Everything You Need to Know About Placing an Employee on Floating Status

Definition of Temporary Layoff or Floating Status

Life has been tough these past few months for both the employer and the employee due to the pandemic. Some offices have temporarily ceased operations while the lucky few have resumed business operations but with reduced capacity. What measure can a company do, short of retrenchment, if most of its accounts have pulled out or its clientele base has dwindled? Perhaps, it can exercise its prerogative to place some of its employees under “floating status”.

Floating status, also known as temporary lay-off, temporary off-detail or temporary retrenchment, does not really expressly appear in the Philippine Labor Code.  However, it is considered as a valid management action but subject to compliance with Article 301 (previously Art. 286) of the Labor Code which states:

“ART. 301. When employment not deemed terminated.- The bonafide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment 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.”

Since the lay-off is only temporary, the employment status of the employee is not deemed terminated, but merely suspended [Dela Cruz v. NLRC, 335 SCRA 932]. Thus, he remains an employee of the company.

Notice to DOLE Mandatory

The Philippine Supreme Court in Airborne Maintenance and Allied Services, Inc. vs. Egos, (G.R. No. 222748, 03 April 2019), mandated that in implementing this measure, it is incumbent upon the employer to notify the Department of Labor and Employment (“DOLE”) and the affected employee, at least one month prior to the intended date of suspension of business operations. Further, an employer must also prove the existence of a clear and compelling economic reason for the temporary shutdown of its business or undertaking and that there were no available posts to which the affected employee could be assigned. Care must be taken in placing an employee under floating status.  Such action must be made in good faith. The placing of an employee on floating status presupposes, among others, that there is less work than there are employees [Innodata Knowledge Services Inc. vs. Inting, G.R. No. 211892, 06 December 2017].  Hence, it would be a badge of bad faith if you hire new employees while some of your old employees were placed on floating status.

Rule on Salary while on Floating Status

Is an employee on floating status entitled to salary during such period? The answer is no. As enunciated by the Supreme Court in Pido vs. NLRC (G.R. No. 169812, 23 February 2007), when an employee is placed on a floating status, he does not receive any salary or financial benefit provided by law. Due to the grim economic consequences to the employee, the employer should bear the burden of proving that there are no posts available to which the employee temporarily out of work can be assigned. It should be emphasized that the period of floating status must not exceed six (6) months. However, for employees of manpower agencies, the period of floating status cannot exceed three (3) months under DOLE Department Order No. 174.

Maximum Period for Floating Status

What will happen if the period of floating status exceeds the period provided by law?  It must be borne in mind that within this six-month period, the employee should either be recalled to work or permanently retrenched. Otherwise, the employee would be deemed to have been dismissed, and the employee held liable therefor [Lopez vs. Irvine Construction Corp., G.R. No. 207253, 20 August 2014]. If the employer chooses to retrench the employee, it must give written notice to both the employee and DOLE at least 30 days before the intended date of termination. It must also give separation pay to the employee equivalent to half month pay for every year of service.

Employers are warned not to exceed the 6 months floating period of employees. If an employee goes beyond 6 months in placing the employee on floating status, the employer can be held liable for illegal dismissal which would entitle the employee to reinstatement without loss of seniority rights and backwages computed from the time compensation was withheld until the date of actual reinstatement.  Should it not be feasible to reinstate the employee in view of strained relations or another employee has already assumed the former’s position, the employer is obliged to giver separation pay of one-month salary for every year of service. Furthermore, an illegally dismissed employee may be entitled to moral and exemplary damages as well as attorney’s fees.

That, in a nutshell, is everything you need to know about placing an employee on floating status in the Philippines.

About Nicolas and De Vega Law Offices

If you need assistance in labor-related issues, compliance with DOLE issuances, and company employment policies,  or business-related concerns, we can help you find solutions. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.

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