Court says companies allowed to fire employees to save MONEY but written notice required

It is not illegal for companies or employers to cut costs by laying off employees; this, the Highest Court of the Philippines has ruled.
Retrenchment is valid only when the following requisites have been met: a) it is to prevent losses; b) written notices were served on the workers and DOLE at least one month before the effective date of the retrenchment; and c) separation pay is paid to the affected workers. (G.R. No. 98111)
Retrenchment is valid only when the following requisites have been met: a) it is to prevent losses; b) written notices were served on the workers and DOLE at least one month before the effective date of the retrenchment; and c) separation pay is paid to the affected workers. (G.R. No. 98111)
Under the aforequoted Article 283 of the Labor Code, there are three basic requisites for a valid retrenchment:
[1] the retrenchment is necessary to prevent losses and such losses are proven;
[2] written notice to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment; and
[3] payment of separation pay equivalent to one month pay or at least 1/2 month pay for every year of service, whichever is higher. (G.R. No. 115394)
Retrenchment, to be valid, three requisites must concur, as provided for under
Article 283 of the Labor Code, namely: (1) The retrenchment is necessary to prevent losses and the same is proven; (2) Written notice to the employees and to the DOLE at least one month prior to the intended date thereof; and (3) Payment of separation pay equivalent to one month or at least ½ month pay for every year of service, whichever is higher. (G.R. No. 112923)
A lay-off, used interchangeably with "retrenchment," is a recognized prerogative of management. It is the termination of employment resorted to by the employer. through no fault of nor with prejudice to the employees, during periods of business recession, industrial depression, 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. Simply put, it is an act of the employer of dismissing employees because of losses in operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court. The requisites of a valid retrenchment are covered by Article 283 of the Labor Code. When a lay-off is temporary, the employment status of the employee is not deemed terminated, but merely suspended. Article 286 of the Labor Code provides, in part, that the bona fide suspension of the operation of the business or undertaking for a period not exceeding six months does not terminate employment. The standard then by which to judge the validity of the exercise of this aspect of management prerogative is good faith.(G.R. No. 119536)
Retrenchment is a management prerogative, a means to protect and preserve the employer's viability and ensure his survival. It is one of the economic grounds to dismiss an employee resorted to by an employer primarily to avoid or minimize business losses. In this regard, the employer bears the burden to prove his allegation of economic or business reverses, otherwise, it necessarily means that the dismissal of an employee was not justified.
Under this provision, there are three basic requisites for a valid retrenchment. These are: (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, and (c) payment of separation pay equivalent to one month pay or at least one-half (1/2) month's pay for every year of service, whichever is higher.
To justify retrenchment, the "loss" referred to in Art. 283 cannot be just any kind or amount of loss; otherwise, a company could easily feign excuses to suit its whims and prejudices or to rid itself of unwanted employees. To guard against this possibility of abuse, the Court has laid down the following standard which a company must meet to justify retrenchment. (G.R. No. 118973)
Retrenchment is the termination of employment effected by management during periods of business recession, industrial depression, seasonal fluctuations, lack of work or considerable reduction in the volume of the employer's business. Resorted to by an employer to avoid or minimize business losses, it is a management prerogative consistently recognized by this Court. (G.R. No. 97846)
The requirements for valid retrenchment which must be proved by clear and convincing evidence are: (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 (i.e., whether they are temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and financial hardship for certain workers. (G.R. No. 131108)
Even assuming that the employers' losses warranted retrenchment, and that the employer seasonably served written notices of retrenchment to the workers and the DOLE, but it failed to implement the retrenchment program in a just and proper manner as it did not use a reasonable and fair standard in the computation of the employees' demerits points for purposes of determining who among the workers should be dismissed, the retrenchment program is invalid. The employer’s failure to use a reasonable and fair standard in the selection of the workers to be dismissed is not merely a procedural but a substantive defect which invalidates the employee’s dismissal. (G.R. No. 147756)
Where the employees had barely two weeks' notice of the intended retrenchment program, the one-month notice rule was violated. Such rule is mandatory regardless of whether the retrenchment is temporary or permanent. (G.R. No. 147002)
To justify retrenchment, the employer must prove serious business losses. Indeed, not all business losses suffered by the employer would justify retrenchment under Article 283 of the Labor Code. 35 The "loss" referred to in Article 283 cannot be just any kind or amount of loss; otherwise, a company could easily feign excuses to suit its whims and prejudices or to rid itself of unwanted employees.
In a number of cases, the Court has identified the necessary conditions for the company losses to justify retrenchment: (1) the losses incurred 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 (d) the alleged losses, if already incurred, or the expected imminent losses sought to be forestalled, are proven by sufficient and convincing evidence. (G.R. No. 166703)

It is an exercise of management prerogative which the Court upholds if compliant with certain substantive and procedural requirements, namely:
[1] That retrenchment is necessary to prevent losses and it is proven, by sufficient and convincing evidence such as the employer's financial statements audited by an independent and credible external auditor, that such losses are substantial and not merely flimsy and actual or reasonably imminent; and that retrenchment is the only effective measure to prevent such imminent losses;
[2] That written notice is served on to the employees and the DOLE at least one (1) month prior to the intended date of retrenchment; and
[3] That the retrenched employees receive 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.
The employer must prove compliance with all the foregoing requirements. Failure to prove the first requirement will render the retrenchment illegal and make the employer liable for the reinstatement of its employees and payment of full backwages. However, were the retrenchment undertaken by the employer is bona fide, the same will not be invalidated by the latter's failure to serve prior notice on the employees and the DOLE; the employer will only be liable in nominal damages, the reasonable rate of which the
Court En Banc has set at P50,000.00 for each employee.
Closure or cessation of business is the complete or partial cessation of the operations and/or shut-down of the establishment of the employer. It is carried out to either stave off the financial ruin or promote the business interest of the employer.
Unlike retrenchment, closure or cessation of business, as an authorized cause of termination of employment, need not depend for validity on evidence of actual or imminent reversal of the employer's fortune. Article 283 authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. (G.R. No. 166760)