New Jersey Bill Could Turn Painful Layoffs into Death Spirals for Companies
You can’t make a worker’s paradise without breaking a few companies.
It was understood that the business climate in New Jersey would change when Democrat Gov. Phil Murphy was elected in 2017.
Generally blue New Jersey had a Republican governor in the person of Chris Christie for eight years, and one could have reasonably anticipated a rubber-band effect; with the governor’s mansion back in their control, particularly in control of an inveterate left-winger like Murphy, there was going to be a pent-up release of progressive legislation.
It’s now 2020 and that rubber-banding continues unabated, with the business climate being one of the areas most adversely affected. A plan to phase in a $15-an-hour minimum wage law over five years was passed last year and corporate tax rates were hiked significantly. The good news is that this hasn’t affected the state’s unemployment — yet, anyway, thanks to a booming economy.
Still, New Jersey was one of the top five states for residents moving out in 2019, according to a North American Van Lines report. In 2018, it was the No. 1 state for out-migration, the North American Van Lines report from that year showed. And 46 percent of movers said they left due to job-related circumstances. Oh well — less competition in the incipient labor Shangri-La, right?
Now, as CBS News reported, the Democrat-dominated New Jersey legislature has a new gift for the state’s employers: A mandate that companies that lay off more than 50 workers at a time give the employees longer notice and give them one week’s pay for every year the employee has worked for the company, among other benefits.
The bill, S-3170, is known colloquially as the “Toys ‘R’ Us Bill,” CBS reported. It’s named for the bankrupt children’s retailer that shut down in 2018 and had its headquarters and distribution center in the Garden State. According to Law.com, this resulted in 2,028 lost jobs.
The bill passed both the state Senate and the Assembly on Jan. 13 and is on its way to the governor’s desk. Tuesday is the deadline for Murphy to sign or veto the bill, NJ.com reported.
The legislation, CBS News reported, would extend the prior notice period for mass layoffs — designated as any layoff of over 50 employees by a company with over 100 employees — from 60 days to 90 days. The severance pay mandate would be extended to all employees, as opposed to just full-time ones.
It would also categorize the severance payments as wages owed, which could have a substantial legal effect, according to Alvaro Hasani, an employment attorney for Fisher Phillips who talked to The Washington Post.
Hasani said that most companies require a “release of claims” agreement in return for severance payments, in which the laid-off employee agrees not to sue the employer. Under the “Toys R Us Bill,” Hasani says, “what’s unclear is whether that can be a continuing practice given the law.”
“Under the [bill], the severance is characterized as wages owed, so you can’t bargain,” Hasani said.
“Companies have exploited bankruptcy laws to protect their profits while workers lose their jobs and severance pay,” state Sen. Joseph Cryan, one of the bill’s co-sponsors, said in a statement after the bill passed the Senate.
“Employees shouldn’t be left in the dark as companies are pillaged for their resources after equity firms load them down with debt and the top officials walk away with bonuses. The law needs to be upgraded to better protect the rights of the workers.
“In this and other cases, the bankrupt companies were purchased by private equity firms that imposed massive layoffs while top executives walked away with millions of dollars in bonuses,” he added.
The details of the Toys R Us death are irrelevant here; its business model was thoroughly untenable in the era of Amazon and Target, where most of what it offered could be purchased online or in a retailer with a more varied selection of goods. Its shutdown was inevitable, one way or another, particularly given the ongoing “retail apocalypse.”
Protecting companies from leveraged buyouts by private equity firms wouldn’t have made Toys R Us profitable nor would it have saved those jobs, in the long run. Nor, in fact, does this legislation do anything of the sort.
What it does do, however, is potentially create a death spiral for companies that are based in New Jersey or that choose to locate a substantial portion of their workforce there.
“If enacted, this proposal would make our business climate even less competitive,” Mike Wallace, a vice president with the New Jersey Business & Industry Association, said in a December statement.
“It would come after the enactment of a series of tax increases and other expensive mandates imposed on employers during the past year, including a higher corporate business tax, higher state income tax, new paid sick leave requirements and the signing of a $15 minimum wage.”
“This is an example of a piece of legislation that was a reaction to a really unacceptable situation,” CEO Christine Renna of the Chamber of Commerce Southern New Jersey, told The Washington Post. “It’s going to make New Jersey an outlier.”
The new law wouldn’t just have a deleterious effect on for-profit businesses, either.
“My nonprofit clients are really concerned,” Newark, New Jersey-based attorney Maxine Neuhauser told The Post.
“These are not folks who are being driven into bankruptcy by private equity companies. These are organizations trying to do good work.”
Of course, the primary danger is to companies, particularly when they’re at their most vulnerable.
Most corporations aren’t Toys R Us and they’re not trying to pick up stakes and leave employees in a lurch to make a quick profit for executives. If they can’t afford to reorganize, however, or have to make employment termination decisions further in advance, you’re going to see more jobs lost than you would have.
For companies trying to become profitable the right way, this bill is a millstone around their neck — and one that could well pull them under thanks to the increased expenses it contains.
As for the Democrats’ contention this bill will somehow help thwart iniquitous behavior by private equity firms, that’s either deliberately over-optimistic or adorably naïve.
The danger is that New Jersey isn’t just an outlier, however. Remember how we conservatives used to ridicule $15-an-hour minimum wage legislation, when and where it was enacted, as a thoroughly untenable fantasy? That sort of legislation is still thoroughly untenable, but it’s hardly a fantasy at this point, having become the norm as opposed to the exception in blue jurisdictions nationwide.
The same thing could be said for New Jersey’s bill. The Post reported that United For Respect, a labor group that worked with Democrats on crafting the New Jersey statute, is also working with legislators in California, New York and Michigan to enact similar laws in those states.
Which is alarming, since this bill hurts those it purports to protect. Democratic lawmakers want you to believe that they’re standing behind workers on the lowest rung of the employment ladder, particularly in the retail sector. What they’re doing, however, is scaring away employers from directing more jobs away from New Jersey. Given the scarcity of jobs in the retail sector as it is, the stand Democrats are taking is cold comfort at best.
Meanwhile, those on the lowest part of the lowest rung are part-time employees, who are no longer exempted from the protections for laid-off workers. However, to count this as a protection, you have to presuppose those positions will exist or continue to be created after the law is passed. When you consider the additive effect of a minimum wage that will increase to $15 an hour by 2024, that’s hardly a guarantee for New Jerseyans.
It’s not good for workers, it’s not good for businesses and there’s zero evidence this will restrain private equity. It sounds great on paper, though — and like any supposedly well-intentioned piece of legislation introduced by the Democrats, it’ll be held up as an example of how they protect the little guy from the machinations of big business.
Meanwhile, I can guarantee you Gov. Murphy and Co. will feign cluelessness as to why people are fleeing the worker’s paradise they’re busy setting up in the Garden State.
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