Authorized

Requisites Important Principles Separation Pay

Causes
Common Requisites Among Authorized Causes Under Article 283:
1. good faith in effecting the termination
2. termination is a matter of last resort, there being NO other option available to the
employer after resorting to cost-cutting measures
3. two (2) separate written notices are served on BOTH the affected employees and
the DOLE at least 1 month prior to the intended date of termination
4. separation pay is paid to affected employees
1 month pay or at least
installation of purpose for such
 Modernization program through introduction of high- 1 month pay for every
labor-saving installation must
speed machines is valid. year of service,
device be valid
whichever is higher
Circumstances Under Which Redundancy Exists:
1. services of employees are in excess of what is reasonably
demanded by the actual requirements of the enterprise
2. position is superfluous
3. there is duplication of work
4. validly resorted to as a cost-cutting measure and to
streamline operations as to make them more viable 1 month pay or at least
fact of
1 month pay for every
redundancy redundancy must
 Elimination of undesirables, abusers, and worst year of service,
be proved
performers through redundancy is NOT an indication whichever is higher
of bad faith.
 The act of the employer in hiring replacements is
NOT an indication of bad faith.
 The “Last In, First Out Rule” or “LIFO Rule” is NOT
controlling since the employer has the prerogative to
choose who to terminate.
Standards to Determine Validity of Losses as
Justification for Retrenchment:
1. losses expected should be substantial
2. substantial loss apprehended must be reasonably imminent
3. retrenchment must be reasonably necessary and likely to
effectively prevent the expected losses
4. must be proved by sufficient and convincing evidence
1 month pay or at least
proof of losses or
Best Evidence of Losses: ½ month pay for every
retrenchment possible
1. in the private sector = externally audited financial reports year of service,
imminent losses
2. in GOCCs = financial statements audited by COA whichever is higher

 Audited financial statements must be presented

before the LA or NLRC and NOT belatedly with the
CA or SC.
 Sharp drop in income is NOT a valid ground for
retrenchment. Losses must be real, substantial, and
sustained.
a. if due to serious
business losses or
financial reverses = NO
closure or  Principle of closure applies to both total and partial separation pay
cessation of closure of business.
business  Audited financial statements are necessary only in b. if NOT = 1 month
operations closure due to losses. pay or at least ½ month
pay for every year of
service, whichever is
higher
1. employee is suffering from a disease
2. continued employment is either: (a) prohibited by law; (b) prejudicial to his health;
or (c) prejudicial to the health of his co-employees
3. certification by a competent public health authority (government doctor 1 month pay or at least
whose medical specialization pertains to the disease being suffered by the ½ month pay for every
disease
employee) that the disease is of such nature or at such stage that it CANNOT be year of service,
cured within a period of 6 months even with proper medical treatment which is whichever is higher
procured by the employer
4. compliance with the “Two-Notice Rule”
5. payment of separation pay