Retrenchment of Employees and Criteria Employed

Retrenchment of Employees and Criteria Employed

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.

It is a reduction in manpower, a measure utilized by an employer to minimize business losses incurred in the operation of its business. (Philippine Carpet Employees Association [PHILCEA] vs. Hon. Sto. Tomas, G.R. No. 168719, February 22, 2006)

Retrenchment is normally resorted to by management during periods of business reverses and economic difficulties occasioned by such events as recession, industrial depression, or seasonal fluctuations. (Edge Apparel, Inc. vs. NLRC, G.R. No. 121314 February 12, 1998)

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. (Sanoh Fulton Philippines, Inc. vs. Bernardo, G.R. No. 187214, August 14, 2013.)

Article 298 of the Labor Code, as amended, provides, that:

“Article 298. Closure of Establishment and Reduction of Personnel.—The employer may also terminate the employment of any employee due to the installation of labor-saving devices,

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redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.”

The requirements of a valid retrenchment program are: (International Management Services vs. Logarta, G.R. 163657, 18 April 2012)

(1) That the retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age and financial hardship for certain workers.

The Supreme Court laid down the reasonable criteria in effecting retrenchment, such as, but not limited to: (See Flight Attendants and Stewards Association of the Philip- pines v. Philippines Airlines, Inc., G.R. No. 178083, July 23, 2008, 559 SCRA 252 citing Fernandez, P.V., The Law of Employee Dismissal, pp. 130-131, 1976 Ed.; Asiaworld Publishing House, Inc. v. Ople, G.R. No. L-56398, July 23, 1987, 152 SCRA 219, 225; Asufrin, Jr. v. San Miguel Corporation, G.R. No. 156658, March 10, 2004, 425 SCRA 270, 275.)

(a) Less preferred status (e.g., temporary employee);

(b) Efficiency;

(c) Seniority;

(d) Work skill required and qualities of workers to be retained; and

(e) Work experience.

The most important item in these criteria is the seniority.

As held by the Supreme Court, retrenchment scheme without taking seniority into account renders the retrenchment invalid. (Emcor vs. Sienes, citing Philippine Tuberculosis Society Inc. vs. NLRC, 356 Phil. 63, 72 (1998).)

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

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