United States: New Jersey's Amended Mini-WARN Act FAQs, Part II: Notice, Severance Pay, And Releases

On January 10, 2023, Governor Phil Murphy signed legislation amending New Jersey's mini-WARN law (NJWARN, officially named the Millville Dallas Airmotive Plant Job Loss Notification Act), and on April 10, 2023, these changes will become effective. Part one of this three-part blog series summarized the major differences between the original and amended law. Part two, below, answers employers' frequently asked questions (FAQs) about the amended law's new notice and severance pay requirements and the amended law's release provisions. Finally, part three will analyze Amended NJWARN's expanded employer liability and penalty provisions, and address questions about the transition from Original NJWARN to Amended NJWARN, and how the law applies to triggering events that straddle the new law's effective date.

V. Advance Notice

1. How has the advance notice requirement of NJWARN changed?

Original NJWARN required employers to provide 60 days' advance written notice (to employees, government officials, and if applicable, unions), prior to a covered triggering event (i.e., a mass layoff, termination of operations, or transfer of operations).

Amended NJWARN requires employers to provide 90 days' advance written notice (to the same groups) prior to a covered triggering event.

VI. Severance Pay

1. How has the severance pay requirement of NJWARN changed?

Original NJWARN required employers to pay severance pay—calculated as one week of pay for each year of service—to each employee who did not receive the required 60 days' notice prior to a covered triggering event (i.e., a mass layoff, termination of operations, or transfer of operations).

Amended NJWARN greatly expanded the severance pay requirement in two ways: (1) even when an employer provides the required 90 days' advance notice, the employer must still pay severance pay to each employee impacted by a covered triggering event (still calculated as one week of pay for each year of service); and (2) if an employer fails to provide the required 90 days' advance notice, the employer must pay an additional 4 weeks of severance pay to each employee who did not receive the required 90 days' notice.

In effect, the severance pay requirement has changed from solely a penalty when an employer fails to provide the required notice to a mandatory severance requirement even when the employer fully complies with the notice requirement (plus a penalty when failing to provide notice).

2. Is there a cap on the mandatory severance requirement?

No. Employees impacted by covered triggering events are entitled to one week of pay for each full year of service regardless of their tenure and regardless of their weekly pay.

3. Is an employee with less than one year of service entitled to severance pay?

Employees who receive the required 90 days' notice must be paid one week of severance for each full year of service. Thus, it appears that employees who have less than one full year of service and receive proper notice are not entitled to severance. However, employees who have less than one full year of service and do not receive proper notice may be entitled to the four weeks of severance penalty, which is not tied to tenure.

4. How are “years of service” calculated if an employee has a break in service?

Amended NJWARN does not address this. Another provision of NJWARN provides that the layoff of an employee without a commitment to reinstate the employee within six months is deemed a termination of employment. As such, pending further guidance, an employer might consider borrowing this “six month” criterion and apply it to the severance calculation, i.e., if an employee's break in service (prior to a triggering event) is more than six months, the employer need not count the prior service toward the severance calculation. Other New Jersey laws also incorporate a six-month concept. For example, under the New Jersey Earned Sick Leave Law, an employer must restore any unused sick leave to an employee who is rehired within six months of separation. But of course neither of these “six-month” rules expressly apply to Amended NJWARN's severance requirement.

5. How is a “week of pay” calculated?

There is no change (and no further clarification) between Original NJWARN and Amended NJWARN on this point. Both provide that “The rate of severance pay … shall be 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.”

6. What must an employer include in an employee's “regular rate of compensation”?

Neither Original NJWARN nor Amended NJWARN provide any clarity on this issue, such as whether an employer must include such items as overtime pay (for nonexempt employees), bonuses, deferred compensation payments, benefits, or any other items that might be part of an employee's total compensation. Nor does Original NJWARN or Amended NJWARN provide any clarity on how to determine the “regular rate of compensation” for employees who are paid on a commission basis that may vary widely.

One approach an employer may follow is to look for guidance under the federal WARN Act (or possibly New York WARN, which has detailed regulations), which require an employer to pay back pay for each day it failed to provide notice calculated “at a rate of compensation not less than the higher of (i) the average regular rate received by such employee during the last 3 years of the employee's employment; or (ii) the final regular rate received by such employee.” However, there is a distinction to note if relying on the federal WARN Act in this regard, since back pay under the federal WARN Act is essentially an out-of-pocket loss concept, i.e., actual or presumed compensation for income the employee would have earned during the notice period had proper notice been provided. In contrast, severance pay under NJWARN, while “regarded as compensation due to an employee for back pay and losses” (presumably for payment timing purposes, as will be discussed in part three of this blog series) is not an out-of-pocket loss concept, but rather a payment based on years of service. As such, the goals sought to be achieved via “back pay” under the federal WARN Act do not necessarily apply to the NJWARN “severance pay” concept.

7. When must an employer pay the mandatory severance?

Amended NJWARN provides that “Severance under this subsection shall be regarded as compensation due to an employee for back pay and losses associated with the termination of the employment relationship, and earned in full upon the termination of the employment relationship, notwithstanding the calculation of the amount of the payment with reference to the employee's length of service.”

Amended NJWARN thus appears to characterize the mandatory statutory severance pay as “wages” under the New Jersey Wage Payment Law that are due and payable in the employee's final paycheck in a single lump sum, as opposed to payment over time (e.g., as salary continuation) as typically done pursuant to a severance plan or policy.

8. What if an employer already has a severance pay plan or policy?

Amended NJWARN provides that “An employer shall provide an employee the severance pay required pursuant to this subsection … or any severance pay provided by the employer pursuant to a collective bargaining agreement or for any other reason, whichever is greater.”

Amended NJWARN thus requires an employer to pay the greater of (1) whatever is required under the employer's plan (or other obligation) or (2) one week of pay for each full year of service, calculated as required by NJWARN.

9. If an employer's severance pay plan or policy provides for greater severance, is the severance still due in the employee's final paycheck?

Amended NJWARN does not expressly address this. An argument could be made that if an employer is paying additional severance pursuant to its own plan or policy, then the severance should be paid in accordance with the other terms of the policy, including the time of payment provisions. But contrary arguments can also be made, and for example, employees may argue that they should not be forced to accept an extended stream of payments, especially if those payments do not significantly exceed the statutory severance. Pending further guidance, one interpretation is that the amount of severance due under Amended NJWARN must be paid in the final paycheck and that additional severance beyond that amount may be paid in accordance with the terms of the employer's plan, which would include payment only after a release is signed and any applicable revocation period has expired.

10. How does the severance pay requirement interact with back pay that may be required under the federal WARN Act?

As discussed above, under Amended NJWARN, an employer that fails to provide an employee with the required 90 days' notice must pay the employee (1) severance calculated as one week of pay for each year of service and (2) an additional four weeks of severance pay as a penalty.

However, Amended NJWARN further provides that “Any back pay provided by the employer to the employee pursuant to [federal WARN Act 29 U.S.C. 2104] shall be credited toward meeting the severance pay requirements of [NJWARN].” Accordingly, if the employer is adjudged liable for back pay under the federal WARN Act, the amount paid will offset the amount of severance due under NJWARN.

11. Is the severance pay requirement of Amended NJWARN preempted by ERISA?

A lawsuit is pending in New Jersey federal court seeking to have the severance pay requirements declared void on grounds of federal preemption under the Employee Retirement Income Security Act (ERISA). The ERISA Industry Committee v. Robert Asaro-Angelo, 20-cv-10094 (D.N.J.) The court has not yet issued a ruling.

VII. Release of Claims

1. Can employers require employees to waive their right to severance?

Amended NJWARN provides that “No waiver of the right to severance provided pursuant to this section shall be effective without approval of the waiver by the commissioner or a court of competent jurisdiction.”

The intent of this provision is unclear. One interpretation is that if an employee (or class of employees) files a lawsuit alleging a failure to provide the required severance pay, any settlement must be approved by the New Jersey Department of Labor and Workforce Development (NJDOL) or a court for a release of claims to severance to be effective. This would be consistent with wage and hour litigation under the federal Fair Labor Standards Act (FLSA), which requires approval of the settlement to ensure its fairness and adequacy. Another interpretation is that an employer cannot provide other consideration in lieu of severance pay without approval by the commissioner of the NJDOL or court.

2. Does this mean that an employer that pays employees the required severance at termination of employment cannot require employees to sign a release of claims, including a release of claims to severance?

An employer cannot require an employee to sign a release of claims solely in exchange for the statutorily mandated severance. In theory, an employee who is paid the statutory severance could still file a claim against an employer alleging, for example, that the employer did not properly calculate the employee's “regular rate of compensation” in the severance payment, or did not pay the severance promptly, or perhaps committed other technical violations of Amended NJWARN.

3. Can an employer that pays employees additional consideration require employees to sign a release of claims, including a release of claims to severance?

Amended NJWARN does not expressly address this. As noted above (see FAQ VI.9), a reasonable argument can be made that if an employer is paying additional severance pursuant to its own plan or policy, then the severance should be paid in accordance with the other terms of the policy, including the release requirements. But again, an employee may argue that he or she should not be forced to sign a release with respect to the portion of severance due under the statute. Pending further guidance, one interpretation is that the amount of severance that is due under NJWARN cannot be conditioned on a release (and must be paid in the final paycheck), and that additional severance beyond that amount may be paid in accordance with the terms of the employer's plan, including execution of a release (including where applicable the Older Workers Benefit Protection Act's (OWBPA) review/revocation provisions).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.