Effects and Requirements of Closure of a Department of Branch in a Company
A necessary consequence of the closure of a branch or department of a company is the termination of employment of the workers concerned.
The right of an employer to terminate its employees is, however, regulated by law. Bearing in mind the security of tenure to labor, an employer can validly dismiss an employee if such dismissal is predicated upon any of the lawful causes allowed under the Labor Code. In addition, the employer has to effect the dismissal in a manner specified in the Labor Code and its Implementing Rules and Regulations (IRR). Otherwise stated, the employer has to satisfy both substantive and procedural due process in effecting the termination of employment of workers.
Substantive Due Process
To comply with substantive due process, the employer should discharge the employees based only on just or authorized causes under the Labor Code. If a company intends to close or cease the operations of one of its branches/departments, it would expectantly be terminating the employment of affected workers on those departments or branches. On this note, Article 298 of the Labor Code provides, to wit:
Art. 298  Closure of Establishment and Reduction of Personnel. – The employer may also terminate the employment of any employee due to x x x closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title x x x [Emphasis supplied.]
In the case of Espina v. Court of Appeals, the Supreme Court defined “closure of a business or undertaking” as referring to complete or partial cessation of operations and/or shut-down of the establishment of the employer.
Meanwhile, in Manila Polo Club Employees’ Union vs. Manila Polo Club, Inc., the Supreme Court held that it is within the prerogatives of management to close either the entire establishment or merely a department or section thereof for economic reasons, such as to minimize expenses and reduce capitalization.
It is noteworthy, however, that Article 298  of the Labor Code authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. Unlike retrenchment, closure or cessation of business need not depend for validity on evidence of actual or imminent reversal of the employer’s fortune.
Procedural Due Process
In addition to compliance with substantive due process, the employer should likewise afford the employees procedural due process in all cases of dismissals. The same Article 298 of the Labor Code provides, to wit:
The employer may also terminate the employment of any employee due to x x x closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title x x x 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. x x x 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 (1/2) 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. [Emphasis Supplied.]
Therefore, under the Labor Code, three requirements are necessary for a valid cessation of business operations: (1) service of a written notice [of closure or cessation of operations] to the employees and to the Department of Labor and Employment (DOLE) at least one month before the intended date thereof; (2) the cessation of business must be bona fide in character; and, (3) payment to the employees of termination pay amounting to one month pay or at least one-half month pay for every year of service, whichever is higher.
Procedure before the DOLE
In all cases of closure or cessation of operations of a company branch or department, the DOLE should be notified in the following manner, thus:
DOLE FIELD OFFICE
(1) The company should fill out a form called RKS Form 5 in two copies.
RKS Form 5 is an Establishment Termination Report composed of the following pages: (a) First page thereof should contain general information about the establishment and the number of workers affected; and, (b) The subsequent pages should enumerate the names of workers affected, their addresses and contact numbers, position title and salary. The total number of workers listed should equal the total number of workers affected as reported.
(2) The company should submit the RKS Form 5 to the DOLE Field Office having jurisdiction over the branch/department’s place of business thirty (30) calendar days prior to the effectivity of termination. It is noteworthy that the report is considered as duly filed when the complete list of workers affected is made part of the submission.
(3) Afterwards, the Company should submit to the DOLE Field Office signed originals of the Notice of Closure and Termination sent to and received by the affected employees of the closing branch/department of Dingo.
DOLE REGIONAL OFFICE
(1) The Company should also request for issuance of DOLE Clearance or Certificate of No Pending Case from the DOLE Regional Office having jurisdiction over the branch/department’s place of business.
(2) In order for DOLE Regional Office to process the said request, the Company should submit the following documents:
a. A Request Letter from the Company addressed to the Director of DOLE Regional Office concerned, indicating the purpose of the same;
b. Photocopy of DOLE Registration under Rule 1020. It is noteworthy that the form under Rule 1020 is processed by the DOLE Field Office concerned, and not by the Regional Office. The requirement for the same is a photocopy of the Company’s business permit for the year when it will close its branch/department and for the immediately preceding year; and,
c. A Photocopy of the Signatory’s identification card.
All these documents should be placed in a long folder and should be provided with labels. The releasing of Clearance is seven (7) working days upon receipt of complete documents.
National Conciliation and Mediation Board
It is suggested that the company secure a Certificate of No Pending Case from NCMB, Intramuros Manila, which office issues the said certificate. Only a letter-request from the company is necessary for the same.
National Labor Relations Commission
In addition to DOLE Regional Office and NCMB, it is also suggested that the company secure a Certificate of No Pending Case from the NLRC having jurisdiction over the closing branch/department’s place of business. In relation to the same, the company will be required to submit an Affidavit of No Pending Case and pay the necessary fees therefor (certificate). The requested certificate can be procured after five (5) working days.
About Nicolas and De Vega Law Offices
If you want to learn how to terminate an employee based on other causes or need help in labor matters, we can help you. 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 https://ndvlaw.com.