Effective Date of Severance-Pay Law Pushed Back Until 90 Days After State of Emergency Lifted

Murphy, lawmakers move quickly to remove requirement as New Jersey companies lay off large numbers of employees because of mandatory COVID-19 shutdowns
Credit: (Rich Hundley, The Trentonian)
Gov. Phil Murphy at a briefing in Trenton on the COVID-19 pandemic

New Jersey’s push to become the first state to require large companies to pay their workers severance whenever there is a mass layoff has been put on hold temporarily during the coronavirus pandemic.

The effective date of a law signed by Gov. Phil Murphy earlier this year establishing the severance-pay requirement has been delayed until 90 days after New Jersey’s state of emergency has been lifted.

The severance-pay policy was due to go into effect in mid-July, but the extension was included in another law enacted by Murphy this month.

Business groups who raised concerns about the requirement earlier this year are praising Murphy and lawmakers for taking swift action to delay its effective date during the pandemic, when many companies are struggling to stay afloat. The delay means companies won’t have to factor in the extra liability of paying out severance packages as they craft strategies to make it through the COVID-19 epidemic.

‘A tremendous sigh of relief’

“It’s a tremendous, I would imagine, sigh of relief for employers,” said Kathleen Connelly, a partner at Westfield-based Lindabury, McCormick, Estabrook & Cooper, who’s practiced employment law for more than 25 years

“Thankfully the governor recognized we are dealing with a unique situation here,” she said.

The severance-pay requirement was first drafted by lawmakers in 2018, in response to mass closures that hit the Wayne-based Toys ‘R’ Us retail chain. But it took until January 2020 for the final version to be signed into law by Murphy, and its many new employer mandates were not effective immediately.

One of those requirements is that companies with more than 100 employees will have to pay severance when a mass layoff impacts 50 or more employees. Workers will also have to be given severance pay equal to one week’s compensation for every year of service with the company.

The same law also attempts to protect workers in case their employer goes bankrupt by labeling severance as “compensation” that would be “earned in full” by an employee at the time of their termination. In addition to mandating severance, the law  established guidelines for “successor employers” who may take on a company, including protecting employees against future pay cuts.

Earlier warnings about mass layoffs

The law also extended the time companies must give workers prior to a mass layoff beyond the current 60 days notice. In 2007, the Worker Adjustment and Retraining Notification Act, or WARN Act, created that requirement.

Those changes were due to go into effect 180 days after the law was enacted by Murphy, which would have been July 19.

But among a series of bills that were drafted by lawmakers and signed by Murphy this month in response to the pandemic was the bill delaying the effective date of the severance-pay requirement, and several other elements of the January 2020 law.

Now, the effective date for the new employer mandates will be 90 days after an executive order signed by Murphy last month declaring a state of emergency is lifted. An exception to WARN requirements for natural disasters and emergencies was also clarified to make sure the pandemic is covered for both closures and mass layoffs.

New Jersey has been among the states hit hardest by the pandemic, trailing only New York in COVID-19 infections and fatalities. The pace of unemployment filings has also surged in New Jersey in recent weeks as Murphy has enacted a series of strict social-distancing measures to slow the spread of the disease, including the closure of many businesses deemed “nonessential.”

The looming effective date of the state’s new severance-pay requirement was just one more concern for business leaders as the pandemic continues to unfold. Michele Siekerka, president and chief executive of the New Jersey Business & Industry Association, credited Murphy and the sponsors of the original bill for taking swift action this month to provide employers with at least a temporary break.

“With the signing of this bill, employers will avoid required layoff notification and severance requirements that would challenge the state’s efforts to help businesses survive during this unprecedented crisis,” Siekerka said.

Meanwhile, Connelly suggested even with the additional time provided by the new law there may be a need to give employers an even longer delay. Given the uncertainty about the state of the economy, adding more time would allow companies to fully recover from the hardships posed by the pandemic, and she said the 90-window extension may eventually have to be lengthened to 180 days.

“I personally don’t think 90 days is a long enough period,” Connelly said.