Gov. Phil Murphy and fellow Democrats in the Legislature seem to make a big show of helping some workers and hurting businesses.
Their increase of the state minimum wage to $15 an hour will boost some entry-level employees if their jobs aren’t eliminated, and hurt bunches of businesses — especially South Jersey’s seasonal tourism and agriculture businesses. The Democrats also have increased taxes an average of 2% on companies earning more than $1 million a year.
Now they’ve gone where no state has gone before, requiring companies to provide hefty severance pay — a week’s pay for each year of service. The severance law also requires longer advance warning of major layoffs, from 60 days notice to 90 days.
New Jersey already has the nation’s worst tax and regulatory climate for business, which keeps its economy lagging behind the rest of the nation and its residents without the job opportunities and incomes they deserve. The severance requirement, on top of mandatory sick leave and expanded paid family leave, ensures the state will be even less able to compete economically with others.
The severance mandate is a knee-jerk response to the high-profile bankruptcy of Toys R Us a couple of years ago. When that retailer could no longer compete with department store and online rivals, it closed more than 800 locations nationwide, laying off 2,000 employees in New Jersey. (The owner of the remains of Toys R Us opened new stores in Paramus, Bergen County, and Houston in the fall.)
But even in the Toys R Us case, two of the private equity firms that owned the retailer eventually established a severance fund.
One problem with mandating severance pay is that it turns something that was often negotiated into a benefit owed under state law. Employers had an incentive to pay a decent severance in return for departing employees agreeing not to sue them, for example. Now they’ll have to offer more than what’s required by the law to get a general release from claims.
The details of the severance requirement suggest, however, that it may be more progressive grandstanding than actual help to most workers.
For example, it only applies to businesses with 100 or more employees. And it only applies to them if they lay off 50 or more people during a 30-day period. This sounds like an invitation to game the rules.
Suppose, for example, a company with 280 employees wants to wind down its operations and close, without paying $5 million in severance (there’s no upper limit under the N.J. law). It could lay off 49 employees every 31 days over a little more than four months, drop its headcount below 100 and never trigger a layoff warning or severance mandate.
The sad thing is that everyone in New Jersey — even its revenue-hungry state government politicians — would be far better off with a healthier business community and economy. That’s achievable not with political posturing, but with fixing the state’s unsustainable debt load, pension/benefits obligations and crushing tax burden.