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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?

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    Because it's more honest? The vast majority of jobs these days aren't ones where you simply don't work until demand picks up. Getting "laid off" is politically correct firing in many locales. – Telastyn May 9 '13 at 2:33
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    @Telastyn: To me, what they did was dishonest. Yes, for some legal purposes, there's little or no difference. However - at least where I live - a lay off just means there's no work for you to do and/or the employer doesn't have the money to pay you. Firing means you either couldn't do the work or you did something wrong. As such, firing comes with a stigma and often brings questions from interviewers about why you were fired, even several years later, as I've learned. – GreenMatt May 9 '13 at 2:52
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    Possibly to avoid paying any statutory redundancy which is I believe the case in the USA - which country are you based in. Though strictly speaking a layoff implies that they would take you back on should work pick up (it's more used in factory (blue/no collar environment) – Neuro May 9 '13 at 18:14
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    In the UK, they would be in court in 2 seconds for constructive dismissal. – gnasher729 Apr 21 '15 at 9:05
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    This is really poor treatment of employees, and claiming it's 'more honest' is dismissing the fact that they were previously bragging about how few 'layoffs' they had. – Zibbobz Apr 21 '15 at 14:10
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A major benefit is something you mention in your question. If a company can tell prospective employee that it has never laid off an employee, that can make the candidate more likely to join the company or to accept less compensation in return for the perceived better stability. Of course, as you've discovered, that perceived stability may evaporate quickly in the harsh light of reality.

Potentially, some fraction of the individuals that the company fires either fail to apply for unemployment or delay applying for unemployment which can lower the cost of unemployment insurance for the company. It's also possible that the company is able to challenge some unemployment claims as well if they are terminating for cause. Whether the employer actually has a chance to prevail will depend on state law and the specific reason the employer uses to fire a particular employee so it's hard to generalize. But anything the company does to make it less likely that a former employee files for unemployment as a result of leaving the company has the potential to lower its unemployment costs.

Of course, the company may also see it as more truthful to fire employees rather than laying them off if they have no intention of calling them back. That may be a problem for employees when most other employers euphemistically refer to terminations for anything other than gross malfeasance as lay-offs. But the company may not particularly care about the feelings of terminated employees.

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  • While I know that layed-off employees can be called back to work in theory, I don't think I've ever heard of it happening. Nonetheless, +1 for the answer about luring employees into a job that is perceived to be safe. – GreenMatt May 9 '13 at 4:45
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    @GreenMatt I imagine it is much more common in non-salaried layoffs, manufacturing or other industries like that where there simply may not be any work for a large portion of people to do either seasonally or based on markets. – enderland May 9 '13 at 11:34
  • I'm with @enderland, I know a lot of people in trades and sometimes seasonal work where it happens all the time. Recently, the economy has been so bad, that many places aren't rehiring. – user8365 May 9 '13 at 15:33
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    This quote from The Real Hustle fits best here: "If it's too good to be true, then it probably is". – Radu Murzea Apr 21 '15 at 9:20
  • Don't forget how investors / wall street looks at layoffs vs firings. If this is a publicly traded company this could be image management with the shareholders. – NotMe Apr 22 '15 at 18:11
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Another reason not mentioned in other answers is the possibility of avoiding unemployment payments. When someone is laid off, if they qualify for unemployment, the employer actually pays part of that money (to the government, which then includes it in the check). If you're fired though some governments will deny the unemployment claim. In a similar vein, companies sometimes try to make someone so miserable they quit, also to avoid paying unemployment benefits.

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  • Maybe in some places, but where I was at the time, unemploymet benefits were only denied if the firing was "for cause" (i.e. you did something wrong). – GreenMatt May 9 '13 at 17:58
  • @GreenMatt Wouldn't being fired without cause = layoff? Also, in my state even with cause is not necessary enough to deny unemployment; it has to be a pretty gross violation such as negligence. – Andy May 9 '13 at 18:03
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    @Neuro: I am the OP! – GreenMatt May 9 '13 at 18:39
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    I think @Andy is right on "the money" here. Unemployment insurance premiums are increased on companies who have higher numbers of claims. I think they are rolling the dice on intimidating young kids into not filing at all, and hoping to "squash" others by forestalling claims hoping their firees get new jobs before they get through the application / appeal process. – Wesley Long Jul 20 '13 at 18:05
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    Also, laying people off instead of firing them might entitle them to severance benefits, like a lump sum pay out for their unused vacation. When companies do something self defeating like firing instead of laying off, it's almost always about some perceived bottom line benefit at the expense of hard to measure intangible benefits like high quality, trained, and engaged employees. – ColleenV Dec 31 '14 at 20:23
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The company man not want the potential obligation to rehire those people "laid off." In some places when a company lays someone off if they were to have an opening for a similar position they are required to attempt to bring back any personnel that they laid off. This could mean a few weeks of work to contact these people, get their responses, then interview them to find out if they can fill the position.

Then if they would decide that they do not want to rehire these people there is the potential court battle of workers trying to force the company to honor their workers rights that exist because they were laid off instead of being terminated for performance. The time to challenge the termination for workers rights is when terminated rather than when the company wants to rehire. So the company can go about its business hiring those it wants to fill the positions.

The company has already decided to keep the best and lay off those that are not at the top. If they fire everyone but have someone that they may want to bring back they can still contact those people. But without the obligation to potentially be force to bring back someone else that was an underperformer simply because they had more time at the company when they were laid off. It also allows them the choice to bring in new blood that has potential to be a top performer.

Generally there is a minor advantage to laying off when it comes to unemployment insurance. If the company is letting hundreds go at the same time the numbers generally come up in favor of it. Especially if the company may be want to rehire many of them in the future. However if the company is only sporadically letting a few people go here and there and not rehiring them, then the numbers probably lean in favor of termination.

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  • Good points. However, I don't fully understand the last paragraph - why would layoffs be favored over firings when "the numbers" are in the hundreds (or more, presumably)? I can see that a mass termination in which everyone "fails to meet expectations" might lead to some questions and even legal issues - was this what you were getting at? – GreenMatt May 9 '13 at 13:45
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    If a company never fires anyone or lays anyone off they pay less in Unemployment compensation fees to the government. If they lay off but bring back then the costs are lower. If they lay off and never bring back then the costs are higher than if they just terminate in the first place. The termination costs are more immediate so the amount paid in each payment is higher. The other mitigation factor is how long the people stay on unemployment. If 50% of the people laid off go back to work anywhere in 6 months it will probably be cheaper to lay everyone off. – IDrinkandIKnowThings May 9 '13 at 18:17
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There are many potential reasons which have to do with getting around some legal obligations (which obviously vary from jurisdiction to jurisdiction so not all of these are going to be valid in any given place):

  • If you lay off a certain number of employees in a predefined time period, you might have to provide extra support (e.g. pay for training/coaching or extra severance pay).
  • If you are not firing for individual performance problems, it might be more difficult to chose which employees get to stay (e.g. it might be mandatory to lay off the most recent hires first).
  • Others have mentioned some impact on the cost of unemployment insurance for the company, which would fall under the same category.
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  • It is really too bad when collective concerns end up affecting how individual people are treated. But that is business, right? – user37746 Jul 11 '16 at 15:58
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I have been in this situation

1) To avoid paying redundancy money 2) To avoid losing the option to recruit a replacement (if needed) following a redundancy.

It is a really sick way of working, but there are companies out there who would do this even if that means somebodies career is affected.

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The number one reason to fire for cause over laying someone off is to prevail in a lawsuit for discrimination. Most employers want to layoff whoever they want to layoff even if all those individuals are in a protected class like. Let's fire all the black people. Or 80% of the people fired are older and we can reduce our health care premium if we lie about there performance and fire them. I have seen most large Fortune 500 firms exhibiting this behavior. Sometimes they are caught and loose a lawsuit here and there but settle with those individuals if they agree to keep quiet.

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    Do you have any sort of support or sources to back this up? These are some pretty strong claims. – David K Apr 21 '15 at 12:54
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    Firing is going to be far more likely to result in a lawsuit than a layoff. In a layoff you have the fundamental justification that you can't afford the number of employees you have and so some just had to go. Firing typically, but not always, requires some level of causation. – Bill Leeper Apr 22 '15 at 20:34
  • I do know someone who got caught up in this sort of thing when they fired all employees who had worked there for more than ten years. She was an HR specialist, so she knew exactly how long everyone who was let go had worked there. She had been there 15 years. – HLGEM Jan 19 '17 at 23:05

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