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. First is the 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. These devices, if introduced in good faith, save costs, and enhance efficiency.
2. Second is 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 this pandemic. In effect, some workers may already be occupying positions that are superfluous.
3. The third authorized cause is 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. Lastly, termination is also authorized in the worst-case scenario, that is – when there is no other available option but to close the business or cease operations.
Q: What proof do I have to show to the Department of Labor to support my decision to terminate employees under Article 298 of the Labor Code?
A: 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. The employer must show that there is no other option available but to resort to these drastic measures and that such reduction is being done in good faith.
Q: Which employees can I terminate under the circumstances?
A: 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. This means that between two employees occupying the same position, the one who was employed last will necessarily be the first to go. The exception to this rule is when an employee volunteers to be separated from employment.
Q: Can I just terminate my probationary employees?
A: 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 just mentioned “Last in, First Out Rule.”
Q: What are the steps in terminating the employees? DO I still need to serve notice to the employees?
A: The employer should make sure that the right to due process of the affected employees is observed. This will include serving the proper notices on the employees and filing the proper reports with the Department of Labor and Employment. Under Section 5.3 of the DOLE’s Department Order No. 147-15, series of 2015, the requirement of due process must still be complied by serving:
a. A written notice to the employee; and
b. A written notice to the DOLE regional office, with an accomplished Establishment Termination Form.
Q: When should I serve the Notice of Termination to the affected employees?
A: Notice must be served at least 30 days before the effectivity of the termination. The ground for termination must also be clearly specified.
Q: Are the terminated employees entitled to separation pay?
A: 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.
Q: If I do not want to terminate my employees, do I have alternatives?
A: 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.
The DOLE considers these measures as “better alternatives than outright termination of the services of the employees or the total closure of the establishments.”
