Legal Considerations When Employees Decline Offers from a Receiving Company in Divestitures

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Letter to Attorney

Dear Attorney,

I hope this letter finds you well. I would like to seek your expert legal advice regarding a situation involving a divestiture. Specifically, I am concerned about the scenario where an employee rejects the job offer made by the receiving company as part of the divestiture process.

What are the legal consequences for the employee, the divesting company, and the receiving company under Philippine labor laws? Additionally, what obligations do the involved parties have in ensuring compliance with labor laws and protecting the rights of the employee?

I would greatly appreciate your detailed insights into this matter.

Sincerely,
A Concerned Employer

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Legal Analysis: Employee Rejection of Offers in Divestitures

When a company undergoes a divestiture in the Philippines, the process involves transferring assets, operations, or divisions from one entity (the divesting company) to another (the receiving company). A key concern during this transition is the handling of employees. Labor law in the Philippines, particularly under the Labor Code, mandates the fair and lawful treatment of employees in such scenarios.

Overview of Divestiture and Employment

In divestitures, the following typically occurs:

1. The divesting company offers severance or transfer options to affected employees.
2. The receiving company extends new employment offers to those employees who will transfer.
3. Employees are given the choice to accept or reject the offer from the receiving company.

The employee’s decision has significant legal ramifications for all parties involved.

Legal Consequences of Employee Rejection

1. Implications for the Employee

An employee who rejects an offer from the receiving company must consider the following:

• End of Employment Relationship with the Divesting Company:
  The divesting company typically terminates its employment relationship with the affected employee as part of the asset transfer. This separation is considered valid as it is due to operational changes, provided that the proper process is followed, including payment of separation pay when applicable.

• Eligibility for Separation Pay:
  Under Article 298 of the Labor Code, employees separated due to business closure, redundancy, or other lawful causes are entitled to separation pay. The amount depends on the nature of the separation (e.g., one month’s salary per year of service for redundancy). If the employee voluntarily rejects the offer from the receiving company, separation pay must still be provided unless the rejection is considered unreasonable or if the receiving company offers substantially similar terms of employment.

• Unemployment Concerns:
  By rejecting the offer, the employee must secure alternative employment. The law does not obligate the receiving company to extend additional offers after rejection.

2. Implications for the Divesting Company

• Compliance with Termination Procedures:
  The divesting company must comply with due process for terminating employment. This involves serving a notice of termination and paying separation benefits in accordance with the law.

• Coordination with the Receiving Company:
  The divesting company is expected to facilitate a smooth transition for affected employees, including ensuring they are informed of their options and the consequences of their choices.

• Liability for Unfair Labor Practices:
  If the divesting company fails to uphold its obligations—such as providing proper separation pay or notice—it may face administrative complaints or claims for unfair labor practices.

3. Implications for the Receiving Company

• No Employment Obligation to Rejecting Employees:
  The receiving company is under no obligation to employ an individual who rejects their offer. However, their offer must meet the standards set by labor law, ensuring fair and reasonable terms.

• Compliance with Labor Standards:
  The receiving company must ensure that its offers comply with labor standards, such as non-discrimination, provision of appropriate compensation, and benefits.

• Legal Challenges from Rejected Employees:
  While rare, an employee who perceives that the offer was unfair or discriminatory may challenge the receiving company under labor law principles.

Relevant Legal Considerations

Employee Rights under Philippine Law

• Security of Tenure:
  Employees are entitled to security of tenure, which means that their dismissal or termination must be for just or authorized causes and with due process.

• Separation Pay Entitlement:
  Employees separated for authorized causes such as redundancy or business closure are entitled to separation pay under the Labor Code.

Due Process in Employment Termination

• Substantive and Procedural Due Process:
  The divesting company must establish valid grounds for termination (substantive due process) and follow proper notification and payment procedures (procedural due process).

• 30-Day Notice Rule:
  Employers must provide affected employees with at least 30 days' notice before termination.

Obligations of the Receiving Company

• Fair Employment Terms:
  Offers must comply with labor standards, ensuring that compensation, benefits, and working conditions are reasonable.

• Non-Discrimination:
  Employees must not face discrimination based on gender, age, religion, or other protected attributes.

Case Studies and Examples

1. Case Example: Employee Rejecting Reasonable Offer
   If the receiving company offers terms equal to or better than the employee’s previous terms, the rejection may be considered unreasonable. In such cases, the divesting company may argue that the separation pay should not be paid in full. However, the law generally sides with the employee unless clear evidence of bad faith exists.

2. Case Example: Receiving Company’s Unfair Offer
   If the receiving company provides terms significantly inferior to those previously enjoyed by the employee, the rejection may be justified. The divesting company remains liable for full separation pay.

Best Practices for Employers

1. Transparent Communication:
   Ensure employees fully understand the terms of the offer and the consequences of rejection.

2. Fair Offers:
   The receiving company should provide terms that are reasonable and comply with labor standards to avoid disputes.

3. Documentation:
   Both companies should maintain records of offers, communications, and employee responses to mitigate potential legal disputes.

4. Legal Consultation:
   Seek guidance from labor law experts to ensure compliance throughout the divestiture process.

Conclusion

In a divestiture, the rejection of an offer by an employee triggers significant legal implications for the employee, the divesting company, and the receiving company. Employers must navigate these transitions with a clear understanding of their obligations under Philippine labor laws. By ensuring fairness, compliance, and open communication, all parties can minimize disputes and facilitate a smoother process.