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Layoff

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Layoff is the termination of employment of an employee or (more commonly) a group of employees for business reasons, such as the decision that certain positions are no longer necessary. Originally the term "layoff" referred specifically to a temporary interruption in work, as when factory work cyclically falls off. However, the term has long been applied also to the permanent elimination of positions as a cost-cutting measure (or for other reasons).

Further euphemisms are often used to "soften the blow" in the process of firing and being fired, including downsize, rightsize, smartsize, workforce reduction, simplification and reduction in force (also called a "RIF", especially in the government employment sector). Mass layoff implies laying off a large number of workers. Attrition implies that positions will be eliminated as workers quit or retire. Early retirement means workers may quit now yet still remain eligible for their retirement benefits later. While redundancy is a specific legal term in UK employment law, it may be perceived as obfuscation.

Reasoning

A lay-off is typically driven by one of two forces. In the first case, the goal is to decrease a company's labor cost. Typically the reasoning is that the company will be able to generate the same gross revenues in the future with a smaller number of workers: if the company's revenues do indeed stay constant while labor costs go down, then profit will increase. Additionally, some layoffs occur when management believes that revenue is forecast to go down: by reducing labor costs, companies can maintain profitability despite reduced sales.

In the second case, downsizing is driven by macroeconomic forces. A company determines that its workers can no longer profitably produce products at current market prices. A company will only employ workers when the per-hour value of their output (marginal productivity of labor) exceeds the cost to employ those workers.

Reduction by country

United Kingdom

It's important to distinguish the term "layoff" from redundancy in terms of UK employment law. The normal lay person's understanding of the term "layoff" is that one has been made redundant, i.e. that one has been dismissed. This isn't technically correct. Being "laid off" just means being sent home without pay or work. This doesn't mean one has been dismissed. Being laid off doesn't preclude a return to work when business picks up under exactly the same terms and conditions as before.

Many employers reserve the contractual right to send employees home for short periods without pay when work is scarce. (Although it is rarely used outside the manufacturing sector.) If this right is indeed reserved in the contract of employment, then the employees aren't entitled to immediately seek compensation in the Employment Tribunal.

However, if an employee is laid off for 4 continuous weeks, or for 6 weeks within any 13 week period, he is entitled to give his employer notice and claim a redundancy payment in the employment tribunal.

However, when most lay people in the UK talk about being "laid off" they actually mean that they have been made redundant. In UK employment law, redundancy is the dismissal of an employee when his or her job becomes unnecessary. UK redundancy law allows three reasons for redundancy:

  • Total cessation of the employer's business (whether permanently or temporarily);
  • Cessation of business at the employee's workplace;
  • Reduction in the number of workers required to do a particular job.

The law requires the employer to make a statutory redundancy payment, which is tax-free and is based on the employee's length of service, as long as the employee has served a minimum of two years. The employee isn't allowed to claim redundancy if he or she was offered an alternative position with similar salary, status and responsibilities.

United States

Throughout the last quarter of the 20th century, the manufacturing sector has seen massive downsizing due to increased per-worker productivity, technology advances that have rendered human labor obsolete, the availability of lower-cost labor overseas and the lack of government action to protect US jobs and industry.

U.S. manufacturing companies have also increasingly shifted production overseas, closing down factories in the U.S. and establishing factories and assembly plants in Latin America, the People's Republic of China, Vietnam, etc., or using manufacturing sub-contractors owning such facilities. U.S. manufacturing and service companies have also opened call centers in India or sub-contracted with companies owing such facilities.

Reduction in force common abbreviations

  • RIF - A generic reduction in force, of undetermined method.
  • IRIF - An Involuntary Reduction in Force - The employee(s) didn't voluntarily choose to leave the company. This usually implies that the method of reduction involved either layoffs, firings, or both, but wouldn't usually imply resignations or retirements. If the employee is fired rather than laid off, the term "with cause" may be appended to indicate that the separation was due to this employee's performance and/or behavior, rather than being financially motivated.
  • VRIF - A Voluntary Reduction in Force - The employee(s) did play a role in choosing to leave the company, most likely through resignation or retirement. In some instances, a company may exert pressure on an employee to make this choice, perhaps by implying that a layoff or termination would otherwise be imminent, or by offering an attractive severance or early retirement package.
  • eRIF – Layoff notice by email.
  • WFR - Work Force Reduction

Unemployment compensation

The method of separation may have an effect on a former employee's ability to collect whatever form of unemployment compensation might be available in their jurisdiction. In many U.S. states, workers who are laid off can file an unemployment claim and receive compensation. Depending on local or state laws, workers who leave voluntarily are generally ineligible to collect unemployment benefits, as are those who are fired for gross misconduct.

Certain countries (eg. France), distinguish between leaving the company of one's free will, in which case the person isn't entitled to unemployment benefits and leaving the company voluntarily in the frame of a RIF, in which case the person is entitled to them. A RIF suppresses jobs, rather than specific people, and is usually accompanied by internal redeployments. A person might leave even if their job isn't suppressed, unless the employer has strong objections. In this situation, it's more interesting for the state to facilitate the departure of the more professionally active people, since they are less likely to remain jobless. Often they found new jobs while still being paid by the old companies, costing nothing to the social security system in the end.

Derivative terms

Downsizing has come to mean much more than job losses, being the word downsize now applied to almost everything. People describe downsizing in their cars, houses and nearly anything else that can be measured or valued.

This has also spawned the opposite term upsize, which means to grow, expand or purchase something larger.

See also

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