Bona Fide Suspension of Operation or Undertaking

1. Concept

“Bona fide suspension of operation or undertaking” – refers to the temporary suspension or cessation of business operations or undertaking for a period not exceeding six (6) months.

a. Legal basis

1) Labor Code

ART. 301. [286] When Employment not Deemed Terminated. The bona fide 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. (P.D. 442, Labor Code)

b. Management prerogative

The decision to implement a bona fide suspension of operations or undertaking is a management prerogative. This means that, if there are valid economic and business reasons for temporary work suspensions, it will still be the decision of the management whether to call for the temporary of suspension of work or continue with work (even if it means workers will be doing nothing).

Indeed, closure or suspension of operations for economic reasons is recognized as a valid exercise of management prerogative. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)

Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017

⦁ In the instant case, [the Company] claims that its act of placing [the Complainants] on forced leave after a decrease in work volume, subject to recall upon availability of work, was a valid exercise of its right to lay-off, as an essential component of its management prerogatives. The Court agrees with the LA’s pronouncement that requiring employees on forced leave is one of the cost-saving measures adopted by the management in order to prevent further losses. However, [the Company] failed to discharge the burden of proof vested upon it. Having the right should not be confused with the manner in which that right is exercised; the employer cannot use it as a subterfuge to run afoul of the employees’ guaranteed right to security of tenure. The records are bereft of any evidence of actual suspension of [the Company’s] business operations or even of the ACT Project alone. In fact, while [the Company] cited Article 301 to support the temporary lay-off of its employees, it never alleged that it had actually suspended the subject undertaking to justify such lay-off. It merely indicated changes in business conditions and client requirements and specifications as its basis for the implemented forced leave/lay-off.

2. No termination of employment during suspension

In such a [bona fide suspension of work], there is no termination of employment but only a temporary displacement of employees, albeit the displacement should not exceed six (6) months. (Philippine Industrial Security Agency Corporation v. Dapiton, G.R. No. 127421, 08 December 1999)

3. Dire exigency

Due to the grim consequences of losing one’s livelihood, the employer is obligated to prove that there is a dire exigency for resorting to the use of bona fide suspension of business operation or undertaking. Failure to do so may result in a constructive dismissal.

The 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. (Philippine Industrial Security Agency Corporation v. Dapiton, supra.)

Philippine Industrial Security Agency Corporation v. Dapiton, G.R. No. 127421, 08 December 1999

⦁ [I]n security services, the temporary off-detail of guards takes place when the security agency’s clients decide not to renew their contracts with the security agency, resulting in a situation where the available posts under its existing contracts are less than the number of guards in its roster.

⦁ In the case at bar, the records do not show that [the Complainant] had to be placed on temporary off-detail for lack of available post. Petitioner just stopped giving [the Complainant] his assignment after his duty at the PSB. It was the straw that broke the camels back, so to speak, as far as [the Complainant] was concerned.

⦁ In the case at bar, the evidence show that [the Complainant] enjoyed a single post at the PCIBank for three (3) years. It changed after his suspension. In a span of less than three (3) months, [the Complainant] was assigned to at least four (4) establishments, namely, BPI Family Bank, Mercury Drugstore, Sevilla Candle Factory and Philippine Savings Bank. He suddenly found himself being tossed to different posts and relieving absent security guards. [The Complainant] was then left uncertain as to when and where his next assignments would be. Considering the totality of the facts of this case, the labor officials below rightly found that the frequent transfers of [the Complainant] to different posts on short periods of time were indirect ways of dismissing him.

Lopez v. [the Company] Construction Corp., G.R. No. 207253, 20 August 2014

[Background]

⦁ [The Complainant was a guard. The employer-Company was a construction firm.]

⦁ On December 18, 2005, Lopez was purportedly terminated from his employment, whereupon he was told “Jkaw ay lay-off muna.” Thus, on January 10, 2006, he filed a complaint for illegal dismissal with prayer for the payment of separation benefits against [the Company]… in San Pablo City, Laguna…

⦁ For its part, [the Company] denied [the Complainant’s] claims, alleging that he was employed only as a laborer who, however, sometimes doubled as a guard. As laborer, [the Complainant’s] duty was to bring construction materials from the suppliers’ vehicles to the company warehouse when there is a construction project in Cavite. As evidenced by an Establishment Termination Report dated December 28, 2005 which [the Company] previously submitted before the Department of Labor and Employment (DOLE), [the Complainant] was, however, temporarily laid-off on December 27, 2005 after the Cavite project was finished. Eventually, [the Complainant] was asked to return to work through a letter dated June 5, 2006 (return to work order), allegedly sent to him within the six ( 6) month period under Article 286 of the Labor Code which pertinently provides that “[t]he bona-fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months x x x shall not terminate employment.” As such, Irvine argued that [the Complainant] filing of the complaint for illegal dismissal was premature.

[Resolution: The employee was illegally dismissed.]

⦁ [I]n the case of Mobile Protective & Detective Agency v. Ompad, the Court found that the security guards therein were constructively dismissed considering that their employer was not able to show any dire exigency justifying the latter’s failure to give said employees any further assignment, viz.:

[Article 286 of the Labor Code] has been applied by analogy to security guards in a security agency who are placed “off detail” or on “floating” status. In security agency parlance, to be placed “off detail” or on “floating” status means “waiting to be posted.” Pursuant to Article 286 of the Labor Code, to be put off detail or in floating status requires no less than the dire exigency of the employer’s bona fide suspension of operation, business or undertaking. In security services, this happens when there is a surplus of security guards over available assignments as when the clients that do not renew their contracts with the security agency are more than those clients that do and the new ones that the agency gets.

Again, petitioners only alleged that respondent’s last assignment was with VVCC for the period of September 29 to October 31, 1997.  He was not given further assignment as he allegedly went on AWOL and lost interest to work. As explained, these claims are unconvincing. Worse still, they are inadequate under the law. The records do not show that there was a lack of available post after October 1997. It appears that petitioners simply stopped giving respondent any assignment. Absent any dire exigency justifying their failure to give respondent further assignment, the only logical conclusion is that respondent was constructively dismissed….

⦁ The same can be said of the employee in this case as no evidence was submitted by [the Company] to show any dire exigency which rendered it incapable of assigning Lopez to any of its projects. Add to this the fact that [the Company] did not proffer any sufficient justification for singling out Lopez for lay-off among its other three hundred employees, thereby casting a cloud of doubt on [the Company’s] good faith in pursuing this course of action. Verily, [the Company] cannot conveniently suspend the work of any of its employees in the guise of a temporary lay-off when it has not shown compliance with the legal parameters under Article 286 of the Labor Code. With [the Company] failing to prove such compliance, the resulting legal conclusion is that Lopez had been constructively dismissed; and since the same was effected without any valid cause and due process, the NLRC properly affirmed the LA’s ruling that [the Complainant’s] dismissal was illegal.

4. Suspension: in whole or in part

The temporary work suspension may be in whole (affecting the entire business) or in part only (a section or aspect of the business). Otherwise stated, the bona fide suspension of business operations or undertaking may affect the entire Company or just a section thereof – provided, of course, that there is economic or legitimate business reasons.

a. Entire business

In many cases, it is the entire business that is placed under temporary work suspension, particularly if the Company cannot continue operation due to an economic or business reason. For instance, in factories or plants that require raw materials, they tend to shut down for several months if they are unable to receive raw materials from their suppliers due to logistical reasons. That being case, there is no reason for the Company to operate during these months and thus the management is forced to temporarily suspend work.

b. Specific part of the business

There are cases, however, where only a specific part of the business is affected by a bona fide suspension of work. For example, in the case below, the bus company was forced to place a driver of a bus that was being fixed under temporary work suspension. Thus, the bus route/line traversed by the said bus was non-operational. However, other bus routes/lines continued operations as their buses were fully functional.

Valdez v. NLRC, G.R. No. 125028, 09 February 1998

[Background]

⦁ [The employee was a bus driver. The employer-Company was engaged in the bus transport business.]

⦁ On February 28, 1993, the airconditioning unit of the bus which [the Complainant] was driving suffered a mechanical breakdown. [the Company] told him to wait until the airconditioning unit was repaired. Meanwhile, no other bus was assigned to [the Complainant] to keep him gainfully employed.

⦁ Thereafter, [the Complainant] continued reporting to his employer’s office for work, only to find out each time that the airconditioning unit had not been repaired. Several months elapsed but he was never called by [the Company] to report for work. Later, [the Complainant] found out that the bus formerly driven by him was plying an assigned route as an ordinary bus, with a newly-hired driver.

[Resolution: The employee was constructively dismissed.]

⦁ Under Article 286 of the Labor Code, the bona fide suspension of the operation of a business or undertaking for a period not exceeding six months shall not terminate employment. Consequently, when the bona fide suspension of the operation of a business or undertaking exceeds six months, then the employment of the employee shall be deemed terminated. By the same token and applying said rule by analogy, if the employee was forced to remain without work or assignment for a period exceeding six months, then he is in effect constructively dismissed.

⦁ In the instant case, the reason for the stoppage of operation of the bus assigned to [the Complainant] was the breakdown of the airconditioning unit, which is a valid reason for the suspension of its operation. However, such suspension regarding that particular bus should likewise last only for a reasonable period of time. The defect in the airconditioning unit could have been easily remedied by [the Company]. The period of six months was more than enough for it to cause the repair thereof. Beyond that period, the stoppage of its operation was already legally unreasonable and economically prejudicial to herein [the Complainant] who was not given a substitute vehicle to drive.

⦁ The so-called “floating status” of an employee should last only for a legally prescribed period of time. When that “floating status” of an employee lasts for more than six months, he may be considered to have been illegally dismissed from the service. Thus, he is entitled to the corresponding benefits for his separation, and this would apply to the two types of work suspension heretofore noted, that is, either of the entire business or of a specific component thereof.

5. 6-Month Limitation

Article 286 of the Labor Code allows the bona fide suspension of operations for a period not exceeding six (6) months.  During the suspension, an employee is not deemed terminated.  As a matter of fact, the employee is entitled to be reinstated once the employer resumes operations within the 6-month period. However, Article 286 is silent with respect to the rights of the employee if the suspension of operations lasts for more than 6 months. (Manila Mining Corp. Employees Association-Federation of Free Workers Chapter v. Manila Mining Corp., G.R. Nos. 178222-23, 29 September 2010)

Through jurisprudence or Supreme Court decisions, the gap in the law with respect to what will happen if the employee’s suspension exceeds the 6-month limitation, has been addressed. As discussed below, the employee will be deemed constructively dismissed if the employer does not take any action on/before the end of the 6-month limitation.

To summarize, the employer should exercise either one of the following options on/before the last day of the 6-month period:

1) Recall the employees; or

2) Permanent lay-off the employees and pay separation pay.

If the employer does not take any action, and the employee remains/continues with the suspension of work, then such employee will be deemed to have been constructively dismissed.

a. Recall

Employees who are placed under temporary work suspension – remain and are still employees of the employer. Thus, the employer may recall them back to work via a return-to-work order.

If the employee do not report for work after a series of orders to return to work, the employee may be considered to have abandoned his/her work which may constitute a just cause and thereby initiate due process termination.

On the other hand, an employee may have found gainful employment during the suspension. If this is the case, the employee has the option to stay with his current employer and thus resign from his previous employer who placed him under temporary work suspension, or leave his current employer and resume his work with the previous employer.

b. Permanently Lay-Off

In some cases, the employer is unable to improve the situation or circumstances of the business during the temporary work suspension. If this is the case, the employer may choose to convert the temporary lay-off into a permanent lay-off.

If the employer chooses permanent lay-off, the employer will be required to pay separation pay following the computation for retrenchment.

c. Constructive dismissal if no action

If the employer does not take any action after the 6-month period, the employees are deemed to have been constructively dismissed from their employment.

[Under Article 301 of the Labor Code], it is clear that when the bona fide suspension of the operation of a business or undertaking exceeds six (6) months then the employment of the employee shall be deemed terminated. (International Hardware, Inc. v. NLRC, G.R. No. 80770, 10 August 1989)

Agro Commercial Security Services Agency, Inc. v. NLRC, G.R. Nos. 82823-24, 31 July 1989

[BACKGROUND]

⦁ [The case involved security guards who were placed on floating status for a period exceeding six months after their last assignment.]

[RESOLUTION]

⦁ As regards the other seventeen (17) private respondents, they admittedly remained in “floating status” for more than six (6) months. Such a “floating status” is not unusual for security guards employed in security agencies as their assignments primarily depend on the contracts entered into by the agency with third parties. Such a stipulated status is, therefore, lawful.

⦁ The “floating status” of such an employee should last only for a reasonable time. In this case, respondent labor arbiter correctly held that when the “floating status” of said employees lasts for more than six (6) months, they may be considered to have been illegally dismissed from the service. Thus, they are entitled to the corresponding benefits for their separation.

6. Gainful employment

During the temporary work suspension, it is reasonable to expect employees to find employment elsewhere in order to have a source of livelihood considering that they will not be paid during the said period following the no work, no pay principle. This gains more significance if the affected employees are sole breadwinners in their families.

However, in one case, employees who find gainful employment elsewhere during the temporary work suspension were considered to have “severed their relations” wit their employer. Thus:

JPL Marketing Promotions v. CA, G.R. No. 151966, 08 July 2005

[BACKGROUND

⦁ [The complainant were merchandisers. The employer-Company was engaged in the business of recruitment and placement of workers.]

⦁ On 13 August 1996, [the Company] notified [the Complainants] that [its client] CMC would stop its direct merchandising activity in the Bicol Region, Isabela, and Cagayan Valley effective 15 August 1996.3 They were advised to wait for further notice as they would be transferred to other clients. However, on 17 October 1996,4 [the Complainants] Abesa and Gonzales filed… complaints for illegal dismissal… Aninipot filed a similar case thereafter.

[RESOLUTION: The complaint was dismissed.]

⦁ The common denominator of the instances where payment of separation pay is warranted is that the employee was dismissed by the employer. In the instant case, there was no dismissal to speak of. [The Complainants] were simply not dismissed at all, whether legally or illegally. What they received from [the Company] was not a notice of termination of employment, but a memo informing them of the termination of CMC’s contract with [the Company]. More importantly, they were advised that they were to be reassigned. At that time, there was no severance of employment to speak of.

⦁ Furthermore, Art. 286 of the Labor Code allows the bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, wherein an employee/employees are placed on the so-called “floating status.” When that “floating status” of an employee lasts for more than six months, he may be considered to have been illegally dismissed from the service. Thus, he is entitled to the corresponding benefits for his separation, and this would apply to suspension either of the entire business or of a specific component thereof.

⦁ As clearly borne out by the records of this case, [the Complainants] sought employment from other establishments even before the expiration of the six (6)-month period provided by law. As they admitted in their comment, all three of them applied for and were employed by another establishment after they received the notice from [the Company]. [The Company] did not terminate their employment; they themselves severed their relations with [the Company]. Thus, they are not entitled to separation pay.

⦁ The Court is not inclined in this case to award separation pay even on the ground of compassionate justice. The Court of Appeals relied on the cases wherein the Court awarded separation pay to legally dismissed employees on the grounds of equity and social consideration. Said cases involved employees who were actually dismissed by their employers, whether for cause or not. Clearly, the principle applies only when the employee is dismissed by the employer, which is not the case in this instance. In seeking and obtaining employment elsewhere, [the Complainants] effectively terminated their employment with [the Company].

Author’s Note: It is submitted that employees should not be penalized for looking for employment elsewhere during the temporary work suspension as it is expected that they will do so in order to put food on the table. Many of these employees are breadwinners of their respective families. The better framework would be to allow the employees to find gainful employment during the temporary work suspension. Once they are recalled via a return to work order, it would be the employee’s prerogative to return back to their previous work or tender their resignation if they prefer to stay with their current job.

7. Burden of proof: on employer

[T]he burden of proving, with sufficient and convincing evidence, that said closure or suspension is bona fide falls upon the employer. (Innodata Knowledge Services, Inc. v. Inting, supra.)

Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017

⦁ [T]he burden of proving, with sufficient and convincing evidence, that said closure or suspension is bona fide falls upon the employer. In the instant case, [the Company] claims that its act of placing [the Complainants] on forced leave after a decrease in work volume, subject to recall upon availability of work, was a valid exercise of its right to lay-off, as an essential component of its management prerogatives. The Court agrees with the LA’s pronouncement that requiring employees on forced leave is one of the cost-saving measures adopted by the management in order to prevent further losses. However, [the Company] failed to discharge the burden of proof vested upon it. Having the right should not be confused with the manner in which that right is exercised; the employer cannot use it as a subterfuge to run afoul of the employees’ guaranteed right to security of tenure. The records are bereft of any evidence of actual suspension of [the Company]’s business operations or even of the ACT Project alone. In fact, while [the Company] cited Article 301 to support the temporary lay-off of its employees, it never alleged that it had actually suspended the subject undertaking to justify such lay-off. It merely indicated changes in business conditions and client requirements and specifications as its basis for the implemented forced leave/lay-off.

a. No available temporary posts

Due to the grim economic consequences to the employee, case law states that the employer should also bear the burden of proving that there are no posts available to which the employee temporarily out of work can be assigned. (Lopez v. Irvine Construction Corp., G.R. No. 207253, 20 August 2014)

References

Book VI, Presidential Decree No. 442, a.k.a. Labor Code of the Philippines

Book VI, Omnibus Rules Implementing the Labor Code

/Updated: January 4, 2023

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