NORTHWESTERN UNIVERSITY, INC

Laoag City, Ilocos Norte

_____________________________________________________________________________
Course Description : EDM 213 – Human Resource Management in Education
Professor : GERARDO S. GARCIA, EdD
Name of Student : MELINDA M. VENTURA & KRISTA LOIS M. VENTURA
MAED - EDM

Topic: LABOR RELATIONS: Authorized Causes of Termination (RETRENCHMENT)

INTRODUCTION
Business reverses happen to everyone. If these become severe enough, an employer may
have to consider retrenching employees. But for legal as well as economic reasons. Companies
have to make painful decisions to lay off or retrench employees to save the business. The Labor
Code of the Philippines recognizes retrenchment as a right of the management to meet clear and
continuing economic threats or during periods of economic downturn to prevent losses.
Retrenchment in the Philippines is covered by Art 297 (formerly 282) of the Labor Code, the
issuances of the Department of Labor, and the decisions of the Supreme Court. Companies have
to make painful decisions to lay off or retrench employees to save the business.

DEFENITION

Retrenchment is the termination of employment initiated by the employer through no

fault of and without prejudice to the employees. 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. Retrenchment, as defined by the Supreme Court, 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. [G.R. 181719, Apr 2014]

OBJECTIVES

(1) To explain and enumerate proper procedure and on the full rights of both the
employee and the employer the ground of retrenchment.
(2) To give the reason why an employer or company apply retrench.
(3) To differentiate retrenchment from redundancy.
(4) To enumerate decided case on retrenchment.
 NORTHWESTERN UNIVERSITY, INC
Laoag City, Ilocos Norte

GUIDE QUESTIONS

1. What is retrenchment?
2. When do employer’s or companies apply retrenchment?
3. How to terminate employees on the ground of retrenchment?
4. How to determine the separation pay and benefit claims of the retrenched employees?
5. What are the requirements set by the law?

DISCUSSION
The right of management to dismiss workers on the ground of retrenchment to prevent
serious losses is governed by Article 283 of the Labor Code. This is one of the authorized causes
of termination of employment. However, before one can dismiss employees on the ground of
retrenchment, four elements must be proven. Firstly, the losses expected should be substantial.
Secondly, the substantial loss apprehended must be reasonably imminent, and such imminence
can be perceived objectively and in good faith by the employer. Thirdly, because of the
consequential nature of retrenchment, it must be reasonably and necessary and likely to
effectively prevent the expected losses. The employer should have taken other measures prior or
parallel to retrenchment to forestall losses such as cutting other costs other than labor cost.
Lastly, the alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proven by sufficient and convincing evidences. It bears emphasis that
serious business losses should be proven by financial statements duly audited by an independent
external auditor.
If the grounds for retrenchment are not proved, the retrenchment will be declared illegal
and of no effect. If the retrenched employee signed quitclaims, they may be declared invalid.
Even his acceptance of the retrenchment pay does not amount to estoppel which does not bar him
from contesting his separation.
There must be fair and reasonable criteria to be used in selecting employees to be
dismissed on account of retrenchment such as (a) less preferred status (i.e. temporary
employees); (b) efficiency rating; and (c) seniority. The “last in first out”(LIFO) rule indicates
that as between two or more employees affected by a retrenchment program, the last one
employed will be the first to go; seniority of the ones hired earlier therefore prevails. Such rule
has its merits but its observance is not a statutory duty of the employer.
In accordance with the Labor Code, for a valid implementation of a retrenchment
program, the employer must serve written notices on the employees and DOLE at least thirty
(30) days prior to the intended date of retrenchment. Specifically, the purpose of such previous
notice to DOLE must be to enable it to ascertain the verity of the cause for termination of
employment. Finally, the more important aspect in the termination of employment is the
payment of the employee’s separation pay equivalent to at least 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 as one (1) whole year.
 NORTHWESTERN UNIVERSITY, INC
Laoag City, Ilocos Norte

Thus, the employer must not arbitrarily or speedily implement a retrenchment program.
The requirements discussed above must be fully complied with so as to preclude any problems in
the future. It bears great emphasis that failure to comply with the requirements mandated by the
Labor Code will render the retrenchment invalid and illegal.
This is how to terminate an employee due to retrenchment in the Philippines. Article 283
of P.D. 442 orders the law on the closure of establishment and reduction personnel. An employer
may terminate employment of any employee due to retrenchment in order to prevent losses or
the closing or cessation of operation of the establishment…

A. VALID GROUND FOR RETRENCHMENT

(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.
(4) The alleged losses, if already incurred, or the expected imminent losses sought
to be forestalled, are proven by sufficient and convincing evidence. [G.R. 187214,
Aug 2013] the employer exercises its prerogative to retrench in good faith [G.R.
170464, Jul 2010]; and the employer uses fair and reasonable criteria in
ascertaining who would be retrenched or retained [G.R. 170464, Jul 2010].

B. TERMINATING EMPLOYEES ON THE GROUND OF RETRENCHMENT

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

C. REQUIREMENTS THAT MUST BE FOLLOWED SET BY THE LAW

 NORTHWESTERN UNIVERSITY, INC
Laoag City, Ilocos Norte

(1) The employer serves written notice both to the employee/s concerned and the
DOLE at least 30- day notice to DOLE and the employee before the intended date
of retrenchment.
The Separation Pay
(2) The employer pays the retrenched employee separation pay in an amount
prescribed by the Code. An employee is entitled to receive a separation pay
equivalent to one-half (1/2) month pay for every year of service, a fraction of at
least six (6) months being considered as one (1) whole year). It’s just years of
service multiplied by the employee’s compensation. Salary from his last pay slip
Plus all regular allowances multiplied by Years of service with a fraction of at
least 6 months considered a year. [DOLE 2017 Handbook on Worker’s Statutory
Monetary Benefits] note that separation pay is not taxed, as per law.

D. IMPORTANT FACTORS TO CONSIDER IN FAIR RETRENCHMENT

The decisions are held to be fair and not motivated by personal considerations.
When you retrench, you’ve got to decide who to keep and who to let go. A picture
showing a document, a CLOSED sign, and people in a round table discussing the
Retrenchment. You’ll need a set of criteria uniformly applied to dismiss fairly. Decide
who to keep and who to let go. List the criteria to evaluate each employee based on their
merits. Decisions are held to be fair and not motivated by personal consideration. Fair
and reasonable criteria need to be proven to the Court whenever a retrenchment case is
brought before them. Without this, the Court may hold the retrenchment invalid. [G.R.
178083, Oct 2009]

E. RETRENCHMENT VS. REDUNDANCY?

They are similar, but the Court defines them differently. Redundancy is when the
services of an employee are in excess of what is needed. It can occur even when the
business is doing well if labor is in excess of what the company requires. Retrenchment is
when there are losses in the operation of the business

F. WHAT IS FAIR RETRENCHMENT?

The employer follows a fair procedure aimed at an attempt to find alternatives to
retrenchment. This involves good faith consultations with the employees concerned or
 NORTHWESTERN UNIVERSITY, INC
Laoag City, Ilocos Norte

with their representatives. Fair or agreed criteria are used to decide which employees
should be targeted for retrenchment.
Retrenchment, by its nature, is not an easy decision to undertake, but ensuring you
understand what it requires will make it much easier for your company and yourself.
CONCLUSION
The employer or a company’s management has the right to dismiss workers on the
ground of retrenchment is governed by article 283 of the labor code. This is one of the hardest
decisions that they may undergo because a lot of important matters must be taken into
consideration. The employees alone, on who are they going to keep and let go, though following
the “last in first out,” (LIFO) would still be a hard thing to do. The grounds of retrenchment must
be strictly followed and the employee and the employer must clearly aware of the issue in order
that nothing will be violated on the rights of both parties. This will give time for the company to
recover from loses and the employer will leave the company with good separation pay.
Retrenchment should also be done legally in order for retrenchment to be valid.

DECIDED CASE ON RETRNECHMENT

G.R No. 195457, August 16,2017.
(https://lawphil.net/judjuris/juri2017/aug2017/gr_195457_2017.html)
PETITIONER: READ-RITE PHILIPPIINES, INC
RESPONDENTS: 49 retrenched employees.

The respondents earlier petitioned the payment of additional voluntary separation

benefits, legal interest thereon, and attorney's fees. They argued that Read-Rite discriminated
against them by not granting the aforesaid benefits, the award of which had since become a
company policy. Respondents also argued that they had been discriminated upon by Read-Rite in
their enjoyment of the additional voluntary separation benefits. Their quitclaims should not be
used against them as the same were standard requirements imposed on resigning or separated
employees. That they filed their complaints is proof that they did not voluntarily execute their
quitclaims.
Read-Rite then puts forth the issue of RETRENCHMENT. Read-Rite avers that
respondents were separated from service on the ground of retrenchment, which separation was
involuntary in nature. Accordingly, they received involuntary separation benefit equivalent to
one month pay for every year of service. As such, nothing more is due them.
 NORTHWESTERN UNIVERSITY, INC
Laoag City, Ilocos Norte

Respondents further maintain that they were arbitrarily discriminated upon when they
were not awarded additional voluntary separation benefits despite being in Read-Rite's employ
for at least ten years. They believe that the grant thereof is already an established company
practice.
However, the Court rules that respondents are only entitled to involuntary separation pay
given that they were retrenched employees. Retrenchment to prevent losses is one of the
authorized causes for an employee's separation from employment.
REFERENCES:
 https://ndvlaw.com/legal-employee-retrenchment-due-to-covid-19/
 http://car.dole.gov.ph/default.php?
retsamlakygee=1048&resource=ebe021079e5a3c4f42ca6119eab92633
 https://lawyerphilippines.org/2018/07/19/termination-due-to-retrenchment/
 https://lawphil.net/judjuris/juri2017/aug2017/gr_195457_2017.html
 https://ndvlaw.com/how-to-terminate-an-employee-on-the-ground-of-retrenchment/p
 https://ndvlaw.com/legal-employee-retrenchment-due-to-covid-19/
 https://ndvlaw.com/how-to-terminate-an-employee-on-the-ground-of-retrenchment/