Authorized causes in termination of employment

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Published — September 15, 2017

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Related Topic: How to Dismiss an Erring Employee the Right Way

Dismissal for an authorized cause does not necessarily imply delinquency or culpability on the part of the employee. Despite that, termination of employment is still allowed by law as valid exercise of management prerogative. But since the cause of termination is not attributable to the employee, dismissals due to authorized causes would require the payment of separation pay to the employee affected.

The authorized causes for termination of employment, as provided under the Labor Code [Art. 298 and 299], are as follows:

1. Installation of labor-saving devices
2. Redundancy
3. Retrenchment to prevent losses
4. Closing or cessation of operation of business
5. Ailment or disease

Installation of labor-saving devices

The reduction of the number of workers employed in a company’s factory is justified, and it may even become necessary by the introduction of machinery in the manufacture of its products. There can be no question as to the right of a manufacturer to use new labor-saving devices for the purpose of effecting more economy and efficiency in its method of production [See: G.R. No. L-2028].

Redundancy

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise, which may be due to a number of factors, such as overhiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. The employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business [Azucena 2007, Everybody’s Labor Code, p. 339].

Likewise the management may merge job functions to streamline the company operations to cut costs even if an employee would lose employment as a result. Where there is nothing that would indicate that an employee’s position was abolished solely for the reason of easing him out of employment, the deletion of that position should be accepted as a valid exercise of management prerogative [See: G.R. No. 106516].

Retrenchment to prevent losses

Retrenchment is the reduction of personnel for the purpose of cutting down on costs of operations in terms of salaries and wages resorted to by an employer because of losses in operation of a business occasioned by lack of work and considerable reduction in the volume of business [See: G.R. No. 157611]. Retrenchment, however, may be valid only when the following requisites are met:

1. It is intended to prevent losses, and such losses are proven;
2. Written notices are served on the workers and the Department of Labor and Employment at least one month before the effective date of retrenchment; and
3. Separation pay is paid to the affected workers.

While business reverses can be an authorized cause for terminating employees, the losses must be sufficiently proven by the employer. It is almost an inflexible rule that employers who contemplate terminating the services of their workers cannot be so arbitrary and ruthless as to find flimsy excuses for their decisions. This must be so considering that the dismissal of an employee from work involves not only the loss of his position but more importantly, his means of livelihood [See: G.R. No. 80352].

When there is need to reduce the workforce, the management has the right to choose whom to lay off, depending on the work still required to be done and the qualities of the workers to be retained [See: G.R. No. 73680].

Closure of business or cessation of business operations

Closure or cessation of business operations is allowed even if the business is not undergoing economic losses. The owner, for any bona fide reason, can lawfully close shop at anytime. Just as no law forces anyone to go into business, no law can compel anybody to continue in it. It would be unjust interference with the management’s prerogative to close or cease its business operations just because said business operation or undertaking is not suffering from any loss or simply to provide the workers continued employment [See: G.R. No. 141615].

Disease or illness

When an employee suffers from disease and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the employer may terminate his employment but only when there is a certification by competent public health authority that the disease is of such nature and at such a stage that it cannot be cured within a period of 6 months even with proper medical treatment [See: Sec. 5.4(e), Rule 1-A, D.O. 147-15].

Even without any delinquency on the part of the employee, the law still recognizes the management’s prerogative in terminating employment for authorized causes. This is especially true in certain instances where the employer’s self-destruction is sought to be avoided. Because of this, employers have more freedom in controlling their businesses even on the aspect of personnel matters. This only confirms the State’s due regard not only to the management’s right to maximize profits, but also to the legal rights granted to them.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding employment and authorized causes of termination, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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