New Jersey is first state in US to mandate employee severance payments in the event of a closure of operations or mass layoff of employees.
By Steven Fox, Esq., Partner, Lindabury, McCormick, Estabrook & Cooper, P.C.
On January 21, 2020, Governor Phil Murphy signed Senate Bill 3170 amending the Millville Dallas Airmotive Plant Job Loss Notification Act (NJ WARN Act). In doing so, New Jersey has become the first state to mandate employee severance payments in the event of a closure of operations or mass layoff of employees. Yes, this means if a covered employer elects to downsize the business for financial difficulties, at least in the short term it will cost the employer more money to do so.
Currently, the NJ WARN Act applies to employers with 100 full-time employees who have been in operation for at least three years. The Act is triggered when (1) an employer ceases or transfers operations at a single establishment during a continuous 30-day period (or 90 days if it cannot be proved that the terminations are for separate and distinct causes) resulting in the termination of 50 or more full-time employees; or (2) a “mass layoff” at a single establishment during the 30/90-day period described above that affects 500 or more full-time employees or 50 or more full-time employees representing one-third or more of the employer’s full-time employees. If the Act is triggered, the employer is required to provide 60 days’ notice of termination. The employer has no severance obligations unless proper notice is not provided.
Effective July 19, 2020, the NJ WARN Act applies to employers with 100 or more full-time, part-time and temporary employees who have been in operations for at least three years. The Act is triggered when (1) an employer ceases or transfers operations at an establishment (included are all affected offices and facilities within New Jersey) during a continuous 30/90-day period above resulting in the termination of 50 or more full-time, part-time and temporary employees located at all establishments combined rather than at a single location; or (2) a “mass layoff” at an establishment (included are all offices and facilities within New Jersey) during the 30/90-day period described above that affects 50 or more full-time, part-time and temporary employees at all establishments combined rather than at a single location. If the Act is triggered, the employer is required to provide 90 days’ notice of termination not only to the employees affected, but also to the Commission of Labor and Workforce Development and the chief elected official of the municipality where the establishment is located. Failure to provide timely notice to the employee will result in the employer being obligated to pay the employee four weeks of severance pay. Additionally, severance payments are required to be paid to affected employees at a rate of one week of pay for every full year of employment. The rate of severance pay is based upon “…the average regular rate of compensation received during the employee’s last three years of employment with the employer or the final regular rate of compensation paid to the employee, whichever rate is higher.”
The severance payments are deemed compensation due to the employee as “back pay” which presumably will have different treatment than a general unsecured creditor in a bankruptcy proceeding. Due to the expansive definition of employer under the Act, corporate decision-makers could be held personally liable for the severance obligations if not paid by the business entity.
There are other provisions under the Act which should be noted. For example, transferring employees out of state, regardless of the close proximity of the original worksite, triggers a “termination” if the employee does not accept the transfer. So, too, does transferring of employees more than 50 miles in-state from the original worksite. Part-time employees are those employed on an average of fewer than 20 hours per week or employed for fewer than six of the 12 months preceding the date on which notice is required. The employer cannot obtain a waiver of the employee’s entitlement to severance unless approved by the Commissioner of Labor and Workforce Development or a Court. Collective bargaining agreements, if applicable, play a role in the amount of severance.
New Jersey employers considering a reduction in the workforce or downsizing operations should consult with employment counsel to ensure compliance with the new legislation and obligations.
Steven Fox, Esq., is a partner, Lindabury, McCormick, Estabrook & Cooper, P.C., (www.lindabury.com) and is certified as a Civil Trial Attorney. He concentrates his practice on commercial disputes, with a focus on providing advice and counsel to management in the area of employment law. With an office in Red Bank, NJ, and headquarters in Westfield, NJ, Lindabury serves clients, including prominent corporations and businesses, throughout the Mid-Atlantic region. He can be reached at firstname.lastname@example.org or 732-741-7777.