Retrenchment and Redundancy

Retrenchment and Redundancy

Retrenchment is the termination of employment effected by management during periods of business recession, industrial depression, seasonal fluctuations, lack of work or considerable reduction in the volume of the employer’s business. Resorted to by an employer to avoid or minimize business losses. (Somerville Stainless Steel Corporation vs. National Labor Relations Commission, 350 Phil. 859, 869 (1998))

To prevent losses” means that retrenchment or termination of the services of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have, in fact, materialized; if such an intent were expressly written into the law, that law may well be vulnerable to constitutional attack as taking property from one man to give to another.

One should be careful in using the terms retrenchment and redundancy. They cannot be thrown around with impunity since there are legal implications in using them.

Just like in a case where the employer terminated his employee claiming retrenchment before the Labor

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Arbiter. When the case reached the NLRC, he changed his theory and claimed redundancy. And in the Court of Appeals he averred both retrenchment and redundancy. The Supreme Court ruled that although governed by the same provision of the Labor Code, retrenchment and redundancy are two distinct grounds for termination arising from different circumstances, thus, they are in no way interchangeable. (AMA Computer College, Inc. vs. Garcia, G.R. No. 166703, April 14, 2008.)

At this point, it is necessary to distinguish ‘redundancy’ from ‘retrenchment’. Both are mentioned in Article 298 of the Labor Code, as amended, 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. (Wiltshire File Co., Inc. v. NLRC, 193 SCRA 665 (1991).)

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.

Learn how to Validly Terminate Employee in the Philippines with this Tutorial Video of Atty. Elvin

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