The Department of Labor and Employment recently amended the rules on suspension of employment relationship, allowing the extension by another six (6) months of the heretofore allowable period of six (6) months, under certain conditions. Before we discuss the requirements for the extension of the period, it is best to first acquaint ourselves with the procedure surrounding temporary suspension of employment or temporary layoff/retrenchment.
1. First of all, is there a notice requirement before you can place employees on temporary retrenchment or layoff?
Yes. The employer must send a notice that it is putting employees on temporary retrenchment. Even if the Labor Code does not explicitly provide for a notice in cases of layoff, compliance with the one-month notice rule is mandatory regardless of whether the retrenchment is temporary or permanent. This is so because Article 298 (formerly 283) on Closure of Establishment and Reduction of Personnel does not distinguish between temporary or permanent retrenchment; hence, there is no need to qualify the term. Ubi lex non distinguit, nec nos distinguere debemus (when the law does not distinguish, we must not distinguish). (PT & T Corp. v. National Labor Relations Commission, G.R. No. 147002, [April 15, 2005], 496 PHIL 164-179)
Article 298 of the Labor Code provides:
“ARTICLE 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 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 (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.”
2. When is retrenchment permanent and when is it temporary
Retrenchment is permanent when it results in the termination of employment, through no fault of, nor with prejudice to, the employees. This happens “during periods of business recession, industrial depression, 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. Simply put, it is an act of the employer of dismissing employees because of losses in operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by the Supreme Court.” Article 298 (formerly 283) of the Labor Code spells the requisites of a valid retrenchment. In case the retrenchment is temporary, the employment status of the employee is not deemed terminated, but merely suspended. Article 301 (formerly 286) of the Labor Code provides, in part, that the bona fide suspension of the operation of the business or undertaking for a period not exceeding six months does not terminate employment.
Article 301 of the Labor Code provides:
“ARTICLE 301. [286] When Employment not Deemed Terminated. — The bonafide 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.”
3. Under what standard is a temporary layoff valid?
The standard by which to judge the validity of the exercise of this aspect of management prerogative is good faith. In San Miguel Brewery Sales Force Unit v. Ople (170 SCRA 25, 28 [1989]), the Supreme Court held that “so long as company prerogatives are exercised in good faith for the advancement of employers’ interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements, the Supreme Court will uphold them.”
4. What does the employer need to prove in case of temporary suspension of employment of its employees?
“[T]he paramount consideration should be the dire exigency of the business of the employer that compels it to put some of its employees temporarily out of work. This means that the employer should be able to prove that it is faced with a clear and compelling economic reason which reasonably forces it to temporarily shut down its business operations or a particular undertaking, incidentally resulting to the temporary lay-off of its employees.” (Lopez v. Irvine Construction Corp., G.R. No. 207253, [August 20, 2014])
The Supreme Court has reiterated that “not every loss incurred or expected to be incurred by a company will justify retrenchment. The losses must be substantial and the retrenchment must be reasonably necessary to avert such losses.” (Somerville Stainless Steel Corp. v. National Labor Relations Commission, G.R. No. 125887, [March 11, 1998], 350 PHIL 859-877)
5. How long can you put an employee on temporary layoff/retrenchment?
Generally, six (6) months. However, as we have mentioned earlier, the DOLE has released Department Order 215, Series of 2020 amending the Implementing Rules and Regulations of the Labor Code. In DO 215, the DOLE allowed the extension of the suspension of employment for another period not exceeding six (6) months.
6. How can the extension be effected?
The employer and the employees, through the union, if any, or with the assistance of the DOLE must meet in good faith for the purpose of extending the suspension of employment for a period not exceeding six (6) months.
7. What are the conditions for the extension?
The employer needs to report the extension ten (10) days prior to its effectivity to the Regional Office of the DOLE. The extension is subject to inspection. Employees shall not be deemed to have lost their employment even if they find alternative employment during the extension of the retrenchment period.
8. What can happen prior to or at the end of the six month period or its extension?
The employee may be permanently retrenched or recalled back to work prior to the end of the six (6) month period or its extension, except that if the period expires and the employee is not recalled, then the employee is deemed permanently retrenched.
9. What happens if the employee is permanently retrenched?
The employee shall be entitled to 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. The first six (6) months of the suspension of employment shall be considered in the computation of separation pay. The extension of the suspension of employment was not explicitly included as part of the computation of separation pay.
10. Can the six month period or its extension be cut up in so many parts?
No. The wording of the law does not support breaking apart the initial six (6) months or its extension as it already allows for a year of suspension of employment. Furthermore, breaking apart the initial six (6) months and spreading it over a period of time might be construed as defeating or circumventing employees’ right to work.
11. In lieu of temporary suspension of employment relationship, can the employer adopt flexible work arrangements?
Yes. Please see our earlier article on this https://www.floresofrinlaw.com/entries/alternative-work-arrangements-during-community-quarantine.
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