The ByLayer setting is a must in AutoCAD because it makes files much easier to work with. We highly recommend working in ByLayer at all times.
A file that has anything not set to ByLayer is virtually impossible to work with. For example, should you need to modify a linetype assignment in a drawing, you would need to be able to do so in the Layers palette.
You have a few options for setting an entire drawing to ByLayer:
Use the Nuke Tool
Our Nuke tool provides a quick and handy way to clean a drawing. One of the several automated actions the Nuke tool runs on a drawing is setting the file to AllByLayer. For information and instructions, see our Nuke tool documentation.
Do not Nuke your own drawings. The Nuke tool is designed to clean files you've received from others. It will clean files you plan to Xref into your own drawing by deleting layout tabs and setting everything to ByLayer, among other actions. As a result, it will delete several critical items in your own working drawing but makes Xrefs more usable.
AllByLayer (F/X CAD users)
If you have the F/X CAD ribbons, you can also use the AllByLayer button on the Manage ribbon to apply the ByLayer setting to an entire file.