What is a Layoff?

A layoff involves the termination of employment of one or more employees. The term most commonly applies to a termination for a group of employees. A layoff is typically triggered by a decline or expected decline in the sales of a business, or a restructuring that de-emphasizes certain parts of the business. It may also be associated with a corporate bankruptcy or some related event that makes it difficult for a firm to pay its employees. It is not related to the work performance of an employee. Thus, a layoff is considered a cost cutting measure that brings expenses into closer alignment with sales.

Example of a Layoff

An outdoor entertainment pavilion traditionally hires 50 employees in May, for the start of its summer season. Once school begins in the Fall, sending most customers back to school, the firm conducts a layoff of all 50 employees. As another example of a layoff, a chip fabrication facility hires 500 new employees when industry demand spikes; a year later, excess industry capacity leads to a massive price decline, so the company lays off 300 people to bring its costs into line with its newly-reduced revenues.