Managing employment contracts during covid-19

By Martin Luigi G Samson, ACCRALAW
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With the coronavirus pandemic continuing unabated, establishments have been facing difficult decisions with respect to employees, considering that employees’ salaries and benefits constitute a significant expense. In deliberating what to do in order to survive, companies must be guided by the principles of law.

Martin Luigi G Samson ACCRALAW employment
Martin Luigi G Samson
Senior associate

For businesses that are managing to keep their heads above water, the determination may simply be limited to whether or not to adopt a work-from-home plant, or implement a telecommuting arrangement, which are highly encouraged by the Department of Labour and Employment (DOLE).

The DOLE also suggests the adoption of any or a combination of the following as an alternative to the termination of employment or closure of business:

  • Transfer of employees to another branch or outlet;
  • Assignment of employees to another function or position;
  • Reduction of normal working hours;
  • Job rotation alternately providing work within the week, or within the month;
  • Partial closure of the establishment; and
  • Other feasible work arrangements.

The transfer or reassignment of employees to other branches and/or functions allows management to allocate resources pursuant to their business’ requirements. Other options suggested by the DOLE include the reduction of working days and/or working hours, as well as job rotation. The employees will continue to receive their salaries and benefits, but at a reduced rate in proportion to the actual days or hours worked. The unworked or reduced hours or days shall not be paid under the principle of “no work, no pay”.

Even with the above-mentioned alternatives, some businesses may have to consider additional means to reduce costs, such as the reduction of wages and wage-related benefits. Any reduction must be voluntarily agreed on in writing by the employer and the employee, and must not exceed six months or the period provided by the collective bargaining agreement, if any. After that agreed period, the employer and employee may renew the agreement, after it’s reviewed.

Under normal circumstance, all these options may be interpreted as an act of diminution of benefit, and/or constructive dismissal, for which an employer may be held liable. However, considering the extraordinary circumstances, even the DOLE is advocating for these alternatives in lieu of termination. Thus, the DOLE mandates that the alternative options are temporary and must only be implemented during this public health crisis.

For businesses that are allowed to operate after the lifting of restrictions, but predict that demand or sales cannot cover operating expenses, an option is article 301 of the Labour Code, which allows temporary suspension of work due to bona fide suspension of business operations or undertaking not exceeding six months. During this period, employees are placed on a “floating status”, and are not entitled to any salary or financial benefits.

After six months, the employer has the option of recalling employees back to work, or permanently retrenching them. Failure to exercise any of these options would be tantamount to illegal dismissal, for which the employer may be held liable. If recalled to work, the employer is required to reinstate the employees to their former positions without loss of seniority rights, provided they exercise such right not later than one month from resumption of operations.

The most extreme measure to be considered is retrenchment, which is the termination of employment initiated by the employer through no fault of, and without prejudice to, the employees. It is only 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 for a new production programme, the introduction of new methods, more efficient machinery, or automation. It is an act of the employer dismissing employees because of losses in the operation of a business, lack of work and considerable reduction in the volume of their business. The prevention of losses sufficiently justifies retrenchment provided that the following requirements are observed:

  • Retrenchment is undertaken to prevent losses, which 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;
  • The employer serves at least a month’s written notice both to the employees and the DOLE;
  • The employer pays separation pay equivalent to one month’s pay, or at least half a month of pay for every year of service, whichever is higher;
  • The employer must use fair and reasonable criteria in ascertaining who would be dismissed and retained among the employees;
  • The retrenchment must be undertaken in good faith.

Taking decisive action now may be critical to the survival of enterprises. Hopefully, the continued existence of businesses will allow them to survive, thrive and take care of employees in the future. We cannot allow perfect to be the enemy of good.

Martin Luigi G Samson is a senior associate in the Davao branch of ACCRALAW


ACCRA Law Offices
22nd Floor, ACCRALAW Tower, 2nd Avenue corner
30th Street, Crescent Park West, Bonifacio Global City,
1635 Taguig, Metro Manila, Philippines
Contact details:
Tel: +63 8 2224 0996

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