350. EDGE APPAREL v.

NLRC DA
G.R. No. 121314, Feb. 12, 1998
VITUG, J.:

Topic: Termination of Employment by Employer – Employer’s Right

Doctrine: When the termination of employment is due to retrenchment to prevent losses, or to

closure or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses the separation pay is only an equivalent of one (1) month pay or at
least one-half (1/2) month pay for every year of service, whichever is higher.

SuperSummary: Edge Apparel dismissed respondents’ employment, pursuing its retrenchment

program. Respondents filed a complaint for illegal dismissal, but both the LA and NLRC upheld
the validity of the retrenchment program; however, the NLRC modified it such that the
respondents were entitled to additional separation pay, holding that it was a termination due to
redundancy and gives rise to such entitlement under LC, Art. 283. The Court differentiated “just”
from “authorized” causes of dismissal. The Court also compared retrenchment from redundancy;
and held that the cause of termination of the employees in this case was retrenchment, not
redundancy. Therefore, the employees are only entitled to half of the separation pay, because
(see doctrine).

Facts:
 Edge Apparel (pursuing its retrenchment program) dismissed the respondents’ employment.
 Respondents consulted with the Regional Director of DOLE who said it would be best for
them to receive the separation pay offered by Edge Apparel.
 The receipt of the separation pay benefits did not stop the respondents from filing a
complaint for illegal dismissal against Edge Apparel.
 Respondents argue that the retrenchment program was a mere subterfuge used by Edge
Apparel to give a semblance of regularity and validity on their dismissal.
 Edge Apparel argues that its financial obligations, about Php 8M, had begun to eat up most
of its capital outlay and resulted in financial losses = need for retrenchment program
 LA – Satisfied with the legality of the retrenchment program; dismissed respondents’
complaint.
 NLRC – Affirmed with modification the decision of the LA.
o There was basis in the retrenchment of the 27 workers. The 27 workers were
assigned to row #8 of the sewing line for simple garments which was phased out due
in fact to the dropping of this particular line of business.
o Termination because of reduction of work force due to a decrease in the scope or
volume of work of the employer = termination because of redundancy
o LC: 283: In case of termination due to redundancy, the worker affected shall be
entitled to 1 month pay or to at least 1 month pay for every year of service
(whichever is higher). In this case, the termination of the 27 retrenched employees is
considered a redundancy.
o Hence, the complainants, who were already paid the separation pay equivalent to 1/2
month pay per year of service, are entitled to be paid the additional separation pay
equivalent to 1/2 month pay for every year of service.
o Also denied the MR of Edge Apparel; the cause of termination was redundancy

Issue: W/N the cause of the termination of the employees was redundancy – NO

Ruling:

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The cause of termination is not redundancy, but RETRENCHMENT.

The employer has a right to dismiss employees for valid causes after proper observance of due
process. These valid causes are categorized into two groups:
1. “just” causes under LC 282 and
2. “authorized” causes under LC 283 and 284.

An employee dismissed under “just” causes are NOT entitled to separation benefits.

Redundancy exists where the services of an employee are in excess of what would reasonably be
demanded by the actual requirements of the enterprise. A position is redundant when it is
superfluous, and superfluity of a position or positions. Superfluity results from: overhiring of workers,
a decrease in the volume of business or the dropping of a particular line or service previously
manufactured or undertaken by the enterprise. An employer has no legal obligation to keep on the
payroll employees more than the number needed for the operation of the business.

Retrenchment is an economic ground to reduce the number of employees. In order to be justified,

the termination of employment by reason of retrenchment must be due to business losses or
reverses which are serious, actual and real. Retrenchment is normally resorted to by management
during periods of business reverses and economic difficulties occasioned by such events as
recession, industrial depression, or seasonal fluctuations. It is an act of the employer of reducing the
work force because of losses in the operation of the enterprise, lack of work, or considerable
reduction on the volume of business. It is a measure of last resort when other less drastic means
have been tried and are found to be inadequate.

In this case, the LA and NLRC concluded that there had been a valid ground for retrenchment of
private respondents. The documents presented were found to "conclusively show that (petitioner)
suffered serious financial losses."

The general elements needed for retrenchment are present in the case:
 that the losses expected are substantial and not merely de minimis in extent
 that the expected losses are reasonably imminent such as can be perceived objectively and
in good faith by the employer
 that the retrenchment is reasonably necessary and likely to effectively prevent expected
losses
 that the imminent losses sought to be forestalled are substantiated

The respondents looked into Edge Apparel’s financial statements. In 1989, the expenses of
representation and entertainment increased by 45.65%. These expenses were manipulated, to
justify the retrenchment of these 27 employees. Also, as to the basic salaries of the employees, the
deletion of the firm’s annual entertainment and representation expense and its reallocation to pay
the salaries of the workers is not sufficient!

Procedurally, in order to validly effect retrenchment, the employer must observe 2

requirements:
1. Service of a prior written notice of at least 1 month on the workers and the DOLE
2. Payment of the due separation pay

These two requirements have been complied with, including the payment of separation pay
equivalent to at least 1 month pay or ½ month pay for every year of service.

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Disposition: The appealed decision is MODIFIED by deleting the additional award of separation
pay to private respondents decreed by the NLRC. No costs.