Supreme Court rules: Companies allowed to close even if resulting in DISMISSAL of workers

The existence of business losses is not required to justify the closure or cessation of establishment or undertaking as a ground to terminate employment of employees. Abolition or closure could be justified on other grounds such as extinct demand. But the employer must present sufficient and convincing evidence to support such claim of extinct demand. (G.R. No. 155098)

Where the rubber and banana plantations were taken over by the DAR pursuant to the government’s CARP, resulting in the severance of the employees’ services due to cessation of the plantations business operations, it was ruled that the employees were not entitled to separation pay as the cessation of business came about involuntarily. The closure of business operations contemplated under Article 283 refers to a voluntary act or decision on the part of the employer, not one forced upon it, as in this case, by an act of the Law or State to benefit the workers by making them agrarian lot beneficiaries. (G.R. No. 150915)

[T]hree requirements are enumerated in cases of cessation of business operations of an employer company not due to business reverses: (1) service of a written notice to the employees and to the MOLE (now the Secretary of Labor and Employment) at least one month before the intended date thereof; (2) the cessation of or withdrawal from business operations must be bona fide in character; and (3) payment to the employees of termination pay amounting to at least one-half month pay for each year of service, or one month pay, whichever is higher. (G.R. No. 126428)

[T]he phrase “closure or cessation not due to serious business losses or financial reverses” recognizes the right of the employer to close or cease its business operations or undertaking even in the absence of serious business losses or financial reverses, as long as he pays his employees their termination pay in the amount corresponding to their length of service. (G.R. No. 164582)
The determination to cease operations is a prerogative of management which the State does not usually interfere with, as no business or undertaking must be required to continue operating simply because it has to maintain its workers in employment, and such act would be tantamount to a taking of property without due process of law. (G.R. No. 164582)

In fact, even granting arguendo that respondent was not experiencing losses, it is still authorized by Article 283 of the Labor Code to cease its business operations. Explicit in the said provision is that closure or cessation of business operations is allowed even if the business is not undergoing economic losses. The owner, for any bona fide reason, can lawfully close shop anyone. Just as no law forces anyone to go into business, no law can compel anybody to continue in it. It would indeed be stretching the intent and spirit of the law if we were to unjustly interfere with the management's prerogative to close or cease its business operations, just because said business operations are not suffering any loss or simply to provide the worker's continued employment. (G.R. No. 172363)

Based on Article 283, in case of cessation of operations, the employer is only required to pay his employees a separation pay of one month pay or at least one-half month pay for every year of service, whichever is higher. That is all that the law requires. (G.R. No. 165951)

Looking now at Article 283, this Court holds that the same was drafted by the legislature, taking the best interest of laborers in mind. It is clear that the causes of the termination of an employee under Article 283 are due to circumstances beyond their control, such as when management decides to reduce personnel based on valid grounds, or when the employer decides to cease operations. Thus, the bias towards labor is very apparent, as the employer is statutorily required to pay separation pay, the amount of which is also statutorily prescribed. (G.R. No. 165951)

Retrenchment is the termination of employment initiated by the employer through no fault of and without prejudice to the employees. It is resorted to during periods of business 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 the introduction of new methods or more efficient machinery or of automation. It is a management prerogative resorted to, to avoid or minimize business losses, and is recognized by Article 283 of the Labor Code, as amended.

To effect a valid retrenchment, the following elements must be present: (1) the retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, and real, or only if expected, are reasonably imminent as perceived objectively and in good faith by the employer; (2) the employer serves written notice both to the employee/s concerned and the Department of Labor and Employment at least a month before the intended date of retrenchment; (3) the employer pays the retrenched employee separation pay in an amount prescribed by the Code; (4) the employer exercises its prerogative to retrench in good faith; and (5) the employer uses fair and reasonable criteria in ascertaining who would be retrenched or retained.

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