Legal Employee Retrenchment due to COVID-19

Nicolas and De Vega Law Offices retrenchment-of-employees due to COVID 19

Metro Manila Lockdown or Quarantine in Force

The community quarantine of Metro Manila has restricted the movement of people in the city.  Movement is limited to going to work and the access of basic necessities.  To effectuate this thrust, malls were ordered to close, air, land and sea travel to and from Metro Manila were prohibited and a curfew was imposed, among others. Ultimately, this would have an effect on both businesses and the labor force, most especially to enterprises deeply affected by these quarantine measures. Sadly, this could lead to the closure of some businesses and the loss of jobs.  For others, there is a glimmer of hope in the continuity of their businesses, but certain measures must be implemented to keep the company afloat.

Applicable Philippine Laws and Labor Regulations during Lockdown or Quarantine

Pursuant to Labor Advisory 09 and 11 issued by the Philippine Department of Labor & Employment (“DOLE”), employers are urged and encouraged to adopt flexible work arrangements as remedial measures due to COVID-19. It enunciates that employers should consider these remedial measures instead of removing employees or closing businesses.  However, sometimes, these remedial measures are not enough.  Companies have to make painful decisions to lay off or retrench employees to save the business.

No less than the Labor Code 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. vs. Francisco (G.R. No. 195457, 16 August 2017)].  In Waterfront Cebu City Hotel v. Jimenez (G.R. No. 174214, 13 June 2012), the Supreme Court had the occasion to define retrenchment:

“Retrenchment is the termination of employment initiated by the employer through no fault of and without prejudice to the employees. It is resorted to 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. 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.”

Compliance with the Legal Procedure for Retrenchment

In order to legally retrench employees, the following must be followed:

 (1) Retrenchment is undertaken to prevent losses, which are not merely de minimis, but substantial, serious, actual, and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) The employer serves written notices both to the employees and the DOLE at least one month prior to the intended date of retrenchment;

(3) The employer pays the retrenched employees separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher;

(4) The employer must use fair and reasonable criteria in ascertaining who would be dismissed and retained among the employees; and

(5) The retrenchment must be undertaken in good faith [Ariola v. Philex Mining Corporation (G.R. No. 147756, 09 August  2005)].

Losses must be Proven

In explaining the degree of losses sustained by the company to warrant a legal retrenchment, the Supreme Court in Lopez Sugar Corporation v. Federation of Free Workers, ( G.R. Nos. 75700-01, 30 August 1990) had this to say:

“Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature of retrenchment would appear to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs other than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called “golden parachutes,” can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing “full protection” to labor, the employer’s prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means – e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. – have been tried and found wanting.”

Retrenchment is a Management Prerogative

It must be borne in mind that even if retrenchment is part of management prerogative, the requirements above must be met to consider the same legal.  Thus, the company must show that the expected losses are substantial, serious, actual, real or reasonably imminent.  This can be justified if the establishment is forced to temporarily close due to the community quarantine and the overhead expenses of the company cannot be met such that to continue to employ certain employees would drive the company to close.  The books of account of the company must be able to justify such expected losses.  Further, it is best if the company tried to adopt the remedial measures suggested by the DOLE before resorting to retrenchment.  It should be a measure of last resort and done in good faith and not to undermine the employee’s security of tenure.

This is how legal retrenchment of employees can be implemented due to COVID-19 in the Philippines.

About Nicolas and De Vega Law Offices

If you need assistance with labor-related issues, compliance with DOLE issuances, and help in the enforcement of company employment policies,   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