Legal Articles

RETRENCHMENT : Things you need to know.

RETRENCHMENT is defined as “the termination of employment initiated by the employer through no fault of the employees and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. (Polymart Paper Industries, Inc. v. NLRC, G.R. No. 118973, August 12, 1998, 294 SCRA 159, 166). It is a management prerogative resorted to by employers to avoid or minimize business losses.(Oriental Petroleum and Minerals Corporation v. Fuentes, G.R. No. 151818, October 14, 2005, 473 SCRA 106, 115.)”(Mobilia Products, Inc. vs. Alan G. Demecillo, et al., G.R. No. 170669, 04 February 2009)

In the Philippines, the law governing retrenchment is found in Article 283 of the Labor Code of the Philippines.  It allows retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking. The requirements of the law for a valid retrenchment of workers are as follows: a) necessity of retrenchment to prevent losses and proof of such losses;  b) written notice to the employees and to the Department of Labor and Employment (DOLE) at least one month prior to the intended date of retrenchment; and c) payment of separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher. (Guerrero v. National Labor Relations Commission, G.R. No. 119842, August 30, 1996, 261 SCRA 301, 305.)

The employer bears the burden of proving with clear and satisfactory evidence that legitimate business reasons exist to justify retrenchment. (Mobilia Products, Inc. vs. Alan G. Demecillo, et al., G.R. No. 170669, 04 February 2009). The losses must be serious, actual and real.(Guerrero v. National Labor Relations Commission, G.R. No. 119842, August 30, 1996, 261 SCRA 301, 306). The condition of business losses is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns. (Asian AlcoholCorporation vs. National Labor Relations Commission, et al., G.R. No. 131108, 25 March 1999; Catatista v. NLRC, 247 SCRA 46, 52 [1995]; Precision Electronics Corporation v. NLRC, 178 SCRA 667, 669 [1989]).

The employer is also required by law to serve written notices of the intended retrenchment on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment.  The purpose of this requirement is to give employees time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the veracity of the alleged cause of termination.(EMCO Plywood Corporation v. Abelgas, G.R. No. 148532, April 14, 2004, 427 SCRA 496, 512)  Nothing in the law gives the employer the option to substitute the required prior written notice with payment of 30 days salary.  Indeed, a job is more than the salary it carries.  Payment of 30 days salary cannot compensate for the psychological effect or the stigma of immediately finding one’s self laid off from work.(Mobilia Products, Inc. vs. Alan G. Demecillo, et al., G.R. No. 170669, 04 February 2009).

Finally, the retrenched employee must actually receive a separation pay equivalent to one (1) month pay or to 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.(Section 283, Labor Code of the Philippines)


The global economic crisis has resulted to loss of millions of jobs around the world.  The Philippines labor sector is not spared from such phenomenon.  Reduction of the labor force, however, is not the only solution in coping with the ill effects of global recession. There are other less drastic remedial measures to cope with the temporary economic difficulties. One such mechanism is the adoption of FLEXIBLE WORK ARRANGEMENTS which is currently being implemented in other countries like the United States of America and Singapore. Flexible work arrangements refer to alternative arrangements or schedules other than the traditional or standard work hours, work days and work week.

Recognizing the desirability and practicatility of flexible work arrangements that may be considered by an employer, after consultation with their employees, as a better alternative to outright termination of the services of workers or the total closure of the establishment, the Department of Labor and Employment (DOLE) has issued Department Advisory No. 2, series of 2009.  It laid down the guidelines aimed at assisting and guiding employers and employee in the implementation of various temporary flexible work arrangements.

The flexible work arrangements that may be considered by employers and employees under the DOLE Guidelines are as follows:

1.       COMPRESSED WORK WEEK. The normal work week is reduced to less than six (6) days but the total number of work hours of 48 hours per week shall remain. The normal work day is increased to more than eight (8) hours but not to exceed twelve (12) hours, without corresponding overtime premium.  The concept can be adjusted accordingly depending on the mormal work week of the company pursuant to the provisions of Department Advisory No. 02, series of 2004, dated 2 December 2004 of the Department of Labor and Employment;

2.       REDUCTION OF WORK DAYS. The normal work days per week are reduced but should NOT last for more than six (6) months;

3.       ROTATION OF WORKERS. The employees are rotated or alternately provided work within the work week;

4.       FORCED LEAVE. The employees are required to go on leave for several days or weeks utilizing their leave credits, if there are any;

5.       BROKEN TIME SCHEDULE. The work schedule is not continuous but the work hours within the day within the day or week remain; and

6.       FLEXI HOLIDAY SCHEDULE. The employees agree to avail the holidays at some other days provided there is no diminution of existing benefits as a result of such arrangement.

DOLE encourages employers and employees under theses flexible work arrangements to explore alternative schemes under any agreement and company policy or practice in order to cushion and mitigate the effects of the loss of income of the employees.

The employer is required to notify the Regional Office of the DOLE which has jurisdiction over the workplace of the adoption of any of the above flexible work arrangements prior to its implementation. The DOLE Regional Office will then conduct an ocular visit to validate whether the adoption of the flexible work arrangements are in accordance with the guidelines issued by the DOLE.

For a copy of the Department Advisory No. 2, series of 2009, of the Department of Labor and Employment, you can visit or

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