Inter-company transfer within one conglomerate, how to treat affected employees in the Philippines?
This is one of the common questions I am receiving, so allow me to share my response
Sir Sonnie, the scenario is this.. my company will be taken by new entity, change of company name, but it will be handled by same people.. same operation… We will be retained as employees on the same company… Should we expect them to give us separation pay?
If the context of your Q is a merger, please go here
If the context is you will be transferred from and to sisters company or the old company will cease to exist, it may be a case of ‘inter-company transfer’. This is not a usual resignation or hiring, since this involves more back-end work of the departments involved, operations and employee attendance are not affected. An example of inter-company transfer is when employees from one member company are transferred to another member company of a conglomerate, or when business operations will be taken over by new management or company and employees will be retained.
In an ideal environment, before planned changes are rolled out, the effect on the employment of affected employees should have been planned for and discussed to employees prior to the implementation of change. Two options:
- If tenure will be reset to ‘0’ and employment will be back to proby, then provision on labor code about separation pay for company closure applies.
- If tenure will be carried over, no changes on employment status, salary and benefits. The likelihood is no separation pay
Prior to implementation, affected employees should have been informed of the arrangement. In some cases, they were given the prerogative to chose which of the 2 options to take. The process should be discussed and arrangement concurred by the two parties in writing.
- Terms of transfer – This contains the process, steps and arrangments of the inter-company transfer or take over of new management
- Resignation of employee – Once the terms of transfer is duly concurred, employee now may submit resignation to the old company, depending on the terms of transfer.
- New contract – The new company may issue a new contract, containing the agreement on the terms of transfer
- Clearance – The old company may process the clearance for documentation purposes and to transfer accountabilities and payables of the employee to the new employer, depending on te terms of transfer
If the inter-company arrangement is for the new management or new company to treat affected employees as new employee and tenure is reset to zero, then old company should release commensurate separation pay, that includes separation pay per Labor Code, pro rated 13th month, unused and accrued SL/VL/SIL, release of cash bond and alike.
Have you gone thru a similar situation before? How was it?
Ruling GR190187 and subsequent Case Law clearly establishes there is no need for a resignation and no need for a new employment contract. This applies to intra-company trasfer or even a separate company acquisition.
Even if the company named on the employment contract will no longer exist after the acquisition the Employment contract is still valid under the new owners.
Hi Sir Sonny, Company A (100% filipino owned) entered in a merger & acquisition agreement with a foreign investor. They plan to incorporate Company B (shareholders + foreign investors), where all assets, equipments, etc of Company A’s will be transferred. Company B will still hire the same employees but wants to start “fresh” with tenure. This means they must be given separation pay, right? Company A will not close or undergo business dissolution. It will remain existent as Company A shareholders are thinking maybe they can still operate under a different nature of business (sometime in the future). Company A… Read more »
cessation is appropriate