Redundancy vs. Retrenchment

Redundancy vs. Retrenchment

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. (page 221, Guide to Valid Dismissal of Employees, 2nd Edition by Atty. Villanueva, citing Coats Manila Bay, Inc. vs. Ortega, supra, citing Wiltshire File Co., Inc., vs. NLRC, G.R. No. 82249, 7 February 1991, 193 SCRA 665)

For the implementation of a redundancy program to be valid, the employer must comply with the following requisites:

(1) Written notice served on both the employees and the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(2) Payment of separation pay equivalent to at least one month pay for every year of service, whichever is higher;

(3) Good faith in abolishing the redundant positions; and

(4) Fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.

The determination that the employee’s services are no longer necessary or sustainable and, therefore, properly terminable for being redundant is an exercise of business judgment of the employer. The wisdom or soundness of this judgment is not subject to discretionary review of the Labor Arbiter and the NLRC, provided there is no violation of law and no showing that it was prompted by an arbitrary or malicious act. In other words, it is not enough for a company to merely declare that it has become overmanned. It must produce adequate proof of such redundancy to justify the dismissal of the affected employees. (page 224, Guide to Valid Dismissal of Employees, 2nd Edition, citing AMA Computer College, Inc. vs. Garcia, G.R. No. 166703, April 14, 2008 citing Asufrin, Jr. vs. San Miguel Corporation, 469 Phil. 237, 245 (2004).

In several instances, the Court has held that it is important for a company to have fair and reasonable criteria in implementing its redundancy program, such as but not limited to, (a) preferred status, (b) efficiency and (c) seniority. (Panlilio vs. NLRC, 346 Phil. 30, 35 (1997); See also Lopez Sugar Corporation vs. Franco, G.R. No. 148195, May 16, 2005.)

However, in the case of Coca-Cola Femsa Philippines vs. Macapagal (G.R. No. 232669, July 29, 2019) the Supreme Court held that where all positions have been abolished the fair and reasonable criteria to determine which employees should be dismissed from service, no longer finds application.

At this point, it is necessary to distinguish redundancy from retrenchment.

Both are mentioned in Article 298 of the re-numbered Labor Code as just causes for the closing of establishments or reduction of personnel.

Redundancy exists when the services of an employee are in excess of what is required by an enterprise.

Retrenchment, on the other hand, is one of the economic grounds for dismissing employees and is resorted to primarily to avoid or minimize business losses.

A redundancy program, while denominated as such, is more precisely termed ‘retrenchment’ because it is primarily intended to prevent serious business losses.

As to payment of separation pay, redundancy requires one month for every year of service while retrenchment generally mandates one-half month for every year of service. In both cases, the minimum separation pay is one month.

However, there are cases where separation pay is not mandated when the employer is dire financial straits or suffering from serious business losses or financial reverses as shown by proof such as the financial statements. (Jaka Food Processing Corporation vs. Pacot, G.R. NO. 151378. March 28, 2005)

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