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Layoffs

Layoffs are a possibility even in good economic times. Anyone who has ever worked for a startup knows that job cuts can come at any time. But the number of layoffs increases during an economic downturn as businesses cut costs to offset a decrease in demand. With the economy slowing down, you may wonder what a layoff is and what you can do if you find yourself without a job.

This page gives a broad overview of layoffs. It also links to more detailed articles that can help you answer specific questions. Federal and state laws govern how an employer can lay you off and what options you have. State layoff laws vary, so you should consult an employment law attorney in a city near you to give you the best advice about your situation.

What Is a Layoff?

layoff is a temporary or permanent loss of your job for a reason other than your performance. Typical reasons you could get laid off include the following:

  • Seasonal closures
  • Cost-cutting in response to lower demand
  • Exiting a line of business
  • Restructuring due to a buyout or bankruptcy

When your company lays you off, you lose your wages and benefits. But you'll likely qualify for unemployment benefits. Unemployment benefit requirements vary by state. It's in your best interest to start researching your state's unemployment insurance program right away.

An employment law attorney can help you understand if you qualify for unemployment in your state. They can also help you apply for benefits and represent you in front of the state unemployment agency, if necessary.

You also get to keep what you invested in the company 401k or other retirement plan. But you can no longer pay into the company retirement plan and your company will stop matching your retirement plan contributions.

Laid-off employees also often receive a severance package.

Layoffs are only sometimes involuntary. When a company wants to lower headcount, it may offer early retirement or a buyout to encourage employees to leave early.

Early retirement is a package your company may offer to workers close to retirement who have been with the company for a long time. Early retirement often allows you to retire while receiving a full pension. Your employer may also include other benefits in an early retirement offer.

buyout is like early retirement, except your company offers it to younger workers who aren't close to retirement. Buyouts often include a severance package based on your tenure with the company. It may also include healthcare and job search benefits.

What's a Temporary Layoff?

temporary layoff or furlough is when your employer puts your job on hold for a short time. It's a way for your employer to lower costs without reducing headcount.

A furlough comes with the understanding that the company will recall you later. You also remain an employee during your furlough. So, although you don't receive a paycheck, you keep your job title, benefits, and seniority.

Furloughs don't have to be a complete stoppage of work. They can take other forms, such as:

  • A reduction in hours
  • A requirement that you must take a certain amount of unpaid vacation at your discretion
  • A requirement to take additional unpaid days off around a holiday

Companies often use furloughs when it doesn't have enough work for their staff. For example, your company may furlough you while it closes the plant where you work for repairs. It can also use a furlough if it doesn't have enough budget to pay you.

Furloughs offer some advantages to your employer. They allow your employer to avoid termination and severance costs. Your employer can also call back trained employees, reducing the costs of hiring and training new workers. Knowing that you'll return to work also gives you peace of mind.

Keep in mind that a furlough can become permanent if the temporary situation that led to your furlough doesn't reverse.

What's the Difference Between a Layoff and a Furlough?

The significant difference between a layoff and a furlough is the duration. A layoff is often permanent, while a furlough is temporary.

You lose some pay when you go on furlough, but you keep your job. You may also be eligible for unemployment benefits while on furlough, depending on your state's requirements for unemployment insurance.

A layoff is a permanent loss of your job. You lose your pay, job title, benefits, and seniority. You'll also have to look for a new job if you want to keep working.

What's the Difference Between a Lay Off and Termination?

The main difference between a layoff and termination is why you lost your job. In a layoff, your job loss is unrelated to your performance—for example, an economic downturn or the seasonality of your job.

When your employer fires you, it's often because of poor performance or misconduct. Where you're eligible for unemployment if your company lays you off, you're likely not eligible for unemployment if your company fires you.

Why Would a Company Want To Avoid a Layoff?

Layoffs can be costly to a company and its local community. When your company lays off many workers, it can damage the local economy by reducing demand for local goods and services. A layoff can also lower local tax revenues.

Managing the layoff, paying severance, and dealing with complaints make layoffs financially expensive.

Layoffs may also lower morale and create anxiety in the employees who keep their jobs. The lower productivity that results from decreased confidence in your company can impact the bottom line.

I Need To Lay off Employees. How Should I Do It?

Layoffs are not only emotionally taxing, but they also create legal concerns. You need to have a fair process that retains vital employees while avoiding wrongful termination lawsuits. When deciding who to lay off, you must use a selection process that doesn't discriminate against a protected group.

To avoid legal issues in a layoff, you must document every decision and step in the process. Begin with documenting the reasons why you decided to do a layoff.

Your next step should be to decide what your company needs to look like after the layoffs. Know what positions and skills are vital to your future profitability.

You must decide who to keep after you know what positions and skills your company needs.

Companies make layoff decisions using the following criteria:

  • Seniority is where you lay off the employees with the shortest tenure at your company.
  • Employee status is when you decide based on the type of employee. So, you would lay off freelancers, contract workers, and temp workers hired through staffing agencies first. Contingent and part-time workers would follow.
  • merit-based system is where you use employee performance to decide who to keep.
  • skills-based system is where you decide who to keep based on their skills.
  • All the above options have advantages and disadvantages. Using only one could mean you lose valuable skills or industry knowledge. Another option is to use multiple criteria to keep the employees that give you the best chance of being profitable.

The more objective your criteria, the safer you are. But that could cause you to lose valuable employees. For example, seniority is a very objective measure. But that could mean you lose younger employees who have a newer skillset you need after the layoffs.

After you decide which selection criteria to use, it's time to create your preliminary list of layoffs. Make sure to check your list to ensure you're not inadvertently violating anti-discrimination laws or inviting lawsuits. You should do this step even if you used non-discriminatory criteria to make your list. For example, if you decide to keep employees with a newer skillset, you could mistakenly lay off a disproportionate number of older workers.

When you have your final list, you'll have to notify the workers you laid off. Your human resources department must be ready to deal with a variety of emotions and answer difficult questions. You should also consider ways you can assist your laid-off workers. For example:

  • Severance packages
  • Job placement help
  • Continuing health benefits

What's the Worker Adjustment and Retraining Act?

The Worker Adjustment and Retraining (WARN) Act is a federal law enforced by the U.S. Department of Labor. WARN ensures that employees receive advance notice in the case of a mass layoff.

mass layoff is a reduction in force that is not a plant closing but results in an employment loss at a single site of at least 33% of active employees and at least 50 employees within a 30-day period. If the layoff affects more than 500 employees, the 33% requirement doesn't apply to trigger the notice requirement. WARN excludes part-time employees from this definition.

If the WARN Act is applicable, your employer may have to give you sixty (60) days' notice before the layoff. Your employer must also provide you with information regarding your rights and options.

If the layoff doesn't meet the definition of a mass layoff, then your employer does not have to give you notice under WARN. But some states have laws that require notice in certain situations. For example, California has a version of WARN called the Cal-WARN Act that imposes notice requirements on businesses in the state.

My Company Laid Me Off. What Should I Do?

If you get laid off, there are several things you should do.

First, check your employment contract if you have one. It may have provisions regarding severance and benefits in the case of a layoff. Remember that you can also try to negotiate a better severance package.

If your employer doesn't continue providing you with healthcare benefits, check into COBRA. COBRA is a federal program that allows you to continue receiving healthcare benefits for 18 to 36 months in certain circumstances.

You should also look into what happens to your 401k if you have one. You may be able to leave it with your former employer. You can also transfer it to your new employer or an individual retirement account (IRA).

A layoff also means you can't pay into your employer's retirement plan. Your employer also stops matching your contributions to the plan. So, it would help if you reevaluated your retirement savings strategy.

The most important thing is to look into your state's requirements for unemployment benefits. To be eligible in all states, you must have lost your job through no fault of your own. Other specific unemployment insurance rules, such as when you can file an initial claim, vary by state. Be sure to file for unemployment as soon as you are eligible.

It's also a good idea to look into available relief programs such as the following:

  • Food banks
  • Assistance in paying utilities and other bills
  • Student loan forbearance

Are Widespread Layoffs Coming in 2023?

It's a macroeconomic given that a recession can lead to layoffs.

We've already seen many companies start to lay off workers in recent years due to the COVID-19 pandemic and economic slowdown. The tech industry and e-commerce have seen many layoffs in the last year, impacting the San Francisco Bay area especially hard.

Mark Zuckerberg of the social media company Meta announced layoffs in late 2022. Twitter employees recently dealt with layoffs after Elon Musk bought the company. Once a startup darling, Snap also reduced its workforce.

Amazon and Microsoft, two of the tech giants, have also reduced their number of employees.

Other tech companies such as HP, IBM, and Oracle either plan to or have laid off workers in the last year. Salesforce, Peloton, and Netflix have also reduced headcounts. The recent turmoil in the crypto markets driven by the FTX bankruptcy led to layoffs at Coinbase.

Tech layoffs aren't the only job losses plaguing the economy. Manufacturers like General Motors (GM), General Electric (GE), Boeing, and Ford are also laying off employees. Entertainment giant, Disney, laid off thousands of workers during the pandemic.

Slumping house sales due to rising interest rates could result in the loss of jobs in the real estate industry as well.

While not all those layoffs are strictly a result of the slowing economy, slow business growth and rising labor costs are significant factors. (A shift in focus to electric vehicles drove Ford's layoffs)

As the economic slowdown continues into 2023, more layoffs are likely. But no one knows how widespread the layoffs will be. Because big companies have had one round of job cuts doesn't mean a second round of layoffs couldn't materialize in the next year. But companies may try to lower costs in other ways to keep experienced workers, such as temporary furloughs, work-sharing, or a hiring freeze.

It also needs to be clarified how moving to remote work will impact layoffs. Some employers may be reluctant to lay off remote workers if it hopes to bring them back in the future, assuming that it's easier for these workers to find another job. But remote work weakens the link between employer and employee. So, some companies could be more willing to lay off remote workers.

It's also unclear how deep the recession will be. Many companies may be able to weather a mild recession. Also, during the COVID pandemic, many companies learned how to keep employees in difficult economic times. These factors could limit layoffs.

What You Can Do to Prepare

With the uncertainty about the future, it's in your best interest to prepare. Build an emergency fund to help you pay your bills if you find yourself without a paycheck. Also, keep your skills up to date to help you find a new job. You should also have a plan for looking for a new job, including knowing who you can contact for help if you get laid off.

Getting laid off is an emotional and financial blow. State laws governing layoffs and unemployment benefits vary. You should consult an employment law attorney in a city near you for help in your specific situation.