Propriety of redundancy program

For purposes of the Labor Code, redundancy exists where the services of an employee are in excess of
what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is
redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a
number of factors, such as over hiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or undertaken by the enterprise. 16
That no other person was holding the same position prior to the termination of one’s services, does not
show that his position had not become redundant. Indeed, in any well-organized business enterprise, it
would be surprising to find duplication of work and two (2) or more people doing the work of one
person.17 Just like installation of labor-saving devices, the ground of redundancy does not require the
exhibition of proof of losses or imminent losses. In fact, of all the statutory grounds provided in Article
283 of the Labor Code, it is only retrenchment which requires proof of losses or possible losses as
justification for termination of employment.18

The Court recognizes that a host of relevant factors comes into play in determining cost-efficient
saving measures and in choosing who among the employees should be retained or separated. It is well
settled that the characterization of an employee’s services as no longer necessary or sustainable, and,
therefore, properly terminable, is an exercise of business judgment on the part of the employer.
However, the wisdom or soundness of such characterization or decision is not subject to discretionary
review provided, of course, that violation of law or arbitrary or malicious action is not shown.19 In
several instances, the Court has held that it is important for a company to have fair and reasonable
criteria in implementing its redundancy program, such as but not limited to, (a) preferred status, (b)
efficiency and (c) seniority.20

G.R. No. 172628 February 13, 2009

COATS MANILA BAY, INC., Petitioner,

vs.
PURITA M. ORTEGA (represented by Alejandro San Pedro, Jr.) and MARINA A. MONTERO,
Respondents.

Redundancy is one of the authorized causes for the dismissal of an employee.28 In the leading case of
Wiltshire File Co. Inc., vs. NLRC,29 we explained the nature of redundancy as an authorized cause for
dismissal:

x x x redundancy in an employer's personnel force necessarily or even ordinarily refers to

duplication of work. That no other person was holding the same position that private
respondent held prior to the tem1ination of his services, does not show that his position had
not become redundant. Indeed, in any well-organized business enterprise, it would be
surprising to find duplication of work and two (2) or more people doing the work of one
person. We believe that redundancy, for purposes of the Labor Code, exists where the services
of an employee are in excess of what is reasonably demanded by the actual requirements of
the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity
of a position or positions may be the outcome of a number of factors, such as overhiring of
workers, decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise.

We held, moreover, that the characterization of an employee's services as no longer necessary or

sustainable, and, therefore, properly terminable, is an exercise of business judgment on the part of the
employer. The wisdom or soundness of such characterization or decision is not subject to discretionary
review provided, of course, that violation of law or arbitrary or malicious action is not shown.

Reorganization as a cost-saving device is acknowledged by jurisprudence. An employer is not

precluded from adopting a new policy conducive to a more economical and effective management, 30
and the law does not require that the employer should be suffering financial losses before he can
terminate the services of the employee on the ground of redundancy.31

The lack of notice to the Department of Labor and Employment (DOLE) does not render the
redundancy program void. Petitioner accurately invokes International Harvester, Inc. vs. NLRC.34

x x x if an employee consented to his retrenchment or voluntarily applied for retrenchment

with the employer due to the installation of labor-saving devices, redundancy, closure or
cessation of operation or to prevent financial losses to the business of the employer, the
required previous notice to the DOLE is not necessary as the employee thereby acknowledged
the existence of a valid cause for termination of his employment.

G.R. No. 120009 September 13, 2001

DOLE PHILIPPINES, INC., THOMAS W. OLIVER, MANUEL LOPEZ, ELIEZER

TANLAPCO, JOEL BATISLAONG, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (FIFTH DIVISION), JUAN A.
BARRANCO, ADELA DE LARA, ZENAIDA V. VALLAGANAS, MAXIMO A. CRUZ,
TERESITA A. PELAEZ, ADELAIDA C. PENIG, ROBERTO P. LA-AB, JESUS B.
MARITORIA, LILIA B. BALUCANAG, PANFILO PUEBLA, DELIA B. PUEBLA, RODOLFO
ANTONIO, ROGELIO E. DIZON, DEMOCRITO LLOREN, FELIZA PERALES, EULALIO
TEJERO, SILVESTRE PERALES, FRANCISCO ACEDO, DEMETRIO ASUQUE, LEONIDES
ABUSEJO, and AIDA ARPILLEDA, respondents.

In the case at bar, since petitioner does not allege that Ang Tan Chai does not qualify for the position,
the Court cannot substitute its discretion and judgment for that which is clearly and exclusively
management prerogative. To do so would take away from the employer what rightly belongs to him as
aptly explained in National Federation of Labor Unions v. NLRC: 8

It is a well-settled rule that labor laws do not authorize interference with the
employer's judgment in the conduct of his business. The determination of the
qualification and fitness of workers for hiring and firing, promotion or reassignment
are exclusive prerogatives of management. The Labor Code and its implementing
Rules do not vest in the Labor Arbiters nor in the different Divisions of the NLRC
(nor in the courts) managerial authority. The employer is free to determine, using his
own discretion and business judgment, all elements of employment, "from hiring to
firing" except in cases of unlawful discrimination or those which may be provided by
law. There is none in the instant case.

G.R. No. 100641 June 14, 1993

FARLE P. ALMODIEL, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), RAYTHEON PHILS.,
INC., respondents.

Apolinario Lomabao, Jr. for petitioner.

Vicente A. Cruz, Jr., for private respondent.

Although governed by the same provision of the Labor Code, retrenchment and redundancy are two
distinct grounds for termination arising from different circumstances, thus, they are in no way
interchangeable.

Redundancy exists when the service capability of the workforce is in excess of what is reasonably
needed to meet the demands of the business enterprise. A reasonably redundant position is one rendered
superfluous by any number of factors, such as overhiring of workers, decreased volume of business,
dropping of a particular product line previously manufactured by the company or phasing out of service
activity priorly undertaken by the business. Among the requisites of a valid redundancy program are:
(1) the good faith of the employer in abolishing the redundant position; and (2) fair and reasonable
criteria in ascertaining what positions are to be declared redundant and accordingly abolished. 22

The determination that the employee's services are no longer necessary or sustainable and, therefore,
properly terminable for being redundant is an exercise of business judgment of the employer. The
wisdom or soundness of this judgment is not subject to discretionary review of the Labor Arbiter and
the NLRC, provided there is no violation of law and no showing that it was prompted by an arbitrary or
malicious act. In other words, it is not enough for a company to merely declare that it has become
overmanned. It must produce adequate proof of such redundancy to justify the dismissal of the affected
employees.23

In Panlilio v. National Labor Relations Commission,24 it was held that the following evidence may be
proffered to substantiate redundancy: 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.

Retrenchment, on the other hand, is the termination of employment effected by management during
periods of business recession, industrial depression, seasonal fluctuations, lack of work or considerable
reduction in the volume of the employer's business.30 Resorted to by an employer to avoid or minimize
business losses,31 it is a management prerogative consistently recognized by this Court.32

There are three basic requisites for a valid retrenchment to exist, to wit: (a) the retrenchment is
necessary to prevent losses and such losses are proven; (b) written notice to the employees and to the
DOLE at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation
pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher.33

To justify retrenchment, the employer must prove serious business losses. 34 Indeed, not all business
losses suffered by the employer would justify retrenchment under Article 283 of the Labor Code.35 The
"loss" referred to in Article 283 cannot be just any kind or amount of loss; otherwise, a company could
easily feign excuses to suit its whims and prejudices or to rid itself of unwanted employees. 36

In a number of cases, the Court has identified the necessary conditions for the company losses to justify
retrenchment: (1) the losses incurred are substantial and not de minimis; (2) the losses are actual or
reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to be effective in
preventing the expected losses; and (d) the alleged losses, if already incurred, or the expected imminent
losses sought to be forestalled, are proven by sufficient and convincing evidence. 37 ACC miserably
failed to prove any of the foregoing.

THIRD DIVISION

G.R. No. 166703 April 14, 2008

AMA COMPUTER COLLEGE, INC., petitioner,

vs.
ELY GARCIA and MA. TERESA BALLA, respondents.
Turning to the legality of the termination of private respondent's employment, we find merit in
petitioner's basic argument. We are unable to sustain public respondent NLRC's holding that private
respondent's dismissal was not justified by redundancy and hence illegal. In the first place, we note that
while the letter informing private respondent of the termination of his services used the word
"redundant", that letter also referred to the company having "incur[red] financial losses which [in] fact
has compelled [it] to resort to retrenchment to prevent further losses". 3 Thus, what the letter was in
effect saying was that because of financial losses, retrenchment was necessary, which retrenchment in
turn resulted in the redundancy of private respondent's position.

In the second place, we do not believe that redundancy in an employer's personnel force necessarily or
even ordinarily refers to duplication of work. That no other person was holding the same position that
private respondent held prior to the termination of his services, does not show that his position had not
become redundant. Indeed, in any well-organized business enterprise, it would be surprising to find
duplication of work and two (2) or more people doing the work of one person. We believe that
redundancy, for purposes of our Labor Code, exists where the services of an employee are in excess of
what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is
redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a
number of factors, such as overhiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or undertaken by the enterprise. 4
The employer has no legal obligation to keep in its payroll more employees than are necessarily for the
operation of its business.

The characterization of private respondent's services as no longer necessary or sustainable, and

therefore properly terminable, was an exercise of business judgment on the part of petitioner company.
The wisdom or soundness of such characterization or decision was not subject to discretionary review
on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely
arbitrary and malicious action is not shown

In D.M. Consunji, Inc. v. National Labor Relations Commission, 5 the Court held:

An employer has a much wider discretion in terminating the employment relationship

of managerial personnel as compared to rank and file employees. However, such
prerogative of management to dismiss or lay off an employee must be made without
abuse of discretion, for what is at stake is not only the private respondent's position
but also his means of livelihood . . . . 6

The determination of the continuing necessity of a particular officer or position in a business

corporation is management's prerogative, and the courts will not interfere with the exercise of
such so long as no abuse of discretion or merely arbitrary or malicious action on the part of
management is shown. 7

G.R. No. 82249 February 7, 1991

WILTSHIRE FILE CO., INC., petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and VICENTE T. ONG, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Jose R. Millares & Associates for private respondent.

Similarly, in Wiltshire File Co., Inc. v. NLRC25 petitioner company effected some changes in its
organization by abolishing the position of Sales Manager and simply adding the duties previously
discharged by it to the duties of the General Manager to whom the Sales Manager used to report. In that
case, we held that the characterization of private respondent's services as no longer necessary or
sustainable, and therefore properly terminable, was an exercise of business judgment on the part of
petitioner company. The wisdom or soundness of such characterization or decision is not subject to
discretionary review on the part of the Labor Arbiter or of the NLRC so long as no violation of law or
arbitrary and malicious action is indicated.

In the case at bar, no such violation or arbitrary action was established by petitioners. The subject
matter being well beyond the discretionary review allowed by law, it behooves this Court to steer clear
of the realm properly belonging to the business experts.

We agree with the NLRC in its application of International Hardware v. NLRC that the mandate one
(1) month notice prior to termination given to the worker and the DOLE is rendered unnecessary by the
consent of the worker himself. Petitioners assail the voluntariness of their consent by stating that had
they known of PEPSI's bad, faith they would not have agreed to their termination, nor would they have
signed the corresponding releases and quitclaims.26 Having established private respondent's good faith
in undertaking the assailed redundancy program, there is no need to rule on this contention.

G.R. No. 141947 July 5, 2001

ISMAEL V. SANTOS, ALFREDO G. ARCE and HILARIO M. PASTRANA, petitioners,

vs.
COURT OF APPEALS, PEPSI COLA PRODUCTS PHILS., INC., LUIS P. LORENZO, JR. and
FREDERICK DAEL, respondents.

Redundancy exists where the services of an employee are in excess of what would reasonably be
demanded by the actual requirements of the enterprise. 11 A position is redundant when it is
superfluous, and superfluity of a position or positions could be the result of a number of factors, such
as the overhiring of workers, a decrease in the volume of business or the dropping of a particular line or
service previously manufactured or undertaken by the enterprise. 12 An employer has no legal
obligation to keep on the payroll employees more than the number needed for the operation of the
business. 13

Retrenchment, in contrast to redundancy, is an economic ground to reduce the number of employees. In

order to be justified, the termination of employment by reason of retrenchment must be due to business
losses or reverses which are serious, actual and real. 14 Not every loss incurred or expected to be
incurred by the employer will justify retrenchment, 15 since, in the nature of things, the possibility of
incurring losses is constantly present, in greater or lesser degree, in carrying on the business operations.
16
Retrenchment is normally resorted to by management during periods of business reverses and
economic difficulties occasioned by such events as recession, industrial depression, or seasonal
fluctuations. 17 It is an act of the employer of reducing the work force because of losses in the operation
of the enterprise, lack of work, or considerable reduction on the volume of business. 18 Retrenchment is,
in many ways, a measure of last resort when other less drastic means have been tried and found to be
inadequate. 19 A lull caused by lack of orders or shortage of materials must be of such nature as would
severely affect the continued business operations of the employer to the detriment of all and sundry if
not properly addressed. 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.

The law acknowledges the right of every business entity to reduce its work force if such measure is
made necessary or compelled by economic factors that would otherwise endanger its stability or
existence. 25 In exercising its right to retrench employees, the firm may choose to close all, or a part of,
its business to avoid further losses or mitigate expenses. 26 In Caffco International Limited vs. Office of
the Minister-Ministry of Labor and Employment, 27 the Court has aptly observed that —

Business enterprises today are faced with the pressures of economic recession, stiff
competition, and labor unrest. Thus, businessmen are always pressured to adopt
certain changes and programs in order to enhance their profits and protect their
investments. Such changes may take various forms. Management may even choose to
close a branch, a department, a plant, or a shop (Phil. Engineering Corp. vs. CIR, 41
SCRA 89 [1971]). 28

Clearly, the fact alone that a mere portion of the business of an employer, not the whole of it,
is shut down does not necessarily remove that measure from the ambit of the term
"retrenchment" within the meaning of Section 283(c) of the Labor Code.

G.R. No. 121314 February 12, 1998

EDGE APPAREL, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, Fourth Division, Cebu City; Regional
Arbitration Branch No. 7, Cebu City; and JOSEPHINE ANTIPUESTO, NORINA ANDO,
JULIET BAGUIO, APOLINARIA VELONTA, CORAZON PINO, and JOSEPHINE CAÑETE,
respondents.

There was no valid dismissal based on retrenchment.

Retrenchment is the termination of employment initiated by the employer through no fault of and
without prejudice to the employees. It is resorted to during periods of business recession, industrial
depression, seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials,
conversion of the plant to a new production program, or automation.21 It is a management prerogative
resorted to avoid or minimize business losses, and is recognized by Article 283 of the Labor Code,
which reads:

Art. 283. Closure of establishment and reduction of personnel.- The employer may also terminate the
employment of any employee due to x x x retrenchment to prevent losses or the closing or cessation of
operations of the establishment x x x by serving a written notice on the worker and the DOLE at least
one month before the intended date thereof. x x x In case of retrenchment to prevent losses, the
separation pay shall be equivalent to one (1) month pay or at least one-half month for every year of
service whichever is higher. x x x (Emphasis ours)

To effect a valid retrenchment, the following elements must be present: (1) the retrenchment is
reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de
minimis, but substantial, serious and real, or only if expected, are reasonably imminent as perceived
objectively and in good faith by the employer; (2) the employer serves written notice both to the
employee/s concerned and the DOLE at least one month before the intended date of retrenchment; (3)
the employer pays the retrenched employee separation pay in an amount prescribed by the Code; (4)
the employer exercises its prerogative to retrench in good faith; and (5) the employer uses fair and
reasonable criteria in ascertaining who would be retrenched or retained.22

The losses must be supported by sufficient and convincing evidence. The normal method of
discharging this is by the submission of financial statements duly audited by independent external
auditors. In this case, however, the Statement of Income and Expenses23 for the year 1997-1998
submitted by the petitioners was prepared only on January 12, 1999. Thus, it is highly improbable that
the management already knew on September 14, 1998, the date of Helen’s retrenchment, that they
would be incurring substantial losses.
At any rate, we perused over the financial statements submitted by petitioners and we find no evidence
at all that the company was suffering from business losses. In fact, in their Position Paper, petitioners
merely alleged a sharp drop in its income in 1998 from P1million to only P665,000.00. This is not the
business losses contemplated by the Labor Code that would justify a valid retrenchment. A mere
decline in gross income cannot in any manner be considered as serious business losses. It should be
substantial, sustained and real.

To make matters worse, there was also no showing that petitioners adopted other cost-saving measures
before resorting to retrenchment. They also did not use any fair and reasonable criteria in ascertaining
who would be retrenched. Finally, no written notices were served on the employee and the DOLE prior
to the implementation of the retrenchment. Helen received her notice only on September 14, 1998, the
day when her termination would supposedly take effect. This is in clear violation of the Labor Code
provision which requires notice at least one month prior to the intended date of termination.

There was no valid dismissal based on redundancy.

Redundancy, on the other hand, exists when the service capability of the workforce is in excess of what
is reasonably needed to meet the demands of the enterprise. A redundant position is one rendered
superfluous by any number of factors, such as over hiring of workers, decreased volume of business,
dropping of a particular product line previously manufactured by the company, or phasing out of a
service activity previously undertaken by the business. Under these conditions, the employer has no
legal obligation to keep in its payroll more employees than are necessary for the operation of its
business.24

For the implementation of a redundancy program to be valid, the employer must comply with the
following requisites: (1) written notice served on both the employees and the DOLE at least one month
prior to the intended date of termination of employment; (2) payment of separation pay equivalent to at
least one month pay for every year of service; (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.25

In this case, there is no proof that the essential requisites for a valid redundancy program as a ground
for the termination of the employment of respondent are present. There was no showing that the
function of respondent is superfluous or that the business was suffering from a serious downturn that
would warrant redundancy considering that such serious business downturn was the ground cited by
petitioners in the termination letter sent to respondent.26

In fine, Helen’s dismissal is illegal for lack of just or authorized cause and failure to observe due
process of law.

G.R. No. 170464 July 12, 2010

LAMBERT PAWNBROKERS and JEWELRY CORPORATION and LAMBERT LIM,

Petitioners,
vs.
HELEN BINAMIRA, Respondent.

But while tilting the scales of justice in favor of workers, the fundamental law also guarantees the right
of the employer to reasonable returns from his investment. 20 Corollarily, the law allows an employer to
downsize his business to meet clear and continuing economic threats. 21 Thus, this Court has upheld
reductions in the work force to forestall business losses or stop the hemorrhaging of capital. 22

Under the foregoing provision, retrenchment and redundancy are just causes for the employer to
terminate the services of workers to preserve the viability of the business. In exercising its right,
however, management must faithfully comply with the substantive and procedural requirements laid
down law and jurisprudence. 23
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
employer; 24 (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; 25 (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; 26 (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; 27 and (5) that the employer used
fair and reasonable
criteria 28 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. 30

The condition of business losses is normally shown by audited financial documents like yearly balance
sheets and profit and loss statements as well as annual income tax returns. 31 It is our ruling that
financial statements must be prepared and signed by independent auditors. 32 Unless duly audited, they
can be assailed as self-serving documents. 33 But it is not enough that only the financial statements for
the year during which retrenchment was undertaken, are, presented in evidence. For it may happen that
while the company has indeed been losing, its losses may be on a downward trend, indicating that
business is picking up and retrenchment, being a drastic move, should no longer be resorted to. 34 Thus,
the failure of the employer to show its income or loss for the immediately preceding year or to prove
that it expected no abatement of such losses in the coming years, may be speak the weakness of its
cause. 35 It is necessary that the employer also show that its losses increased through a period of time
and that the condition of the company is not likely to improve in the near future. 36

Redundancy exists when the service capability of the work force is in excess of what is reasonably
needed to meet the demands on the enterprise. A redundant position is one rendered superfluous by any
number of factors, such as overhiring of workers, decreased volume of business, dropping of a
particular product line previously manufactured by the company or phasing out of a service activity
priorly undertaken by the business. 43 Under these conditions, the employer has no legal obligation to
keep in its payroll more employees than are necessary for the operation of its business. 44

For the implementation of a redundancy program to be valid, the employer must comply with the
following requisites: (1) written notice served on both the employees and the Department of Labor and
Employment at least one month prior to the intended date of retrenchment; 45 (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; 46 and (4) fair and reasonable criteria in ascertaining what positions are to be declared
redundant and accordingly abolished. 47

G.R. No. 131108 March 25, 1999

ASIAN ALCOHOL CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, FOURTH DIVISION, CEBU CITY and
ERNESTO A. CARIAS, ROBERTO C. MARTINEZ, RAFAEL H. SENDON, CARLOS A.
AMACIO, LEANDRO O. VERAYO and ERENEO S. TORMO, respondents.