The difference between resigning, a layoff and being fired - and why it matters
Layoffs are common in all kinds of companies at the moment and can be pretty frequent for larger companies at any time. With the risk for employees at its highest, it’s important to understand what a layoff is, what it means legally, and the difference for the employee and employer between resigning, a layoff, and being fired for cause. Each one has different issues and consequences for the employer and employee.
Many people describe being laid off as being fired, and this is a mistake. They are legally different, and the conditions of each can matter a great deal.
What resigning from a company means for you
When an employee resigns, it might seem that what happens is straightforward, and in most cases, it is. But specific contracts and conditions of employment could have important ramifications.
First off, with a resignation, there is a notice period where the employee may continue to work and can expect to complete outstanding tasks and pass their work on to others in an orderly fashion. Sometimes an employer may waive this period and ask the employee to leave.
If an employee resigns, the employer is not required to pay them for the notice period but is required to pay them for any time they actually work. Some states do require notice periods to be paid, however, and some employment agreements also may require it. Employers are required to pay any accumulated vacation time and overtime, however.
There are no legal consequences to an employee for quitting and never showing up again, but there could be consequences for future employment and references.
There may be other clauses in an employment agreement or contract, for example, a non-compete clause, that prevents the employee from working for a direct competitor for a period of time. There is often a no-hire clause that prevents the employee from assisting a future employer in hiring away other employees from the employer. There could be other clauses as well that cover intellectual property, company-specific knowledge, and other matters.
If you resign, you are also not eligible for unemployment benefits unless you quit for a reason, such as discrimination or retaliation.
If you are fired, it really matters why
There are multiple reasons for being fired. They can include being a poor fit for the position, being unable (rather than unwilling) to do the job and similar reasons that mean the company will get rid of you but not for misconduct. You may already know this is a possibility because of having received warnings or being put on a performance improvement plan.
After you have been fired, you can claim unemployment (benefits or insurance), and you will have the ability to explain the circumstances to future employers. For example, if you really should never have been hired in the first place, then it is important to make that clear when applying for different jobs with different skill sets that are a better fit.
If you are fired because you really couldn’t do the job, the employer may offer severance or some other form of compensation.
Being fired for misconduct is a different matter.
There may be legal proceedings against you, you cannot apply for unemployment (benefits or insurance), and explaining what you did to future employers is not going to be easy. But an employer is required to prove misconduct, and misconduct specifically does not include just not being good enough at your job, one-time mistakes or errors, or errors in judgment. Basically, misconduct has to involve repeated documented problems or willful and deliberate errors.
In both cases, your employer is still required to pay you properly for the time worked immediately after your job finishes. However, in the latter case, you do not qualify for unemployment or COBRA (continuation of health insurance benefits), although your employer will have to document and prove the misconduct for that to happen.
Layoffs are complicated
The majority of full-time positions nowadays are covered under at-will employment agreements or under contracts. Under at-will agreements, employers and employees can end employment at any time simply by providing notice that they intend to do so.
However, layoffs typically happen because of business downturns or changes that mean certain positions in the organization are no longer needed.
While employers do not need to do so legally, they often provide some form of severance payment or package in return for the employee signing a severance agreement that covers what they are getting, how any disagreement or arbitration will be handled, and waives any other rights to sue the employee may have. These packages can vary widely, from paying salary for the two-week notice period and making COBRA easy to apply for, up to months of pay, with benefits kept alive, and other services, including things like outplacement and help to find another job.
An employee that is laid off qualifies for unemployment and for health insurance coverage through COBRA. The employee also will not need to provide any justification to future employers. Employers understand that layoffs happen and are part of doing business.
How a Reduction in Force differs from a Layoff
A ‘Reduction in Force,’ or RIF, is a special case of layoff where the company is specifically killing the team, group or division involved and effectively is announcing that these positions are gone for good.
At one time, all layoffs were RIFs, and many of the ways that layoffs are treated come from that time. There is one critical difference between RIFs and layoffs. In a RIF, the company cannot rehire for the position, at least for a pretty significant period of time, like 18 months. Whereas in a layoff, the positions often get refilled within six months, sometimes by the very people let go from them.
The reasons for why companies do this are complex, but it is not unknown for large companies that are expecting poor financial results to announce a layoff in conjunction with, or just after, their results. Financial markets often see layoffs as a boost to a company’s financials and reward them with a higher rating of the stock.
The bottom line
As you can see, it’s important to understand the differences between how an employee leaves employment and how they affect the options an employee has going forward.
One thing any employee should do is join Blind right away (iOS, Android), well before they leave.
That way, they can stay in touch with colleagues, hear about layoffs earlier than anyone else, and generally find out important information relevant to their jobs in an anonymous and safe manner.