Firing a Manager for Gross Negligence in Minnesota

When can a Minnesota employer fire a manager for gross negligence?

A Minnesota employer can fire an at-will manager for a serious lapse at any time, with or without a label. The limits are any handbook, manual, or contract term communicated to the manager that promises warnings, steps, or cause before discharge. Statutes also bar a discharge because the manager in good faith reported a violation of law or because of a protected trait such as age.

The Minnesota Supreme Court described the default in Lewis v. Equitable Life Assurance Society of the United States, 389 N.W.2d 876 (Minn. 1986): employment for an indefinite term “may be terminated by the employer at any time without cause,” as a general rule. The court then applied the main exception, from Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983): handbook provisions can become part of the employment contract.

Pine River is the fact pattern this page is about. A bank’s internal review found that a loan officer was responsible for serious “technical exceptions” in 57 of 58 loan files. The president fired him the day he returned from sick leave, without following the handbook’s disciplinary steps. The jury found the handbook created a contract that required good cause, found the bank lacked it, and the Minnesota Supreme Court affirmed. The other limits on firing are collected in the exceptions to at-will employment.

What does gross negligence mean when you fire someone?

In a firing decision, gross negligence is your description of the lapse, not a legal test the firing must pass. It matters for two reasons: a written charge must be provable, and Minnesota unemployment law applies its own definition instead of yours.

The first reason comes from Lewis. The employer there fired four employees for “gross insubordination” and argued the statement was true because that was in fact the stated reason. The court disagreed. Because the charge was a conclusion rather than an allegation, the court held that truth as a defense goes “to the underlying implication of the statement.” It left in place the jury’s finding that the charge was false. A charge of gross negligence in a termination letter invites the same question.

The second reason is statutory. Minn. Stat. § 268.095, subd. 6, says its definition of employment misconduct “is exclusive and no other definition applies.” Your label does not decide whether the manager collects unemployment benefits; the section below on unemployment explains the test.

How do a handbook, contract, or corporate office limit the firing?

A handbook or manual limits the firing when its discipline terms are definite and were communicated to the manager. A written employment contract limits it on its own terms. Removing a manager from a corporate office does not end the manager’s contract rights.

Pine River states the handbook test: “The offer must be definite in form and must be communicated to the offeree.” A general statement of policy does not qualify. The court said: “An employer’s general statements of policy are no more than that and do not meet the contractual requirements for an offer.”

Two later decisions show where managers win:

1. “Serious misconduct” carve-outs. The handbook in Lewis said: “Except for misconduct serious enough to warrant immediate dismissal, no employee will be discharged without previous warning and a period in which to bring performance up to a satisfactory level.” The jury decided what that meant and found a breach.
2. Manuals kept for management. In Feges v. Perkins Restaurants, Inc., 483 N.W.2d 701 (Minn. 1992), a general manager was fired without the three-step discipline procedure in a manual kept by management. The court said “The decisive question is whether the manual was communicated to the employee seeking to invoke its provisions in a way that objectively manifests an offer to contract for employment.” It reinstated her verdict. A later handbook disclaimer did not revoke the manual as to her, because the employer never communicated a revocation.

If the manager is also a corporate officer, Minn. Stat. § 302A.341, subd. 2, lets the board remove the officer “at any time, with or without cause,” by a majority vote of the directors present. The same subdivision says the removal “is subject to the provisions of a shareholder control agreement and is without prejudice to any contractual rights of the officer.” When the real goal is a smaller role rather than an exit, the issues in demoting an executive apply.

How should you investigate an alleged gross-negligence lapse?

I suggest investigating before deciding, by collecting the documents, interviewing the people involved, and hearing the manager’s explanation, because the record is what proves the charge if it is challenged. In Minnesota, statements in an investigation are privileged only if made upon a proper occasion, from a proper motive, and based upon reasonable or probable cause.

In McBride v. Sears, Roebuck & Co., 235 N.W.2d 371 (Minn. 1975), the Minnesota Supreme Court held that “Communications between an employer’s agents made in the course of investigating or punishing employee misconduct are made upon a proper occasion and for a proper purpose.” The reason, the court said, is that “the employer has an important interest in protecting itself and the public against dishonest or otherwise harmful employees.” The privilege requires that a statement be “made upon a proper occasion, from a proper motive, and must be based upon reasonable or probable cause,” and it is lost on proof of actual malice.

The investigation does not have to be perfect. In Bahr v. Boise Cascade Corp., 766 N.W.2d 910 (Minn. 2009), the employer followed its written policy, heard the employee before final discipline, and limited the allegations to people likely to have information. The court said “pointing merely to instances in which Boise might have better conducted the investigation does not provide a basis for a reasonable jury to conclude that Boise repeated defamatory statements motivated by a design to causelessly and wantonly injure Bahr.” The practical steps are in the step-by-step workplace investigation guide.

What claims should you rule out before firing a manager?

Before firing, I suggest checking whether the manager recently reported a legal violation, refused an unlawful order, complained of discrimination, or falls in a protected class compared with others treated more leniently. A firing that is legitimate on its facts can still be challenged as retaliation or discrimination.

The screens that most often apply:

1. Whistleblowing. Minn. Stat. § 181.932, subd. 1, bars discharge because “the employee, or a person acting on behalf of 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 any governmental body or law enforcement official.” It also protects an employee who refuses an order the employee has “an objective basis in fact to believe violates any state or federal law” and says so. Under Minn. Stat. § 181.935, a court may order relief “including but not limited to reinstatement, back pay, restoration of lost service credit, if appropriate, compensatory damages, and the expungement of any adverse records,” plus reasonable attorney’s fees.
2. Discrimination. Minn. Stat. § 363A.08, subd. 2, makes it an unfair employment practice to discharge an employee because of a protected trait, except when based on a bona fide occupational qualification. The protected traits are race, color, creed, religion, national origin, sex, gender identity, marital status, status with regard to public assistance, familial status, membership or activity in a local commission, disability, sexual orientation, and age. I suggest comparing how you treated other managers whose lapses were similar, because a discrimination claim can rest on showing that a manager outside the protected class was treated more leniently for a similar lapse.
3. Reprisal. Minn. Stat. § 363A.15 bars reprisal against a person who “opposed a practice forbidden under this chapter or has filed a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this chapter.”

None of these screens prevents a firing for real negligence. Each one asks why you fired the manager, so the record of the lapse and its timing matters.

What should the termination notice and later references say?

I suggest describing what happened in provable facts, such as the dates, the duty, the lapse, and the harm, because a conclusion such as gross negligence invites a fight over its truth. Minnesota law gives a fired employee a right to ask for the reason in writing and limits reference liability only for listed disclosures.

Under Minn. Stat. § 181.933, subd. 1, “An employee who has been involuntarily terminated may, within 15 working days following such termination, request in writing that the employer inform the employee of the reason for the termination. Within ten working days following receipt of such request, an employer shall inform the terminated employee in writing of the truthful reason for the termination.” Subdivision 2 provides that the employee cannot make that statement “the subject of any action for libel, slander, or defamation.” The rules for these requests are covered in whether you must explain why you fired an employee.

What you tell the manager can travel. In Lewis, the court held that the publication requirement for defamation “may be satisfied where the plaintiff was compelled to publish a defamatory statement to a third person if it was foreseeable to the defendant that the plaintiff would be so compelled.” The employees there had to repeat “gross insubordination” to prospective employers. The court also held that an employer’s statement of the reason for discharge may be qualifiedly privileged, and that punitive damages are not available in a compelled self-publication case.

For references, Minn. Stat. § 181.967, subd. 3, lists what a private employer may disclose on request with the protection of subdivision 2, including “acts of violence, theft, harassment, or illegal conduct documented in the personnel record that resulted in disciplinary action or resignation.” The statute adds that a disclosure of those acts “must be in writing with a copy sent contemporaneously by regular mail to the employee’s last known address.” Negligence is not on that list. “Written reasons for separation from employment” are covered only “With the written authorization of the current or former employee.” Within the statute, the former employee must show by clear and convincing evidence that the information was false and defamatory. The employee must also show that “the employer knew or should have known the information was false and acted with malicious intent to injure the current or former employee.” The broader exposure is explained in employer liability for defamatory statements.

What final-pay rules apply when you fire a manager?

A fired manager’s earned and unpaid wages are due on the manager’s written demand. The company cannot subtract the cost of the lapse from them unless the manager, after the loss, voluntarily authorizes the deduction in writing or a court holds the manager liable. A manager who handled money or property gives the company a short period to audit the accounts first.

Minn. Stat. § 181.13 provides that when an employer discharges an employee, “the wages or commissions actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee.” The demand “must be in writing but need not state the precise amount.” If the wages are not paid within 24 hours after the demand, the employer is in default, and the statute adds a daily penalty.

Two rules matter most after a negligence firing:

1. The audit period. Under Minn. Stat. § 181.14, subd. 4, when the employee “was, during employment, entrusted with the collection, disbursement, or handling of money or property, the employer shall have ten calendar days after the termination of the employment to audit and adjust the accounts of the employee before the employee’s wages or commissions shall be paid.” That subdivision also repeats the deduction ban below.
2. No setoff for the loss. Minn. Stat. § 181.79, subd. 1, bars any deduction “for lost or stolen property, damage to property, or to recover any other claimed indebtedness running from employee to employer.” The exceptions apply when “the employee, after the loss has occurred or the claimed indebtedness has arisen, voluntarily authorizes the employer in writing to make the deduction” or when “the employee is held liable in a court of competent jurisdiction.” An authorization must “set forth the amount to be deducted from the employee’s wages during each pay period.” The statute also provides: “A deduction may not be in excess of the amount established by law as subject to garnishment or execution on wages.” An agreement to the contrary is void. Under subdivision 2, a violating employer is liable “for twice the amount of the deduction or credit taken.”

If the manager resigns instead, § 181.14, subd. 1, sets a different schedule: wages are due “not later than the first regularly scheduled payday following the employee’s final day of employment.” The same subdivision adds: “If the first regularly scheduled payday is less than five calendar days following 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.” More on the deduction rule is in unlawful deductions from a final paycheck.

How does Minnesota unemployment treat a firing for negligence?

A manager fired for negligence loses unemployment benefits only if the conduct was a serious violation of the standards the employer had the right to reasonably expect. Conduct that was a consequence of inefficiency or inadvertence, simple unsatisfactory conduct, and good faith errors in judgment if judgment was required do not qualify, whatever the company called the lapse.

Under Minn. Stat. § 268.095, subd. 4, a discharged applicant is ineligible for benefits “only if” the discharge was for employment misconduct or aggravated employment misconduct. Subdivision 6 defines employment misconduct as “any intentional, negligent, or indifferent conduct, on the job or off the job, that is a serious violation of the standards of behavior the employer has the right to reasonably expect of the employee.” Negligent conduct can qualify, but the same subdivision lists conduct that is not misconduct, including:

1. “conduct that was a consequence of the applicant’s inefficiency or inadvertence”
2. “simple unsatisfactory conduct”
3. “conduct an average reasonable employee would have engaged in under the circumstances”
4. “good faith errors in judgment if judgment was required”

The statute adds: “If the conduct for which the applicant was discharged involved only a single incident, that is an important fact that must be considered in deciding whether the conduct rises to the level of employment misconduct.” A manager’s lapse is often a judgment call, which is why the record of the duty, the warning signs, and what the manager knew carries more weight than the label.

In Stagg v. Vintage Place Inc., 796 N.W.2d 312 (Minn. 2011), the Minnesota Supreme Court said “the focus of the inquiry is the employee’s conduct, not that of the employer.” It held that an employer’s failure to follow its progressive discipline policy did not prevent a misconduct finding. The court decided the case under an earlier version of subdivision 6, and it noted that a handbook breach is a separate contract claim brought in a different forum. The defenses an employer raises are covered in what counts as employment misconduct.

What does a severance-for-release offer need?

A release of a Minnesota manager’s discrimination claims must tell the manager in writing of the right to rescind it. That rule does not apply to a release given in settlement of a claim already filed with an agency or court. If the manager is 40 or older and the employer has 20 or more employees, a release of federal age claims also needs the federal consideration and revocation periods.

Under Minn. Stat. § 363A.31, subd. 2, a release of Minnesota Human Rights Act claims covering past or concurrent acts “may be rescinded within 15 calendar days of its execution.” The subdivision adds: “A waiving or releasing party shall be informed in writing of the right to rescind the waiver or release.” The rescission must be in writing and delivered as the subdivision prescribes. The right does not apply to a release given in settlement of a claim already filed. The subdivision makes “a waiver or release given in settlement of a claim filed with the department or with another administrative agency or judicial body” “valid and final upon execution.”

The federal Age Discrimination in Employment Act protects “individuals who are at least 40 years of age” (29 U.S.C. § 631). It applies to an employer that “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). Under 29 U.S.C. § 626(f), a waiver of those claims is not knowing and voluntary unless it meets several requirements, including these:

1. “the individual is advised in writing to consult with an attorney prior to executing the agreement”
2. “the individual is given a period of at least 21 days within which to consider the agreement”
3. “for a period of at least 7 days following the execution of such agreement, the individual may revoke the agreement”

Different timing applies to a release that settles an age charge or lawsuit the manager has already filed. There, the statute requires that “the individual is given a reasonable period of time within which to consider the settlement agreement.” The full list and Minnesota drafting points are in Minnesota severance agreements.

When does the company still owe the fired manager a defense?

If a customer or other third party sues the manager over the lapse, Minnesota law can require the company to defend and indemnify the manager. Under Minn. Stat. § 181.970, the duty does not apply to intentional misconduct, willful neglect, or bad faith, or where a contract governs indemnification. That statute also excludes employers and employees governed by other indemnification statutes, including those for business corporations (Minn. Stat. § 302A.521) and limited liability companies (Minn. Stat. § 322C.0408). Those statutes set their own conditions, including that the person “acted in good faith.”

Minn. Stat. § 181.970, subd. 1, provides: “An employer shall defend and indemnify its employee for civil damages, penalties, or fines claimed or levied against the employee, provided that the employee” meets three conditions:

1. “was acting in the performance of the duties of the employee’s position”
2. “was not guilty of intentional misconduct, willful neglect of the duties of the employee’s position, or bad faith”
3. “has not been indemnified by another person for the same damages, penalties, or fines”

Subdivision 2 excludes certain public employees and three other groups:

1. “employees who are subject to a contract or other agreement governing indemnification rights”
2. “employees and employers who are governed by indemnification provisions under section 302A.521, 317A.521, or 322C.0408, or similar laws of this state or another state specifically governing indemnification of employees of business or nonprofit corporations, limited liability companies, or other legal entities”
3. “indemnification rights for a particular liability specifically governed by other law”

For a business corporation, § 302A.521, subd. 2, says instead that “a corporation shall indemnify a person made or threatened to be made a party to a proceeding by reason of the former or present official capacity of the person.” The statute defines official capacity to include “the employment relationship undertaken by an employee of the corporation.” The duty applies if, among other conditions, the person “acted in good faith,” “received no improper personal benefit,” and “reasonably believed that the conduct was in the best interests of the corporation.” Section 322C.0408, subd. 2, says the same of “a limited liability company.” Under subdivision 4 of each section, the company’s articles, bylaws, or operating agreement “may prohibit indemnification or advances of expenses otherwise required by this section.” A prohibition “may not apply to or affect” the right as to acts that occurred before it was adopted.

Where § 181.970 governs, it does not say whether conduct described as gross negligence is “willful neglect.” I suggest reading its words against the facts before denying a defense, because the answer turns on those words rather than on the label. A separate question is whether the company can recover its own loss from the manager; that is covered in suing an employee for negligence.

What order of steps protects the company?

I suggest this order, because each step answers a different claim the manager could bring:

1. Read every handbook, manual, contract, and office document that applies to the manager.
2. Investigate and hear the manager out.
3. Screen for whistleblower, discrimination, and reprisal issues.
4. Describe the lapse in provable facts.
5. Pay final wages without deductions.
6. If you offer severance, use a release that meets the Minnesota and federal requirements.

None of the steps depends on calling the lapse gross negligence. The fuller set of employer issues is on my Minnesota employment law page. For a planned termination, I can analyze the handbook, contract, and facts and tell you which claims the manager could bring over the termination. Email aaron@aaronhall.com with a brief description of the situation.