Closure or Cessation of Business
1. Concept
(c) “Closure or Cessation of Business” refers to the complete or partial cessation of the operations and/or shut-down of the establishment of the employer. (DOLE DEPARTMENT ORDER NO. 147, SERIES OF 2015, Rule I-A, Section 4)
Closure of a business or undertaking due to business losses is the reversal of fortune of the employer whereby there is a complete cessation of business operations to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc., G.R. No. 172846, 24 July 2013)
Closure of business may be considered as a reversal of an employer’s fortune whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of the establishment, usually due to financial losses. (Benson Industries Employees Union-ALU-TUCP v. Benson Industries, Inc., G.R. No. 200746, 06 August 2014)
Closure of business, as an authorized cause for termination of employment, aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. (Zambrano v. Philippine Carpet Manufacturing Corporation, G.R. No. 224099, June 21, 2017, Per Mendoza, J.)
a. Legal basis
1) Labor Code
Art. 283. [DOLE Renumbered: 298] Closure of establishment and reduction of personnel. – The employer may also terminate the employment of any employee due to the x x x closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. x x x in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (PRESIDENTIAL DECREE NO. 442, a.k.a. LABOR CODE OF THE PHILIPPINES)
2) Omnibus Rules Implementing the Labor Code
Where the termination of employment is due to x x x closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, x x x the employee shall be entitled to termination pay equivalent to at least one-half month’s pay for every year of service, a fraction of at least six months being considered as one whole year. (Section 9[b], Title I, Book 6, Omnibus Rules Implementing the Labor Code)
3) DOLE Department Order No. 147, Series of 2015
DOLE Department Order No. 147, Series of 2015, reiterates closure or cessation of operations as an authorized for separating an employee under Section 5.4(d), Rule I-A.
b. Management prerogative
One of the prerogatives of management is the decision to close the entire establishment or to close or abolish a department or section thereof for economic reasons, such as to minimize expenses and reduce capitalization. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
In fine, management’s exercise of its prerogative to close a section, branch, department, plant or shop will be upheld as long as it is done in good faith to advance the employer’s interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
The decision to close one’s business is a management prerogative that courts cannot interfere with. Employers can “lawfully close shop at anytime,” even for reasons of their own. “Just as no law forces anyone to go into business, no law can compel anybody to continue in it.” (G.J.T. Rebuilders Machine Shop v. Ambos, G.R. No. 174184, 28 January 2015)
c. Authorized cause
Article 283 of the Labor Code allows an employer to dismiss an employee due to the cessation of operation or closure of its establishment or undertaking. (G.J.T. Rebuilders Machine Shop v. Ambos [2015])
Under the Labor Code, closure of business is treated as an authorized cause for termination, aimed at preventing further financial drain upon an employer who cannot anymore pay its employees since business has already stopped. As a form of recompense, the employer is required to pay its employees separation benefits, except when the closure is due to serious business losses under. Article 297 (formerly Article 283) of the Labor Code, as amended. (Benson Industries Employees Union-ALU-TUCP v. Benson Industries, Inc. [2014], supra.)
d. Jurisprudential Guidelines
The following are the guidelines laid down by the Supreme Court:
1) Closure or cessation of operations of establishment or undertaking may either be partial or total.
2) Closure or cessation of operations of establishment or undertaking may or may not be due to serious business losses or financial reverses. However, in both instances, proof must be shown that: (a) it was done in good faith to advance the employer’s interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement; and (b) a written notice on the affected employees and the DOLE is served at least one month before the intended date of termination of employment.
3) The employer can lawfully close shop even if not due to serious business losses or financial reverses but separation pay, which is equivalent to at least one month pay as provided for by Article 283 of the Labor Code, as amended, must be given to all the affected employees.
4) If the closure or cessation of operations of establishment or undertaking is due to serious business losses or financial reverses, the employer must prove such allegation in order to avoid the payment of separation pay. Otherwise, the affected employees are entitled to separation pay.
5) The burden of proving compliance with all the above-stated falls upon the employer. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
1) Partial or total
Closure or cessation of business is the complete or partial cessation of the operations and/or shut-down of the establishment of the employer. It is carried out to either stave off the financial ruin or promote the business interest of the employer. (Eastridge Gold Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super, G.R. No. 166760, August 22, 2008, Per Austria-Martinez, J.)
A reading of [Article 283 of the Labor Code) shows that a partial or total closure or cessation of operations of establishment or undertaking may either be due to serious business losses or financial reverses or otherwise. Under the first kind, the employer must sufficiently and convincingly prove its allegation of substantial losses, while under the second kind, the employer can lawfully close shop anytime as long as cessation of or withdrawal from business operations was bona fide in character and not impelled by a motive to defeat or circumvent the tenurial rights of employees, and as long as he pays his employees their termination pay in the amount corresponding to their length of service. Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would be stretching the intent and spirit of the law if a court interferes with management’s prerogative to close or cease its business operations just because the business is not suffering from any loss or because of the desire to provide the workers continued employment. (Industrial Timber Corporation v. Ababon, G.R. No. 164518, January 25, 2006, Per Ynares-Santiago, J.)
The closure of operation of an establishment or undertaking not due to serious business losses or financial reverses includes both the complete cessation of operations and the cessation of only part of a company’s activities. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
2) Serious financial losses or not
Unlike retrenchment, closure or cessation of business, as an authorized cause of termination of employment, need not depend for validity on evidence of actual or imminent reversal of the employer’s fortune. Article 283 authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. (Eastridge Golf Club, Inc. v. Eastridge Gold Club. Inc. Labor Union-Super, G.R. No. 166760, August 22, 2008, Per Austria-Martinez, J.)
Zambrano v. Philippine Carpet Manufacturing Corporation, G.R. No. 224099, June 21, 2017, Per Mendoza, J.:
• Phil Carpet continuously incurred losses starting 2007, as shown by the Audited Financial Statements which were offered in evidence by the petitioners themselves. The petitioners, in claiming that Phil Carpet continued to earn profit in 2011 and 2012, disregarded the reason for such income, which was Phil Carpet’s act of selling its remaining inventories. Notwithstanding such income, Phil Carpet continued to incur total comprehensive losses in the amounts of 9,559,716 and 12,768,277 for the years 2011 and 2012, respectively.
• [E]ven if the [employees] refuse to consider these losses as serious enough to warrant Phil Carpet’s total and permanent closure, it was a business judgment on the part of the company’s owners and stockholders to cease operations, a judgment which the Court has no business interfering with. The only limitation provided by law is that the closure must be “bona fide in character and not impelled by a motive to defeat or circumvent the tenurial rights of employees.” Thus, when an employer complies with the foregoing conditions, the Court cannot prohibit closure “just because the business is not suffering from any loss or because of the desire to provide the workers continued employment.”
a) Regardless of underlying reasons
Unlike retrenchment, closure or cessation of business, as an authorized cause of termination of employment, need not depend for validity on evidence of actual or imminent reversal of the employer’s fortune. Article 283 authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. (Eastridge Gold Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super [2008], supra.)
3) Separation pay
5.5 Payment of Separation Pay. Separation pay shall be paid by the employer to an employee terminated due to x x x closure or cessation of operations not due to serious business losses or financial reverses x x x.
x x x
An employee terminated due to closure or cessation of business operation not due to serious business losses shall be paid by the employer a separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher, a fraction of six (6) months service is considered as one (1) whole year. Where closure is due to serious business losses or financial reverses, no separation pay is required. (DOLE DO-147, Rule I-A)
a) When due
Despite this management prerogative, employers closing their businesses must pay the affected workers separation pay equivalent to one-month pay or to at least one-half-month pay for every year of service, whichever is higher. The reason is that an employee dismissed, even for an authorized cause, loses his or her means of livelihood. (G.J.T. Rebuilders Machine Shop v. Ambos, supra.)
Closure of business, as an authorized cause for termination of employment, aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. In such a case, the employer is generally required to give separation benefits to its employees, unless the closure is due to serious business losses. (Zambrano v. Philippine Carpet Manufacturing Corporation, G.R. No. 224099, 21 June 2017)
b) When not due
The Labor Code does not obligate the employer for the payment thereof if there is closure of business due to serious losses. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
The only time employers are not compelled to pay separation pay is when they closed their establishments or undertaking due to serious business losses or financial reverses. (G.J.T. Rebuilders Machine Shop v. Ambos [2015], supra.)
Serious business losses are substantial losses, not de minimis. “Losses” means that the business must have operated at a loss for a period of time for the employer “to [have] perceived objectively and in good faith” that the business’ financial standing is unlikely to improve in the future. (G.J.T. Rebuilders Machine Shop v. Ambos [2015], supra.)
i. Unless otherwise stipulated
When the obligation to pay separation benefits, however, is not sourced from law (particularly, Article297 of the Labor Code), but from contract, such as an existing collective bargaining agreement between the employer and its employees, an examination of the latter’s provisions becomes necessary in order to determine the governing parameters for the said obligation. To reiterate, an employer which closes shop due to serious business losses is exempt from paying separation benefits under Article 297 of the Labor Code for the reason that the said provision explicitly requires the same only when the closure is not due to serious business losses; conversely, the obligation is maintained when the employer’s closure is not due to serious business losses. For a similar exemption to obtain against a contract, such as a CBA, the tenor of the parties’ agreement ought to be similar to the law’s tenor. When the parties, however, agree to deviate therefrom, and unqualifiedly covenant the payment of separation benefits irrespective of the employer’s financial position, then the obligatory force of that contract prevails and its terms should be carried out to its full effect. Verily, it is fundamental that obligations arising from contracts have the force of law between the contracting parties and thus should be complied with in good faith;24 and parties are bound by the stipulations, clauses, terms and conditions they have agreed to, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Hence, if the terms of a CBA are clear and there is no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. (Ibid.)
4) Proof of serious financial losses to avoid separation pay
While serious business losses generally exempt the employer from paying separation benefits, it must be pointed that the exemption only pertains to the obligation of the employer under Article 297 of the Labor Code. This is because of the law’s express parameter that mandates payment of separation benefits “in case of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses.” The policy distinction underlying Article 297 – that is, the distinction between closures due to serious business losses and those which are not. (Benson Industries Employees Union-ALU-TUCP v. Benson Industries, Inc. [2014], supra.)
5) Burden of proof: on employer
In termination cases… by… closure, the burden of proving that the termination of services is for a valid or authorized cause rests upon the employer. (Sanoh Fulton Phils., Inc. v. Bernardo, G.R. No. 187214, August 14, 2013, Per Perez, J.)
Sanoh Fulton Phils., Inc. v. Bernardo, G.R. No. 187214, August 14, 2013, Per Perez, J.:
• Sanoh… argue[s] that it did not even have to prove business losses when it decided to close down the Wire Condenser Department because the law recognizes the right of management to cease business operations. As already stated, the burden of proving that the closure was bona fide, rests upon the employer. Sanoh made a categorical statement that the Wire Condenser Department was totally closed. The documentary evidence presented by respondents, however, negate Sanoh’s statement. In other words, Sanoh lacked bona fides even in its assertion that Wire Condenser Department had closed down. Respondents disclose that this department had gone full blast in its operations, even with substantial overtime operations immediately after their dismissal was effected. Moreover, respondents assert that Sanoh still hired employees after the so-called retrenchment.
• Respondents submitted the time sheets of the Wire Condenser Department for the months of January up to July 2004 which showed that some of the employees had been rendering overtime work after retrenchment was effected presumably to compensate the lack of manpower in that department.
• As the Wire Condenser Department is still in operation and no business losses were proven by Sanoh, the dismissal of respondents was unlawful.
2. Jurisprudential Requisites
[U]nder Article 283 of the Labor Code, three requirements are necessary for a valid cessation of business operations:
1) Service of a written notice to the employees and to the DOLE at least one month before the intended date thereof;
2) The cessation of business must be bona fide in character; and,
3) Payment to the employees of termination pay amounting to one month pay or at least one-half month pay for every year of service, whichever is higher. (Manila Polo Club Employees’ Union [MPCEU] FUR-TUCP v. Manila Polo Club, Inc. [2013], supra.)
a. 30-day advance written notice
The required written notice under Article 283 of the Labor Code is to inform the employees of the specific date of termination or closure of business operations, and must be served upon them at least one (1) month before the date of effectivity to give them sufficient time to make the necessary arrangements. The purpose of this requirement is to give employees time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the veracity of the alleged cause of termination. (PNCC Skyway Corporation [PSC] v. The Secretary of Labor & Employment, G.R. No. 196110, 06 February 2017)
Notice of the eventual closure of establishment is a “personal right of the employee to be personally informed of his [or her] proposed dismissal as well as the reasons therefor.” The reason for this requirement is to “give the employee some time to prepare for the eventual loss of his [or her] job.” (G.J.T. Rebuilders Machine Shop v. Ambos, supra.)
1) Consequence for non-compliance
The failure to notify the respondents in writing of the closure of the company will not invalidate the termination of their employment, but the company has to pay them nominal damages for the violation of their right to procedural due process. (Navotas Shipyard Corporation v. Montallana, G.R. No. 190053, 24 March 2014)
The requirement “is not a mere technicality or formality which the employer may dispense with.” Should employers fail to properly notify their employees, they shall be liable for nominal damages even if they validly closed their businesses. (G.J.T. Rebuilders Machine Shop v. Ambos [2015], supra.)
Generally, employers that validly closed their businesses but failed to comply with the notice requirement are liable in the amount of 50,000.00. This amount of nominal damages, however, may be reduced depending on “the sound discretion of the court.” (G.J.T. Rebuilders Machine Shop v. Ambos [2015], supra.)
In the determination of the amount of nominal damages which is addressed to the sound discretion of the court, several factors are taken into account:
1) The authorized cause invoked;
2) The number of employees to be awarded;
3) The capacity of the employers to satisfy the awards, taking into account their prevailing financial status as borne by the records;
4) The employer’s grant of other termination benefits in favor of the employees; and,
5) Whether there was bona fide attempt to comply with the notice requirements as opposed to giving no notice at all. (Sangwoo Philippines, Inc. v. Sangwoo Philippines, Inc. Employees Union-OLALIA, G.R. No. 173154, 09 December 2013)
2) Conferring with employees, not a notice
“Conferring with employees” is not the notice required under Article 283 of the Labor Code. The law requires a written notice of closure served on the affected employees. As to when the written notice should be served on the Department of Labor and Employment, the law requires that it be served at least one month before the intended date of closure. (Sangwoo Philippines, Inc. v. Sangwoo Philippines, Inc. Employees Union-OLALIA [2013])
3) Payment of salaries, actual knowledge of possible reason for closure
The payment of employees’ salaries for the said one-month period or the employees’ alleged actual knowledge of the amendment of a contract resulting in the closure is sufficient to replace the formal and written notice required by the law. (PNCC Skyway Corporation [PSC] v. The Secretary of Labor & Employment, G.R. No. 196110, 06 February 2017)
b. Bona fide cessation of business
Article 298 of the Labor Code explicitly sanctions terminations due to the employer’s cessation of business or operations-as long as the cessation is bona fide or is not made “’for the purpose of circumventing the [employees’ right to security of tenure].” (Veterans Federation of the Philippines v. Montenejo, G.R. No. 184819, 29 November 2017)
For any bona fide reason, an employer can lawfully close shop anytime. Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would be stretching the intent and spirit of the law if a court interferes with management’s prerogative to close or cease its business operations just because the business is not suffering from any loss or because of the desire to provide the workers continued employment. (Alabang Country Club, Inc. v. NLRC, G.R. No. 157611, 09 August 2005)
[I]n termination, the law authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. However, to put a stamp to its validity, the closure/cessation of business must be bona fide, i.e., its purpose is to advance the interest of the employer and not to defeat or circumvent the rights of employees under the law or a valid agreement. (Sanoh Fulton Phils. Inc. v. Bernardo, G.R. No. 187214, August 14, 2013, Per Perez, J.)
Eastridge Golf Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super, G.R. No. 166760, August 22, 2008, Per Austra-Martinez, J.:
• The evidence presented by respondents overwhelmingly shows that petitioner did not cease its F&B operations but merely simulated its transfer to the concessionaire. The payslips alone, the authenticity of which petitioner did not dispute, bear the name of petitioner’s Eastridge Golf Club, Food and Beverage Department. The payroll register for the Food and Beverage Department is verified correct by petitioner’s Chief Accountant, Nestor Rubis.[68] The Philhealth and Social Security System (SSS) remittance documents are likewise certified correct by the same Chief Accountant. These pieces of documentary evidence convincingly, even conclusively, establish that petitioner remained the employer of the F&B staff even after the October 1, 1999 alleged take-over by the concessionaire.
• Even petitioner’s own evidence adds weight to respondents’ evidence. The quitclaims and release forms which petitioner required respondents to sign at the time of the alleged cessation of petitioner’s F&B operations all bear the signature of its Chief Accountant. It was that same Chief Accountant who certified and verified as correct the payroll register and Philhealth/SSS remittance documents issued many months after the alleged cessation of the F&B operations.
• Moreover, the documents which petitioner attached to prove that the concessionaire took over the F&B operations are of doubtful veracity. For one, the October 1, 1999 Agreement (Food & Beverages Concessionaire) with Mother’s Choice Meat Shop & Food Services is not notarized, which is an unusual omission by a business entity such as petitioner. It is also curious that the Certificate of Registration of Business Name as well as the Mayor’s Permit are all in the name of Bilibiran Food Services, not Mother’s Choice Meat Shop & Food Services.
• There is no doubt, therefore, that the CA was correct in ruling that the cessation of petitioner’s F&B operations and transfer to the concessionaire were a mere subterfuge, and that the dismissal of respondents by reason thereof was illegal.
See: Original Decision | Case Digest
1) Bad faith
It should be borne in mind that where the closure of business is found to be in bad faith, the dismissal of the employees shall be declared illegal and the employer held liable for their reinstatement and payment of full backwages, unless reinstatement is no longer feasible in which case the employer shall be liable for full backwages as well as separation pay at the rate of one month salary for every year of service, with a fraction of at least six months being considered as one year. (Eastridge Golf Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super, G.R. No. 166760, August 22, 2008, Per Austria-Martinez, J.)
If the closure of business due to serious business losses or financial reverses is shown to be in good faith, the resultant dismissal of the employees shall be upheld, with no separation benefits due them. If the closure of business is not due to serious business losses or financial reverses but it is shown to be in good faith, the resultant dismissal of the employees will still be upheld but the latter shall be entitled to separation pay at the rate of ½ month pay for every year of service or one month pay, whichever is higher. (Eastridge Golf Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super [2008], supra.)
c. Separation pay
See above for discussions.
3. DOLE Standards
To be a valid ground for termination, the following must be present.
1. There must be a decision to close or cease operation of the enterprise by the management;
2. The decision was made in good faith; and
3. There is no other option available to the employer except to close or cease operations. (DOLE DEPARTMENT ORDER NO. 147, SERIES OF 2015, Rule I-A, Section 4[d])
a. Decision to close or cease operation
Industrial Timber Corporation v. Ababon, G.R. Nos. 164518 and 164965, January 25, 2006, Per Ynares-Santiago, J.:
• In these consolidated cases, we find that ITC’s closure or cessation of business was done in good faith and for valid reasons.
• The records reveal that the decision to permanently close business operations was arrived at after a suspension of operation for several months precipitated by lack of raw materials used for milling operations, the expiration of the anti-pollution permit in April 1990, and the termination of the lease contract with IPGC in August 1990 over the plywood plant at Agusan, Pequeño, Butuan City. We quote with approval the observation of the Labor Arbiter:
• As borne out from the records, respondent ITC actually underwent ‘no plant operation’ since 19 March 1990 due to lack of log supply. This fact is admitted by complainants (Minutes of hearing, 28 October 1991). Since then several subsequent incidents prevented respondent ITC to resume its business operations e.g. expiration and non-renewal of the wood processing plant permit, anti-pollution permit, and the lease contract on the plywood plant. Without the raw materials respondent ITC has nothing to produce. Without the permits it cannot lawfully operate the plant. And without the contract of lease respondent ITC has no option but to cease operation and turn over the plant to the lessor.
• Moreover, the lack of raw materials used for milling operations was affirmed in Industrial Timber Corporation v. National Labor Relations Commission as one of the reasons for the valid closure of ITC’s Butuan Logs Plant in 1989. In said case, we upheld the management prerogative to close the plant as the only remedy available in order to prevent imminent heavy losses on account of high production costs, erratic supply of raw materials, depressed prices and poor market conditions for its wood products.
• In Shoppers Gain Supermarket v. National Labor Relations Commission, we held that the non-renewal of petitioner corporation’s lease contract and its consequent closure and cessation of operations may be considered an event beyond petitioner’s control, in the nature of a force majeure situation. As such, it amounts to an authorized cause for termination of the private respondents.
• Having established that ITC’s closure of the plywood plant was done in good faith and that it was due to causes beyond its control, the conclusion is inevitable that said closure is valid. Consequently, Ababon, et al. could not have been illegally dismissed to be entitled to full backwages.
b. Good faith
See above discussion on bona fide.
c. No other option available to employer
| Editor’s Note: Installation of labor-saving devices is a management prerogative. Otherwise stated, the decision to install labor-saving device does not have to be based on any condition precedent that would constrain the employer implement labor-saving devices. Thus, this standard under DOLE DO-147 requiring an employer to have “no other operation available o the employer than the introduction of machinery, equipment or device” is not supported by law and jurisprudence. It is respectfully submitted DOLE re-evaluate having this standard. DOLE DO-147 cites Philippine Sheet Metal Workers’ Union (CLO) v. Court of Industrial Relations, En Banc, G.R. No. L-2028, April 28, 1949; however, there is no such standard required under that case as, in fact, it acknowledged that labor-saving device is valid exercise of the employer’s rights. See case digest below. |
Philippine Sheet Metal Workers’ Union (CLO) v. Court of Industrial Relations, En Banc, G.R. No. L-2028, April 28, 1949, Per Reyes, J.:
• It appearing that there has been fair hearing and that there is ample evidence to support the conclusions of fact of the lower court, we would have no grounds for interfering with those conclusions. And these make it clear that there was real justification for reducing the number of workers in respondent company’s factory, such a measure having been made necessary by the introduction of machinery in the manufacture of its products, and that the company cannot be charged with discrimination in recommendating the dismissal of the fifteen laborers named in the above list since their selection was made by a committee composed of both officers and employees who took no account of the laborers’ affiliation to the unions and only considered their proven record.
• There can be no question as to the right of the manufacturer to use new labor-saying devices with a view to effecting more economy and efficiency in its method of production.
• The right to reduce personnel should, of course, not be abused. It should not be made a pretext for easing out laborers on account of their union activities. But neither should it be denied when it is shows that they are not discharging their duties in a manner consistent with good discipline and the efficient operation of an industrial enterprise.
La compañia tiene derecho de despedir a sus empleados u obreros. Si bien este derecho esta sujeto a la regulacion del Estado, en su normal ejercicio no se inmiscuye la ley. El patrono paga el jornal de sus obreros por su trabajo, y es logico y justo que el mismo tenga derecho a esperar de los mismos lealtad y fiel cumplimiento de sus obligaciones. No es el proposito de la ley obligar al principal a retener en su servicio a un obrero cuando no recibe de este trabajo adecuado, deligencia (diligencia) y buen comportamiento, o cuando su continuacion en el empleo es claramente opuesta a los intereses de su patrono, porque la ley al proteger los derechos del obrero no autoriza la opresion ni la destruccion del principal.
[Unofficial translation via Google Translate: The company has the right to dismiss its employees or workers. While this right is subject to state regulation, the law does not interfere with its normal exercise. The employer pays the wages of its workers for their labor, and it is logical and fair that the employer has the right to expect loyalty and faithful fulfillment of their obligations. It is not the purpose of the law to compel the employer to retain a worker in its service when it does not receive adequate work, diligence, and good conduct from that worker, or when its continued employment is clearly contrary to the employer’s interests, because the law, in protecting the rights of the worker, does not authorize the oppression or destruction of the employer.]
4. Due Process
For the authorized cause of closure or cessation of business operations, due process requires observance of the following:
1) Authorized cause: closure or cessation of business operations; and
2) Authorized cause procedure.
a. Authorized cause
The authorized cause of disease should be actual and/or duly established or proven. It should not be hypothetical or speculative.
1) No proof of financial loss required
Just like installation of labor-saving devices, the ground of redundancy does not require the exhibition of proof of losses or imminent losses. In fact, of all the statutory grounds provided in Article 283 of the Labor Code, it is only retrenchment which requires proof of losses or possible losses as justification for termination of employment. (Coats Manila Bay, Inc. v. Ortega, G.R. No. 172628, February 13, 2009, Per Tinga, J.)
b. Authorized cause procedure
If there is a good faith legitimate business reason for closure or cessation of business operations, the employer is required to comply with authorized cause procedure to comply with the due process requirements.
NB: Employees who are severed from employment due to an authorized cause is entitled to separation pay.
More: Authorized Cause Procedure | Separation Pay
c. Non-compliance of due process
Non-compliance with the authorized cause procedure requirements results in:
1) A defective termination; and
2) Nominal damages against the employer.
More: Authorized Cause Procedure
5. Burden of proof: on employer
The burden of proving compliance with these requisites is on the employer. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, 03 December 2014)
The burden is on the employer to prove by substantial evidence the factual and legal basis for the dismissal of its employees… (Abbott Laboratories [Philippines], Inc. v. Torralba, supra.)
The burden of proving the validity of the dismissal rests on the employer. As such, the employer must prove that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the required certification by a competent public health authority, this Court has ruled against the validity of the employee’s dismissal. (Manly Express Inc. v. Payong, Jr., G.R. No. 167462, 25 October 2005)
6. Distinguished
NB: Distinguishing authorized causes from each other is critical for purposes of computing separation pay.
a. Closure of business v. Retrenchment
Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is sometimes also referred to as down-sizing. Retrenchment is an authorized cause for termination of employment which the law accords an employer who is not making good in its operations in order to cut back on expenses for salaries and wages by laying off some employees. The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing. (J.A.T. General Services v. NLRC, G.R. No. 148340, January 26, 2004, Per Quisumbing, J.)
