Severance packages are often considered a financial safety net for employees who lose their jobs due to layoffs, restructuring or other employer-driven decisions. Many companies voluntarily provide severance pay as part of an employee benefits package. Employers in New Jersey may wonder if the law mandates them to offer severance packages.
The short answer is that the Garden State generally does not require employers to provide severance packages. However, there is one notable exception as outlined in the New Jersey WARN Act (Millville Dallas Airmotive Plant Job Loss Notification Act). This law mandates severance pay for mass layoffs or plant closures.
The general approach to severance pay
In most cases, severance pay is not a legal requirement in New Jersey. If an employer chooses to offer severance, it is typically outlined in:
- An employment contract
- The company policy
- A collective bargaining agreement
Many employers provide severance voluntarily as a goodwill gesture, a way to maintain a positive reputation or to reduce the likelihood of legal disputes from terminated employees.
However, without a contractual agreement or company policy stating otherwise, state law does not mandate severance for individual terminations.
The New Jersey WARN Act and Mandatory Severance
This law was significantly amended in 2020, making it one of the most employee-friendly WARN laws in the country. However, due to the 2020 pandemic, enforcement of these amendments was delayed, and they officially took effect on April 10, 2023.
According to this legislation, severance is mandatory for mass layoffs regardless of whether the layoffs occur all at once or in phases over a short period. Affected employees must receive at least one week of severance pay per year of service. Additionally, suppose an employer forgets to provide employees with the required 90-day notice before the layoffs. In that case, employees are entitled to an additional four weeks of severance pay.
Under federal WARN laws, there are exemptions for unforeseen circumstances. However, the Garden State’s law does not provide an economic hardship exception. Employers must pay severance regardless of financial difficulties.
Employers considering layoffs can benefit from understanding their obligations under New Jersey law. Seeking legal guidance and reviewing the company’s policies can help ensure compliance and protect the organization’s legal interests.