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.

Reduction of wages: Most companies offer highly competitive compensation packages to stimulate productivity and attract only the best people in the industry.  But with unemployment at record highs, it’s possible nowadays to hire overqualified individuals at much less salaries. This is NOT TO SUGGEST cutting salaries of your existing employees but to hire new ones at lower rates. Bear in mind that Art. 100 of the Labor Code prohibits the diminution of salaries and benefits already enjoyed by employees.

Barangay Micro Business Enterprise law: If you qualify under the terms of this law, you may be able to register and avail of the exemption from the payment of minimum wage. The application of this law is not automatic. It requires prior registration for you to take advantage of its benefits, and NO, the registration will not apply retroactively — existing employees at the time will still receive their current pay. 

Redundancy program: The Labor Code allows you to remove employees occupying redundant positions. There are specific requirements for this to apply. See previous entry on Redundancy.

Retrenchment: Considered your last resort in order to save the business, it is justified only when the company can show on paper that it is suffering from serious business losses. Again, there are requirements for this move to be exercised.

Reduction of working hours: Some companies have already resorted to cutting down their workweek in response to lack of orders and raw materials for production.  This option is considered more humane than termination of employment.  

Under the Explanatory Bulletin on the Effect of Reduction of Workdays on Wages/Living Allowances issued by the Department of Labor and Employment on July 23, 1985, workdays may be reduced on account of losses and the employer may deduct the wages and living allowances corresponding to the days taken off from the workweek, in the absence of any agreement specifically providing that a reduction in the number of workdays will not adversely affect the salary of the employee. This is consistent with the “No work, No Pay” principle of labor law.  (Linton Comm’l Co, Inc. vs. Francisco et al. , October 10, 2007, G.R. No. 163147)

Temporary suspension of business operations: Article 286 of the Labor Code allows employers to temporarily suspend operations for not more than 6 months. At which time, the employees are not deemed terminated.  

In cases of temporary suspension and reduction of work hours, it is the company’s duty to inform the Dept. of Labor of such decision at least 30 days before the intended effectivity. The company must also demonstrate serious losses to justify its decision.


2 thoughts on “Legal Labor Options for Distressed Companies

  1. Mark Jose


    I just want to ask what the regular working hours per week is if your employment contract is silent regarding the matter.

    I am being told that since our contarct is silent, that we are required to work 48 hours per week and that the 6th day is not paid OT.


    1. Atty. Post author

      Mark: If the contract is silent, try checking the employee handbook or company manual for any statement regarding the hours of work. When the contract and company policies are silent on the working hours, then the employer may require you to render work of 8 hours per day, 6 consecutive days a week (which is the maximum set by law).

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