Workers’ separation benefits when company closes

Published by rudy Date posted on February 4, 2009

Dear PAO, 

In October 2008, the fruit-processing company I used to work for in an industrial/commercial complex within Metro Manila decided to cease operations due to losses incurred during the past several years and financial constraints. The company said it would give what is due to its employees as required under the law. The firm offered us separation pay and other benefits to be paid in 12-monthly installments beginning November 15, 2008. Unfortunately, we have not received any of those. The firm has not communicated with the employees ever since, so we don’t know when will we be paid our separation benefits. 

I want to know: Is the 12-month installment period legal? What legal remedies can the employees avail themselves of to get their separation pay benefits?

Please help.
P. San Juan 

Dear Mr. San Juan, 

The closure of an establishment or the permanent cessation of operations by reason of serious business losses is a management prerogative sanctioned by law. Likewise, sans any justifiable reason, [the owner] may opt to stop doing business provided the same is done in good faith and not intended to circumvent the law. Article 283 of the Labor Code of the Philippines, provides: 

“Art. 283. Closure of establishment and reduction of personnel. – 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 unless the closing is for the purpose of circumventing the provisions of this title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.” 

For a valid closure or cessation of business operations, the law requires that the same must be real and permanent. A written notice must be served on the employees and the Department of Labor and Employment at least one (1) month before the planned date of closure and the employer must give separation pay to the employees in the amount provided therein, if the closure was not due to serious business losses. 

As held by the Supreme Court of the Philippines in the case of Rolando Revidad et. al. vs. National Labor Relations Commission (245 SCRA 352, G.R. No. 111105, June 27, 1995), the Court, speaking through Justice Regalado, stated: 

“The purpose of this notice is to enable the proper authorities to ascertain whether the closure of the business is being done in good faith and is not just a pretext for evading compliance with the just obligations of the employer to the affected employees.”

On the other hand, the said notice is required to be served personally to the affected employees for the purpose of giving them time to prepare for the impending closure of the establishment. The advance notice of dismissal is required in order to obviate abrupt and arbitrary dismissal and to enable the poor laborer or employee to survive while he is looking for another job. (Eusebio L. Gabisan vs. Maria Cristina Fertilizer Corporation, 138 SCRA 397, G.R. No. L-49402. September 2, 1985) 

The payment of separation pay must be made immediately, so as not to defeat the purpose for which it was established. However, if the employer and the employees have agreed on different terms of payment, as long as it is not prejudicial to the interest of the employees, not contrary to law, morals, public policy and public order and it was entered into voluntarily by both parties then the agreement is valid.

Applying the foregoing to your situation, if the offer to pay, on 12-monthly installments, including the separation pay and other benefits due was not accepted by the employees, then payment must be made on a lump-sum basis. If no payment was made, then you may file a complaint before the National Labor Relations Commission to compel the employer to pay.

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