What to Do When You Need to Lay Off an Employee
A layoff, be definition, means eliminating a position due to business need rather than employee performance or conduct. A layoff is legally and operationally different from a termination for cause. The distinction matters because the legal protections, the documentation requirements, and the conversation itself are all different. Here is how to handle it correctly.
Not sure what paperwork, script, and checklist you need for a layoff?
Our Termination & Separation Checklist includes:
- Layoff and termination meeting scripts
- Pre / post separation checklists
- Final pay and benefits
- Property return log
- Separation documentation form used by HR
Layoff vs. Termination for Cause: The Key Differences
A termination for cause is based on the employee's behavior or performance. A layoff is based on business circumstances, like a reduction in force, position elimination, restructuring, or financial necessity. The employee did nothing wrong. The position is going away.
This distinction affects everything: what you say in the meeting, whether severance is appropriate, how unemployment is handled, and what legal risks you need to be aware of.
Before the Layoff: Legal Considerations
Selection criteria
If you are laying off one position among several similar positions, document your selection criteria before making the decision. Seniority, performance history, skills needed going forward, and any other legitimate business criteria. The criterion that creates legal risk is selecting an employee for layoff because of a protected characteristic. Document your rationale before the decision is made, not after. Be sure the selection criterion passes the sniff test. If it doesn’t, it’s worth an hour of an attorney’s time to review the criterion with you.
WARN Act
If your business has 100 or more employees and you are laying off 50 or more, the federal WARN Act requires 60 days advance written notice. Most small businesses fall well below this threshold, but check your state because several states have mini-WARN acts that can trigger with lower thresholds.
Severance
You are generally not legally required to pay severance unless your employment agreement or policy promises it. However, if you offer severance in exchange for a release of claims, have an employment attorney review the release before you present it. An improperly drafted release is not enforceable.
The Layoff Conversation
The layoff conversation follows the same structure as a termination meeting (private, brief, direct) but with different language. The key difference in a layoff conversation is that you are communicating a business decision, not a performance consequence.
'I have some difficult news. We are eliminating the [position title] role due to [brief business reason: restructuring, budget reduction, etc.]. Today will be your last day. This decision is not a reflection of your performance. It is a business decision about the structure of the organization.'
Be honest about the reason. Do not fabricate a performance issue to justify a layoff. Doing so creates legal exposure and is unfair to the employee who may need an honest reference.
The Logistics
Final pay: same state law requirements as any termination. Know your state's timeline before the meeting.
COBRA notice: must go out within 14 days of coverage loss
Unemployment: a laid-off employee is generally eligible. Do not contest it unless there is a legitimate basis. Contesting a valid unemployment claim from a laid-off employee damages trust and rarely succeeds.
References: consider what you will say. A laid-off employee deserves an honest, positive reference for the work they did. Remember, the layoff is a business decision, not a consequence of the employee’s performance. Do the right thing.
Rehire eligibility: document whether the employee is eligible for rehire if the position is recreated in the future
This is where most managers make mistakes
Final pay timing, COBRA notice timing, unemployment handling, and documentation errors are where legal exposure happens most frequently. The Termination & Separation Checklist includes the exact logistics list HR uses to avoid those costly errors.
After the Layoff
Communicate the departure to the team promptly and professionally. 'We made the difficult decision to eliminate [position]. [Name]'s last day was today. We are grateful for their contributions and wish them well.' Do not over-explain or invite speculation. Be brief and professional.
If you hire someone into a similar role within a few months of the layoff, be prepared for the question of why the laid-off employee was not offered the role back. If the answer is anything other than a legitimate business reason, you have a potential claim. A good rule of thumb is to refrain from hiring someone into a similar role until at least six months after a layoff.
A layoff handled correctly is professional, defensible, and respectful. A layoff handled informally creates legal and operational risk you don’t see until it’s too late. The Termination & Separation Checklist gives you the script, the documentation, and the step-by-step process to manage any separation correctly, layoff or termination.
Questions about this or other HR topics? Visit pragmatichrgroup.com for more resources.
