(How temporary layoffs, floating status, retrenchment, redundancy, and closure really fit together)

Executive Summary

Employers sometimes place workers on “forced leave” (also called temporary lay-off or floating status) when business slows down. In Philippine law, two different provisions are involved:

Article 301 (formerly Art. 286) — allows a bona fide suspension of business operations or of an employee’s work for up to six (6) months. This is where forced leave/floating status squarely belongs. During this temporary period the employment tie is not severed; beyond 6 months, the employer must recall the employee or permanently terminate under Article 298.
Article 298 (formerly Art. 283) — governs permanent reductions of personnel due to authorized causes: redundancy, installation of labor-saving devices, retrenchment to prevent losses, and closure or cessation of business. These are terminations, which require 30-day prior written notice (to the employee and DOLE) and, in most cases, separation pay.

Because the terms are often mixed up, this article explains how “forced leave” under Art. 301 interacts with permanent terminations under Art. 298, what employers must do, and what employees are entitled to.

Statutory Anchors & Key Ideas

Article 301 — Temporary suspension (“forced leave/floating status”)

What it allows: A good-faith, temporary suspension of operations or of specific employees’ work not exceeding six (6) months.
Nature: The employment relationship continues. There is no dismissal yet.
Pay rule: No work, no pay generally applies unless there is a CBA, company policy, or individual agreement granting pay. Government relief programs (when available) are separate from employer obligations.
At 6 months: The employer must (a) reinstate/recall, or (b) convert to an authorized-cause termination under Article 298 (with proper 30-day notices and separation pay, as applicable). Failure to do either typically results in a finding of illegal dismissal.

Article 298 — Permanent authorized-cause terminations

Covered causes & separation pay:
- Redundancy or installation of labor-saving devices (LSD): At least 1 month pay per year of service, or 1 month pay, whichever is higher.
- Retrenchment to prevent losses or closure/cessation not due to serious losses: At least ½ month pay per year of service, or 1 month pay, whichever is higher.
- Closure due to serious business losses: No separation pay required (but the bar to prove serious losses is high).
Notice: 30 days prior, written, to both the employee and DOLE.
Good-faith & evidence: Employer must show good faith, business necessity, and use of fair and reasonable criteria (e.g., efficiency, seniority) when selecting who is affected.

Bridge rule: An employer cannot park an employee on “forced leave” beyond six months to avoid separation pay. At that point the law demands a definitive decision (recall or terminate under Art. 298, with all formalities).

What “Forced Leave” Is Not

Not preventive suspension. Preventive suspension is disciplinary and short-term (to avert harm while investigating misconduct). “Forced leave” is business-driven, non-disciplinary, and may last up to six months.
Not a charge to your leave credits (unless your policy/CBA expressly provides and you consent). Forced leave is a management prerogative tied to operations, not an employee-initiated vacation or sick leave.

Employer Requirements During Forced Leave (Art. 301)

Good-faith business reason. Examples: supply chain disruption, temporary closure for renovation, industry downturn, cancellation of orders, seasonal lull.
Reasonable, fair selection. If only some workers are placed on floating status (e.g., rotating forced leave), apply objective criteria and avoid discrimination.
Clear written advisories. Give employees written notice indicating:
- reason and scope of suspension,
- start date, and
- projected duration (not to exceed six months in the aggregate). While the Code does not mandate a 30-day notice for Art. 301, transparent written advisories and reporting to DOLE (per advisories/issuances) are best practice and often required by implementing rules/advisories during flexible work arrangements.
Benefits administration.
- Seniority/tenure continue to run (they are still employed).
- HMO/insured benefits: follow the policy/CBA; changes should be reasonable and communicated.
- Government contributions (SSS, PhilHealth, Pag-IBIG): If there is no pay, statutory remittances tied to payroll may pause; many employers opt to continue voluntary or minimum remittances—coordinate with HR to avoid coverage gaps.
No retaliation. Do not use floating status to target unionists, pregnant workers, or those who exercised rights; that invites unfair labor practice/illegal dismissal findings.

Hitting the Six-Month Wall

Reinstatement/recall: If business normalizes, recall and restore the employee to substantially equivalent work without loss of tenure.
Conversion to termination (Art. 298): If conditions persist, issue 30-day prior notices to the employees and DOLE, and pay separation pay according to the specific authorized cause used.
If employer does nothing: Keeping employees “floating” beyond six months is typically treated as constructive/illegal dismissal, entitling employees to reinstatement with backwages or separation pay in lieu of reinstatement, plus damages/attorney’s fees as warranted.

Choosing the Proper Authorized Cause (when converting under Art. 298)

Redundancy: Permanent excess of positions due to reorganization/efficiency measures. Needs staffing patterns, new org charts, manpower rationalization documents, and fair criteria (e.g., performance, seniority).
LSD (automation/digitization): Document the technology change, the necessity, and how it displaces roles; consider upskilling offers.
Retrenchment to prevent losses: Requires serious, actual or imminent losses supported by audited financial statements and proof that retrenchment is necessary and least drastic.
Closure/Cessation: Decide whether due to serious losses (no separation pay) or business reasons (½ month per year separation). Keep board resolutions, closure notices, and financials.

Pay & Benefits During Forced Leave

Wages: Generally not payable (no work, no pay), unless a CBA/policy grants a stipend or the parties agree otherwise.
Leave credits (SIL/vacation/sick): These are not automatically consumed by forced leave; charging credits requires policy basis and consent. SIL accrual typically continues while employed, but usage/commutation depends on policy and actual workdays.
13th-month pay: Computed on basic salary actually earned within the calendar year; time with zero pay lowers the base. If you earned pay earlier that year, you still get a pro-rated amount.
Holidays/rest days: If no work during floating status and no company obligation to pay, holiday pay typically does not accrue (subject to company policy/CBA).

Employee Playbook

Get it in writing. Ask for a written memo stating the reason, start, and intended duration of the forced leave.
Calendar six months. Track the aggregate floating time. If recall does not happen by the deadline, request recall or authorized-cause separation with pay per Art. 298.
Keep your numbers current. Make sure HR has your contact details to avoid claims of “failure to report.”
If converted to termination:
- Check that you got 30-day prior notice and that DOLE was notified.
- Verify the cause invoked and separation pay computation.
- Ask for final pay (including pro-rated 13th month, unused SIL conversion if applicable, and other accrued benefits).
Red flags (seek help immediately): Floating beyond 6 months, selective targeting, discriminatory criteria, non-payment of mandated separation pay, or “paper” closures without real basis.

Where to go: Start with SEnA (DOLE’s Single-Entry Approach) for quick mediation; escalate to the Labor Arbiter (NLRC) for illegal dismissal or money claims if unresolved.

Employer Compliance Checklist

☐ Business reason is documented; floating period planned to end ≤ 6 months.
☐ Written advisories to affected employees; DOLE informed per prevailing rules/advisories on flexible work arrangements.
☐ Objective criteria for selection; consult union if CBA exists.
☐ Benefits handling communicated (HMO, government contributions).
☐ Recall plan or conversion plan (with Art. 298 notices and separation pay) prepared before the 6-month limit.
☐ If converting: preserve evidence (financials for retrenchment, staffing patterns for redundancy, board resolutions for closure, etc.).

FAQs

Is “forced leave” legal? Yes, if it is a good-faith, temporary suspension of work not exceeding 6 months (Art. 301). It becomes illegal if used to bypass separation pay or if it exceeds 6 months without recall or proper Art. 298 termination.

Do I get paid during forced leave? Generally no, unless a CBA/policy or special agreement says otherwise.

Can the company rotate employees on forced leave? Yes, but the aggregate time a given employee spends floating should not exceed 6 months, and selection must be fair.

What happens at 6 months if business is still down? Employer must either recall or proceed with an authorized-cause termination under Art. 298 (with 30-day notices and separation pay, as applicable).

What if my employer keeps me floating beyond 6 months with no action? You may claim illegal dismissal, with possible reinstatement and backwages or separation pay in lieu, plus other remedies.

Can I be forced to use my vacation leaves to cover forced leave? Not by default. Charging leave credits requires policy/CBA basis and should be reasonable/consensual.

Bottom Line

Forced leave/floating status is a temporary, lawful tool under Article 301, capped at six months.
If the business need is permanent, employers must transition to Article 298 authorized-cause termination with 30-day notice(s) and proper separation pay.
Employees should insist on written advisories, track the six-month cap, and enforce rights through SEnA/DOLE and NLRC where needed.
Employers should plan early, document well, apply fair criteria, and never use floating status to sidestep Article 298 obligations.

This article provides general information and is not a substitute for tailored legal advice. For case-specific guidance, consult a Philippine labor lawyer or your local PAO/IBP chapter.