"What is the difference between the two?"
An employee can be terminated from employment in different ways. He can be terminated by the employer for just causes such as serious misconduct, willful disobedience, neglect of duty, gross and habitual neglect of duties, fraud or willful breach of the trust reposed in him by the employer, or commission of a crime against the employer or any immediate member of his family (Article 297, Labor Code of the Philippines).
However, the employee may be terminated or dismissed for involuntary or authorized causes, also known as the labor-saving devices of a company. In simpler words, the employee can be terminated for causes which are not of his own making, such as for redundancy, retrenchment, or the cessation of operations by the employer.
According to the case of Wiltshire File Co., Inc. v. NLRC, “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 … The employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business” (G.R. No. 82249, February 7, 1991).
Redundancy may be the outcome of a number of factors, such as the over-hiring of workers, decreased volume of business, or the dropping of a particular product line or service activity of the employer (G.R. No. 82249, February 7, 1991). At this time of the pandemic, many employees have been declared redundant because of slow or decreased business in restaurants, shopping malls or manufacturing enterprises.
In the past, redundancy of employees was caused by automation of certain types of work or industry. Examples include the rollout of automated teller machines, machine packaging of products, and the shifting of telephone services from operator serviced landlines to mobile phones. While the declaration of redundancy is a management prerogative, the latter must not violate the law or declare redundancy without sufficient basis (Enrique Marco Yulo v. Concentrix Daksh Services, G.R. No. 235873, January 21, 2019).
“[T]he 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 … [To] exhibit its good faith, … there [must be] fair and reasonable criteria [to] ascertain [the] redundant positions …" (G.R. No. 235873, January 21, 2019).
ҬThe Supreme Court had 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. Reasons include, but are not limited to, a new staffing pattern, feasibility studies/proposals on the viability of the newly created positions or job descriptions, and the approval of the restructuring by the management (G.R. No. 235873, January 21, 2019).
In Golden Thread Knitting Industries, Inc. v. NLRC cited in the case of Yulo v. Concentrix, the Supreme Court explained that 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" (G.R. No. 235873, January 21, 2019).
In the case of Yulo, Concentrix attempted to justify its purported redundancy program by claiming that on December 18, 2014, it received an e-mail from Amazon informing it of the latter's plans to right size the headcount of the account due to business exigencies/requirements. The Supreme Court found that this one-page document hardly demonstrates good faith because it lacks adequate data to justify a redundancy and is self-serving, since it was prepared by the unit head of Concentrix, and not by any employee/representative of Amazon (G.R. No. 235873, January 21, 2019).
Furthermore, aside from the lack of evidence to show good faith, the respondent likewise failed to prove that it employed fair and reasonable criteria in its redundancy program. Concentrix merely presented a screenshot of a table with the names of the employees it sought to declare redundant based on their alleged poor performance ratings. While efficiency is a proper standard to determine who should be terminated pursuant to a program of redundancy, the document does not convincingly show that fair and reasonable criteria were employed by Concentrix (G.R. No. 235873, January 21, 2019).
ҬFinally, it may not be amiss to point out that while Concentrix had duly notified the petitioner (employee) that it was terminating him on the grounds of redundancy, records are bereft of any showing that he was paid his separation pay, which is also a requisite to properly terminate an employee based on these grounds. As Article 298 states, "In case of termination due to xxx 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" (G.R. No. 235873, January 21, 2019).
Likewise, retrenchment is one of the grounds for dismissal of employees to minimize business losses. The burden is on the employer to prove his claims of business losses. The failure of the employer to prove it means that the dismissal of the employee was not justified (Precision Electronics v. NLRC, G.R. 86657, October 23, 1989). Much like redundancy, resorting to retrenchment is a management prerogative.
What is the difference between redundancy and retrenchment? Redundancy is rooted in superfluity: either there are too many employees doing the same work in the same position or the position has been phased out for reasons such as automation, the mechanical replacement of manpower, or the streamlining of personnel for efficiency of the business operations. Retrenchment, on the other hand, is utilized by the employer to immediately “prevent losses” by reducing or downsizing manpower.
Retrenchment is resorted to by management during periods of business reverses and economic difficulties occasioned by such events as recession, industrial depression, or seasonal fluctuations. It is an act of the employer to reduce the workforce because of losses in the operations of the enterprise, lack of work, or a considerable reduction in the volume of business. Retrenchment is, in many ways, a measure of last resort when other less drastic means have been tried and found to be inadequate (La Consolacion v. Pascua, G.R. No.214744, March 14, 2018).
As for the substantive requisites, an employer must first show 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 (G.R. No.214744, March 14, 2018).
An employer must also show that it exercises its prerogative to retrench employees in good faith and not to defeat or circumvent the employees' right to security of tenure. There must be fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees. These include status (i.e., whether employees are temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and financial hardship for certain workers (G.R. No.214744, March 14, 2018).
ҬProcedurally, like in redundancy, employers must serve a written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment. Likewise, they must pay 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 (G.R. No.214744, March 14, 2018).
In the case of La Consolacion College v. Pascua, Pascua was hired by the College as a part-time school physician in 2000 and in 2008 in a full-time capacity. In 2011, Pascua was handed an Inter-Office Memo from the College's Human Resources Division Director, inviting her to a meeting concerning her "working condition.” In that meeting, Pascua was handed a termination of employment letter, explaining the reasons for and the terms of her dismissal (G.R. No.214744, March 14, 2018).
ҬThe College explained that due to its current financial situation caused by the decrease in enrollment, the Board of Trustees has advised the College to downsize the health services staff at the end of this 1st Semester of School Year 2011-2012. Pascua raised the question of the criteria for her retrenchment and insisted that she should have been asked to revert to part-time status first instead of dismissing her right away (G.R. No.214744, March 14, 2018).
The College failed to comply with the substantive requisite of using fair and reasonable criteria that considered the status and seniority of the retrenched employee. Pascua was terminated without considering her seniority. Emcor, Inc. v. Sienes, cited in the La Consolacion case, was categorical in ruling that a "[r]etrenchment scheme without taking seniority into account rendered the retrenchment invalid" (G.R. No.214744, March 14, 2018).
While the law recognizes the right of the employer to use redundancy and retrenchment to prevent business losses, it must not be utilized to defeat the employee’s security of tenure. These business-preserving measures must be considered as last resorts, and other means to minimize losses must have been proven lacking. Like the employer, the employee is also given protection by the law.