...
Every employee who works for your organization will eventually leave the company. Some may quit or retire, while others may have to be laid off or terminated. Handling situations where an employee voluntarily chooses to leave is relatively straightforward. However, when an employee must be involuntarily separated, is this a layoff or a termination?
From a legal perspective, there isn't much difference — other than the employer's justification for the action. A layoff will normally affect more than one person, and is initiated for reasons such as cost reduction. Employees might be selected for layoff based on a number of factors, including seniority or performance. In contrast, a termination normally affects only one person (though it can affect more if, for example, two employees got in a fight).
Some employers are unwilling to tell an employee he is being fired, and would prefer to simply tell the employee that he is being laid off. Perhaps the manager doesn't want to hurt the employee's feelings. But can this decision hurt the company?
In one sense, there's not much difference between the two terms, and whether an employer uses “laid off” or “fired” to describe the employment action can be just a matter of semantics. However, your choice of words may affect how the employee views his chances of being “recalled” to work at some future point.
Of course, a “firing” or “termination” usually has a worse connotation and it typically means the action is permanent. While the employee’s feelings may be hurt, there’s little chance he'll believe that you are planning to call him back.
However, if you tell the employee that you are “laying him off,” he may believe your actions are based on restructuring, a reduction in force, or simply a lack of work. Employers sometimes take the “easy way out” and label a separation a “layoff” when they are really terminating an employee for poor performance. They may do this to avoid confrontation, documentation, discipline, and hurt feelings. In an employment-at-will state (which includes all states except Montana), employers who use this strategy aren't necessarily breaking the law.
Still, it's a risky approach that may be a recipe for a lawsuit, because the so-called layoff gives the impression that the employee will be returning when the economy recovers or when revenues rise. In fact, the employer may have no intention of ever reinstating the person. When this “laid off” worker — who was never counseled about performance issues — learns that a replacement worker has taken his place, he quickly figures out that he was fired, and he may conclude that the employer had a discriminatory motive.
There are also a few legal distinctions between layoffs and terminations. An employee who is laid off for lack of work will often be eligible for unemployment benefits, but a state unemployment agency may deny benefits if it determines that an employee was discharged for willful misconduct.
No rights to recall
When employers have to initiate layoffs, they often wonder about the legal rules when selecting individuals for layoff and recall. Also, does a company have to recall a laid off employee, or could it hire someone else instead?
It's up to the company to determine how it selects workers for layoff and recall. A company may base its decisions on seniority, attendance, performance, production rate, job description, or some combination thereof.
There really aren't any state or federal laws that speak to layoff and recall criteria other than the general prohibitions on discrimination and retaliation. A union might negotiate recall rights in a collective bargaining agreement, but this is a contract issue, not a law or regulation.
In the absence of a collective bargaining agreement or other employment contract, an at-will employer could bring in a new employee rather than recalling a laid-off worker. However, a company that does this should maintain good documentation of its criteria to show that it was not discriminating. That is, the company should be able to document why certain employees were selected for layoff, based on non-discriminatory criteria.