Discussion on Retrenchment

Our company had announced that it would need to shut down its operation due to severe financial losses.

Severance pay is now under discussion but we are facing a gray area particularly with regards to our gasoline, mobile phone and parking slot allowance.

Based on the discussion with the lawyers hired to compute our separation pay, gasoline allowance, mobile phone and parking slot expenses should not be included in the basis for the computation for separation pay.

Inversely, my understanding is that these are part of facilities regularly given to our employees which in turn should be added in computing separation pay. I would appreciate it if someone could reply and exchange ideas with me with regards to this concern

So as per the LC:

ART. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

The implementing rules state -

SECTION 10. Basis of termination pay. — The computation of the termination pay of an employee as provided herein shall be based on his latest salary rate, unless the same was reduced by the employer to defeat the intention of the Code, in which case the basis of computation shall be the rate before its deduction.

So generally it's straightforward basic pay which is the basis for any separation pay unless it is in the contract or agreement that you are entitled to more.

Thank you very much for the information, but how about the what is stated in DOLE's handbook:

D.  Basis of Separation Pay

The computation of separation pay of an employee shall be based
on his/her latest salary rate.

E.  Inclusion of Regular Allowance in the Computation

In  the  computation  of  separation  pay,  it  would  be  error  not  to
integrate  the  allowance  with  the  basic  salary.  The  salary  base
properly  used  in  computing  the  separation  pay  should  include  not
just  the  basic  salary  but  also  the  regular  allowances  that  an
employee has been receiving.
                                               
6
Gaco vs. NLRC, et al., G.R. No. 104690, February 23, 1994.  
7
Planters’ Products, Inc. vs. NLRC, G.R. No. 78524, January 20, 1989.  

Also, Wage/Pay in LC Art 97f defines it to include the fair and reasonable value of board, lodging, or other facilities customarily furnished by the employer.

If ang closure ay due to sever financial losses, hindi sila obligated to give separation pay unless it was in your employment contract. If this is the case, its hard to argue with them how they will compute it.

Is that true? So basically the company can compute the separation pay in any way they want with total disregard of what is required by law just as long as they will cite that the closure is due to severe financial losses.

In which case, we are closing down a division, so reason is to prevent losses. The other divisions will still continue to operate and are still able to produce profit. So should this case be treated?

If the owners are able to prove that they are suffering severe business losses and their closure then they don't have to give employees anything.  Therefore if they do give you anything, cannot question it na.

oh clarify ko lang. Magkaiba ang 1. to prevent losses 2. because of severe financial losses or reversal

In that case, since our latest financial statement still clearly show that the company is still in the positive side in terms of profit, it is safe to say that retrenchment would be to prevent losses.

In such a case, what would be my argument if ever they chose not no include these allowances.

I am referencing G.R. No. 122827. March 29, 1999 where in SC ruled that regular allowances should be included in the computation of the separation pay for illegally dismissed or retrenched employees.

You are lucky to have even reached a stage whereby you are computing for your separation pay. In our case, the directors announced cessation of the business 3weeks before the actual cessation. When the date arrived, Aug.30, no monthly pay was released, no 13th month and no separation pay. The directors/owners are located in the UK and the company operated via a Filipino Operations Manager. For your reference, in June, the said Operations Manager was issued a memo for mismanagement of funds amounting to 9M and he was suspended without pay for 30 days for the investigation. Unfortunately, no decision memo was issued to him if he is to be terminated or not so he was reinstated. We had our SENA hearing two weeks ago and the Operations Manager's claim was that he has no accountability for the cessation and for whatever payments that are due to all staff as, like us, he is also an employee who also lost a job and did not receive statutory benefits. Good thing our case was escalated to NLRC because the case filed by the other team from our company was dismissed. We will have our NLRC hearing tomorrow and I will appreciate your help. We need to have a solid response to his claim. Thank you in advance.

obi0315 wrote:In that case, since our latest financial statement still clearly show that the company is still in the positive side in terms of profit, it is safe to say that retrenchment would be to prevent losses.

In such a case, what would be my argument if ever they chose not no include these allowances.

I am referencing G.R. No. 122827. March 29, 1999 where in SC ruled that regular allowances should be included in the computation of the separation pay for illegally dismissed or retrenched employees.

Your logic is misplaced my friend. Clearly, computation for 'ILLEGALLY DIMISSED/RETRENCHED EEs" is not applicable for 'closure by reason of serious losses".

I believe you are stating separation pay for closure of business. But there is an EXCEPTION to this and that is 'Closure of Business Due to Serious Losses".

Under the law, for Closure due to serious business losses, the company is NOT obliged to pay separation pay ON THE LOGIC that 'How can the company pay when it is closing due to losses'.

You application of the law is therefor misplaced.

HrDude, did you read all of the previous post? After lukekyle's explanation, I mentioned that only a particular division will be closed, not the whole company and based on our April FS, the company's profit is still on the positive side so retrenchment is "not" due to severe financial losses.

By law, retrenchment not due to severe financial losses obligates the employer to pay half-month pay for each year of service wherein pay was defined to include not just the basic but also any allowances or facilities regularly received by the employee.

dee_mple84, you mentioned that the announcement was made 3 weeks before the actual closure, so basically the company did not comply with the 1 month notice as required by law. if this is a corporation, then you should file a complain against the incorporators and not the operations manager for illegal dismissal.

My bad.

However, if your issue is regarding the inclusions of a separation pay then yes.... allowances and facilities regularly received by the employee are included in the computation of separation pays.

Hi obi0315

We did, we filed a case in SENA and is now escalated to NLRC for both Ops Mgr and the Incorporators. The latter is in the UK though so I'm not 100% confident of our chances