The Company Legal Counsel advised the Board of Directors as follows: “A company cannot retrench to prevent losses until actual losses occur. The Company must wait until the end of the Business Year when its Books of Accounts, Profit and Loss Statement showing the actual loss and Balance Sheet have been audited by an Independent auditing firm.”

Is the legal advice of counsel correct?

(Bar Examination in Labor Law, 1998)

Suggested Answer:

The legal advice is not correct. The Labor Code (Article 283) does not require actual losses to occur before retrenchment may be resorted. Precisely, retrenchment is resorted to in order “to prevent” actual losses. It is sufficient if losses sought to be forestalled are imminent and serious. (Read Retrenchment to Prevent Losses.)



  1. jon rocaberte Comment:
    May 2nd, 2013 at 11:54 pm

    The company has terminated our employment for retrenchment to prevent losses I am signing the quitclaims and receive the separation pay for at least 1 year half month in every year of service my question is can I file a case to the employer to question the company if there retrenchment is legal base on the retrenchment procedure even if I am signing quitclaims and receive the separation pay.


  2. hi,

    i’m a call center agent and our account will be closing on july3. we were sent notices regarding the retrenchment. most of my colleagues applied to other companies. some were scheduled to have interviews for other accounts within our company. however, just today, we were informed that another account would be absorbing most of us and that there will no longer be a retrenchment so there would be no severance pay but we will be given our back pays since the process for transferring accounts would require resignation and reapplication. my question is, is it legal for the company to just retract the retrenchment a few days from the actual end date? and since some of us has already applied to other companies, if we decline the transfer of accounts, will we still receive severance pays? if ever we agree on the absoprption but will not immediately be deployed, are we entitled to some sort of payment for the days that we are waiting to be deployed? i really do need your advice on this as soon as possible since next week is july 3. thanks.


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