Legal Opinion

This refers to SDMIs concern regarding its plan to terminate employees in

one of their department and to outsource their work requirements to a foreign
company involved in "Cloud" technology which it deems to be a more efficient and
economical scheme.
The three options given can all be anchored on management prerogative and
installation of labor-saving devices.
Jurisprudence is replete with cases recognizing the right of the employer to
have free reign and enjoy sufficient discretion to regulate all aspects of
employment. This is a management prerogative where the free will of management
to conduct its own affairs to achieve its purpose takes form. In Abbot
Laboratories (Phils.), Inc. v. NLRC, the Supreme Court recognized that
management prerogatives or functions are associated with the employers inherent
right to control and manage effectively its enterprise. Even labor laws discourage
interference with the exercise of such prerogative and the Court often declines to
interfere in legitimate business decisions of employers. Although the law is
solicitous of the welfare of employees, it must also protect the right of an employer
to exercise what are clearly management prerogatives. Clearly, the free will of
management to conduct its own business affairs to achieve its purpose cannot be
denied.
In the case of Chu v. NLRC, the Supreme Court ruled: One of the
prerogatives of management, and a very important one at that, is the right to
transfer employees in their work station.
The Labor Code provides:
Art. 283. Closure of establishment and reduction of
personnel.The employer may also terminate the
employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title,
by servicing a written notice on the workers and the
Ministry of Labor and Employment at least one (1) month
before the intended date thereof. In case of termination
due to the installation of labor saving devices or
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. In case of retrenchment to
prevent losses and in cases of closure or cessation of

operations of establishment or undertaking not due to

serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay
or at least one half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6)
months shall be considered one (1) whole year.
In Phil. Sheet Metal Workers Union v. CIR, the Court enunciated that as
owner of the business the employer is entitled to use new labor saving devices with
a view to effecting more economy and efficiency in its methods of production and
thereby has the right to reduce the number of its workers in the plant. Similarly, in
Dangan v. NLRC, this Court had occasion to reiterate managements prerogative
to close or abolish a department or section of the employers establishment for
economic reasons. We reasoned out that since the greater right to close the entire
establishment and cease operations due to adverse economic conditions is granted
an employer, the closure of a part thereof to minimize expenses and reduce
capitalization should similarly be recognized.
In Catalista v. NLRC, the Supreme Court said: In any case, Article 283 of the
Labor Code is clear that an employer may close or cease his business operations or
under taking even if he is not suffering from serious business losses or financial
reverses, as long as he pays his employees their termination pay in the amount
corresponding to their length of service. It would, indeed, be stretching the intent
and spirit of the law if we were to unjustly interfere in managements prerogative to
close or cease its business operations just because said business operation or
undertaking is not suffering from any loss. In the case of Maya Farms Employees
Organization, et al. v. NLRC, et al., it was held that: The rule is well settled that
labor laws discourage interference with an employers judgment in the conduct of
his business. Even as the law is solicitous of the welfare of employees, it must also
protect the right of an employer to exercise what are clearly management
prerogatives. As long as the companys exercise of the same is in good faith to
advance its interest and not for the purpose of defeating or circumventing the rights
of employees under the laws or valid agreements, such exercise will be upheld.
Option number 1 (Close Biz App Section but retain selective seniors), can be
done but can be problematic. It will be anchored on installation of labor saving
devices as provided in the Labor Code. However, choosing who will stay in the
company should be governed by LIFO rule or the Last in, First Out Rule. Retaining
selective seniors will be illegal if the selection of who to retain is not based on LIFO.
To be precise, in order for the termination of the employees to be valid if
based on installation of labor-saving devices, the following should be present 1:

1 Department Order No. 147-15, Series of 2015

1. The introduction must be done in good faith;

2. The purpose for such introduction must be valid such as to save on cost,
enhance efficiency, and other justifiable economic reasons;
3. There is no other option available to the employer that the introduction of
machinery, equipment or device and the consequent termination of
employment of those affected thereby; and
4. There must be fair and reasonable criteria in selecting employees
terminated.
In cases of installation of labor-saving devices, redundancy and
retrenchment, the Last-in, First-Out Rule2 shall apply except when an employee
volunteers to be separated from employment.
The requirements of due process shall be 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 grounds or grounds for termination.
Separation pay shall be paid the employer to an employee terminated due to
installation of labor saving device. An employee terminated due to installation of
labor-saving devices shall be paid by the employer a separation pay equivalent to:
A. at least one (1) month pay ,
B. or at least on (1) month for every year of service,
whichever is higher, a fraction of six (6) months service is considered as one (1)
whole year.
Option number 2, on the other hand, can also be based on installation of
labor-saving devices and with management prerogative. In Philippine Japan
Active Carbon Corporation v. NLRC, it was held: It is the employers
prerogative, based on its assessment and perception of its employees
qualifications, aptitudes, and competence to move them around in the various areas
of its business operations in order to ascertain where they will function with
maximum benefit to the company. An employees right to security of tenure does
not give him such a vested right in his position as would deprive the company of its
prerogative to change his assignment or transfer him where he will be most useful.
When his transfer is not unreasonable, nor inconvenient, nor prejudicial to
him and it does not involve a demotion in rank or a diminution of his
salaries, benefits, and other privileges, the employee may not complain
that it amounts to a constructive dismissal.
2 When there are two employees occupying the same position in the company
affected by the retrenchment program, the last one employed will necessarily be
the first to go (Maya Farms Employees Organization v. NLRC, G.R. No. 106256,
December 28, 1994)

To reiterate, transfer of employees from one department to another may be allowed

by law so long such transfer does not involve a demotion in rank or a diminution of
his salaries, benefits, and other privileges. The company should provide the
transferred employees the same salaries, benefits, and the same privileges.
Moreover, the employees should not suffer any demotion in rank and any
diminution of benefits.
Option number three, Total Closure of Biz App Section, can be done by the
Company. Article 283 of the Labor Code allows termination of employment due to
installation of labor-saving devices. This can be done by:
1. Serving 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 grounds or grounds for
termination;
2. Payment of separation pay by the employer to the employee
terminated due to installation of labor saving device. An employee terminated due
to installation of labor-saving devices shall be paid by the employer a separation
pay equivalent to:
C. at least one (1) month pay ,
D. or at least on (1) month for every year of service,
whichever is higher, a fraction of six (6) months service is considered as one (1)
whole year.
In order for the termination of the employees to be valid if based on
installation of labor-saving devices, the following should be present 3:
1. The introduction must be done in good faith;
2. The purpose for such introduction must be valid such as to save on
cost, enhance efficiency, and other justifiable economic reasons;
3. There is no other option available to the employer that the introduction
of machinery, equipment or device and the consequent termination of
employment of those affected thereby; and
4. There must be fair and reasonable criteria in selecting employees
terminated.
This counsel legally recommends option number 3. Total closure of the Biz App
Section, and consequently terminating all its employees, will only require service of
proper notice and payment of separation pay.
In Magnolia Dairy Products
4
Corporation vs. NLRC and Jenny Calibo , the Supreme Court upheld the validity of
terminating employees due to installation of labor saving devices, to wit:
3 Department Order No. 147-15, Series of 2015

The law authorizes an employer, like the herein petitioner, to terminate

the employment of any employee due to the installation of labor saving
devices. The installation of these devices is a management prerogative,
and the courts will not interfere with its exercise in the absence of
abuse of discretion, arbitrariness, or maliciousness on the part of
management, as in this case. Nonetheless, this did not excuse
petitioner from complying with the required written notice to the
employee and to the Department of Labor and Employment (DOLE) at
least one month before the intended date of termination. This
procedure enables an employee to contest the reality or good faith
character of the asserted ground for the termination of his services
before the DOLE.

Options number 1 is always problematic as employees can always protest as to why

certain employees are retained and why certain employees are not. Option number
2 is problematic since transferring or shifting the employees to other sections will
mean that certain job positions should be available for them. Moreover, there
should be no diminution in benefits nor any demotion in rank. This option oflten
leads to redundancy.

4 G.R. no. 114952, January 29, 1996