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<p>As the COVID pandemic continues its harsh economic toll, we continue to have to field questions about retrenchment of employees.</p>
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<p>This picks up from our previous articles and discusses other questions on retrenchment.</p>
<p>It talks about the factual grounds necessary for retrenchment and the role of good faith in valid retrenchment.</p>

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<div class="et_pb_text_inner">No, a hearing is not necessary. Under Philippine law, the employee does not have the right to be heard in a dismissal for an authorized cause such as retrenchment or redundancy.
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<p>Unlike in termination for just causes such as serious misconduct or fraud, the company is not obligated to provide the employees the opportunity to disprove the business and financial reasons for retrenchment.</p>
<p>The Supreme Court has discussed this at length:</p>
<p>For termination of employment due to an authorized cause, the employee is dismissed because the management exercised its business prerogative, not because the employee was at fault.</p>
<p>As a rule, hearing is an unnecessary condition in determining the legality of dismissal due to redundancy or retrenchment. PAL&rsquo;s dismissal of Dawal, et al.&rsquo;s services did not arise from their fault or negligence, such as serious misconduct, willful disobedience, or gross and habitual neglect of duties. Otherwise, this would have compelled them to be heard to disprove the allegations.</p>
<p>There is no right to be heard in dismissal for an authorized cause. In terminating the employees&rsquo; services due to the installment of labor-saving devices, redundancy, retrenchment to prevent losses, or closure of business, the employer has no obligation to provide the employees the opportunity to disprove the business and financial reasons for termination.</p>
<p>Where there is no allegation of employee misconduct or negligence that amounts to a just cause for dismissal under Article 282 of the Labor Code, the employee concerned has no right to be heard prior to their dismissal.<a href="https://lawyerphilippines.org/more-explanations-on-retrenchment-under-philippine-labor-law/#_ftn1" name="_ftnref1">[1]</a></p>
<p>But the employer must be able to prove the factual grounds for retrenchment or redundancy if the termination is questioned in a labor case.</p>
<p>In retrenchment, the employee is not dismissed because the employee was at fault, but because management exercised its business prerogative. This means that the employee was not entitled to a hearing to disprove the grounds for retrenchment.</p>
<p>However, if a complaint for illegal dismissal is thereafter filed against the employer, then the company will have the burden to prove the factual and legal bases for retrenchment. The company will have the duty to establish, clearly and satisfactorily, all the elements for a valid retrenchment. Failure to do so &ldquo;inevitably results in a finding that the dismissal is unjustified.&rdquo;</p>
<p>Thus, the company&rsquo;s management prerogative does not automatically absolve it of liability. Management prerogative is not unbridled, not limitless, and not beyond scrutiny. The alleged business decision yields to the constitutional guarantee of providing full protection to labor if it is found to be abusive and oppressive. Management prerogative can neither justify violation of law nor the pursuit of any arbitrary or malicious motive.</p>
<p><a href="https://lawyerphilippines.org/more-explanations-on-retrenchment-under-philippine-labor-law/#_ftnref1" name="_ftn1">[1]</a>&nbsp;PHILIPPINE AIRLINES, INC., Petitioner, v. ISAGANI DAWAL, LORNA CONCEPCION, AND BONIFACIO SINOBAGO, G.R. No. 173921, February 24, 2016</p>
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<div class="et_pb_text_inner">We have discussed these in our other articles, but they are worth revisiting,
<p>&nbsp;</p>
<p>There are four criteria:</p>
<p>1.&nbsp;The losses expected should be substantial and not just minimal in extent.</p>
<p>2.&nbsp;The substantial loss must be reasonably imminent so that there is a certain degree of urgency for the retrenchment.</p>
<p>3.&nbsp;The retrenchment must be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs other than labor costs.</p>
<p>4.&nbsp;The losses already realized and the expected imminent losses to be forestalled must be proved by sufficient and convincing evidence.</p>
<p>It is not enough for a company to simply incur business losses or even to go through rehabilitation to justify retrenchment. The company must still prove the other elements for a valid retrenchment.</p>
<p>The point is that &ldquo;retrenchment to prevent losses&rdquo; should not be used to circumvent the provisions of the Labor Code. Retrenchment must not only be &ldquo;reasonably necessary&rdquo; to avert serious business losses; it must also be made in good faith and without ill motive.</p>
<p>The Supreme Court has discussed these elements at length:</p>
<p>Among others, the following are the four (4) criteria that the employer must meet:</p>
<p><strong><em>Firstly</em>,</strong>&nbsp;the losses expected should be substantial and not merely&nbsp;<em>de minimis</em>&nbsp;in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the&nbsp;<em>bona fide</em>&nbsp;nature of the retrenchment would appear to be seriously in question.</p>
<p><strong><em>Secondly</em>,</strong>&nbsp;the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must,</p>
<p><strong><em>thirdly</em>,</strong>&nbsp;be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs other than labor costs.</p>
<p>An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called &ldquo;golden parachutes,&rdquo; [severance packages] can scarcely claim to be retrenching in good faith to avoid losses.</p>
<p>To impart operational meaning to the constitutional policy of providing &ldquo;full protection&rdquo; to labor, the employer&rsquo;s prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means &mdash;&nbsp;<em>e.g.</em>, reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs,&nbsp;<em>etc.</em>&nbsp;&mdash; have been tried and found wanting.</p>
<p><strong><em>Lastly</em>,</strong>&nbsp;but certainly not the least important, alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees. (Citation omitted)</p>
<p>The employer has the burden of showing by clear and satisfactory evidence that there are existing or imminent substantial losses, and that &ldquo;legitimate business reasons justif[y] . . . retrenchment.&rdquo; Mere showing of incurred or expected losses does not automatically justify retrenchment. The business losses must be &ldquo;substantial, serious, actual[,] and real,&rdquo; not merely&nbsp;<em>de minimis</em>.<a href="https://lawyerphilippines.org/more-explanations-on-retrenchment-under-philippine-labor-law/#_ftn1" name="_ftnref1">[1]</a></p>
<p><a href="https://lawyerphilippines.org/more-explanations-on-retrenchment-under-philippine-labor-law/#_ftnref1" name="_ftn1">[1]</a>&nbsp;PAL vs. Dawal,&nbsp;<em>supra.</em></p>
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<div class="et_pb_text_inner">For there to be a valid retrenchment, the employer must exercise its management prerogative &ldquo;in good faith for the advancement of its interest and not to defeat or circumvent the employees&rsquo; right to security of tenure.&rdquo;
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<p>This good faith can be proved or disproved by the company&rsquo;s actions.</p>
<p>A clear beginning is by presenting verified financial statements and by detailing the loss of accounts and the company&rsquo;s unsupportable operational expenses.</p>
<p>On the other hand, a company&rsquo;s act of hiring new employees while firing the old ones can negate a claim of good faith.</p>
<p>Thus, if retrenchment or redundancy is contested, it can be held against a company that it was actually expanding employment in other respects while it was supposed to have been shuttering parts of its business.</p>
<p>So, if there is an offer to hire more employees during or shortly after retrenchment, the Court may find that there was actually work available. Likewise if the company fires and rehires some while purposefully discriminating against rehiring others.</p>
<p>The NLRC and the Courts can rule that the company&rsquo;s claim to not have enough work or that it was suffering losses are but &ldquo;a&nbsp;<em>clever ruse &hellip; to deprive [ of the privileges and benefits to which they are already entitled to</em>&nbsp;<em>by reason of the length of services they have rendered to the company.</em>&rdquo;</p>
<p>These may be used to argue that the company was in bad faith &mdash; that it used retrenchment to defeat employees&rsquo; security of tenure and seniority rights. The presence of bad faith cancels out the claim of valid retrenchment.</p>
<p>Of course, the specific facts will matter a great deal here. Circumstances have to be taken on a case to case basis since it is to be expected that a degree of reorganization and restructuring will take place when retrenchment is involved.</p>
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Further Explanation on Retrenchment in Philippine labor law