Julia Kagan has written about personal finance for more than 25 years and for jiyuushikan.org since 2014. The former editor of Consumer Reports, she is an expert in credit and debt, retirement planning, home ownership, employment issues, and insurance. She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College.
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Erika Rasure, Ph.D., is an Assistant Professor of Business and Finance at Maryville University. She has spent the past six years teaching and has included FinTech in personal finance courses and curriculum since 2017, including cryptocurrencies and blockchain.
What Is Termination of Employment?
Termination of employment refers to the end of an employee’s work with a company. An employee may be terminated from a job of their own free will or following a decision made by the employer.
An employee who is not actively working because of an illness, leave of absence, or temporary layoff is still considered employed if the relationship with the employer has not been terminated formally with a notice of termination.
Termination of employment refers to the end of an employee’s work with a company.Termination may be voluntary, as when a worker leaves of their own accord, or involuntary, in the case of a company downsize or layoff, or if an employee is fired.A company does not need to offer an employee a severance package when their employment is terminated; rather, it is discretionary.A worker who is unemployed through no fault of their own may be eligible to receive unemployment benefits.
How Voluntary Termination Works
An employee may voluntarily terminate their employment with a company. An employee who decides to terminate employment with a company usually does so when they find a better job with another company, retire from the labor force, resign to start their own business, or take a break from working.
Voluntary termination of employment could also be a result of constructive dismissal, also called constructive discharge. This means that the employee left the company because they had no other choice. They could have been working under significant duress and difficult working conditions at the employer—which could include a too-low salary, harassment, a new work location that is farther than the employee can reasonably commute, increased work hours, and so forth.
A forced discharge of an employee, whereby they are given an ultimatum to quit or be fired, also falls under constructive dismissal. In these cases, if the employee can prove that the employer’s actions during the worker"s tenure with the company were unlawful, they may be entitled to some form of compensation or benefits.
An employee who voluntarily leaves an employer may be required to give advance notice to the employer, either verbally or in written form. Most industries usually require a two-week advance notice of an employee"s termination. In some cases, the employee gives notice at the time that they terminate, or they give no notice at all, such as when an employee abandons the job or fails to return to work.
How Involuntary Termination Works
Involuntary termination of employment occurs when an employer lays off, dismisses, or fires an employee.
Layoffs and downsizing
Companies decide to lay off workers or downsize their organizations to lower their operating costs, restructure their organizations, or because they no longer need an employee’s skill set. In a layoff, employees are usually let go through no fault of their own, unlike workers who are fired.
An employee is usually fired from a job as a result of unsatisfactory work performance, poor behavior or attitude that does not fit with the corporation’s culture, or unethical conduct that violates the company’s policies. According to at-will employment laws recognized in some states, a company may dismiss without warning any employee who is performing poorly or violating some form of the company’s rules. In fact, the company does not need to give a reason for the employee"s termination.
Although employment-at-will contracts do not require an employer to warn or give a reason for a dismissal, an employer cannot fire a worker for certain reasons. An employee who refuses to work more than the hours specified in the contract—who takes a leave of absence, reports an incident or a person to the Human Resources department, or whistleblows to industry regulators—cannot be fired for these reasons. An employer who discharges an employee for exercising their legal rights has done so unlawfully and may be liable for wrongful termination in the courts.
Other illegal dismissals occur when an employer lets an employee go for discriminatory reasons such as religion, race, age, gender, disability, or nationality. An employer who has been found guilty of wrongful termination may be required to compensate the wronged employee and/or reinstate them into the company.
Termination for cause
Other than at-will conditions of employment, an employer could fire an employee for a specific cause. A termination-for-cause clause may require the employer to put the employee on an improvement schedule, of 60 or 90 days, during which the employee is expected to improve their work ethic. If the employee has not improved by the end of the probationary period, they could be terminated for cause and dismissed with prejudice.
In some cases, an employer may dismiss an employee without prejudice. This indicates that the employee was let go for reasons other than incompetence, insubordination, or misconduct in the workplace. In such situations, the employee may be rehired for a similar job in the future.
In most cases where an employee who has worked with a given company for at least three months and has their employment involuntarily terminated, the employer may provide them with a notice of termination and/or termination pay (or severance pay). A company that offers severance does so following an agreement made privately with the employee or because severance is specified in its employee handbook.
Also, employers are not required by federal law to give the terminated employee a final paycheck immediately. However, state laws may operate differently in this regard and may mandate that the employer must not only immediately provide the affected employee with a final paycheck, but also include accrued and unused vacation days.
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A worker who is unemployed through no fault of their own may be eligible to receive unemployment benefits. Each state administers an unemployment insurance (UI) program to offer temporary financial assistance to people who are unemployed and looking for a job. The U.S. Department of Labor (DOL) website provides detailed information about unemployment insurance benefits.