THE LAW ON TERMINATION OF EMPLOYMENT DUE TO AUTHORIZED

CAUSES

AUTHORIZED CAUSES FOR DISMISSING AN EMPLOYEE:

1. Installation of labor saving device - 1 mo pay per yr of service
2. Redundancy - 1 mo pay per yr of service
3. Retrenchment to prevent losses - ½ mo pay per yr of service
4. Closure of establishment or section and reduction of personnel
a. Not due to financial losses - ½ mo pay per yr of service
b. Due to financial losses - none
5. Disease where the employee's continued employment is prohibited by law or is
prejudicial to his health or the health of co-employees and illness cannot be cured within
a period of 6 mos despite medical treatment - ½ mo pay per yr of service
6. Separation Pay due an illegally dismissed employee in lieu of reinstatement to his
former position - 1 mo pay per yr of service in addition to backwages
7. Separation pay for laid-off employees for a period exceeding 6 mos (permanently laid
off) - 1 mo pay per yr of service

* Retrenchment – termination of employment initiated by the employer through no fault

of the employee and without prejudice to the latter and resorted by the management
during periods of industrial 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 of automation

REQUIREMENTS FOR VALID RETRENCHMENT:

1. reasonably necessary and likely to prevent business loss or if business losses are only
expected, the business losses are reasonably imminent
2. employer served written notification both to the individual employees affected and to
the DOLE at least 1 month prior to the intended date or retrenchment
3. the employer pays the retrenched employee separation pay equivalent to ½ month pay
for every year of service or at least 1 month pay whichever is higher
4. employer exercises its prerogative to retrench employees in good faith and not to
defeat or circumvent the employee’s right to security of tenure
5. employer used fair and reasonable criteria in ascertaining who would be terminated
and who would be retained

* LIFO Rule/ Last-in-First-out – applies to termination of employment in the line of work

such that where there are 2 or more employees occupying the same position in the
company affected by the retrenchment program, the last one employed will be necessarily
the first to go

SUBSTANTIVE REQUIREMENTS FOR VALID RETRENCHMENT:

1. losses expected should be substantial
2. substantial losses apprehended should be reasonably imminent
3. the retrenchment must be reasonably necessary and likely to effectively prevent the
expected losses
4. the losses realized and expected must be proved by sufficient and convincing evidence

PROCEDURAL REQUIREMENTS FOR VALID RETRENCHMENT:

1. employer served written notification both to the individual employees affected and to
the DOLE at least 1 month prior to the intended date or retrenchment
2. the employer pays the retrenched employee separation pay equivalent to ½ month pay
for every year of service or at least 1 month pay whichever is higher

FACTORS IN REDUNDANCY:
1. overhiring of workers
2. decreased volume of business
3. dropping of a particular product line previously manufactured by the company
4. phasing out of a service activity priorly undertaken by the business

* Retrench – when an employer decides to reduce the number of its personnel in order to
prevent further losses

* Redundancy – where for purposes of economy, a company decides to reorganize

departments by imposing on the employees of one department the duties performed by
the employees of the other department thus rendering unnecessary the job of the latter

REQUIREMENTS FOR VALID EXERCISE OF TERMINATION DUE TO

AUTHORIZED CAUSE:
1. must be for any of the authorized causes of the Labor Code
2. employer served written notification both to the individual employees affected and to
the DOLE at least 1 month prior to the intended date or retrenchment
3. payment of separation pay benefits the amount of which depends upon the cause relied
upon as provided by law