Letter to the Attorney

Dear Attorney,

I am currently involved in a corporate divestiture process. The business unit I oversee is about to be sold to another entity, and as part of this transaction, the employees under my supervision have been given offers of employment by the receiving company. However, I am concerned about the potential legal and practical consequences if certain employees decide to reject the receiving company’s job offers. I want to ensure that everything is handled properly under Philippine law, and I would greatly appreciate your guidance on the matter. Specifically, I would like to understand the legal framework governing the situation, the rights and obligations of both the transferring and receiving companies, as well as the rights, remedies, and options available to employees who may not wish to accept the new employment arrangement. I am also interested in any best practices or precedents that could help facilitate a smooth transition.

Thank you for your time and insights on this matter.

Sincerely,
A Concerned Manager

Comprehensive Legal Analysis Under Philippine Law

In the context of corporate transactions such as asset sales, mergers, acquisitions, or divestitures, the fate of employees associated with the divested business unit is a critical aspect that must be thoroughly understood and managed. Under Philippine law, employment relationships are primarily governed by the Labor Code of the Philippines, its implementing rules and regulations, as well as relevant jurisprudence established by the Supreme Court. Additionally, the Department of Labor and Employment (DOLE) issues rules, advisories, and opinions that help guide employers and employees through corporate restructuring scenarios.

The divestiture process generally involves the sale or transfer of a business unit, division, or identifiable segment of operations from one company (the transferor) to another (the transferee or receiving company). In many instances, the receiving company will extend job offers to employees currently assigned to the divested unit. These offers may aim to maintain workforce continuity, preserve expertise, and ensure operational stability. However, from a legal standpoint, the employees’ acceptance of such offers is not automatic. Employees maintain the right to either accept or reject the terms offered by the new employer.

1. Status of Employment in a Divestiture

The first consideration is whether the transaction involves a mere change of ownership or a transfer of undertaking that would constitute a legitimate reorganization of the corporate entity. Under Philippine law, a sale or transfer of assets that includes a business unit does not necessarily bind the receiving company to automatically inherit the existing employment contracts. Unlike a merger or consolidation—where employment typically continues by operation of law—an asset sale or divestiture does not automatically carry over employment relationships. Instead, these relationships generally terminate upon the completion of the transaction, unless otherwise stipulated in agreements between the parties.

When the receiving company wishes to continue operations seamlessly, it often offers employment to the affected employees. If employees accept the offer, a new employment relationship is formed between them and the receiving company. The original employer, upon consummation of the sale and completion of the necessary clearance processes, typically ends its employment relationship with those employees.

2. The Right of Employees to Reject the Offer

Under Philippine labor principles, employment is fundamentally a contract between employer and employee, subject to mutual consent. No employee can be compelled to work for a new employer without his or her voluntary agreement. Thus, if the receiving company extends new employment contracts to the employees, those employees are free to accept or decline. This prerogative is grounded in the constitutional guarantee of the freedom to contract and the principle that an employer-employee relationship requires mutual assent. The employee’s decision not to accept the new offer cannot be legally coerced; similarly, the receiving company is not obligated to retain employees who do not agree to its terms.

3. Consequences of Rejection

If an employee rejects the employment offer from the receiving company, the legal consequence is typically the termination of the employee’s relationship with the original employer as of the date of the divestiture’s effectivity. Since the original employer is selling or transferring the business unit in which the employee worked, and presumably will no longer operate that unit, it may no longer have available positions corresponding to the employee’s role. In principle, the separation can be considered as a result of the cessation of operations with respect to that portion of the business. Under Article 298 (formerly Article 283) of the Labor Code, an employer can terminate employment due to the closure or cessation of operations not due to serious business losses, provided that affected employees are given notice and paid appropriate separation benefits. If the divestiture is structured as a closure of a department, division, or business unit of the original employer, this provision applies.

If the employee refuses the new job offer, and the original company no longer has a suitable position to redeploy this employee, then that employee would normally be entitled to separation pay as mandated by law or by the company’s own policies and collective bargaining agreements, if any. For instance, if the closure is not due to serious financial losses, the Labor Code requires the payment of at least one month’s pay or one month’s pay per year of service, whichever is higher, as separation pay. Variations in the amount might occur due to specific company policies, negotiated arrangements with unions, or other factors, but the law provides a statutory minimum.

4. Notice Requirements and Timing

When planning a divestiture, the transferor company should ensure that proper notice of the impending transaction and its consequences is given to employees. Ideally, employees should be informed well in advance of the transfer and the resulting offers of employment from the receiving company. This transparency helps minimize confusion and potential legal disputes. The principle of fair dealing in labor standards encourages employers to communicate changes promptly and effectively, allowing employees ample time to consider their options. Adequate documentation of these notices can serve as evidence of compliance with legal requirements and can help defend against claims of illegal dismissal or unfair labor practice.

5. Validity of the Receiving Company’s Offer

Employees need not accept any offer that fails to meet minimum legal standards or is substantially less favorable than their existing terms of employment. While the receiving company is not obligated to replicate every term of the old employment contract, it must at least comply with the minimum labor standards, including statutory minimum wages, benefits mandated by law, and other basic protections. If an employee considers the offered position to be significantly inferior—in terms of salary, benefits, job security, or working conditions—he or she may exercise the option to reject it. In such a scenario, the employee’s rights to claim separation pay and other final entitlements from the original employer would remain intact, as the termination would be attributable to the cessation of the operation rather than the employee’s resignation.

6. Implications of Rejection for the Receiving Company

From the receiving company’s perspective, employees rejecting the offer means that it may need to hire external candidates or reassign existing staff to fill the roles necessary to continue the acquired operations. There is no legal obligation for the receiving company to keep the position open indefinitely or to improve the offer unilaterally if an employee declines it. The receiving company’s main concern should be ensuring that its offers are compliant with legal standards, fairly communicated, and aligned with the operational needs of the acquired business unit.

7. The Transferor’s Potential Obligations

For the transferor (the original employer), employees who reject the offer and consequently face termination due to the cessation of that portion of the business are generally entitled to the mandated separation benefits. The transferor should also ensure the timely payment of final pay, including accrued salaries, unused leave credits (if convertible to cash), and other monetary benefits required by law or contract. Failure to provide these benefits may expose the transferor to claims of illegal dismissal or money claims, which can be filed before the National Labor Relations Commission (NLRC).

8. Collective Bargaining Agreements and Unionized Settings

In scenarios where employees are unionized and covered by a Collective Bargaining Agreement (CBA), the provisions of the CBA should be carefully reviewed. Depending on the stipulations, there may be additional rights or benefits triggered by the closure of a business unit or the transfer of operations. The union may negotiate for better terms or separation packages. In some cases, the union might require that the receiving company extend offers that are at least on parity with existing employment conditions or engage in good-faith consultations about the impending divestiture. If unionized employees refuse offers that do not comply with the CBA or do not meet negotiated conditions, this can lead to grievance procedures or arbitration under the terms of the CBA. The resolution of these disputes often depends on well-documented negotiations and a clear understanding of what has been agreed upon contractually.

9. DOLE Intervention and Compliance

The Department of Labor and Employment may issue clearances, receive labor reports, and even mediate disputes arising from corporate restructuring exercises. Employers undergoing divestitures are required to report major organizational changes to the DOLE. If employees reject offers and believe their rights have been violated, they may file complaints with the DOLE or bring their cases to the NLRC. In such instances, compliance with notice requirements, payment of separation benefits, and adherence to due process will be crucial factors in the legal outcome.

10. Jurisprudential Guidance

Philippine jurisprudence provides guidance on interpreting labor laws in corporate restructuring scenarios. While the Supreme Court has not established a rule compelling employees to accept job offers from a transferee, it has consistently emphasized the employee’s right to security of tenure. Where security of tenure is effectively severed by a sale of business, employees are entitled to the statutory separation benefits unless they voluntarily transfer to the new entity under terms that preserve or improve their employment conditions. Furthermore, case law emphasizes the principle of good faith and fair dealing. Courts look to whether employees were given fair notice, whether separation benefits were promptly paid, and whether the entire process met standards of equity and reasonableness.

11. Best Practices in Managing Rejections

To minimize disputes and ensure compliance with Philippine labor laws, both the transferor and the receiving company should adopt best practices such as:

Early and Transparent Communication: Inform employees about the planned divestiture, the expected timeline, and the nature of the offers that will be extended by the receiving company.
Fair and Reasonable Offers: The receiving company should provide offers that meet or exceed minimum labor standards and, if possible, approximate the employees’ current employment conditions.
Consultation with Legal Counsel and HR Professionals: Both parties should engage experienced labor attorneys and human resources practitioners to ensure that their actions comply with the Labor Code and associated regulations.
Document Everything: Proper documentation of notices, offers, rejections, and payments made is essential. Should disputes arise, having detailed records will be invaluable.
Open Dialogue with Employees and Unions: Where applicable, maintain open lines of communication with employees and any existing union representatives. Address concerns promptly and consider engaging in goodwill negotiations, even if not required by law.

12. Remedial Measures for Employees

For employees who feel that they are being treated unfairly—perhaps if the receiving company’s offer is unreasonably low or if the transferor tries to avoid paying separation benefits—they may file complaints with the DOLE or the NLRC. The employees bear the burden of proving that their rights have been violated, but Philippine labor tribunals are well-known for applying a standard of social justice in favor of the working class. If the employee can demonstrate that the closure or divestiture was used as a mere device to circumvent labor laws or collective bargaining agreements, the labor arbiters and courts may award not only separation pay but also back wages, moral damages, and even attorney’s fees, depending on the circumstances.

13. Conclusion

In sum, under Philippine law, employees have the undeniable right to either accept or reject an offer of employment from a receiving company following a corporate divestiture. Their decision will have clear legal consequences: if they accept, a new employment relationship begins; if they refuse, their employment with the original employer effectively ends, and they are generally entitled to separation benefits due to cessation of operations. Ensuring a lawful and equitable process involves adherence to statutory requirements, good faith in negotiations, and transparent communication throughout the transition.

For the receiving company, the key is to ensure compliance with labor standards and to present offers that are fair and transparent. For the transferor, it is crucial to handle the employees’ separation properly, paying all mandated benefits promptly. For the employees, knowing their rights and seeking timely legal advice is essential to safeguarding their interests. Through diligent planning, consultation, and adherence to Philippine labor laws, all parties can navigate the complexities of a corporate divestiture with minimal dispute, ensuring a fair and legally compliant transition.