Dear Atty. Joji,

Due to the sharp drop in our manufacturing company's income in 2021, around 30 percent, we were forced to implement a retrenchment program, where a number of employees were dismissed.

We made sure to follow the requirements of the Labor Code by issuing a retrenchment notice to the affected employees and filing the corresponding report with the Department of Labor field office in our area more than 30 days in advance, as well as paying the correct amount of separation pay on the last working day of the affected employees. However, a number of the affected employees still filed an illegal dismissal case, claiming that the reason for the retrenchment is not real, even if we have the financial statements to prove such a decline in our income. Do the affected employees have a ground for their illegal dismissal claims?

Lilibet

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Dear Lilibet,

According to the Labor Code, an employer may terminate the employment of an employee due to retrenchment to prevent losses by serving a written notice on the employee and the DoLE at least one month before the intended date. The employee shall be paid separation pay equivalent to one month's pay or at least half a month's pay for every year of service, whichever is higher, with a fraction of at least six months shall be considered one whole year.

As ruled in the cases of Philippine Phosphate Fertilizer Corporation vs Alejandro O. Mayol, et al. (G.R. 205528-29, 9 December 2020) and Alejandro O. Mayol, et al. vs Philippine Phosphate Fertilizer Corporation (G.R. 205797-98, 9 December 2020) retrenchment is the termination of employment initiated by the employer through no fault of, and without prejudice to the employees. It is a management prerogative resorted to in order to avoid or minimize business losses during periods of recession, industrial depression, seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, or conversion of the plant.

Such an employer's prerogative to retrench employees, however, should not be used as a weapon to frustrate labor. Accordingly, to avert devious schemes aimed at frustrating the employees' tenurial security, compliance with the following requisites is imperative: (a.) the retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious and real, or only if expected, are reasonably imminent as perceived objectively and in good faith by the employer; (b.) the employer serves written notice both to the employee/s concerned and the DoLE at least one month before the intended date of retrenchment; (c.) the employer pays the retrenched employee separation pay in an amount prescribed by the Labor Code; (d.) the employer exercises its prerogative to retrench in good faith; and (e.) the employer uses fair and reasonable criteria in ascertaining who would be retrenched or retained.