What's the best way to phrase a layoff during the interview process? I've never been in this spot so I'm a little unsure how to navigate this. FWIW I was laid off for "performance reasons" despite performing above the average among my peers (I think it was more of a budgetary thing but what do I know).

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Keep it brief and focus on the future. I said something along the lines of it being a part of a larger workforce reduction. Wanted to at least show it wasn’t just me impacted.

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A layoff is generally understood to be something different than being dismissed for performance reasons. So it might be problematic if you say you were laid off but the performance reasons surfaced at some point. If it was for a budgetary reasons, say that. However you phrase it, be accurate so you don't create a credibility problem.

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Don’t mention any performance element. Terminated for performance = fired, not laid off. Falsely terminated for performance when it was actually due to financials is called a “stealth layoff”. But keep in mind, when the economy is tough, standards go up and things that associates could skate by with in a good economy become fireable - this is not a layoff even if it does seem like it.

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Agree with the others - whatever you do, don’t say “performance reasons.”

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“I [left] [am leaving] XYZ firm because the environment [was] [is] no longer aligned with my career goals or the kind of practice I’m hoping to build”. Then quickly move on to talk about what you are looking for in your career and how you can add value to the new role.
Hopefully at that point the conversation will move on without the need to mention layoffs etc.

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If it’s performance reasons then it wasn’t a layoff…

Often times they will give you a severance to buy a release. Pretty standard.

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