Bona Fide Suspension of Operations of Six Months Can Now be Extended
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Bona fide suspension of operations provided under the Labor Code allows companies to temporarily close on account of lack of raw materials, orders, etc.
Article 301 [Formerly Article 286] of the Labor Code contemplates a situation when employment is not deemed terminated. The bona-fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from the military or civic duty.
Under Article 301 of the Labor Code, a bona fide suspension of business operations for not more than six (6) months does not terminate employment. After six (6) months, the employee may be recalled to work or be permanently laid off. (See Labor Code, Atty. Elvin B. Villanueva, page 296 citing Waterfront Cebu City
Hotel vs. Jimenez, G.R. No. 174214, June 13, 2012.)
The law set six (6) months as the period where the operation of a business or undertaking may be suspended, thereby also suspending the employment of the employees concerned.
The resulting temporary lay-off, wherein the employees likewise cease to work, should also not last longer than six (6) months. After the period of six (6) months, the employees should either then be recalled to work or permanently retrenched following the requirements of the law.
Failure to comply with this requirement would be tantamount to dismissing the employees, making the employer responsible for such dismissal. (PT&T v. NLRC, 496 Phil. 164, 177 (2005) cited in Innodata Knowledge Services, Inc. vs. Inting, G.R. No. 211892, December 6, 2017)
Elsewise stated, an employer may validly put its employees on forced leave or floating status upon bona fide suspension of the operation of its business for a period not exceeding six (6) months. In such a case, there is no termination of the employment of the employees, but only a temporary displacement. When the suspension of the business operations, however, exceeds six (6) months, then the employment of the employees would be deemed terminated, and the employer would be held liable for the same. (See Nasipit Lumber Company v. NOWM, 486 Phil. 348, 362 (2004).)
In its IRR, the DOLE indicates the maximum period of suspension as six (6) months. Thus, Section 12 of the IRR refers to this as suspension of relationship. The employer-employee relationship shall be deemed suspended in case of suspension of operation of the business or undertaking of the employer for a period not exceeding six (6) months, unless the suspension is for the purpose of defeating the rights of the employees under the Code, and in case of mandatory fulfillment by the employee of a military or civic duty.
The payment of wages of the employee as well as the grant of other benefits and privileges while he is on a military or civic duty shall be subject to special laws and decrees and to the applicable individual or collective bargaining agreement and voluntary employer practice or policy.
Can that period be extended beyond six (6) months?
The DOLE thinks so. On October 23, 2020, the DOLE issued Department Order (D.O.) No. 215, Series of 2020 providing that in case of declaration of war, pandemic and similar national emergencies, the employer and the employees, through the union, if any, or with the assistance of the department of labor and employment, shall meet in good faith for the purpose of extending the suspension of employment for a period not exceeding six (6) months.
See the PDF Version of DO 215, Series of 2020 here.
That employer shall report to the department of labor and employment, through the regional offices, the extension of suspension of employment ten (10) days prior to the effectivity thereof subject to inspection.
The employees shall not lose employment if they find alternative employment during the extended suspension of employment except in cases of written, unequivocal and voluntary resignation. Should retrenchment be necessary before or after the expiration of the extension of suspension of employment, the affected employee shall be entitled to separation pay as prescribed by the Labor Code, company policies or collective bargaining agreement, whichever is higher.
The retrenched employees shall have priority in the re-hiring if they indicate their desire to resume their work not later than one (1) month from the resumption of operations.
However, by mutual agreement of the employer and the employees, through the union, if any, or with the assistance of the department of labor and employment, employees may be recalled to work or retrenched subject to the requirement of notice and separation pay, anytime before the expiration of the extension of suspension of employment.
The extension of suspension of employment shall not affect the right of the employees to separation pay. The first six (6) months of suspension of employment shall be included in the computation of the employees’ separation pay.
Indeed, closure or suspension of operations for economic reasons is recognized as a valid exercise of management prerogative. But the burden of proving, with sufficient and convincing evidence, that said closure or suspension is bona fide falls upon the employer.
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