Understanding Business Closure and Retrenchment in the Philippines
Dear PAO,
Can a company decide to unilaterally close? If the company claims that it is experiencing business losses, may it skip the requirement of notice and avoid the payment of separation pay?
Emong
Legal Ruling on Business Closure and Retrenchment
Dear Emong,
Please be informed of the legal rulings regarding business closure and retrenchment as per the Supreme Court’s decision in the case of Keng Hua Paper Products Co., Inc. and James Yu vs. Carlos E. Ainza, Primo dela Cruz, and Benjamin R. Gelicami.
Distinguishing Between Closure of Business and Retrenchment
The Supreme Court emphasized that closure of business and retrenchment are two separate authorized causes for terminating the services of an employee. Closure of business refers to the complete cessation of business operations due to financial losses, while retrenchment involves reducing personnel to cut down on costs and prevent bankruptcy.
Requirements for Retrenchment and Business Closure
For retrenchment to be valid, the employer must prove that it is necessary to prevent losses, serve written notices to employees and the Department of Labor and Employment, and pay separation pay. In contrast, business closure can be justified regardless of the reasons, but it must be bona fide and in the interest of the employer.
Procedural Requirements
Regardless of the cause, both retrenchment and business closure require the employer to follow procedural requirements such as serving written notices at least one month before termination and paying termination pay to the employees.
In conclusion, a company can decide to close its business or retrench employees to prevent losses, but it must adhere to the legal requisites for each scenario. The burden of proof lies with the employer to demonstrate the validity of their actions, and compliance with notification and payment requirements is essential.
