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5.25.2020- When Preventing Job Loss is no longer feasible, how to terminate employment humanely
5.21.2020- Copy of presentation at the end of this article
5.17.2020- What to do when employee refused to return to work for fear of COVID-19

After the lockdown, re-opening biz is a challenge. With the slump and added cost on safety measures, how will you address employee oversupply?

Companies have embarked on belt tightening measures, and the management team of two companies that I know of volunteered to have their salary reduced to as much as 50% so it can subsidize the salary of lowest rank employees. Temporary reduction of salary, however, must emanate from employees, NEVER from the employer.
Update: Based on the newly released LA 17-2020, management can now initiate discussion with employees to temporary reduce salary, agreement should be in writing
Employee surplus caused by the covid-19 lockdown is a reality. While employers would like to prevent job losses,  employees may need to entertain the possibility of reduced income and even job loss.
In the midst of high cost of running a biz in pandemic vis-a-vis with low demand, what are the options of biz owners to deal with employee oversupply?

UPDATE: Newly released (5.18.2020) DOLE Advisory 17-2020

If applicable, employers are encouraged to

  1. Transfer employee to another branch or outlet
  2. Re-assign employee to another function or position, same or another branch of same employer
  3. Temporary closure of some parts of the business
  4. Employer and employee Agreement to temporarily reduce salary



DOLE Advisory 09-2020

Employers are encouraged to explore flexible work arrangements (FWA) with its employees. This advisory suggests three:

  1. Reduction of workhours or workdays
  2. Rotation of workers
  3. Forced leave


RA 11165- Telecommuting

Another alternative is work from home, however, companies who are not prepared for WFH arrangements have encountered productivity issues. Not to mention additional cost in subsidizing internet and power consumption of employees, which should not be, and info sec concerns.

How To Implement Telecommuting In The Philippines


ARTICLE 301 of the Labor Code- ‘Floating Status’ or ‘Temporary Layoff’

Temporary shut down of businesses, or parts of it, due to business losses is also allowed. In this case, while employee don’t have an income, they may still be entitled to non monetary benefits like HMO and other insurances.

When employment not deemed terminated. The bona-fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from the military or civic duty.”

There are several SC rulings that supports this.
Crispin B. Lopez vs. Irvine Construction Corp. and Tomas Sy Santos (GR 207253, Aug. 20, 2014)

“It is defined as the severance of employment, through no fault of and without prejudice to the employee, resorted to by management during the periods of business recession, industrial depression, or seasonal fluctuations, or during lulls caused by lack of orders, shortage of materials, conversion of the plant to a new production program or the introduction of new methods or more efficient machinery, or of automation. Elsewise stated, lay-off is an act of the employer of dismissing employees because of losses in the operation, lack of work, and considerable reduction on the volume of its business, a right recognized and affirmed by the Court. However, a lay-off would be tantamount to a dismissal only if it is permanent.”
“When a lay-off is only temporary, the employment status of the employee is not deemed terminated, but merely suspended. The lay-off, being an exercise of the employer’s management prerogative, must be exercised in good faith – that is, one which is intended for the advancement of employers’ interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements. xxx xxx xxx Six months is the period set by law that the operation of a business or undertaking may be suspended thereby suspending the employment of the employees concerned. The temporary lay-off wherein the employees likewise cease to work should also not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched following the requirements of the law, and that failing to comply with this would be tantamount to dismissing the employees and the employer would thus be liable for such dismissal.”


In cases of agency employees
DO 174 Section 13
DO 174 Section 13
Exocet Security and Allied Services Corporation vs. Serrano, (G. R. No. 198538, September 29, 2014)

“While there is no specific provision in the Labor Code which governs the ‘floating status’ or temporary ‘off-detail’ of security guards employed by private security agencies, this situation was considered by this court in several cases as a form of temporary retrenchment or lay-off. The concept has been defined as that period of time when security guards are in between assignments or when they are made to wait after being relieved from a previous post until they are transferred to a new one. As pointed out by the CA, it takes place when the security agency’s clients decide not to renew their contracts with the agency, resulting in a situation where the available posts under its existing contracts are less than the number of guards in its roster. It also happens in instances where contracts for security services stipulate that the client may request the agency for the replacement of the guards assigned to it, even for want of cause, such that the replaced security guard may be placed on temporary ‘off-detail’ if there are no available posts under the agency’s existing contracts.
As the circumstance is generally outside the control of the security agency or the employer, the court has ruled that when a security guard is placed on a ‘floating status’” he or she does not receive any salary or financial benefit provided by law. ”

If all the above has been exhausted, the inevitable and unpopular move to terminate employees needs to be considered as last recourse, Article 298 of the Labor Code of the Philippines have laid out the framework. Redundancy or retrenchment may apply.
Art. 298. 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 Ministry 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 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.


Termination: Authorized Causes



In all of the measures mentioned in this article, please observe due process. These are the reportorial, procedural, documentary and monetary obligations of the employer as prescribed by the law.

What challenges have you encountered in addressing employee surplus? Care to share how these affected productivity and employee engagement?


Disclaimer: The articles found in this blog do not constitute legal advise, and engagement/discussion don’t signify professional client relationship. Due diligence is advised. Likewise, subsequent court and administrative rulings, or changes to, or repeal of, laws, rules and regulations may have rendered the whole or part of this article inaccurate or obsolete.


BONUS:Copy of the presentation materials



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