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Terminating An Employee - Part II 


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PART I - The Laws that Restrict Hiring and Firing Practices

PART II - Contract Restrictions on Employee Termination.



An "at will" employment relationship may be modified by contract provisions. For example, a contract may prevent an employee from being terminated except for certain reasons or it may provide certain restrictions on re-employment through non-compete clauses. Before terminating an employee, the employer should review any contracts to avoid potential breach of contract claims.

There are a number of documents which may modify the "at will" relationship intentionally or even unintentionally. The include the following:

  • OFFER LETTERS: Letters offering an employee a position may contain terms related to compensation, benefits, or other guarantees that may modify the employment at-will relationship. Employers must be careful to review any offer letters before terminating an employee to evaluate their risk of being sued for a breach of contract related to the offer letter.
  • EMPLOYMENT AGREEMENTS: If the employee was given an employment agreement at the commencement of the employment, that agreement may include guarantees of continued employment implicitly or explicitly depending on the language used. Such agreements often control termination procedures, how it can be accomplished and under what circumstances.
  • EMPLOYMENT HANDBOOKS: Most employee handbooks include large and conspicuous disclaimers which are necessary to avoid having the handbook construed as an offer of employment or contractual terms of employment. Those disclaimers will generally include provisions stating as follows:
  1. That the handbook is not intended to create a contractual relationship and should not be relied on by the employee in that regard.
  2. That the employment is at-will and nothing in the hand book is intended to alter that relationship;
  3. That the provisions of the handbook are to be considered a guideline only which does not prohibit the employer from modifying the provisions at any time with or without notice including provisions related to disciplinary procedures and employee terminations.

If these disclaimers do not appear or are not conspicuously posted, the handbook may be construed as a binding contract including any provisions related to disciplinary processes.

  • IMPLIED CONTRACTS: Contract terms may be implied by an employer by a course of dealing. What this means is that a continued and consistent pattern of behavior may be relied on by an employee to form a contract unless express disclaimers are made. For example, if an employer consistently gives employees two verbal warnings, and a written warning before a termination occurs, the employee may rely on that course of dealing to form a contract to require that pattern of behavior before a termination occurs.
  • VERBAL PROMISES: Employer promises before or during employment may also create a contract. This is particularly true when the employee acts in reliance on the employers statements to his or her detriment. This is called "promissory estoppel." It simply means that if an employer makes promises on which the employee relies to his or her disadvantage, the employer may be estopped from claiming that a contract did not exist.


  • WAGES: When an employee is terminated, the employee must receive a final paycheck within 24 hours after the employee demands payment after his/her termination pursuant to Minnesota Statutes 181.13. If the employee is not paid within 24 hours, the employer may be subject to a penalty which may not exceed 15 days at the employee's average daily earning rate as well as double any statutory costs, disbursements and in addition to any reasonable attorneys fees paid by the employee. Any form of words which convey to an employee the idea that his or her services are no longer needed is sufficient to enable this provision.
  • OVERTIME: Employees must be paid overtime wages for any time in excess of a 48 hour work week pursuant to Minnesota Statutes unless the employee is paid a salary pursuant to an agreement or qualifies under another exception of Minnesota Statutes. Overtime musty be paid at a rate no lower than 1 1/2 times the employee's regular rate. Back wages may be payable for unpaid overtime up to two years.
  • COMMISSIONS: If any commissions are to be paid to a salesperson pursuant to a contract of employment, the employer must pay any and all commissions earned trough the final day of employment on demand no later than three working days later or be subject to penalties for each day - not to exceed 15 days- as well as double any statutory costs or disbursements paid by the employee. MSA 181.145


The best way to avoid liability upon the termination of an employee is to enter into a Release and Settlement Agreement. This can eliminate any exposure that the employer may have related to employment discrimination claims or contract claims. A Release will include language waiving any claims by the employee against the employer arising out of the employment relationship. For a Release to be binding and enforceable, the employee must be given something in addition to what they are entitled by prior existing contract or law. This is called consideration. Consideration does not have to be monetary.

Consideration may include but is not limited to the following:

  • AGREEMENT TO CALL IT A RESIGNATION. The employer may agree to allow the employee to resign rather than be terminated. The employer may also agree not to contest unemployment benefits or to work with the employee to arrange suitable announcements regarding the resignation to other employees or customers.
  • AGREEMENT TO GIVE A REFERENCE. The employer may agree to provide a letter of reference setting forth duties and positions held by the employee. For maximum effect the employee may have input into the content of the reference or reference letter.
  • AGREEMENT TO PAY SEVERANCE. The employer may agree to pay a severance above and beyond the wages and/or commissions earned by the employee.
  • AGREEMENT TO CONTINUE INSURANCE. The employer may agree to provide continued coverage to the employee beyond the time line required by statute.
  • AGREEMENT TO PROVIDE JOB SEARCH ASSISTANCE. The employer may agree to provide job training or job search services for a terminated employee
  • AGREEMENT TO RELEASE AN EMPLOYEE FROM A NON-COMPETE. An employer may agree to release the employee for a non-compete or other contractually binding provisions.


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