New Jersey can claim many firsts. We were home to the first drive-in movie theater, intercollegiate football game and town to be lighted by electricity. During January 2020 New Jersey added another first to its list by becoming the first state in the nation to guarantee severance pay to employees following a mass layoff.
Employers doing business in New Jersey have been subject to both the federal and state Worker Adjustment and Retraining Notification Act (WARN) for more than 10 years. Under the prior laws, if an employer were to close a single facility employing more than 50 full-time employees, the business was required to provide those employees with at least 60 days advance notice of the closure or face a penalty that required the employer to pay severance compensation to each of the terminated employees. Now, employers face onerous new economic burdens as a result of legislation signed into law by Gov. Phil Murphy this past January.
Murphy signed legislation that amends the WARN Act to require employers with 100 or more employees to pay affected workers a week’s pay for each year of service during a mass layoff, plant closing of one or more facilities or transfer resulting in 50 or more workers losing their jobs even if the employees are not all working in a single facility. The law also eliminates the distinction of “full-time employee” when calculating the 100-employee coverage threshold, meaning that part-time employees can be included in the analysis. This makes it even more difficult and potentially expensive for employers.
The WARN legislation requires that severance compensation must be paid on or before the last day of employment. Should an employer fail to pay the appropriate severance compensation, the business will face a penalty obligating it to pay an additional four weeks of compensation to each employee not correctly paid. The law also increases the minimum notice employers must give from 60 days to 90 days for such events. Amendments to the Act define severance compensation as compensation due for back pay associated with the termination, in an apparent attempt to characterize the severance compensation as wages for the purposes of bankruptcy.
Changes made to the WARN Act were in response to the 2,000 workers who lost their jobs, with little to no severance, when Toys R Us shuttered operations in 2018. Although intended to protect employees from the unexpected loss of employment and income, the new law may, in fact, have a negative impact on the overall New Jersey economy and its workers. It will impose significant economic burdens upon employers with larger workforces that seek to shutter operations in the state. This requirement could make employers think twice about establishing a presence here, or expanding existing operations. New Jersey already has a reputation for levying high taxes and onerous regulations and this is just another obligation that’s being thrust upon employers that could be a significant deterrent.
The changes in the WARN ACT could have a boomerang effect in its intent to benefit workers, by diminishing New Jersey’s reputation as a viable state for businesses. Meanwhile, as we await the impact of this new legislation on economic development in the state, large employers with operations here should be considering contingency planning to meet its requirements.
John H. Schmidt Jr., is a shareholder with Lindabury, McCormick, Estabrook & Cooper PC, based in Westfield. With more than 35 years of experience, he concentrates his practice in the areas of employment litigation, traditional labor matters, and general corporate and commercial litigation.