Retrenchment Should be the Last Resort and Other Issues
The prerogative of an employer to retrench its employees must be exercised only as a last resort, considering that it will lead to the loss of the employees’ livelihood. It is justified only when all other less drastic means have been tried and found insufficient or inadequate. (Philippine Carpet Employees Association [PHILCEA] vs. Hon. Sto. Tomas, G.R. No. 168719, February 22, 2006 citing Guerrero vs. National Labor Relations Commission, 329 Phil. 1069, 1076 (1996))
Retrenchment under Article 298 does not recognize temporary lay-off. The Labor Code authorizes a company to suspend its operation for a period not exceeding six (6) months. During the suspension period, the employment is not terminated89 although it may seem that there is temporary lay-off.
Article 298 pertains to termination that is permanent. Hence, any lay-off of temporary nature cannot be governed by Article 298.
Article 298 speaks of a permanent retrenchment as opposed to a temporary one. There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a period or duration therefor. The employees of a company under suspension of operation
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cannot forever be temporarily laid- off.
To remedy this situation or fill the hiatus, Article 301 may be applied but only by analogy to set a specific period that employees may remain temporarily laid-off or in floating status. Six months is the period set by law that the operation of a business or undertaking may be suspended thereby suspending the employment of the employees concerned. The temporary lay-off wherein the employees likewise cease to work should also not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched following the requirements of the law, and that failing to comply with this would be tantamount to dismissing the employees and the employer would thus be liable for such dismissal.
Since the retrenchment should be done as a last resort, there has to be measures taken to avoid proceeding to retrenchment. As ruled in the case of EMCO Plywood Corporation (G.R. No. 148532, April 14, 2004, 427 SCRA 496, 511), it must be shown that the employer resorted to other means but 
these proved to be insufficient or inadequate, such as:
- Cost reduction,
- Lesser investment on raw materials,
- Adjustment of the work routine to avoid scheduled power failure,
- Reduction of the bonuses and salaries of both management and rank-and-file,
- Improvement of manufacturing efficiency, and
- Trimming of marketing and advertising costs.
Where the only less drastic measure that the employer undertook was the rotation work scheme, or the three-day-work-per-employee-per-week schedule, and it did not endeavor at other measures, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs, the claim that retrenchment was done in good faith to avoid losses is belied.
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