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New Law Prohibits Minnesota Employers from Making Agreements Not to Contest Unemployment Benefits of Departing Employees

July 2012

By: James B. Sherman, Esq.

Employers often determine, for any number of reasons, not to contest a departing employee's application for unemployment compensation benefits. Sometimes the decision turns on the determination that the reason for termination does not satisfy the high standard of "misconduct" that would render the employee ineligible for benefits. Oftentimes, however, employers willingly agree not to contest eligibility even in cases they could win. This is sometimes done out of sympathy for the employee, or to buy some good will under the mistaken belief that not contesting unemployment benefits will somehow avoid litigation with a litigious individual (this often backfires and this kind of individual winds up using unemployment benefits to hire a plaintiff's lawyer). Whatever the motive, such agreements technically are unlawful since unemployment benefits do not belong to any single employer to dole out in exchange for concessions from a separating employee. Still, these agreements continue to be fairly common. The practice is about to change, however, due to a new law that went into effect on July 1, 2012. Minnesota employers are now prohibited from agreeing with any former employee not to provide information requested by the agency that determines eligibility for such benefits. In other words, employers must supply the truthful grounds for their employee's separation and leave the decision of whether to award unemployment benefits to the state.

The new law prohibits employers from promising former employees they will not contest unemployment benefits in exchange for the employee's promise: (1) to quit employment; (2) take a leave of absence; (3) leave the employment temporarily or permanently; or (4) withdraw a grievance or appeal of a termination. Minn. Stat. § 268.192, Subd. 1(a). A clear reading of the new law shows it was enacted largely to prevent employers and employees from willfully withholding documentation from the Minnesota Department of Economic Development (DEED) that might otherwise disqualify a former employee from receiving unemployment benefits. "An employer may not make an agreement "not to provide information to the department . . ." Id. Such practices have always been illegitimate under the law but this new law makes it clear that they will no longer be tolerated by DEED.

Employers can now expect DEED to insist that they provide complete and accurate information requested in connection with all applications for unemployment benefits. As a result we are advising employers to do at least the following two things: (1) fully cooperate with DEED and provide all the pertinent and requested information so that it can make a decision on eligibility for unemployment compensation benefits; (2) discontinue any practice of bartering with employees or former employees over whether such benefits will be contested. Such agreements are now unenforceable as a matter of law and they just might get an employer in legal trouble.

If you have questions about unemployment compensation benefits, whether someone is eligible for such benefits, or to contest eligibility for benefits, contact attorneys James B. Sherman or Chad A. Staul in Wessels Sherman's Minneapolis office at (952) 746-1700; or email jasherman@wesselssherman.com or chstaul@wesselssherman.com .