Layoffs vs. Terminations: Know the Differences and Alternatives

When employers face cuts to the workforce, questions often arise regarding the differences between layoffs and terminations, as well as what alternatives may exist. This article explains the differences and gives an overview of alternatives to consider.

Layoffs
Layoffs are a planned elimination of positions or jobs. There are different terms used for layoffs, including a reduction in force, restructuring, rightsizing, and downsizing. Layoffs are typically driven by the need to reduce costs. While the decision to lay off employees may be driven by costs, this does not protect employers from risks associated with separation, including litigation.

To minimize these risks, layoffs are typically coupled with severance and a waiver and release. There is no required amount of severance that an employer needs to provide. Instead, the employer gets to decide the severance amount they are willing to offer for a signed waiver and release. Employers may want to obtain a signed waiver and release because it requires the employee to waive their right to file a lawsuit against the employer for claims arising from the employment relationship.
Additionally, layoffs may trigger notice requirements under the Worker Adjustment and Retraining Notification Act (WARN Act). Employers looking to lay off members of their workforce should consult the requirements under the WARN Act to avoid liability for failure to comply with the act. Typically, these include providing advance notice of the potential layoff. Therefore, reviewing whether WARN applies should occur early in your layoff discussions.

Terminations
Terminations usually arise when an employee has not met their job expectations or has violated company policy, justifying a separation from employment. Terminating an employee may open an employer up to lawsuits with allegations that the termination was due to discrimination or other unlawful reasons. This risk may be heightened when there is a lack of clarity and documentation around the reason for termination.
When an employee is terminated for performance or behavioral reasons, severance is generally not offered. However, if appropriate given the circumstances surrounding the termination, severance may be used to mitigate the risk of litigation.
When faced with a decision to cut its workforce, an employer may want to consider the following alternatives to layoffs or terminations:

Furloughs
Furloughs are an employer-mandated temporary leave of absence where the employee remains employed. These leaves are unpaid; however, the employer may require both exempt and non-exempt employees to use accrued vacation or paid time off in connection with the furlough. Additionally, for workweeks in which an exempt employee performs work, the employer must pay that exempt employee their full predetermined salary amount. Therefore, an employer may only impose an unpaid furlough as long as it coincides with a work week in which the employee performs no work.
There is a different rule for public sector employers. Public sector employers may mandate an unpaid furlough during a week an exempt employee worked. However, there may be overtime considerations in these scenarios.

Reduced Hours
Employers may reduce hours or shorten the work week of employees as long as it does not violate any employment agreements that may be in place. Employees affected by a reduction in hours may be eligible for unemployment benefits to help fill the gap of the lost hours of work. For example, Colorado offers the Work Share Program through the Colorado Department of Labor and Employment.
If the reduced hours or shortened work week comes with a reduction in pay, such actions may jeopardize an exempt employee’s exemption status. Employers should review these types of changes carefully before implementation. Specifically, the reduction in pay for an exempt employee must be prospective, bona fide, and not used to evade the salary basis requirements. If the new salary falls below the weekly salary threshold level, then the employee is no longer exempt. When the deductions from the predetermined salary are made due to day-to-day or week-to-week business fluctuations, such deductions are not permissible and would result in a loss of the exemption.

Job Sharing
Job sharing is another alternative to layoffs. Instead of laying off an employee, they are paired with another employee, each working part-time to complete the job of a full-time employee. Job sharing may affect two employees instead of just one if both employees were full-time prior to the change. However, it prevents having to separate an employee, which may be something an employer wants to avoid.

Employers Council has numerous resources to assist employers with determining the best path forward for their organization. For example, members can access whitepapers on layoffs, the WARN Act, and more, as well as sample severance agreements. Additionally, we offer training courses to help prepare employers for separation (members get a discounted rate). Click here to learn how to become a member.