RULES ON RETRENCHMENT:

A. LABOR LAW:

Art. 298 [283]. 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 worker and the Department 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 worker affected
thereby shall be entitled to a separation pay equivalent to at least his one (1)
month pay or 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 as one
(1) whole year.

B. JURISPRUDENCE:

FIRST DIVISION

G.R. No. 165923 September 29, 2010

SHIMIZU PHILS. CONTRACTORS, INC.,* Petitioner,

vs.
VIRGILIO P. CALLANTA, Respondent.

As an authorized cause for separation from service under Article 283 of the
Labor Code,24 retrenchment is a valid exercise of management
prerogative subject to the strict requirements set by jurisprudence:

(1) That the retrenchment is reasonably necessary and likely to

prevent business losses which, if already incurred, are not merely de
minimis, but substantial, serious, actual and real, or if only expected,
are reasonably imminent as perceived objectively and in good faith
by the employer;

(2) That the employer served written notice both to the employees
and to the Department of Labor and Employment at least one month
prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation

pay equivalent to one month pay or at least ½ month pay for every
year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees

in good faith for the advancement of its interest and not to defeat or
circumvent the employees’ right to security of tenure; and
 (5) That the employer used fair and reasonable criteria in
ascertaining who would be dismissed and who would be retained
among the employees, such as status, x x x efficiency, seniority,
physical fitness, age, and financial hardship for certain workers.

______________________________________________________________________
SECOND DIVISION
G.R. No. 187214 August 14, 2013

SANOH FULTON PHILS., INC. and MR. EDDIE JOSE, Petitioners,

vs.
EMMANUEL BERNARDO and SAMUEL TAGHOY

For retrenchment, the three (3) basic requirements are:

(a) proof that the retrenchment is necessary to prevent losses or
impending losses;

(b) service of written notices to the employees and to the

Department of Labor and Employment at least one (1) month prior
to the intended date of retrenchment; and

(c) payment of separation pay equivalent to one (1) month pay, or

at least one-half (1/2) month pay for every year of service, whichever
is higher.14 In addition, jurisprudence has set the standards for losses
which may justify retrenchment, thus:

(1) the losses incurred are substantial and not de minimis;

(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 alleged losses, if already incurred, or the expected
imminent losses sought to be forestalled, are proven by
sufficient and convincing evidence.15

Upon the other hand, in termination, the law authorizes termination of

employment due to business closure, regardless of the underlying reasons
and motivations therefor, be it financial losses or not. However, to put a
stamp to its validity, the closure/cessation of business must be bona fide,
i.e., its purpose is to advance the interest of the employer and not to defeat
or circumvent the rights of employees under the law or a valid agreement.16

In termination cases either by retrenchment or closure, the burden of

proving that the termination of services is for a valid or authorized cause
rests upon the employer.17 Not every loss incurred or expected to be
incurred by an employer can justify retrenchment. The employer must
prove, among others, that the losses are substantial and that the
retrenchment is reasonably necessary to avert such losses.18 And to repeat,
in closures, the bona fides of the employer must be proven.

_____________________________________________________________________
THIRD DIVISION
G.R. Nos. 75700-01 August 30, 1990

LOPEZ SUGAR CORPORATION, petitioner,

vs.
FEDERATION OF FREE WORKERS, PHILIPPINE LABOR UNION ASSOCIATION
(PLUA-NACUSIP) and NATIONAL LABOR RELATIONS
COMMISSION, respondents.

Whether or not an employer would imminently suffer serious or substantial

losses for economic reasons is essentially a question of fact for the Labor
Arbiter and the NLRC to determine.
_______________________________________________________________________
SECOND DIVISION
G.R. No. 211892 December 6, 2017

INNODATA KNOWLEDGE SERVICES, INC., Petitioner

vs.
SOCORRO D'MARIE T. INTING, ISMAEL R. GARAYGAY, EDSON S. SOLIS,
MICHAEL A. REBATO, JAMES HORACE BALONDA, STEPHEN C. OLINGAY,
DENNIS C. RIZON, JUNETH A. RENTUMA, HERNAN ED NOEL I. DE LEON, JR., JESS
VINCENT A. DELA PENA, RONAN V. ALAMILLO, ENNOH CHENTIS R.
FERNANDEZ, FRITZ J. SEMBRINO, DAX MATTHEW M. QUIJANO, RODOLFO M.
VASQUEZ, MA. NAZELLE B. MIRALLES, MICHAEL RAY B. MOLDE, WENDELL B.
QUIBAN, ALDRIN O. TORRENTIRA, and CARL HERMES CARSKIT, Respondents

RE: PERMANENT V TEMPORARY RETRENCHMENT

Among the authorized causes for termination under Article 29829 of the
Labor Code is retrenchment, or what is sometimes referred to as a layoff,
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 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
(112) 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.

Retrenchment is the severance of employment, through no fault of and

without prejudice to the employee, which management resorts to during
the periods of business recession, industrial depression, or seasonal
fluctuations, or during lulls caused by lack of orders, shortage of materials,
conversion of the plant to a new production program or the introduction of
new methods or more efficient machinery, or of automation. In other words,
lay-off is an act of the employer of dismissing employees because of losses
in the operation, lack of work, and considerable reduction on the volume
of its business. However, a lay-off would amount to dismissal only if it is
permanent. When it is only temporary, the employment status of the
employee is not deemed terminated, but merely suspended.30

Article 298, however, speaks of permanent retrenchment as

opposed to temporary lay-off, as in the present case.1âwphi1 There
is no specific provision of law which treats of a temporary
retrenchment or lay-off and provides for the requisites in effecting it
or a specific period or duration.31 Notably, in both permanent and
temporary lay-offs, the employer must act in good faith - that is, one
which is intended for the advancement of the employer's interest
and not for the purpose of defeating or circumventing the rights of
the employees under the law or under valid agreements.32

Certainly, the employees cannot forever be temporarily laid-off. Hence, in

order to remedy this situation or fill the hiatus, Article 30133 may be applied
to set a specific period wherein employees may remain temporarily laid-off
or in floating status.34 Article 301 states:

Art. 301. When Employment not Deemed Terminated. The bona-

fide suspension of the operation of a business or undertaking for a
period not exceeding six (6) months, or the fulfillment by the
employee of a military or civic duty shall not terminate employment.
In all such cases, the employer shall reinstate the employee to his
former position without loss of seniority rights if he indicates his desire
to resume his work not later than one (1) month from the resumption
of operations of his employer or from his relief from the military or civic
duty.

The law set six (6) months as the period where the operation of a business
or undertaking may be suspended, thereby also suspending the
employment of the employees concerned. The resulting temporary lay-off,
wherein the employees likewise cease to work, should also not last longer
than six (6) months. After the period of six (6) months, the employees should
either then be recalled to work or permanently retrenched following the
requirements of the law. Failure to comply with this requirement would be
tantamount to dismissing the employees, making the employer responsible
for such dismissal.35 Elsewise stated, an employer may validly put its
employees on forced leave or floating status upon bona fide suspension of
the operation of its business for a period not exceeding six (6) months. In
such a case, there is no termination of the employment of the employees,
but only a temporary displacement. When the suspension of the business
operations, however, exceeds six (6) months, then the employment of the
employees would be deemed terminated,36 and the employer would be
held liable for the same.

Indeed, closure or suspension of operations for economic reasons is

recognized as a valid exercise of management prerogative. But the burden
of proving, with sufficient and convincing evidence, that said closure or
suspension is bona fide falls upon the employer.

________________________________________________________________
G.R. No. 112546 March 13, 1996

NORTH DAVAO MINING CORPORATION and ASSET PRIVATIZATION

TRUST, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ANTONIO M.
VILLANUEVA and WILFREDO GUILLEMA, respondents.

RE: SEPARATION PAY

The underscored portion of Art. 283 governs the grant of separation benefits
"in case of closures or cessation of operation" of business establishments
"NOT due to serious business losses or financial reverses . . . ". Where,
however, the closure was due to business losses — as in the instant case, in
which the aggregate losses amounted to over P20 billion — the Labor Code
does not impose any obligation upon the employer to pay separation
benefits, for obvious reasons. There is no need to belabor this point. Even
the public respondents, in their Comment 10 filed by the Solicitor General,
impliedly concede this point.

However, respondents tenaciously insist on the award of separation pay,

anchoring their claim solely on petitioner North Davao's long-standing
policy of giving separation pay benefits equivalent to 30-days' pay, which
policy had been in force in the years prior to its closure. Respondents
contend that, by denying the same separation benefits to private
respondent and the others similarly situated, petitioners discriminated
against them. They rely on this Court's ruling in Businessday Information
Systems and Services, Inc. (BISSI) vs. NLRC, (supra). In said case, petitioner
BISSI, after experiencing financial reverses, decided "as a retrenchment
measure" to lay-off some employees on May 16, 1988 and gave them
separation pay equivalent to one-half (1/2) month pay for every year of
service. BISSI retained some employees in an attempt to rehabilitate its
business as a trading company. However, barely two and a half months
later, these remaining employees were likewise discharged because the
company decided to cease business operations altogether. Unlike the
earlier terminated employees, the second batch received separation pay
equivalent to a full month's salary for every year of service, plus a mid-year
bonus. This Court ruled that "there was impermissible discrimination against
the private respondents in the payment of their separation benefits. The law
requires an employer to extend equal treatment to its employees. It may
not, in the guise of exercising management prerogatives, grant greater
benefits to some and less to others. . . ."

In resolving the present case, it bears keeping in mind at the outset that the
factual circumstances of BISSI are quite different from the current case. The
Court noted that BISSI continued to suffer losses even after the
retrenchment of the first batch of employees: clearly, business did not
improve despite such drastic measure. That notwithstanding, when BISSI
finally shut down, it could well afford to (and actually did) pay off its
remaining employees with MORE separation benefits as compared with
those earlier laid off; obviously, then, there was no reason for BISSI to skimp
on separation pay for the first batch of discharged employees. That it was
able to pay one-month separation benefit for employees at the time of
closure of its business meant that it must have been also in a position to pay
the same amount to those who were separated prior to closure. That it did
not do so was a wrongful exercise of management prerogatives. That is why
the Court correctly faulted it with "impermissible discrimination." Clearly, it
exercised its management prerogatives contrary to "general principles of
fair play and justice."

In the instant case however, the company's practice of giving one month's
pay for every year of service could no longer be continued precisely
because the company could not afford it anymore. It was forced to close
down on account of accumulated losses of over P20 billion. This could not
be said of BISSI. In the case of North Davao, it gave 30-days' separation pay
to its employees when it was still a going concern even if it was already
losing heavily. As a going concern, its cash flow could still have sustained
the payment of such separation benefits. But when a business enterprise
completely ceases operations, i.e., upon its death as a going business
concern, its vital lifeblood — its cashflow — literally dries up. Therefore, the
fact that less separation benefits ware granted when the company finally
met its business death cannot be characterized as discrimination. Such
action was dictated not by a discriminatory management option but by its
complete inability to continue its business life due to accumulated losses.
Indeed, one cannot squeeze blood out of a dry stone. Nor water out of
parched land.

As already stated, Art. 283 of the Labor Code does not obligate an
employer to pay separation benefits when the closure is due to losses. In
the case before us, the basis for the claim of the additional separation
benefit of 17.5 days is alleged discrimination, i.e., unequal treatment of
employees, which is proscribed as an unfair labor practice by Art. 248 (e)
of said Code. Under the facts and circumstances of the present case, the
grant of a lesser amount of separation pay to private respondent was done,
not by reason of discrimination, but rather, out of sheer financial bankruptcy
— a fact that is not controlled by management prerogatives. Stated
differently, the total cessation of operation due to mind-boggling losses was
a supervening fact that prevented the company from continuing to grant
the more generous amount of separation pay. The fact that North Davao
at the point of its forced closure voluntarily paid any separation benefits at
all — although not required by law — and 12.5-days worth at that, should
have elicited admiration instead of condemnation. But to require it to
continue being generous when it is no longer in a position to do so would
certainly be unduly oppressive, unfair and most revolting to the
conscience. As this Court held in Manila Trading & Supply
Co. vs. Zulueta, 11 and reiterated in San Miguel Corporation vs. NLRC 12 and
later, in Allied Banking Corporation vs. Castro, 13 "(t)he law, in protecting the
rights of the laborer, authorizes neither oppression nor self-destruction of the
employer."

At this juncture, we note that the Solicitor General in his Comment

challenges the petitioners' assertion that North Davao, having closed
down, no longer has the means to pay for the benefits. The Solicitor General
stresses that North Davao was among the assets transferred by PNB to the
national government, and that by virtue of Proclamation No. 50 dated
December 8, 1986, the APT was constituted trustee of this government
asset. He then concludes that "(i)t would, therefore, be incongruous to
declare that the National Government, which should always be presumed
to be solvent, could not pay now private respondents' money claims." Such
argumentation is completely misplaced. Even if the national government
owned or controlled 81.8% of the common stock and 100% of the preferred
stock of North Davao, it remains only a stockholder thereof, and under
existing laws and prevailing jurisprudence, a stockholder as a rule is not
directly, individually and/or personally liable for the indebtedness of the
corporation. The obligation of North Davao cannot be considered the
obligation of the national government, hence, whether the latter be
solvent or not is not material to the instant case. The respondents have not
shown that this case constitutes one of the instances where the corporate
veil may be pierced. 14 From another angle, the national government is not
the employer of private respondent and his co-complainants, so there is no
reason to expect any kind of bailout by the national government under
existing law and jurisprudence.
__________________________________________________________________

FIRST DIVISION

[G.R. No. 117473. April 15, 1997.]

REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and DANIEL

VALENZUELA, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION,
BONIFACIO RED, VICTORIA PADILLA, MA. SUSAN R. CALWIT, SONIA DELA
CRUZ, SUSAN DE LA CRUZ, EDNA WAHINGON, NANCY B. CENITA and
BENEDICTO A. TULABING, Respondents.
Antonio C . Amor, for Petitioners.

Roberto B. Awid for Private Respondents.

RE: SEPARATION PAY

The grant of separation pay, as an incidence of termination of

employment under Article 283, is a statutory obligation on the part of the
employer and a demandable right on the part of the employee, except
only where the closure or cessation of operations was due to serious
business losses or financial reverses and there is sufficient proof of this fact
or condition. In the absence of such proof of serious business losses or
financial reverses, the employer closing his business is obligated to pay his
employees and workers their separation pay. The rule, therefore, is that in
all cases of business closure or cessation of operation or undertaking of the
employer, the affected employee is entitled to separation pay. This is
consistent with the state policy of treating labor as a primary social
economic force, affording full protection to its rights as well as its welfare.
The exception is when the closure of business or cessation of operations is
due to serious business losses or financial reverses; duly proved, in which
case, the right of affected employees to separation pay is lost for obvious
reasons. In the case at bar, the corporation’s alleged serious business losses
and financial reverses were not amply shown or proved.