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Slate of N.J. Laws Require Severance Pay in Mass Layoffs and Increased Penalties for Worker Misclassification

Client Alert

Authors: Tracey E. Diamond and Lee E. Tankle

1/29/2020
Slate of N.J. Laws Require Severance Pay in Mass Layoffs and Increased Penalties for Worker Misclassification

January 2020 was a busy month for New Jersey’s executive branch. Governor Phil Murphy signed into law at least five workplace-related bills, one of which revised the New Jersey mini-WARN Act, one granting state regulators authority to issue stop-work orders for workplace violations, and three affecting worker misclassification.

Mass Layoffs Require Severance Pay

On January 21, Governor Murphy signed an amendment to the Millville Dallas Airmotive Plant Job Loss Notification Act, otherwise known as New Jersey’s mini-WARN Act (the Act), making New Jersey the first state in the nation to mandate severance pay for employees terminated as part of a mass layoff. Before the amendment, the Act was substantially similar to the federal WARN statute, which requires employers to give employees notice of a mass layoff or plant closing.

Effective July 19, 2020, New Jersey employers must pay severance equal to at least one week of pay for every year of service to employees, including part-time employees, impacted by a mass layoff, transfer of operations, or termination of operations. For purposes of the law, a “mass layoff” is a reduction in force resulting in the termination of 50 or more employees over a 30-day period. It is unclear from the statutory language whether the severance requirement applies to all employers that terminate 50 or more employees or only those employers with 100 or more employees.

When calculating the amount of the severance payment, the rate of pay must be the greater of the employee’s average rate of compensation during the last three years of employment or the employee’s final rate of pay. The Act classifies the severance payments as “compensation due to an employee” that has been “earned in full,” so that employees who do not receive the required severance have a priority claim if the employer files for bankruptcy. In addition, because the severance is deemed earned, it does not appear that employers may require employees who receive the state-mandated severance to provide a release of claims to the employer to receive the severance.

The Act is not intended to eliminate any rights to greater severance under contract, policy or a collective bargaining agreement. Employees who have an existing contractual right to severance are entitled to the higher of the Act’s severance requirement or the contractual amount.

The Act also increases from 60 days to 90 days the minimum notice period employers with 100 or more employees (including part-time employees) must provide to employees subject to a mass layoff. If an employer fails to provide the full amount of the required notice, employees are entitled to an additional four weeks of pay. In addition to complying with New Jersey law, employers must ensure they comply with the federal WARN Act.

Stop-Work Orders

In January, Governor Murphy also signed A.B. 5838, which enables the state’s Commissioner of Labor and Workforce Development to issue stop-work orders against employers found to have violated state wage, benefit or tax laws. The stop-work order would require the company to cease all business operations in the place of business where the violation was found. Failure to comply with the stop-work order could subject the business to a civil penalty of up to $5,000 per day.

Worker Misclassification

The governor rounded out the month by signing three pieces of legislation related to misclassification of workers as independent contractors. By way of background, New Jersey applies the stringent “ABC test” for determining whether a worker is properly classified as an independent contractor. Under that test, a company bears the burden of demonstrating that its worker is an independent contractor by showing that:

  1. The individual is free from control or direction over the performance of the work performed;
  2. The service provided is either outside the employer’s usual course of business or is performed outside the employer’s place of business; and
  3. The worker is customarily engaged in an independently established trade, occupation, profession or business.

In May 2018, Governor Murphy established a Task Force on Employee Misclassification, which issued a report in July 2019 detailing recommendations for action at the administrative level and proposing legislative reforms, including increased penalties for worker misclassification and individual liability for business owners. The three misclassification bills enacted this month are an outgrowth of those recommendations.

The first bill, A.B. 5839, provides that any employer or staffing agency that misclassifies workers may be liable for an administrative penalty of up to $250 per employee for the first violation and up to $1,000 per employee for subsequent violations. Employers also will have to pay misclassified workers up to 5 percent of the employee’s gross earnings earned in the previous year. Second, under newly enacted A.B. 5840, any person acting on the employer’s behalf, including owners, directors, officers and managers, may be held individually liable for a violation of the state’s wage and hour laws or employment tax laws. The third law related to employee misclassification, A.B. 5843, requires employers to conspicuously post notices at their worksites notifying workers how to report allegations of misclassification. The law also protects workers from retaliation for complaining about misclassification.

Conclusion      

The new laws are a notable step in the continued evolution of New Jersey law focused on providing greater protections for workers in the Garden State. With increased penalties and stop-work orders now in the government’s toolbox, it is more important than ever for New Jersey employers to audit their current practices, keep up with the changing legislative landscape, and ensure that their policies and procedures are updated and in compliance.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

 

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