NJ’s Laid-Off Workers to Get Toughest Protections in US?

John Reitmeyer | February 11, 2019 | More Issues
After recent bruising cases — like Toys ‘R’ Us — in which employees were left with little of no severance pay, lawmakers want to institute new safeguards

Credit: J Bers/Wikipedia
Toys 'R' Us
New Jersey lawmakers are looking to establish some of the toughest protections in the country for workers who face losing their jobs to a mass layoff or corporate bankruptcy. The protections come in response to several recent cases where employees were left with little or no severance pay, including after last year’s liquidation of the Wayne-based Toys ‘R’ Us retail chain.

Democratic sponsors of the legislation say those cases highlight a glaring need to level the playing field for workers, suggesting current laws allow executives to escape bankruptcies with lucrative bonuses even as rank-and-file employees lose out altogether on benefits like severance.

To help ensure workers are treated better when their companies falter, the legislation would lengthen the amount of advanced warning that many companies must give workers before a mass layoff. The bill would also toughen state severance-pay requirements and clarify the definition of such compensation, changes that could give worker compensation more standing in bankruptcy proceedings.

“Our workers in the state of New Jersey deserve better, they deserve these protections,” said Sen. Nellie Pou (D-Passaic) during a news conference last week.

State Sen. Nellie Pou (D-Passaic)
Not everyone is in favor of the proposed policy changes. Several representatives of business-lobbying groups who testified during a recent legislative committee said the new rules could push struggling businesses into bankruptcy sooner, which would still threaten the payment of severance. The legislation could also provide companies with another reason to locate elsewhere given the state’s already high cost of doing business, they warned.

Poor treatment of Toys ‘R’ Us workers

Founded in 1996, Toys ‘R’ Us was once one of the most popular retail chains in America. It was purchased in 2005 by a group that included two private equity funds, KKR and Bain Capital. In more recent years, the company faced steep financial problems because of growing competition from online retailers and other pressures. Toys ‘R’ Us announced in March 2018 that it was shutting stores and laying off an estimated 33,000 workers, including many across New Jersey. Employees were told that severance agreements would not be honored.

The treatment of the laid-off employees by the company’s owners and creditors drew the attention of several members of Congress, including U.S. Sens. Cory Booker and Robert Menendez and U.S. Rep. Bill Pascrell, all Democrats from New Jersey. In response, KKR and Bain announced in October that they were establishing a $20 million hardship account, with each firm pitching in $10 million. The laid-off workers have also been attempting to pressure other firms that have links to the bankruptcy to pitch in, including Solus Alternative Asset Management, a hedge fund that New Jersey’s public-employee pension system owns a significant stake in.

State lawmakers have also been coming to the aid of the laid-off workers, and several were invited to speak during the news conference in the State House last week.

“I learned a lesson that hard work doesn’t always pay off when corporate interests are involved,” said Joe Ryan, a former employee of a Toys ‘R’ Us store in Mays Landing.

Also speaking out were employees laid off recently by Sears department stores. They received only limited severance. Bruce Miller of Toms River said it was not enough to allow him to keep his home.

Billionaires ‘not accountable’ to working people

“These billionaires are not accountable to working people like me,” Miller said. “I don’t want other people to have to go through what I am going through.”

Currently, New Jersey requires companies with more than 100 employees who are preparing for a mass layoff that will impact 50 or more employees to provide 60-days’ notice before instituting the layoffs. That requirement was created in 2007 by what’s known as the Worker Adjustment and Retraining Notification, or WARN Act.

Under legislation that cleared the Senate Commerce Committee last week, the WARN Act’s advanced-notice window would be expanded to 90 days. The measure also requires that workers be provided with severance pay equal to one week’s compensation for every year of service. It would slap a penalty of additional severance for companies that run afoul of the advanced-warning requirement.

Business interests not so keen on changes

The bill would also legally define the severance pay as “compensation due to an employee for back pay and earned in full upon the termination of the employment relationship.”

Sen. Joseph Cryan, a prime sponsor of the bill, pointed to a troubling trend in retail that has involved private-equity firms or other investment companies loading up successful businesses with significant debts that make it harder for the businesses to survive lean years or recessions. Yet in many cases, executives still collect handsome bonuses even if the business tumbles into bankruptcy and puts employees out of work with little to no compensation.

“The law needs to be upgraded to better protect the rights of the workers,” said Cryan (D-Union).

During the committee hearing, lawmakers heard from representatives of business-lobbying groups who raised several concerns about the bill.

Michael Wallace, vice president of government affairs for the New Jersey Business & Industry Associations, said the bill’s adoption would make the state’s business climate “even less competitive” as companies have already faced tax increases and the adoption of a $15 minimum wage law over the last year. He also said the severance requirements would make New Jersey an outlier nationally.

The state law would also be going beyond the 60 days’ notification required under federal law before a mass layoff, said Christina Renna, senior vice president of the Chamber of Commerce of Southern New Jersey.

“The ability for employers to be able to pay out these severance agreements as stated in the bill are going to be next to impossible,” Renna said. “What’s going to then happen is these employers are going to head to bankruptcy court and then the severance is going to be dissipated anyway.”