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.



4 thoughts on “Labor Law: Retrenchment

  1. Lucy

    Good day attorney,
    I am Lucy dela Rosa. the company where i am employed is closing in March. the management advised the employees last wednesday. Attorney, what are the benefits due to employees? the company will be paying 50% separation pay for every year of service, but according to them they will ask the employees to bargain for 50% of 50%. What are the legal rights of the employees? the company is loosing but did not reported any bankcrucy. pls. advise, thanks Lucy

    1. CFlorido Post author

      Lucy: if the reason for termination is the closure of business NOT due to serious business losses, then the employees may be entitled to receive separation pay computed at 1/2-month’s salary for every year of service. If the closure of the establishment is due to serious business losses or financial reverses, then the employees may not be entitled to separation pay. It is the duty of the employer to notify the Dept. of Labor of this decision including its reasons at least 30 days prior to the intended date of termination. If the company cites and proves serious business losses in connection with its closure, then you may have to weigh the practical aspects of receiving half of the separation pay now vis-a-vis not receiving anything at all. In the meantime, I suggest that you focus on getting a new job already.

  2. j.torrez

    The case of FASAP vs Pal. the sc ruled with finality the retrenchnent case. But did Pal’s motion for reconcixeration was allowed? “FINALITY” means final as in period no further pleadings or motions final is final right?

    1. Atty. Post author

      J.Torrez: Yes, I agree with your observation about FINAL decisions of the Supreme Court but because I’m bound to observe the Code of Ethics for lawyers, I would rather not comment about the wisdom of allowing motions for reconsideration. There’s a principle in the judicial system that permits procedural exceptions “in the discretion” of the court. That’s all for now. Sorry, can’t really comment further.

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