Authorized CausesValid Grounds for Downsizing the Workforce

29 October 2016

Installation of Labor-Saving DevicesStandards to be a valid ground for termination:1. There must be introduction of machinery, equipment or other

devices;2. The introduction must be done in good faith3. The purpose for such introduction must be valid such as to save on

cost, enhance efficiency and other justifiable economic reasons;4. There is no other option available to the employer than the

introduction of machinery, equipment or device and the consequent termination of employment of those affected thereby; and

5. There must be fair and reasonable criteria in selecting employees to be terminated.

Citation: DOLE D.O. 147-15

Case LawMagnolia Dairy Products Corporation v. Calibo (1996)• The Company dismissed the employee (cleaning aid) after the

company installed automated machines.HELD: The employee was validly dismissed.• “The law authorizes an employer… to terminate the

employment of any employee due to the installation of labor saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management, as in this case.”

Citation: Magnolia Dairy Products Corporation v. Calibo, G.R. No. 114952, 29 January 1996

RedundancyStandards to be a valid ground for termination:1. There must be superfluous positions or services of employees;2. The positions or services are in excess of what is reasonably

demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;

3. There must be fair and reasonable criteria in selecting the employees to be terminated; and

4. There must be an adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring.

Citation: DOLE D.O. 147-15

Case LawGeneral Milling Corporation v. Viajar (2013)• The employer (milling) redundated the employee on the ground of

redundancy.HELD: The employer was liable.• “… the [employer] failed to present substantial proof to support GMC’s

general allegations of redundancy… [they] simply presented as its evidence of good faith and compliance with the law the notification letter to respondent [employee]; the "Establishment Termination Report" it submitted to the DOLE Office; the two (2) checks issued in the respondent’s name amounting to P440,253.02 and P21,211.35;41 and the list of terminated employees as of June 6, 2006… these are not enough proof for the valid termination of [employee’s] employment on the ground of redundancy.”

• No evaluation was made.

Citation: General Milling Corporation v. Viajar, G.R. No. 181738, 30 January 2013

RetrenchmentStandards to be a valid ground for termination:1. There retrenchment must be reasonably necessary and likely to prevent

business losses;2. The losses, if already incurred, are not merely de minimis, but substantial,

serious, actual and real, or if only expected, are reasonably imminent;3. The expected or actual losses must be proved by sufficient and convincing

evidence;4. The retrenchment must be in good faith for the advancement of its interest

and not to defeat or circumvent the employees’ right to security of tenure; and5. There must be fair and reasonable criteria in ascertaining who would be

dismissed and who would be retained among the employees such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

Citation: DOLE D.O. 147-15

Case LawPhilippine Cement Corporation v. Cajucom VII (2006)• The employer retrenched the employee (VP for Legal Affairs) due to

the economic slowdown resulting in no viable projects. The employee claims that actual, not probable losses, justify retrenchment.

HELD: The employee was validly dismissed.• “… Article 283 (quoted earlier) entails, among others, only a

situation where there is ‘retrenchment to prevent losses.’ The phrase ‘to prevent losses’ means that retrenchment or termination from the service of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized. This is the situation in the case at bar. Evidently, actual losses need not set in prior to retrenchment.”

Citation: Philippine Cement Corporation v. Cajucom VII, G.R. No. 149138, 28 February 2006

Closure or Cessation of OperationStandards to be a valid ground for termination:1. There must be decision to close or cease operation of

the enterprise by the management;2. The decision was made in good faith; and3. There is no other option available to the employer

except to close or cease operations.

Citation: DOLE D.O. 147-15

Case LawMPCEU FUR-TUCP v. Manila Polo Club, Inc. (2013)• The Company terminated the entire operations of its Food and

Beverage (F&B) outlets resulting in the dismissal of employee therein.HELD: The employees were validly dismissed.• “One of the prerogatives of management is the decision to close the

entire establishment or to close or abolish a department or section thereof for economic reasons, such as to minimize expenses and reduce capitalization.”

• “While [the employer] did not sufficiently establish substantial losses to justify closure of its F & B Department on this ground, there is basis for its claim that the continued maintenance of said department had become more expensive through the years.”

Citation: Manila Polo Club Employees’ Union (MPCEU) FUR-TUCP v. Manila Polo Club, Inc., G.R. No. 172846, 24 July 2013

DiseaseStandards to be a valid ground for termination:1. There employee must be suffering from any disease;2. The continued employment of the employee is

prohibited by law or prejudicial to his/her health as well as to the health of his/her co-employees; and

3. There must be certification by a competent public health authority that the disease is incurable within a period of six (6) months even with proper medical treatment.

Citation: DOLE D.O. 147-15

Case LawDeoferio v. Intel Technology Philippines, Inc. (2014)• The employer dismissed the employee (engineer) due to

disease after the latter was diagnosed with a mental disease.HELD: The employee was validly dismissed.• “... Dr. Lee’s psychiatric report substantially proves that [the

employee] was suffering from schizophrenia, that his disease was not curable within a period of six months even with proper medical treatment, and that his continued employment would be prejudicial to his mental health. This conclusion is further substantiated by the unusual and bizarre acts that [the employee] committed while at Intel’s employ.”

Citation: Deoferio v. Intel Technology Philippines, Inc., G.R. No. 202996, 18 June 2014

Separation PayAuthorized Cause Separation Pay

Installation of Labor-Saving Devices 1 month pay or 1 month pay per year of service,

whichever is higherRedundancy

Retrenchment1 month pay

or 1/2 month pay per year of service,whichever is higher

Closure or Cessation of Operations due to Serious Business Losses or Financial ReversesDisease

Citation: DOLE D.O. 147-15

For more information:

Labor Law ComplianceBest Practices for Human Resource

www.laborlaw.ph

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