Termination, Lay-Off, Reduction in Force, or Furlough: What’s the Difference?

Termination, Lay-Off, Reduction in Force, or Furlough: What’s the Difference?

As the US continues to grapple with the effects of COVID-19, many businesses have to make difficult decisions regarding their employees. With operations down around the country, many people are finding themselves separated from their employment. In fact, more than 17 million individuals have filed for unemployment benefits during the past few weeks.

If you’ve experienced a loss of employment, it’s important to understand the nature of your separation – was it a termination, a lay-off, a reduction-in-force, or a furlough? While all of these actions are intended to help employers save money by reducing payroll costs, these terms actually mean different things.

In general, “separation” for employment purposes is defined as the end of a working relationship between an employee and an employer. Separation can be voluntary or involuntary. Quitting a position would be considered a voluntary separation. Examples of involuntary separation include reduction in force, lay-off, and termination. A furlough is something different, as discussed below. Employment separation could be the fault of either party in the relationship, either due to action or inaction on the part of the employee, or market forces outside the control of either party, as is the case with COVID-19. When a working relationship ends, it is sometimes accompanied by particular language that describes the reason for the termination. In the past, lay-offs have been fairly common, however, now more employers are using furloughs and reductions in force to help curb payroll costs.

What is a Termination?

Termination is used to permanently separate an employee from their employer. Termination is most commonly associated with being fired, which is also sometimes considered termination “with cause.” However, because California is an “at-will” employment state, either party can end the employment relationship, and an employer need not give a reason for the termination (unless your employment contract or company policy dictates otherwise). Under California law, employers are required to provide an employee with their final paycheck, as well as payout for any accrued and unused vacation time upon termination.

What is a Furlough?

A furlough is used as a temporary measure that means the employee still has a job with the company, and will be coming back at a decided time. It can also mean that the employee is still working, but has a reduced schedule in order to cut costs for the company. This can be implemented when business has slowed, but an employer doesn’t want to completely separate the employee from the company. A furlough is typically a short amount of time, but can be an indefinite period. This course of action eliminates the need to onboard and train the employee so they can get straight to work when the furlough is over. It is important to note that the State of California recognizes furloughs longer than the current pay period as a termination, and as such, a final paycheck and PTO payout is required under Cal. Labor Code 201.

What is a Lay-Off?

A “layoff” is typically considered more permanent than a furlough. When an employee, or group of employees is laid off, those positions are generally eliminated, and the employment relationships terminate. Some lay-offs are characterized as “temporary”, as such there is an expectation that the employees may be recalled if the business conditions improve. This method also requires that a final paycheck and accrued PTO be given to the employee.

What is Reduction in Force?

Reduction in force, also referred to as RIF, is a permanent elimination of a position. It’s an immediate cost-cutting tool, and swiftly reduces a company’s headcount to maximize profits. Converse to a lay-off and a furlough, the employee no longer has a place with the company and would have to be re-hired in a different position in order to come back to the company. Like with a lay-off or termination, a final paycheck and PTO payout is owed to the employee.

Understanding these differences is important to all workers, especially during this time of uncertainty surrounding COVID-19.

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