Layoff vs. Termination: What Is The Difference?

July 08, 2024 by Rafael Spuldar

Dismissing employees is always stressful. Whatever the reasons – an economic downturn, a merger or acquisition, suboptimal individual performance, or even misconduct – HR has the double role of addressing the organization’s strategic needs and ensuring a smooth process for everyone. When that time comes, do you know if the employee (or employees) will be laid off or terminated? Do you know the difference between layoff vs. termination?

This blog will:

  • Explore the differences between termination vs. layoff
  • Explain the rights and protections of employees
  • Provide tips on navigating each situation smoothly

What is the difference between termination vs. layoff?

Layoffs and terminations are two situations in which employees experience an involuntary loss of employment—in other words, they lose their jobs against their will. In terminations, the company establishes that the employee’s misconduct or bad performance is his or her fault, but in layoffs, the individual isn’t responsible for the dismissal. Let’s see those differences in detail.

What is a layoff?

A layoff is the involuntary ending of employment due to a business decision outside the individual’s control. For example, when a business closes a plant location or decides to downsize or restructure, the laid-off person has no control over those events. To put it differently, it wasn’t their fault.

If you’re wondering the difference between termination without cause vs. layoff, they’re essentially the same thing, but only when the layoff is permanent. However, that’s not always the case.

The most common layoff scenario is a temporary layoff, when the employer cuts back or stops the employee’s work without ending their employment—for example, when there isn’t enough work to do. In that case, employers intend to recall the employee back to work if conditions improve. If the employee doesn’t return or the temporary layoff extends beyond the time determined by the Canada Standards Labour Regulation, it becomes a termination.

STATISTICAL INSIGHT:

Between 5% and 10% of Canadian employees experience a permanent layoff each year.

Source: Government of Canada, 2022

 

What are the main reasons for layoffs?

There are numerous reasons for layoffs: economic recession, industry-wide downturn, slow business, and seasonalities are some of them. Here’s a list of the most common ones:

  1. Financial circumstances: A company may resort to layoffs to reduce costs and increase profitability, either because of financial difficulties, economic downturns, or strategic decisions.
  2. Outsourcing or offshoring: Following such financial decisions, the company may outsource specific roles or offshore jobs to lower-cost locations to stay competitive. This can result in layoffs.
  3. Restructuring, mergers, and acquisitions: Businesses that undergo a reorganization, a merger, or an acquisition usually eliminate redundant positions to streamline operations, leading to layoffs.
  4. Technological innovation: As new technologies, like Artificial Intelligence (AI) and automation, are introduced in the workplace, certain tasks require fewer human workers, causing layoffs.
  5. Shifts and seasonalities: Some industries and products are sensitive to changes in consumer preferences, trends, or just the time of the year. This could prompt businesses to lay people off.
  6. Unforeseen events: Incidents like natural disasters, pandemics, or geopolitical crises can seriously disrupt business operations and lead to layoffs.

What is a termination?

A termination – also known as dismissal, or simply firing – happens when the employment is severed because of factors within the employee’s control. It’s typically due to poor performance, misconduct, policy violations, insubordination, or similar episodes. This is the difference between permanent layoff vs. termination: while in the former, it wasn’t the employee’s fault, in the latter, the responsibility is theirs.

When termination occurs, employers must give employees at least two weeks’ notice of termination or compensation in lieu of notice. However, if the employee hasn’t completed three consecutive months of continuous employment, giving notice or paying compensation in lieu of notice isn’t required.

What are the main reasons for termination?

An organization can decide to terminate an employment contract for various reasons. Let’s look at the most frequent scenarios:

  1. Poor performance: Consistently failing to meet job expectations, goals, or performance standards – despite adequate training and support – can lead to employment termination.
  2. Failure to improve: Employees placed on a Performance Improvement Plan (PIP) due to sub-par performance are expected to show improvement. If that’s not the case, they can be terminated.
  3. Misconduct or policy violation: Violating company policies or codes of conduct can lead to termination. This includes harassment, discrimination, theft, substance abuse, and other forms of misconduct.
  4. Attendance issues: The company could decide on termination if the employee is constantly late or takes unauthorized absences, which can affect colleagues and impact productivity.
  5. Insubordination: Employers may terminate employees who refuse to follow instructions, defy authority, or show other forms of insubordination, creating a negative work environment.
  6. Legal or compliance issues: Employees who engage in illegal activities, violate employment laws, or fail to comply with regulatory requirements may face termination.

What rights and obligations do employees and employers have in a layoff or termination?

Canadian and provincial employment law determines employer obligations and protections for laid-off or terminated employees. Essentially, companies must provide workers with severance pay in the event of a permanent layoff or termination, and, in certain cases, workers have the right to unemployment benefits. Also, employees can file a formal complaint if they feel the company treated them unfairly or hasn’t complied with its obligations.

Some of those rules vary from place to place, but the nature of layoffs and terminations will stay the same. So, if you’re wondering if the difference between layoff vs. termination varies from Ontario to Quebec, that’s not the case. Now, let’s look in detail at the main rights and obligations of employees and employers in those scenarios.

Severance pay

An employee is eligible for severance pay in the case of termination or if they’re on a temporary layoff that results in termination, provided they have a minimum time of continuous employment. In Canada, this period varies from province to province. In Ontario, for example, you must stay at least five years with the company, while in British Columbia, it’s three months.

In the case of a permanent layoff, employees typically sign severance agreements and are offered outplacement support from the employer to help them find a new job. With Careerminds, for example, participants land new – and improved – jobs in under 12 weeks on average, with a 99% participant satisfaction rate.

The severance pay calculation varies, but companies typically pay one week’s worth of the employee’s salary for each year spent with the company. If the employee stays for less than one year, the payment will be proportionate to the time worked. Severance pay doesn’t exempt employers from providing a notice of termination or a pay in lieu of notice.

Unemployment benefits

In short, workers in Canada are eligible to receive Employment Insurance Regular benefits if they lost their jobs through no fault of their own, if that employment was insurable, and if they have been without work and pay for at least seven consecutive days in the last 52 weeks.

In terms of layoff vs. termination, it means that laid-off employees can apply for employment insurance. However, someone who had their employment terminated may not be eligible for unemployment benefits. Being fired is considered a voluntary termination since the employee made choices that led to their firing. However, the employee can dispute that, as we’ll see now.

Filing a complaint with the Labour Program

A laid-off or terminated employee can file a complaint with the Labour Program if they disagree with the terms and reasons for their dismissal. There are mainly two types of complaints:

  • Monetary complaint – Related to unpaid wages or other amounts like severance pay or pay in lieu of notice of termination of employment. 
  • Unjust dismissal complaint – Related to a disagreement with the reason for termination (for example, denying any misconduct).

If no agreement is possible and the Canada Industrial Relations Board decides in the employee’s favour, your company may be ordered to reinstate and / or compensate that person.

Expert tip:

Be transparent and empathetic

A termination or layoff can impact not only the individual but also the company they work for—for example, in the case of a formal complaint. So, be empathetic and transparent with the employee about the reasons for their dismissal and inform them in detail about their severance package or termination pay. This way, you’ll avert more severe consequences for your company and ensure you treat employees with the fairness and respect they deserve.

 

FAQ

Although we’ve already covered the most relevant topics surrounding termination vs. layoff, let’s see some frequently asked questions that can give you further insights and help you navigate either situation.

What is the difference between laid off, let go, and fired?

Generally speaking, “laid off” and “let go” mean the same thing since they don’t imply any mistakes or faults from the employee. On the other hand, being “fired” essentially means termination. That is, the company decided to terminate employment because of factors that were under the employee’s control.

Can an employee say they were laid off instead of fired?

No, because being laid off is not the same as being fired. Typically, layoffs are due to business needs, while being fired or terminated is primarily due to reasons related to someone’s performance or behaviour.

Can an employee be laid off while on maternity or paternity leave?

Yes. It’s legal for companies to lay off an employee during their maternity or paternity leave as long as the decision is made due to reasons unrelated to this status. However, if the layoff is linked to the employee’s maternity or paternity leave, it could constitute discrimination and be subject to legal action.

How can HR prepare for a potential layoff?

There are some crucial steps an HR professional can take to be best prepared in the case of a layoff. These are:

  1. Build a comprehensive layoff plan, including the reasons for it, the criteria for selecting dismissed employees, and the timeline and logistics.
  2. Ensure your layoff plan aligns with legal requirements and company policies to mitigate risks and ensure fairness to all involved.
  3. Prepare clear, empathetic communication materials for dismissed employees and the remaining workforce.
  4. Consider providing virtual outplacement services, counselling, and career transition support for the dismissed individuals.
  5. Meet with managers and leaders and prepare them to handle layoff conversations in a sensitive, professional manner.

Which steps can I take after a termination or layoff?

As an HR professional, you can be asked to take specific actions after an employee is terminated or laid off. These may include providing written explanations for the termination, helping them make sense of their severance package, and informing them about applying for unemployment benefits.

If you want to help that person further with their professional challenges, advise them to update their resumes, leverage their professional networks, and use the outplacement services you’re offering. This way, you’ll be helping them to start their job search more solidly.

If they ask you about a layoff’s negative impacts on future job prospects, explain that employers are generally sympathetic to laid-off professionals since those events are often due to external events other than individual performance. However, if the employee was terminated, be transparent about why they were let go and give advice on how they can improve in the future.

Termination vs. layoff: key takeaways

As we’ve seen, termination and layoff are essentially two different ways an organization can reduce its workforce. In the case of a layoff, the employee isn’t to blame, but when a termination happens, the company deems the person’s faults severe enough to make that decision.

For that reason, making sense of the difference between the two is crucial. As an HR professional, you must keep in mind that a termination can have a highly negative impact on someone’s resume. On the other hand, as we’ve also seen, a layoff – for its involuntary, unexpected nature – can make a hiring manager more sympathetic toward a candidate.

A termination could mean someone won’t be eligible for benefits like unemployment insurance. On the other hand, laid-off workers usually have access not only to unemployment insurance but also to a severance package that goes beyond the obligations determined by law. Those two scenarios make evident how financially opposite these situations can be.

So you, as an HR professional, must find the balance between helping your company achieve its strategic goals (in the case of a layoff) or enforcing its rules and codes of conduct (in the case of termination) and owning the “human” aspect of HR. In this case, you must ensure all dismissed employees are treated fairly and empathetically.

Now that you know the main differences between termination vs. layoff and how to prepare for those situations, we hope you can navigate them with full confidence!

Rafael Spuldar

Rafael Spuldar

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