The poultry processor's plight highlights the dangers a company faces when hygiene controls break down at a plant and when action is not taken quickly enought to control the danger.
In a press release the company confirmed that sales of its turkey products had dropped by 40 per cent in the UK.
The layoff of 130 employees took effect yesterday.
"It was also confirmed that, dependent upon future sales, further layoffs of between 400 to 500 employees could not be ruled out," the company said in a statement.
The company said the Transport and General Workers Union had agreed to the proposals.
"This was a very difficult decision to make but under the current circumstances it was the only option available following the drop in product sales," Bernard Matthews stated.
"We are also doing everything we can to limit the number of job losses and we are working hard to restore consumer confidence."
The company has been criticised in this publication, other media, and by politicians for being slow in response to the bird flu outbreak at its plant in Suffolk.
The site was where Bernard Matthews produced turkeys and also processed them for sale to retailers.
According to a survey by ACNielsen overall fresh turkey sales have dropped by 30 in the UK following the outbreak at the production site earlier this month.
ACNielsen's Scantrack surveyed checkout scanners in all major food retailers in the country, representing sales at more than 74,000 stores.
The survey found sales decreases of 30 per cent to £2.4m for fresh turkey in the week ending 10 February compared to the previous week.
The drop also represents a 20 per cent decrease when compared with the same week period last year.
Frozen turkey sales fell by 33 per cent over the same periods, on a year-over-year and a week-on-week basis.
"Despite experts assuring the public that there is no risk of humans contracting avian flu via the food chain we have still recorded a significant drop in turkey sales." said Eleni Nicholas, ACNielsen UK's group managing director.
Throughout this period, chicken sales were not as badly affected.
Year-over-year chicken sales actually rose by three per cent when comparing sales with the same week in 2006.
Compared to the week prior to the one ended 10 February, chicken sales fell by 8.5 per cent to £31.5m.
The survey also indicated that consumers are switch to meat and fish as alternatives to poultry.
Sales in the whole meat, fish and poultry category rose by about 10 per cent versus a year ago and up against an annual average of 5.6 per cent.
The Bernard Matthews facility, where 159,000 birds were culled following discovery of the outbreak on 9 February, was re-opened last week after regulators gave it the all clear.
The Department of the Environment, and Rural Affairs (Defra) had said previously that preliminary scientific tests showed the viruses found at the Bernard Matthews farm were identical to the one behind the recent outbreaks in Hungary.
Last month the deadly H5N1 virus re-appeared in Hungary, infecting a 3,000-strong flock of domestic geese at a farm in the South-East of the country.
Hungary put restrictions on the movement and sale of poultry outside the affected areas as mandated by the EU.
The EU did not impose a trade ban the whole country.
Bernard Matthews has a processing plant in Hungary near the outbreak area and regularly transports meat back and to the UK plant, which is near its Suffolk plant.
A joint final report issued by regulators last week said that Hungarian meat imported into the UK was "currently the most plausible" route of transmission.
The statement also said that there was "little evidence" wild birds may have carried the infection.
However the report also criticised the company for poor hygiene practices at its plant, which may have led to the spread of the disease between holding sheds.
The report was put out by the Food Standards Agency (FSA), Defra, the Health Protection Agency (HPA) and the Meat Hygiene Service (MHS).
The UK's uncooked poultry market is worth £2.3bn a year and continues to grow at 2.6 per cent annual rate, according to ACNielsen.
The UK exported 271,000 tonnes of poultry meat worth £220.4m in the 12 months to October 2006, according to the British Poultry Council.
Of the value £31.1m was earned from exports of turkey meat alone, the bulk of which goes to other European countries.
About 90 per cent of the poultry meat consumed in the UK is produced domestically.
The H5N1 strain is usually carried by wild birds and then transmitted to domestic flocks.
In rare cases the deadly disease can be transmitted to humans.
H5N1 has so far infected 271 people worldwide, of whom 166 have died, mainly in Asia.
The UK outbreak represents the largest incident of avian influenza in a domestic flock in central Europe and a resurgence of the disease.
Europe had had no reported cases of avian flu since last August.