New Jersey is the first state to adopt a law requiring companies that conduct mass layoffs to offer guaranteed employee severance packages.
Democratic governor and former Goldman Sachs investment banker Phil Murphy signed a bill Tuesday, sponsored by state senator Joe Cryan, that calls for corporations with over 100 full-time workers to provide one week of severance pay for each year of service. This applies to the layoffs of 50 or more people. Companies must also offer 90-day notice to their employees that there may be a mass downsizing. There will be penalties levied on corporations if they don’t comply, adding an extra four-week payout to the worker’s package.
The impetus for this new law is, in part, due to the closing of several major New Jersey-based companies, particularly Toys“R”Us. This company was a remarkable success story. Based in Wayne, New Jersey, Toys“R”Us started in 1948 and revolutionized the way toys were sold and helped introduce the big-box retailing concept. For those readers of a certain vintage, you will fondly recall visits to the store as a child and its fun commercials featuring Geoffrey the Giraffe and the “I don’t want to grow up, I’m a Toys‘R’us kid” jingle.
The company was taken over by private equity firms, loaded up with debt and subsequently went bankrupt. Private equity, loosely defined, refers to a company that raises money from institutions, endowments, insurance companies, pension funds and wealthy people. The funds are then used to acquire companies. The PE firms will then install new management, ruthlessly cut costs—which usually involves large-scale downsizing of employees—and take measures to turn around the fortunes of the acquired company. When the company’s fortunes improve, the PE firm sells it for a substantial profit. Executives at top PE firms are multimillionaires and billionaires. It’s a lucrative big business and it’s only growing larger.