Retrenchment to Prevent Losses Due to Impact of COVID-19 Pandemic with Sample Criteria and Notice of Retrenchment

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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 (page 237, Guide to Valid Dismissal of Employees, 2^nd Edition, citing Santos vs. CA, G.R. No. 141947, July 5, 2001 and De la Cruz vs. National Labor Relations Commission, 335 Phil. 932, 939 (1997) and Somerville Stainless Steel Corporation vs. National Labor Relations Commission, 350 Phil. 859, 869 (1998)).

The COVID-19 Pandemic is considered to pose serious health risk even by R.A. 11469 or the Bayanihan to Heal as One Act. In fact, a public health emergency throughout the Philippines was declared via Proclamation No. 922, Series of 2020 due to COVID-19.

R.A. 11469 recognizes COVID-19 as a serious threat to the health, safety, security, and lives. Likewise, it causes severe disruption of economic activities. With this, the government imposed series of lockdown protocols termed as community quarantine, enhanced community quarantine, general community quarantine, and their modified versions. These lockdown periods shutdown the economy and wreaked havoc on the financial health of most businesses.

Majority of companies are now in survival mode which involves removal of several employees to prevent losses due to business recession and severe reduction in the volume of business. The right mode of termination for this is retrenchment under Art. 298 of the Labor Code, as amended.

The basic requisites for a valid retrenchment to exist are as follows (See pp. 245-246, Guide to Valid Dismissal of Employees, 2^nd Edition, citing Asian Alcohol Corporation vs. National Labor Relations Commission, 364 Phil. 912, 926-927 (1999):

(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 1⁄2 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 (i.e., whether they are temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

The use of criteria applies in cases where there are several occupants of a particular position. For instance, a position of Clerk may have four (4) holders who are millennials: Lugublina, Lucrecia, Ludigario, and Azuceno. If the company would want to retrench one of them, who will be terminated? Why that person and not the others?

This is the reason why criteria need to be employed. This will avoid bias and will have some reasonable basis for terminating employees and keeping others of the same function.

The following is the sample set of criteria for retrenchment with the suggested weight and explanation for sample implementation. Note that seniority is a mandatory criterion.

Criteria                         Weight

Seniority                      30%

Performance                 30%

Health                          20%

Punctuality                   10%

Behavior                       10%

For seniority, it is based on tenure or service. For instance, service of less than 1 year gives 2%. Service of 1 to less than 2 years 10%, so on and so forth. While for performance, the employer must use its evaluation form or metrics to determine the ratings.

For the health, it becomes relevant due to COVID-19 situation. As borne by health reports and government issuances, those with respiratory issues, diabetes, etc. are at risk. Hence, the company may check the health records of each employee in 201 files or annual physical exams to complete the health criterion. This may be done by deducting certain percentage as to type of illness and confinement period.

As to punctuality, the company may deduct a percentage for every written warning issued for tardiness or unauthorized absences. Then another percentage for notices of suspension issued for such tardiness or unauthorized absences.

The behavior involves review of the 201 files as well. For every written warning issued for violation of any company policy (other than tardiness or absences), a certain percentage shall be deducted.

Thus:

Seniority                       30%

0 years < 1 year           2%

1 year to < 2 years       10%

2 years to < 5 years     15%

5 years to < 10 years   20%

10 years above             30%

Performance                 30%

Just evaluate

Health                          20%

With medical findings without recuperation period      less 5%

Recuperation period of 1 to <2 months                      less 7%

Recuperation period of 2- <3 months                         less 10%

Recuperation period of 3- <4 months                         less 15%

Recuperation period of above 4 months                     less 20%

Punctuality                   10%

Every memo serving warning for tardiness less 2%

Every memo serving warning AWOL less 5%

Every memo serving suspension for tardiness or AWOL less 10%

Behavior                       10%

(excluding AWOL and tardiness)

Any violation warned in writing less 5%

Any violation suspended in writing for less than 5 days, less 7%

Any violation suspended in writing for 5 days above, less 10%

For example:

The management decides to reduce the number of Clerk from 4 to 3 through retrenchment. Thus, all 4 occupants will be evaluated. The one with the lowest rating shall be served a notice of retrenchment:

Procedure:

Azuceno will be served a Notice of Retrenchment informing him of termination based on the criteria mentioned. It shall be effective 30 days from date of service.

For the same period, the notice will also be sent to DOLE regional office as well as accomplishment of the Establishment Termination Report.

Need editable templates/notices for a minimal fee? Email us at learomano77@gmail.com.

Below is the sample notice of retrenchment (names and terms used are samples only and there is no intention to disparage or mock any person, class or group):

To:             AZUCENO, DEAZO
                  Clerk
From:         MANAGER
Subject:     RETRENCHMENT
Date:          June ____, 20 ____

Last March 16, 2020, the government placed the entire Metro Manila under a community quarantine which was made stricter with the Enhanced Community Quarantine (ECQ). As a result, the mobility and population movements were highly restricted. Mass gathering was disallowed.

The company’s business relies mostly on convergence of families and friends which is the main source of revenue. With the restricted mobility and the prohibition on mass gathering, the company’s sales were severely affected. Such adverse impact is expected to continue for an extended period or probably until an effective vaccine is developed.

With this, the management has decided to implement retrenchment of employees to reduce manpower cost and prevent losses or further losses, as the case may be. Careful review and assessment of the positions and functions were made with the use of criteria and measures necessary to arrive at the most reasonable selection and decision.

After careful assessment, the company has determined that you shall be included in the retrenchment program using the following criteria: Seniority, Performance, Health, Punctuality, and Behavior. It appears in the evaluation that you obtained a rating of only 70% based on these criteria.

In this regard, we regret to inform you that you are hereby being retrenched from service effective after thirty (30) days from this notice. Please process your exit documents, make complete turnover, settle all accountabilities, and accomplish the clearance for the expeditious release of your final pay which includes your separation pay.

For your guidance.

                                                               AYA O. SAAZO
HR Manager