As you can see, others have gone through this, mostly with good outcomes.
I agree on the preference for leave of absence but it is possible your daughter will want to separate completely from the school.
COVID and/or depression may be a factor. But also coming closer to the end and actual employment.
Not too many jobs that don’t use your brain but I can empathize with that goal, actually. I teach tai chi! She might like to try it in fact: it clears your head.
I think it is very important to protect the transcript. If she is failing, and it is arguably due to depression, I would suggest to her that she talk to a therapist and then a dean and try to get a medical withdrawal so that grades are W’s rather than F’s. I imagine it is too late to drop. Another possibility, again through a therapist or MD note and a dean, is to get accommodations such as extensions or incompletes so she can finish well.
But grades and transcripts are never as important as her well-being.
She can work for awhile (one of mine worked for a dry cleaner for two and a half years and that sent her back to school!). Many schools take up to 90 credits for transfer and many majors are 30 credits so she could go back and finish in a year.
There are many degree completion/adult learner programs that allow finishing while taking one or two or three courses while working, some online and some on campus.
If she doesn’t like engineering, after all her schooling so far, this may be a wise decision. On the positive side it gives her a chance to experience some life and work and also an opportunity to switch course academically for that last year.
She may not be ready for that now but it is always something she can come back to, at any age. Bonus: after she turns 24 financial aid is based on her income, not yours 
There is an expression called “wise wandering.” It’s tough on us parents but it can be beneficial for our kids.