In addition to his coaching at the professional level, Layden is also a former head coach and player of his alma mater Niagara University's basketball team. Layden coached Niagara to its first NCAA tournament appearance in 1970, with the help of Calvin Murphy. In 1976 he was hired to be an assistant coach with the NBA's Atlanta Hawks joining former Niagara teammate Hubie Brown. In 1979 he was hired to be the General Manager of the then New Orleans Jazz, and became the head coach of the Jazz (now in Salt Lake City) in 1981, replacing Tom Nissalke. He coached the Jazz for the next seven and a half years. He was instrumental in drafting and signing franchise mainstays John Stockton and Karl Malone to the club. He retired from coaching during the 1988–1989 season, moving into the team's front office and was replaced as coach by his assistant, Jerry Sloan.
In 1984, Layden was awarded the NBA's Coach of the Year. That same season, he also won the NBA's Executive of the Year and the NBA's J. Walter Kennedy Citizenship Awards. (He and Joe O'Toole are the only non-players in NBA history to win the award).