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Article 283 (now Article 298) of the Labor Code of the Philippines, as amended, recognizes retrenchment as a right of the management to meet clear and continuing economic threats or during periods of economic recession to prevent losses (Read-Rite Philippines, Inc. v. Francisco, et al., G.R. No. 195457, 16 August 2017).

If you are an employer, you are not precluded from adopting a new policy conducive to a more economical and effective management. The law does not require you to suffer financial losses before you can terminate an employee’s services on the ground of redundancy (DOLE Philippines, Inc. v. NLRC, et al., G.R. No. 120009, 13 September 2001). If you are an employee, you should know your rights in the event of termination of your employment due to retrenchment.

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REQUISITES: 

For retrenchment to be a valid ground for termination, the following must be present:

1. Proof that the retrenchment is necessary to prevent losses or impending losses; 
2. Service of written notices to the employees and to the Department of Labor and Employment at least one (1) month prior to the intended date of retrenchment; and 
3. Payment of separation pay equivalent to one (1) month pay, or at least one-half (1/2) month pay for every year of service, whichever is higher. 

In addition, jurisprudence has set the standards for losses which may justify retrenchment, thus:

1. The losses incurred are substantial and not de minimis; 
2. The losses are actual or reasonably imminent;
3. The retrenchment is reasonably necessary and is likely to be effective in preventing the expected losses; and
4. The alleged losses, if already incurred, or the expected imminent losses sought to be forestalled, are proven by sufficient and convincing evidence. (Sanoh Fulton Phils., Inc. v. Bernardo, 716 Phil. 378)

It is prudent for the employer to undertake these steps in implementing a retrenchment program:

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1. Inform employees of the current state of the business necessitating the reduction of workforce;
2. Present proof that a retrenchment program is the appropriate measure in order to improve the company’s state of business operations;
3. Issuing a Board Resolution approving and authorizing the implementation of a retrenchment program;
4. Comply with procedural requirements by serving a written notice on the workers and the Regional Office of the Department of Labor and Employment (DOLE) having jurisdiction over the place of business at least thirty (30) days before the effectivity of the termination, specifying the ground/s for termination; and
5. Payment of separation pay.

Statutory procedural process must strictly be followed as noncompliance may warrant the employer to pay indemnity in the form of nominal damages of Fifty Thousand Pesos (Php 50,000.00).

NOTE: A fraction of six (6) months service is considered as one (1) whole year (Section 5.5, DOLE D.O. No. 147-15, s. 2015)

Understanding authorized causes in the Labor Code is crucial for both employers and employees. There are safeguards in our Labor Code to ensure that terminations are conducted fairly and legally, protecting employees from unjust dismissal while allowing employers to manage their workforce effectively. 

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Disclaimer: This article is for informational purposes only and should not be considered legal advice. For specific guidance on labor law concerns in the Philippines, consult with a legal professional.

‍Padin & Partners Law Offices is a full-service law firm that caters to labor law concerns in Cebu City, Philippines. For consultations: book an appointment or reach us at +63 (32) 316-1540 or +63 917 188 0361.