Category Archives: Retrenchment

Legal Labor Options for Distressed Companies

Balancing financial survival and the rights of employees during economic downtimes can be tricky for companies whose primary concern is to keep the business afloat for the benefit of everyone– shareholders, employees and clients.

Philippine labor laws are typically favorable to the employee with more rights and labor standards deemed by many foreigners doing business in the Philippines as obstacles to business growth.

Small and medium sized companies that struggle with dwindling revenues and lack of financing sources often wonder what their legal options are.  The following suggestions are not magic bullets that offer quick cures for your business problems, but these may help manage brewing labor issues before they escalate into expensive litigation. Continue reading

Computation of Termination Pay

A requirement for valid dismissal of employment is the payment of the correct value of termination pay. The Labor Code prescribes minimum standards for the computation of termination pay.

The minimum amount of a terminated or dismissed employee’s termination pay depends on the reason or ground for his dismissal, either a half month’s pay or one month’s pay for every year of service, but in no case will an employee get the equivalent of less than one month’s pay.

Cases where employee is entitled to a half month’s pay for every year of service:

  1. Retrenchment to prevent losses, i.e. reduction of personnel affected by management to prevent losses
  2. Closure or cessation of operation of an establishment not due to serious losses or financial reverses; and
  3. When the employee is suffering from a disease not curable within a period of six (6) months and his continued employment is prejudicial to his health or to the health of his co-employees.

Situations when an employee is entitled to one month’s pay for every year of service:

  1. Installation of labor-saving device, such as replacement of employees by machineries or computerization;
  2. Redundancy, as when the position of the employee has been found to be surplusage or unnecessary in the operation of the enterprise;
  3. Impossible reinstatement of the employee to his former position or to a substantially equivalent position for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be implemented due to closure or cessation of operations of the establishment or employer, or when the position to which he is to be reinstated no longer exists and there is not substantially equivalent position in the establishment to which he can be assigned.

Read more about the proper computation of termination pay and other legal requirements for dismissing employees from Guide to Valid Dismissal of Employees by Atty. Elvin Villanueva.

Labor Law: Retrenchment

After many years of battling it out in the Supreme Court, the association of flight attendants of the Philippine Airlines finally obtained a decision declaring their retrenchment illegal. In its decision, the Supreme Court restates the requirements of retrenchment for it to be considered as a valid exercise of management prerogative.

“In order for a retrenchment scheme to be valid, all of the following elements under Article 283 of the Labor Code must concur or be present, to wit:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and,

(5) That the employer uses fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.”

Retrenchment must be exercised by the employer as a last resort to prevent serious business losses or avoid closure of business.

In the case at bar, the Court viewed the retrenchment as a “knee jerk response” to a “temporary” situation, i.e. the pilots’ strike in 1998, without first exhausting other cost cutting measures such as work rotation and hotel-sharing.

FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES (FASAP) vs. PHILIPPINE AIRLINES (G.R. 178083, Oct. 02, 2009)