Termination Due to Installation of Labor Saving Device

Termination due to installation of labor-saving device is one of the authorized causes for employee dismissal.

It is provided under Article 298 [Formerly Article 283; re-numbered per RA 10151 and DOLE DA 01 Series of 2015; Get a copy of re-numbered Labor Code 2018 Edition by Atty. Villanueva] of the Labor Code.

It states that the employer may also terminate the employment of any employee due to the installation of labor-saving devices, 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 employer’s utilization of high technology equipment in its operation such as computers and digital switches necessarily resulted in the reduction of the demand for the services of a Switchman since computers and digital switches can aptly perform the function of several Switchmen. Indubitably, the position of Switchman has become redundant. (Soriano vs. NLRC, G.R. No. 165594, April 23, 2007)

The installation of labor-saving devices contemplates the installation of machinery to effect economy and efficiency in its method of production. (Labor Code 2018 Edition, Atty. Elvin Villanueva, p. 286 citing Edge Apparel, Inc. vs. NLRC, G.R. No. 121314, February 12, 1998.)

Related: Termination due to closure is not invalidated if employees do not recognize the losses

The institution of “new methods or more efficient machinery, or of automation” is technically a ground for termination of employment by reason of installation of labor-saving devices but where the introduction of these methods is resorted to not merely to effect greater efficiency in the operations of the business but principally because of serious business reverses and to avert further losses, the device could then verily be considered one of retrenchment. (Labor Code 2018 Edition, Atty. Elvin Villanueva, p. 286 citing Edge Apparel, Inc. vs. NLRC, G.R. No. 121314, February 12, 1998.)

In the case of International Macleod, Inc. vs. Intermediate Appellate Court,(G.R. No. 73287, May 18, 1987, 149 SCRA 641.) the Court also considered the position of Government Relations Officer to have become redundant in view of the appointment of the International Heavy Equipment Corporation as the company’s dealer with the government. It held therein that the determination of the need for the phasing out of a department as a labor and cost saving device because it was no longer economical to retain said services is a management prerogative and the courts will not interfere with the exercise thereof as long as no abuse of discretion or merely arbitrary or malicious action on the part of management is shown.

Below is a sample notice of termination due to this ground based on the book Human Resource Forms, Notices and Contracts Volume 2 by Atty. Villanueva.

Form No. 155 Termination due to adoption of new computer system

To : MILA K. OTIS
Sales Encoder, Tugatog Region
From : HRMD
Date : ______________
Subject : NEW COMPUTER SYSTEM

Recently, the company has rolled out the new computer system called X-Tech Pro 10, an online program that would automatically store, process and produce sales records, collection and even statistical data on sales and collection.

With this technology, there is no more need to encode sales at the region as transactions would be automatically uploaded the moment sales are made. Sales agents would be carrying portable sales device where they would enter sales transaction and store in the database online.

Hence, the management has decided to abolish the Sales Encoder position as the same would be performing similar job as that of the new system. The management had searched for other possible position where your skills and competencies would be needed but found no vacancies at this point. We have stopped the hiring the past few months as well.

In this regard, after careful assessment and consideration of all relevant records and factors, the Management is constrained to declare you redundant for the above reason. This will be effective after thirty (30) days from receipt of this notice.

Kindly turnover all your responsibilities and undergo exit audit. Process as well your papers for the immediate release of your last pay.

Thank you for serving the company and we wish you well on your future endeavors.

JOHN LANG
HR Manager
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