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My question is provocative because I have often wondered why would companies lay some folks off when they could seemingly save so much more money by firing them?

I understand if it was a big reduction the company has no choice but to layoff as it would look suspicious otherwise, but suppose the company is a terminate without cause company and the company has 100 workers they need to "lay off" 8 people to save cost.

Couldn't the company just make up some excuses to themselves to justify and fire the 8 people so as to not pay severances? I mean who would know?

I get that firings mean the worker didn't meet expectations, whereas a layoff is the company reducing headcount to save cost, which is no fault of the worker, but why not "make it the workers fault", by coming up with excuses so the company doesn't have to pay out severances?

If my question sounds ridiculous, I'm sorry. I don't know a lot about HR type of rules and regulations, but you would think others have thought this same thing.

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    The company potentially won't save money if the fired employees sue for wrongful termination.
    – sf02
    Jan 5, 2023 at 16:51
  • 12
    You should really tag this with a country. Because for some countries, the answer is simply "because it's illegal".
    – nvoigt
    Jan 5, 2023 at 17:08
  • 6
    @Travis If they are fabricating reasons, then wrongful termination can apply in certain locations, even if it is an at will company.
    – sf02
    Jan 5, 2023 at 18:42
  • 3
    What sf02 said: Making up reasons can be wrongful termination (which will cost you money) even if you could have laid off the same person completely legally.
    – gnasher729
    Jan 6, 2023 at 11:44
  • 5
    Aren’t ‘firing’ and ‘laying off’ synonyms? Jan 7, 2023 at 17:37

9 Answers 9

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I get that firings mean the worker didn't meet expectations

make up some excuses to themselves to justify and fire

If it is illegal the company risks legal action from employees or country of origin, which could result in fines. This is obvious and may cost the company substantially.

Companies also have to consider the long game. If they want to succeed they need to recruit and keep talent. If they lie and fire that talent each time the belt gets tight, they have a future of failure. Eventually talent will avoid that company like it has the plague (it does). They will then be destroyed by their competition.

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    An additional point to consider, aside from the legality, is the business insurance. In the US there is unemployment insurance, and those premiums go up when the company fires people.
    – David S
    Jan 5, 2023 at 23:51
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    I downvoted this answer because the last paragraph does not reflect reality. In the real world there are plenty of companies that are shitty employers, and nevertheless manage to find and retain talent and use their shittiness to gain a competitive advantage over the competition. The hard reality is unfortunately that in most industries and on most labor markets, employees are indeed a disposable resource. The only real threat to employment practices like that are labor unions.
    – Philipp
    Jan 6, 2023 at 9:03
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    @Philipp The question isn't about all companies though, it is wondering why some companies don't engage in this shitty behaviour and this answer is a good one. If you are seen as a good employer you will probably attract more and better employees. That there are lots of companies who don't have anything to lose by doing things like this explains why some companies do it. Why did Musk claim he was going to pay severance instead of telling everyone he was firing half the staff with nothing?
    – Eric Nolan
    Jan 6, 2023 at 9:27
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    @DavidS In Texas, people who are fired do not get unemployment benefits whereas those who are laid off do. The thinking is that firing is "for cause" whereas the layoff is a "reduction in workforce" and the insurance covers that. My premiums go up if I do a layoff but not when I fire someone.
    – David R
    Jan 6, 2023 at 15:47
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    Another reason the last paragraph doesn't reflect reality is that unscrupulous businesses often simply change their names.
    – user253751
    Jan 6, 2023 at 20:30
24

The key part in your question is

just make up some excuses

There are generally laws against lying about firing someone. And the person being fired will know that you are lying about firing them. This then opens the company up to wrongful termination lawsuits that will cost the company a lot more than if they just laid someone off.

And doing it en masse will get all the lawyers chomping at the bit to get a piece of that action.

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  • In the fictitious company in my post it is an terminate at will company. So would wrongful termination still apply?
    – Travis
    Jan 5, 2023 at 17:07
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    At will employment does mean that an employer can terminate someone for any reason that is legal. However, in the US some states have a "Good faith" exception that means it is illegal to fire someone in bad faith. Making up excuses to fire someone would fall under that. Also firing multiple people all at the same time would test the laws as well.
    – Peter M
    Jan 5, 2023 at 17:41
  • thanks for the response, and like the last person it isn't my company as I don't own a company in reference to your words "that you are lying about firing them...", I'm just a normal worker like most folks, it was just a general curiosity of mine.
    – Travis
    Jan 5, 2023 at 18:38
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    Travis, in the English language "my company" usually doesn't mean a company that you own, but the company that employs you.
    – gnasher729
    Jan 5, 2023 at 21:01
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    What mechanism enforces the legality of these bad faith firings? Do the workers have to get legal representation? Is this usually paid for from the proceeds of the case or do ex-employees now have to pay for lawyers while also being jobless? Jan 6, 2023 at 7:27
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There's three key reasons:

1: The potential cost of a Lawsuit. Regardless of how expensive a potential redundancy package is, a Lawsuit even if successful in the favor of the company will cost more. Substantially more. An Employment lawyer could easily be charging $500 an hour for their services and given that much of an unfair dismissal case involves lots of reading of documents, that adds up quick.

2: There are always people at a company that are considering leaving for various reasons. If I've got say 100 people at a company, I need to 'get rid of' 10 employees and I put out a voluntary redundancy offer, make it pretty reasonable - there's a chance that I might get 10 people to take it, in which case I've saved myself in the long run. My Brother left a company in this manner - he was thinking about leaving anyway - the offer was good, he left of his own free will - he was happy, the company was happy - everyone wins.

Granted this isn't a lay-off, but usually this is offered first - even if you don't hit the number you need, in my example - say only 5 take up this offer - it's easier to lay off 5 people than it is to lay off 10.

3: Perception in the industry and goodwill. No one likes getting laid off, getting fired less so. Most workers can 'understand' to a lesser or greater degree if a company is in dire straits that sometimes bloated departments needed to be trimmed back. If this is done in a honest manner and everyone at the company is equally 'suffering' (e.g. the CEO hasn't bought himself a new private jet...) then in time, people can come to terms with what happened - they may not like it, but they understand it.

Likewise potential future employees can understand it.

Whereas if you mass-fire people on dubious grounds, putting aside the legality for a mo, is perceived significantly worse. I wouldn't want to work for a company that fired people for made-up reasons - I can work for a company that might need to lay me off.

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    A bit of an extension of the lawsuit point, but in some states, the businesses themselves pay unemployment benefits. Likely that fabricating terminations is considered a form of corporate fraud, and that state may get involved. Jan 6, 2023 at 13:40
  • Related to perception, perhaps most important is perception by employees: if you see your colleagues getting fired for spurious reasons, you're going to be less of a happy worker than if you see them being reluctantly laid off with severance payments.
    – Stuart F
    Jan 17, 2023 at 15:46
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There are many aspects why this is a bad idea in the long term.

Reputation - word gets around quickly that you are an awful employer and nobody wants to work for you. Ex-employees will be asked about the company and will badmouth it instead of praising it, which can cost you money. Disgruntled ex-employees may know where your company has hidden skeletons and dig them out. (That's always a risk when employees become ex-employees. If they have been shafted it is a huge risk. A phone call to a previous customer, or to health and safety, can cost you lots of money).

Lawsuits are possible and they are expensive.

People want to get paid every month and they want job security. If you don’t give job security I’ll want a higher salary to compensate. So to get the same employees, you will have to pay more money every month.

You have other employees who suddenly lose any loyalty towards you. If you fired my colleague, what's stopping you from firing me at any time? So they’ll figure out it’s better to work for a different company, so they search for other jobs. Obviously they search in the time you pay them, so productivity goes down. And then they leave, with the best ones finding jobs first and leaving first.

There are probably more problems.

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As a partial frame challenge, some ruthless companies do get away with doing it within limits. They set up very competitive internal structures; and then aggressively cull their staff via performance reviews. In theory of course they're firing the lowest N% of their staff every year for poor performance; in practice a lot of the people who're given the boot are those who failed not on professional merits but because they lost the office politics game. If you have a high natural rate of attrition you can downsize fairly rapidly if needed just by slowing hiring.

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  • I've worked for a company that wasn't particularly ruthless in other aspects of its business practices, but did something like this for it's client-facing staff because there was always a line of young, ambitious replacements ready to try.
    – Theodore
    Jan 6, 2023 at 18:27
  • The problem with this approach is if you employ a 100 people with the idea of culling 20 percent why not just employ 80 people?
    – Neil Meyer
    Jan 9, 2023 at 19:00
  • @NeilMeyer in the normal state of affairs in a rank and yank organization you're continually hiring new people to back fill those you let go. When there's a crunch and you need to downsize you just slow/stop the hiring loop but keep letting people go. Jan 9, 2023 at 19:14
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Companies already do that.

This happens often enough that in some States, the unemployment office has a whole court, judges and everything, dedicated to unemployment cases.

I've seen their dockets. It's 99% disagreements over whether an employee was laid off versus fired.

What's at stake is whether the employer needs to pay the costs/taxes associated with laying someone off versus firing them for cause. And yes, many companies "always fire" and simply take their licks if the employee has the chutzpah to take them to court. They hope the employee has better things to do with their time, like get another job quick.

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why would companies lay some folks off when they could seemingly save so much more money by firing them?

Attributes not covered:

Attitude of remaining staff

Those remaining with the company are effected by layoffs (some benefits) and firings (scant benefits) - a firing more so. There is a judgment made by them and it affects their desires to remain with the company. It affects goodwill.

Bosses are people too

At least most of them. Termination, how ever it is done, casts wide waves of ripple effects. Mid-level managers, at least some, do suffer when obliged to let staff go - of course not as much as the one terminated. An easier let-go (layoff) is less traumatic than a firing for all.

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At will employment doesn't mean you are free from the consequences of letting someone go. In particular, people fired for cause are typically not eligible for unemployment payments, whereas people laid off for headcount reduction are. That can affect an employer's unemployment insurance premiums. If it goes to court, the employer has the burden to prove the employee was fired for cause.

That being said, while it's rare for a company to lie about a reason to fire someone, it's not unusual to see a tamp down on rules. Just like employees might be on the fence about quitting or not, but choose to stay for now, employers might have been letting things slide, then money gets tight and it's not worth it to keep you anymore.

That's why you can usually tell if a company is trying to avoid a layoff. They do hiring freezes, eliminate unnecessary expenses like travel, and be more strict about putting people on performance improvement plans or whatever. Employees who were on the fence about leaving anyway get nervous and start to actively job search.

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    Even being fired for cause is not a bar for unemployment benefits, it has to be for misconduct. Being incompetent for instance isn’t a bar to unemployment benefits. And accusations of misconduct opens up the company to suits for defamation (which is why true or not, companies usually prefer to NOT make such accusations).
    – jmoreno
    Jan 8, 2023 at 15:59
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Severance packages can foster certain business environments that go beyond just the retention of labour.

For instance Netflix is notorious for having one of the notoriously cut throat tech working environments.

You are expected to burnout within two years but they get away with it because there severance pay is generous and makes it possible to take a couple of months off working to recover if you realise the put-the-devil-out-of-a-job approach they have is not for you.

Not all work relationships end on bad blood. Employers may pay severance packages for a number of reasons even if the reason is not always apparent.

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