Frequently Asked Questions on Redundancy & Retrenchment

How to Reduce Your Workforce Legally?

Under Article 298 of the Labor Code, the employer is authorized to terminate employment under the following grounds:

1. Installation of labor-saving devices. A good example is making use of automated ticketing systems in parking lots and check-out counters in place of parking attendants or cashiers.
2. Redundancy. There is redundancy when the total capability of the workforce is in excess of what is reasonably needed to meet the demands of the business. This may be due to overhiring or a decrease in the volume of business — such as during a pandemic.
3. Retrenchment to prevent losses. The losses contemplated here are not minimal losses. Losses must be substantial, serious, actual and real, or should be reasonably imminent.
4. Closure or cessation of operations — when there is no other available option but to close the business.

What proof do I have to show to the Department of Labor?

Employers must remember that affected employees can always challenge any plan or move to terminate or lay them off. It is, therefore, important to remember that the employer has the burden of proving with sufficient and convincing evidence that the business situation giving rise to the ground for termination really exists. Such proof will include, among others, audited financial statements and financial projections ideally prepared by credible and independent professionals.

Which employees can I terminate under the circumstances?

There must be fair and reasonable criteria in selecting the employees to be terminated. These include status, efficiency, seniority, physical fitness, age, and financial hardship. Under the regulations of the Department of Labor and Employment ("DOLE"), the "last-in, first-out" rule must be applied.

Can I just terminate my probationary employees?

You cannot just terminate your employees just because of their probationary status. They too are entitled to security of tenure. They can, however, be terminated first on the basis of the "Last in, First Out Rule."

What are the steps in terminating the employees?

The employer should make sure that the right to due process of the affected employees is observed. This will include:

• A written notice to the employee
• A written notice to the DOLE regional office, with an accomplished Establishment Termination Form

Notice must be served at least 30 days before the effectivity of the termination. The ground for termination must also be clearly specified.

Are the terminated employees entitled to separation pay?

Yes. In case of installation of labor-saving devices and redundancy, the rate is equivalent to at least one month pay, or at least one month pay for every year of service. A fraction of six months service is considered as one whole year for the purpose of computation.

As for retrenched employees, they are entitled to a half-month's pay for every year of service. This is also the case for employees terminated due to closure or cessation of business when the reason is not serious business losses. Otherwise, no separation pay is required.

If I do not want to terminate my employees, do I have alternatives?

Rather than reducing your workforce outright, the DOLE encourages businesses and workers to pursue voluntary agreements for flexible work arrangements which are temporary in nature. Under Labor Advisory No. 9, series of 2020, arrangements that may be considered are the reduction of work hours or work days and the rotation of workers. Employees may also be compelled to go on forced leave.