Lay-off and recall of employees are included in the employer’s management prerogative. Lay-off may be temporary or permanent.Recall of employees apply only to temporarily laid-off employees.
“Under the doctrine of management prerogative, every employer has the inherent right to regulate, according to his own discretion and judgment, all aspects of employment, including… lay-off of workers… and recall of workers.” (Rural Bank of Cantilan, Inc. v. Julve, G.R. No. 169750, 27 February 2007)
“Lay-off” – refers to “the severance of employment, through no fault of and without prejudice to the employee, resorted to by management during the periods of business recession, industrial depression, or seasonal fluctuations, or during lulls caused by lack of orders, shortage of materials, conversion of the plant to a new production program or the introduction of new methods or more efficient machinery, or of automation. However, a layoff would be tantamount to a dismissal only if it is permanent. Hence, when a lay-off is only temporary, the employment status of the employee is not deemed terminated, but merely suspended.” (Pasig Agricultural Development and Industrial Supply Corporation v. Nievarez, G.R. No. 197852, 19 October 2015)
“Recall of employees” – refers to the act of directing temporarily laid-off employees to return to work.
Lay-off may be temporary or permanent.
Temporary lay-off is also referred to as putting employees on a “floating status.”
There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a period or duration therefor. These employees cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 (now Article 301) of the Labor Code may be applied but only by analogy to set a specific period that employees may remain temporarily laid-off or in floating status. (Industrial Timber Corporation v. NLRC, supra.)
Pursuant to Article 286 (now Article 301), the suspension of the operation of business or undertaking in a temporary lay-off situation must not exceed six (6) months. Within this six-month period, the employee should either be recalled or permanently retrenched. Otherwise, the employee would be deemed to have been dismissed, and the employee held liable therefor.” (Ibid.)
|ART. 301.  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… 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…” (P.D. 442, Labor Code)
The right of management to retrench or to lay-off workers to meet clear and continuing economic threats or during periods of economic recession to prevent losses is recognized by Article  of the Labor Code. (Mendros v. Mitsubishi Motors Phils. Corporation [MMPC], G.R. No. 169780, 16 February 2009)
While the law and jurisprudence acknowledge that the closure or suspension of operations of employers due to economic reasons is a valid exercise of management prerogative, it does not exempt employers from complying with the requirements laid down by the law. (Ibid.)
Good faith means that there is a legitimate business interest or that the employer exercised its management prerogative in good faith.
“In invoking Article 286 of the Labor Code, 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. This means that the employer should be able to prove that it is faced with a clear and compelling economic reason which reasonably forces it to temporarily shut down its business operations or a particular undertaking, incidentally resulting to the temporary lay-off of its employees.” (Lopez v. Irvine Construction Corp., G.R. No. 107253, 20 August 2014)
“An employer must also prove the existence of a clear and compelling economic reason for the temporary shutdown of its business or undertaking and that there were no available posts to which the affected employee could be assigned.” (Airborne Maintenance and Allied Services, Inc. v. Egos, G.R. No. 222748, 03 April 2009)
“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., supra.)
“Certainly, the employees cannot forever be temporarily laid-off.” (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)
“The law set six (6) months as the period where the operation of a business or undertaking may be suspended, thereby also suspending the employment of the employees concerned. The resulting temporary lay-off, wherein the employees likewise cease to work, should also not last longer than six (6) months. After the period of six (6) months, the employees should either then be recalled to work or permanently retrenched following the requirements of the law. Failure to comply with this requirement would be tantamount to dismissing the employees, making the employer responsible for such dismissal.” (Ibid.)
“Elsewise stated, an employer may validly put its employees on forced leave or floating status upon bona fide suspension of the operation of its business for a period not exceeding six (6) months. In such a case, there is no termination of the employment of the employees, but only a temporary displacement. When the suspension of the business operations, however, exceeds six (6) months, then the employment of the employees would be deemed terminated,36 and the employer would be held liable for the same.” (Ibid.)
DOLE should be properly notified at least 30 days in advance. This gives DOLE the opportunity to verify the legitimacy of the grounds cited by the employer and to check compliance with labor law.
Jurisprudence, in both a permanent and a temporary lay-off, dictates that the one-month notice rule to both the DOLE and the employee under Article 283 (now Article 298) is mandatory. Also, in both cases, the layoff, as an exercise of the employer’s management prerogative, must be exercised in good faith – that is, one which is intended for the advancement of employers’ interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements. (Industrial Timber Corporation v. NLRC, supra.)
Permanent lay-off is also known as retrenchment.
“Retrenchment is the termination of employment initiated by the employer through no fault of the employees… resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. Retrenchment is a valid management prerogative. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence.” (F.F. Marine Corporation v. NLRC, G.R. No. 152039, 08 April 2005)
Both temporary lay-off and permanent lay-off are grounded on economic reasons. The main difference is that in a temporary lay-off, there is only a temporary work suspension and thus the employees remain employed with the employer. However, in a permanent lay-off or retrenched, the employees are separated resulting in their exit from employment.
Decisional law teaches that the requirements for a valid retrenchment are:
1) That the retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, and real, or only if expected, are reasonably imminent as perceived objectively and in good faith by the employer;
2) That the employer serves written notice both to the employees concerned and the DOLE at least a month before the intended date of retrenchment;
3) That the employer pays the retrenched employee separation pay in an amount prescribed by the Code;
4) That the employer exercises its prerogative to retrench in good faith; and,
5) That it uses fair and reasonable criteria in ascertaining who would be retrenched or retained. (Mendros v. Mitsubishi Motors Phils. Corporation [MMPC], supra.)
More info: Retrenchment or downsizing
Recall of employees applies to temporarily laid-off employees as they remain employed with the employer during the temporary work suspension which should no exceed more than six (6) months.
On the other hand, recall of employees do not and cannot apply to permanently laid-off employees as they are no longer employed with the employer after having been permanently retrenched.
Pursuant to Article 286 (now Article 301), the suspension of the operation of business or undertaking in a temporary lay-off situation must not exceed six (6) months. Within this six-month period, the employee should either be recalled or permanently retrenched. Otherwise, the employee would be deemed to have been dismissed, and the employer held liable therefor. (Pasig Agricultural Development and Industrial Supply Corporation v. Nievarez, G.R. No. 197852, 19 October 2015)
Waterfront Cebu City Hotel v. Jimenez, G.R. No. 174214, 13 June 2012
⦁ Under Art.  of the Labor Code, a bona fide suspension of business operations for not more than six (6) months does not terminate employment. After six (6) months, the employee may be recalled to work or be permanently laid off. In this case, more than six (6) months have elapsed from the time the Club ceased to operate. Hence, [the Complainants’] termination became permanent.
SKM Art Craft Corporation v. Bauca, G.R. No. 171282, 27 November 2013
⦁ In this case, however, we agree with the Labor Arbiter and the CA that respondents were already considered illegally dismissed since petitioner failed to recall them after six months, when its bona fide suspension of operations lapsed. We stress that under Article 286 of the Labor Code, the employment will not be deemed terminated if the bona fide suspension of operations does not exceed six months. But if the suspension of operations exceeds six months, the employment will be considered terminated.
/Updated: February 15, 2023