Employee Termination: Authorized Causes

Termination blog series 3 of 4 (Authorized Causes)

articles of the entire series is available here

 
 
This is the 3rd installment to this blog series, and our discussion will be focused on authorized causes, per art. 283 *298 and 284 *299 of the labor code. The intention of this series is to guide business owners on how to exercise their prerogatives and educate employees on the parameters governing their right to security of tenure, thru the proper implementation of due process.
 
In my earlier post, we discussed the valid causes to terminate an employee — the acts that can lead to termination either thru a series of acts or a single act.  Let’s discuss now the authorized causes
 
 
Art. 283 *298 and 284 *299 of the Philippine Labor Code
 

Art. 283 *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.
 

Art. 284 *299. Disease as ground for termination.

 
An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.

In this post, let’s focus on Art. 283 *298
 

Yes, you read it right, an employee can also lose his job for the following authorized causes:

• installation of labor-saving devices
• redundancy
• retrenchment to prevent losses
• the closing or cessation of operation of the establishment.

 
Installation of Labor-Saving Devices, Redundancy
 
With the stiff global competition, an enterprise, in order to survive, must institute productivity measures. This can be in a form of investment in equipment, technology, or systemization of operations. This may result in the streamlining of the organization and make certain positions “redundant” (in short, not needed). In this way, an employee can lose his job.
 
Retrenchment
 
Likewise, if an establishment is not making enough to keep itself afloat, one option is to downsize its operations. Downsizing will also lead to the termination of some employees.
 
Closure
 
In extreme situations, if the losses can’t be reversed, the best option may be to shut down operations. In this case, all employees will lose their job.
 
Losses, however, are not a prerequisite for a business owner to close his company. A capitalist may opt to pull out his investments and relocate to another country. This had happened in the Philippines where some companies relocated their operations to another ASEAN country or China, for productivity and competitiveness reasons.
 
In all of these, guidelines are in place so employers will know how to go about the situation. Like in cases of redundancy and retrenchment, bases on who to retain and who to terminate should be clear. Like the first in-last out method or performance-based scheme. End result should strive to be value-adding to all stakeholders.
 
Due process requirements as provided for by the law:
 

• 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. A fraction of at least six (6) months shall be considered one (1) whole
• 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. Please note that financial assistance may not be required if the closure is due to serious business losses.

 
In my next post, we will discuss termination due to health reasons. It’s actually part of authorized causes, but I opted to give the topic a dedicated post.
 
 
 

* renumbered articles of the labor code (download your copy)