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Proposed Amendments to WARN Act Would Expand Coverage To Include More Employers

Employers doing business in New Jersey have been subject to both the federal and state Worker Adjustment and Retraining Notification Act (“WARN”) for more than ten years.  Under the prior laws, if an employer were to close a facility employing more than 50 fulltime employees, it was required to provide those employees with at least 60 days’ advanced notice of the closure or face a penalty that required the employer to pay severance compensation to each of the terminated employees.   Proposed amendments to the New Jersey legislation will not only require employers to provide more notice to employees, but will also impose new economic burdens upon the employers.

Under the proposed amendments to New Jersey’s WARN Act, employers, who plan to close one or more establishment(s) within this state that will result in the layoff or termination of 50 or more employees (fulltime and/or part-time employees) from that establishment(s), will be required to provide the affected employees with at least 90 days advanced notice of the layoff or termination of employment.  Additionally, employers will be obligated to pay severance compensation to each of the affected employees in an amount equal to one week of severance compensation for each year of service. The severance compensation must be paid on or before the last day of employment. If an employer fails to pay the appropriate severance compensation, the employer will fact a penalty obligating it to pay an additional four weeks of compensation to each employee not correctly paid.

The new legislation also attempts to define severance compensation as compensation due for back pay associated with the termination.  It appears to be an attempt to characterize the severance compensation as wages for the purposes of bankruptcy.

Although intended to protect employees from the unexpected loss of employment and income, the proposed amendments could impose significant economic burdens upon employers with larger workforces that seek to shutter operations in New Jersey; the proposed legislation could also generate a greater number of bankruptcy filings, as federal bankruptcy law supersedes state law and may provide employers with an opportunity to avoid compliance with the economic burdens of the pending legislation notwithstanding the legislative efforts to overcome bankruptcy protections.

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