The COVID quarantine in the Philippines has brought great disturbance. Businesses are shuttered or at greatly reduced operations. Construction sites are closed. The streets are unnaturally clear of traffic save for delivery services.

The future is an educated guess.

Which brings us to retrenchment under Philippine law.

I’ll go through retrenchment in detail down below.

I’ll start by saying that no one wants the disruption that retrenchment brings. It means many people losing their jobs and the shuttering of businesses.

It means a bad situation becoming worse for those who become unemployed.

But the government itself has acknowledged the need to prepare for the worst case. As early as March 12, the Social Security System announced that it was ready to pay unemployment benefits to some 30,000 to 60,000 workers expected to be affected by COVID-induced layoffs and closures.[1]

Retrenchments were expected mostly in the travel, tourism and hospitality industries, and, to some extent, in the manufacturing sector.

The World Travel and Tourism Council predicted that 75 million tourism sector workers could lose their jobs, with close to two-thirds of these in the Asia-Pacific.[2]

And retrenchments cascade into more layoffs by other businesses. As large companies reduce their outputs, their suppliers find themselves without their main customers.

The suppliers fall in a domino effect. Hotels that service these businesses, restaurants, transport, logistics, catering and other suppliers are bleeding. Industries stagger under the pressure and the fact is that retrenchments are inevitable for many businesses.

Commenting on this crisis, my own former labor law professor has written that:

“It is not only our government that is called upon to respond effectively, decisively, and appropriately to address the emergency situation.

The private sector is also expected to do its share.” [3]

Professor Daway goes on to say that,

“It is incumbent on big business to do its share for their workers—to see them at this critical time as partners … who need all the help they can get to survive the pandemic. That sense of shared sacrifice will eventually redound to the greater good of the country, and help promote a more equitable society for all.”

Meanwhile, the Department of Labor has appealed to companies “to take the extra mile in assisting their workers during this crisis situation.”[4]

The Secretary of Labor has asked employers not to retrench employees amid the work stoppages, given the suspension of public transport, and the restricted movement of people.

He asked employers to find other ways to preserve employment of workers so as not to compound their already dire condition.

Business has had to respond in different ways.

Some businesses have implemented the flexible work arrangements recommended by the Department of Labor. These include telecommuting, work from home, reduced hours, rotating work among employees.[5]

Some with the reserves for it have announced full payment to employees even during the quarantine period, along with advance payment of thirteenth month pay.

Many have suspended work and pay during the quarantine.

With regard to work suspension, the legal guidelines for this under COVID are found in a DOLE Advisory issued on January 13 this year.[6]

Labor Advisory No. 1 for 2020 confirms that work suspension is a management prerogative to suspend work to ensure the safety and health of their employees during natural or man-made calamity.

During work suspension, the principles are:

No work, No pay, unless there is a favorable company policy, practice, or collective bargaining agreement granting payment of wages during the suspended period.

When the employee has accrued leave credits, she may be allowed to use this leave so that she will have compensation on suspended days.

On the other hand, if the employee worked during the suspended period, no additional pay need be given to him other than their salary.

But, to alleviate the plight of employees in this time calamity, the employers may provide extra incentives or benefits to employees who reported to work.

The Labor Advisory also rules that employees who fail or refuse to work because of imminent danger from this calamity shall not be exposed to or subject to any administrative sanction.

Having said that — if work from home, flexible arrangements, or work suspension are not sustainable — businesses may look at the numbers and find that retrenchment has to be resorted to.

What is retrenchment?

Legally, retrenchment is an authorized cause for the employer’s dismissal of employees because of losses in the operation of a business, lack of work, and considerable reduction in the volume of business.[7]

Substantively, retrenchment can be resorted to if:

(1) the losses are substantial;
(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; and
(4) the losses are proven by sufficient and convincing evidence.

The employer must retrench in good faith. The company must use fair and reasonable criteria for which employees will be retrenched and which employees will be retained.

Procedurally, retrenchment requires that :

(1) the employer serves written notice both to the employees and the DOLE at least one month before the effectivity of retrenchment;

(2) the employer pays the retrenched employee the legal separation pay in an amount prescribed by the Labor Code.

The written notice to the DOLE is done by filling out the form[8] they have for this purpose and presenting further documentation or proof as are needed.

As to content, I’d suggest that the notice to DOLE, as well as the notice to the retrenched employees, should give enough information to inform them of how the substantive requirements are being complied with.

The written notices ought to demonstrate substantial business losses, they ought to note that the company will pay the proper separation pay, that the retrenchment scheme was arrived at in good faith, and that the criteria used in selecting the employees to be retrenched passes the test of fairness and reasonableness.

The proof of the losses can be substantiated by the signed reports and findings of a certified public accountant and independent auditor, especially if the losses are questioned.[9]

The fair and reasonable criteria for selecting which employees shall be retrenched can consider efficiency, seniority, physical fitness, age, and financial hardship for certain workers.[10]

The notice can tally and elaborate on the above as appropriate to the circumstances of the enterprise.

These are submitted to the DOLE field office of the city where the business is located including the supporting documents and copies of notice to the employees. At least four copies should be brought to the field office so that the employer may be given a received copy.

With regard to the separation pay –

Under retrenchment, an employee is entitled to receive a separation pay equivalent to one (1) month pay or at least one-half (1/) month pay for every year of service, whichever is higher. Service of at least six months is considered as one whole year.[11]

It should be noted that Retrenchment and Redundancy are similar grounds – both are authorized causes for an employer’s dismissal of employees – but they are distinct from each other.

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 contemplates losses in the operation of the business.

Another practical distinction is that the separation pay awarded to employees is different under either ground.

Under redundancy, separation pay is equivalent to the employee’s one-month’s pay for every year of service.

Under retrenchment, it is equivalent to one-half month’s pay for every year of service.

Essentially, a redundant employee could be entitled to about double the separation pay of a retrenched employee.

Thus, aside from the purely legal distinction, the financial and economic effects are different.

Given the environment created by COVID, retrenchment — or indeed outright closure or cessation of business operations — will be the ground most reeling industries will resort to if, indeed, they must let employees go.

Atty. Francesco Britanico

[1] SSS ready to pay workers’ unemployment benefits after COVID-induced firm layoffs, closures, https://pia.gov.ph/news/articles/1036355

[2] Latest research from WTTC shows a 50% increase in jobs at risk in Travel & Tourism, https://wttc.org/News-Article/Latest-research-from-WTTC-shows-a-50-percentage-increase-in-jobs-at-risk-in-Travel-and-Tourism

[3] A time for shared sacrifice, https://opinion.inquirer.net/128728/a-time-for-shared-sacrifice

[4] Statement of Secretary Silvestre H. Bello III, March 19, 2020, https://www.dole.gov.ph/news/statement-of-secretary-silvestre-h-bello-iii-march-19-2020/

[5] Labor Advisory No. 09-20 Guidelines on the Implementation of Flexible Work Arrangements as Remedial Measure due to the Ongoing Outbreak of Coronavirus Disease 2019 (COVID-19), https://www.dole.gov.ph/news/labor-advisory-no-09-20-guidelines-on-the-implementation-of-flexible-work-arrangements-as-remedial-measure-due-to-the-ongoing-outbreak-of-coronavirus-disease-2019-covid-19/

[6] Labor Advisory 01, Series of 2020 Suspension of Work in the Private Sector by Reason of Natural or Man-Made Calamity, https://www.dole.gov.ph/news/labor-advisory-01-series-of-2020-suspension-of-work-in-the-private-sector-by-reason-of-natural-or-man-made-calamity/

[7] Termination Due to Retrenchment, https://lawyerphilippines.org//2018/07/19/termination-due-to-retrenchment/

[8] Establishment Termination Report Form (RKS Form 5), http://ncr.dole.gov.ph/fndr/mis/files/RKS%20FORM%205%20AND%20JDMS%20GC%20FORMS_FINAL(1).pdf

[9] FASAP vs. Philippine Airlines, Inc., March 13, 2018, G.R. No. 178083, https://www.lawphil.net/judjuris/juri2018/mar2018/gr_178083_2018.html

[10] Shimizu Phils. Contractors, Inc. vs. Virgilio P. Callanta, G.R. No. 165923, September 29, 2010, citing Asian Alcohol Corporation v. National Labor Relations Commission, 364 Phil. 912, 926-927 (1999), https://lawphil.net/judjuris/juri2010/sep2010/gr_165923_2010.html

[11] Department Order No. 147-15, series of 2015: Amending the Implementing Rules and Regulations of Book VI of the Labor Code of the Philippines, as amended, https://blr.dole.gov.ph/news/department-order-no-147-15-series-of-2015-amending-the-implementing-rules-and-regulations-of-book-vi-of-the-labor-code-of-the-philippines-as-amended/