I Introduction

Philippine labour law is intertwined with the principle of social justice. The Civil Code declares that relationships between management and the workforce are not merely contractual but are imbued with public interest such that labour contracts must yield to the common good,2 while the Constitution declares that '[t]he State affirms labour as a primary social economic force. It shall protect the rights of workers and promote their welfare'.3 Various statutes provide similar protections such that if there is any doubt, all labour legislation and all labour contracts shall be construed in favour of the safety and decent living of the worker.4 Philippine case law also provides: 'When the conflicting interest of labour and capital are weighed on the scales of social justice, the heavier influence of the latter must be counterbalanced by the sympathy and compassion the law must accord the underprivileged worker.'5

Nevertheless, the law also recognises the employer's right to exercise management prerogative in the conduct of its business. An employer has free rein and enjoys a wide latitude of discretion to regulate all aspects of employment, provided that policies, rules and regulations on work-related activities of the employees are always fair and reasonable.6 The Supreme Court has often declined to interfere in the legitimate business decisions of employers as long as its exercise is in good faith to advance its interests and not for the purpose of defeating or circumventing the rights of employees under the law or valid agreements.7

i Legal framework

The Labour Code primarily governs labour standards and labour relations. Subdivided into sections, it regulates (1) pre-employment, including the recruitment and placement of overseas workers, and the employment of non-resident aliens, (2) human resources development, including training for apprentices and learners, (3) labour standards, including hours of work, rest periods, wages and premium pay, (4) health and safety, and social welfare benefits, (5) labour relations, including regulations on the organisation and activities of unions, collective bargaining, and strikes and lockouts, and (6) post-employment, including termination of contracts and retirement.

There are also special laws regulating certain aspects of employment, including:

  1. laws that required mandatory employer contributions to a state fund, such as:
    • the Social Security Law (the SSS Law);8
    • the National Health Insurance Act;9 and
    • the Home Mutual Development Fund Act;10
  2. laws that grant certain benefits to specific groups of employees, such as:
    • maternity leave for pregnant women under the Expanded Maternity Leave Law;11
    • paternity leave under the Paternity Leave Act;12
    • parental leave for single parents under the Solo Parents Welfare Act;13
    • special leave for women who have undergone surgery caused by gynaecological disorders under the Magna Carta of Women;14 and
    • special leave for victims of violence under the Anti-Violence Against Women and their Children Act (the VAWC Law);15 and
  3. laws that affect specific aspects of employment, such as:
    • the Occupational Safety and Health Standards Act,16 which strengthens the compliance requirements for safe workplaces;
    • the Safe Spaces Act,17 which defines and penalises sexual harassment in the workplace; and
    • the Telecommuting Act, which allows an employee to work from an alternative workplace with the use of telecommunications or computer technologies.18

The Department of Labour and Employment (DOLE) is the regulatory entity primarily charged with the administration and enforcement of the Labour Code and is empowered to issue rules and regulations on employment matters.

Case law, as decided by the Supreme Court, is the final component of the legal framework of employment law as it clarifies gaps left by statute.

ii Courts and tribunals

Proceedings on employment disputes are initiated by referral to a single-entry assistance desk officer for conciliation-mediation proceedings to aid parties in reaching an amicable settlement. Should these efforts fail, the matter is referred to the appropriate DOLE office or agency. For disputes relating to termination of contract and cases of unfair labour practice, the office of the labour arbiters of the National Labour Relations Commission (NLRC) shall have exclusive original jurisdiction.

The NLRC is a quasi-judicial body created by the Labour Code as the primary tribunal having jurisdiction over employer–employee disputes.

Labour arbiters have the jurisdiction to receive evidence, and to hear and decide cases involving unfair labour practices; termination disputes, including claims for benefits; strike and lockout disputes; financial claims not arising from social security, national health insurance or employee compensation; and damages. Decisions made by the labour arbiter may be appealed to a division of the NLRC.

Parties seeking alternative means for dispute resolution may mutually agree to bring their employment disputes before a DOLE-accredited voluntary arbitrator. Voluntary arbitrators have exclusive jurisdiction to hear and decide cases arising from the interpretation or implementation of a collective bargaining agreement (CBA) or a company personnel policy.

Decisions of these quasi-judicial entities may be elevated to the Court of Appeals, and decisions by the Court of Appeals may be appealed to the Supreme Court.

iii Enforcement

The enforcement of Philippine labour law primarily rests with the DOLE. The DOLE monitors the enforcement of labour laws daily through its regional offices and attached agencies. The Secretary of Labour and Employment, or any of his or her duly authorised representatives, is granted visitorial and enforcement power to access any employer's premises and records, to conduct inspections to monitor compliance with the required labour standards, and to address any labour relations issues.

II Year In Review

In a controversial move, President Rodrigo R Duterte vetoed the Security of Tenure Bill19 on 26 July 2019. Key proposals under the Security of Tenure Bill included (1) changing the definition of prohibited labour-only contracting by empowering the Industry Tripartite Council and the Secretary of the DOLE to determine whether workers' activity is directly related to the main business operation of an entity, which would signify labour-only contracting, and (2) imposing additional requirements for the licensing of contractors. The veto was implemented despite President Duterte's previous act of certifying the bill as urgent in September 2018.20

The passage of the Expanded Maternity Leave Law significantly increased the maternity leave benefits granted to all eligible female employees who have made the required contributions to the social security system (SSS), by increasing the number of standard paid days of maternity leave from 60 to 105 days and introducing various additional benefits available to eligible employees.

The Safe Spaces Act expanded the definition of sexual harassment under the Anti-Sexual Harassment Act, recognising that sexual harassment can happen in different settings, spaces, and between parties who do not have a superior–subordinate relationship. It is now recognised that sexual harassment can occur between peers and has been expanded to cover the behaviour and actions of a subordinate towards a superior,21 and also by and among employees, subcontracted employees or persons under a secondment agreement.22

Employers are required to form an investigative committee (headed by a woman and with at least half of its members being women), with adequate representation from management, the employees and the union.23

III Significant Cases

In Philippine Span Asia Carriers Corporation v. Pelayo,24 the Supreme Court clarified that while an employee may experience distress to the extent of suffering depression or a mental breakdown as a result of that employee's involvement in an employer's investigation into an alleged act of wrongdoing, mere involvement in an investigation does not constitute constructive dismissal. As explained by the Supreme Court, not every inconvenience, disruption, difficulty or disadvantage that an employee must endure sustains a finding of constructive dismissal. It is an employer's right to investigate acts of wrongdoing by employees, and employees involved in such investigations cannot ipso facto claim that employers are targeting them. Even if employees might be feeling under pressure, it does not necessarily mean that an employer is seeking a constructive dismissal.

IV Basics of Entering into an Employment Relationship

i Employment relationship

Under Philippine law, employment relationships are contractual in nature but imbued with public interest such that labour contracts must yield to the common good.25 An employment contract may be perfected in oral or written form because, generally, no specific form of contract is required. Despite this, the best practice is to have a written employment contract signed at the beginning of the engagement.

One exception to the rule involves the contracts of employees hired by independent contractors as these must be executed in writing and must contain a specific description of the job, work or service to be performed by the employee, the place of work, the conditions of employment, and a statement of the applicable rate of pay.

The Labour Code classifies employees as regular, seasonal, project or casual. Regular employees are engaged to perform activities that are usually necessary or desirable in the usual business or trade of the employer and those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. Seasonal employees are those who are engaged to work or perform services that are seasonal in nature, and the employment is only for the duration of the season. Project employees are those hired for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee. Casual employees are those who are not regular, project or seasonal employees and perform work that is usually not necessary or desirable as part of the usual business or trade of the employer.

Additionally, Philippine jurisprudence recognises the validity of fixed-term employment contracts that meet the following criteria: (1) the fixed period of employment must be knowingly and voluntarily agreed upon by the parties without any force, duress or improper pressure upon the employee and absent any other circumstances vitiating his or her consent; or (2) it satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms and neither exercised moral dominance.26

ii Probationary periods

An employee may be required to complete a probationary period, provided that at the start of employment, the employee is (1) informed of his or her status as a probationary employee, and (2) informed of the reasonable standards that must be met to qualify as a regular employee.27 Failure to satisfy these requirements means that the employee is hired as a regular employee from the start of their employment.

The probationary period must not exceed six months from the date the employee starts working. An employee who is allowed to work after the probationary period shall be considered a regular employee.

iii Establishing a presence

A foreign company may directly hire employees to carry on its business in the Philippines without being officially registered in the country. In such cases, the foreign company is considered as a foreign corporation doing business in the Philippines without a licence and is subject to the following significant risks: it is not allowed to bring suit or to defend itself in any litigation before any Philippine court or tribunal;28 and its directors, trustees and officers are at risk of being penalised with a fine of not less than 10,000 Philippine pesos but not more than 1 million Philippine pesos.29 Notably, the direct hiring of Filipinos for work to be performed outside the Philippines must be carried out through licensed recruitment agencies.

An employee is entitled to the following minimum statutory benefits:

  1. the minimum wage (as determined by the regional tripartite wages and productivity in the region where the company operates);
  2. overtime pay for work rendered beyond eight hours a day;
  3. one 24-hour rest day for every six consecutive days of work;
  4. premium pay for work performed at night, on rest days and on holidays;
  5. 13th-month pay equivalent to one-twelfth of an employee's annual pay;
  6. paid leave days for eligible employees, namely: (1) five days of service incentive leave after rendering one year of service; (2) seven days of paternity leave and up to 120 days of maternity leave; (3) seven days of single parent leave; (4) two months of leave for a gynaecological disorder; and (5) up to 10 days of leave for victims recognised under the VAWC Law;
  7. mandatory employer's share in the social security system, Philippine Health Insurance Corporation and Home Mutual Development funds; and
  8. retirement pay of at least half-a-month's pay for every year of service, when the employee reaches the age of 65.

Employers are also required to withhold the appropriate amount of the employee's income taxes, and to report and remit the same to the Philippine tax authority (the Bureau of Internal Revenue).

An offshore foreign company may validly hire an independent contractor to perform a specific job or work in the Philippines. A valid contracting arrangement shall not establish an employer–employee relationship between the offshore foreign company and the independent contractor's employees. Similarly, for the purposes of seeking tax treaty relief, hiring an independent contractor will generally not create a permanent establishment in the Philippines, provided that the contract does not exceed the maximum periods under the applicable tax treaties.30

V Restrictive Covenants

Restrictive covenants such as non-compete clauses, non-disclosure agreements, non-solicitation contracts and confidentiality clauses are valid and may be included in employment contracts so long as they are fair, reasonable and not contrary to law, morals, good customs, public order or public policy. The determination of the reasonableness of such provisions is evaluated based on the particular facts and circumstances of each case.

The Supreme Court has used the following factors in determining the reasonableness of non-compete clauses: whether the covenant protects the legitimate business interests of the employer; whether the covenant creates an undue burden on the employee; whether the covenant is injurious to public welfare; whether the time and territorial limitations contained in the covenant are reasonable; and whether the restraint is reasonable from the standpoint of public policy.31 The courts have also tested the validity of non-compete clauses based on the reasonableness of the limitations imposed in respect of time, trade and place.

Notably, apart from case law finding that confidentiality and non-compete clauses must be clear and unambiguous,32 there is currently no case law specifically dealing with other restrictive covenants, such as non-disclosure agreements, non-solicitation contracts and confidentiality clauses.

VI Wages

i Working time

An employee's normal hours of work must not exceed eight hours per day. In addition, a one-hour break for regular meals, not counted as compensable working time, must be provided. DOLE regulations also require periodic short compensable breaks for employees who, owing to the nature of their work, either have to stand33 or have to spend long hours sitting.34 Employees are also entitled to a rest period of not less than 24 consecutive hours after every six consecutive normal work days.

Employees who work from 10pm to 6am are entitled to receive a 'night shift differential' of not less than 10 per cent of his or her regular wage for each hour of work.

DOLE regulations35 allow employers and employees to agree to flexible work arrangements, including: compressed work weeks in which the normal work day is increased to more than eight hours but not more than 12 hours, and the week is reduced to fewer than six days; gliding or flexitime schedules whereby employees are required to complete core hours in the designated workplace but are free to determine their arrival or departure time; and flexi-holiday schedules whereby employees agree to take holiday on alternative days, such as during the public holiday of the foreign country which the employee serves, as opposed to the Philippine holiday.

Under the Telecommuting Act, the employer and employee may also agree to an arrangement to allow an employee to work from an alternative workplace with the use of telecommunications or computer technologies.36 The employer is required to ensure that telecommuting employees are given the same treatment as comparable employees working at the employer's premises.37

ii Overtime

An employee who works more than eight hours a day is entitled to receive overtime pay at a rate of 25 per cent over his or her regular rate. For the purpose of determining entitlement to overtime pay, all time during which an employee is required to be on duty, to be at the employer's premises or to be at a prescribed workplace, and all time during which an employee is suffered or permitted to work are considered as hours worked, while the one-hour regular meal break is not. An employee may render overtime only if he or she is obliged or permitted by the employer to do so.38 The Labour Code and relevant labour regulations do not expressly provide for any limitations on the maximum number of hours of overtime that can be worked by an employee.

An employer may require an employee to perform overtime work in any of the specified cases detailed in Article 89 of the Labour Code.

VII Foreign Workers

An employer may hire foreign workers to perform work in the Philippines provided that they have secured the required permit from the DOLE and the appropriate visa from the Bureau of Immigration.

Under the Labour Code, an alien employment permit (AEP) may be issued to a non-resident alien or to the applicant employer after a determination of the non-availability of a person in the Philippines who is competent, able and willing at the time of application to perform the services for which the alien is desired. While there is no statutory limit to the number of foreign employees that an employer may hire, the number of foreign workers hired may be considered by the DOLE in determining whether the AEP should be granted. The AEP will be co-terminus with the foreign worker's employment so long as he or she is still engaged by the employer. Once issued, an AEP may be used as the basis for the foreign worker to apply for a Section 9(g) working visa from the Bureau of Immigration.

The foreign workers engaged and performing work in the Philippines are subject to Philippine tax regulations, and their employer has an obligation to withhold, report and remit the applicable taxes due. Local labour laws and regulations that provide benefits to, and protect the rights of, Filipino employees are also applicable to foreign workers.

VIII Global Policies

Philippine law recognises the right of an employer to expect from its workers not only good performance, adequate work and diligence, but also good conduct and loyalty.39 Generally, an employer is free to craft and adopt its own disciplinary rules and policies as an exercise of its management prerogative. Disciplinary rules do not have to be filed with any government authority.

Changes to an employer's disciplinary policy may affect an employee's rights, benefits and welfare,40 requiring the employer to consult with the employees regarding the proposed changes before they can be implemented.41 The consultation process may be effected through the following means:

  1. by having the representative of a labour management council or a similar body (see Section XI) consult employees regarding the change in the policy prior to the issuance of a memorandum declaring the change;
  2. by informing the employees by email of a proposed change in policy, giving them a reasonable period to register their comments or objections, prior to sending out a memorandum informing them that the policy has taken effect; or
  3. by discussing the proposed changes through a general meeting, to allow the employees to register their comments or objections, prior to sending out a memorandum informing them that the change in policy has taken effect.

Certain statutes, such as those involving sexual harassment in the workplace or drug testing, impose specific standards that must be complied with by the employer in crafting its internal policies.

IX PARENTAL LEAVE

i Maternity leave

In every instance of pregnancy, any female worker who has (1) made at least three monthly contributions to the SSS in the 12 months immediately preceding the semester of childbirth, miscarriage or emergency termination of pregnancy, and (2) duly notified her employer of her pregnancy and the expected date of birth, in accordance with the regulations of the SSS, shall be entitled to the paid maternity leave benefit.42 The paid maternity leave benefit shall consist of:

  1. 105 days of paid leave for a live birth, regardless of the method of delivery; or
  2. 60 days of paid leave for a miscarriage or emergency termination of pregnancy.43

In the case of a live birth, the mother has the option of extending her maternity leave for an additional 30 days without pay by giving the employer notice of the extension within 45 days of the end of her maternity leave.44

Eligible female workers availing of the paid maternity leave benefit are entitled to receive their full pay, as advanced by the employer, within 30 days of filing a maternity leave application.45 The SSS shall immediately reimburse the employer to the extent of 100 per cent of the employee's average daily salary credit for the applicable period of paid maternity leave.46

A female worker entitled to maternity leave benefits may, by providing written notice to the employers of both the female worker and the intended carer, allocate seven days of benefits to the child's father or, in the event of the father's death, absence or incapacity, to an alternate carer who may be a relative within the fourth degree of consanguinity or the current partner of the female worker sharing the same household.47

ii Paternity leave

Under the Paternity Leave Act, any married male employee is entitled to paternity leave of seven days with full pay for the first four deliveries of the legitimate spouse with whom he is cohabiting by notifying his employer of the pregnancy of his spouse within a reasonable period of time from the expected date of delivery of the pregnant spouse, or within such period that may be provided in the company's rules and regulations.48 The paternity leave benefit is paid for by the employer.

iii Single parent leave

Under the Solo Parents Welfare Act, a single parent who has completed at least one year of service, whether continuous or broken, shall be entitled to seven working days of parental leave for each year, provided that he or she has notified his or her employer within a reasonable period prior to availing of the leave, and has presented his or her single parent identification card to his or her employer.49

Further, in addition to the paid maternity leave benefits provided under the Expanded Maternity Leave Law, pregnant employees who qualify as single parents under the Solo Parents Welfare Act are entitled to an additional 15 days paid leave when availing of their paid maternity leave benefit.50

X Translation

English and Filipino are considered the two official languages in the Philippines for communications and instruction.51 For this reason, employment documents, including offer letters, employment contracts, confidentiality agreements, restrictive covenant agreements, proprietary information and assignment agreements, bonus or other incentive compensation plans, employee handbooks or other policies may be given in English. However, should an employee who is having difficulty understanding a document request a translation of the same, it is advisable to provide a translation in a local language understood by the employee.

For documents that take the form of a release, waiver or quitclaim, it is advisable that its stipulations be in English and Filipino or in the language best known to the employee.52

XI Employee Representation

Employees and employers are encouraged by the Labour Code to form labour management councils for the purpose of facilitating the exercise of the employees' right to participate in the company's policy and decision-making processes. Employee representatives to labour management are elected by at least the majority of all employees in the establishment.53

Employees also have a constitutionally protected right to self-organisation. Rank-and-file and supervisory employees are free to form, join or assist unions of their own choosing for the purposes of collective bargaining.

In the Philippines, unions are 'locally' formed within a company through specific bargaining units and are open only to employees within that company. To exercise the rights granted by law to unions, a union must be duly registered with the DOLE and must generally consist of at least 20 per cent of all the employees in the bargaining unit where it seeks to operate.54 A bargaining unit is a group of employees sharing mutual interests within a given employer unit comprised of all or a portion of the entire body of employees in the employer unit, or any specific occupational or geographical grouping within that employer unit.55

A union selected as the sole exclusive bargaining representative shall retain this status (1) for one year from the last certification election, (2) during the course of negotiations for a CBA, (3) during a bargaining deadlock and (4) during the five-year validity of a CBA, except within the last 60 days prior to its expiry. Once selected, the bargaining representative and the employer have a duty to bargain collectively.

XII Data Protection

i Requirements for registration

The collection and processing of personal information, including employee data, is governed by the Data Privacy Act of 2012. Data privacy regulations are implemented by the National Privacy Commission (NPC).

An employer is a personal information controller under the Data Privacy Act when it is involved in controlling the collection, holding, processing and use of information about its employees. It is required to implement 'reasonable and appropriate organisational, physical, and technical security measures for the protection of personal data'.56 Employers must register with the NPC if any of the following conditions are met: it employs at least 250 employees; the processing includes sensitive personal information (as defined in Section XII.iii) of at least 1,000 individuals; the processing is likely to pose a risk to the rights and freedom of data subjects; or the processing is not occasional.

As a general rule, a current or prospective employee's consent must be secured prior to the collection of any personal information.57 However, provided that sensitive personal information is not involved, an employee's personal data may be processed even without their consent when it is necessary or desirable in the context of an employer–employee relationship.58

ii Cross-border data transfers

Cross-border data transfers are allowed under Philippine law, and are considered data sharing under the Data Privacy Act. The employee's consent is required even when the data is to be shared with an affiliate or mother company, or similar such relationship.59 In addition, the employer should execute a data sharing agreement that establishes adequate safeguards for data privacy and security, and upholds the data privacy rights of its employees. The data sharing agreement is subject to review by the NPC on its own initiative or following a complaint by an employee.

There is no specific requirement to register a cross-border data transfer with the NPC.

iii Sensitive data

The implementing rules and regulations of the Data Privacy Act define sensitive personal information as personal information:

  1. about an individual's race, ethnic origin, marital status, age, colour, and religious, philosophical or political affiliations;
  2. about an individual's health, education, genetics or sexual life, or to any proceeding for any offence committed or alleged to have been committed by the individual, the disposal of such proceedings or the sentence of any court in such proceedings;
  3. issued by government agencies peculiar to an individual, which includes, but is not limited to, social security numbers, previous or current health records, licences or their denials, suspension or revocation, and tax returns; and
  4. that is specifically established by an executive order or an act of Congress to be kept classified.60

Generally, the processing of sensitive personal information is prohibited unless the employee has given prior consent to the processing thereof for a declared, specified and legitimate purpose, or under the specific circumstances provided by the Implementing Rules and Regulations of the Data Privacy Act.61 Higher criminal penalties are also imposed for the unlawful processing of, or data breaches relating to, sensitive personal information.

iv Background checks

Background checks are legally permissible in the Philippines and may be required by an employer prior to hiring an employee as a valid exercise of its management prerogative.62 Employers commonly conduct background checks to determine a potential employee's prior criminal record and credit history. The processing of information gathered through background checks may be considered as necessary or desirable in the context of an employer–employee relationship.63 However, processing the employee's information may require the employee's express prior consent if it involves the processing of sensitive personal information.

If an employee who has attained the status of a regular employee fails a background check, he or she may be disciplined by the employer only upon complete compliance with the employee's rights to substantive and procedural due process.

XIII Discontinuing Employment

i Dismissal

An employee may only be dismissed if there is a just or authorised cause for the dismissal. This policy is anchored on the principle of the security of tenure of employees, which is not only statutorily provided but is constitutionally enshrined.

Under the Labour Code, the just causes for termination are:

  1. serious misconduct or wilful disobedience;
  2. gross and habitual neglect of duties;
  3. fraud or wilful breach of trust;
  4. loss of confidence;
  5. commission of a crime or offence by the employee against his or her employer, the employer's immediate family or his or her duly authorised representatives; and
  6. other causes analogous to the foregoing.64

The authorised causes for termination of contract are:

  1. installation of labour-saving devices;
  2. redundancy;
  3. retrenchment to prevent losses;
  4. closure or cessation of business;65 and
  5. a disease not curable within six months as certified by a competent public authority, and when the continued employment of the employee is prejudicial to his or her health or to the health of his or her colleagues.66

The cause of dismissal determines which procedure must be followed prior to the dismissal. For just causes, an employer must:

  1. serve the employee with a written notice containing the specific causes or grounds of termination against him or her, and giving him or her an opportunity to provide an explanation, within at least five calendar days of receiving notice to clarify his or her defence;
  2. conduct a hearing or conference to allow the employee to explain his or her defences, present evidence and rebut the evidence presented against him or her; and
  3. serve the employee with a written notice of termination indicating that all circumstances involving the charge against him or her have been considered as well as the grounds to justify the severance of his or her employment.67

Severance pay is not required for just cause dismissals but may be granted in exceptional circumstances.

For authorised causes, the employer must send written notices to the employee and to the DOLE regional office at least one month before the intended date of termination of the employment contract. The employee must also be granted severance pay at the rate prescribed by the Labour Code or by the CBA.

Failure to comply with the procedural requirements shall not invalidate a dismissal where just or authorised causes exist. However, an erring employer may be held liable for nominal damages of up to 30,000 Philippine pesos for just causes or up to 50,000 Philippine pesos for authorised causes.

There is no legal requirement for notifying a union prior to a termination, but such a requirement may be provided in the CBA. Further, no employee class may be exempt from termination, subject to regulations on the termination of employment contracts for authorised causes as may be prescribed in a CBA.

An employee may question his or her dismissal by claiming that it was not for a just or authorised cause and filing a case before the NLRC. The parties may freely enter into a settlement agreement while the dispute is pending.

ii Redundancies

An employer may validly dismiss an employee or a group of employees for authorised causes by sending written notices to the employee and to the appropriate DOLE regional office at least one month before the intended date of termination. The employee must also be granted the appropriate amount of severance pay as provided by law or the CBA.

An employer may implement termination of contract by redundancy when the following elements are 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 the positions now deemed redundant;
  4. there must be fair and reasonable criteria in selecting the employees whose contracts are to be terminated; and
  5. there must be an adequate proof of redundancy, such as feasibility studies or proposals.68

An employer may also implement termination through a retrenchment programme that complies with the following requirements:

  1. the retrenchment must be reasonably necessary and likely to prevent business losses;
  2. the losses, if already incurred, are substantial, serious, actual and real or, if only expected, are reasonably imminent;
  3. the expected or actual losses must be proved by sufficient and convincing evidence;
  4. the retrenchment must be in good faith and not to defeat or circumvent the employees' right to security of tenure; and
  5. there must be fair and reasonable criteria in ascertaining the retention and dismissal of employees, such as status, efficiency, seniority, physical fitness, age and financial hardship for certain workers.69

Mass termination as a result of the closure of business may also be implemented when the following elements are present:

  1. there must be a decision by the management to close the enterprise or cease operations;
  2. the decision was made in good faith; and
  3. there is no other option available to the employer except to close or cease operations.70

Further, termination as a result of the installation of labour-saving devices is allowed when the following requirements are met:

  1. there is a need to introduce machinery, equipment or other devices;
  2. the introduction must be done in good faith;
  3. the purpose of the introduction must be valid, such as to save on costs, enhance efficiency or other justifiable economic reasons;
  4. the introduction of machinery, equipment or devices and the consequent termination of employment of those affected is the only option available to the employer; and
  5. the criteria for selecting employees whose contracts are to be terminated are fair and valid.71

An employee whose contract has been terminated as a result of the above causes is entitled to a severance payment of at least one month's salary or half-a-month's salary for every year of service. However, when closure of an enterprise is the result of serious business losses or financial reverses, no severance payment is required.

An employee may question the dismissal and allege illegal dismissal by filing a case before the NLRC. Failure by the employer to prove the existence of each of the elements of a valid dismissal may lead to a finding that there was an illegal dismissal. The parties may freely enter into a settlement agreement while the dispute is pending.

XIV Transfer of Business

While there is no specific statute that regulates the employment aspect of legitimate transfers of business through mergers, acquisitions or outsourcing transactions, case law provides clarification.

In the event of a full merger in which there is no express stipulation in the articles of the merger concerning the employees of the entity that does not survive, the employment contracts of the non-surviving entity are automatically assumed by the surviving corporation.72 Thus, the absorbed employees become regular employees of the surviving corporation on the day the Securities and Exchange Commission approves of the merger.73 In this regard, the surviving company may have a valid good faith basis to establish redundancy for positions for which the functions of certain employees will be duplicated.

In transactions involving the acquisition of assets of a going concern, provided that the sale is in good faith, the transferee or buyer has no legal duty to take on the employees of the seller.74 An innocent transferee that acquires a business in good faith has no liability with regard to the employees of the transferor and does not have to continue employing them. However, in exercising its prerogative to select and hire employees to fill the vacancies in its facilities, the transferee may give preference to separated employees who are suitably qualified.75

XV Outlook

Based on bills recently filed with Congress, employers can anticipate more comprehensive regulatory monitoring of alternative working arrangements and appurtenant employment benefits, in line with current regulations promoting telecommuting as a general policy.76

Likewise, there is currently a push for removal of restrictions on the employment of foreign professionals in the country. House Bill No. 300 seeks to exclude from the coverage of the Foreign Investments Act of 1991 the 'practice of professions', which would effectively exclude professionals from the Foreign Investment Negative List and allow foreign professionals to practise in the Philippines.77


Footnotes

1 Alejandro Alfonso E Navarro is a managing partner, Rashel Ann C Pomoy is a senior associate and
Carlo Augustine A Roman and Efren II R Resurreccion are junior associates at Villaraza & Angangco.

2 Civil Code, Article 1700.

3 Constitution, Section 18, Article II.

4 Philippine Labour Code, Article 4; Civil Code, Article 1702.

5 Philippine Telegraph & Telephone Corporation v. National Labor Relations Commission, 183 SCRA 451 (1990).

6 Gemina v. Bankwise Inc, 708 SCRA 403 (2013).

7 Mariano v. Martinez Memorial Colleges, Inc, 789 SCRA 344 (2016).

8 Republic [Rep.] Act No. 8282 (1997).

9 Rep. Act No. 10606 (2013).

10 Rep. Act No. 9679 (2008).

11 Rep. Act No. 11210 (2019).

12 Rep. Act No. 8187 (1996).

13 Rep. Act No. 8972 (2000).

14 Rep. Act No. 9710 (2009).

15 Rep. Act No. 9262 (2004).

16 Rep. Act No. 11058 (2018).

17 Rep. Act No. 11313 (2019).

18 Rep. Act No. 11165 (2018).

19 Senate Bill No. 1826 (2019).

20 'Duterte certifies proposed law vs “endo” as urgent', Rappler, available at https://www.rappler.com/nation/212775-duterte-certifies-security-tenure-bill-as-urgent-september-21-2018 (last accessed 1 December 2019).

21 Rep. Act No. 11313 (2019), Section 16.

22 Rep. Act No. 11313 (2019), Section 3(b).

23 Rep. Act No. 11313 (2019), Section 17(c).

24 G.R. No. 212003, 28 February 2018.

25 Civil Code, Article 1700.

26 Convoy Marketing Corp v. Albia, 772 SCRA 162 (2015), citing Brent School, Inc v. Zamora, 181 SCRA 702 (1990).

27 Labour Code, Article 291.

28 Revised Corporation Code, Section 150.

29 id., at Section 170.

30 ITAD BIR Ruling No. 241-12.

31 Rivera v. Solidbank Inc, 487 SCRA 512 (2006).

32 Century Properties, Inc v. Babiano, 795 SCRA 671 (2016).

33 Department of Labour and Employment [DOLE] Department Order [D.O.] No. 178-17 (2017).

34 DOLE D.O. No. 184-17 (2017).

35 DOLE Advisory No. 04-2010.

36 Rep. Act No. 11165, Section 3.

37 id., at Section 5.

38 San Miguel Corporation v. Layoc, 537 SCRA 77 (2007).

39 Sugue v. Triumph International (Philippines), Inc, 577 SCRA 323 (2009).

40 Philippine Labour Code, Article 267.

41 id.

42 Rep. Act No. 11210 IRR, Rule VI, Section 1.

43 id., at Rule III, Section 2, Paragraph 2.

44 id., at Rule III, Section 2, Paragraph 3.

45 id., at Rule VI, Section 3.

46 id., at Rule VI, Section 4.

47 Rep. Act No. 11210, Section 6.

48 Rep. Act No. 8187 (1996), Section 2; Rep. Act No. 8187 IRR, Sections 3 and 4.

49 Rep. Act No. 8972 (2000), Section 8; Rep. Act No. 8972 IRR, Sections 18 and 19.

50 Rep. Act No. 11210 IRR, Rule III, Section 2, Paragraph 2.a.

51 See W Land Holding, Inc v. Starwood Hotels and Resorts Worldwide, Inc, G.R. No. 222366, 4 December 2017; see also 1987 Constitution, Article 14, Section 7.

52 EDI-Staffbuilders International, Inc v. National Labor Relations Commission, 537 SCRA 409 (2007).

53 Philippine Labour Code, Article 266.

54 id., at Article 240.

55 Omnibus Rules Implementing the Philippine Labour Code, Book V, Rule I, Section 1(q).

56 Implementing Rules and Regulations of the Data Privacy Act, Section 25.

57 id., at Section 21(a).

58 id., at Section 34(b)(2).

59 id., at Section 20(b)(1).

60 id., at Section 1(t).

61 id., at Section 22.

62 Pili v. National Labor Relations Commission, 217 SCRA 338 (1993).

63 Implementing Rules and Regulations of the Data Privacy Act, Section 34(b)(2).

64 Philippine Labour Code, Article 297.

65 id., at Article 298.

66 id., at Article 299.

67 Unilever Philippines, Inc v. Rivera, 697 SCRA 136 (2013).

68 DOLE D.O. No. 147-15, Section 5.4(b).

69 id., at Section 5.4(c).

70 id., at Section 5.4(d).

71 id., at Section 5.4(a).

72 Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank, 658 SCRA 828 (2011).

73 id.

74 Barayoga v. Asset Privatization Trust, 473 SCRA 690 (2005).

75 id.

76 See also Senate of the Philippines, 18th Congress, press release, 'Villanueva: Bill recognizing flexi-time, compressed work week passes on third and final reading at tail-end of 17th Congress, available at www.senate.gov.ph/press_release/2019/0520_villanueva2.asp (last accessed 2 December 2019).

77 House Bill No. 300, Section 2.