Redundancy Programs Ensuring Fairness IN Employee Selection

When a company restructures and declares positions redundant, it cannot simply rely on general business logic to decide who gets dismissed. The Supreme Court’s 2017 ruling in Abbott Laboratories (Philippines), Inc. v. Torralba (G.R. No. 229746) clarifies that employers must use fair and reasonable criteria in selecting which employees to let go—and that offering affected workers lower-paying positions can undermine the entire redundancy program.

The Facts

Abbott Laboratories decided to merge its PediaSure Division and Medical Nutrition Division into one sales unit. The company relied on a study showing the divisions had similar business models and that the Medical Nutrition Division generated a larger share of sales. As a result, three sales managers—Roselle Almazar, Manuel Torralba, and Redel Navarro—were declared redundant and terminated effective March 22, 2013.

Abbott offered the three managers District Sales Manager positions with lower pay and different responsibilities. When they rejected the offer, they signed Deeds of Waiver, Release, and Quitclaim after receiving separation pay. Later, they filed a complaint for illegal dismissal, arguing that Abbott did not use proper criteria in selecting who to retain.

The Issue

The central question was whether Abbott’s redundancy program was valid. Under Article 298 of the Labor Code, redundancy is a valid authorized cause for termination, but the employer must comply with four requisites: (1) written notice to employees and DOLE at least one month before termination; (2) payment of separation pay; (3) good faith in abolishing the positions; and (4) use of fair and reasonable criteria in determining which positions to declare redundant.

The Ruling

The Supreme Court denied Abbott’s petition, holding that the redundancy program was invalid. While the Court acknowledged that the criteria listed in Golden Thread Knitting Industries, Inc. v. NLRC—less preferred status, efficiency, and seniority—are not exclusive, it found that Abbott presented no evidence that it evaluated individual employees against any specific criteria.

The Court noted that the study Abbott relied on only compared the performance of the two divisions. It did not explain why all employees from one division should be dismissed while all from the other were retained. The employer must conduct an evaluation of the affected employees, not just the business units, to justify who gets retained and who gets dismissed.

The Court also found bad faith in Abbott’s implementation of the program. The company claimed it needed to reduce manpower by eliminating superfluous positions, yet it offered the affected employees newly-created District Sales Manager positions. This contradiction suggested the redundancy was a mere subterfuge to circumvent the employees’ right to security of tenure.

Because the termination was invalid, the quitclaims signed by the employees could not bar them from contesting their dismissal. The Court applied the exception in Philippine Carpet Manufacturing Corporation v. Tagyamon: when an employer acts in bad faith, the waiver is deemed obtained through fraud or deceit.

Practical takeaways

• Document individual assessments. Before implementing a redundancy program, employers should conduct and keep records of evaluations that measure affected employees against specific, pre-determined criteria.
• Avoid offering lower positions. Offering dismissed employees newly-created positions with lower pay and different duties can be evidence that the redundancy was not genuine.
• Quitclaims do not cure invalid dismissals. If the termination itself is illegal, a signed waiver will not protect the employer.
• Separation pay is credited to backwages. Amounts already paid as separation pay will be deducted from any backwages awarded.
• Damages can be reduced. While moral and exemplary damages may be awarded in illegal dismissal cases, courts may reduce excessive amounts.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.