Installation of Labor-Saving Devices Concept

The law authorizes an employer to terminate the employment of any employee due to the installation of labor saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management. (See Magnolia Dairy Products Corporation vs. NLRC, G.R. No. 114952, January 29, 1996.)

The installation of labor-saving devices contemplates the installation of machinery to effect economy and efficiency in the method of production.

Distinguished from Retrenchment

The institution of “new methods or more efficient machinery, or of automation” is technically a ground for termination of employment by reason of installation of labor-saving devices but where the introduction of these methods is resorted to not merely to effect greater efficiency in the operations of the business but principally because of serious business reverses and to avert further losses, the device could then verily be considered one of retrenchment. (Edge Apparel vs. NLRC, G.R. No. 121314, February 12, 1998; See also Retrenchment.)

Separation Pay

In case of termination due to the installation of labor saving devices, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one month pay or to at least one month pay for every year of service, whichever is higher. (Article 283, Labor Code.)


  1. An employee was terminated after the company instituted a modernization program. Under said program, the operations of the quality control unit, to which said employee was assigned, were all automated. The dismissal was upheld as valid. (Agustilo vs. Court of Appeals, G.R. No. 142875, September 7, 2001.)

Last Edited: Friday, August 19, 2011

Caveat: Subsequent court and administrative rulings, or changes to, or repeal of, laws, rules and regulations may have rendered the whole or part of this article inaccurate or obsolete.
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  1. Mary Margaret Comment:
    June 24th, 2010 at 11:47 am

    good day po, im asking about the separation pay, in our company once you resigned we have no separation pay even you served for almost 5-20years.Is it legal?


    Ted Ferrolino Reply:

    As a general rule, an employee who voluntarily resign is not entitled to separation pay. The exceptions are:
    1. When payment of separation pay is stipulated in the employment contract or Collective Bargaining Agreement (CBA, for companies with existing bargaining agent or union);
    2. When it is sanctioned by established employer practice or policy.
    Please read my post on Voluntary Resignation and Separation Pay.


  2. Is changing the man-machine ratio considered as installation of labor-saving device? i.e., 1:1 ratio currently, that will be transitioned into 2 machines to 1 Operator.

    Will appreciate your feedback.


    August 16th, 2011 at 05:45 pm

    Is installation of a new accounting system which does one’s work considered redundancy or could be considered a labor-saving device? Would appreciate your response. Thanks!


  4. Good Day!

    Isa po akong Janitor at liason sa aming company,regular employees with minimum rate, almost 11 years na po akong nagwowork sa company nila.Kapag ang company po ba ay hindi nagpapapasok sa akin at ang ibang co-employees ko ang pina janitorial ay isa po bang paglabag sa labor law.
    Salamat po sana masagot nyo katanungan ko.


    Ted Ferrolino Reply:

    Kung hindi ka pinapayagang pumasok at magtrabaho ng walang legal na kadahilanan, ito ay paglabag sa batas. Ang isang empleyado, lalo na kung regular employee, ay maari lamang i-terminate ng employer kung may “just” o “authorized” cause para siya tanggalin. Bukod dito, kailangang dumaan sa tamang proseso ang pagtatanggal ang empleyado.


    mila Reply:

    Salamat po.Wala po kase akong alam sa gantong patakaran.
    Kahit na po ba sabihin pa ng employer ko na walang pasok kase walang order?Labag po sa batas yun?
    Minsan po kase NS-No Schedule sa kadahilanang wala po talaga order ang customer kaya po walang gawa.Kaya po kapag kokonti lang ang may work na ka-trabaho ko,hindi na po ako ini-schedule dahil daw sa 1 hour lang naman ang janitorial.Kaya sa iba na lang pinapalinis.Isa pong manufacturing ang company ko.
    Salamat po.Sana masagot nyo uli.



    mila Reply:

    Thanks Sir

    Actually hindi naman ako terminated, bale mag aantay lang po ako kong may order sa company tsaka po ako papasukin para maglinis at mag liason. Dati po paminsan minsan lang, pero itong year 2011 medyo madalas na po.Mas ok nga po sana e terminate na lang ako kesa mag aantay pa eh hindi naman nakaka antay ang sikmura para may makain.

    Bale tanong ko lang po kong legal ba ang ginawa sakin, samantalang regular employee na ako for almost 11 years working sa company?

    Salamat po



  5. Good pm po!

    Ako po ay monthly-paid employees sa isang manufacturing company.Nais ko pong itanong kong halimbawa po nag declared ang aming company nang “no operation” for almost 1 week, may bayad po ba kami sa 1 week of no operation being monthly-paid employees? Wala po kaming sick leave and vacation leave but we have five (5) days incentive leave.

    Kindly email your answer thru my email add…..

    Please kindly answer my query and it will really a big thanks for me.

    Thank you and more power!



  6. olivia frejas Comment:
    January 30th, 2012 at 12:48 pm

    I’m working in a bank for 28 years. The dept. im assigned at has been abolished. I’ve heard fr inside sources that i can be terminated due to constructive dismissal. Is is possible & legal? Thank you.


  7. Good Day to everyone…
    Ako po ay tumatangap ng semi-monthly na sahod, ibig sabihin nito binabayaran ako ng 2 beses kada buwan. And Cut-off period po ng opisina namin ay 1-15 at 16-30/31.

    Ang tanong ko po ay ganito.

    Ang semi-monthly pay ko ay 10,000.00 per cut-off period halimbawa 1-15 Nov. Ngunit biglang binago ang cut-off period na dapat ay 16-30 naging 11-25 Nov.. Legal po bang bawasan kame ng 5 araw sa pangalawang cut-off ng november dahil ito day ay kasama na sa nabayaran sa amin mula 1-15 ng nov?

    Isang malaking palaisipan, kasi po kung babawasan kame ng 5 araw sa pangalawang cutoff ng Nov(11-25 nov)bale ang manyayari ay tatangap lamang ako ng 15,000.00 sa buong buwan ng Nov..

    Subalit sa susunod na cut of period ay tatangap kame ng regular na sahod kagaya nga 26Nov-10Dec cut-off (10,000.00) at 11Dec-25Dec cut-off (10,000.00).

    Ito po ba ay legal kapag ikaw ay sumasahod ng semi-monthly? legal po bang magkakaroon ng lesser pay pag binago ang cut-off period? halimbawa 1-15 16-30 ay ginawang 11-25 26-10?.. Maraming salamat po sa pagsagot sa aking katanungan.


  8. See par2, where “new methods ….. Is technically a ground for installation of labor saving devices….”. New distribution infrastructure thru dealers alone rather than direct company business office is a new method, thus 1 month pay for every yr of service


  9. Sandro Imperial Comment:
    January 22nd, 2013 at 12:40 pm

    Hi Atty,

    I hope you are well.

    I was hired by BPO company VXX Global Services as an Inside Sales Professional as stated in my contract. VXX Global Services provides off-shore voice/manpower services to different accounts/brands. Originally, I was part of Account Axi for just 7 weeks; 5 weeks for the product and sales skills training and 2 weeks on the floor to take in sales calls. Training started on July 27, 2012 which was also my hire date as indicated in my employment contract. Aside from my basic salary of PHP 23,000, I’m also entitled to get a perfect attendance incentive of PHP 1,000 and a signing bonus of 20,000 that will be given on a staggered basis within 1 year period. On Sept. 12, management of Account A ended my service with said account and endorsed me back to HR/Recruitment to go thru another recruitment process this time for another account. No valid reason was provided to me by Account Axi management why they terminated my service. No documentation was provided. I was just informed that they cannot continue my training. on Sept. 14, I was asked by HR to go thru a recruitment process for another account, BlueBay, passed it, and was asked to attend product training on the same day that lasted for 3 weeks. My original “contract” was
    not cancelled nor changed in writing but instead of the 20,000 signing bonus, I will only get 15,000 as it’s the signing bonus for new hire employees under BlueBay though I still retained my job title and basic salary pay even though BlueBay offers a lower basic pay to new hires. I’m still with the company until now but I’m no longer getting the PHP 1,000 perfect attendance allowance. ACccording to HR, the reason why I’m no longer getting the PHP 1,000 perfect attendance allowance is because the company has changed the perfect attendance policy. Those who were hired as of Sept. 1, 2012 is entitled to get PHP 1,500 after 6 months or upon regularization. The PHP 1,500 that I got for the month of Aug. 2012 couldn’t be continued anymore as I already belong to a different account. Also when I access my employee’s profile in our company’s web portal, my start date was changed from July 27, 2012 to Sept 14, 2012 and the program/account name from Axi to Bluebay but my job title remains the same. My questions are:

    1. Am I still entitled to get the perfect allowance incentive of PHP 1,000 for the months of Sept, Oct, Nov and Dec. 2012 since I didn’t sign a new employment contract?

    2. Is the company authorized to reduce the signing bonus from 20,000 to 15,000 even in the absence of new signed.

    3. When should the 6-month employment regularization period start? July 27, 2012 or Sept. 14, 2012.

    3. Can a company impose a mandatory work on rest day in a BPO/call center environment? Is it a terminable offense tantamount to absence without leave.

    4. Can that behavior ( alleged insubordination for not reporting for work) be used as basis for not approving my supposed regularization when we have a different parameter or metrics to measure our efficiency and competency towards work?

    Hope to hear from you! Thanks in advance!


  10. is personal reasons a grounds for terminating an employee? i work for more than 12 years and i was accused of false accusation regarding personal matters but definitely not work related.. and i was order to go home immediately even if my duty at work is not yet finished..


  11. Hi Sir,

    I have been with a multinational company for more than 10 years and holding a managerial position. If the company wants to implement labor-saving devices, is it possible for them to transfer my employment to an agency as a contractual employee but salary remains the same? am told there may be changes in my benefits and may no longer get the same benefits. I am a well performing employee andI continue to perform with a year-to-date growth in what I handle. Is this legal or possible for them to transfer my employment to an agency?


  12. sir good day po! emplyedo po ako sa isang agency at 5 yrs na po ako dun. project contrct po ang pinipirmahan kong kontrata. at nung last po nagkaroon po ako ng violation at naka preventive suspension po ako at ngayon iteterminate na po ako. my makukuha po ba ko at yung certificate of employment ko sa loob ng 5 taon makukuha ko parin po ba? maraming salamat and god bless.. pls reply po sa email add ko.


  13. Hi,

    My ask lang po ako reagrding computation of redundancy fee.. natagngal po ako sa company last october 30, 2013, sabi po ng hr nmin ang mkukuha ko lng po is 1month lang po ng slary ko.. 1 year and 4 montjs po ako sa company. Sabi po ng hr namin ung 4 months po hindi na dw po kasama sa computation kasi dapat po at least 6 months.. papano po ba ng computation ng redundancy fee pag 1 year and 4 months ka sa company?

    Sana masagot nyo po agad ang aking tanong..Maraming salamat po..


  14. Hi,
    Magandang araw po,ako po ay isang engineer sa 1 private company nabigyan po ako ng dismissal letter from hr department, ang reason po nila ay “due to reduce the manning levels as a result of the considerable reduction of current and future workload and redundancy due to new technologies.” 1.ako lang po ang may position na engineer sa company namin pano naging redundancy?, 2. ako lang ang binigyan ng notice kung ang basehan reduce of manning levels. ito po ba ay legal at naayon sa ating Labor Code? sana po mabigyan ninyo ako ng linaw.
    maraming salamat


  15. arnel lumboy Comment:
    April 30th, 2014 at 02:02 pm

    Hi po ask ko company ko kase na terminated kame kase mgbbwas ng tao dahil wala nang mag fifield kase audit kame..ang company nmen ay mgbubukas pa ng madmeng branch pero ang dahilan samen ay retrenchment. kase ang pagbabayad na ngayon thru ML kwarta padala wala nang i aaudit na mga colector kaya wala ng mg fifield..labor saving device ba un o retrenchment?thanks po pakisagot nmn please…


  16. hi
    isa po akong merchandiser almost 6 years at wala pong cash bond ang isang katulad kong diser pero my coop po kmi at 200 per month ang kinukuha nila mula sa aking sweldo. Ako po ay nag voluntary resign kasi po hindi na maganda ang kanilang pamamalakad halimbawa nalang po sa incentives namin almost 3 months muna bago ma irelease at hindi po pantay ang pagbibigay nila ng incentives..ang tanong ko lang po ilang buwan bago ma irelease yong cash bond ko sa coop at tanong ko lang po kung ano ang aking gagawin sa mga benefits hal. sa SSS kasi kulang ang kanilang hinuhulog na contributions kahit every month po sila nag dededuct sa sahod ko..
    Thank you po at more power


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  1. […] of machinery to effect economy and efficiency in the method of production[1]. (Read more about Installation of Labor-Saving Devices.) Redundancy. Redundancy exists where the services of an employee are in excess of what is […]

  2. […] of Procedural Due Processs. For valid termination based on authorized causes such as Installation of labor-saving devices, Redundancy, Retrenchment to prevent losses, Closure or cessation of operation, the employer must […]