Can an employer rehire after having a lay off?

Absolutely. A company that lays off workers is not doomed to forever remain at the new, smaller size.

Employees who are laid off and not rehired may have grounds for a lawsuit if they can show the layoffs and subsequent hirings were discriminatory in nature. For example, if you lay off a group of workers and then rehire all those under 30 years old, a 50 year old who was laid off might be able to claim that the layoff was a pretext for age discrimination, so a company who lays off workers and then hires some of them back (or replacements for the same jobs) had better very carefully document the reasons the re- or new hires were chosen over laid-off workers who were NOT rehired, and those reasons had better be legally valid ones ("he's clearly more qualified" is legally valid; "he's white" is almost certainly not).