Redundancy

Summary

⦁ Redundancy occurs when two or more employees are performing the same work and/or producing the same outputs.

⦁ To be valid, the authorized cause of redundancy should comply with prescribed standards.

1. Concept

Redundancy exists when the service capability of the workforce is in excess of what is reasonably needed to meet the demands of the business enterprise. A position is redundant where it had become superfluous. Superfluity of a position or positions may be the outcome of a number of factors such as over-hiring of workers, decrease in volume of business, or dropping a particular product line or service activity previously manufactured or undertaken by the enterprise. (3M Philippines, Inc. v. Yuseco, G.R. No. 248941, 09 November 2020)

An employer’s declaration of redundancy becomes a valid and authorized cause for dismissal when the employer proves by substantial evidence that the services of an employee are more than what is reasonably demanded by the requirements of the business enterprise. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, G.R. No. 190389, 19 April 2017)

a. Legal basis

1) Labor Code

2) Omnibus Rules Implementing the Labor Code

3) DOLE Department Order No. 147, Series of 2015

DOLE Department Order No. 147, Series of 2015, reiterates redundancy as an authorized for separating an employee under Section 5.4(b), Rule I-A.

b. Management prerogative

In our jurisdiction, redundancy is a recognized authorized cause to validly terminate employment. The determination of whether the employee’s services are no longer necessary or sustainable, and thus, terminable has been recognized to be a management prerogative. The employer’s exercise of such prerogative is, however, not an unbridled right that cannot be subjected to the court’s scrutiny. (FEATI University v. Pangan, G.R. No. 202851, 09 September 2019)

While a declaration of redundancy is ultimately a management decision in exercising its business judgment, and the employer is not obligated to keep in its payroll more employees than are needed for its day to-day operations, management must not violate the law nor declare redundancy without sufficient basis. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

In this relation, jurisprudence explains that the characterization of an employee’s services as redundant, and therefore, properly terminable, is an exercise of management prerogative, considering that an employer has no legal obligation to keep more employees than are necessary for the operation of its business. (Yulo v. Concentrix Daksh Services Philippines, Inc., G.R. No. 235873, 21 January 2019)

Nevertheless, case law qualifies that the exercise of such prerogative “must not be in violation of the law, and must not be arbitrary or malicious.” (Ibid.)

c. Superfluous position

Essentially, redundancy exists when an employee’s position is superfluous, or an employee’s services are in excess of what would reasonably be demanded by the actual requirements of the enterprise. (Ibid.)

Redundancy could be the result of a number of factors, such as the overhiring of workers, a decrease in the volume of business, or the dropping of a particular line or service previously manufactured or undertaken by the enterprise. (Ibid.)

A redundant position is one rendered superfluous by any number of factors, such as over hiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company, or phasing out of a service activity previously undertaken by the business. Under these factors, the employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business. Even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires. (Ocean East Agency Corporation v. Lopez, G.R. No. 194410, 14 October 2015)

Thus, even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires. (Arabit v. Jardine Pacific Finance, Inc., G.R. No. 181719, 21 April 2014)

d. Inconsistent with hiring

To dispel any lingering doubt, the Supreme Court has invariably held in a plethora of cases that the employer’s subsequent act of hiring additional employees is inconsistent with the termination on the ground of redundancy. (Abbott Laboratories [Philippines], Inc. v. Torralba, G.R. No. 229746, 11 October 2017)

2. Requisites

A valid redundancy program must comply with the following requisites:

1) Written notice served on both the employees and the DOLE at least one (1) month prior to the intended date of termination of employment;

2) Payment of separation pay equivalent to at least one (1) month pay for every year of service;

3) Good faith in abolishing the redundant positions; and,

4) Fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished, taking into consideration such factors as (i) preferred status; (ii) efficiency; and (iii) seniority, among others. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

DO 147 standards:

The standards are:

1) There must be superfluous positions or services of employees;

2) The positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;

3) There must be good faith in abolishing redundant positions;

4) There must be fair and reasonable criteria in selecting the employees to be terminated; and,

5) There must be an adequate proof of such redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring. (DOLE Department Order No. 147, Series of 2015)

a. Good faith

Following Article 298 of the Labor Code as above cited, the law requires the employer to prove, inter alia, its good faith in abolishing the redundant positions, and further, the existence of fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished. (Yulo v. Concentrix Daksh Services Philippines, Inc., supra.)

To establish good faith, the employer must provide substantial proof that the services of the employee are in excess of what is needed by the company and that fair and reasonable criteria, such as but not limited to (a) less preferred status, e.g., temporary employee; (b) efficiency; and (c) seniority, were used to determine which positions are to be considered redundant or who among the employees are to be redundated. (FEATI University v. Pangan, supra.)

To establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

“To exhibit its good faith and that there was a fair and reasonable criteria in ascertaining redundant positions, a company claiming to be over manned must produce adequate proof of the same.” (Yulo v. Concentrix Daksh Services Philippines, Inc., supra.)

1) Self-serving declaration – insufficient

Thus, the Court has ruled that it is not enough for a company to merely declare that it has become overmanned. Rather, it must produce adequate proof of such redundancy to justify the dismissal of the affected employees, such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring. (Ibid.)

Indeed, an employer cannot simply declare that it has become overmanned and dismiss its employees without adequate proof to sustain its claim of redundancy. Neither can an employer merely claim that it has reviewed its organizational structure and decided that a certain position has become redundant. It bears stressing that adequate proof of redundancy and criteria in the selection of the employees to be affected must be presented to dispel any suspicion of bad faith on the part of the employer. (FEATI University v. Pangan, supra.)

A company cannot simply declare redundancy without basis. It is not enough for a company to merely declare that it has become overmanned. It must produce adequate proof that such is the actual situation to justify the dismissal of the affected employees, for redundancy. We have considered evidence such as the new staffing pattern, feasibility studies, proposal on the viability of the newly created positions, job description and the approval by the management of the restructuring, among others, as adequate to substantiate a claim for redundancy. (Mejila v. Wrigley Philippines, Inc., G.R. No. 199469, 11 September 2019)

b. Fair and reasonable criteria

Fair and reasonable criteria may include but are not limited to the following: (a) less preferred status (e.g., temporary employee); (b) efficiency; and (c) seniority. The presence of these criteria used by the employer shows good faith on its part and is evidence that the implementation of redundancy was painstakingly done by the employer in order to properly justify the termination from the service of its employees. (FEATI University v. Pangan, supra.)

In determining who among the employees should be retained or separated, the Court explained in Lowe that preferred status, efficiency, and seniority are among the accepted criteria in implementing a redundancy program. (Que v. Asia Brewery, Inc., G.R. No. 202388, 10 April 2019)

1) Consequence if criteria is not fair and reasonable

In redundancy, an employer must show that it applied fair and reasonable criteria in determining what positions have to be declared redundant. Otherwise, it will be held liable for illegally dismissing the employee affected by the redundancy. (Acosta v. Matiere Sas and Philippe Gouvary, G.R. No. 232870, 03 June 2019)

4. Separation pay

When an employer declares redundancy, Article 298 of the Labor Code requires that the employer provides a separation pay equivalent to at least one (1) month pay of the affected employee, or at least one (1) month pay for every year of service, whichever is higher. ((Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

5. Burden of proof: on employer

The burden is on the employer to prove by substantial evidence the factual and legal basis for the dismissal of its employees on the ground of redundancy. (Abbott Laboratories [Philippines], Inc. v. Torralba, supra.)

References

⦁ 1987 Philippine Constitution

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

⦁ DOLE Department Order No. 147, Series of 2015

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/Updated: January 4, 2023