Valid Termination due to Redundancy
For purposes of the Labor Code, redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise.
For the implementation of a redundancy program to be valid, the employer must comply with the following requisites:
(1) Written notice served on both the employees and the Department of Labor and Employment at least one month prior to the intended date of retrenchment;
(2) Payment of separation pay equivalent to at least one month pay for every year of service, whichever is higher;
(3) Good faith in abolishing the redundant positions; and
(4) Fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.
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(5) There is no other option available to employer except to terminate redundant employees.
The Constitution generally favors the rights of the workers, being a weaker party, in an employer-employee relationship.
While tilting the scales of justice in favor of workers, the fundamental law also guarantees the right of the employer to reasonable returns for his investment.
In this light, the Supreme Court acknowledges the prerogative of the employer to adopt such measures as will promote greater efficiency, reduce overhead costs and enhance prospects of economic gains, albeit always within the framework of existing laws.
The Court recognizes that a host of relevant factors comes into play in determining cost-efficient saving measures and in choosing who among the employees should be retained or separated. It is well settled that the characterization of an employee’s services as no longer necessary or sustainable, and, therefore, properly terminable, is an exercise of business judgment on the part of the employer. However, the wisdom or soundness of such characterization or decision is not subject to discretionary review 
provided, of course, that violation of law or arbitrary or malicious action is not shown.
The determination that the employee’s services are no longer necessary or sustainable and, therefore, properly terminable for being redundant is an exercise of business judgment of the employer. The wisdom or soundness of this judgment is not subject to discretionary review of the Labor Arbiter and the NLRC, provided there is no violation of law and no showing that it was prompted by an arbitrary or malicious act. In other words, it is not enough for a company to merely declare that it has become overmanned. It must produce adequate proof of such redundancy to justify the dismissal of the affected employees.
While it is true that management may not, under the guise of invoking its prerogative, ease out employees and defeat their constitutional right to security of tenure, the same must be respected if clearly undertaken in good faith and if no arbitrary or malicious action is shown.
Well established is the rule that to dismiss or lay off an employee is management’s prerogative however, it must be done without abuse of discretion, for what is at stake is not only petitioner’s position but also his means of livelihood.
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