SOLIS MEDINA

LIMPINGCO
& FAJARDO
11th Floor, East Tower, Philippine Stock Exchange Centre
Exchange Road, Ortigas Business Center
1605 Pasig City, Philippines
Tel. (+632) 634.6722 / 6788 / 6789 Fax: (+632) 634.6724
www.solismedina.com email: lawyers@solismedina.com

MEMORANDUM

To : NEPEAN Philippines Inc.

Re : Redundancy
x----------------------------------------------------x

I. FACTS:

NEPEAN Philippines Inc. (“NEPEAN”), ceased operations of their machinery repair

and overhauling business. Employees A and B are mechanics of NEPEAN whose
services are no longer required by reason of the ceased operations.

II. QUERY:

What is the proper mode of dismissal of employees A and B?

III. OPINION:

In view of the cessation of their machinery repair and overhauling business of

NEPEAN, the positions of A and B are now considered redundant. Under Article 298 of
the Labor Code, redundancy is one of the authorized causes which an employer, in
good faith, may utilize to terminate an employee from employment.

Thus:

ART. 298. Closure of Establishment and Reduction of Personnel.

The employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent losses
or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof. In case of
termination due to the installation of labor-saving devices or redundancy, the
 SOLIS MEDINA
LIMPINGCO
& FAJARDO

worker affected thereby shall be entitled to a separation pay equivalent to at

least his one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall be
equivalent to 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 one (1) whole year.

Redundancy exists where the services of an employee are in excess of what is

reasonably demanded by the actual requirements of the enterprise. A position is
redundant where it is superfluous, and superfluity of a position or positions may be the
outcome of a number of factors, such as over hiring of workers, decreased volume of
business, or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.1

In the instant case, the positions of A and B are considered redundant as NEPEAN is no
longer in the machinery repair and overhauling business, thus having no use for a
mechanic.

However, before dismissal may be effected, Department Order No. 147-15 lays down
the requisites for termination to be valid:

Redundancy. — To be a valid ground for termination, the following must

be present:

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 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 an adequate proof of redundancy such as but not
limited to the new staffing pattern, feasibility studies/proposal, on the

1 Sebuguero v. NLRC, G.R. No. 115394, September 27, 1995

 SOLIS MEDINA
LIMPINGCO
& FAJARDO

viability of the newly created positions, job description and the

approval by the management of the restructuring.

Procedure for Termination of Employment:

1. First, NEPEAN must provide proof of redundancy of the positions of A and B by

showing that their services are no longer necessary for the company to operate
such as feasibility studies, new staffing pattern, similar job descriptions or
approval by the management of the restructuring of the company. In connection,
a fair and reasonable criteria as basis must be used to explain why A and B were
chosen to be terminated.

2. Second, NEPEAN must serve a written notice Department of Labor (DOLE) at

least thirty (30) days before the intended date of termination specifying the
grounds for termination.

3. Third, NEPEAN must likewise serve a written notice to employees A and B at

least thirty (30) days before the intended date of termination specifying the
grounds for termination.

4. Fourth, upon dismissal of A and B, they are entitled to a separation pay

equivalent to one (1) month pay or to at least one (1) month pay for every year of
service rendered to NEPEAN, whichever is higher (provided that a fraction of 6
months is considered 1 year).

5. Fifth, A and B are entitled to 13th month pay in proportion to the length of time
he worked during the year, reckoned from the time he started working during
the calendar year up to the time of his termination from the service. Thus, if he
worked only from January up to September his proportionate 13th month pay
should be equivalent of 1/12 his total basic salary he earned during that period.

Attached are suggested Notice of Redundancy forms required to be filed with the
DOLE.

Please let us know when the redundancy notice will be served at least three (3) days
prior to giving out of the notice.