• 3D Legal Solutions

Redundancy vs. Retrenchment: Terminating workers after lockdown

The lockdowns in the Philippines brought huge economic burdens to businesses. In many areas, life will not go back to normal. The 'New Normal' will change many things. Some businesses will not survive. Those who do may have to lay off workers to stay viable. This article discusses the difference between laying off personnel due to redundancy and due to retrenchment.


They are different from each other, and getting them straight will spell the difference between winning and losing the many labor cases that will be filed in the Department of Labor and Employment (DOLE).




HOW ARE REDUNDANCY AND RETRENCHMENT DIFFERENT?


Redundancy and retrenchment are authorized causes for termination under the Philippine Labor Code. Employers may use them as basis for termination due to the necessities of business.


But there are different grounds for their use. Even the evidence which employers should present justify them are different. And lastly, payment of separation pay for redundancy is different from retrenchment and downsizing.


WHEN TO TERMINATE EMPLOYEES DUE TO REDUNDANCY?

Employers who terminate employees due to redundancy must show that they are being removed because they occupy positions that are superfluous or redundant. This means that the employees those who are terminated are those who are doing work that has been taken over by other positions. The employer should have proper documentation to show that there really is, or would be redundancies.


Note that the guidelines of the DOLE require the following to constitute grounds for redundancy: 1. There must be superfluous positions or services of employees; 2. The positions or services are in excess of what is reasonably recommended by the actual requirements of the enterprise to operate in an economical and efficient manner; 3. There must be good faith in abolishing redundant positions; 4. There must be fair and reasonable criteria in selecting the employees to be terminated; and 5. There must be adequate proof of redundancy such as, but not limited to, 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.

Note that termination because of redundancy may be resorted to at any time, even if the employer is profitable. Upon termination, the employer is required to pay separation pay in the amount of one (1) month's salary, or one (1) month's salary for every year of service in the company. A period of six (6) months or more is counted as one (1) year.



WHEN TO TERMINATE EMPLOYEES FOR RETRENCHMENT OR DOWNSIZING

Employers can retrench employees if to prevent business losses. The business losses, whether actual or expected, should be substantial enough to affect the continued operation or existence of the business. If ever a legal proceeding is filed against the employer, it should be able to to prove that losses, or imminent losses if there is no retrenchment. When retrenching employees, be sure to have reasonable criteria in determining who would be retained and who would be terminated.


The DOLE guidelines on the grounds for retrenchment or downsizing are as follows: 1. The retrenchment must be reasonably necessary and likely to prevent business losses; 2. The losses, if already incurred, are not merely de minimis, but are 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 the employer’s interest, and not to defeat or circumvent the employees’ right to security of tenure; and 5. 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, physical fitness, age, and financial hardship for certain workers. Retrenchment and downsizing may only be resorted due substantial business losses, or to prevent substantial business losses. Regardless of whether such losses may be actual or reasonably imminent, it should be provable with sufficient and convincing evidence. Financial statements fall under these. Also, the “Last-In-First-Out” Rule shall apply as the primary criteria for dismissal of employees, unless the employer can justify the use of other criteria. Employees terminated for retrenchment and shall be given separation pay equivalent to at least one (1) month, or one-half (1/2) month for every year of service , whichever is higher. A period of six (6) months or more is considered as one (1) year.