Many a severance pay agreement has been unsuccessful in meeting its legal objectives due to the employer not being aware of these and several other fundamental legal realities. It is a good idea for employers to invest some time in determining the needs and goals for offering severance and to have a professionally written, legally enforceable severance agreement and release.
Not necessarily. The Minnesota Supreme Court addressed this question in Lee v. Fresenius Medical Care, Inc., 741 N.W.2d 117 (Minn. 2007). The Court held that, under Minnesota law, vacation or paid time off (PTO) is “wholly contractual.” Accordingly, employers are permitted to set conditions that employees must meet in order to exercise their earned right to vacation time with pay, whether in the form of actual paid time off or payment in lieu of paid time off.
As a result of the decision in the Lee case, an employer may limit the circumstances under which a terminated employee receives payment for unused PTO or vacation. For example, an employer may only agree to pay employees for PTO if the employee voluntarily resigns and provides at least two weeks notice of the resignation. In this circumstance, employees who are involuntarily terminated or employees who resign without providing sufficient notice would not be eligible for payment for unused PTO or vacation.
Employers may also have use-it-or-lose-it policies for PTO or vacation. Under a use-it-or-lose-it policy, an employee may be required to use PTO or vacation by a certain date (e.g., December 31st) or forfeit the PTO or vacation. The Court in Lee recognized that use-it-or-lose-it policies are important for employers who want to encourage employees to use PTO or vacation to refresh or re-energize, particularly in high-stress occupations.
Takeaway: Under Minnesota law, employers may impose conditions on an employee’s right to receive payment in lieu of PTO or vacation. To avoid confusion, an employer’s policy should clearly define the circumstances, if any, under which an employee is eligible for payment in lieu of PTO or vacation. The policy should also address what happens to unused PTO or vacation when an employee is terminated.
In some circumstances, a minority shareholder in a closely-held corporation may have a reasonable expectation of continued employment. As a result, if termination of employment is “unfairly prejudicial” to the shareholder in his or her capacity as a shareholder-employee, the termination may be grounds for a court to provide equitable relief for shareholder oppression under Minn. Stat. § 302A.751. The threshold question in this type of claim is whether the minority shareholder’s expectation of continuing employment was reasonable.
In Gunderson v. Alliance Computer Professionals, Inc., 628 N.W.2d 173 (Minn. Ct. App. 2001), the Minnesota Court of Appeals identified several factors that influence whether a minority shareholder’s expectation of continued employment is reasonable or not. Here are some of the key points from that decision:
- Shareholders who sign buyout agreements permitting termination of employment for any reason and obligating shareholders to sell their shares to the corporation upon termination of employment likely do not have a reasonable expectation of continuing employment.
- An employee who has no capital investment in the corporation but either buys a small percentage of stock through periodic company offerings or receives a small percentage of stock as part of a compensation package likely does not have a reasonable expectation of continuing employment.
- To be reasonable, an expectation of continuing employment must be known and accepted by other shareholders, as opposed to based only on the shareholder’s “subjective hopes and desires.”
- An expectation of continuing employment is likely reasonable if “continuing employment can fairly be characterized as part of the shareholder’s investment.” Factors to be considered in making this determination include, among others, whether a shareholder’s salary and benefits constitute de facto dividends and whether procuring employment with the corporation was a significant reason for investing in the business.
- Expectations of continuing employment must be balanced against the controlling shareholder’s need for flexibility to run the business in a productive manner. Accordingly, an expectation of continuing employment is not reasonable when the shareholder-employee’s own misconduct or incompetence causes the termination of employment.
When a terminated employee needs to be paid under Minnesota law depends on whether the employee voluntarily resigns or is involuntarily terminated. The applicable rules are as follows:
Voluntary Terminations: When an employee voluntarily quits or resigns, the employer typically must pay the employee in full not later than the first regularly scheduled payday following the employee’s final day of employment, unless the employee is subject to a collective bargaining agreement with a different provision. If the first regularly scheduled payday is less than five calendar days after the employee’s final day of employment, full payment may be delayed until the second regularly scheduled payday, but shall not exceed a total of 20 calendar days following the employee’s final day of employment. See Minn. Stat. § 181.14.
Involuntary Terminations: When an employee is involuntarily terminated, the wages and commissions actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee. The employer must pay final wages to the involuntarily terminated employee within 24 hours of his or her demand. See Minn. Stat. § 181.13.
Employers need to be careful when disciplining employees for off-duty alcohol or tobacco use. Under Minnesota’s lawful consumable products statute, it is generally unlawful for employers to discipline or terminate employees or refuse to hire applicants because the employee or applicant uses lawful consumable products, such as alcohol or tobacco, outside of the workplace and during nonworking hours, unless certain exceptions apply.
Minnesota’s lawful consumable products statute states that “[a]n employer may not refuse to hire a job applicant or discipline or discharge an employee because the applicant or employee engages in or has engaged in the use or enjoyment of lawful consumable products, if the use or enjoyment takes place off the premises of the employer during nonworking hours.” See Minn. Stat. § 181.938. For purposes of the statute, the term “lawful consumable products” is defined as “products whose use or enjoyment is lawful and which are consumed during use or enjoyment, and includes food, alcoholic or nonalcoholic beverages, and tobacco.”
The statute includes several exceptions, which provide that it is not a violation of the statute for an employer to:
- Restrict the use of lawful consumable products by employees during nonworking hours if the employer’s restriction either: (1) relates to a bona fide occupational requirement and is reasonably related to the employment activities or responsibilities of the particular employee or group of employees; or (2) is necessary to avoid a conflict of interest or the appearance of a conflict of interest with any of the responsibilities owed by the employee to the employer;
- Refuse to hire an applicant or discipline or discharge an employee who refuses or fails to comply with the conditions established by a chemical dependency treatment or aftercare program;
- Offer, impose, or have in effect a health or life insurance plan that makes distinctions between employees for the type of coverage or the cost of coverage based upon the employee’s use of lawful consumable products, provided that, to the extent that different premium rates are charged to the employees, those rates must reflect the actual differential cost to the employer; or
- Refuse to hire an applicant or discipline or discharge an employee on the basis of the applicant’s or employee’s past or present job performance.
If you are considering ending a sales representative’s agreement in Minnesota, one of the first issues to examine should be the statutory protections of Minn. Stat. § 325E.37. Appearing in the “Trade Practices” portion of Minnesota Statutes, the statute sets forth certain prerequisites for terminating an independent contractor sales representative.
First, the statute defines a sales representative as: “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” But, the statute clarifies that the definition excludes anyone who: “(1) is an employee of the principal; (2) places orders or purchases for the person’s own account for resale; (3) holds the goods on a consignment basis for the principal’s account for resale; or (4) distributes, sells, or offers the goods, other than samples, to end users, not for resale.” The statute further defines the types of contracts governed as: “either express or implied, whether oral or written, for a definite or indefinite period, between a sales representative and another person or persons, whereby a sales representative is granted the right to represent, sell, or offer for sale a manufacturer’s, wholesaler’s, assembler’s, or importer’s goods by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics, and in which there exists a community of interest between the parties in the marketing of the goods at wholesale, by lease, agreement, or otherwise.”
Second, the statute describes the process for terminating a sales representative’s agreement during the course of the contract, and the process for declining to renew a sales representative’s agreement. Both circumstances require the terminating party to provide the sales representative 90 days advance notice and the right to “cure” the reasons for termination, unless the termination is for “good cause.” Good cause is defined as: “a material breach of one or more provisions of a written sales representative agreement governing the relationship with the manufacturer, wholesaler, assembler, or importer, or in absence of a written agreement, failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.” Good cause also includes:
- the bankruptcy or insolvency of the sales representative;
- assignment for the benefit of creditors or similar disposition of the assets of the sales representative’s business;
- the voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances;
- conviction or a plea of guilty or no contest to a charge of violating any law relating to the sales representative’s business;
- any act of the sales representative which materially impairs the good will associated with the manufacturer’s, wholesaler’s, assembler’s, or importer’s trademark, trade name, service mark, logotype, or other commercial symbol; or
- failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.
Third, the statute provides for arbitration as the sole remedy for the manufacturer, but allows a sales representative the option of arbitration or court. Subdivision 5 of the statute states that: “The sole remedy for a manufacturer, wholesaler, assembler, or importer who alleges a violation of any provision of this section is to submit the matter to arbitration. A sales representative may also submit a matter to arbitration, or in the alternative, at the sales representative’s option prior to the arbitration hearing, the sales representative may bring the sales representative’s claims in a court of law, and in that event the claims of all parties must be resolved in that forum.” The statute also provides for attorneys’ fee shifting for prevailing sales representatives, but provides only limited fee-shifting for prevailing manufacturers.
For further information, please contact the Employment, Benefits, and Labor team at Briggs and Morgan.