Published — June 1, 2022
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.
You may also read: Retrenchment or downsizing, when done right
The coronavirus 2019 (COVID-19) outbreak has made a significant impact on the global economy, including that of the Philippines. To contain the spread of the virus, the Philippines was placed under Enhanced Community Quarantine and restricted movements were implemented. Many offices, factories and other industries had to stop operation during the quarantine period.
The Enhanced Community Quarantine has resulted to loss of earnings to many businesses. Accordingly, to ensure business’ survival, the employers had to find ways to mitigate the losses. One option being considered by many employers is by downsizing their work forces.
Retrenchment
Labor Code considers retrenchment as an authorized cause for termination of an employer-employee relationship. Retrenchment is the termination of employment initiated by the employer though no fault of and without prejudice to the employees. It is the reduction of personnel usually due to poor financial returns as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is a management prerogative, a means to protect and preserve the employer’s viability and ensure his survival.
Preventive Retrenchment is Allowed
“To prevent losses” justifies retrenchment. Such phrase 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 the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have been materialized (Lopez Sugar Corporation v. Federation of Free Workers, et al., G.R. Nos. 75700-01. August 30, 1990).
Standards of Preventive Retrenchment
For preventive retrenchment to be allowed, the following requisites must be present:
- The losses expected should be substantial and not merely de minimis in extent;
- The substantial loss apprehended must be reasonably imminent;
- It must be reasonably necessary and likely to effectively prevent the expected losses; and
- Alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proven by sufficient and convincing evidence (Lopez Sugar Corporation v. Federation of Free Workers, et al., G.R. Nos. 75700-01. August 30, 1990).
Requisites of a Valid Retrenchment
In order for a retrenchment to be considered valid, the following must be present:
- Written notice served on both the employee and the DOLE at least 1 month prior to the intended date of retrenchment;
- Payment of separation pay equivalent to at least one month pay or at least 1/2 month pay for every year of service, whichever is higher;
- Good faith in effecting retrenchment;
- Proof of expected or actual losses;
- To show that the employer first instituted cost reduction measures in other measures in other areas of production before undertaking retrenchment as a last resort; and
- The employer used fair and reasonable criteria in ascertaining who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship of certain workers (FASAP v. PAL, G.R. No. 178083, October 2, 2009).
Criteria In Selecting Employees To Be Retrenched
There must be fair and reasonable criteria to be used in selecting employees to be dismissed such as:
- Less preferred status;
- Efficiency rating;
- Seniority (Phil. Tuberculosis Society, Inc. v. National Labor Union, G.R. No. 115414, August 25, 1998)
“Last In First Out” Rule
It applies to termination of employment in the same line of work. What is contemplated in the Last In First Out Rule is that when there are two or more employees occupying the same position in the company affected by the retrenchment program, the last one employed will necessarily be the first one to go (Maya Farms Employees Organization v. NLRC, G.R. No. 106256, December 28, 1994).
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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