Layoff payoffs

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In enacting the nation’s first law requiring severance pay for workers caught in mass layoffs, New Jersey will serve as the nation’s test case. The state will demonstrate the benefits for employees and reveal any unintended consequences.

The uncertainty has labor analysts and business advocates worried that the law will deter businesses from moving to New Jersey, especially given other employee-friendly policies implemented here, such as paid sick time, expanded family leave, worker misclassification laws and a $15 minimum wage.

Nevertheless, the measure has drawn praise from progressives and worker’s rights groups.

“The law is good for protecting workers during mass layoffs, and I think that’s really important because it provides greater security for New Jersey employees and gives workers opportunities,” said Naomi Williams, an assistant professor at the Rutgers School of Management and Labor Relations.

“The short-notice layoff really leaves workers struggling, especially [those] with lower incomes and those living paycheck to paycheck.”

Under the measure, signed in January by Gov. Phil Murphy, businesses with at least 100 employees must provide 90 days’ notice for layoffs or operations transfers that would mean at least 50 workers are let go within a period of 30 days. That would be up from 60 days for lay-offs of that size – a requirement created by the Worker Adjustment and Retraining Notification Act, or WARN Act, in 2007.

In addition, terminated employees are entitled to receive severance of one week’s pay for every year worked at the company. Employers who fail to provide 90-days’ notice must dole out an additional four weeks of pay to each of those outgoing workers.

The move to enact the law was prompted by layoffs that followed the Toys R Us bankruptcy filing in 2017, after which more than 1,000 New Jersey workers lost their jobs. Many of them, who organized as part of the group United for Respect, said they were let go with little notice and no severance. Public pressure eventually forced the private equity firms that owned the retail chain to set up a $20 million severance fund for affected employees.

“When these corporate takeover artists plunge the companies into bankruptcy they walk away with windfall profits and pay top executives huge bonuses, but the little guys get screwed,” state Sen. Joe Cryan, D-20th District, who sponsored the bill, said in a Jan. 21 statement. “The law will now be upgraded to better protect the rights of the employees. Workers’ performance and workers’ dedication to the company were secondary. Now, hopefully, they’ll be moved more to the forefront.”

But critics argue that the mandatory severance law affects too many businesses.

“That’s part of the frustration, in that what we’re hearing … was that this was aimed at your big companies, your big Fortune 500 companies … it’s affecting everybody who has at least 100 employees,” said Alvaro Hasani, an attorney at employment and labor law firm Fisher Phillips LLC. “That’s not your Fortune 500 Company. That’s your mid-sized employer.”

Wider net

Under the prior version of the WARN Act, the 50-employee threshold could be met only if all affected workers were employed at a single facility—which would have addressed mass layoffs at a single factory.

The new law stipulates that the threshold is met if the layoffs affect more than 50 employees at all New Jersey locations combined, such as multiple retail outlets where individually, only a handful of employees would lose their jobs.

It’s affecting everybody who has at least 100 employees. That’s not your Fortune 500 Company. That’s your midsized employer.
– Alvaro Hasani, attorney at employment and labor law firm Fisher Phillips LLC

“The changing nature of work—it’s happened, it is happening, it continues to happen. This isn’t new, so the fact that states are passing new laws isn’t an attack on business necessarily, it’s just reflecting how work and employment have changed and trying to fill in the holes that’ve been created by these changes,” Williams said, citing the rise of the so-called “gig economy.”

The measure goes into effect 180 days from Jan. 21, when it was signed, which could give employers some time to adjust to the changes.

“If you’re anticipating lay-offs, you might as well go through that process now before the law becomes effective,” Hasani said.

“If you were thinking of a layoff work toward it now, so you don’t have to abide by the requirements of the layoff.”

Andrew Berns, a partner at the law firm Einhorn, Barbarito, Frost & Botwinick PC, also suggests that businesses begin planning to meet the law’s requirements. “You should theoretically have a fund, when a business is healthy, that takes whatever the law requires and put it away into something that should be untouchable so that in the event that this happens you have a fund to pay people,” he said. “Because unemployment is not going to necessarily pay you enough to survive, because people rely on severance.”

The new law also includes other protections, for example, characterizing severance pay “compensation” that would be “earned in full” at the time of the employee’s termination. The measure also lays out requirements for “successor employers” who may take ownership of the company, such as protections against pay cuts.

John Schmidt, a member of the law firm Lindabury McCormick Estabrook and Cooper PC, cautioned that employers could inevitably find loopholes in the timelines set out under the new law.

“Employers are going to attempt, they know they’re going out of business, they’re just going to prolong the layoffs, because it’s 50 layoffs in 30 days, instead of closing the facility, they have to try to drag it out, lay off five people this week, or this month, maybe five people next month,” Schmidt said.

And other questions could arise, he added. A worker might be informed that he or she will be let go in 90 days and their quality of work could suffer while they seek new employment.

“I could see issues arising with employees who, because they know that their job is ending, they may not work to the standard or to the level that they were previously working,” he said. “If an employer terminates an employee during that period of time, is the employee entitled to severance? Is the employee going to sue for some wrongful discharge claim?”