Employees on Temporary Layoff Should Still be given Written Notice of Retrenchment

Employees on Temporary Layoff Should Still be given Written Notice of Retrenchment

What happens if the employees are already on temporary layoff under Article 301 of the Labor Code, and the employer decided to forego of their employment, should the latter still issue a written notice of retrenchment?

The Supreme Court resolved this poser in the case of Keng Hua Paper Products vs. Ainza, [G.R. No. 224097, February 22, 2023].

Citing Sanoh Fulton Phils., Inc. v. Bernardo, the SC explained that Article 298 and emphasized that retrenchment to prevent losses or the closing or cessation of business operations do not compose one cause for termination of employment. Although they have the same procedural requirements, they have different causes and different requirements for validity, thus:

Retrenchment to prevent losses and closure not due to serious business losses are two separate authorized causes for terminating the services of an employee. In .J.A. T. General Services vs. NLRC, the Court took the occasion to draw the distinction between retrenchment and closure. Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for

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termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped.

On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is sometimes also referred to as down-sizing. Retrenchment is an authorized cause for termination of. employment which the law accords an employer who is not making good in its operations in order to cut back on _expenses for salaries and wages by laying off some employees. The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing.

A cursory reading of Article 298 will readily show that, regardless of cause, there are two procedural requirements for a valid termination of employment: (1) service of a written notice to the employees and to the DOLE at least one month before the intended date thereof; and (2) payment to the employees of termination pay amounting to one month pay or at least one-half month pay for every year of service, whichever is higher. The Labor· Code does· not provide for exemptions from these two procedural requirements.

Petitioners failed to show proof of compliance with the procedural requirements for a valid termination of employment. First, Keng Hua failed to show any proof of such written notice to any of the respondents or to the DOLE. That complainants were already on temporary lay-off at the time notice should have been given to them is not an excuse to forego the one month written notice because by this time, their lay-off is to become permanent and they were definitely losing their employment. Second, Keng Hua failed to show proof of payment of termination pay to employees.

Accordingly, the SC ruled against Keng Hua’s’ claim of valid termination of employment based on cessation of operations. The facts simply do not support such claim.

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