Requisites for Valid Retrenchment

The basic requisites for a valid retrenchment to exist are as follows:

(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 employ- ees separation pay equivalent to one month pay or at least 1⁄2 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,

To justify retrenchment, the employer must prove serious business losses. To justify the employees’ termination of service, the losses must be serious, actual and real, and they must be supported by sufficient and convincing evidence.

Moreover, the employer must prove the requirements for a valid retrenchment by clear and convincing evidence; otherwise, said ground for termination would be susceptible to abuse by scheming employers who might be merely feigning losses or reverses in their business ventures in order to ease out employees.

Sliding incomes or decreasing gross revenues are not necessarily losses, much less serious business losses within the meaning of the law. The bare fact that an employer may have sustained a net loss, such loss, per se, absent any other evidence on its impact on the business, nor on expected losses that would have been incurred had operations been continued, may not amount to serious business losses mentioned in the law.

Clarion Printing House, Inc. v. NLRC teaches that sliding incomes or decreasing gross revenues alone do not necessarily indicate business losses within the meaning of Article 298, for, in the nature of things, the possibility of incurring losses is constantly present in business operations.

The employer must also show that its losses in- creased through a period of time and that the condition of the company will not likely improve in the near future.

The burden clearly falls upon the employer to prove economic or business losses with sufficient supporting evidence. Its failure to prove these reverses or losses necessarily means that the employee’s dismissal was not justified. Any claim of actual or potential business losses must satisfy certain established standards, all of which must concur, before any reduction of personnel becomes legal.

Any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees.

Learn how to Validly Terminate Employee in the Philippines with this Tutorial Video of Atty. Elvin

Read more on procedural due process discussion by Atty. Elvin:

Read more on procedural due process by Atty. Villanueva:

Twin Requirements of Notice and Hearing

Procedural Due Process for Other Types of Employment

Notice to Explain: Contents and Requirements