Covid-19: Force Majeure, Temporary Work Suspension, Separation Pay, Retrenchment

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  • Government-mandated quarantine restrictions are the force majeure, not Covid-19.
  • The force majeure applies in various ways depending on whether restrictions apply.
  • 6-month temporary work suspension applies if the force majeure is already removed.
  • The 3-month waiting time for DO-174 contractors or subcontractors has specific applications.
  • Retrenchment may be resorted to after removal of force majeure and prior to expiration of the 6-month bona fide temporary suspension of work.

Applicable laws, regulations

  • Civil Code
  • Labor Code
  • Jurisprudence

Force majeure

Force Majeure or fortuitous event is a legal provision found in the Civil Code under Article 1174, which reads: “Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.”

Act of God or Man, including the Government

“A fortuitous event under Article 1174 may either be an ‘act of God,’ or natural occurrences such as floods or typhoons, or an ‘act of man,’ such as riots, strikes or wars.” (Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. No. 147324, 25 May 2004)

The act of man includes Government intervention, which may be through laws, regulations, or law enforcement.

The essence of force majeure is that there is an external force that prohibits or makes it impossible for parties to comply with their obligations resulting in them being suspended for the duration of the fortuitous event.

Quarantine restrictions as force majeure

The force majeure is the Government-mandated quarantine restrictions, not Covid-19 per se.

On 15 March 2020, the Philippine Government imposed a General Community Quarantine (GCQ) over the island of Luzon.

On 17 March 2020, the GCQ was escalated to an Enhanced Community Quarantine (ECQ) in various areas, including Metro Manila. The Government ordered a work suspension in the private sector, save for certain exceptions such as essential services and those activities which may be done via work from home or through telecommuting. For those not falling under the exceptions, establishments had to temporarily suspend business operations resulting in employees being placed on temporary work suspension.

Subsequently, on varying dates, GCQ was implemented by various Local Government Units (LGUs) outside Metro Manila, with a few escalating to ECQ in a matter of days. Similarly, establishments were ordered closed by local authorities resulting in temporary suspension of work for many employees.

Weeks after, quarantine restrictions eased resulting in certain areas being placed on Modified Enhanced Community Quarantine (MECQ) or on Modified General Community Quarantine (MGC). The Government still placed restriction on business operations, which resulted in partial operations of certain industries or business only. In Metro Manila, the lack of public transportation resulted in several employees being unable to report for work. Specific to them, this is another force majeure.

Easing of quarantine restrictions

Where quarantine restrictions are downgraded (e.g. ECQ to MECQ to GCQ to MGCQ) – but not completely removed, force majeure is removed from those who can resume performing their obligations. This applies to both employers and employees.

Otherwise stated, if employers are permitted to open and continue with their operations, there are no longer restrictions to the resumption of work of the employees. On the other hand, if they are not allowed yet, force majeure still applies to them.

This is without prejudice to employers who may be client-dependent, such as contractors or subcontractors. The resumption re-deployment of their personnel will depend on whether their clients are permitted to operate.

Complete lifting of quarantine restrictions

The complete lifting of the Government-manded quarantine restrictions removes the force majeure. To which, there is no longer any limitation on the employers to resume business operations and the resumption of work.

Temporary work suspension

The Labor Code allows for a bona fide (good faith) work suspension for six months under Article 301, which reads: The bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months… shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer…” This is the basis for what is commonly referred to “floating status”.

This bona fide work suspension has been recognized in jurisprudence or in labor cases, such as in security agencies where security guards awaiting for re-deployment, in a tuna factory plant operations were suspension due to lack of raw materials, and in a bus company when a bus was scheduled for maintenance.

When applicable to employers

If force majeure no longer applies to the employer, but the establishment is unable to resume business operation due to a legitimate business reason which should be bona fide, this 6-month temporary work suspension may be resorted to by the affected business.

It is important to emphasize that the suspension must be bona fide.

Separation pay

After six (6) months, the employer has two options: (a) to order the employees to return to work; or (b) to separate them from employment subject to payment of the applicable separation pay.

The 6-month limit cannot be extended. If the duration of the temporary work suspension extends beyond this period, this may result in illegal dismissal.

Applicability to DO-174 contractors, 3-month waiting time

Department Order No. 174, Series of 2017 (DO-174), issued by the Department of Labor and Employment (DOLE) is specific on the 3-month waiting time being applicable only to certain situations.

Paragraph 13, Section 13, of DO-174 reads: “Where the termination results from the expiration of the Service Agreement, or from the completion of the phase of the job or work for which the employee is engaged, the latter may opt to wait for re-employment within three (3) months to resign and transfer to another contractor-employer. Failure of the contractor to provide new employment for the employee shall entitle the latter to payment of separation benefits as may be provided by law or the Service Agreement, whichever is higher, without prejudice to his/her entitlement to completion bonuses or other emoluments, including retirement benefits whenever applicable. The mere expiration of the Service Agreement shall not be deemed as a termination of employment of the contractor’s/subcontractor’s employees who are regular employees of the latter.”

Thus, unless any of those situations apply which will result in the 3-month waiting time, it is the 6-month waiting time in the Labor Code which shall apply if the non-deployment is based on other bona fide grounds.

Retrenchment

From the removal of the force majeure and prior to the expiration of the 6-month bona fide suspension, retrenchment may be resorted subject to due process compliance, including payment of separation pay.

Employment contract, company policies, CBA

The above discussions may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.