The employer is allowed to temporarily suspend work due to bona fide suspension of business operations or undertaking for a period not exceeding six (6) months. This is provided for the Labor Code, as follows:
ART. 300 . WHEN EMPLOYMENT NOT DEEMED TERMINATED
The bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of seniority of rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from the military or civic duty.
Concept of work suspension
There is no termination of employment during the bona fide suspension of business operations. The establishment simply temporarily suspends its operations for legitimate and valid reasons, including but not limited to, serious financial losses or business reverses, force majeure (fire, flood, typhoon, etc.), failure to obtain a permit or license to operate, or due to a lawful order by a competent authority – i.e. Temporary Restraining Order/Injunction by a competent court, work stoppage order by the DOLE, or cease operations from the LTFRB for public transportation, etc.
In MMCEAFFW Chapter v. Manila Mining Corp., the employer (mining company) was constrained to temporarily suspend business operations due to its inability in obtaining consent from the residents of the community where the company would operate its tailing pond. This consent was one of the conditions required by the DENR-EMB in granting the application for a permanent permit. This faultless failure on the employer was the primary reason for the bona fide suspension of business operations as supported by substantial evidence.
Thus, in a bona fide suspension of business operation, the employer does not terminate the employment of the employee. Rather, there is only “a temporary displacement of employees.”
Conversely, the employee cannot claim to have been dismissed from employment as his employment status is merely suspended. Any labor complaint for illegal dismissal before the lapse of the 6-month period is generally considered premature. For the same reasons, the due process termination of employment is not necessary or required in a bona fide suspension of business operations.
In ARC-MEN Food Industries, Inc. v. Alcomendras, the employee (company driver) claimed that he was dismissed during the temporary suspension of operations of the business (an export-oriented processing company). It was held that he was not dismissed but merely suspended as there was temporary suspension of plant operations due to recurring problems in the equipment and machines, dependence on suppliers for raw materials, and essentially lack of work.
Suspension of work may also be attributable to the bona fide suspension of an undertaking. To the employer, this may be contractual obligations with clients, partners, or affiliates for which an employee is assigned or designated. If such undertaking is suspended, the employer may be justified in placing the employee on “floating status” provided that there is no other available and similar position.
In Nippon Housing Phil. Inc. v. Leynes, the employer undertook to manage the building of its one and only client. Thus, it assigned a property manager. Something thereafter, the employee (property manager) got into a misunderstanding with the Building Engineer assigned to the employer’s one and only client whose building it manages. To resolve the conflict, the employer issued a memorandum directing the employee to allow the said engineer entry into the client’s premises and attributing the incident to “simple personal differences.” Disappointed, the employee wrote the company president asking for an emergency leave of absence to supposedly coordinate with her lawyer and subsequently signified her intention to resign. In response, the employer was constrained to look for a replacement. Surprisingly, the employee indicated here intention to report back to work. As there is only one post available (and a replacement had been posted), the employer directed her to report to the main office while on “floating status”. It was held that “off-detailing” was not a form dismissal so long as it does not exceed six (6) months. As the company ventured into building management with only one client, there was no property manager position available for the employee resulting in her “floating status.” Eventually, the employer was justified in dismissing the employee for redundancy.
Dire exigency required
As held by Supreme Court, the “paramount consideration” to take note for a bona fide suspension of business operation is the “dire exigency” of the employer’s business compelling it “to put some of its employees temporarily out of work.”
There are no hard and fast rules on what may constitute as a dire exigency. Thus, the validity of a bona fide suspension of business operation will be on a case to case basis and taking into consideration the surrounding circumstances.
In De Guzman v. Philippine Rabbit Bus Line Company, the employer (Bus Company) was held liable for illegal dismissal after the employee (bus conductor) was not given any work assignment for over six (6) months without any justification or explanation.
For security services, guards placed on temporary “off-detail” happens when the agency’s clients no longer renew their service agreements or exercise the right to replace assigned personnel. With these, the relieved or replaced security guard may be placed in such temporary “off-detail” or on “floating status” if there is no available posts or assignments. During this non-posting, the employee is not entitled to any salary or monetary benefit provided by law.
In Eagle Star Security Services, Inc. v. Mirando, the employee (security guard) was relieved from his post in a bank and placed on “floating status.” Failing to present evidence that there was a lack of available posts where he may be re-assigned or that his relief was due to the request of the client-bank, the employer was held liable.
In Sentinel Security Agency, Inc. v. Cabano, the employer (security service agency) was awarded a new contract by the client but still placed the employee (security guard) on “floating status”. Consequently, it was held that there was no bona fide suspension of operation, business or undertaking that would justify placing the employee on off-detail and make him wait for six (6) months.
Burden of proof is on employer
Due to the “grim economic consequences” to the employee, the employer has the burden of proving that suspension of operation is valid. The same rule applies for employees who are placed on “floating status.” Failure to do so, the employer may be held liable for illegal dismissal.
For suspension of business operations due to serious financial losses, these are ordinarily evidenced by the audited financial statements, balance sheets, profit and loss statements, annual income tax returns. In Manila Mining Corporation v. Amor, the employer (mining company) was held liable after failing to present substantial evidence to support its claim for serious financial losses as the basis for temporary suspension of operations.
Notwithstanding, the presentation of an analysis of an independent certified public accountant was considered sufficient when a company claimed impending future losses which are neither past nor actual ones. After all, the employer is not required to actually suffer business losses or financial reverses to suspend business operations.
Further, this burden of proof is designed to guard against scheming employers who may just be feigning or pretending of business losses or reverses in their business so as to manage or ease out employees.
Aspect of management prerogative
The employer’s decision to suspend operation is an aspect of management prerogative. “Closure or [suspension] of operations for economic reasons is, therefore, recognized as a valid exercise of management prerogative. The determination to cease [or suspend] operations is a prerogative of management, which the State does not usually interfere with, as no business or undertaking [is] required to continue operating at a loss simply because it has to maintain its workers in employment. Such an act would be tantamount to a taking of property without due process of law.”
Otherwise stated, the employer has every right to suspend its operations in order to avoid financial ruin. “The decision to suspend operation ultimately lies with the employer, who in its desire to avert possible financial losses, declares, as here, suspension of operations.”
As with any exercise of management prerogative, it is limited by good faith and with due regard to the rights of the employees.
In Dela Cruz v. Elin Pharmaceuticals, the employee was temporarily laid-off allegedly due to the employer’s “cost-saving program” in response to the daily brownouts. Of more than 100 workers, it was only the employee who was subject of such program showing that such was “a sham” and “a disguise of the true reason or intention of the company” to rid the employee from service.
In San Pedro Hospital of Digos, Inc. v. The San Pedro Hospital Employees Union – National Federation of Labor, the employer was held liable after it was shown that temporary closure was “motivated not by a desire to prevent further losses, but to discourage the workers from organizing themselves into a union for more effective negotiation with management.”
2 Types of Work Suspension
There are two (2) types of suspension of business operations: (a) entire business, or (b) specific component.
In Valdez v. Nelbusco, Inc., the employer (Bus Company) was constrained to temporarily stop the operations of a bus due to the breakdown in its air-conditioning unit. When the assigned bus driver challenged its validity, it was held that such a ground was a valid reason for suspension of operations provided it is for a reasonable period of time. Work suspension may either be for the entire business or of a specific component thereof.
6 Months Period
During the six (6) months period, the employee’s employment status is merely suspended and not terminated. If it continues beyond that period, the employment is permanently terminated resulting in illegal dismissal.
Temporary retrenchment or lay-off
Temporary lay-off is neither illegal nor is it a form of unfair labor practice. However, there is no exact legal provision that applies to temporary retrenchment or lay-off. Instead, Article 300 has been applied by analogy “to set a specific period that employees may remain temporarily laid-off or in floating status.” As 6 months is the limitation for suspension of business operations, the temporary retrenchment or lay-off should also not be longer than 6 months.
After the lapse of 6 months, the employer has two options: (a) recall the employees back to work, or (b) permanently retrench them. If the employer does not exercise any of these options, this would be “tantamount to dismissing the employee” with the employer being liable for the dismissal. If recalled back to work, the employer is required to reinstate the employees to their former positions without loss of seniority rights provided they exercise such right within one (1) month from resumption of operations.
In Lagonoy Bus Co., Inc. v. Cariño, the temporarily laid-off employees (bus drivers and conductors) who were already regular employees were rehired by the employer as probationary employees after the suspension of operations due to change of management. As probationary employees, they were dismissed for failure to meet the company standards. The employer was held liable for illegal dismissal since the returning employees were already regular employees, and cannot be downgraded to probationary employees, despite a change in management as the company remains to be the same entity acting as the employer.
More than 6 months: Constructive dismissal or retrenchment
If the bona fide suspension of operations exceeds six (6) months, the employment is considered terminated and made permanent resulting in constructive dismissal.
In SKM Art Craft Corporation v. Bauca, the employer’s establishment was razed by a fire resulting in the bona fide suspension of operations. While valid, the employer failed to recall the employees after the expiration of the six (6) months period resulting in permanent dismissal.
In International Hardware, Inc. v. Pedroso, the employee (delivery truck driver) was rotated by the employer for over six (6) months resulted in the reduction of his working days and his income. By way of defense, the employer explained that the rotation was due to the financial losses suffered by the business. However, it was held that suspension of operations in excess of 6 months resulted in the termination of employment by way of constructive dismissal or retrenchment. Thus, the employee was entitled to separation pay.
In Agro Commercial Security Services Agency, Inc. v. Jimenez, the employees (security guards) were placed on “floating status” for over six (6) months after their assigned companies and government agencies were sequestered by the Government. While valid, the “floating status” of an employee should only last “for a reasonable time.” In this case, the employees were placed on such status for over six (6) months resulting in them being considered illegally dismissed from service.
Gainful employment elsewhere
The affected employees who find gainful employment elsewhere are considered to have severed their employment relationship.
In JPL Marketing Promotions v. Gonzales, the employees placed on “floating status” who found gainful employment within the six (6) month temporary work suspension were considered to have severed their employment. “As they admitted in their comment, all three [employees] applied for and were employed by another establishment after they received the notice from [the employer]. [The employer] did not terminate their employment; they themselves severed their relations with [the employer]. Thus, they are not entitled to separation pay.”
Despite such case above, it is a best legal practice to still issue a report back to work to the employees within the six (6) month period. The above jurisprudence does not directly do away with the responsibility on the employer before the lapse of such period – i.e. (a) recall the employees back to work, or (b) permanently retrench them. If indeed it is established by documentary evidence that the employees have been employed elsewhere and they choose to remain there, the employer should proceed with the process of abandonment –report to work order, and thereafter notice of termination.
Temporary to Permanent Closure
In San Pedro Hospital of Digos, Inc. v. The San Pedro Hospital Employees Union – National Federation of Labor, the employer’s temporary suspension resulted in its permanent closure. While the temporary suspension was invalid as the claim for serious financial losses was unsubstantiated, the permanent closure was valid as it was corroborated with substantial evidence. As the Supreme Court noted the irony, it was the temporary suspension of operations of the hospital “that made inevitable and irreversible (as well as legally tenable) its subsequent permanent closure.”
Forced Leave of Absence
The bona fide suspension of business operations or undertaking is not to be equated with forced leave of absence, and vice-versa. If there is indeed a valid ground for work suspension, then there is no need for a leave of absence from the employees.
In Bontia v. Consolidated Plywood Industries, Inc., the employer imposed an indefinite work suspension and required employees to submit applications for leave of absence. It was held that “if there was a bona fide suspension, then there was no necessity to require [the employees] to sign applications for leave of absence with uncertain and indeterminable terms.” With an unspecified length on the leave, it was highly inequitable on the pitiful employees who were compelled and keep reporting for work only to be told that there was no work. They incurred transportation costs and wasted their time which could have been devoted looking for other sources of income.