Issue: Whether or not an employer is obligated to give separation pay in case of business closure due to bankruptcy.
Article 283 of the Labor Code provides the "authorized" causes of termination as distinguished from the "just" causes in Article 282. Under this provision, an employer may terminate employee's services due to the following causes: installation of labor-saving devices, redundancy, retrenchment to prevent losses, and the closing or cessation of operation of the establishment or undertaking, unless the closing is for the purpose of circumventing the provisions of law. In all these cases, the employee affected shall be entitled to separation pay depending on the cause of termination.
To terminate the employment under this provision, the employer must serve a written notice on the worker and the Department of Labor at lest 1 month before the intended date of the termination. The purpose of this prior notice to the DOLE is to enable the latter to ascertain the verity of the cause of termination of employment. (International Hardware vs. NLRC G.R. No. 80770)
However, if the termination of employment is due to serious business losses such as bankruptcy of employer's company, the employer need not give separation pay.
In the 1990 case of Banco Filipino Savings and Mortgage Bank vs. NLRC (G.R. No. 82135), the Court ruled: Article 282 of the LC enumerates the just causes for an employer to terminate an employee. If an employee is dismissed for just cause, he is not entitled to termination pay. However, in Article 283, in case of closure of establishment, the employee is always given termination pay. The reason for the closure is taken into consideration only to determine whether to give 1 month or 1/2 month pay for every year of service. This provision is based on social justice and equity.
However, in the succeeding cases of State Investment House Inc. vs. CA (G.R. No. 89767) a 1992 case, Victor Mendoza, et. al. vs. NLRC (G.R. No. 11079) a 1993 case, and Mindanao Terminal and Brokerage Service, Inc. vs. Hon. Minister of Labor (G.R. No. 75374) a 1994 case, the SC ruled: "the closure of a business establishment due to serious losses or financial reverses NEGATES the grant of separation pay to employees whose services are terminated. It is only when the closure is for reasons other than business reverses or losses that separated personnel are entitled to separation pay, which is computed at 1 month or 1/2 month pay for every year of service, whichever is higher."
The decisions in the latter 3 cases which are all more recent than the 1990 ruling in Banco Filipino should prevail.
The doubt as to which ruling prevails is dispelled by the en banc decision of the SC in the case of North Davao Mining Corporation vs. NLRC (G.R. No. 112546). Speaking through former Justice Panganiban: "... Art. 283 governs the grant of separation benefits 'in case of closures or cessation of operation' of business establishments NOT due to serious business losses or financial reverses ..." Where, however, the closure was due to business losses the Labor Code does not impose any obligation upon the employer to pay separation benefits, for obvious reasons. In the absence of proof of serious business losses or financial reverses, the employer closing his business is obligated to pay his employees and workers their separation pay."
Therefore, from the foregoing, since bankruptcy is considered serious business loss, the employer need not pay his/her workers separation pay.
Article 283 of the Labor Code provides the "authorized" causes of termination as distinguished from the "just" causes in Article 282. Under this provision, an employer may terminate employee's services due to the following causes: installation of labor-saving devices, redundancy, retrenchment to prevent losses, and the closing or cessation of operation of the establishment or undertaking, unless the closing is for the purpose of circumventing the provisions of law. In all these cases, the employee affected shall be entitled to separation pay depending on the cause of termination.
To terminate the employment under this provision, the employer must serve a written notice on the worker and the Department of Labor at lest 1 month before the intended date of the termination. The purpose of this prior notice to the DOLE is to enable the latter to ascertain the verity of the cause of termination of employment. (International Hardware vs. NLRC G.R. No. 80770)
However, if the termination of employment is due to serious business losses such as bankruptcy of employer's company, the employer need not give separation pay.
In the 1990 case of Banco Filipino Savings and Mortgage Bank vs. NLRC (G.R. No. 82135), the Court ruled: Article 282 of the LC enumerates the just causes for an employer to terminate an employee. If an employee is dismissed for just cause, he is not entitled to termination pay. However, in Article 283, in case of closure of establishment, the employee is always given termination pay. The reason for the closure is taken into consideration only to determine whether to give 1 month or 1/2 month pay for every year of service. This provision is based on social justice and equity.
However, in the succeeding cases of State Investment House Inc. vs. CA (G.R. No. 89767) a 1992 case, Victor Mendoza, et. al. vs. NLRC (G.R. No. 11079) a 1993 case, and Mindanao Terminal and Brokerage Service, Inc. vs. Hon. Minister of Labor (G.R. No. 75374) a 1994 case, the SC ruled: "the closure of a business establishment due to serious losses or financial reverses NEGATES the grant of separation pay to employees whose services are terminated. It is only when the closure is for reasons other than business reverses or losses that separated personnel are entitled to separation pay, which is computed at 1 month or 1/2 month pay for every year of service, whichever is higher."
The decisions in the latter 3 cases which are all more recent than the 1990 ruling in Banco Filipino should prevail.
The doubt as to which ruling prevails is dispelled by the en banc decision of the SC in the case of North Davao Mining Corporation vs. NLRC (G.R. No. 112546). Speaking through former Justice Panganiban: "... Art. 283 governs the grant of separation benefits 'in case of closures or cessation of operation' of business establishments NOT due to serious business losses or financial reverses ..." Where, however, the closure was due to business losses the Labor Code does not impose any obligation upon the employer to pay separation benefits, for obvious reasons. In the absence of proof of serious business losses or financial reverses, the employer closing his business is obligated to pay his employees and workers their separation pay."
Therefore, from the foregoing, since bankruptcy is considered serious business loss, the employer need not pay his/her workers separation pay.
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