Redundancy in Philippine Employment: When a Valid Termination Becomes Illegal Dismissal

The Supreme Court recently reminded employers that redundancy — while a valid ground for termination — cannot be used as a shield for bad faith. In Aguilera v. Coca-Cola FEMSA Philippines, Inc. (G.R. No. 238941, September 29, 2021), the Court ruled that a company's failure to prove good faith and fair criteria in abolishing a position rendered the dismissal illegal, even if the employee signed a quitclaim.

The Facts of the Case

Bernilo Aguilera worked for Coca-Cola FEMSA Philippines (CCFPI) for 18 years as a Cold Drink Associate. His job involved supervising maintenance work on the company's electric coolers installed in customer stores.

In May 2013, new management took over and announced a review of all plant positions. In August 2013, Aguilera was told he failed an assessment — though the results were never shown to him — and received a notice of termination due to redundancy. His position was abolished, and his duties were split into two new roles: Cold Drink Operation Supervisor and Cold Drink Equipment Analyst. Both positions had lower salaries than his.

Aguilera applied for the new Cold Drink Equipment Analyst position but was rejected. The company hired new employees for the role instead. He was offered a separation package of over P1.8 million and signed a Deed of Receipt, Waiver, and Quitclaim.

The Legal Issue

Was Aguilera validly dismissed on the ground of redundancy?

The Supreme Court's Ruling

The Court ruled in favor of Aguilera, declaring his dismissal illegal.

Redundancy requires more than a mere claim. Redundancy exists when the service capability of the workforce exceeds what is reasonably needed for the business. While declaring a position redundant is an exercise of management prerogative, that prerogative must not be arbitrary or malicious.

For a valid redundancy program, the employer must prove four requisites: (1) written notice to the employee and the Department of Labor and Employment at least one month before termination; (2) payment of separation pay of at least one month pay per year of service; (3) good faith in abolishing the positions; and (4) fair and reasonable criteria in determining which positions to abolish.

The employer failed to prove good faith and fair criteria. The company presented only the self-serving affidavit of its HR manager claiming that assessments and meetings were conducted. It also belatedly submitted a psychometric examination result showing Aguilera's IQ score, but without any interpretation or comparison to retained employees.

The Court found this insufficient, citing Feati University v. Pangan and Yulo v. Concentrix Daksh Services Philippines, Inc., which held that bare claims of organizational review do not establish good faith.

The "new" position was essentially the same. The Court compared the job descriptions and found that the newly created Cold Drink Equipment Analyst position had essentially similar, if not identical, functions to Aguilera's abolished Cold Drink Associate position. Citing Abbott Laboratories (Philippines), Inc. v. Torralba, the Court held that creating new positions with the same functions after a supposed redundancy exhibits intent to circumvent the employee's right to security of tenure.

The quitclaim was void. While quitclaims are generally valid if voluntarily entered into, they cannot bar recovery when the termination itself is illegal. The Court noted that Aguilera repeatedly expressed his desire to continue working, and only signed the quitclaim after his dismissal took effect — a sign of compulsion given his need for income.

Practical Takeaways

• Redundancy requires substantial evidence. Employers must present concrete proof of redundancy — not just general claims of restructuring or streamlining.
• Fair criteria must be documented. Companies should establish clear, written criteria for selecting which positions to abolish and which employees to retain, and apply them consistently.
• Creating similar positions defeats the defense. If a company abolishes a position only to create a new one with essentially the same functions, courts will view this as bad faith.
• Quitclaims do not cure illegal dismissal. Signing a waiver and accepting separation pay does not automatically bar an employee from challenging a termination that was invalid from the start.
• Employees have strong protection. Eighteen years of service and a recent merit increase are powerful evidence that a redundancy claim may be a pretext for illegal dismissal.

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