Laid off vs. terminated: Legal, financial, and professional impacts

Every employer faces tough staffing decisions. Understanding the difference between a layoff and a termination helps companies navigate these moments responsibly, reducing risk and preserving trust across the organization.

While layoffs and terminations have similar results, each situation has different causes and consequences. A layoff usually happens for reasons beyond an employee’s control, such as company restructuring or budget cuts. Termination, on the other hand, occurs when an employee is let go due to performance issues or policy violations.

Delve into the key differences between being laid off versus terminated and the implications of each. 

What does being laid off mean?

A layoff occurs when an employee loses their job due to business reasons, not because of performance or conduct. It’s often called a no-fault separation, where a company eliminates the position entirely. Layoffs typically reflect broader economic conditions or strategic decisions. Here are the most common reasons for layoffs.

Downsizing

Companies sometimes reduce workforce size to cut costs or improve efficiency. This can happen in response to economic conditions, industry trends, and internal operational decisions. 

Restructuring

Restructuring occurs when a business reorganizes operations to pursue new priorities or revenue streams. For instance, a tech company may shift focus from hardware to software, prompting layoffs among high-performing employees in manufacturing roles. 

Budget cuts

When revenue falls or expenses rise, organizations may reduce staff to save costs. Eliminating teams or roles is a common approach to maintaining financial stability. 

Mergers and acquisitions

Mergers and acquisitions often lead to layoffs to remove redundant or duplicate roles. For example, a company may only need one HR manager or communications director, resulting in staff reductions. 

What does being terminated mean?

Being terminated is not the same as being laid off. A termination occurs when a company ends employment due to an individual’s actions or performance issues. Unlike layoffs, terminations reflect a problem with conduct or the ability to meet job expectations. Here’s an overview of common reasons for a termination.

Misconduct

Termination for misconduct happens when an employee violates workplace rules or behaves inappropriately. Examples include theft, harassment, and violence, with serious violations usually resulting in immediate dismissal. 

Poor performance

Performance-related issues usually develop over time. Managers may document patterns like missed targets, tardiness, and absenteeism, giving employees coaching or several warnings. Continued underperformance can lead to termination.

Insubordination

Employees may be fired for refusing to follow legal and reasonable directions from supervisors. This disregard for authority can disrupt operations and is a valid reason for termination. 

Key differences between layoffs and terminations

The differences between being laid off and terminated go beyond why an individual leaves. Here’s a breakdown of key distinctions:

• Reason for separation: Layoffs are driven by business needs, such as strategic shifts or economic pressures, while terminations occur because of the employee’s actions. 
• Eligibility for unemployment benefits: Laid-off employees are generally eligible for unemployment, where terminated employees are often not. Eligibility can vary based on local and national labor laws. 
• Rehire eligibility: A company can rehire laid-off workers when business conditions improve, but they will rarely rehire fired employees, as their separation stems from performance or behavioral issues. 
• Notice or severance pay: Some companies provide severance or advance notice to laid-off employees, depending on policy and regulations. Terminated employees will typically receive neither, unless prior warnings or performance improvement plans were part of the process. 
• Impact on career or reputation: Layoffs usually carry little stigma, making it easier for employees to find new opportunities. Terminations can affect professional reputation, and candidates may need to explain the circumstances of their departure to future potential employers. 

Employee benefits and rights after being laid off

Laid-off employees usually have certain legal and financial protections. These benefits recognize that the job loss was not due to performance or misconduct and provide support while transitioning to new employment. Here’s a breakdown:

• Unemployment benefits: In most countries, laid-off employees can claim unemployment. This temporary government-paid income helps individuals cover living expenses after losing a job through no fault of their own.
• Health coverage: In the U.S., laid-off employees may continue health insurance coverage thanks to the Consolidated Omnibus Budget Reconciliation Act. This usually requires paying the premium and lasts for a limited period, typically 18–36 months.
• Severance packages: While not legally required in most places, some companies offer severance pay. This may include a lump sum or continued salary for a set period and sometimes extended healthcare benefits. Packages are often based on tenure, with longer-serving employees receiving larger benefits. 
• Layoff notice: Certain jurisdictions mandate advance notice of layoffs. In the U.S., the Worker Adjustment and Retraining Notification Act requires companies with 100+ employees to provide 60 days’ notice for mass layoffs. Laid-off employees should also receive a letter confirming the separation was business-driven, not performance-related.

Employee benefits and rights after being terminated

Terminated employees generally receive fewer protections than those who are laid off, since the separation results from performance issues or policy violations. In some cases, limited benefits may still be available depending on circumstances and local regulations. Here’s a breakdown:

• Limited unemployment benefits: Eligibility for unemployment varies by jurisdiction and often depends on the specific reason for termination. Employees fired for poor performance may qualify in some regions, but those terminated for gross misconduct, such as theft or harassment, are usually ineligible.
• Less likelihood of severance packages: Employers rarely provide severance to terminated employees. In some cases of underperformance, companies may offer a small severance package, but typically employees only receive their final paycheck and payment for any accrued vacation or paid time off. 
• Ability to request documentation: Terminated employees can request a letter outlining the reason for their separation. This documentation may assist with job searches, benefits claims, and understanding legal rights, though employers are not always required to provide it. 

How to navigate employee termination and layoffs

Terminations and layoffs are sensitive parts of the offboarding process. Handling them thoughtfully and in compliance with labor laws protects the organization’s reputation and legal standing. Employers should follow these best practices to ensure the process is fair and clear. 

Finalize pay and severance

Make sure departing employees receive their final paycheck on time, which will typically be on their last day or the next scheduled payday. If applicable, provide written details of any severance package, clarifying amounts and timelines. 

Provide information about unemployment benefits

Inform employees who qualify, especially those laid off for business reasons, about their rights to unemployment benefits. Employees must comply with local laws and honor all valid claims related to no-fault separations.

Offer references or career support

Offering letters of recommendation or references helps laid-off employees transition to new opportunities and reflects positively on the company culture. Providing outplacement services, such as career coaching or job search assistance, can further support affected employees and maintain goodwill. 

Manage global offboarding confidently with Oyster

Handling layoffs and terminations in line with local employment laws is essential to protecting your organization. Whether letting an employee go for business reasons or for performance issues, the offboarding process should be human-centered and compliant. Thoughtful processes reduce legal risk, support company culture, and safeguard the company’s reputation.

Oyster helps global employers manage offboarding for talent hired through the platform, including cross-border severance compliance. The platform provides guidance on employment regulations, automates key processes, and offers tools to help businesses support their employees through transitions. With teams monitoring local labor laws, you can stay compliant wherever your employees are. 

Explore Oyster’s global employment platform to manage talent transitions smoothly.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

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