by the Er.
3. Reorganization
Note: An Er is not precluded from adopting a new
policy conducive to a more economical and effective management, and the law does not require that the Er should be suffering financial losses before he can terminate the services of the employee on the ground of redundancy [DOLE Phil., Inc. vs. NLRC, G.R. No. L-
55413, (1983)].
4. Retrenchment–cutting of expenses and includes the reduction of personnel; It is a management prerogative, a means to protect and preserve the Er’s viability and ensure his survival. To be an authorized cause it must be effected in good faith and for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the Ee’s or otherwise laid-off. Note: The phrase “to prevent losses” means that
retrenchment or termination from the service of some Ees is authorized to be undertaken by the Er sometime before the anticipated losses are actually sustained or realized. Evidently, actual losses need not set in prior to retrenchment [Cajucom VII vs. TP Phils Cement
Corp., et al, G.R. No. 149090, (2005)].
5. Closing or cessation of operation of the
establishment or undertaking – must be done in
good faith and not for the purpose of circumventing pertinent labor laws.
6. Disease –must be incurable within 6 months and the continued employment is prohibited by law or prejudicial to his health as well as to the health of his co-Ees with a certification from the public health officer that the disease is incurable within 6 months despite due to medication and treatment
Q: What are other authorized causes? A:
1. Total and permanent disability of Ee 2. Valid application of union security clause 3. Expiration of period in term of employment 4. Completion of project in project
employment 5. Failure in probation
6. Relocation of business to a distant place 7. Defiance of return-to work-order 8. Commission of Illegal acts in strike 9. Violation of contractual agreement 10. Retirement
Q: What are the procedural steps required in termination of an employee for authorized causes? A:
1. Written Notice to DOLE 30 days prior to the intended day of termination.
Purpose: To enable it to ascertain the verity of
the cause of termination.
2. Written notice to Ee concerned 30 days prior the intended date of termination.
3. Payment of separation pay - Serious business losses do not excuse the Er from complying with the clearance or report required in Art. 283 of the LC and its IRR before terminating the employment of its workers. In the absence of justifying circumstances, the failure of the Er to observe the procedural requirements under Art. 284 of the LC taints their actuations with bad faith if the lay-off was temporary but then serious business losses prevented the reinstatement of respondents, the Er’s should have complied with the requirements of written notice.
Q: What are the requisites of a valid Redundancy? A:
1. Written notice served on both the Ees and the DOLE at least 1 month prior to separation from work
2. Payment of separation pay equivalent to at least 1 month pay or at least 1 month pay for every year of service, whichever is higher
3. Good faith in abolishing redundant position 4. Fair and reasonable criteria in ascertaining what
positions are to be declared redundant: a. Less preferred status, e.g. temporary Ee b. Efficiency and
c. Seniority
Q: Ong, a Sales Manager of Wiltshire File Co., Inc., was informed of the termination of his employment due to redundancy upon returning from a trip abroad. Ong maintains that there can be no redundancy since he was the only person occupying his position in the company.
Is there redundancy even though Ong was the only one occupying his position?
A: Redundancy in an Er’s personnel does not necessarily or even ordinarily refer to duplication of work. The characterization of Ong’s services as no longer necessary or sustainable and therefore
properly terminable, was an exercise of business judgment on the part of Wiltshire. Furthermore, 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. The Er has no legal obligation to keep in its payroll more employees that are necessary for the operation of its business [Wiltshire File Co., Inc.
vs. NLRC, G.R. No. 82249, (1991)].
Note: The losses which the company may suffer or is
suffering may be proved by financial statements audited by independent auditors [Asian Alcohol Corporation vs. NLRC,
G.R. No. 131108, (1999)].
Retrenchment is a means of last resort because in the normal course of business losses are expected. Employer must have taken all measures necessary to prevent losses and it is the last measure when you touch the work force.
Q: What are the requisites of a valid retrenchment? A:
1. Written notice served on both the Ee and the DOLE at least 1 month prior to the intended date of retrenchment
2. Payment of separation pay equivalent to at least one month pay or at least 1/2 month pay for every year of service, whichever is higher
3. Good faith
4. Proof of expected or actual losses
5. The employer used fair and reasonable criteria in
ascertaining who would be retained among the Ees, such as status, efficiency, seniority, physical fitness, age, and financial hardship of certain workers [FASAP v. PAL, G.R. No. 178083, (2009)]. Q: What are the criteria in selecting employees to be retrenched?
A: There must be fair and reasonable criteria to be used in selecting Ees to be dismissed such as:
1. Less preferred status; 2. Efficiency rating;
3. Seniority. [Phil. Tuberculosis Society, Inc. vs.
National Labor Union, G.R. No. 115414, (1998)]
Q: What is the “last in first out” (LIFO) rule?
A: It applies inthe termination of employment in the line of work. What is contemplated in the LIFO rule is that when there are two or more Ees occupying the same position in the company affected by the
retrenchment program, the last one employed will necessarily be the first one to go [Maya Farms Ees’
Organization vs. NLRC, G.R. No. 106256, (1994)].
Q: Is the seniority rule or "last in first out" policy to be strictly followed in effecting a retrenchment or redundancy program? (2001 Bar Question)
A: In Asian Alcohol Corp., the SC stated that with regard the policy of "first in,last out" in choosing which positions to declare as redundantor whom to retrench to prevent further business losses, there is no law that mandates such a policy. The reason is simple enough. A host of relevant factors come into play in determining cost efficient measures and in choosing the Ees who will be retained or separated to save the company from closing shop. In determining these issues, management plays a pre- eminent role. The characterization of positions as redundant is an exercise of business judgment on the part of the Er. It will be upheld as long as it passes the test of arbitrariness.
Q: Philippine Tuberculosis Society, Inc. retrenched 116 employees after incurring deficits amounting to 9.1 million pesos. Aside from retrenching its employees, the company also implemented cost cutting measures to prevent such losses for increasing and minimizing it. The NLRC ruled that the retrenchment was not valid on the ground that the Society did not take the seniority rule into account in the selection of the retrenchment. Was the retrenchment done by the Society not valid for its failure to follow the criteria laid down by law? A: No. The Society terminated the employment of several workers who have worked with the Society for great number of years without consideration for the number of years of service and their seniority indicates that they had been retained for such a long time because of loyal and efficient service. The burden of proving the contrary rests on the Society
[Phil. Tuberculosis Society, Inc. vs. National Labor Union, G.R. No. 115414, (1998)].
Q: Due to mounting losses the former owners of Asian Alcohol Corporation sold its stake in the company to Prior Holdings. Upon taking control of the company and to prevent losses, Prior Holdings implemented a reorganization plan and other cost- saving measures including the retrenchment of 117 employees some of which are members of the union and the majority held by non-union members. Some retrenched workers filed a complaint for illegal dismissal alleging that the retrenchment was a subterfuge for union busting activities.
U S T