Retrenchment is normally resorted to by management during periods of business reverses and economic difficulties occasioned by such events as recession, industrial depression, or seasonal fluctuations.

It is an act of the employer of reducing the work force because of losses in the operation of the enterprise, lack of work, or considerable reduction on the volume of business. Retrenchment is, in many ways, a measure of last resort when other less drastic means have been tried and found to be inadequate.

A lull caused by lack of orders or shortage of materials must be of such nature as would severely affect the continued business operations of the employer to the detriment of all and sundry if not properly addressed.

Hence, the SC held in the following March 14, 2018 case as follows:

La Consolacion College of Manila, Sr., et al. vs. Virginia Pascua, M.D.
G.R. No. 214744, March 14, 2018


La Consolacion (LC) engaged the services of Dr. Virginia Pascua (Dr. Pascua) as school physician. She started working part-time before serving full-time from 2008.

Dr. Pascua was handed an Inter-Office Memo from HR of La Consolacion inviting her to a meeting concerning her “working condition.” In that meeting she was handed a termination letter, explaining the reasons thereof and the terms of her dismissal, including payment of separation pay.

The letter states as reason for termination:

  • Current financial situation of LC caused by decease in enrollment; Hence, downsize health services staff
  • Position of Dr. Pascua rendering 35 hours work in a week was eliminated
  • Last resort to prevent serious business losses

Dr. Pascua pointed out that the part-time school physician should have been considered first for dismissal. LC could have asked her to revert to part-time status instead. She also asked:

  • Criteria for retrenchment selection
  • Why her over a part-time physician
  • She is the only one terminated
  • What were the other cost-cutting measures done by school to abate its alleged losses than implementing the drastic measure of termination

In the meantime, Dr. Pascua underwent LC’s clearance procedures and completed them. In the exit clearance, Dr. Pascua reserved her right to question the validity / legality of her termination.

Dr. Pascua filed a complaint for illegal dismissal.

LA Ruling:

The Labor Arbiter (LA) held that Dr. Pascua was illegally terminated. LC failed to justify the criteria used in terminating her employment.

NLRC Ruling:

The National Labor Relations Commission (NLRC) reversed the LA Decision.

It explained the validity of the basis for dismissal that substantial drop in income justified the reduction of the larger of the college expenses such as salaries and allowances of its more expensive staff members.

CA Ruling:

The CA reinstated the LA Decision.

LC filed an MR. CA denied the MR. Hence, LC filed a Petition before the SC.


Whether or not by terminating a full-time physician instead of the part-time physician a criterion on seniority was observed to make retrenchment valid.

Whether or not the reason to dismiss the highest paid employee first prevails over the fact that the employee terminated was more senior and demonstrating exemplary performance

Whether or not an imperfect attempt at devising reasonable mechanism for retrenchment is enough ground to temper the liability for backwages

SC Ruling:

The SC partially granted the petition.

It held that the termination for retrenchment was illegal but the award for backwages was modified by computing it on part-time basis from the time of termination.

The SC held further that LC’s failure was non-compliance with third substantive requisite of using fair and reasonable criteria that considered the status and seniority of the retrenched employee.

According to SC there is no dispute about Dr. Pascua’s seniority and preferred status. Thus, her preeminence is a necessary implication of the very criteria used by LC in retrenching her, i.e., that she was the highest paid employee in health services division.

LC’s disregard of Dr. Pascua’s seniority and preferred status relative to a part-time employee indicates its resort to an unfair and unreasonable criterion for retrenchment.

The SC stated that it may have made mathematical sense to dismiss the highest paid employee first. However, appraising the propriety of retrenchment is not merely a matter of enabling an employer to augment financial prospects. It is as much a matter of giving employees their just due. Employees who have earned their keep by demonstrating exemplary performance and securing roles in their respective organizations cannot be summarily disregarded by nakedly pecuniary considerations.

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Further, the Labor Code’s permissiveness towards retrenchments aims to strike a balance between legitimate management prerogatives and the demands of social justice. Concern for the employer cannot mean a disregard for employees who have shown not only their capacity, but even loyalty. LC’s pressing financial condition may invite commiseration, but its flawed standard for retrenchment constrained the SC to maintain that Dr. Pascua was illegally dismissed.

LC could have modified Dr. Pascua’s status from full-time to part-time. When retrenchment becomes necessary, the employer may, in the exercise of its business judgment, implement cost-saving measures, but at the same time, should respect labor rights.

While the impropriety of the termination of Dr. Pascua’s employment is settled, it is equally manifest that she was not a victim of arbitrary and high handed action. Her dismissal was a result, not so much of purposeful malevolence, but of a flawed appreciation of circumstances. LC was contending with dire financial straits and wound up resorting to a monetarily logical, though faulty, course of action.

Learn the proper and valid retrenchment of employees from Guide to Valid Dismissal of Employees Second Edition

In the case of Pepsi-Cola Products Philippines, Inc. vs. Molon, the SC mitigated an employer’s liability for backwages where good faith is evident. LC’s prohibitive financial condition and demonstrate, though imperfect, attempt at devising a reasonable mechanism for retrenching employees impelled the SC to temper its liability for backwages. The SC upheld the LA’s order for Dr. Pascua to be reinstated but modified the amount of backwages corresponding to the status of part-time employee effective from the time of termination.

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