DISMISSALS FOR AUTHORIZED CAUSES IN TIMES OF THE COVID-19 PANDEMIC
If the business is suffering heavy reverses or substantial losses during the time of the pandemic, may they dismiss employees as a way to save on operating costs and therefore, put a halt on their losses? What is the directive of the Department of Labor and Employment (DOLE) to employers facing the pandemic?
It is a sad reality in our country, and indeed all over the world, that businesses are taking a huge hit from the economic slowdown brought about by COVID-19. It was reported by DOLE sometime in June 2020 that more than 2,000 establishments across the nation have either declared permanent closure or have otherwise reduced their personnel. The numbers now could be much higher. Indeed, employers are faced with tough decisions on how to survive. And their decision could spell doom for their employees and their families.
Every employer has the right to regulate, according to his or her own discretion and judgment, all aspects of employment. This right, called management prerogative, is inherent in the employer and is generally boundless save for the limitations imposed by our laws and the principles of equity, fair play, and substantial justice. This includes the right to hire whoever the employer wishes, to prescribe work assignments and methods such as the time, place and manner of work, and the right to discipline, dismiss, or recall employees. Courts will usually decline to interfere in legitimate business decisions so long as it is done in good faith. Otherwise, it will be tantamount to substituting the court’s judgment over that of the employer which runs counter to public policy.
Article 298 [283] of the Labor Code allows employers to close their establishments or reduce their personnel. Known as Dismissals for Authorized Causes, the Labor Code allows employers to terminate the employment of any employee due to the following authorized causes: installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of establishment.
Installation of labor-saving devices refers to the reduction of the number of workers in any workplace made necessary by the introduction of labor-saving machinery. Redundancy, on the other hand, exists where the services of an employee are in excess of what is reasonably demanded by the actual requirement of the enterprise.
Retrenchment, in contrast to redundancy, is an economic ground to reduce the number of employees. In order to be justified, the termination of employment by reason of retrenchment must be due to business losses or reverses which are serious, actual and real. It is an act of the employer of reducing the work force because of losses in the operation of the enterprise, lack of work, or considerable reduction on the volume of business.
Closure or cessation of business is the complete or partial cessation of the operations and/or shutdown of the establishment, carried out either to stave off financial ruin or to promote the business interests of the employer.
Dismissals for Authorized Causes requires the employer to exercise good faith in terminating the employee, which means that it must be done as matter of last resort and must procedurally comply with the service of two (2) separate written notices on both the affected employees and the DOLE at least one (1) month prior to the date of termination. The employer must also pay Separation Pay to the employee. More importantly, the employer must also use fair and reasonable criteriain ascertaining what positions are to be affected by the termination, such as, but not limited to: nature of work; status of employment (whether casual, temporary or regular); experience; efficiency; seniority; dependability; adaptability; flexibility; trainability; job performance; discipline; and attitude towards work. Failure to follow fair and reasonable criteria in selecting who to terminate would render the termination invalid.
The DOLE understands the financial strain that companies are currently experiencing due to COVID-19. However, it must balance the interests of the employer with the equally important employee’s health and welfare. Thus, DOLE issued Labor Advisory 17-20, or the Guidelines on Employment Preservation upon the Resumption of Business Operation to govern operations while under quarantine. Therein, DOLE highly encourages companies to adopt work-from-home or implement telecommuting arrangements, and as an alternative to termination or closure of business, adopt alternative work schemes including: transferring of employees to another branch or outlet, assignment of employees to other functions, reduction of normal workdays per day or per week, job rotation, partial closure of the establishment or other work arrangements with due consideration with the particularities of each business. If employers do adopt any of the foregoing arrangements, it must report personally or online to the appropriate provincial or field office through RKS Form 5 of 2020.
Nevertheless, if the situation is truly dire, and provided that all the requirements are complied with, companies may still opt to institute labor-saving devices, consider positions redundant, retrench or close shop, and this fact is recognized in Labor Advisory 17-20 itself. The unprecedented circumstances brought about by the pandemic has forced companies to adapt to the realities of a declining economy. In the same way that people must keep healthy to survive, companies must do whatever they can to weather this storm.
The foregoing article is for general informational and educational purposes only. It should not be treated and is not considered as legal advice or opinion. The views expressed in this article are those only of the author.
Eric M. Menchavez, Jr. is a Partner at Cokaliong Menchavez & Senining-Judilla Law Offices (CMS LAW), Cebu.
