New Jersey’s revised WARN Act, known as the “mini-WARN Act,” will soon take effect after nearly three years of delay due to the pandemic–induced state of emergency. At the time of passage in 2020, many commentators deemed the amended act to be extreme and riddled with ambiguities and unanswered questions. In view of this, it is disturbing that, during the three years following passage, no effort was made to clarify many of the law’s identified deficiencies.
Originally passed in 2007, the NJ WARN Act is a me-too version of the federal Worker Adjustment and Retraining Notification (WARN) Act. Like the federal WARN law, New Jersey’s WARN Act requires employers, if certain triggering criteria are met, to give employees notice in advance of mass layoffs or similar actions that would result in a substantial reduction in force.
The federal WARN law became effective on Feb. 4, 1989, with the intention of providing affected workers with fair notice of impending adverse employment actions 60 days in advance of plant closings and mass layoffs. Today, the federal law requires employers with 100 or more employees within certain criteria to provide at least 60 calendar days’ advance written notice of a plant closing and mass layoff affecting 50 or more employees at a single site of employment. The law provides exceptions when layoffs occur due to unforeseeable business circumstances, faltering business and natural disasters. With advance notice, workers and their families would have time to plan, look for suitable work and possibly seek retraining to compete successfully in the job market.
Within a few years of passage, a number of states passed similar laws that would cover events and situations not covered by federal law. New Jersey’s amended law includes three key changes that will affect employers facing the prospect of layoffs — increased notice obligations, mandatory severance (even if all notice requirements have been satisfied) and lower thresholds to trigger WARN. Because of the expansion of the definition of employer, the inclusion of part-time workers in the 100-employee threshold and the addition of obligations in the event of a change of control, many employers not previously subject to the NJ WARN Act will now fall within reach of the law. Additionally, the inclusion of part-time and out-of-state workers in the 100-employee threshold will result in countless smaller businesses being subject to the NJ WARN Act.
In interpreting federal WARN law, courts have recognized that a sale of a business does not by itself establish threshold employment losses for WARN purposes provided the acquisition agreement provides for continuity of employment. Accordingly, an asset sale does not trigger liability for the buyer if it hires a sufficient number of the seller’s employees.
‘Mass layoff’
The current NJ WARN Act is triggered and notice is required to affected employees in two situations: first, when a “mass layoff” occurs; and second, where there is a termination or transfer of operations. However, the 2020 amendments now impose a new set of obligations that are more than problematic in the event of a “change of control,” defined as “any material change in ownership of an employer,” or “any filing seeking bankruptcy protection.” In other words, the expansion of the definition of “mass layoff” and “establishment” means that larger New Jersey employers will have to take extra care when terminating any employees, as layoffs of both full- and part-time workers aggregated across all New Jersey locations that reach a lower than 50-employee threshold can trigger the need for notice and mandatory severance.
Any employers who are considering selling their business or declaring bankruptcy will also have to familiarize themselves with the new change-of-control requirements under the amended NJ WARN Act, a massive departure from both the federal and state laws. For 180 days following the sale, employees must be paid the same compensation (and benefits). For two years thereafter, no employee may be terminated by the successor employer without cause unless the New Jersey Department of Labor and Workforce Development approves under regulations that have not yet been adopted and published.
The NJ WARN Act now effectively destroys the long-recognized New Jersey employment concept of “employment at will.” It remains to be seen what the labor department will do to regulate post-closing employment actions while shattering the rights of employers under the employment-at-will doctrine.
On the other side of the coin, it is not only employers that should worry about the impact of the 2020 amendments. With such aggressive requirements placed on all but the smallest of businesses, it is likely that businesses with the resources to operate elsewhere will increasingly choose locations in other states to avoid the NJ WARN Act’s punitive measures. Businesses will be less likely to merge with or acquire New Jersey businesses. The 2020 amendments to the NJ WARN Act serve to punish struggling businesses by forcing them to pay mandatory severance to all employees, while simultaneously discouraging those struggling businesses from selling their assets or declaring bankruptcy with the new change-of-control obligations.
In today’s economic climate, more businesses are bound to face hardship, especially in this troubling regulatory environment. New Jersey residents should be concerned that the 2020 amendments will discourage employers from doing business in the state.
Why should business owners take such risks to do business in New Jersey at all? This massive governmental overreach will be just another job killer in New Jersey. Purchasers will back off from merger and acquisition activities until the many unanswered questions are addressed. It remains to be seen what the labor department will do with its undefined power to regulate post-closing employment actions while shattering the rights of employers under the at-will doctrine. It’s difficult not to anticipate the worst outcomes in the meantime.