N.J. Law Now Requires Severance Pay for Large Group Layoffs

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Effective in July of this year, New Jersey now requires employers with 100 or more full-time employees to pay them a week's pay for each year of service during a layoff, plant closing or transfer of operation resulting in 50 or more workers losing their jobs. The law also increases the minimum number of days’ notice from 60 to 90 for such events.

The legislation was motivated by last year's closing of Toys R Us, which cost 2,000 employees their jobs in New Jersey. Two of the private equity firms that owned the retail giant eventually established a $20 million hardship fund.  

New Jersey is one of a few states that mandates severance payments under these circumstances. In 1987, the Supreme Court of the United States upheld a similar law enacted in Maine, holding that the state law was not preempted by federal benefits’ law and therefore the state did not overreach its authority to regulate severance payouts.

According to John Sarno, president of the Employers Association of New Jersey, who has studied the bill, it is likely that part-time workers will also be eligible for severance payments.

“The bill is fairly well clear that when business lobbyists tried to exclude part-time and temporary employees from coverage, they were unsuccessful. The [bill’s] language says ‘employee’ and makes no distinctions between classes of employees” he says.  

On its face, the law imposes a burden on investor and management decision making.  

But Sarno notes that nearly 98 percent of employers in New Jersey employ fewer than 100 workers.

In contrast, the law will apply to about 5,500 of the state’s 270,000 business establishments that are mostly concentrated in retail and healthcare, with others in manufacturing and waste management.

“Hopefully the law will not be triggered much. The employers that the law covers are mostly stable and well established - hospitals, utilities, trade and warehousing and the like, with not much of a recent history in mass layoffs and plant closings“ says Sarno.

He does not share the view that businesses will refrain from locating to New Jersey because of the law.

“For one thing, large established businesses don’t come to New Jersey unless they are paid with tax breaks and other financial incentives. They also come for skilled workers and to be close to customers.  No one is coming here expecting to engage in a mass layoff in the future. And if they are, maybe they shouldn’t come” says Sarno. 

“But clearly its bad optics and adds to the view that the current [Murphy] Administration is not sufficiently pro-business” he adds.

The legislation passed along party lines, with Democrats in favor and Republicans opposed.