41. Andrada, et. al. v.

NLRC  Retrenchment, on the other hand, is used interchangeably

G.R. No. 17321, December 28, 2007, Joben Odulio with the term "lay-off." It is the termination of employment
Authorized Causes initiated by the employer through no fault of the employee's
and without prejudice to the latter, resorted to by
Doctrine: management during periods of business recession, etc.
Simply put, it is an act of the employer of dismissing
 Requirements to justify retrenchment to prevent abuse
employees because of losses in the operation of a business,
by employers: lack of work, and considerable reduction on the volume of his
(1) it is undertaken to prevent losses, which are not merely business, a right consistently recognized and affirmed by this
de minimis, but substantial, serious, actual, and real, or if Court.
only expected, are reasonably imminent as perceived
 It is however not enough for a company to merely declare
objectively and in good faith by the employer;
that positions have become redundant. It must produce
(2) the employer serves written notice both to the
adequate proof of such redundancy to justify the dismissal of
employees and the DOLE at least 1 month prior to the
the affected employees.
intended date of retrenchment; and
(3) the employer pays the retrenched employees separation
pay equivalent to 1 month pay or at least 1/2 month pay ER: Andrada, et. al. were dismissed by their employer,
for every year of service, whichever is higher. Legend, citing retrenchment. They said that they were
(4) The Court later added the requirements that the being retrench in a last-in-first-out basis on account of
employer must use fair and reasonable criteria in shelving of a condotel project, completion of a casino,
ascertaining who would be dismissed and retained subcontracting a work to a third party, the completion of a
among the employees and that the retrenchment must hotel and a casino, abolition of a department. The LA said
be undertaken in good faith. there was an illegal dismissal as Legend failed to justify the
Except for the written notice to the affected employees and retrenchment of its personnel; the documents failed to
the DOLE, non-compliance with any of these requirements show that Legend was suffering from actual losses or that
render[s] the retrenchment illegal. there was redundancy. The CA held that the retrenched
 Retrenchment and redundancy are two different employees were validly dismissed from employment due to
concepts: redundancy and not retrenchment. The CA ratiocinated that
 Redundancy exists where the services of an employee are in Legend had validly terminated the employment of its
excess of what is reasonably demanded by the actual employees since it had proven that complainants' positions
requirements of the enterprise. A position is redundant were superfluous and that there was an oversupply of
where it is superfluous, and superfluity of a position or
employees; more than what its projects needed. It agreed
positions may be the outcome of a number of factors, such as
over hiring of workers, decreased volume of business, or with NLRC that it was a different person who was
dropping of a particular product line or service activity recruiting for new personnel. [SEE REQUISITES FOR
previously manufactured or undertaken by the enterprise. RETRENCHMENT] In this case, Legend failed to show its
financial condition prior to and at the time it enforced its The following day, Legend informed the 34 employees of
retrenchment program nor did it submit audited financial the retrenchment through a notice with the aforesaid
statements regarding its alleged financial losses. Though reasons.
Legend complied with the notice requirements and the
payment of separation benefits to the retrenched employees, Curiously, on the same day, the Labor and Employment
its failure to establish the basis made the retrenchment Center of the Subic Bay Metropolitan Authority advertised
illegal. The SC also disagreed the CA’s pronouncement that that Legend International Resorts, Inc. was in need of
petitioners were validly dismissed, not for retrenchment, employees for positions similar to those vacated by
but for redundancy. [SEE DIFFERENTIATION BET. petitioners
REDUNDANCY & RETRENCHMENT.] The basis for
retrenchment was not established by substantial evidence, Afterwards, on February 6, 1998, Legend informed the
we also rule that Legend failed to establish by the same retrenched employees of their permanent retrenchment
quantum of proof the fact of redundancy; hence, and/or their options. Legend paid the retrenched
petitioners' termination from employment was illegal. employees their salaries up to February 6, 1998, separation
pay, pro-rated 13th- month pay, ex-gratia, meal allowance,
Facts: Andrada, et. al. were hired on various dates from unused vacation leave credits, and tax refund. Petitioners,
1995 up to 1997 and worked as architects, draftsmen, in turn, signed quitclaims but reserved their right to sue
operators, engineers, and surveyors in the Subic Legend Legend.
Resorts and Casino, Inc. (Legend) Project Development
Division on various projects. A month later, 14 of the 34 retrenched employees filed
before the Regional Arbitration Branch of the NLRC in
On January 6, 1998, Legend sent a notice to the DOLE of its Pampanga, a complaint for illegal dismissal.
intention to retrench and terminate the employment of 34
employees, which included the petitioners in the Project Before the Labor Arbiter, complainants alleged that they
Development Division. The retrenchment would be were illegally dismissed because Legend, after giving
conducted in a last-in-first-out (LIFO) basis, on the strength retrenchment as the reason for their termination, created
of the updated status report of the Project Development new positions similar to those they had just vacated.
Division, such as shelving of a condotel project, completion Legend, on the other hand, invoked management
of a casino, subcontracting a work to a third party, the prerogative when it terminated the retrenched employees;
completion of a hotel and a casino, abolition of a and said that complainants voluntarily signed quitclaims so
department. that they were already barred from suing Legend. The LA
declared there was illegal dismissal and ordered the
reinstatement of the complainants.
The LA stated that Legend failed to justify the retrenchment Issue: Whether or not the complainants were illegally
of its personnel; the documents failed to show that Legend dismissed? Corollarily, was there a valid retrenchment or
was suffering from actual losses or that there was did Legend prove the existence of redundancy in its Project
redundancy. The LA said there was bad faith when Legend Development Division?
advertised openings for positions similar to those occupied
by the retrenched employees at the same time the Held: This was an illegal dismissal.
retrenchment program was being implemented. As such, it
awarded damages. NO VALID RETRENCHMENT
A company's exercise of its management prerogatives is not
Legend filed an appeal with the NLRC, who then reversed absolute. Under the Labor Code, retrenchment and
the LA. It said that Legend was able to prove that it was redundancy are authorized causes for separation from
suffering from actual losses, and that there was redundancy service. How ever, to protect labor, dismissals due to
in the work of the retrenched employees. The NLRC also retrenchment or redundancy are subject to strict
gave credence to Legend's claim that it was Yap Yuen requirements under Article 283.
Khong, and not Legend, who asked for Subic Bay
Metropolitan Authority's help in recruiting personnel for Retrenchment is an exercise of management's prerogative
Gaehin International Inc. (Gaehin) as the sub-contractor for to terminate the employment of its employees en masse, to
the construction of the Grand Legenda Hotel and Casino. either minimize or prevent losses, or when the company is
The NLRC observed that Gaehin was an entity distinct and about to close or cease operations for causes not due to
separate from Legend. Legend fully and properly complied business losses.
with the 30-day notice requirements to the DOLE and to the
retrenched employees. MR was denied. In Ariola v. Philex Mining Corporation, summarized the
requirements to justify retrenchment to prevent abuse by
Before the CA, it was held that the retrenched employees employers:
were validly dismissed from employment due to
redundancy and not retrenchment. The CA ratiocinated that (1) it is undertaken to prevent losses, which are not
Legend had validly terminated the employment of its merely de minimis, but substantial, serious, actual,
employees since it had proven that complainants' positions and real, or if only expected, are reasonably
were superfluous and that there was an oversupply of imminent as perceived objectively and in good faith
employees; more than what its projects needed. It agreed by the employer;
with NLRC that it was a different person who was (2) the employer serves written notice both to the
recruiting for new personnel. employees and the DOLE at least 1 month prior to
 the intended date of retrenchment; and of factors, such as over hiring of workers, decreased
(3) the employer pays the retrenched employees volume of business, or dropping of a particular product
separation pay equivalent to 1 month pay or at line or service activity previously manufactured or
least 1/2 month pay for every year of service, undertaken by the enterprise.
whichever is higher.  Retrenchment, on the other hand, is used
(4) The Court later added the requirements that the interchangeably with the term "lay-off." It is the
employer must use fair and reasonable criteria in termination of employment initiated by the employer
ascertaining who would be dismissed and retained through no fault of the employee's and without
among the employees and that the retrenchment prejudice to the latter, resorted to by management
must be undertaken in good faith. during periods of business recession, etc. Simply put, it
Except for the written notice to the affected employees and is an act of the employer of dismissing employees
the DOLE, non-compliance with any of these requirements because of losses in the operation of a business, lack of
render[s] the retrenchment illegal. work, and considerable reduction on the volume of his
In this case, Legend failed to show its financial condition business, a right consistently recognized and affirmed
prior to and at the time it enforced its retrenchment by this Court.
program nor did it submit audited financial statements It is however not enough for a company to merely declare
regarding its alleged financial losses. Though Legend that positions have become redundant. It must produce
complied with the notice requirements and the payment of adequate proof of such redundancy to justify the dismissal
separation benefits to the retrenched employees, its failure to of the affected employees.
establish the basis made the retrenchment illegal. The basis for retrenchment was not established by
NO VALID REDUNDANCY substantial evidence, we also rule that Legend failed to
The SC also disagreed the CA’s pronouncement that establish by the same quantum of proof the fact of
petitioners were validly dismissed, not for retrenchment, redundancy; hence, petitioners' termination from
but for redundancy. employment was illegal.
Retrenchment and redundancy are two different concepts;
they are not synonymous and therefore should not be used
interchangeably. This Court explained in detail the
difference between the two concepts in Sebuguero v. NLRC:
 Redundancy exists where the services of an employee
are in excess of what is reasonably demanded by the
actual requirements of the enterprise. A position is
redundant where it is superfluous, and superfluity of a
position or positions may be the outcome of a number