Article 283 of the Labor Code provides:

“ART. 283. Closure of establishment and reduction of personnel.—

The employer may also terminate the employment of any employee due to the installation of
labor-saving devices, redundancy, retrenchment to prevent losses or the 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
Department of Labor and Employment at least one (1) month before the intended date thereof.
In case of termination due to the installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month
pay or to at least one (1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and 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 to 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.”

RETRENCHMENT
“Retrenchment is the termination of employment initiated by the employer through no fault of
and without prejudice to the employees. It is resorted to during periods of business recession,
industrial depression, or seasonal fluctuations or during lulls occasioned by lack of orders,
shortage of materials, or conversion of the plant for a new production program or the
introduction of new methods or more efficient machinery or of automation. It is an act of the
employer of dismissing employees because of losses in the operation of a business, lack of
work, and considerable reduction on the volume of his business.”
(Waterfront Cebu City Hotel v. Jimenez, et al., G.R. No. 174214, June 13, 2012)

No less than the Labor Code recognizes retrenchment as a right of the management to meet
clear and continuing economic threats or during periods of economic recession to prevent
losses. This is one of the authorized causes of termination of employment, and is governed by
Article 283 of the Labor Code. However, before one can dismiss employees on the ground of
retrenchment, four (4) elements must be proven:
(1) The losses expected should be substantial.
(2) The substantial loss apprehended must be reasonably imminent, and such imminence
can be perceived objectively and in good faith by the employer.
(3) Because of the consequential nature of retrenchment, it must be reasonably and
necessary and likely to effectively prevent the expected losses. The employer should
have taken other measures prior or parallel to retrenchment to forestall losses such as
cutting other costs other than labor cost.
(4) The alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proven by sufficient and convincing evidences. It bears emphasis
that serious business losses should be proven by financial statements duly audited by
an independent external auditor.

The employer should have taken other measures prior or parallel to retrenchment to forestall
losses. As much as possible, it should be a measure of last resort, after less drastic means have
been tried and found wanting. Examples:
 Reduction of both management and rank-and-file bonuses and salaries
 Going on reduced time
 Improving manufacturing efficiencies
 Trimming of marketing and advertising costs, etc.
(Lopez Sugar Corporation v. Federation of Free Workers, G.R. Nos. 75700-91, August 30, 1990,
189 SCRA 179)
In order to legally retrench employees, the following must be followed:
(1) Retrenchment is undertaken to prevent losses, which are not merely de minimis, but
substantial, serious, actual, and real, or if only expected, are reasonably imminent as
perceived objectively and in good faith by the employer;
(2) The employer serves written notices both to the employees and the DOLE at least one
month prior to the intended date of retrenchment;
(3) The employer pays the retrenched employees separation pay equivalent to one month pay
or at least ½ month pay for every year of service, whichever is higher;
(4) The employer must use fair and reasonable criteria in ascertaining who would be dismissed
and retained among the employees; and
(5) The retrenchment must be undertaken in good faith.
(Ariola v. Philex Mining Corporation, G.R. No. 147756, August 9, 2005)

If the grounds for retrenchment are not proved, the retrenchment will be declared illegal and of
no effect. If the retrenched employee signed quitclaims, they may be declared invalid. Even his
acceptance of the retrenchment pay does not amount to estoppel which does not bar him from
contesting his separation.

There must be fair and reasonable criteria to be used in selecting employees to be dismissed on
account of retrenchment such as:
(a) less preferred status (i.e. temporary employees);
(b) efficiency rating; and
(c) seniority.

The “last in first out“(LIFO) rule indicates that as between two or more employees affected by
a retrenchment program, the last one employed will be the first to go; seniority of the ones
hired earlier therefore prevails. Such rule has its merits but its observance is not a statutory
duty of the employer.

In accordance with the Labor Code, for a valid implementation of a retrenchment program, the
employer must serve written notices on the employees and DOLE at least thirty (30) days prior
to the intended date of retrenchment. Specifically, the purpose of such previous notice to DOLE
must be to enable it to ascertain the verity of the cause for termination of employment. Finally,
the more important aspect in the termination of employment is the payment of the employee’s
separation pay equivalent to:

 at least one (1) month pay, “OR”

whichever is higher
 at least one-half (1/2) month pay for every year of service

A fraction of at least six (6) months shall be considered as one (1) whole year.

Thus, the employer must not arbitrarily or speedily implement a retrenchment program. The
requirements discussed above must be fully complied with so as to preclude any problems in
the future. It bears great emphasis that failure to comply with the requirements mandated by
the Labor Code will render the retrenchment invalid and illegal.

The fact that a corporation undergoes corporate rehabilitation does not automatically justify
retrenchment of its personnel. It is also not excused from submitting to the labor authorities its
audited financial statements. Law and jurisprudence require that alleged losses or expected
imminent losses must be proved by sufficient and convincing evidence.
(Corporate Rehabilitation, 737 SCRA 664, October 8, 2014)
POSSIBLE RETRENCHMENT DUE TO COVID-19 PANDEMIC
Pursuant to Labor Advisory 09 and Labor Advisory 11 issued by the Philippine Department of
Labor and Employment (“DOLE”), employers are urged and encouraged to adopt flexible work
arrangement as remedial measures due to COVID-19. It enunciates that employers should
consider these remedial measures instead of removing employees or closing businesses.
However, sometimes, these remedial measures are not enough. Companies have to make
painful decisions to lay off or retrench employees to save the business.

During this trying times of the pandemic, retrenchment can be justified if the establishment is
forced to temporarily close due to the community quarantine and the overhead expenses of
the company cannot be met such that to continue to employ certain employees would drive
the company to close. The books of account of the company must be able to justify such
expected losses. Further, it is best if the company tried to adopt the remedial measures
suggested by the DOLE before resorting to retrenchment. It should be a measure of last resort
and done in good faith and not to undermine the employee’s security of tenure.

On March 4, 2020 Labor Advisory No. 09 or the “Guidelines on the Implementation of Flexible
Work Arrangements as Remedial Measure Due to the Ongoing Outbreak of Coronavirus Disease
2019 (COVID-19)” was implemented by DOLE. It suggests employers to adopt remedial
measures as alternative coping mechanisms instead of removing employees or closing
businesses. These are the following recommendations:
(1) Reduction of Workhours and/or Workdays where the normal workhours or
workdays are reduced.
(2) Rotation of Workers whereby the employees are rotated or alternately provided
work within the week.
(3) Forced Leave wherein employees are required to go on leave for several days or
weeks utilizing their leave credits.

Should the employer wish to adopt flexible work arrangements, it must post a copy of the
Advisory in a conspicuous place in the premises. Furthermore, the employer must notify the
Regional Office of DOLE (where the office is located) of the adoption of such arrangements
through a Report Form. 

It must be emphasized that the flexible work arrangements are temporary in nature and subject
to the prevailing conditions of the company. This is how to properly adopt remedial measures
to mitigate the losses caused by COVID-19 in the workplace.

Lopez Sugar Corporation v. Federation of Free Workers

(GR Nos. 75700-91, August 30, 1990, 189 SCRA 179)
(commonly cited by various cases as standards for a valid retrenchment)
Citing Ariola v. Philex Mining Corporation (GR No. 147756, August 9, 2005, 466 SCRA 152)
- Standards that a company must meet to justify retrenchment to prevent abuse by
employers:
1. The losses to be prevented are not merely de minimis, but substantial, serious,
actual and real, or if only expected, are reasonably imminent as perceived
objectively and in good faith by the employer. If the loss purportedly sought to
be forestalled by retrenchment is clearly shown to be insubstantial and
inconsequential in character, the bona fide nature of retrenchment would
appear to be seriously in question.
2. The substantial loss apprehended must be reasonably imminent, as such
imminence can be perceived objectively and in good faith by the employer.
There should be a certain degree of urgency for the retrenchment, which is after
all a drastic recourse with serious consequences for the livelihood of the
 employees either retired or otherwise laid off.
3. It must be reasonably necessary and likely to effectively prevent the expected
losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses, i.e., cut other costs other than labor costs.
4. Alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proved by sufficient and convincing evidence.
5. The employer must use fair and reasonable criteria in ascertaining who would be
dismissed and retained among the employees and that the retrenchment must
be undertaken in good faith.
6. As much as possible, it should be a measure of last resort, after less drastic
means have been tried and found wanting. Examples:
 Reduction of both management and rank-and-file bonuses and salaries
 Going on reduced time
 Improving manufacturing efficiencies
 Trimming of marketing and advertising costs, etc.

To prove the need for retrenchment must show the following:

1. Financial condition prior to and at the time it enforced its retrenchment program
2. Must submit audited financial statements regarding its alleged financial losses
3. Must establish the basis for the retrenchment of its employees

Standards for a valid retrenchment:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which,
if already incurred, are not merely de minimis, but substantial, serious, actual and real,
or if only expected, are reasonably imminent as perceived objectively and in good
faith by the employer;
(2) That the employer served written notice both to the employees and to the Department
of Labor and Employment at least one month prior to the intended date of
retrenchment;
(3) That the employer pays the retrenched employees 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;
(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for certain workers.

The fact that a corporation undergoes corporate rehabilitation does not automatically justify
retrenchment of its personnel. It is also not excused from submitting to the labor authorities its
audited financial statements. Law and jurisprudence require that alleged losses or expected
imminent losses must be proved by sufficient and convincing evidence.
(Corporate Rehabilitation, 737 SCRA 664, October 8, 2014)

JUVY MANATAD v. PHILIPPINE TELEGRAPH AND TELEPHONE CORPORATION,

GR No. 172363, March 7, 2008, 548 SCRA 64
FACTS:
In September 1988, petitioner was employed by respondent Philippine Telegraph and
Telephone Corporation (PT&T) as junior clerk with a monthly salary of P3,839.74. She was later
promoted as Account Executive, the position she held until she was temporarily laid off from
employment on 1 September 1998.

Petitioner's temporary separation from employment was pursuant to the Temporary Staff
Reduction Program adopted by respondent due to serious business reverses. On 16 November
1998, petitioner received a letter from respondent inviting her to avail herself of its Staff
Reduction Program Package equivalent to one-month salary for every year of service, one and
one-half month salary, pro-rated 13 th month pay, conversion to cash of unused vacation and
sick leave credits, and Health Maintenance Organization and group life insurance coverage until
full payment of the separation package. Petitioner, however, did not opt to avail herself of the
said package. On 26 February 1999, petitioner received a Notice of Retrenchment from
respondent permanently dismissing her from employment effective 16 February 1999.

Consequently, petitioner filed a Complaint for illegal dismissal against respondent, claiming the
award of separation pay, damages and attorney's fees. In her Position Paper, petitioner mainly
alleged that the retrenchment program adopted by respondent was illegal for it was gaining
profits for the period of July 1997 to June 1998, and showed proof of a Special Order No. 98-21
granting an increase in the salaries of its employees under Job Grade 8 and 9 in the amount
of P2,300.00 a month effective January 1998. Evidence showed that it was still economically
viable for respondent to continue its business operations without downsizing its workforce. 

On the other hand, respondent asserted that petitioner was separated from service pursuant to
a valid retrenchment implemented by the company. Due to huge business losses suffered by
respondent, it was constrained to arrest escalating operating costs by downsizing its workforce.

To support its claim, respondent submitted its financial statements for the fiscal period of 30
June 1996 to 30 June 1998 audited by independent auditors. Respondent has been negotiating
with its creditors for the suspension of payments until the completion of an acceptable
restructuring plan

On 14 January 1999, the Labor Arbiter rendered a Decision in favor of petitioner ruling that the
retrenchment program implemented by respondent was invalid. Mere comparative statements
of income were not conclusive proof of serious business losses.

ISSUE:
Whether the employer’s retrenchment was valid and legal? – Yes.
Whether dismissed employee is entitled to backwages and separation pay? – No.

DISCUSSION:
For a valid retrenchment, the following requisites must be complied with:
1. The retrenchment is necessary to prevent losses and such losses are proven;
2. Written notice to the employees and to the DOLE at least one (1) month prior to the
intended date of retrenchment; and
3. Payment of separation pay equivalent to one-month pay or at least one-half month pay
for every year of service, whichever is higher.

Retrenchment is the termination of employment initiated by the employer through no fault of

the employees and without prejudice to the latter, resorted to by management during periods
of business recession; industrial depression; or seasonal fluctuations, 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 automation. Retrenchment is a
valid management prerogative. In the discharge of these requirements, it is the employer who
bears the onus, being in the nature of affirmative defense.
Respondent experienced serious financial crises as shown in the financial statements audited by
independent auditors, SGV & Co. and Alba Ledesma & Co.:
The Company has incurred a substantial loss of about P558 million for the year ended
June 30, 1998, which resulted to a deficit of about P574 million as of June 30, 1998. 

No evidence can best attest to a company's economic status other than its financial
statement. Being guided accordingly, we find that respondent was fully justified in
implementing a retrenchment program since it was undergoing business reverses, not only for
a single fiscal year, but for several years prior to and even after the program. In a span of six
years, respondent realized profits only in one year, in 1997.

Respondent complied with the requisite notices to the employee and the DOLE to effect a valid
retrenchment. Petitioner failed to refute that she received the written notice of retrenchment
from respondent on 16 November 1998. Although respondent failed to furnish DOLE with a
formal letter notifying it of the retrenchment, it still substantially complied with the
requirement. Since the National Conciliation and Mediation Board, the reconciliatory arm of
DOLE, supervised the negotiation for separation package, it would be superfluous to still
require respondent to serve notice of the retrenchment to DOLE.

The separation package offered by respondent to its employees was way above the minimum
requirement set by law. Aside from the separation pay equivalent to one-month salary for
every year of service, respondent offered additional monetary benefits such as one and a half
month salary, pro-rated 13th month pay, conversion of unused sick and vacation leave credits,
and Health Maintenance Organization and group life insurance coverage until full payment of
the separation package.

Petitioner's proposition that she was not a union member and, therefore, not legally bound by
the terms of the Collective Bargaining Agreement, is irrelevant in the instant controversy. Non-
membership in a union does not exempt an employee from the application of Article 283 of the
Labor Code which enumerates the authorized causes for terminating employment. In this case,
petitioner was terminated pursuant to a valid retrenchment program.

Consequently, petitioner is not entitled to backwages. It is well settled that backwages may be
granted only when there is a finding of illegal dismissal. Nevertheless, petitioner is entitled to
separation pay as provided under respondent's Staff Reduction Program Package equivalent to
one-month salary for every year of service, one and a half month salary, pro-rated 13 th month
pay, conversion to cash of unused vacation and sick leave credits, and Health Maintenance
Organization and group life insurance coverage until full payment of the separation package.

Ruling: The company continued to incur losses up to Php 558 million. Due to these setbacks,
the retrenchment was valid. Petitioner's separation from employment was legal and valid.
Petitioner is not entitled to backwages and separation pay.

FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES (FASAP) v.

PHILIPPINE AIRLINES, INC.,
IN RE: LETTERS OF ATTY. ESTELITO P. MENDOZA
RE: G.R. NO. 178083 – FASAP v. PAL, et al.
G.R. No. 178083, March 13, 2018, 858 SCRA 359
FACTS:
Terminated the 1,400 cabin crew. The pilots also conducted a strike that added to the financial
setbacks of PAL. The recession or Asian financial crisis in 1997 also contributed to Asian air
carriers, including PAL’s economic struggles. In addition to all these, PAL was also faced with
multiple litigations and pending cases.

ISSUE:
Whether PAL’s retrenchment program was valid? – Yes. They were already going through
rehabilitation proceedings.

DISCUSSION:
The Court consistently recognized PAL’s financial troubles while undergoing rehabilitation and
suspension of payments. The fact of the financial losses suffered by PAL should simply be taken
as judicial notice. To still rule that PAL still did not prove such losses certainly conflicted with
the antecedent judicial pronouncements about PAL’s dire financial state. Judicial notice is the
cognizance of certain facts that judges may properly take and act on without proof because
they already know them. It is the manner of recognizing and acknowledging facts that no longer
need to be proved in court. In other words, when the Court "recognizes" a fact, it inevitably
takes judicial notice of it. (In its discussion, the SC want to take judicial notice of the facts
already proved by PAL in its various cases that reached this court where it continuously justified
its financial difficulty.)

At any rate, even assuming that serious business losses had not been proved by PAL, it would
still be justified under Article 298 of the Labor Code to retrench employees to prevent the
occurrence of losses or its closing of the business, provided that the projected losses were not
merely de minimis, but substantial, serious, actual, and real, or, if only expected, were
reasonably imminent as perceived objectively and in good faith by the employer. Proof of
actual financial losses incurred by the employer would not be a condition sine qua non for
retrenchment:

Third, contrary to petitioner’s asseverations, proof of actual financial losses incurred by

the company is not a condition sine qua non for retrenchment. Retrenchment is one of
the economic grounds to dismiss employees, which is resorted to by an employer
primarily to avoid or minimize business losses. The law recognize this under Article 283
of the Labor Code

In its ordinary connotation, the phrase "to prevent losses" means that retrenchment or
termination of the services of some employees is authorized to be undertaken by the
employer sometime before the anticipated losses are actually sustained or realized. It is
not, in other words, the intention of the lawmaker to compel the employer to stay his
hand and keep all his employees until after losses shall have in fact materialized. If such
an intent were expressly written into the law, that law may well be vulnerable to
constitutional attack as unduly taking property from one man to be given to another.

At the other end of the spectrum, it seems equally clear that not every asserted
possibility of loss is sufficient legal warrant for the reduction of personnel. In the nature
of things, the possibility of incurring the losses is constantly present, in greater or lesser
degree, in the carrying on of business operations, since some, indeed many, of the
factors which impact upon the profitability or viability of such operations may be
substantially outside the control of the employer.

On the bases of these consideration, it follows that the employer bears the burden to
prove his allegation of economic or business reverses with clear and satisfactory
evidence, it being in the nature of an affirmative defense. As earlier discussed, we are
fully persuaded that the private respondent has been and is besieged by a continuing
downtrend in both its business operations and financial resources, thus amply justifying
its resort to drastic cuts in personnel and costs. (Revidad v. National Labor Relations
 Commission, G.R. No. 111105, June 27, 1995, 245 SCRA 356.)

Good faith could be justly inferred from PAL’s conduct before, during and after the
implementation of the retrenchment plan. Notable in this respect was PAL’s candor towards
FASAP regarding its plan to implement the retrenchment program. This impression is gathered
from PAL’s letter dated February 11, 1998 inviting FASAP to a meeting to discuss the matter.

The records also show that the parties met on several occasions to explore cost-cutting
measures, including the implementation of the retrenchment program. PAL likewise manifested
that the retrenchment plan was temporarily shelved while it implemented other measures (like
termination of probationary cabin attendant, and work-rotations).

Given PAL’s dire financial predicament, it becomes understandable that PAL was constrained to
finally implement the retrenchment program when the ALPAP pilots strike crippled a major part
of PAL’s operations. In Rivera v. Espiritu, we observed that said strike wrought "serious losses to
the financially beleaguered flag carrier;" that "PAL’s financial situation went from bad to
worse;" and that "[f]aced with bankruptcy, PAL adopted a rehabilitation plan and downsized its
labor force by more than one-third." Such observations sufficed to show that retrenchment
became a last resort, and was not the rash and impulsive decision that F ASAP would make it
out to be now.

As between maintaining the number of its flight crew and PAL’s survival, it was reasonable for
PAL to choose the latter alternative. This Court cannot legitimately force PAL as a distressed
employer to maintain its manpower despite its dire financial condition. To be sure, the right of
PAL as the employer to reasonable returns on its investments and to expansion and growth is
also enshrined in the 1987 Constitution. Thus, although labor is entitled to the right to security
of tenure, the State will not interfere with the employer's valid exercise of its management
prerogative.

Being under a rehabilitation program, PAL had no choice but to implement the measures
contained in the program, including that of reducing its manpower. Far from being an impulsive
decision to defeat its employees’ right to security of tenure, retrenchment resulted from a
meticulous plan primarily aimed to resuscitate PAL’s operations.

Good faith could also be inferred from PAL’s compliance with the basic requirements under-
Article 298 of the Labor Code prior to laying-off its affected employees. Notably, the notice of
termination addressed to DOLE identified the reasons behind the massive termination, as well
as the measures PAL had undertaken to prevent the situation.

PAL reasonably demonstrated that the recall was devoid of bad faith or of an attempt on its
part to circumvent its affected employees’ right to security of tenure. Far from being tainted
with bad faith, the recall signified PAL’s reluctance to part with the retrenched employees.
Indeed, the prevailing unfavorable conditions had only compelled it to implement the
retrenchment.

In spite of overwhelming support granted by the social justice provisions of our

Constitution in favor of labor, the fundamental law itself guarantees, even during the
process of tilting the scales of social justice towards workers and employees, "the right
of enterprises to reasonable returns of investment and to expansion and growth." To
hold otherwise would not only be oppressive and inhuman, but also counter-productive
and ultimately subversive of the nation's thrust towards a resurgence in our economy
which would ultimately benefit the majority of our people. Where appropriate and
where conditions are in accord with law and jurisprudence, the Court has authorized
 valid reductions in the workforce to forestall business losses, the hemorrhaging of
capital, or even to recognize an obvious reduction in the volume of business which has
rendered certain employees redundant. (Beralde v. Lapanday Agricultural and
Development Corporation (Guihing Plantation Operations), G.R. Nos. 205685-86, June
22, 2015, 760 SCRA 158, 175-176.)

PAL used fair and reasonable criteria in selecting the employees to be retrenched pursuant to
the CBA
To require PAL to further limit its criteria would be inconsistent with jurisprudence and the
principle of fairness. Instead, we hold that for as long as PAL followed a rational criteria defined
or set by the CBA and existing laws and jurisprudence in determining who should be included in
the retrenchment program., it sufficiently met the standards of fairness and reason in its
implementation of its retrenchment program.

The retrenched employees signed valid quitclaims

In order to prevent disputes on the validity and enforceability of quitclaims and waivers of
employees under Philippine laws, said agreements should contain the following:

1. A fixed amount as full and final compromise settlement;

2. The benefits of the employees if possible with the corresponding amounts, which the

employees are giving up in consideration of the fixed compromise amount;

3. A statement that the employer has dearly explained to the employee in English,

Filipino, or in the dialect known to the employees - that by signing the waiver or
quitclaim, they are forfeiting or relinquishing their right to receive the benefits which
are due them under the law; and

4. A statement that the employees signed and executed the document voluntarily, and
had fully understood the contents of the document and that their consent was freely
given without any threat, violence, duress, intimidation, or undue influence exerted on
their person. (Bold supplied for emphasis)

Indeed, not all quitclaims are per se invalid or against public policy. A quitclaim is invalid or
contrary to public policy only:
1. where there is clear proof that the waiver was wrangled from an unsuspecting or
gullible person; or
2. where the terms of settlement are unconscionable on their face. 

Based on these standards, we uphold the release and quitclaims signed by the retrenched
employees herein.
Ruling: Retrenchment valid. PAL was proven to be undergoing severe financial losses justifying
the retrenchment of more than 1,000+ employees. Retrenchment was a last resort.

REVIDAD v. NLRC, ATLANTIC, GULF AND PACIFIC COMPANY OF MANILA, INC.

GR No. 111105, June 27, 1995
FACTS:
March 1988 - private respondent Atlantic, Gulf and Pacific Company of Manila, Inc. (AG&P)
terminated the services of 178 employees, under a redundancy program. 

The records show, however, that pursuant to Presidential Directive No. 0191 issued on July 25,
1991 by the company's president and containing management's decision to lay off 40% of the
employees due to financial losses incurred from 1989-1990, AG&P implemented and effected,
starting August 3, 1991, the temporary lay-off of some 705 employees.

ISSUE:
Whether the redundancy program was actually a retrenchment program? – Yes.
Whether the dismissal of the employees was valid and legal? – Yes.

DISCUSSION:
We are accordingly convinced, and so hold, that both the retrenchment program of AG&P and
the dismissal of petitioners were valid and legal.

First, it has been sufficiently and convincingly established by AG&P before the voluntary
arbitrator that it was suffering financial reverses. Even the rank and file union at AG&P did not
contest the fact that management had been undergoing financial difficulties for the past several
years. Hence, the voluntary arbitrator considered this as an admission that indeed AG&P was
actually experiencing adverse business conditions which would justify the exercise of its
management prerogative to retrench in order to avoid the not so remote possibility of the
closure of the entire business which, in the opinion of the voluntary arbitrator, would in the last
analysis be adverse to both the management and the union.

Second, the voluntary arbitrator's conclusions were premised upon and substantiated by the
audited financial statements and the auditor's reports of AG&P for the years 1987 to 1991.
These, financial statements audited by independent external auditors constitute the normal
and reliable method of proof of the profit and loss performance of a company.

Third, contrary to petitioners' asseverations, proof of actual financial losses incurred by the
company is not a condition sine qua non, for retrenchment. Retrenchment is one of the
economic grounds to dismiss employees, which is resorted to by an employer primarily to avoid
or minimize business losses. The law recognizes this under Article 283 of the Labor Code.

In its ordinary connotation, the phrase "to prevent losses" means that retrenchment or
termination of the services of some employees is authorized to be undertaken by the employer
sometime before the anticipated losses are actually sustained or realized. It is not, in other
words, the intention of the lawmaker to compel the employer to stay his hand and keep all his
employees until after losses shall have in fact materialized. If such an intent were expressly
written into the law, that law may well be vulnerable to constitutional attack as unduly taking
property from one man to be given to another.

At the other end of the spectrum, it seems equally clear that not every asserted possibility of
loss is sufficient legal warrant for the reduction of personnel. In the nature of things, the
possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying
on of business operations, since some, indeed many, of the factors which impact upon the
profitability or viability of such operations may be substantially outside the control of the
employer.

On the bases of these considerations, it follows that the employer bears the burden to prove
his allegation of economic or business reverses with clear and satisfactory evidence, it being in
the nature of an affirmative defense. AG&P has been and is besieged by a continuing
downtrend in both its business operations and financial resources, thus amply justifying its
resort to drastic cuts in personnel and costs.

In Lopez Sugar Corporation vs. Federation of Free Workers, et al., supra, this Court set out the
general standards in terms of which the acts of an employer in retrenching or reducing the
number of its employees must be appraised, to wit:
 . . . . Firstly, the losses expected should be substantial and not merely de minimis in
extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown
to be insubstantial and inconsequential in character, the bona fide nature of the
retrenchment would appear to be seriously in question. Secondly, the substantial loss
apprehended must be reasonably imminent, as such imminence can be perceived
objectively and in good faith by the employer. There should, in other words, be a certain
degree of urgency for the retrenchment, which is after all a drastic recourse with serious
consequences for the livelihood of the employees retired or otherwise laid off. Because
of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary
and likely to effectively prevent the expected losses. The employer should have taken
other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs
than labor costs. . . .

Lastly, but certainly not the least important, alleged losses if already realized, and the
expected imminent losses sought to be forestalled, must be proved by sufficient and
convincing evidence. The reason for requiring this quantum of proof is apparent; any
less exacting standard of proof would render too easy the abuse of this ground for
termination or services of employees. . . .

It is obvious from the preceding discussions that the aforequoted guidelines have been
faithfully met by the company.

As a final word, let it be reiterated herein what we have heretofore said, that the law in
protecting the rights of the laborer authorizes neither oppression nor self-destruction of the
employer. While the Constitution is committed to the policy of social justice and the protection
of the working class, it should not be supposed that every labor dispute will be automatically
decided in favor of labor. Management also has its own rights, which as such are entitled to
respect and enforcement in the interest of simple fair play. Out of its concern for those with
less privileges in life, the Supreme Court has inclined more often than not toward the worker
and upheld his cause with his conflicts with the employer. Such favoritism, however, has not
blinded the Court to rule that justice is in every case for the deserving, to be dispensed in the
light of the established facts and applicable law and doctrine.

Ruling: Retrenchment was valid and legal. Employer won.

AG&P was ordered to pay employees equivalent to one month pay or at least ½ month pay for
every year of service, whichever is higher. The financial assistance which herein petitioners may
have received shall be deducted from the separation pay to which they are entitled.

READ-RITE PHILIPPINES, INC. v. FRANCISCO

GR No. 195457, August 16, 2017, 837 SCRA 235
FACTS:
In the Compensation and Benefits Manual of Read-Rite's predecessor company, among the
benefits that an employee is entitled to are the following:
 Voluntary Separation Benefit - Upon separation from employment after rendering at
least twenty (20) continuous years of service, an employee shall be entitled to a lump
sum benefit equal to his full retirement benefit with salary and service calculated as of
the date of voluntary separation.

 Involuntary Separation Benefit - An employee terminated involuntarily for reasons

beyond his control (except for just cause), including but not limited to retrenchment or
redundancy, shall be entitled to receive the applicable minimum benefit prescribed by
 law.

 Retirement Plan – Section 3: Upon separation from employment after having rendered
ten (10) years of Continuous Service, a Member will receive a lump sum benefit equal
his full accrued Normal Retirement Benefit multiplied by the appropriate factor.

 Retirement Plan – Section 4: A Member terminated involuntarily for reasons beyond his
control (except for just cause), including but not limited to retrenchment or redundancy,
shall be entitled to receive the applicable minimum benefit prescribed by law on
involuntary separation or the benefit computed in accordance with Article VII Section 3
of this Plan, whichever is greater. Such benefit will be in lieu of and is in full satisfaction
of all termination and retirement benefits which the Employee may be entitled to under
the labor laws of the Republic of the Philippines and benefits under this Plan.

In April 1999, Read-Rite began implementing a retrenchment program due to serious business
losses. About 200 employees were terminated and they were each given involuntary
separation benefits equivalent to one month pay per year of service. From this first batch of
retrenched employees, however, there were eight employees – who had rendered at least ten
years of service – that apparently received additional voluntary separation benefits.

Eventually, Read-Rite embarked on another round of retrenchment beginning the last quarter
of 1999. Most of the 49 respondents in this case were part of this second batch of retrenched
employees.

All of the respondents received involuntary separation benefits equivalent to one month pay
per year of service. Accordingly, they each executed a Release, Waiver and Quitclaim
(quitclaim), which stated, among others, that they had each received from Read-Rite the full
payment of all compensation, benefits, and privileges due them and they will not undertake
any action against the company to demand further compensation.

In July 2003, Read-Rite sent notices to various government agencies, such as the SEC, BIR, and
DOLE Region IV, that the company had ceased its manufacturing operations effective June 18,
2003.

Meanwhile, respondents filed complaints against Read-Rite seeking payment of additional

voluntary separation benefits, legal interest thereon, and attorney's fees. They argued that
Read-Rite discriminated against them by not granting the aforesaid benefits, the award of
which had since become a company policy.

THE LABOR ARBITER’S RULING

The Labor Arbiter dismissed the complaints, ruling that voluntary separation benefits are
separate and distinct from involuntary separation benefits. That additional voluntary separation
benefits were given once to a few retrenched employees in April 1999 did not convert such
grant into a company practice. The isolated payment was no longer given to involuntarily
separated employees in subsequent rounds of retrenchment as Read-Rite explained that the
same was only paid by mistake.

The Labor Arbiter also declared that the respondents’ quitclaims were valid and voluntarily
executed. Respondents occupied positions that required a certain degree of intelligence and
competence such that they must have fully understood the consequences of their signing of the
quitclaims. Besides, respondents did not allege that their execution of the quitclaims was
vitiated by duress, force, or intimidation. Thus, respondents may no longer pursue any claim of
action against Read-Rite.
ISSUE:
May an employer, forced to undergo retrenchment due to serious business losses, be
required to still pay Voluntary Separation Benefit after it had already paid Involuntary
Separation Benefit (retrenchment pay) to the retrenched employees, simply because it had
earlier paid, albeit mistakenly, eight (8) retrenched employees additional Voluntary
Separation Benefit? – No.

DISCUSSION:
SC RULING
The Court rules that respondents are only entitled to involuntary separation pay given that
they were retrenched employees.

Retrenchment to prevent losses is one of the authorized causes for an employee’s separation
from employment.

As explained in Waterfront Cebu City Hotel v. Jimenez:

Retrenchment is the termination of employment initiated by the employer through no

fault of and without prejudice to the employees. It is resorted to 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. It is an act of the employer of dismissing employees because of losses in
the operation of a business, lack of work, and considerable reduction on the volume of
his business. (Citations omitted)

Respondents never disputed the fact that they were retrenched employees of Read-Rite and
they were accordingly paid involuntary separation benefits of one month pay per year of
service. They, however, claim similar entitlement to voluntary separation benefits under Read-
Rite’s Compensation and Benefits Manual.

For sure, an employee's termination from service cannot be voluntary and involuntary at the
same time. As respondents' termination was involuntary in nature, i.e., by virtue of a
retrenchment program undertaken by Read-Rite, they are only entitled to receive involuntary
separation benefits under the express provisions of the company's Compensation and Benefits
Manual and the Retirement Plan.

To reiterate, each of the respondents already received involuntary separation benefits of one
month pay per year of service. This award is clearly more than that prescribed in Article 283
(now Article 298) of the Labor Code, as amended, which only grants 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, in cases of retrenchment.

Finally, we uphold the ruling of the Labor Arbiter and the NLRC that the respondents' individual
quitclaims are valid and binding upon them.

Ruling: Retrenchment was valid and legal. Employer won.

SC affirmed and reinstated the Labor Arbiter’s Ruling.
BUSINESSDAY INFORMATION SYSTEMS AND SERVICES, INC. v. NLRC
GR No. 103575, April 5, 1993
FACTS:
BSSI was engaged in the manufacture and sale of computer forms. Due to financial reverses, its
creditors, the Development Bank of the Philippines (DBP) and the Asset Privatization Trust
(APT), took possession of its assets, including a manufacturing plant in Marilao, Bulacan.

As a retrenchment measure, some plant employees, including the private respondents, were
laid off on May 16, 1988, after prior notice, and were paid separation pay equivalent to one-half
(1/2) month pay for every year of service. Upon receipt of their separation pay, the private
respondents signed individual releases and quitclaims in favor of BSSI.

BSSI retained some employees in an attempt to rehabilitate its business as a trading company.
However, barely two and a half months later, these remaining employees were likewise
discharged because the company decided to cease business operations altogether. Unlike the
private respondents, that batch of employees received separation pay equivalent to a full
month's salary for every year of service plus mid-year bonus.

Protesting against the discrimination in the payment of their separation benefits, the twenty-
seven (27) private respondents filed three (3) separate complaints against the BSSI.

At the conciliation proceedings before the Labor Arbiter, petitioners (employer) denied that
there was unlawful discrimination in the payment of separation benefits to the employees.
They argued that the first batch of employees was paid "retrenchment" benefits mandated by
law, while the remaining employees were granted higher "separation" benefits because their
termination was on account of the closure of the business.

ISSUE:
Whether the retrenchment was valid? – Yes.
Whether the employer can pay unequal separation benefits among the retrenched
employees? – No.

Petitioners' right to terminate employees on account of retrenchment to prevent losses or

closure of business operations, is recognized by law, but it may not pay separation benefits
unequally for such discrimination breeds resentment and ill-will among those who have been
treated less generously than others. "Granting that the 16 May 1988 termination was a
retrenchment scheme, and the 31 July 1988 and the 28 February 1989 were due to closure, the
law requires the granting of the same amount of separation benefits to the affected employees
in any of the cases. The respondent argued that the giving of more separation benefit to the
second and third batches of employees separated was their expression of gratitude and
benevolence to the remaining employees who have tried to save and make the company viable
in the remaining days of operations. This justification is not plausible. there are workers in the
first batch who have rendered more years of service and could even be said to be more efficient
than those separated subsequently, yet, they did not receive the same recognition.
Understandably, their being retained longer in their job and be not included in the batch that
was first terminated, was a concession enough and may already be considered as favor granted
by the respondents to the prejudice of the complainants. As it happened, there are workers in
the first batch who have rendered more years in service but received lesser separation pay,
because of that arrangement made by the respondents in paying their termination benefits . . ."
Clearly, there was impermissible discrimination against the private respondents in the payment
of their separation benefits. The law requires an employer to extend equal treatment to its
employees. It may not, in the guise of exercising management prerogatives, grant greater
benefits to some and less to others. Management prerogatives are not absolute prerogatives
but are subject to legal limits, collective bargaining agreements, or general principles of fair play
and justice (UST vs. NLRC, 190 SCRA 758). Article 283 of the Labor Code, as amended, protects
workers whose employment is terminated because of closure of the establishment or reduction
of personnel (Abella vs. NLRC, 152 SCRA 141, 145).
Ruling: Retrenchment was valid and legal. Employer lost and required to pay dismissed
employees. Employer company ordered to pay separation pay differentials to respondents. The
award of mid-year bonus to them was deleted.

WATERFRONT CEBU CITY HOTEL v. JIMENEZ, et al.

GR No. 174214, June 13, 2012
FACTS:
Respondents were employees for Club Waterfront (the Club), a division under petitioner
Waterfront Cebu City Hotel (the Hotel) which catered to foreign high stakes gamblers, [3] for
different positions and dates.

On 12 May 2003, respondents received identical letters of termination from petitioner’s

Director of Human Resources informing them of the temporary suspension of business of the
Club.  A total of 45 employees were notified of the imminent closure.

On the following day, petitioner served the notice of suspension of business with DOLE. The
dismissed employees were offered separation pay equivalent to half-month pay for every year
of service.  The Club’s closure took effect on 15 June 2003.

On 26 June 2003, respondents filed a complaint before the Labor Arbiter for illegal dismissal,
illegal suspension, and non-payment of salaries and other monetary benefits. They likewise
prayed for damages and attorney’s fees. Respondents refused to believe that the Club was
suffering from losses because they knew exactly the number of arrivals as well as junket clients
of the Club. They should have been allowed to work in other departments of the hotel.

The Hotel averred that since April 2002, the Club has been incurring losses that it had to
temporarily cease its operations effective 15 June 2003.  To support the allegations of losses,
petitioner presented financial statements of Waterfront Promotion, Ltd. 

On 12 December 2003, the Labor Arbiter ruled in favor of petitioner and upheld the closure of
the Club’s business operations as a management prerogative.  The petitioner was, however,
directed to comply with Article 283 of the Labor Code and to pay complainants their separation
pay equivalent to one-half month pay for every year of service, a fraction of at least 6 months
being considered as one year. 

ISSUE:
Whether the closure of a department or division of a company constitutes retrenchment? –
Yes.
Whether respondents are entitled to full backwages and reinstatement without loss of
seniority rights and moral damages? – No. Only separation pay.

DISCUSSION:
The closure of a department or division of a company constitutes retrenchment by, and not
closure of, the company itself.

Initially, the respondents were laid off as a result of the suspension of the Club’s operation. 
Under Art. 286 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, respondents’ termination became
permanent.

Verily, retrenchment and not closure was effected to warrant the valid dismissal of
respondents.  Petitioner has not totally ceased its operations.  It merely closed down a
department.

Retrenchment is the termination of employment initiated by the employer through no fault of

and without prejudice to the employees. It is resorted to 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. It is an act of the
employer of dismissing employees because of losses in the operation of a business, lack of
work, and considerable reduction on the volume of his business.

In case of retrenchment, proof of financial losses becomes the determining factor in proving its
legitimacy.  In establishing a unilateral claim of actual or potential losses, financial statements
audited by independent external auditors constitute the normal method of proof of profit and
loss performance of a company.  The condition of business losses justifying retrenchment is
normally shown by audited financial documents like yearly balance sheets and profit and loss
statements as well as annual income tax returns.

Retrenchment is subject to faithful compliance with the substantative and procedural

requirements laid down by law and jurisprudence. For a valid retrenchment, the following
elements must be present:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious, actual and real, or if
only expected, are reasonably imminent as perceived objectively and in good faith by the
employer;
(2) That the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intended date of retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one (1)
month pay or at least ½ month pay for every year of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for certain workers.

All these elements were successfully proven by petitioner.  First, the huge losses suffered by the
Club for the past two years had forced petitioner to close it down to avert further losses which
would eventually affect the operations of  petitioner.  Second, all 45 employees working under
the Club were served with notice of termination. The corresponding notice was likewise served
to the DOLE one month prior to retrenchment. Third, the employees were offered separation
pay, most of whom have accepted and opted not to join in this complaint.  Fourth, 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. As a matter of fact, as of this
writing, the Club has not resumed operations.  Neither is there a showing that petitioner carried
out the closure of the business in bad faith.  No labor dispute existed between management
and the employees when the latter were terminated.
Ruling: Retrenchment was valid and legal. Employer won and required to pay dismissed
employees their separation pay equivalent to one-half month pay for every year of service.

PEREZ VS. COMPARTS INDUSTRIES, INC. (CII)

805 SCRA 222, G.R. No. 197557 October 5, 2016
Optional Retirement Benefit

Facts:
[Perez] started her employment with [CII] on 16 July 1988 and became a regular employee
thereof on 01 September 1988. After years of working and after several promotions, she was
eventually appointed as Marketing Manager. She held this position from 1998 up to 10 January
2009, the date when she resigned from her work.

Prior to her resignation, [Perez] manifested to [CII] sometime in November 2007 her intention
to avail of the optional retirement program since she was already qualified to retire under it.
Her application was denied. Amidst her continuous appeals, it was consequently denied.

In April 2008, [Perez] asked for reconsideration of the denial of her application for optional
retirement. She also requested to be included in the retrenchment that [CII] was planning to
implement. Again, her application was declined and she was not one of those employees who
were retrenched.

In response, [Perez] was informed by [CII] that it could only give her Php100,000.00 as gratuity
for her twenty years of service as this was the only amount it could afford. [Perez] refused the
offer.

On 08 January 2001, [Perez] received a letter from [CII] which contained the acceptance of her
resignation effective 10 January 2009. The letter likewise contained [CIIs] denial of [Perez’s]
claim for optional retirement benefits or separation pay for the following reasons:
1) [CII] has no policy or rules on optional retirement benefits;
2) [CII] has been so affected by the global crisis and has been suffering financial
losses;
3) there is no provision in the Labor Code which grants separation pay to
voluntarily resigning employees; and
4) [Perez] cannot invoke the provisions of the (CBA) on optional retirement benefits
because the CBA is for rank-and-file employees.

Perez filed a Complaint with the NLRC for discrimination, moral damages and attorney’s fees
against CII praying for separation pay in the form of optional retirement benefits, either under
the Retirement Plan for CII officers or under the CBA for rank-and-file employees. On the whole,
Perez asked for payment of separation pay under all circumstances of severance of
employment, including separation pay due to a retrenchment.

Issue:
Whether the employee is entitled to avail the optional retirement plan and the benefits of
the retrenchment program? – No.

Discussion:
Perez’s own assertions themselves defeat her claim: she admits that four (4) of the employees
were approved optional retirement benefits based on the CBA prior to the effectivity of the
Retirement Plan in 1999, and four (4) other employees actually received separation pay caused
by their retrenchment. These isolated and random payments to managerial employees of either
optional retirement benefits under the CBA or separation pay due to retrenchment cannot be
deemed as company practice that would render the withholding of the benefit to Perez as a
diminution of benefits.

In the case of Metropolitan Bank and Trust Company v. NLRC invoked by Perez and likewise
cited by the NLRC and the appellate court, we ruled that:

To be, considered a company practice, the giving of the benefits should have been done
over a long period of time, and must be shown to have been consistent and deliberate.
The test or rational of this rule on long practice requires an indubitable showing that the
employer agreed to continue giving the benefits knowing fully well that said employees
are not covered by the law requiring payment thereof.

Perez insisted that other managerial employees had received separation pay from a
retrenchment program of CII which were equivalent to retirement benefits.

We clarify that retrenchment to prevent losses is an authorized cause for termination by the
employer; it is management prerogative to reduce personnel usually due to poor financial
returns so as to cut down on costs of operation in terms of salaries and wages to prevent
bankruptcy of the company. It is not an option of an employee in substitution for a disapproved
early retirement.

The complete designation of this authorized cause is retrenchment to prevent looses precisely
to save a financially ailing business establishment from eventually collapsing. Without the
purpose to prevent losses, the, termination becomes illegal. However, the employer or the
company need not be incurring losses already; the requirement is that there may be impending
losses hence the resort to retrenchment:

[T]he three (3) basic requirements are: (a) proof that the retrenchment is necessary to
prevent losses or impending losses; (b) service of written notices to the employees and
to the Department of Labor and Employment at least one (1) month prior to the
intended date of retrenchment; and (c) payment of 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. In addition, jurisprudence has set the standards for losses which may justify
retrenchment, thus:

(1) the losses inquired are substantial and not de minimis; (2) the losses are actual or
reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to be
effective in preventing the expected losses; and (4) the alleged losses, if already
incurred, or the expected imminent losses sought to be forestalled, are proven by
sufficient and convincing evidence.

In all, we agree with the NLRC and the appellate court’s finding that: (1) Perez is not entitled to
optional retirement benefits without the consent thereto of CII to the grant under the
Retirement Plan; (2) neither is she entitled to the same benefits under the CBA where there is
no established company practice on such benefit; and (3) Perez is likewise not entitled to
separation pay due to a retrenchment of personnel.

Perez's witnesses testified that they availed of the optional retirement benefits under the CBA
after applying for it. [It] shows that said benefits were not voluntarily or deliberately given but
was given only after they had to apply for the same pursuant to the CBA. [CII's] approval and
consent were still indispensable. Hence, it cannot be taken as voluntary employer practice.
Ruling: Retrenchment valid and legal. Employer won.
YUKIT v. TRITRAN, INC.
809 SCRA 294, G.R. No. 184841 November 21, 2016
FACTS: The 18 Petitioners were formerly employed as drivers and conductors of Tritran.

Respondent Tritran was a corporation engaged in the business of transporting persons and
property as a common carrier. As such, it operated a fleet of buses in designated routes
between Metro Manila and selected areas in Batangas and Laguna.

On 26 May 2004, Tritran sent a Notice of Closure/Cessation of Business to DOLE Regional Office,
citing irreversible business losses to justify the permanent closure of the establishment. Despite
its financial condition, however, Tritran undertook to pay separation benefits to its employees.

A few months earlier, Tritran had informed the DOLE Regional Office of its decision to
temporarily close the establishment and cease operations effective 15 January 2004. The
decision was made after the company had laid off a total of 114 employees in 2003 pursuant to
a retrenchment program implemented to cut down costs. It cited financial reverses as the
reason for both the temporary closure and the retrenchment.

In March and April 2004, petitioners filed complaints before the NLRC against Tritran. In their
Position Paper, petitioners alleged that they were illegally terminated from employment as a
result of the invalid closure of the company and were thus entitled to reinstatement. They
claimed that Tritran never ceased its business as shown by the continued operation of its buses
on the same routes under the management of JAM Transit, Inc., a company also owned by
Alvarez (President). It was also alleged that the employees of the company were asked to sign
voluntary resignation letters if they wanted to avail themselves of employment under the new
management. To petitioners, these circumstances proved that the closure was a mere ploy for
the company to circumvent their security of tenure and avoid its obligation to pay them
separation benefits.

Titran denied these allegations and asserted that the closure was justified under Article 283 of
the Labor Code. They cited the serious and irreversible losses sustained by the company from
2000 to 2002. In support of this allegation, they submitted the Audited Financial Statements
(AFS) of Tritran for the years ending 31 December 2001 and 31 December 2002 which were
prepared by its external auditors, Sicangco Menor Villanueva & Co. These documents showed
that the company had incurred the following losses: Php 30,023,774.45 in 2000; Php
37,621,961.71 in 2001; and Php 34,620,587.61 in 2002. Titran also emphasized their
compliance with the requirements of the Labor Code.

ISSUE:
Whether the employees were validly and legally terminated due to retrenchment?- Yes.
Petitioners were validly terminated from employment.

DISCUSSION:
We have consistently ruled that a company’s economic status may be established through the
submission of financial statements. If prepared by independent external auditors, these
statements are particularly entitled to weight and credence. In Manatad v. Philippine Telegraph
and Telephone Corp., this Court explained:

That the financial statements are audited by independent auditors safeguards the same
from the manipulation of the figures therein to suit the company’s needs. The auditing
 of financial reports by independent external auditors are strictly governed by national
and international standards and regulations for the accounting profession. It bears to
stress that the financial statements submitted by respondent were audited by reputable
auditing firms. Hence, petitioner’s assertion that respondent merely manipulated its
financial statements to make it appear that it was suffering from business losses that
would justify the retrenchment is incredible and baseless.

In addition, the fact that the financial statements were audited by independent auditors
settles any doubt on the authenticity of these documents for lack of signature of the
person who prepared it. As reported by SGV & Co., the financial statements presented
fairly, in all material aspects, the financial position of the respondent as of 30 June 1998
and 1997, and the results of its operations and its cash flows for the years ended, in
conformity with the generally accepted accounting principles.

Here, the AFS submitted by Titran were sufficient proofs of the serious business losses incurred.
These financial statements were prepared by Sicangco Menor Villanueva & Co., an independent
external auditor. The AFS were also attested to as fair presentations of the financial position of
the company for the specified periods.

Here, Tritran’s compliance with the notice requirement under the Labor Code has been
sufficiently proven. The company sent a written notice to its workers at least one month prior
to the effective date of its closure. It also informed the DOLE Regional Office of the intended
cessation of operations within the deadline.

Since the closure of Tritran was due to serious business losses, petitioners would ordinarily not
be entitled to separation benefits under Article 283. However, the Court notes that the
company voluntarily obligated itself to pay severance benefits to the employees,
notwithstanding its financial condition. In its letter to the DOLE Regional Office and the written
notices it sent to its workers, Tritran expressly promised to pay separation benefits to the
employees, less their actual accountabilities with the company. In fact, it repeatedly alleged
that it had paid its other employees these benefits and offered the same remuneration to
petitioners, as shown by photocopies of the check vouchers prepared in the latter’s name.

Ruling: Retrenchment valid and legal. Employer won.

Respondent Tritran, Inc. is hereby ordered to pay petitioners their corresponding separation
benefits less their accountabilities to the company.

BLUE EAGLE MANAGEMENT, INC. (BEMI) v. NAVAL

790 SCRA 328, G.R. No. 192488 April 19, 2016
FACTS:
BEMI is a domestic corporation with the primary purpose of establishing, owning, operating, or
managing a sports complex, and performing any and all acts necessary and incidental to
carrying out the same.

Ateneo de Manila University (ADMU), owner of the Moro Lorenzo Sports Center (MLSC) located
within the ADMU compound, gave petitioner BEMI the authority to manage and operate the
following businesses at MLSC: (a) sports clinic; (b) fitness gym; (c) coffee shop; and (d) lease of
basketball courts, badminton courts, locker rooms/storage facilities, weight training room, track
oval, martial arts deck, and office spaces. Under the MOA, ADMU and petitioner BEMI agreed,
among other terms and conditions, that (a) petitioner BEMI would operate the businesses on its
own account and employ its own employees, secure the necessary business licenses and
permits under its name, and pay all taxes related to its operations under its name; (b) profits or
losses from operations would be for the account of petitioner BEMI; (c) petitioner BEMI would
be responsible for the costs of maintaining MLSC in the same condition as it was when turned
over by ADMU excluding ordinary wear and tear; (d) petitioner BEMI would reimburse ADMU
the costs of electrical, water, telephone, and other utility charges, including the cost of
installation fees and deposits related thereto, which had been separately and exclusively used
and consumed by petitioner BEMI within MLSC; and (e) the agreement would be valid for a
period of three years commencing on October 1, 2006. 

During its first year of operation in 2005, petitioner BEMI suffered financial losses in the total
amount of PHP 5,067,409.44. In an attempt to reduce its financial losses, the Management of
BEMI (Management) resolved sometime in January 2006 to decrease the operational expenses
of the company. Since the gross income of BEMI was not even enough to cover the costs of the
salaries, wages, and other benefits of its employees, one of the measures the Management
intended to implement was the downsizing of its workforce. Pursuant to such decision of the
Management, petitioners Bonoan (General Manager) and Dela Rama (HR Manager) evaluated
and identified several employees who could be the subject of retrenchment proceedings, taking
into consideration the employees’ positions and tenures at BEMI. After their evaluation,
Bonoan and Dela Rama identified five employees for retrenchment, including respondent
Naval. Respondent was included in the list because she was one of the employees with the
shortest tenures.

Before actually commencing retrenchment proceedings (scheduled to be completed not later

than March 31, 2006), Dela Rama separately met with each of the five employees between
February 16 and 24, 2006 and presented to them the option of resigning instead. The
employees who would choose to resign would no longer be required to report for work after
their resignation but would still be paid their full salary for February 2006 and their prorated
13th month pay, plus financial assistance in the amount of one-month salary for every year of
service at BEMI. This option would also give the employees free time to seek other employment
while still receiving salary from BEMI.

Naval opted to voluntarily resign by executing a resignation letter in her own handwriting. The
other four employees identified for retrenchment similarly opted to voluntarily resign and
executed their respective resignation letters. Since all the five employees identified for
retrenchment decided to voluntarily resign instead and avail themselves of the financial
package offered by BEMI, there was no more need for the company to initiate retrenchment
proceedings. The five employees were instructed to return on February 28, 2006 to comply
with the exit procedure of petitioner BEMI and receive the amounts due them by reason of
their voluntary resignation.

However, Naval filed a complaint for illegal dismissal with prayer for reinstatement and
payment of backwages, damages and attorney’s fees before the NLRC. She denied the
allegation that she voluntarily resigned and denied the intention of receiving any amount from
BEMI.

ISSUE:
Whether the employees were validly and legally dismissed due to retrenchment?- Yes.

DISCUSSION:
As borne out by the Financial Statements for 2005 of BEMI, there was ground for the company
to implement a retrenchment of its employees at the time respondent resigned.

Retrenchment is one of the authorized causes 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.

Proof of financial losses becomes the determining factor in proving the legitimacy of
retrenchment. In establishing a unilateral claim of actual or potential losses, financial
statements audited by independent external auditors constitute the normal method of proof of
profit and loss performance of a company. The condition of business losses justifying
retrenchment is normally shown by audited financial documents like yearly balance sheets and
profit and loss statements as well as annual income tax returns.

Petitioners submitted the Annual Income Tax Return and Financial Statements for 2005 of
petitioner BEMI. Said Financial Statements of petitioner BEMI were audited by Armando J.
Jimenez, a Certified Public Accountant (CPA) and independent auditor, whose credibility was
never contested by respondent.

That petitioners were not able to present financial statements for years prior to 2005 should
not be automatically taken against them. Petitioner BEMI was organized and registered as a
corporation in 2004 and started business operations in 2005 only. While financial statements
for previous years may be material in establishing the financial trend for an employer, these are
not indispensable in all cases of retrenchment. The evidence required for each case of
retrenchment will still depend on its particular circumstances. In fact, in Revidad v. National
Labor Relations Commission, the Court declared that “proof of actual financial losses incurred
by the company is not a condition sine qua non  for retrenchment,” and retrenchment may be
undertaken by the employer to prevent even future losses:

In its ordinary connotation, the phrase “to prevent losses” means that retrenchment or
termination of the services of some employees is authorized to be undertaken by the
employer sometime before the anticipated losses are actually sustained or realized. It is
not, in other words, the intention of the lawmaker to compel the employer to stay his
hand and keep all his employees until after losses shall have in fact materialized. If such
an intent were expressly written into the law, that law may well be vulnerable to
constitutional attack as unduly taking property from one man to be given to another.

Irrefragably, such loss was actual and substantial for a newly-established corporation during its
first year of operation, and there is no showing that such loss would abate in the near future. By
year end of 2005, the stockholders of petitioner BEMI had to infuse cash advances amounting
to Php 7,361,743.30 to cover the deficit of Php 3,293,816.14 just so the company could
continue its operations. Actually, petitioner BEMI continued to suffer loss in 2006 which
compelled it to close its coffee shop at MLSC by August 31, 2006.

Petitioner BEMI had to act swiftly and decisively to avert its loss since its MOA with ADMU for
the conduct of its business at MLSC was for a period of only a little over three years. The
retrenchment of employees appears to be a practical course of action for petitioner BEMI to
prevent more losses considering that: (1) among the direct costs of the company in 2005, the
salaries of its coffee shop and gym employees was the highest item, totalling Php 3,791,671.81;
and (2) as the NLRC pointed out, the gross profit of the company amounting to Php
2,319,832.39 was not even sufficient to cover its administrative employees’ salaries and wages
in the amount of Php 2,969,986.15, not to mention other administrative expenses.

Because the five employees to be retrenched opted to voluntarily resign instead and avail
themselves of the financial package offered, there was no more need for petitioner BEMI to
comply with the notice requirement to the DOLE. Said five employees were to receive more
benefits than what the law prescribed in case of retrenchment, particularly: (a) full salary for
February 2006 although they were no longer required to report to work after submission of
their resignation letters in mid-February 2006; (b) prorated 13th month pay; and (c) financial
assistance equivalent to one-month salary for every year of service.

The foregoing circumstances persuade the Court that no fraud or deception was employed
upon respondent to resign because petitioner BEMI was indeed about to implement in good
faith a retrenchment of its employees in order to advance its interest and not merely to defeat
or circumvent the respondent’s right to security of tenure.

The Court accorded weight to the resignation letters of the employees because although said
letters were prepared by the company, the employees signed the same voluntarily. The need
for retrenchment, and the option to voluntarily resign and the financial package which
respondent could avail herself of were duly explained to respondent during the meeting on
February 20, 2006; and respondent’s resignation letter was in Filipino, using simple terms which
could be easily understood.

Ruling: Voluntary resignation in lieu of retrenchment was valid. Employer won. The
retrenchment program was valid and legal.
Considering the company’s financial condition, We find good faith on its part when it decided to
implement a retrenchment program and see no basis to hold that it was merely intended to
defeat or circumvent the employees’ right to security of tenure. Such finding is further
supported by the criterion of shortest tenure in service which was used by the [petitioners] in
determining the employees to be included in the program.

----------------- SUBMITTED --------------------------------

Legal standards for retrenchment

Five basic standards before any reduction of personnel become legal:

1. The retrenchment is reasonably necessary and likely to prevent business losses;
2. That the employer served written notice both to the employees and to the Department
of Labor and Employment at least one month before effectivity;
3. That the employer pays the retrenched employees separation pay equivalent to one
month pay or at least one-half month pay for every year in service, whichever is higher;
4. That the employer exercises its prerogative to retrench employees in good faith; and
5. That the employer used fair and reasonable criteria in ascertaining would be dismissed
and who would be retained among the employees.

CABAOBAS, et al. v. PEPSI-COLA PRODUCTS PHILIPPINES, INC.

754 SCRA 325, G.R. No. 176908, March 25, 2015
FACTS:
Pepsi-Cola Products Philippines, Inc. (PEPSI) is a domestic corporation engaged in the
manufacturing, bottling and distribution of soft drink products, which operates plants all over
the country, one of which is the Tanauan Plant in Tanauan, Leyte.

Pepsi’s Tanauan Plant allegedly incurred business losses. To avert further losses, Pepsi
implemented a company-wide retrenchment program denominated as Corporate-wide
Rightsizing Program (CRP) from 1999 to 2000, and retrenched 47 employees on July 31, 1999.

On January 15, 2000, petitioners, who are permanent and regular employees of the Tanauan
Plant, received their respective letters, informing them of the cessation of their employment
pursuant to Pepsi’s retrenchment program. Pepsi argued that the retrenchment program was
to save the company from total bankruptcy and collapse; thus, it sent notices of termination to
them and to DOLE. Pepsi submitted audited financial statements showing that it suffered
financial reverses in 1998 amounting to (P700,000,000.00), (P27,000,000.00) of which was
allegedly incurred in the Tanauan Plant in 1999.

Petitioners alleged that Pepsi was not facing serious financial losses because after their
termination, it regularized 4 employees and hired replacements for the 47 dismissed
employees. The retrenchment program was just designed to prevent their union from
becoming the certified bargaining agent of Pepsi’s rank-and-file employees.

The Labor Arbiter found the dismissal of petitioners as illegal, and ordered their reinstatement
to their former positions without loss of seniority right and to pay them full backwages and
other benefits reckoned from February 16, 2000 until they are actually reinstated.

NLRC rendered a consolidated decision declaring the retrenchment program a valid exercise of
management prerogatives.

ISSUE:
Whether the retrenchment program is valid? – Yes.

DISCUSSION:
The Court ruled that Pepsi had validly implemented its retrenchment program. Pepsi’s financial
statements are substantial which carry great credibility and reliability viewed in the light of the
financial crisis that hit the country which saw multinational corporations closing shops and
walking away, or adapting their own corporate rightsizing program. The notice requirement
was also complied with by PEPSI-COLA when it served notice of the corporate rightsizing
program to the DOLE and to the fourteen (14) employees who will be affected thereby at least
one (1) month prior to the date of retrenchment.

Records also show that the respondents had already been paid the requisite separation pay as
evidenced by the September 1999 quitclaims signed by them. Effectively, the said quitclaims
serve inter alia the purpose of acknowledging receipt of their respective separation pays.
Appositely, respondents never questioned that separation pay arising from their retrenchment
was indeed paid by Pepsi to them. As such, the foregoing fact is now deemed conclusive.

Also, as aptly pointed out by the NLRC, Pepsi’s Corporate Rightsizing Program was a company-
wide program which had already been implemented in its other plants in Bacolod, Iloilo, Davao,
General Santos and Zamboanga. Consequently, given the general applicability of its
retrenchment program, Pepsi could not have intended to decimate LEPCEU-ALU’s membership,
much less impinge upon its right to self-organization, when it employed the same.

Moreover, it must be underscored that Pepsi’s management exerted conscious efforts to

incorporate employee participation during the implementation of its retrenchment program.
Records indicate that Pepsi had initiated sit-downs with its employees to review the criteria on
which the selection of who to be retrenched would be based.

Given that the financial statements are incomplete, the independent auditing firm, SGV & Co.,
aptly explained nonetheless that they were derived from the PCPPI’s accounting records, and
were subject to further adjustments upon the completion of the audit of financial statements of
the company taken as a whole, which was then in progress.

the letter of SGV & Co., accompanied by a consolidated Statement of Income and Deficit
showing a net loss of P29,167,000 in the company’s Tanauan Operations as of June 30, 1999,
and P22,328,000 as of June 2000,36 is sufficient and convincing proof of serious business losses
which justified PCPPI’s retrenchment program.
In the conciliation conference, PEPSI expressed its willingness to sit down with unions and
review the criteria. When this was suggested by the conciliator, the idea was then and there
rejected by the unions, giving the impression that the real conflict was interunion. There being
no cooperation from the unions, PEPSI went on with the first batch of retrenchment involving
47 workers. It bears stressing that all 47 workers signed individual release and quitclaims and
settled their complaints with respondent Pepsi.

Ruling: Retrenchment is valid. Employer Pepsi won.

CABAOBAS, et al. v. PEPSI-COLA PRODUCTS PHILIPPINES, INC.

774 SCRA 594, G.R. No. 176908 November 11, 2015
FACTS:
Petitioners belong to the second batch of employees retrenched on February 15, 2000.

In a another case of Pepsi entitled Pepsi-Cola Products Philippines, Inc. v. Molon, involving the
same employer but covering the first batch of retrenched employees, the CA and the NLRC had
already determined that Pepsi complied with the requirements of substantial loss and due
notice to both the DOLE and the workers to be retrenched, and that the requisite separation
pay had already been paid as evidenced by the September 1999 quitclaims.

Petitioners argue that a few days after service of their notices of termination, four (4)
employees were regularized, and replacements to the forty-seven (47) dismissed employees
were also hired, and that they have not yet received their separation pay.

Petitioners sought for reinstatement without loss of seniority rights and other privileges,
payment of backwages, damages and attorney’s fees on account of their unlawful
retrenchment. Pepsi, on the other hand, alleged in its position paper that it had offered to pay
petitioners separation package equivalent to 150% or 1.5 months for every year of service, and
that they were served individual notices advising them to claim their separation pay.

ISSUE:
Whether Pepsi complied with all the requisites of a valid retrenchment program? – Yes.

DISCUSSION:
The validity of the retrenchment program of Pepsi was already passed upon and sustained in
the Molon case.

On the issue of the replacements, they were not regular employees of Pepsi, hence, they are
not considered replacements to the regular employees that were retrenched. For instance, it
was alleged that the “filer mechanic” was replaced by an employee from the agency named
“Helpmate Janitorial Services”. The janitorial service employee is not a replacement for a filer
mechanic.

The idea of rightsizing is to reduce the number of workers and related functions and trim down,
streamline, or simplify the structure of the organization to the level of utmost efficiency and
productivity in order to realize profit and survive. After the CRP shall have been implemented,
the desired size of the corporation is attained. Engaging the services of service contractors does
not expand the size of the corporate structure. In this sense, the retrenched workers were not
replaced.

On the issue of the failure of Pepsi to comply with the requisites of a valid retrenchment
program, it was duly established that written notices to employees and to DOLE were properly
given, and the separation pay was duly paid. Therefore, having been retrenched, petitioners
were not entitled to reinstatement with full backwages. However, in ordering Pepsi to pay
petitioners’ separation benefits of 1 1/2-month salary for every year of service, plus
commutation of all vacation and sick leave credits, the NLRC noted that the corresponding
length of petitioners’ services with Pepsi are different from what they had erroneously alleged.
Meanwhile, the CA held that the requisite for the payment of separation pay was evidenced by
the notices sent by Pepsi to petitioners. Clearly, Pepsi cannot be faulted for petitioners’ failure
to receive their separation pay.

On the issue of bad faith on the part of Pepsi in implementing the retrenchment program, and
the question of its true motive to prevent their union from becoming a certified bargaining
agent, Petitioners only raised this issue for the first time in this Motion for Reconsideration. This
is why the NLRC and the CA did not discuss such issue in the first place.

Ruling: Retrenchment program valid. Employer Pepsi won. The retrenched employees’ failure
to claim their separation pay is not the fault of employer Pepsi.

BERALDE v. LAPANDAY AGRICULTURAL AND DEVELOPMENT CORPORATION (GUIHING

PLANTATION OPERATIONS), 760 SCRA 158, G.R. Nos. 205685-86, June 22, 2015
FACTS:
Lapanday Agricultural and Development Corporation (Lapanday) is engaged in the business of
banana plantation and exporting of the same to its clientele abroad. Petitioners (90+
employees) are employees in the said corporation.

Between the years 1992-1994, Lapanday retrenched and paid separation pay to some of its
employees in a downsizing effort. Thereafter, Lapanday allegedly rehired some of their former
employees with a promise that the land they worked on will be eventually turned over to them,
since the land was covered by the Comprehensive Agrarian Reform Program (CARP). The
employees including several of the petitioners agreed to be retrenched and rehired.

Sometime in 1999, Lapanday again retrenched all its employees and offered to pay separation
pay for their years of service. Meanwhile, the land was not turned over to them as promised
since DAR exempted said land from the coverage of the CARP. On March 29, 1999, Lapanday
and the employees, including petitioners, signed a new employment contract. However, upon
learning of the DAR’s order of exemption, the employees filed a petition to revoke said order.

On January 4, 2008, Lapanday issued a Notice of Termination to all its employees, including
herein petitioners. In the said notice of termination, it was stated that the company is
instituting a retrenchment program pursuant to Section 5, Article 1 of the CBA to prevent losses
as a result of the dramatical increase in production costs and lower productivity, an onslaught
of banana diseases, the adverse effects of the imposition of the aerial spraying ban, the
reduction of leased areas due to CARP, the refusal of the landowners to renew petitioner’s
lease contracts, and the extraordinary fluctuation in foreign exchange. The termination date for
all employees was effective February 4, 2008. Separation pay was offered to its employees.

They averred to have implemented numerous saving measures; however, its financial condition
continued to decline, thus, they opted to implement a retrenchment program. Lapanday
further claimed that it consulted with the employee’s, and filed the required notice with DOLE
before the implementation of said program.

Petitioners filed a complaint for illegal dismissal.

ISSUE:
Whether their dismissal due to retrenchment was valid and legal? – Yes.

DISCUSSION:
Retrenchment is the termination of employment initiated by the employer through no fault of
the employees and without prejudice to the latter, resorted to by management during periods
of business recession; industrial depression; or seasonal fluctuations, 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 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. In the discharge
of these requirements, it is the employer who bears the onus, being in the nature of affirmative
defense.

Therefore, for a valid retrenchment, the following requisites must be complied with:
(a) the retrenchment is necessary to prevent losses and such losses are proven;
(b) written notice to the employees and to the DOLE at least one month prior to the
intended date of retrenchment;
(c) payment of separation pay equivalent to one-month pay or at least one-half-month pay
for every year of service, whichever is higher;
(d) the employer must use fair and reasonable criteria in ascertaining who would be
dismissed and retained among the employees; and
(e) the retrenchment must be undertaken in good faith.

Except for the written notice to the affected employees and the DOLE, noncompliance with any
of these requirements renders the retrenchment illegal.

In the instant case, Lapanday’s financial condition before and at the time of petitioners’
retrenchment, justified petitioners retrenchment. The audited financial report presented in
evidence was found to conclusively show that Lapanday has indeed suffered serious financial
losses for the last three years prior to its retrenchment.

Lapanday instituted a retrenchment program as a result of the management’s decision to limit

its operation and streamline positions and personnel requirements and arrest its increasing
financial losses by downsizing its workforce. The audited financial reports of independent and
reputable external auditors such as SGV & Co. can best attest to a company’s economic status
other than its financial statement. The fact that the financial statements were audited by
independent auditors settles any doubt on the financial condition of Lapanday.

However, even assuming arguendo that Lapanday was not experiencing losses, it is still
authorized by Article 283 of the Labor Code to terminate the employment of any employee due
to retrenchment to prevent losses or the closing provided that the projected losses are not
merely de minimis, but substantial, serious, actual, and real, or if only expected, are reasonably
imminent as perceived objectively and in good faith by the employer.

Lapanday complied with the requisite notices to the affected employees and the DOLE to effect
a valid retrenchment. By reason of the hard “no retrenchment” stand of herein complainants,
the latter refused to receive the notices of termination, thus, copies of the Letters of
Retrenchment were sent through registered mail on January 8, 2008 to the last known
addresses of the complainants.

We likewise cannot sustain petitioners’ argument that their dismissal was illegal on the basis
that Lapanday did not actually cease its operation, or that they have rehired some of the
dismissed employees and even hired new set of employees to replace the retrenched
employees.

When Lapanday continued its business operation and eventually hired some of its retrenched
employees and new employees, it was merely exercising its right to continue its business. The
fact that Lapanday chose to continue its business does not automatically make the
retrenchment illegal. We reiterate that in retrenchment, the goal is to prevent impending losses
or further business reversals — it therefore does not require that there is an actual closure of
the business. Thus, when the employer satisfactorily proved economic or business losses with
sufficient supporting evidence and have complied with the requirements mandated under the
law to justify retrenchment, as in this case, it cannot be said that the subsequent acts of the
employer to rehire the retrenched employees or to hire new employees constitute bad faith.

The payment of separation pay would be due when a dismissal is on account of an authorized
cause as in this case, and the amount of separation pay depends on the ground for the
termination of employment. When the termination of employment is due to retrenchment to
prevent losses, or to closure or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses, the separation pay is only an equivalent of “one
(1)-month pay or at least one-half (1/2)-month pay for every year of service, whichever is
higher.” In the above instances, a fraction of at least six (6) months is considered as one (1)
whole year.

Consequently, petitioners are not entitled to backwages as it is well-settled that backwages

may be granted only when there is a finding of illegal dismissal. However, they are still entitled
to other benefits under the retrenchment program.

Ruling: Retrenchment was valid. Employer won. Rehiring the previously retrenched employees
does not automatically show proof of bad faith on the part of the employer.

PHILIPPINE AIRLINES, INC. v. BICHARA

769 SCRA 139, G.R. No. 213729, September 2, 2015
FACTS:
1968 - PAL hired Bichara as a flight attendant.
1971 - PAL implemented a retrenchment program.
1971, April - Bichara voluntarily resigned.
1975 - Bichara was rehired.

1994 – Bichara, who was a “flight purser”, was demoted to a “flight steward”.
Bichara appealed his demotion to PAL, but was no action was taken.
He filed a complaint for illegal demotion against PAL before NLRC.

1997 - The Labor Arbiter declared Bichara’s demotion as illegal and ordered PAL to reinstate
him to his position as flight purser. This decision became final and executory after it was
decided and affirmed by the CA. (2004)

1998 – During the pendency of the illegal demotion case in the CA, PAL implemented another
retrenchment program, terminating Bichara’s employment.

During the 1998 retrenchment program, 1,400 retrenched flight attendants, represented by the
Flight Attendants and Stewards Association of the Philippines (FASAP), filed a separate
complaint for unfair labor practice, illegal retrenchment with claims of reinstatement and
payment of salaries, allowances, backwages and damages against PAL.
2004 – CA decided and affirmed the decision of the NLRC declaring the demotion of Bichara as
illegal. PAL no longer appealed, hence, it became final and executory.

2005 – Bichara reached the 60-year old compulsory retirement age under the PAL-FASAP
Collective Bargaining Agreement (CBA).

2008 – Bichara filed a motion for execution of the 1997 Decision. PAL opposed arguing that
there are “supervening events” caused by the illegal retrenchment case filed on 1998
that will affect the decision in the 1997 illegal demotion case of Bichara.

2009 – the Labor Arbiter Macam granted Bichara’s motion for execution and ordered PAL to
pay separation pay in lieu of reinstatement as a flight purser, and attorney’s fees.

2014 – the CA affirmed the decision of the LA Macam in his 2009 decision. Since Bichara was
one of the retrenched employees involved in the FASAP case, the 2009 Decision entitled
Bichara of backwages from the time of his retrenchment up to the time he reached the
compulsory retirement age of 60. He is also entitled to the retirement benefits provided
by the existing CBA at the time of his retirement.

ISSUE:
Whether Bichara was validly retrenched? – Yes.
Whether the monetary awards shall be reckoned from the time of retrenchment (1998) or
from the time of his retirement (2005)? –

DISCUSSION:
LA Macam went beyond the terms of the 1997 Decision when he, in his 2009 Order, directed
the issuance of a writ of execution ordering the payment of separation pay in lieu of
reinstatement. The validity of Bichara’s termination is the subject matter of a separate case,
i.e., the FASAP case (1998 illegal retrenchment case), which is still pending before the Supreme
Court, and is also beyond the ambit of the (1997) illegal demotion proceedings. Hence, LA
Macam exceeded his authority when he ruled on this issue and directed PAL to pay Bichara
separation pay in lieu of reinstatement.

PAL’s supervening retrenchment of its employees, which included Bichara, in July 1998, and his
compulsory retirement in July 2005, however, prevent the enforcement of the reinstatement of
Bichara to the position of flight purser under the June 16, 1997 Decision.

since Bichara’s illegal demotion has been finally decreed, he should be entitled to (a)
backwages, at the salary rate of a flight purser, from the time of retrenchment in July 1998 up
until his compulsory retirement in July 2005; (b) retirement benefits of a flight purser in
accordance with the existing CBA at the time of Bichara’s retirement; and (c) attorney’s fees,
moral, and exemplary damages, if any, but only if this Court, in the FASAP case, finally rules that
the subject retrenchment is invalid. Otherwise, he should only be entitled to the above stated
salary differential, as well as the corresponding separation pay required under the relevant
CBA, or Article 29749 (formerly Article 283) of the Labor Code if no such CBA provision exists.
The awards of backwages, and retirement benefits, including attorney’s fees, moral, and
exemplary damages, if any, cannot, however, be executed in these proceedings since they are
incidents which pertain to the illegal retrenchment case, hence, executable only when the
FASAP case is finally concluded.

Ruling: Partly granted. PAL was not ordered to pay backwages or separation pay pending the
decision of the FASAP case.
NOTE: In 2018, the FASAP case was finally decided ordering the retrenchment of their
employees valid and legal. Hence, Bichara will only be entitled to separation pay.

NEC SYSTEM INTEGRATED CONSTRUCTION (NESIC) PHILS., INC. v. RALPH T. CRISOLOGO

772 SCRA 79, G.R. No. 201535, October 5, 2015
FACTS:
1993 – Crisologo was employed by petitioner NEC System Integrated Construction Phils., Inc.
(NESIC), a Philippine corporation a business engaged in providing specialty and technical
telecommunications services. He was assigned as Manager of petitioner’s
Communication Facilities Engineering Department.

Due to his exemplary work performance, respondent was promoted several times.

2001 - was appointed as Executive Senior Manager-Quality Control and Training with a gross
monthly salary of P93,596.84 including allowances. Although Crisologo was reluctant to
accept the new position as this was a demotion from his position at that time as Vice
President, he still accepted the new position on the condition that his salary “remains
the same”. He also expressed the “hope” that the appointment is only temporary.

2003, July – Crisologo’s formal appointment (demotion) as such came out only this year.

2003, August – the new President announced the implementation of cost-cutting measures. It is
the initial response to the need of a long-term cost reduction and increased profitability
program to ensure future progress.” A cost reduction plan was drafted. Notwithstanding
its cost-cutting measures, petitioner’s financial statements revealed a net loss of Php 25
million for the year 2003.

2004, March 4 – Retrenchment program was announced. Petitioner notified DOLE in writing of
its retrenchment program and submitted an Establishment Termination Report,
terminating the employment of 17 employees, including respondent Crisologo.

2004, March 5 – NEC sent Crisologo a termination letter via registered mail because he was
absent. He personally received a copy on March 8, 2004 when he reported for work.

2004, March 12 – Crisologo received Php 1,002,065.24 representing his separation pay and
other benefits up to March 5, 2004. He executed a Waiver and Quitclaim and a receipt
for said amount. However, on realizing that respondent received the termination letter
only on March 8, 2004 but that his termination became effective on April 5, 2004, or less
than the required one month from receipt of notice of termination, petitioner adjusted
his effective date of termination to April 10, 2004.

Crisologo sought reconsideration of his retrenchment, but to no avail. Hence, he filed a

complaint for illegal dismissal and recovery of backwages, allowances, benefits, moral and
exemplary damages, and attorney’s fees.

The Labor Arbiter dismissed Crisologo’s complaint declaring the retrenchment valid and just.
This decision was affirmed by the NLRC. However, the CA reversed this ruling and ruled that
NEC failed to observe a fair and reasonable criteria that will determine who shall be dismissed
and who will be retained. Hence, this petition for review on certiorari.

ISSUE:
Whether the dismissal on the ground of retrenchment was valid? – Yes.

DISCUSSION:
Crisologo subscribed to the document/deed captioned “WAIVER AND QUITCLAIM SEPARATION
PAY”, and accepted its benefits of his own free will and for valuable consideration.
1. He ceased to be employed because of retrenchment resulting from reorganization,
effective at the close of office hours of April 5, 2004.
2. He has released, waived and forever discharged petitioner, . . . from any action for sums
of money or other obligations arising from his previous employment with petitioner.
3. He as “no cause of action whatsoever, criminal, civil or otherwise against
[petitioner], . . . with respect to any matter arising from or cessation of [his]
employment.
4. He acknowledged receipt of the payment of Php 1,002,065.24, on March 10, 2004.
5. He will also receive his “Last Pay” based on the letter sent on March 31, 2004.

The impressive credentials and the combination of all these circumstances repels the
suggestion that Crisologo might not have fully or thoroughly grasped or understood the plain
meaning, intendment and significance of the deed/document to which he affixed his signature,
and from the obvious and inevitable effects of which he now seeks to rid or extricate himself.
That by his free and voluntary act and deed he chose or opted to deed away his patrimonial
rights he has only himself to blame.

“Not all waivers and quitclaims are invalid as against public policy. If the agreement was
voluntarily entered into and represents a reasonable settlement, it is binding on the parties and
may not later be disowned simply because of a change of mind. It is only where there is clear
proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of
settlement are unconscionable on its face, that the law will step in to annul the questionable
transaction. But where it is shown that the person making the waiver did so voluntarily, with
full understanding of what he was doing, and the consideration for the quitclaim is credible and
reasonable, the transaction must be recognized as a valid and binding undertaking. As in this
case.”
Ruling: The dismissal on the ground of retrenchment is valid and legal. Employer won.

----------------- SUBMITTED: May 9, 2020 --------------------------------

PLASTIMER INDUSTRIAL CORPORATION v. GOPO

643 SCRA 502, G.R. No. 183390, February 16, 2011
FACTS:
2004, May 7 – the Personnel and Administration Manager of Plastimer Industrial Corporation
(Plastimer) issued a Memorandum informing all its employees of the decision of the
Board of Directors to downsize and reorganize its business operations due to
withdrawal of investments and shares of stocks which resulted in the change of its
corporate structure.

2004, May 7 – employees of Plastimer (respondents herein) were served written notices of
their termination effective 13 June 2004.

2004, May 24 – Plastimer and Plastimer Industrial Corporation Christian Brotherhood (PICCB),
the incumbent sole and exclusive collective bargaining representative of all rank and file
employees, entered into a Memorandum of Agreement (MOA) relative to the terms and
conditions that would govern the retrenchment of the affected employees.

2004, May 24 – Plastimer submitted to DOLE an Establishment Termination Report containing

the list of the employees affected by the reorganization and downsizing.
2004, May 28 – the affected employees, including respondents, signed individual “Release
Waiver and Quitclaim.”

Thereafter, respondents filed a complaint against Plastimer for illegal dismissal. Respondents
alleged that they did not voluntarily relinquish their jobs and that they were required to sign
the waivers and quitclaims without giving them an opportunity to read them and without
explaining their contents. Plastimer failed to establish the causes/valid reasons for the
retrenchment and to comply with the one-month notice to the DOLE as well as the standard
prescribed under the CBA.

2005, August 22 – the Labor Arbiter ruled in favor of Plastimer.

2005, December 29 – the NLRC affirmed the LA’s ruling.
2007, August 13 – the CA reversed the previous rulings and ruled in favor of the employees. The
Court noted that while Plastimer claimed financial losses from 2001 to 2004, records
showed an improvement of its finances in 2003.

Hence, this petition for review.

ISSUE:
Whether the retrenchment was valid even though the notice to DOLE was less than 30 days
before the effectivity date of the dismissal of the retrenched employees? – Yes.

DISCUSSION:
Plastimer submitted the notice of termination of employment to the DOLE on May 26, 2004.
However, notice to the affected employees were given to them on May 14, 2004 or 30 days
before the effectivity of their termination from employment on June 13, 2004. While notice to
the DOLE was short of the one-month notice requirement, the affected employees were
sufficiently informed of their retrenchment 30 days before its effectivity. Petitioners’ failure to
comply with the one-month notice to the DOLE is only a procedural infirmity and does not
render the retrenchment illegal. When the dismissal is for a just cause, the absence of proper
notice should not nullify the dismissal or render it illegal or ineffectual. Instead, the employer
should indemnify the employee for the violation of his statutory rights. Here, the failure to fully
comply with the one-month notice of termination of employment did not render the
retrenchment illegal but it entitles respondents to nominal damages.

An independent auditor confirmed Plastimer’s losses for the years 2001 and 2002. The fact that
there was a net income in 2003 is not a valid reason for the retrenchment to be illegal. Records
showed that the net income of Php 6,185,707 for 2003 was not even enough for Plastimer to
recover from the Php 52,904,297 loss in 2002. Article 283 of the Labor Code recognizes
retrenchment to prevent losses as a right of the management to meet clear and continuing
economic threats or during periods of economic recession to prevent losses. There is no need
for the employer to wait for substantial losses to materialize before exercising ultimate and
drastic option to prevent such losses.

A waiver or quitclaim is a valid and binding agreement between the parties, provided that it
constitutes a credible and reasonable settlement, and that the one accomplishing it has done so
voluntarily and with a full understanding of its import. Respondent employees were sufficiently
apprised of their rights under the waivers and quitclaims that they signed. Each document
contained the signatures of Edward Marcaida, the union president, and Atty. Bayani Diwa, the
counsel for the union, which proved that respondent employees were duly assisted when they
signed the waivers and quitclaims. Further, Marcaida’s letter to Teo Kee Bin (Plastimer’s
President), dated May 28 2004, proved that proper assistance was extended upon respondent
employees.
Ruling: Retrenchment is valid and legal. The waivers and quitclaims were valid. Employer won.
But they were ordered to pay the employees Php 30,000 nominal damages for non-compliance
with the 30-day notice to DOLE.

SHIMIZU PHILS. CONTRACTORS, INC. v. CALLANTA

631 SCRA 529, G.R. No. 165923, September 29, 2010
FACTS:
1997, June 7 – Shimizu (employer) sent a Memorandum informing Callanta that his services will
be terminated effective July 9, 1997 due to the lack of any vacancy in other projects and
the need to re-align the company’s personnel requirements brought about by the
imperatives of maximum financial commitments.

Shimizu argued that Callanta was terminated in accordance with a valid retrenchment program
being implemented by the company since 1996 due to financial crisis that plague the
construction industry. To prove its financial deficit, Shimizu presented financial statements for
the years 1995 to 1997 as well as the SEC’s approval of Shimizu’s application for a new paid-in
capital amounting to Php 330,000,000. Shimizu alleged that in order not to jeopardize the
completion of its projects, the abolition of several departments and the concomitant
termination of some employees were implemented as each project is completed. When
Callanta’s Honda Project was completed, Shimizu offered his separation pay. Callanta refused to
accept and instead filed this complaint for illegal dismissal.

Callanta accused Shimizu of the following violations:

 The notice sent to him never mentioned retrenchment but only project completion as
the cause of termination
 The notice sent to the DOLE did not conform to the 30-day prior notice requirement
 It failed to use fair and reasonable criteria in determining which employees shall be
retrenched or retained. As shown in the termination report submitted to DOLE, he was
the only one dismissed out of 333 employees. The junior and inexperienced employees
were appointed/assigned in his stead to new projects thus also ignoring seniority in
hiring and firing employees. 

The Labor Arbiter ruled that Callanta was validly retrenched. This was affirmed by the NLRC.
The CA, however, reversed the ruling. Hence, this petition for review on certiorari.

ISSUE:
Whether the retrenchment of Callanta is valid? – Yes.

DISCUSSION:
There was substantial compliance for a valid retrenchment; petitioner used fair and
reasonable criteria in effecting retrenchment.

As an authorized cause for separation from service under Article 283 of the Labor Code,
retrenchment is a valid exercise of management prerogative subject to the strict requirements
set by jurisprudence:

(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, actual
and real, or if only expected, are reasonably imminent as perceived objectively and in
good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department
of Labor and Employment at least one month prior to the intended date of
 retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one
month pay or at least ½ month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, x x x
efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

In implementing its retrenchment scheme, petitioner was constrained to streamline its

operations and to downsize its complements in a progressive manner in order not to jeopardize
the completion of its projects. Thus, several departments like the Civil Works Division, Electro-
mechanical Works Division and the Territorial Project Management Offices, among others, were
abolished in the early part of 1996 and thereafter the Structural Steel Division, of which
respondent was an Administrator. Respondent was among the last batch of employees who
were retrenched and by the end of year 1997, all of the employees of the Structural Steel
Division were severed from employment.

Although there was authorized cause to dismiss respondent from the service, we find that
petitioner did not comply with the 30-day notice requirement. Petitioner maintains that it
substantially complied with the requirement of the law in that it, in fact, submitted two notices
or reports with the DOLE. However, petitioner admitted that the reports were submitted 21
days, in the case of the first notice, and 16 days, in the case of the second notice, before the
intended date of respondent’s dismissal. The purpose of the one month prior notice rule is to
give DOLE an opportunity to ascertain the veracity of the cause of termination. Non-compliance
with this rule clearly violates the employee’s right to statutory due process.

Petitioner implemented its retrenchment program in good faith because it undertook several
measures in cutting down its costs, to wit, withdrawing certain privileges of petitioner’s
executives and expatriates; limiting the grant of additional monetary benefits to managerial
employees and cutting down expenses; selling of company vehicles; and infusing fresh capital
into the company. Respondent did not attempt to refute that petitioner adopted these
measures before implementing its retrenchment program.

In fine, we hold that petitioner was able to prove that it incurred substantial business losses,
that it offered to pay respondent his separation pay, that the retrenchment scheme was arrived
at in good faith, and lastly, that the criteria or standard used in selecting the employees to be
retrenched was work efficiency which passed the test of fairness and reasonableness.

WHEREFORE, the petition is GRANTED. The challenged June 10, 2004 Decision and October 5,
2004 Resolution of the Court of Appeals in CA-G.R. SP. No. 66888 are REVERSED and SET ASIDE.
The Decision and Resolution of the National Labor Relations Commission dated December 14,
2000 and June 29, 2001, respectively, upholding the legality of respon dent’s dismissal and
awarding him separation pay equivalent to one (1) month pay or one-half (1/2) month pay for
every year of service, whichever is higher, are REINSTATED and AFFIRMED with MODIFICATION
that the indemnity to be awarded to respondent is fixed in the amount of P50,000.00 as
nominal damages.

SO ORDERED.
Ruling: Retrenchment valid. Employer won. Due to the failure complete the 30-day notice to
DOLE, employer was ordered to pay nominal damages in addition to the separation pay.