After reading “Can expected business losses in the business of the employer be a valid justification for retrenchment?”, read also “What Is The Doctrine Of Strained Relations?”
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Retrenchment is the authorized reduction of personnel because of losses or imminent losses of the business.
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The losses expected should be substantial and not merely de minimis in extent.
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The alleged business losses must be proved by sufficient and convincing evidence.
What is retrenchment?
Retrenchment refers to the authorized reduction of personnel because of losses or imminent losses of the business.
The law says:
“Article 298. [284] Closure of Establishment and Reduction of Personnel. – The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof.
In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher.
In case of retrenchment to prevent business losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.”
What are the requisites of a valid retrenchment?
Retrenchment may only be valid when the following requisites are met:
- It is intended to prevent losses and such losses are proven;
- 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
- Separation pay is paid to the affected workers.
Jurisprudence says:
In the case of Lopez Sugar Corporation v. Federation of Free Workers (G.R. No. 75700-01, 30 August 1990), the Supreme Court justified the exigency and legal warrant for reduction of personnel. To wit:
“In its ordinary connotation, the phrase “to prevent losses” means that retrenchment or termination of the services of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have in fact materialized; if such an intent were expressly written into the law, that law may well be vulnerable to constitutional attack as taking property from one man to give to another. This is simple enough.
At the other end of the spectrum, it seems equally clear that not every assorted possibility of loss is sufficient legal warrant for reduction of personnel. In the nature of things, the possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying on of business operations, since some, indeed many, of the factors which impact upon the profitability or viability of such operations may be substantially outside the control of the employer. Thus, the difficult question is determination of when, or under what circumstances, the employer becomes legally privileged to retrench and reduce the number of his employees.” (Emphasis and underscoring supplied.)
In the same case of Lopez Sugar, the Supreme Court has formulated a set of standards in terms of the employer’s act of retrenchment. Thus:
“We consider it may be useful to sketch the general standards in terms of which the acts of petitioner employer must be appraised.
Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature of the retrenchment would appear to be seriously in question.
Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off.
Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called “golden parachutes”, can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing “full protection” to labor, the employer’s prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means — e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. — have been tried and found wanting.
Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees.” (Emphasis and underscoring supplied.)
What happens if the notice to the workers were given later than the notice sent to the DOLE?
The notices to the workers and to the DOLE are mandatory. If the notice to the workers was given later than the notice sent to the DOLE, the date of termination should be at least (1) one month from the date of notice to the workers. (Rodolfo Fuentes, et.al. v. NLRC, G.R.-No. 110017, 02 January 1997)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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