June 20, 2024
Walking the Fine Line Between Layoff and Termination

Employers layoff or terminate employees all the time. It is a normal part of doing business. Yet there is a distinct difference between the two practices under the law. As such, employers have to walk a fine line at times. They may want to terminate an unproductive or disruptive employee but fear doing so, choosing to lay off the employee instead.

Is that allowed? Can employers avoid legal troubles by classifying terminations as layoffs? No, not really. And in fact, Dallas-based BenefitMall says that doing so could result in more legal trouble down the road. For the record, BenefitMall is a nationally recognized provider of payroll, benefits administration, and HR services.

Defining the Two Terms

Employees have certain rights when it comes to termination. If they believe they have been terminated improperly, they can take legal action against employers. This is why it is so important to understand the differences between layoffs and terminations.

A layoff is an action taken company wide as a result of financial considerations. For instance, imagine a company that has suffered a significant drop-off in productivity due to a lack of orders. There is just not enough work to keep everyone busy. As such, a number of employees are let go in order to keep the size of the workforce commensurate with production needs.


A layoff scenario is one that does not target individual employees. It also is not initiated specifically against employees who are unproductive or disruptive. Indeed, a layoff is completely opposite from termination in that regard.

Termination is a scenario in which individual employees are targeted for specified reasons. It is the result of poor performance, insubordination, criminal activity, and the like. Terminated employees permanently lose their jobs, whereas laid-off employees might be hired back at some point down the road.

Calling Termination a Layoff

So why would a company terminate an employee but call the decision a layoff? To avoid civil litigation. The company does not want to be accused of wrongful termination, knowing that a ruling against it could mean significant fines along with back pay and possible reinstatement.

Such a strategy might seem reasonable until you stop and consider the consequences. Imagine terminating a middle manager and calling it a layoff. Everything might be fine until your company advertises the open position. Suddenly it becomes apparent that you still need someone to do the work. Your former employee can use that as evidence that he or she was terminated rather than laid-off.

Even if your company had a valid reason to terminate the manager, that former employee now has compelling evidence in support of a wrongful termination lawsuit. It would have been far better for you to simply document the reason for termination and present it truthfully.

At-Will vs. Contract Employment

Everything discussed thus far applies only to at-will employment, which is to say an employment agreement between employer and worker that can be terminated at any time and for any cause. It does not apply to employment established by a formal contract.

If your company has proffered formal, written contracts to any employees upon hire, you are bound to the stipulations contained in said contracts. That might mean you are not allowed to layoff or terminate a particular employee without first fulfilling certain contractual obligations.

Layoffs and terminations are two distinctly different things. As always, honesty is the best policy when separating workers from the company. Whatever your company does, call it what it is. Thoroughly document the reasons for any separation you initiate. Your company will be fine as long as the documentation supports the decision.

Leave a Reply

Your email address will not be published. Required fields are marked *