Understanding Severance Agreements in New Jersey
Losing a job is stressful under any circumstances. When your employer presents you with a severance agreement, it can feel like a lifeline — but it is also a legally binding contract with significant consequences. New Jersey employees have important rights under both state and federal law that govern how severance agreements must be structured and what you may be giving up when you sign one.
This guide provides a general educational overview of how severance agreements work in New Jersey, what protections exist, and what to consider before putting pen to paper. This is not legal advice — every situation is unique, and consulting a qualified employment attorney is strongly recommended before signing any severance agreement.
Does New Jersey Require Employers to Pay Severance?
This is one of the most common questions employees ask, and the answer has two parts.
General Rule: No Mandatory Severance for Individual Terminations
For most individual terminations, New Jersey does not require employers to offer severance pay. As a general matter, state law does not mandate severance for individual terminations unless there is a contractual agreement or company policy that states otherwise. Many employers provide severance voluntarily as a goodwill gesture, to maintain a positive reputation, or to reduce the likelihood of legal disputes from terminated employees.
However, there are three specific situations that can create a legal right to severance payments:
- A written employer policy: If your employer has an established severance policy, it must follow that policy for every employee who meets the stated requirements.
- An employment contract: If your contract includes severance provisions, those terms are enforceable.
- The New Jersey WARN Act: In mass layoff situations, mandatory severance applies under state law (detailed below).
The Major Exception: The NJ WARN Act
New Jersey stands out nationally when it comes to large-scale layoffs. In 2020, New Jersey became the first state to require employers to pay severance to workers who are laid off or terminated through workforce reductions. This landmark protection is found in the Millville Dallas Airmotive Plant Job Loss Notification Act — commonly called the NJ WARN Act — and its major amendments took effect on April 10, 2023.
The amended NJ WARN Act significantly expanded both the scope of covered employers and employees' rights. Under this law, a "mass layoff" that triggers notice requirements is a reduction in force that impacts 50 or more employees across the entire state, regardless of whether they are part-time or full-time, the facility in which they work, or the percentage of the workforce they comprise.
What Does the NJ WARN Act Require?
Who Is Covered?
The NJ WARN Act applies to private-sector employers with at least 100 workers nationwide who have one or more establishments in New Jersey. The notification requirement is triggered if a layoff affects at least 50 employees. Importantly, this count includes both full-time and part-time workers — a significant expansion from prior law.
Mandatory Severance Pay
When the NJ WARN Act is triggered, covered employers must provide meaningful severance pay. Specifically, all affected employees are automatically entitled to severance at the rate of one week of pay for each full year of employment, regardless of their tenure and regardless of their weekly pay. Eligible employees can receive up to a maximum of 26 weeks of severance pay.
If an employee is covered by a collective bargaining agreement or employer severance plan, the employee is entitled to the greater of the amount outlined in the NJ WARN Act amendments or the amount required by the applicable agreement.
The 90-Day Notice Requirement and Penalties
Covered employers must provide 90 days' advance notice to affected employees before a qualifying layoff, plant closing, or transfer of operations. Failure to meet this requirement carries steep consequences: if an employer fails to provide 90 days' notice, each impacted employee is entitled to an additional four weeks of pay on top of the standard severance amount.
Employers who fail to comply with the New Jersey WARN Act may face penalties as high as an additional four weeks of severance pay for each affected employee, making non-compliance extremely costly.
Key Provisions to Review in Any Severance Agreement
Whether severance is mandatory or voluntary, the agreement itself will contain several provisions that deserve careful attention. A seemingly generous severance offer may not be so generous once you understand the fine print. Here are the most critical clauses to scrutinize:
1. Release of Legal Claims
A severance agreement, at its core, is a contract in which an employer provides a monetary package in exchange for the employee waiving substantial legal rights. Rights typically released include the right to sue for all acts of discrimination, whistleblower retaliation, family leave violations, wage and hour violations, and a whole host of other unlawful acts. This includes potential claims under the New Jersey Law Against Discrimination (NJLAD), the federal Title VII of the Civil Rights Act, and other key protections.
If you sign a severance agreement that includes a liability waiver, you could lose your right to sue even if you have a valid case for discrimination or other unfair treatment. In some situations, the benefits offered in a severance package could be far lower than the compensation you might obtain in a discrimination lawsuit.
2. Non-Disparagement and Confidentiality Clauses
Many severance agreements include non-disparagement clauses and confidentiality provisions. However, New Jersey law limits how broad these clauses can be. Non-disparagement clauses in New Jersey severance agreements cannot prevent employees from discussing or disclosing details related to claims of discrimination, retaliation, or harassment, including sexual harassment or assault disputes. Additionally, the NLRB's 2023 McLaren decision further restricts the use of overly broad non-disparagement and confidentiality provisions in severance agreements.
3. Non-Compete and Non-Solicitation Clauses
Severance packages often include restrictive covenants, such as non-compete or non-solicitation agreements, that could significantly affect your ability to earn a living or work in your field after separation. Employees can and should carefully negotiate these terms, ideally with the assistance of an experienced employment attorney.
4. Benefits Continuation
When reviewing a severance package, consider whether your health insurance will continue and, if so, for how long. Benefits continuation is often a negotiable element of any separation package.
5. Release Effective Date
Make sure that any release of claims only covers claims arising before the agreement's effective date. Releases that attempt to waive future claims are generally unenforceable.
Special Protections for Workers Age 40 and Older
Federal law provides additional protections for workers aged 40 and older under the Older Workers Benefit Protection Act (OWBPA), which is part of the Age Discrimination in Employment Act (ADEA). These protections are critical to understand before signing any severance agreement.
Under the OWBPA, when an employer asks an employee aged 40 or older to waive age discrimination claims, the agreement must meet specific requirements:
- The agreement must be written in clear, understandable language.
- It must explicitly state that the employee is waiving rights under the ADEA.
- Employers must advise employees in writing to consult an attorney before signing.
- Employees must be given at least 21 days to consider the agreement (or 45 days when two or more workers age 40 or older are being laid off as part of a group reduction-in-force).
- The agreement must include a 7-day revocation period after signing, during which the employee may cancel the agreement.
In group layoff situations, the employer must also provide written disclosure of the eligibility criteria for the reduction-in-force, the applicable time limits, and the job titles and ages of all individuals selected and not selected for the layoff. These requirements are designed to help older workers identify whether age may have played a role in their separation.
Can You Negotiate a Severance Agreement in New Jersey?
Yes — and in many cases, you should. Severance packages often include terms related to pay, benefits continuation, and restrictive clauses such as non-compete agreements, all of which can be negotiated. Employees frequently assume severance packages are non-negotiable, but this is a common misconception. Is the severance amount fair given your tenure? Are the restrictive covenants reasonable? How long will your health benefits continue? These are all appropriate questions to raise during negotiation.
An experienced employment attorney can help you evaluate whether the offer is fair, identify unfavorable provisions, and advocate for better terms — all before you sign away your legal rights.
Common Mistakes to Avoid
When presented with a severance agreement, New Jersey employees often make avoidable errors that can cost them significantly. Be careful to avoid the following:
- Signing too quickly: Even if your employer sets a short deadline, take the time you are legally entitled to — and request more time if needed.
- Assuming the package is non-negotiable: Most elements of a severance agreement are open to discussion.
- Ignoring restrictive clauses: Non-compete, non-solicitation, and confidentiality provisions can have a major impact on your career and should be reviewed carefully.
- Failing to consult an attorney: Signing a severance agreement without legal guidance means you may not fully understand the rights you are waiving or whether you have a stronger legal claim.
- Not checking for WARN Act coverage: If you were part of a mass layoff involving 50 or more employees, you may be entitled to mandatory severance and additional notice-related pay under the NJ WARN Act.
Conclusion: Know Your Rights Before You Sign
New Jersey is one of the most employee-protective states in the country when it comes to severance law, particularly for workers affected by mass layoffs under the NJ WARN Act. At the same time, a severance agreement is never just a formality — it is a legal contract that can permanently affect your ability to pursue claims for discrimination, retaliation, wage theft, and other workplace violations.
Before signing any severance agreement, take the time you are entitled to, read every clause carefully, and consult with a qualified New Jersey employment attorney who can help you understand your rights and negotiate the best possible outcome.
The employment law attorneys at Leeds Law Firm are here to help New Jersey workers understand their severance rights. Contact us today for a confidential consultation.
