Tuesday, March 17, 2009

Termination vs Resignation for Layoffs

Resignation or Termination for Layoffs

The current state of the economy and recession has led to many companies laying off their employees. Top companies such as HP, AOL, Sun, Microsoft, Satyam, Google, Ebay, Sify Technologies, Spectranet and CNN have been downsizing staff through corporate layoffs. This is prevalent across the world, right from USA, Europe and Australia to India, Dubai, the Middle East and South East Asia.

So, what is the right way to go about employee downsizing and cost cutting? In some corporate layoffs, employees are provided pink slips, termination letter and their dues are fully settled by cheque. In other employee layoffs, they are asked to submit their resignation and are convinced that job termination will not help them at getting a new job. This blog post aims to compare the merits and demerits of resignation vs termination for layoffs from both the employers and employees perspective.

Resignation Letter for Laying Off Staff -
This sort of employee termination for mass layoffs benefits the company management the most. The Human Resources manager calls the employee to be laid-off to a meeting, where he/she is told that their services are no longer required. The laid off staff person is then asked to submit their resignation citing some personal problem or other issue. He/she is told that if they ask for the rightful termination letter, they will not be provided a relieving letter and will have difficulty getting a job later. The senior management works to convince the 'laid off employee' that termination is 'shameful' and that it is better to submit a resignation letter and leave gracefully. Similarly, this process is repeated for laying off other employees. This system of employee layoff benefits the company management the most -
  • The management does not fear legal action for staff layoffs as they have resignation letters to prove the employee 'resigned of his own accord.'
  • The media does not have basis to report in the news that 'mass layoffs' have occurred in xyz company as the concerned staff has actually 'resigned'.
  • The government cannot force the company to reinstate these laid off staff members or re-employ them with reduced salaries because the resignation letters prove that no one was terminated - everyone resigned of their own free will.
  • The company need not pay the terminated employees the required notice period amount specified in the appointment letter/ contact in case of termination, as the employees have actually 'resigned' and have not been legally 'terminated'.
  • The management of some companies may also deduct accrued leave for resigning without giving notice, even though they themselves asked the laid off employee for their resignation letter. This deduction is shown in the final settlement, which the employee gets around 2 months after leaving the company. Victims of such corporate layoffs are shocked but can actually do nothing, as they have 'resigned' in writing.

Termination Letter for Laying Off Staff

The management of most businesses prefer not to give termination letters to the employees in cases of corporate downsizing and cost cutting, as this could result in unnecessary hassles for the company. If incidents of ' mass layoffs' are reported in the media, the company may have to answer and pay heavily. The price of company stocks may fall, investors may become vary of the company and the government may intervene to reinstate the laid off employees. However, termination letters for staff layoffs is the most beneficial to employees and something those facing downsizing layoffs really need to know about.
During employee layoffs, when the staff is confronted by the HR team/ management to submit their resignation letters, they should resist. Termination for layoffs, downsizing or cost cutting is completely different from termination due to bad behavior. Legally and ethically, the management has to provide relieving letters/ certificates of good conduct to the employee if they serve termination letters due to corporate layoffs for reasons such as offshoring, recession, downsizing or cost cutting. Termination letters help the employee in the following ways-
  • The company has to compulsorily give the terminated employees all their dues. These layoff benefits include notice period, cash in lieu of notice period, encashable leave and severance pay if any.
  • The laid off employee has the right to file a case of wrongful termination against the company within 45 days in the labour court, if he/she is not satisfied with the reasons given for job cuts. This is why companies always delay paying the final settlement till 45 days are complete. Filing a case in the labour cost is very cheap and does not take much effort on the part of the employee.
  • If the court/ government asks the company to reinstate the workers or employ them with lesser salary, the company has to comply, as least in part. Example- the air hostesses airline layoffs case.
  • If the government offers compensation to terminated employees in the future, they may apply for it on showing their termination letter.
  • If the government launches a loan/credit scheme for terminated employees in the future, they may apply for it on displaying their termination letter.
While asking an employee for his resignation letter, the company management may promise to re-employ him when things get better, but that is most certainly not going to happen. When it comes to corporate layoffs and recruiting, the management would rather hire a new employee with less salary and train him for the job than employ a highly paid terminated person who most probably harbors bad blood towards the company.

P.S. If you are really worried about not getting a relieving letter, then just pick up a few company letter heads from your office before the process of terminating staff for mass layoffs begins. Later, you can make your own relieving letter in the future.

Have you faced termination or submitted your resignation during a mass job layoff? Do you have any other tips or advice for people facing the threat of job loss during these times of recession and downsizing? All feedback is gladly welcome!!!


  1. Thanks for writing about the abhorrent practice of extraction of a resignation letter (by employers) through manipulation!

    Illegal as it is, there obviously is little legal recourse available for the employees who fall victim to it. I do wish that the relevant government agencies would look into it and press for suitable amendments in the laws, in order to protect the rights of employees who fall victim to such treachery.

    BTW, if any one were to steal letter-heads and prepare their own experience certificates, as you recommend, they might also have to forge signatures of senior officials, which, I believe, is a punishable offence under Section 420 of the Indian Penal Code.

  2. Good post.
    Two points I would like to make:
    1) In India, a person who has been terminated will find it difficult to get another job because most employers think a person's services are only terminated because of misconduct.
    2) While it is illegal to force employees to resign, India's labour laws are just plain stupid. I believe there is a law that requires employers to register every single layoff with the Labour Department.

    The way forward for both employers and employees is information. That's why, thanks for your post!

  3. I have been a victim of forced resignation this year Jannuary.I did not want to give the resignation letter but my one month salary was due and they would pay after giving resignation letter.I had a EMI of 27k to pay which would ha ve been difficult to pay if the dues are not credited.I approached NASSCOM by writing a mail but there was no response.From my experience we dont have any rules for benefit of a employee in Pvt Organization.One has to think that its is faith that such thing happened.I am still jobless from past three months.People ask the reason why did you resign the company ?I lost the job in three months.

  4. I am working for a small company that has told me that when the new head of the organization comes in we all have to submit our letters of resignation, and that 55% of the time they will be accepted. I also, after 8 years with the company and no review (which is required yearly in the employee "handbook") was taken in and had to listen to, without seeing the actual document until it was over, and literally not being allowed to rebutt anything, a very bad review in a monologue by the boss several items of which were very twisted versions of small incidents, and at least one that was not true at all. I was blindsided. I was given a copy of what was said after the review and so were members of the personell committee who were present. The written version was much worse even that what was said by the boss. This boss is filling in until they hire a new boss, as the old one retired. I am to have another review in 6 weeks and at that time can "talk". I am hurt, and frightened because of repeated comments that everyone will be required to hand in their resignation in case the new boss wants to accept it. I feel I am being set up so they can hire someone more cheaply. Is this ok for them to do this..and if they fire me because I don't hand in my resignation is that ok?

  5. It is heartening to read the experiences of so many people who have been laid off. It is particularly bad in India because performance or other reasons are cited to lay off employees. I have been a victim of this and it is now 18 months that I am jobless. It is getting too difficult to get to an interview. How are others there finding jobs?

  6. Dear sir
    I have been working with Indiamart Intermesh Ltd since last 6 months I was also awarded for my past performance but at the date of 8th Oct,2011 I have submitted my resign notice period for 1 month as per company's rules. But due to low performance in last 2 weeks they are going to terminate me ,,,kindly suggest me What should I do?

  7. Amazing Article, I work with HSBC and they are laying off several employees including me under the wordplay of effectiveness and efficiency in the next week. I needed to know about layoff regulations and how it works and your article is simply awesome. I am bettter prepared to face my situation now all thanks to you.

  8. Hello , I need suggestions from my friends here, I was told by D*** services HR and Management that my position has become redundant and due to strategy of the company which is going under transformation I will need to leave , they offered me 4 months pay as severance. I signed.
    Now, that I am hearing from my ex- colleagues, My ex Manager is telling it officially in the meetings and team forums that He has terminated me, Is it ethical?. He is spreading this and mostly it will create a wrong impression. I am very much stressed and helpless. Please help.

    1. It is not ethical...but such things don't really matter in the long run. Don't get stressed listening to these rumours from your colleagues, half of them are most probably untrue. Just apply somewhere else, forge ur relieving letter, and there is no hassle. Nobody really checks!


We'd love to hear from you. Please post a comment below to let us know what you think!