Redundancy

1. Concept

(q) “Redundancy” refers to the condition when the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise or superfluous. (DOLE DEPARTMENT ORDER NO. 147, SERIES OF2015, Rule I-A, Section 4; henceforth, “DOLE DO-147”)

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 position is redundant where it had become superfluous. Superfluity of a position or positions may be the outcome of a number of factors such as over-hiring of workers, decrease in volume of business, or dropping a particular product line or service activity previously manufactured or undertaken by the enterprise. (3M Philippines, Inc. v. Yuseco, G.R. No. 248941, 09 November 2020)

An employer’s declaration of redundancy becomes a valid and authorized cause for dismissal when the employer proves by substantial evidence that the services of an employee are more than what is reasonably demanded by the requirements of the business enterprise. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, G.R. No. 190389, 19 April 2017)

a. Legal basis

1) Labor Code

Art. 283. [DOLE Renumbered: 298] Closure of establishment and reduction of personnel. – The employer may also terminate the employment of any employee due to… redundancy, … by serving a written notice on the workers and the [Department] of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to… 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… (PRESIDENTIAL DECREE NO. 442, a.k.a. LABOR CODE OF THE PHILIPPINES)

2) Omnibus Rules Implementing the Labor Code

SECTION 9. Termination pay. — (a) An employee shall be entitled to termination pay equivalent to at least one month’s salary for every year of service a fraction of at least six (6) months being considered as one whole year, in case of termination of his employment due to… redundancy. (Title I, Book 6, Omnibus Rules Implementing the Labor Code)

3) DOLE Department Order No. 147, Series of 2015

DOLE DO-147 reiterates redundancy as an authorized for separating an employee under Section 5.4(b), Rule I-A.

b. Management prerogative

In our jurisdiction, redundancy is a recognized authorized cause to validly terminate employment. The determination of whether the employee’s services are no longer necessary or sustainable, and thus, terminable has been recognized to be a management prerogative. The employer’s exercise of such prerogative is, however, not an unbridled right that cannot be subjected to the court’s scrutiny. (FEATI University v. Pangan, G.R. No. 202851, 09 September 2019)

While a declaration of redundancy is ultimately a management decision in exercising its business judgment, and the employer is not obligated to keep in its payroll more employees than are needed for its day to-day operations, management must not violate the law nor declare redundancy without sufficient basis. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

In this relation, jurisprudence explains that the characterization of an employee’s services as redundant, and therefore, properly terminable, is an exercise of management prerogative, considering that an employer has no legal obligation to keep more employees than are necessary for the operation of its business. (Yulo v. Concentrix Daksh Services Philippines, Inc., G.R. No. 235873, 21 January 2019)

Nevertheless, case law qualifies that the exercise of such prerogative “must not be in violation of the law, and must not be arbitrary or malicious.” (Yulo v. Concentrix Daksh Services Philippines, Inc. [2019], supra.)

c. Superfluous position

Essentially, redundancy exists when an employee’s position is superfluous, or an employee’s services are in excess of what would reasonably be demanded by the actual requirements of the enterprise. (Yulo v. Concentrix Daksh Services Philippines, Inc. [2019], supra.)

Redundancy 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. (Yulo v. Concentrix Daksh Services Philippines, Inc. [2019], supra.)

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 factors, the employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business. Even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires. (Ocean East Agency Corporation v. Lopez, G.R. No. 194410, 14 October 2015)

Thus, even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires. (Arabit v. Jardine Pacific Finance, Inc., G.R. No. 181719, 21 April 2014)

d. Inconsistent with hiring

To dispel any lingering doubt, the Supreme Court has invariably held in a plethora of cases that the employer’s subsequent act of hiring additional employees is inconsistent with the termination on the ground of redundancy. (Abbott Laboratories [Philippines], Inc. v. Torralba, G.R. No. 229746, 11 October 2017)

2. Jurisprudential Requisites

A valid redundancy program must comply with the following requisites:

1) Written notice served on both the employees and the DOLE at least one (1) month prior to the intended date of termination of employment;

2) Payment of separation pay equivalent to at least one (1) 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, taking into consideration such factors as (i) preferred status; (ii) efficiency; and (iii) seniority, among others. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

a. 30-day advance written notice

5.3 Termination of Employment Based on Authorized Causes. As defined in Articles 298 and 299 of the Labor Code, as amended, the requirements of due process shall be deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty days (30) before the effectivity of the termination, specifying the ground or grounds for termination. (DOLE DO-147, Rule I-A)

More: Authorized Cause Procedure

b. Separation pay

5.5 Payment of Separation Pay. Separation pay shall be paid by the employer to an employee terminated due to installation of x x x redundancy x x x

An employee terminated due to installation of x x x redundancy shall be paid by the employer a separation pay equivalent to at least one (1) month pay or at least one (1) month pay for every year of service, whichever is higher, a fraction of six (6) months service is considered as one (1) whole year. (DOLE DO-147, Rule I-A)

More: Authorized Cause Procedure | Separation Pay

c. Good faith

Following Article 298 of the Labor Code as above cited, the law requires the employer to prove, inter alia, its good faith in abolishing the redundant positions, and further, the existence of fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished. (Yulo v. Concentrix Daksh Services Philippines, Inc., supra.)

To establish good faith, the employer must provide substantial proof that the services of the employee are in excess of what is needed by the company and that fair and reasonable criteria, such as but not limited to (a) less preferred status, e.g., temporary employee; (b) efficiency; and (c) seniority, were used to determine which positions are to be considered redundant or who among the employees are to be redundated. (FEATI University v. Pangan, supra.)

To establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions. (Manggagawa ng Komunikasyon sa Pilipinas v. Philippine Long Distance Telephone Company Incorporated, supra.)

“To exhibit its good faith and that there was a fair and reasonable criteria in ascertaining redundant positions, a company claiming to be over manned must produce adequate proof of the same.” (Yulo v. Concentrix Daksh Services Philippines, Inc., supra.)

Acosta v. Matiere SAS e al., G.R. No. 232870, June 3, 2019, Per Leonen, J.:

• Assuming that [the employers] can declare some positions redundant due to the alleged decrease in volume of their business, they still had to comply with the above-cited requisites. This, they failed to do.

[The employers] complied with the first and second requisites. There is no contention that they notified both [the employee] and the Department of Labor and Employment at least a month before the planned redundancy.

• [The employer] also received a computation of his separation pay corresponding to at least one (1) month pay for every year of service with additional payment for economic assistance.

• However, as to the third and fourth requisites, this Court held that “[t]o establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions.”

• Here, [the employers’] only basis for declaring [the employee’s] position redundant was that his function, which was to monitor the delivery of supplies, became unnecessary upon completion of the shipments. However, upon careful scrutiny, this Court finds that the Employment Agreement itself contradicts [the employers’] allegation…

• There was no mention of monitoring shipments as part of [the employee’s] tasks. If his work pertains mainly to the delivery of supplies, it should have been specifically stated in his job description. [The employers] did not even present any evidence to support their claim or to contradict [the employee’s] documentary evidence. There was, hence:, no basis for [the employers] to consider his position irrelevant when the shipments had been completed.

• Likewise, [the employers] failed to show that they used fair and reasonable criteria in determining what positions should be declared redundant.

• In Panlilio v. National Labor Relations Commission, this Court held that fair and reasonable criteria may take into account the preferred status, efficiency, and seniority of employees to be dismissed due to redundancy. Yet, [the employers] never showed that they used any of these in choosing petitioner as among the employees affected by redundancy.

• Although he was among the five (5) employees dismissed, [the complainant-employee] cannot be similarly situated with the other employees. Roselim was a forklift operator, while Richard, Wilson, and Menor were helpers assigned to field engineers. The four (4) employees work directly with the delivery of supplies. On the other hand, as already discussed, petitioner’s duty is not limited to the monitoring of deliveries. Accordingly, this Court declares petitioner to have been illegally dismissed.

1) Self-serving declaration, insufficient

Thus, the Court has ruled that it is not enough for a company to merely declare that it has become overmanned. Rather, it must produce adequate proof of such redundancy to justify the dismissal of the affected employees, such as but not limited to 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. (Ibid.)

Indeed, an employer cannot simply declare that it has become overmanned and dismiss its employees without adequate proof to sustain its claim of redundancy. Neither can an employer merely claim that it has reviewed its organizational structure and decided that a certain position has become redundant. It bears stressing that adequate proof of redundancy and criteria in the selection of the employees to be affected must be presented to dispel any suspicion of bad faith on the part of the employer. (FEATI University v. Pangan, supra.)

A company cannot simply declare redundancy without basis. It is not enough for a company to merely declare that it has become overmanned. It must produce adequate proof that such is the actual situation to justify the dismissal of the affected employees, for redundancy. We have considered evidence such as 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, among others, as adequate to substantiate a claim for redundancy. (Mejila v. Wrigley Philippines, Inc., G.R. No. 199469, 11 September 2019)

d. Fair and reasonable criteria

In redundancy, an employer must show that it applied fair and reasonable criteria in determining what positions have to be declared redundant. Otherwise, it will be held liable for illegally dismissing the employee affected by the redundancy. (Acosta v. Matiere Sas, G.R. No. 232870, June 3, 2019, Per Leonen, J.)

Fair and reasonable criteria may include but are not limited to the following: (a) less preferred status (e.g., temporary employee); (b) efficiency; and (c) seniority. The presence of these criteria used by the employer shows good faith on its part and is evidence that the implementation of redundancy was painstakingly done by the employer in order to properly justify the termination from the service of its employees. (FEATI University v. Pangan, supra.)

In determining who among the employees should be retained or separated, the Court explained in Lowe that preferred status, efficiency, and seniority are among the accepted criteria in implementing a redundancy program. (Que v. Asia Brewery, Inc., G.R. No. 202388, 10 April 2019)

1) Consequence if criteria is not fair and reasonable

3. DOLE Standards

(q) Redundancy. – To be a valid ground for termination, the following must be present:

1) There must be superfluous positions or services of employees;

2) The positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;

3) There must be good faith in abolishing redundant positions;

4) There must be fair and reasonable criteria in selecting the employees to be terminated; and,

5) There must be an adequate proof of such redundancy such as but not limited to 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. (DOLE DO-147, Rule I-A, Section 4)

a. Superfluous positions or services of employees

An employer’s declaration of redundancy becomes a valid and authorized cause for dismissal when the employer proves by substantial evidence that the services of an employee are more than what is reasonably demanded by the requirements of the business enterprise. (Manggagawa ng Komunikasyon sa Pilipinas v. PLDT, G.R. Nos. 190389 and 190390, April 19, 2017, Per Leonen, J.)

b. Positions or services are in excess of what is reasonably demanded

Manggagawa ng Komunikasyon sa Pilipinas v. PLDT, G.R. Nos. 190389 and 190390, April 19, 2017, Per Leonen, J.:

• In order to prove the validity of its redundancy program, Philippine Long Distance Telephone Company has presented data on the decreasing volume of the received calls by the Operator Services Center for the years 1996 to 2002…

• Philippine Long Distance Telephone Company has stated that “from 1996 to 2002, the [t]otal [d]emand of [c]alls dropped by 334,972,997 or a 72% reduction.” It has attributed the reduction of demand for operator-assisted 108/109 calls to “migration calls to direct distance dialing,” and to “more usage/substitution of text message over voice.” It has added that “migration of calls from landline to cell,” competitors’ eating into the Philippine Long Distance Telephone Company’s market, and “compliance with the regulatory requirement of local integration per province” likewise aggravated the situation.

• Philippine Long Distance Telephone Company claims that the pattern of decline with operator-assisted calls has been consistent through the years, and it has summarized the challenges facing its long distance services as follows:

(a) international long distance revenues in 2001 stood at P11.4 billion; in 2002, this declined to P10.6 billion (pg. 33, PLDT’s Financial Statement and Annual Report; Atmex “4-A”) – a decrease of P813 million. More drastically, this figure stood at P18.2 billion in 1997, indicating that international long distance call revenue has declined to the tune of P8 billion in five years.

(b) national long distance revenues in 2001 were P8.388 billion in 2001; in 2002, this declined to P7.6 billion (pg. 35, PLDT’s Financial Statement and Annual Report; Annex “4-B”) a decrease of P719 million. As with international calls, there is a pattern on decline: PLDT earned P10.6 billion from this service in 2000, so it is accurate to say that the company has seen revenue from national long distance decline by more than a billion pesos a year.

• Philippine Long Distance Telephone Company’s declaration of redundancy was backed by substantial evidence showing a consistent decline for operator-assisted calls for both local and international calls because of cheaper alternatives like direct dialing services, and the growth of wireless communication. Thus, the National Labor Relations Commission did not commit grave abuse of discretion when it upheld the validity of PLDT’s redundancy program. Redundancy is ultimately a management prerogative, and the wisdom or soundness of such business judgment is not subject to discretionary review by labor tribunals or even this Court, as long as the law was followed and malicious or arbitrary action was not shown.

c. Good faith

See above for discussions.

f. Fair and reasonable criteria

In authorized cause separation, the employer has to develop a termination plan using fair and reasonable criteria as to who of the employees will be affected. As to what constitutes a fair and reasonable criteria will depend on the employer.

Editor’s Note: Deciding on what will constitute as the fair and reasonable criteria is a management prerogative. One employer may choose competence, proficiency, and efficiency; while others may choose reliability, collaborative, and experience. Or, it can be any other criteria so long as they are fair and reasonable under the circumstances. Under current labor laws, there is no requirement that the employer has to absolutely apply Last-in and First-Out. Thus, DOLE DO-147’s requirement that the “Last-In, First-Out Rule” does not find support in labor laws and jurisprudence. DOLE DO-147 cites Maya Farms Employees Organization v. NLRC, G.R. No. 106256, December 28, 1994; however, that case was decided based on a Collective Bargaining Agreement between the employer and the union/employees, which required implementation of Last-In-First-Out (LIFO) in cases of lay-off or retrenchment. Thus, such rule only finds application if there is such a stipulation between the employer and the employees. Such a rule cannot be used for general application as what DOLE DO-147 is prescribing. It is respectfully submitted DOLE re-evaluate having this standard. See case digest below.

Maya Farms Employees Organization v. NLRC, G.R. No. 106256, December 28, 1994, Per Kapunan, J.:

• The NLRC correctly held that private respondents did not violate the LIFO rule under Section 2, Article III of the CBA which provides:

Sec. 2. LIFO RULE. In all cases of lay-off or retrenchment resulting in termination of employment in the line of work, the

Last-in-First-Out (LIFO) Rule must always be strictly observed.

• It is not disputed that the LIFO rule applies to termination of employment in the line of work. Verily, what is contemplated in the LIFO rule is that when there are two or more employees occupying the same position in the company affected by the retrenchment program, the last one employed will necessarily be the first to go.

e. Adequate proof of such redundancy

[T]he Court has ruled that it is not enough for a company to merely declare that it has become overmanned. Rather, it must produce adequate proof of such redundancy to justify the dismissal of the affected employees, such as but not limited to 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. (Yulo v. Concentrix Daksh Services Philippines, Inc. [2019], supra.)

4. Due Process

For the authorized cause of redundancy, due process requires observance of the following:

1) Authorized cause: redundancy; and

2) Authorized cause procedure.

a. Authorized cause

The authorized cause of disease should be actual and/or duly established or proven. It should not be hypothetical or speculative.

1) No proof of financial loss required

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. (Coats Manila Bay, Inc. v. Ortega, G.R. No. 172628, February 13, 2009, Per Tinga, J.)

b. Authorized cause procedure

If there is a good faith legitimate business reason for redundancy, the employer is required to comply with authorized cause procedure to comply with the due process requirements.

NB: Employees who are severed from employment due to an authorized cause is entitled to separation pay.

More: Authorized Cause Procedure | Separation Pay

c. Non-compliance of due process

Non-compliance with the authorized cause procedure requirements results in:

1) A defective termination; and

2) Nominal damages against the employer.

More: Authorized Cause Procedure

5. Burden of proof: on employer

The burden of proving compliance with these requisites is on the employer. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, 03 December 2014)

The burden is on the employer to prove by substantial evidence the factual and legal basis for the dismissal of its employees… (Abbott Laboratories [Philippines], Inc. v. Torralba, supra.)

The burden of proving the validity of the dismissal rests on the employer. As such, the employer must prove that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the required certification by a competent public health authority, this Court has ruled against the validity of the employee’s dismissal. (Manly Express Inc. v. Payong, Jr., G.R. No. 167462, 25 October 2005)

6. Distinguished

NB: Distinguishing authorized causes from each other is critical for purposes of computing separation pay.

a. Redundancy v. Retrenchment

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. Not every loss incurred or expected to be incurred by the employer will justify retrenchment, 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. (Edge Apparel, Inc. v. NLRC, supra.)

Redundancy does not need to be always triggered by a decline in the business. Primarily, employers resort to redundancy when the functions of an employee have already become superfluous or in excess of what the business requires. Thus, even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employee’s position has already become in excess of what the employer’s enterprise requires. (Arabit v. Jardine Pacific Finance, Inc., supra.)

Related: Retrenchment or Downsizing