What conditions must prevail and what requirements, if any, must an employer comply with to justify/effect a valid retrenchment program?

(Bar Examination in Labor Law, 2001)

Suggested Answer:

The requirements for valid retrenchment which must be proved by clear and convincing evidence are:

  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
  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 intend date of retrenchment;
  3. that the employer pays the retrenched employees 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 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, 29 physical fitness, age, and financial hardship for certain workers. (Asian Alcohol Corporation vs. NLRC, G.R. No. 131108 March 25, 1999.)

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