Evaluating New Jersey’s New WARN Amendments & Urging The State to Suspend the Effective Date

Seyfarth Synopsis: In January, New Jersey amended its Millville Dallas Airmotive Plant Job Loss Notification Act ("NJ WARN"), in an attempt to push state law far past the corresponding federal requirements of the Federal WARN Act (“FED WARN”). Previously, we provided some highlights of the bill, including that it had been advanced by the legislature, then signed into law, and that it is set to become effective July 19, 2020. Below, we examine the major differences between FED WARN and NJ WARN, detail some conflicts and ambiguities in the law, and offer commentary as to why the NJ WARN amendments must be paused at this unprecedented time.

On January 21, 2020, New Jersey Governor Murphy signed into law amendments to NJ WARN that are scheduled to go into effect on July 19, 2020. The legislators responsible for introducing the amendments have stated that their motivation was to prevent bankrupt companies from entering into stay bonus arrangements with their executives. (It is worth noting that, of course, such bonuses must be approved by the bankruptcy court). Given that New Jersey cannot control federal law or the federal judiciary, its legislators fashioned the idea to amend NJ WARN from a notice statute like FED WARN into a penalty statute that attempts to restate employers’ benefit plans and to hold executives personally liable for certain events. Observers have taken note of the sharp differences between FED WARN and NJ WARN, and have further mentioned that New Jersey has moved past the requirements of what other states and federal law requires with first-of-its-kind mandatory severance.

Prior to the COVID-19 pandemic, there was spirited debate about the propriety of the amendments. Some expressed the belief that the statute will harm businesses and will make New Jersey companies more cautious on their expansion plans so as not to risk having to pare things back at a later time. Others argued that executives will bolt bankrupt companies for greener pastures, making business failure all the more likely. Still others argued that the statute’s detractors are complaining for little reason and the protections are needed for rank and file employees.

Without taking any position on those debated points, very few of us could have imagined how different the world would be on April 1, 2020 and unfortunately this is not an April Fool’s prank. Unemployment is rocketing, business failures are everywhere, and virtually all New Jerseyans are confined to their homes, other than for essential business or personal items. It seems fairly inescapable that the economic impacts of COVID-19 may well be exacerbated by the looming effective date of the NJ WARN amendments. Respectfully, New Jersey must give consideration to indefinitely suspending the effective date, and to rethinking its text at a later date. While some of the bases for this (like ambiguities and errors in the text) are relatively minor, the primary reason that it must be paused, most simply, is for the sake of New Jersey. As we approach the effective date of the amendments, all of us hope that the state and the country will be coming out of this economic catastrophe. Hopefully, by July 2020, rehiring will be in full swing and employers must be incentivized to recall every employee possible. The NJ WARN amendments may instead cause a harsh examination of the risk attendant to re-hiring workers. Companies may be compelled to rely upon certainty of growth, putting that ahead of economic investment. New Jersey simply cannot afford to take the risk that this statute will slow rehiring and the state should act to make sure it does not impact our recovery.

With that overarching point behind us, we now move to an examination of the amendments, including the differences from FED WARN (the Department of Labor’s fact sheet on FED WARN can be found here), the changes from the original NJ WARN (we have created a redlined version of the amended law showing changes to the 2007 statute that can be found here), the multiple drafting irregularities in the amendments and the potential legal challenges that will follow.

Definition of Employer: There are actually (at least) two definitions of “employer” in the amended statute, which may create some confusion. The first definition remains unchanged and states that an “employer” is “an individual or private business entity which employs the workforce at an establishment.” The second definition of “employer,” which appears in Section 2d of the statute, states that for purposes of potential liability for failing to perform any of the required acts (give notice, pay base or penalty severance, or notify the response team), an “employer” includes:

“any individual, partnership, association, corporation, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, and includes any person who,

• directly or indirectly, owns and operates the nominal employer,
• or owns a corporate subsidiary that, directly or indirectly, owns and operates the nominal employer,
• or makes the decision responsible for the employment action that gives rise to a mass layoff subject to notification.”

Differences from 2007 NJ WARN - the secondary definition of “employer” did not exist.

Differences from FED WARN - limited to any business enterprise with 100 or more employees, excluding part time; or 100 or more employees, including part time, who work a combined total of at least 4,000 regular hours per week. It should be noted that this is the general definition and that there have been some efforts to stretch coverage through actions seeking to pierce the corporate veil, or by asserting joint employer liability under the criteria in 20 CFR 639.3(a)(2).  

The amendment thus appears to impose potential liability upon executives, owners, and decision-makers for choices they make concerning their workforce. This differs from certain wage theft laws, which punish knowing violations with potential personal liability, because NJ WARN does not consider the intent or willfulness of the underlying conduct that would create the liability. Thus, decision-makers must now consider NJ WARN when planning business expansion and workforce expansion or contraction issues because if for some reason the corporation cannot pay a future severance requirement, the decision-makers may have to backstop that obligation.

Timing of Layoff Notice: This was increased to 90 days prior to the event in question. However, in another example of drafting imprecision, New Jersey appears to have mistakenly maintained the phrase “in the case of an employer who employs 100 or more employees” in the expanded employee notice requirement. By doing so, NJ has effectively included a layoff of 50 or more employees as a covered event for which severance would be required, but (apparently) does not require notice from an employer that employs between 50 and 99 employees in New Jersey. If this was intended, it would mean that employers with between 50 and 99 employees would have no potential for a severance penalty given that the penalty is linked to failure to give proper notice (which is not required of them). However, these employers of 50 to 99 would still owe regular severance for a qualifying event. It would be difficult to imagine this carve-out was intended and more guidance is needed from the state.

Differences from 2007 NJ WARN - 60 days’ Notice
Differences from FED WARN - 60 days’ Notice

During this COVID-19 crisis, there have been many questions about what triggers notice or what excuses late notice under FED WARN and NJ WARN. There are no changes to these exceptions in the new NJ WARN language. The DOL Fact sheet linked above has useful detail on exceptions under FED WARN. While FED WARN has exceptions to the notice requirements for “faltering” businesses and “unforeseen business circumstances,” NJ WARN does not. Instead, NJ WARN has a more limited exception to the 60-day (soon to be 90-day) notice requirement if a layoff that was expected to be for six months or less is extended beyond six (6) months because of business circumstances that are not reasonably foreseeable. NJ WARN’s exception for “natural disaster” is also narrower than that available under FED WARN in that it only applies to a termination of operations, but not a mass layoff. Any employer pushing up against potential coverage under any WARN language is well-advised to consult counsel over notice requirements.

Which Employees Are Covered: The new statute counts all employees regardless of hours worked or tenure on the job. This means that, contrary to the past thirteen years, part-timers and employees that have worked less than six (6) of the preceding twelve (12) months are counted toward all threshold numbers. As noted, these changes may put unwanted pressure and focus on hiring and expansion efforts and undercut the effectiveness of the amendments.

Differences from 2007 NJ WARN - Covered only Full-Time Employees; there was a “full-time employee” distinction when calculating the 100 employee coverage threshold and the 50 employee layoff minimum; there was a part-time employee definition excluding employees that worked fewer than 20 hours per week or who were employed fewer than six (6) of the twelve (12) months preceding the date a notice is required.

Differences from FED WARN - Excludes part-time and “new” (i.e., those who have worked less than six (6) of the preceding twelve (12) months prior to when the notice is due) employees from the 100 employee threshold for employers under plant closing and mass layoff analysis.

Employee Threshold for Mass Layoff: A reduction in force which is not the result of a transfer or termination of operations and which results in the termination of employment at an establishment during any 30-day period (or during a 90 day aggregation period under certain circumstances) for 50 or more of the employees at or reporting to the “establishment” (as defined below). Note — both “transfer of operations” and “termination of operations” are defined terms, the definition of which remains unchanged from the existing law. This amendment extends coverage to even smaller employers. Previously, the mass layoff had to involve 500 employees or no less than 50 of 150 total employees (while maintaining a 1/3 impact requirement). This change also has further implications for large employers because of the new definition of “establishment” — see below. Think of an employer with 75 or so locations in NJ. Is it the case that a mass layoff has occurred if that employer terminates one (1) employee at 50 of its locations within a 30- day period? What does the term “termination” mean in connection with ordinary day-to-day employment decisions? While termination does not include a “discharge or suspension for misconduct of the employee,” it is not clear that the term misconduct includes poor performance (though for purposes of a mass layoff statute it obviously should). Moreover, there are carve outs for the layoff of “a seasonal employee” and where an employee is offered a transfer within the state and less than 50 miles away. In sum, it is unclear whether regular workforce changes such as these were even contemplated by the legislature, but one would imagine that New Jersey was not intending to regulate ordinary employee turnover. Having said that, no interpretative regulations are expected and it is inevitable that litigation will ensue with such confusing verbiage.

Differences from 2007 NJ WARN - only applied to an employment loss at one establishment during any 30-day period for 500 or more full time employee or for 50 or more of the full time employees representing one third or more of the full time employees at the establishment.

Differences from FED WARN - similarly, this includes only an employment loss at one establishment during any 30 day period for 1) at least 500 full-time employees, or 2) 50 or more full time employees (not counting new or part-time employees) which is at least one third of the full-time employees.

Employment Site: “Establishment" means a place of employment which has been operated by an employer for a period longer than three years, but shall not include a temporary construction site. The “establishment” may be a single location or a group of locations, including any/all facilities located in New Jersey. However, there are some issues in the statute with consistency around the word “establishment.” For instance, Section 2c references “single establishment.” It is difficult to understand what that means and whether it was intended. In Section 3c, there is a provision referencing employment opportunities at “any other establishment” and further requiring the notice include the location of “the other establishment” (indicating that it is singular). These references seem to maintain vestiges of the prior “single location” intent of 2007 NJ WARN and need to be clarified.

Differences from 2007 NJ WARN - covered a single place of employment and contiguous facilities in immediate proximity to one another.

Differences from FED WARN - A single site of employment, or one or more facilities or operating units within a single site of employment (with some limited exceptions).

This amendment appears to target larger employers (like retailers, pharmacy or grocery operators) with multiple locations that may not employ a sufficient number of employees at just one site to create coverage under the statute. As noted above, this language would put the multi-store retailer at risk for single terminations accumulated at its many locations over a 30-day period (or aggregated 90-day period).

Mandatory Severance: For a transfer of operations or a termination of operations resulting in termination of 50 or more employees in a period of not more than 30 days or for a mass layoff as defined, the employer must pay as compensation to each terminated employee severance equal to one (1) week of pay for each full year of employment. The rate of severance pay is the average regular rate of pay in the last three (3) years of employment, or the employee’s final regular rate of pay, whichever rate is higher.

Additionally, employers must pay the highest severance from any collective bargaining agreement covering displaced employees or from any policy or from NJ WARN. There is, however, a credit to the severance requirements for any short-notice backpay required under federal WARN.

Differences from 2007 NJ WARN - No mandatory severance.

Differences from FED WARN - No mandatory severance.

This severance requirement potentially intrudes upon an area governed by the Employee Retirement Income Security Act (ERISA) and will be subject to a preemption challenge by employers whose plans are impacted. Moreover, even if these provisions were not preempted, there is the potential for employers to simply plan around the employment losses and stage them appropriately to escape the applicable 30 day or 90 day period. However, those entities (and their executives) that are terminating operations are clearly covered by the statute and should plan to comply or challenge the viability of the statutes.

Severance Penalty: An employer also must pay an additional four (4) weeks of severance pay if it provides the employee shorter advance notice then that required.

Differences from 2007 NJ WARN - Employer required to pay base severance of one (1) week per year of service, but only if less than 60 days’ notice was given.

Differences from FED WARN - No severance penalty but employers that fail to give 60 days’ notice must pay wages for short notice.

Effective Date: The amendments indicate an effective date 180 days after January 21, 2020. However, it is not clear when the effective date actually applies in terms of the specific requirements of NJ WARN. Is it the case that an employer planning a qualifying event on July 20 (for instance) would have to give 90 days’ notice of this on April 21? If only 60 days’ notice would apply to such an event, is it also the case that no severance requirement would exist for a July 20 covered event? How should an employer address a 30 day period that straddles the effective date? It should be noted that the original version of NJ WARN, which was a notice statute, took effect immediately, meaning that, in effect, it applied to layoffs that were no less than 60 days after the effective date. Significant clarification is needed.

Hopefully, New Jersey will entertain indefinitely suspending the NJ WARN amendments. During that time, the statute can be reevaluated and/or any drafting issues may be addressed. If a postponed effective date does not occur, employers must be extremely vigilant when reviewing any planned layoffs or closures to come, and must also take NJ WARN into consideration when evaluating whether to grow their workforce.