During the interview process with a company I once worked for, the company bragged about how they had never had to lay off anyone. This was a company that had been in business for decades and which had built itself up to a few thousand employees, so I was impressed.
After I'd been there a while, the client sponsoring the project on which I worked let it be known that during the next phase of the project they would be willing to pay for only half the staff that we had. Over the next couple months, 30% of the staff were fired for "failing to meet expectations". This included me - while I wasn't the top performer, I was getting my work done on schedule and with good quality. During the meeting in which I was informed that I was being terminated, the manager even said they would keep me if there was more work. As best as I could tell, the others who were fired were also getting their jobs done reasonably well - all of them had been there longer than me and none had bad reputations. I don't know if others on that project were fired after my termination, but I have met a couple other people who had similar experiences in other divisions of the company.
Why would a company consider it better to fire someone instead of laying them off?