Redundancy: Authorized Cause in Employment Termination

Redundancy refers to the condition when the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise or superfluous. It is akin to retrenchment, which is another form of downsizing. There is, however, a crucial distinction — serious business losses is indispensable in retrenchment. Even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires.

Redundancy as Authorized Cause for Termination Philippines
Just causes:
* 1. Serious misconduct
* 2. Willful disobedience or insubordination
* 3. Gross and habitual neglect of duties
* 4. Fraud or willful breach of trust
* 5. Loss of trust and confidence
* 6. Commission of a crime or offense
* 7. Analogous causes 
Authorized causes:
* 1. Installation of labor-saving devices
* 2. Redundancy
* 3. Retrenchment or downsizing
* 4. Closure or Cessation of Operation
* 5. Disease 

* Also: Due Process in termination cases

BURDEN OF PROOF

It is the employer who bears the onus of proving compliance with these requirements, retrenchment and redundancy being in the nature of affirmative defenses. The burden is on the employer to prove by substantial evidence the factual and legal basis for the dismissal of its employees on the ground of redundancy. 

For instance, in a redundancy program involving PLDT, the company was able to show by substantial evidence that there was a consistent decline for operator-assisted calls for both local and international calls because of cheaper alternatives like direct dialing services, and the growth of wireless communication.

WHEN REDUNDANCY EXISTS

Redundancy exists when an employee’s position is superfluous, or an employee’s services are in excess of what would reasonably be demanded by the actual requirements of the enterprise. Redundancy could be the result of a number of factors, such as: 

  • (a) overhiring of workers
  • (b) decrease in the volume of business, or 
  • (c) dropping of a particular line or service previously manufactured or undertaken by the enterprise

That the characterization of an employee’s services as redundant, and therefore, properly terminable, is an exercise of management prerogative, considering that an employer has no legal obligation to keep more employees than are necessary for the operation of its business.

REQUISITES IN REDUNDANCY

DOLE Department Order No. 147-15 provides that for redundancy to be valid as a ground for termination, the following factors or elements must be present:

  • 1. There must be superfluous positions or services of employees;
  • 2. The positions or services are in excess of that is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;
  • 3. There must be good faith in abolishing redundant positions;
  • 4. There must be fair and reasonable criteria in selecting the employees to be terminated; and
  • 5. There must be an adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring.

However, it must be made clear that the foregoing enumeration refers to the third and fourth requirements cited in jurisprudence. Jurisprudence consistently states that for redundancy to be valid, four requisites must concur, as follows:

  • (1) written notice served on both the employee and the Department of Labor and Employment at least one month prior to the intended date of retrenchment; 
  • (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; 
  • (3) good faith in abolishing the redundant positions; and 
  • (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.

The absence of the first and second requisites (prior notice requirement and the payment of separation pay) renders the dismissal illegal.

GOOD FAITH IN ABOLISHING POSITIONS

To establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions.

The declaration of redundancy, or the abolition of certain positions, must be done in good faith. The Supreme Court has consistently held that the employer’s subsequent act of hiring additional employees is inconsistent with the termination on the ground of redundancy.

In a case, a number of personnel were redundated to reduce the company’s manpower by eliminating positions that were allegedly superfluous. The same employees, however, were offered newly-created positions that were entitled to lower pay and benefits. The creation of new positions runs counter to the necessity of redundancy. The redundancy program was a mere subterfuge to circumvent respondents’ right to security of tenure.

FAIR AND REASONABLE CRITERIA

The presence of fair and reasonanle criteria used by the employer shows good faith on its part and is evidence that the implementation of redundancy was painstakingly done by the employer in order to properly justify the termination from the service of its employees. Fair and reasonable criteria may include but are not limited to the following: 

  • (a) less preferred status (e.g., temporary employee); 
  • (b) efficiency; and 
  • (c) seniority

The last criteria, seniority, is similar to the criteria provided in DOLE D.O 147-15: “Last-In, First Out Rule,” which must be complied with, except when an employee volunteers to be separated. 

The three criteria, however, are not exclusive. The company may resort to other indicators to determine who will remain with the company upon downsizing its payroll. An integral portion of management prerogative is the adoption of the criteria against which the employees will be measured for purposes of implementing a redundancy program.

The existence and basis of the criteria, which among the employees to be redundated, must be shown by substantial evidence. For instance, in a case involving the merger of two divisions, the company relied on “general averments about logic and reason to justify its choice of division to retain”. There was no sufficient basis offered for retaining all the employees in one unit while dismissing those from the other. It may be that there are similarities in the functions and responsibilities attached to the positions in both divisions that resulted in superfluity, but determining who will occupy the newly merged position is a different matter altogether. This required, on the part of the employer, an evaluation of not just the performance of the divisions, but of the individual employees who may be affected by the redundancy program.

In summary, employees in the Philippines enjoy security of tenure. Under the Labor Code, no employee may be terminated or dismissed, except for just or authorized causes. The employer has the burden of proving, among others, that the facts support the elements of the cause used by the company to justify the employment termination. Each ground has specific elements. It is important, therefore, for management, or at least the HR staff, to be familiar with these factors. 

[Sources: Golden Thread Knitting Industries, Inc. v. NLRC, 364 Phil. 215(1999); Abbott vs. Torralba, G.R. No. 229746, 11 October 2017; Manggagawa ng Komunikasyon sa Pilipinas vs. PLDT, G.R. No. 190389, 19 April 2017; Ocean East Agency Corp. vs Lopez, G.R. No. 194410, 14 October 2015; Yulo vs. Concentrix Daksh Services Philippines, Inc., G.R. No. 235873, 21 January 2019]

Atty.Fred

4 thoughts on “Redundancy: Authorized Cause in Employment Termination

  1. AvatarHR

    Hi Atty,

    I would just like to ask if what is proper for us to use if we will let go of an employee.

    We are a client based employee wherein we hire Developers to work with the project of our client. The Developers are hired directly with our company, in any event that they are done with the project or say the client cancel their contract with us we place the Developer on Bench waiting for another placement (client).

    There are time that we have no available client nor potential client to those who were in Bench, sometimes they are floating for more than 3 months.

    Question, can we use Retrenchment for their termination of employment considering that the company is also incuring loss since they have no client?the service contract of the client and the company includes the salary and admin fees of the Developer, so if the latter has no client he is considered an expense to the company.

    Is Retrenchment valid ground or it should be Redundancy?

    I am hoping for your reply Atty. Thank you.

    Reply
    1. pnlpnl

      Hi HR. I’m sorry but we can’t give any legal advice here. By way of general information, we note that strictly speaking, a “project employment” ends when the project is done (completion or termination by client). In other words, the “completion” of the project necessarily the cessation of employment. Also note that redundancy is available when the manpower is way more than the reasonable needs of the company. Again, please do not construe this as legal advice, which can only be given with an attorney-client relationship. Good luuck.

  2. AvatarMichael Granada

    Hi Atty,

    Good afternoon. If you can spare a little time for us 149 employees who had been redundated and given notice on April 22, which ends on May 22. We are some former employee of a BPO, ECE to be exact, but based in Dumaguete, not in Manila. The redundancy was due to downsizing. The account was affected by COVID in the US. This is not a usual scenario since we are redundated during COVID times and what we are crying for us to be included in the SBWS program from Dept of Finance through SSS. The company was not approved for DOLE CAMP, so the next option for financial assistance is to opt for the SBWS from SSS. The company gave us an impression that we are included in the list, and we are also in the belief that we are also included since we are technically part of the company not until May 22. Now about 2 – 3 days ago, the company was granted with the program crediting 8k on their bank accounts (amount supposed to be for NCR only, since Manila office is the one who applied for it. Region VII only is assigned for 6k). The thing is we, the redundated 149, were not credited because as per HR, they did not include us in the list since we will not be anymore part of the company by May 22 ( SSS as per requirement that the employee should not resign from the company for the entire ECQ or SBWS program). We qualified all requirements of the program except for that one condition that we should not resign for the entire SBWS program. It is our only chance of getting financial assistance since we are in the private sector. It would be too late for us to file for SAP now that we are unemployed. Are we entitled for the program even for the 1st trench only? I have read somewhere that in redundancy, the employer should also provide the lost benefits which we should have for the entire notice period. I think the scenario is different since we are redundated, legal but forcefully separated from the company, compared to the condition from SSS that the employee should not resign (intentionally separates) from the company. Thank you so much for your understanding.

    Reply
    1. pnlpnl

      Mi Michael. We’re sorry to hear about your predicament. We’d like to note that the deposit is made directly to the accounts of the employees, not the company. Unfortunately, the application process is done through the company, so the company, to a certain degree, has control over the list. Beyond that general information, we’re sorry that we cannot give any legal advice. Good luck.

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