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Laid Off: Definition, Reasons, Consequences, & Employee Rights

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In a Nutshell

This article will explore what it means to be laid off, how it differs from other types of job loss, what rights you have, and what to do if you lose your job because of a layoff. By taking the proper steps after a layoff, you can make it to the other side without too many financial hardships or serious negative effects.

Written by Attorney Eric Hansen.  
Updated August 30, 2021


Let’s face it. Losing your job sucks. Sometimes you are completely surprised and caught off guard when you are let go from work. Other times, you know it’s coming and you can make a plan to ease the transition. Whatever the case may be, there are ways to make this period more manageable.

This article will explore what it means to be laid off, how it differs from other types of job loss, what rights you have, and what to do if you lose your job because of a layoff. By taking the proper steps after a layoff, you can make it to the other side without too many financial hardships or serious negative effects.

Layoffs, Their Effects, & Similar Terms

A layoff is a termination of employment. If you get laid off, you no longer have a job or the associated benefits and paycheck. Sometimes layoffs are temporary. Other times, they result in permanent job loss. If you get laid off, it means you lost your job through no fault of your own. Layoffs happen for many reasons, and they are typically out of your control.

A mass layoff happens when the company tells many current employees that they are being laid off. In most cases, employers are required to give some notice, and there may be signs that a mass layoff is coming. You might be told you are being laid off in an email, a letter, or in a conversation with your boss.

Other terms for a layoff include downsizing, rightsizing, eliminating redundancies, and restructuring. A layoff might also happen after a merger. It is important to know the difference between a layoff and other similar terms like being furloughed or being fired. While each results in a job loss, you’ll need to take different steps to address each.

Laid-off vs. Fired vs. Furloughed

Being laid-off is when you no longer have a job, but it is not your fault. Typically, when an employee is fired, there are issues regarding job performance. That is, the employee wasn’t meeting the expectations of the employer. Employees can also get fired for misconduct, such as theft or sexual harassment, which goes beyond ordinary job performance issues.

A furlough is often a temporary leave of absence from work. You may end up returning at reduced hours so that your employer can make payroll and keep you and your co-workers employed.

Effects of Layoff

Company leaders often think that layoffs will be cost-effective and are the best option when business is slow. However, layoffs can backfire and end up costing the company more than if it hadn’t gone through with them. There can also be nonmonetary costs to laying off employees. We are all more aware these days that there is a human element to job loss. Employees who are laid off may experience emotional distress, anxiety, and depression. While the employees who continue to work may experience guilt or imposter syndrome. 

Reasons for a Layoff

Companies, like families, have a budget to keep and financial goals to meet. Unlike your household finances, companies operate on a large scale and need to make a profit. If there’s an economic downturn or poor business conditions, companies might choose to lay off employees to fix internal problems and balance the budget. There are countless reasons for layoffs. Here are some of the most common:

A Merger

A merger is when two companies are consolidated into one company. If there are multiple employees with the same job responsibilities, some employees in that role may be laid off following a merger. Downsizing can occur when company leadership decides that certain departments aren’t as important anymore or that the company is going in a different direction. This also often results in layoffs.

Recession

Economic downturns are one of the most common reasons for layoffs. Recessions are a normal part of the economy’s life cycle. Companies often respond by tightening their belts and finding ways to be more cost-effective when business isn’t good. There have been several notable recessions in recent memory: The recession brought on by the coronavirus pandemic, the Great Recession of 2008, and the economic downturn following the late 1990s online growth period, and the 9/11 terrorist attacks.

Cost Reduction

When a company is struggling financially, it may take some cost-reduction measures like layoffs. Perhaps the company is unable to pay its employees and unfortunately laying off the employees might be the simplest cost-reduction measure.

Restructuring

Companies are dynamic. They change direction, leadership, management, departments, service offerings, and products fairly often. Sometimes companies restructure their business and that can create redundancies and overlap. Other times the company is trying to focus on certain products or services while capitalizing on advantages that it might have over its competitors. When a company is restructured, some employees may be laid off.

What To Do After Being Laid Off

It can be frustrating to lose your job. Try to keep your composure. Remember there will be plenty more jobs for you down the road, and this might just be an unexpected detour along the way.

Stay calm after being laid off. Get the details on your discharge, layoff, termination, or firing. Look into severance pay and collect your final paycheck. You’ll want to figure out what employee benefits and health insurance options are available to you. You’ll also want to check on your pension, retirement plan, and/or 401(k). The availability and extent of severance pay, employee benefits, health insurance options, and pension/401(k) plans vary from employer to employer and state to state, so be sure to check the rules in your state and get further details so that you can make educated decisions.

After checking those items off your post-layoff checklist, you’ll want to apply for unemployment benefits. The details of your job separation will be important for your unemployment compensation eligibility as well as your upcoming job applications. You’ll want to know how your previous employer will respond to inquiries or reference checks. You’ll also want to put together professional references and letters of recommendation. After taking a moment to regroup and reflect, start looking for another job. Start strong and positive so your search is successful.

Know the Details of Losing a Job

Knowing the details of losing a job is critical. It makes a difference whether you were laid off, furloughed, fired, fired for gross misconduct, or something else. How you came to lose your job can affect your finances, healthcare, and your future job prospects.

You have rights and you should exercise them. You can ask your employer for your personnel file and the reason for your termination in writing. You can also request your final paycheck and your employer must furnish it to you or demonstrate that there were proper wage deductions. Each state has different rules on personnel files and final paycheck or commissions so consider contacting an employment attorney if you believe that your former employer has done something improper or illegal.

If you are laid off or furloughed you are more likely to be eligible for unemployment benefits, other employee benefits, and healthcare. If you are fired, you are less likely to be eligible for those benefits. It will also be more difficult to get a new job if you were fired, especially if you were fired for misconduct like theft or sexual harassment.

Ask for a Severance Package

You may be offered a severance package from your former employer. If you aren’t, you should ask for one. Often, your former employer will offer you a severance package in exchange for you giving up legal claims against them. These could include wrongful termination, discrimination, or wage and hour claims as defined by the U.S. Department of Labor and your state’s department of labor. It is best to thoroughly read and review any severance agreement you’re offered. Get legal help from an attorney to understand the consequences of signing a severance agreement in exchange for severance pay.

Not everyone is entitled to severance pay. Whether or not you’re offered severance pay will depend on your position, how long you worked for the company, and other factors. This pay is negotiable and you can position yourself for a better severance package. But, not all companies offer severance packages, especially the ones in bad shape that have been affected by a recession.

Apply for COBRA Coverage

Many people get health insurance through their employers. After losing your job, you may be concerned about your healthcare coverage. If you had insurance through your employer, you can apply for COBRA coverage. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, was passed to help unemployed individuals and their family members keep their healthcare after losing a job. COBRA coverage can be very expensive but you may want to consider it if you want to keep the same healthcare benefits until you can find another option.

Claim Unemployment Compensation

After you collect your thoughts and regroup, you’ll want to apply for unemployment benefits and make a claim. Each state’s unemployment laws are different. But generally, if you were employed for a certain length of time (your base period) and you become unemployed through no fault of your own, you may be eligible for unemployment compensation until you find another job or your benefits run out.

Typically you have to be unemployed through no fault of your own and be actively looking for suitable work to be eligible for unemployment benefits. You’ll want to contact your state’s unemployment insurance agency within the department of labor or the department of economic development. They have resources, FAQs, and handbooks that are helpful in navigating unemployment.

You may also want to consult an employment attorney. They routinely deal with these situations and can serve as another resource for you.

Getting laid off is not nearly as damaging to your job search as getting fired is. If your previous employer’s business was failing and you were laid off, that doesn’t reflect poorly on you like being fired for gross incompetence or absenteeism would. You’ll want to start looking for a new job as soon as you are laid off and be able to speak clearly and freely about your layoff to future employers.

Ask for a Letter of Recommendation

You may want to ask for a letter of recommendation from the employer who’s laying you off. This is a helpful way to show future employers your qualifications and accomplishments. If you know a layoff is coming, ask for a letter of recommendation from your supervisor far in advance to give them time to do it. Gently remind your previous employer or soon-to-be-previous employer about your job performance and what you brought to the table in your role with the company.

How To Talk About Being Laid Off in a Job Interview

Many employers will ask why you left your previous job, so it’s a good idea to be ready to talk about being laid off in a job interview. Don’t be defensive or try to hide things. It’s better to be open, honest, and truthful about why you are looking for a job. If you took some time to get some additional training or education, talk about it. If you are switching directions, tell your prospective employer why and how you plan to do that.

Let’s Summarize...

Even if you know it’s coming, being laid off can be very stressful. Companies lay off workers for many reasons, but it’s beyond your control. Try to stay calm and look ahead to all the good things you’re going to do. In the meantime, know the details of your job loss, ask for a severance, claim unemployment compensation, and document your activities. Use the resources available to you so that this doesn’t become more stressful than it needs to be. 



Written By:

Attorney Eric Hansen

Eric D. Hansen is an experienced Minnesota attorney within a number of varying and nuanced practice areas. He has operated his own solo practice as well as worked at small suburban boutique firms and large diversified downtown law firms. Eric has a wealth of experience in busines... read more about Attorney Eric Hansen

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