the uncertain future of noncompete agreements

By: jonathan landesman, esq. and aislinn srocynski, esq.

New Jersey contractors planning a large reduction in force (“RIF”) have long been required to implement that RIF in compliance with both the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et seq. (“Federal WARN Act”) and the Millville Dallas Airmotive Plan Job Loss Notification Act, N.J.S.A. § 34:21-1, et seq. (“NJ WARN Act”). With recent amendments to the NJ WARN Act having taken effect as of April 10, 2023, contractors should be mindful of the new differences in scope and obligations as set forth in the Federal WARN Act and the newly amended NJ WARN Act. Importantly, union contractors are unlikely to be subject to the requirements of either the Federal WARN Act or the NJ WARN Act in connection with the layoff of union laborers upon the conclusion of a particular construction project.

Covered Employers. The Federal WARN Act applies to “business enterprises” that have 100 or more employees, across all the business’ locations. A “business enterprise” may include “independent contractors and subsidiaries which are wholly or partially owned by a parent company.” Under the Federal WARN Act, a business may meet the 100-employee threshold by having either 100 full-time employees or 100 or more employees, including part-time employees, who in the aggregate work at least 4,000 hours per week excluding overtime.

Under the NJ WARN Act, as amended, an employer is subject to the law’s requirements if it has at least 100 employees, irrespective of whether those employees are full-time or part-time and without regard to hours worked.

Triggering the Notice and Other Requirements. The Federal WARN Act is triggered in the event of a plant closure or mass layoff. Under that law, a plant closing occurs where an employment site (or one or more operating units within an employment site) will be shut down, resulting in an “employment loss”1 for 50 or more full-time employees during a 30-day period. A mass layoff, under the federal statute, is a reduction in workforce that is not the result of a plant closure, that results in an employment loss at a single site within a 30-day period of: (a) 50 or more full-time employees, provided that the affected employees constitute at least 33% of the active full-time workforce at the site; or (b) 500 or more full-time employees. Where the number of employment losses within a 30-day period falls below the above minimums, but the total number of employment losses in a rolling 90-day period reaches the threshold level, the Federal WARN Act will apply unless the employer demonstrates that the em- ployment losses during that 90-day period result from separate and distinct actions and causes.2

The NJ WARN Act differs significantly from the Federal WARN Act with respect to triggering events. As amended, the NJ WARN Act is triggered upon a layoff of at least 50 employees at, or “reporting to” an “establishment.” Both full-time and parttime employees are counted towards the 50-employee threshold, and there is no consideration of what percentage the affected employees constitute of the overall workforce. Further, with the statute’s broad definition to “establishment,”3 layoffs at all the employer’s locations within the State will be counted towards the 50-employee threshold.

Union contractors frequently hire union laborers to perform work on a particular project and later lay off those workers en masse at the conclusion of that project. Federal regulations provide that notice under the Federal WARN Act is not required if the “layoff is the result of the completion of a particular project . . . and the affected employees were hired with the understanding that their employment was limited to the duration of the . . . project,” so long as the employees were “clearly” informed “at the time of hire that their employment is temporary.”

While New Jersey does not have a comparable administrative regulation to 20 C.F.R. 639.5, quoted above, the definition of “establishment” in N.J.S.A. § 34:21-1 specifically excludes “a temporary construction site.” Though the term “temporary construction site” is not otherwise defined in the statute, legislative materials, or case law, the plain language of the statute combined with the requirement that an “establishment” be operated by the employer for at least three years, supports the conclusion that a layoff of union workers at the conclusion of a construction project will not subject the contractor to the NJ WARN Act’s requirements.

Employer Requirements. The Federal WARN Act requires that, at least 60 days before a plant closing or mass layoff, an employer provide written notice of the impending RIF to, most notably: (a) affected non-union employees; (b) representatives of affected union employees; (c) the designated state official in the jurisdiction; and (d) the chief elected local government official where the employment site is located. The Federal WARN Act does not mandate payment of severance or other financial benefits to affected employees.

The newly amended NJ WARN Act imposes substantially more burdensome requirements on employers. Under this statute, employers must provide written notice of an impending RIF to affected employees (along with union representatives and certain government officials) 90 days in advance thereof; a full month earlier than what is required under federal law and what was required prior to the amendment. Further, prior to the recent amendment, employers were required to provide affected employees with severance pay only as a penalty in the event of a failure to provide timely notice. Now, the amended NJ WARN Act compels employers to pay severance to all affected employees, at the rate of one week’s salary for each year that the employee was employed. 4

Penalties. Employers who fail to fulfill their obligations under the Federal WARN Act may be liable for penalties including up to 60 days’ back pay plus benefits for affected employees and $500 per day civil penalty to the local government where the RIF occurred. Under the NJ WARN Act, should an employer fail to timely provide the requisite 90-day written notice to an affected employee, the employer must also pay an additional four weeks’ severance to that employee (in addition to the statutorily mandated severance pay discussed above).

With the recent amendments to the NJ WARN Act expanding the number of employers subject to compliance therewith and imposing more burdensome obligations upon those employers, contractors contemplating a RIF should be sure to pay close attention to what is now required under both the Federal WARN Act and the NJ WARN Act.

1 An “employment loss” under the Federal WARN Act includes an employment termination (other than retirement, voluntary departure, or discharge for cause), a layoff of at least 6 months, or a reduction in an employee’s hours of over 50% in each month of a 6-month period.

2 Contractors should note that there are several categories of workers who do not count towards the minimum thresholds under the Federal WARN Act, including part-time employees, workers who retired, resigned, or were terminated for cause, and certain workers who were offered a transfer to another location.

3 An “establishment” is defined as “a place of employment which has been operated by an employer for a period longer than three years” and “may be a single location or a group of locations, including any facilities located in this State.”

4 Notably, the amended NJ WARN Act’s expanded definition of “employer” – in the context of the statute’s mandatory severance payment obligation – includes any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, and includes any person who, directly or indirectly, owns and operates the nominal employer, or owns a corporate subsidiary that, directly or indirectly, owns and operates the nominal employer or makes the decision responsible for the employment action that gives rise to a mass layoff subject to notification.” This broadened definition may be argued to impose personal liability (with respect to any failure to pay required severance) under the NJ WARN Act upon non-ownership managers and corporate officers involved in a RIF.