Retrenchment Philippines

Question: In the Philippines, what are the valid criteria for retrenchment?

Answer:

Retrenchment is one of the authorized causes for terminating employment in the Philippines. It's a reduction in workforce aimed at preventing business losses. The Labor Code of the Philippines provides the legal framework for retrenchment. For retrenchment to be valid, the following criteria must be met:

1. Serious Business Losses or Financial Reverses:

   • The employer must prove that it is facing serious business losses or financial reverses. These losses should be actual, imminent, and substantial.

2. Good Faith:

   • Retrenchment should be undertaken in good faith. This means that it's done with the honest intention to save the business from bankruptcy and not for other ulterior motives, such as circumventing the rights of employees.

3. Fair and Reasonable Criteria in Selection:

   • The employer should use fair and reasonable criteria in selecting which employees to retrench. These criteria could include seniority, efficiency, and other objective measures. It should not be arbitrary or based on personal bias.

4. Written Notice:

   • Affected employees must be given a written notice at least one (1) month before the intended date of retrenchment. Similarly, the Department of Labor and Employment (DOLE) should also be informed at least one (1) month before the retrenchment, detailing the reasons for such and the measures taken to prevent it.

5. Payment of Separation Pay:

   • Retrenched employees are entitled to separation pay equivalent to one (1) month pay or at least half a month pay for every year of service, whichever is higher. A fraction of at least six (6) months is considered as one (1) whole year.

6. Other Means Exhausted:

   • The employer must show that retrenchment was undertaken after other less drastic means were tried and found wanting. These could include cost-cutting measures or efforts to increase income.

7. Evidence of Loss:

   • It is essential for the employer to provide evidence of the losses, which could include financial statements, audited records, or other relevant financial documents. The losses should not merely be imminent or expected but should be actual and present during the time of retrenchment.

Conclusion:

Retrenchment is a lawful measure employers can adopt when faced with serious financial troubles. However, for it to be valid under Philippine law, employers must meet specific criteria, including good faith, proper notice, and payment of separation benefits. Employees who believe they have been unjustly retrenched should seek legal advice or assistance from the Department of Labor and Employment.