Week 10 - Termination of employer (Authorized causes)

Question 1

Art. 293. Closure of Establishment and Reduction of Personnel.

Answer 1

Art. 293. Closure of Establishment and Reduction of Personnel. – 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 (½) 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.

Question 2

What are the authorized causes for termination?

Answer 2

The authorized causes are the following:

1. Installation of labor saving devices;
2. Redundancy;
3. Retrenchment to prevent losses;
4. Closure of business

Question 3

What is the procedural requirement imposed by Art. 298 regarding the termination by employer due to authorized causes?

Answer 3

Art. 298 provides that the procedural due process in case of termination by employer due to authorized causes be done “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.”

Question 4

What are the rights of the workers in cases of termination due to authorized causes?

Answer 4

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 (½) 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. [Art. 298 LC]

Question 5

What closure of business is not an authorized cause?

Answer 5

When the closure is meant to circumvent the provisions of Title I - Termination of Employment of the Labor Code. [Art. 298]

Question 6

May the installation of labor-saving devices be grounds for termination of an employee by authorized causes?

Answer 6

Yes. In Abapo v. CA, the Court held that the installation of labor-saving devices by [the company] was a proper ground for terminating employment. Art. 298 also provides for this.

Question 7

What is the requirement in the implementation of a redundancy?

Answer 7

In Panlilio v. NLRC, the Supreme Court held that “it is important for a company to have fair and reasonable criteria in implementing its redundancy program, such as but not limited to, (a) preferred status, (b) efficiency and (c) seniority. Unfortunately for FPS, such appraisal was not done in the instant case.”

Question 8

May proof of business losses be admitted on appeal before the NLRC?

Answer 8

Yes. In Tanjuan v. Phil. Postal Savings, the Court held that “the NLRC is not precluded from receiving evidence, even for the first time on appeal, because technical rules of procedure are not binding in labor cases. This rule applies equally to both the employee and the employer. […] However, delay in the submission of evidence should be clearly explained and should adequately prove the employer’s allegation to the cause for termination.”

Question 9

What is the definition of retrenchment?

Answer 9

Retrenchment, one of the authorized causes for termination, has been defined as “the termination of employment initiated by the employer through no fault of the employees and without prejudice to the latter, resorted by management during periods of recession, industrial depression, or seasonal fluctuation; or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation.” [Tanjuan v. Phil. Post Savings.].

Question 10

What must be established by claims of actual or potential business losses in order for any reduction of personnel to become legal?

Answer 10

In Tanjuan v. Phil. Post Savings Bank, the Court held that “before any reduction of personnel becomes legal, any claim of actual or potential business losses must satisfy established standards as follows:

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.

The employer has the burden of proving that the losses are serious, actual, and real.”

Question 11

What is the normal method of proof of profit-and-loss performance of a company?

Answer 11

Financial statements audited by independent external auditors constituted the normal method of proof of the profit-and-loss performance of a company. [Tanjuan v. Phil. Post Savings]

Question 12

What is the difference between retrenchment and closure of business?

Answer 12

Retrenchment is the reduction of personnel for the purpose of cutting down on costs of operations in terms of salaries and wages resorted to by an employer because of losses in operation of a business occasioned by lack of work and considerable reduction in the volume of business.

Closure of a business or undertaking due to business losses is the reversal of fortune of the employer whereby there is a complete cessation of business operations to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. [Alabang Country Club v. NLRC]

Question 13

Is the business owner required to pay separation pay in closure of business?

Answer 13

No, not in all cases. While the Labor Code provides for the payment of separation package in case of retrenchment to prevent losses, it does not obligate the employer for the payment thereof if there is closure of business due to serious losses. [Alabang Country Club v. NLRC]

Question 14

What are the consequences of a closure of a business but not due to serious business losses or financial reverses?

Answer 14

The employer is mandated to pay separation pay computed from the time individual employees commenced their employment until the time the department ceased operations, in a amount equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher. [Alabang Country Club v. NLRC].

Question 15

What is the effect of a suspension that is more than six (6) months?

Answer 15

In Mayon Hotel and Restaurants v. Adana, the Court stated, “Article 286 (now 301) of the Labor Code is clear – there is termination of employment when an otherwise bona fide suspension exceeds more than six (6) months. The cessation of employment for more than six months was patent and the employer has the burden of proving that the termination was for a just or authorized cause.”

Question 16

Art. 301. [286] When Employment Not Deemed Terminated.

Answer 16

Art. 301. [286] When Employment Not Deemed Terminated. – The bona fide suspension of t he operation of a business or undertaking for a period not exceeding six (6) months, or the fulfilment (sic) by the employee of a military or civic duty shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from the military or civic duty.

Question 17

What is the difference between a redundancy and a retrenchment?

Answer 17

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. 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 overhiring of workers, decreased volume of business, or dropping of a particular product line or service or activity previously manufactured or undertaken by the enterprise.

Retrenchment, on the other hand, is used interchangeably with the term “lay-off.” It is the termination of employment initiated by the employer through no fault of the employee’s and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court. [Sebugero v. NLRC]

Question 18

What are the three basic requisites for a valid retrenchment?

Answer 18

The three basic requisites for a valid retrenchment are:

(1) The retrenchment is necessary to prevent losses and such losses are proven;
(2) Written notice to the employees and to the DOLE at least one month prior to the intended date of retrenchment; and
(3) Payment of separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher. [Sebugero v. NLRC]

Question 19

What are the mandatory notices required for a valid retrenchment?

Answer 19

Written notice to both the employees concerned and the DOLE. In Sebugero v. NLRC, the Court held that the requirement is “mandatory and must be written and given at least one month before the intended date of retrenchment.”

Question 20

Why is the written notice to DOLE essential?

Answer 20

The notice to DOLE is essential because the right to retrench is not an absolute prerogative of an employer but is subject to the requirement of law that retrenchment be done to prevent losses. The DOLE is the agency that will determine whether the planned retrenchment is justified and adequately supported by facts. [Sebugero v. NLRC]

Question 21

What is the legal effect if an employer’s dismissal of an employee is found to be with just cause but the employee’s right to due process has not been complied with?

Answer 21

In such cases, the dismissal shall be upheld but the employer must be sanctioned for non-compliance with the requirements of or for failure to observe due process. The sanction, in the nature of indemnification or penalty, depends on the facts of each case and the gravity of the omission committed by the employer. [Sebugero v. NLRC]

Question 22

Is the right to close a business establishment due to business losses a just cause or an authorized cause?

Answer 22

Authorized cause. [Art. 298]

Question 23

Is the non-renewal of a lease contract be an authorized cause for dismissal?

Answer 23

Yes. Industrial Timber Corp. v. Ababon citing Shoppers Gain Supermarket v. NLRC, the Court stated that “the non-renewal of petitioner corporation’s lease contract and its consequent closure and cessation of operations may be considered an event beyond petitioner’s control, in the nature of a force majeure situation. As such, it amounts to an authorized cause for termination of the private respondents.”

Question 24

What is the effect of rehiring after a retrenchment?

Answer 24

The rehiring or reemployment does not negate the imminence to losses, which prompted the company to retrench. In Atlantic Gulf and Pacific Company of Manila v. NLRC, citing a case involving the same company, the Court held that “while it is true that the company rehired or reemployed some of the dismissed workers, it has been shown that such action was made only as company projects became available and that this was done in pursuance of the company’s policy of giving preference to its former workers in the hiring of project employees. The rehiring or reemployment does not negate the imminence to (sic) losses, which prompted private respondent to retrench.”

Question 25

What is the difference between the effect of a closure of business not due to serious losses and a closure of business due to serious losses?

Answer 25

In closures of business not due to serious losses, the employer is required to pay separation pay pursuant to Art. 293.

In closures of business due to serious losses, the employer is not required to pay separation pay.

closure of business must be done in good faith, and the employer has the burden of proving that there are serious losses → use substantial evidence, best evidence is audited financial statements

Question 26

What is the difference between dismissing a rank-and-file employee and a manager on the basis of loss of trust and confidence?

Answer 26

With respect to rank-and-file employees, loss of rust and confidence as ground for valid dismissal requires proof of involvement in the alleged events in question, and that mere uncorroborated assertions and accusations by the employer will not be sufficient. But as regards a managerial employee, the mere existence of a basis for believing that such employee has breached the trust of the employer would suffice for his dismissal. [Community Rural Bank of San Isidro v. Ysagani]