Key Takeaway: Employers Must Demonstrate Good Faith and Fair Criteria in Implementing Redundancy Programs

Aboitiz Power Renewables, Inc./Tiwi Consolidated Union, et al. v. Aboitiz Power Renewables, Inc., et al., G.R. No. 237036, July 08, 2020

Imagine waking up one day to find out that your job, which you’ve dedicated years to, has been declared redundant. This is the reality for many employees in the Philippines, where companies may implement redundancy programs to streamline operations. In the case of Aboitiz Power Renewables, Inc. (APRI) and its employees, the Supreme Court had to determine whether the termination of employment due to redundancy was legally sound. This case highlights the importance of employers adhering to legal standards when implementing such programs, ensuring that the rights of employees are protected.

The central issue in this case was whether APRI’s redundancy program was valid and if the dismissals of the affected employees were legal. The employees argued that the program was implemented in bad faith and was a form of union busting, while APRI maintained that it was a necessary business decision due to declining steam production and technological upgrades.

Legal Context: Understanding Redundancy and Employer Obligations

Redundancy, as an authorized cause for termination under Article 298 of the Philippine Labor Code, occurs when an employee’s services are no longer necessary due to various factors such as overhiring, decreased business volume, or technological advancements. The law requires employers to demonstrate good faith and use fair and reasonable criteria when declaring positions redundant.

To implement a redundancy program legally, employers must:

• Serve written notices to both the employees and the Department of Labor and Employment (DOLE) at least one month prior to the intended date of dismissal.
• Pay separation benefits to the affected employees.
• Use fair and reasonable criteria in selecting employees for redundancy, such as less preferred status, efficiency, and seniority.
• Demonstrate good faith in the decision to abolish the redundant positions.

Article 298 of the Labor Code states: “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.”

In everyday terms, this means that if a company decides to reduce its workforce due to redundancy, it must follow strict guidelines to ensure fairness and legality. For example, if a company adopts a new software system that automates certain tasks, it must carefully assess which positions are truly redundant and provide adequate notice and compensation to affected employees.

Case Breakdown: The Journey of APRI’s Redundancy Program

The case began when APRI, a corporation operating a geothermal power plant, informed its employees of a redundancy program due to declining steam production and the adoption of the Oracle Enterprise Business Suit. On September 16, 2013, APRI held a town hall meeting, followed by individual meetings with affected employees, who were given notices of redundancy and offered separation pay and a one-time special assistance of P400,000.00.

The affected employees, represented by three unions, challenged the redundancy program, claiming it was implemented in bad faith and was a form of union busting. They argued that APRI failed to provide evidence of overstaffing and did not follow proper procedures.

The case proceeded through the following stages:

1. The Labor Arbiter dismissed the employees’ complaints, finding that APRI complied with the legal requisites for redundancy.
2. The National Labor Relations Commission (NLRC) affirmed the Labor Arbiter’s decision, ruling that the redundancy program was valid and the dismissals were legal.
3. The Court of Appeals (CA) upheld the NLRC’s decision, finding no grave abuse of discretion.
4. The Supreme Court reviewed the case and affirmed the CA’s decision, emphasizing that APRI met all the requirements for a valid redundancy program.

The Supreme Court’s decision included the following key points:

• “The good faith of APRI can be gleaned from its showing that the services of the affected employees were indeed in excess of what is required by the company.”
• “The Right-Sizing Program, the study in which the redundancy program was based, showed the implementation guidelines and criteria used by APRI in determining redundant positions, which this Court also found to be fair and reasonable.”
• “Petitioners’ assertion that APRI’s redundancy program was meant to interfere with or frustrate petitioners’ union activities and negotiation of CBA was a bare conclusion and unsupported by sufficient proof.”

Practical Implications: Navigating Redundancy in the Workplace

This ruling reinforces the importance of employers following strict legal guidelines when implementing redundancy programs. Companies must ensure that their decisions are based on genuine business needs and are not used as a tool for union busting or unfair labor practices.

For businesses, this case serves as a reminder to:

• Conduct thorough assessments to justify redundancy.
• Provide clear and timely notices to employees and the DOLE.
• Offer fair compensation and support to affected employees.
• Document the criteria used for selecting redundant positions.

For employees, understanding their rights under the law can help them navigate potential redundancy situations. If faced with redundancy, employees should:

• Seek legal advice to understand their entitlements.
• Document all communications and notices received from the employer.
• Consider negotiating with the employer for better terms of separation.

Key Lessons:

• Employers must act in good faith and use fair criteria when implementing redundancy programs.
• Employees have the right to challenge redundancy decisions if they believe they are unjust or in violation of labor laws.
• Proper documentation and adherence to legal procedures are crucial for both employers and employees in redundancy cases.

Frequently Asked Questions

What is redundancy in employment?
Redundancy occurs when an employee’s position is no longer necessary due to factors like overhiring, decreased business volume, or technological advancements.

What are the legal requirements for implementing a redundancy program?
Employers must provide written notices to employees and the DOLE at least one month before dismissal, pay separation benefits, use fair and reasonable criteria for selection, and demonstrate good faith.

Can an employee challenge a redundancy decision?
Yes, employees can challenge a redundancy decision if they believe it was implemented in bad faith or violated labor laws.

What should employees do if they receive a redundancy notice?
Employees should seek legal advice, document all communications, and consider negotiating with their employer for better terms of separation.

How can employers ensure their redundancy program is legally sound?
Employers should conduct thorough assessments, follow legal procedures, and document the criteria used for selecting redundant positions.

ASG Law specializes in labor and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.