Overview

Business transfers—whether by sale, merger, consolidation, or internal restructuring—raise critical questions about what happens to employees: Do jobs continue? Who must pay separation benefits? Does a collective bargaining agreement (CBA) survive? Philippine law combines statutory rules in the Labor Code (as renumbered) and the Revised Corporation Code with judge-made doctrines (often referred to as “successor-employer” principles). This article brings together the key rules, processes, and practical guardrails employers and employees should know.

Core legal anchors

Security of tenure. Employees may be removed only for just or authorized causes and with due process. A transfer of business ownership, standing alone, is not a valid ground for dismissal.
Authorized causes (employer-initiated). Closure/cessation of business, redundancy, retrenchment to prevent losses, and installation of labor-saving devices are authorized causes. Closure or cessation tied to an asset sale or reorganization is governed by the 30-day notice rule and separation pay requirements (if not due to serious losses).
Notice requirements. Employers must give written notice to both the affected employees and the DOLE at least 30 days before the termination takes effect (often via the Establishment Termination Report, a.k.a. RKS Form 5).
Separation pay (typical ranges).
- Closure/cessation not due to serious losses: at least one (1) month pay or one-half (1/2) month pay per year of service, whichever is higher (a fraction of at least six months counts as a year).
- Closure due to serious business losses: no separation pay, but the 30-day notice still applies (the burden to prove losses is on the employer).
Final pay timing. DOLE policy guidance expects release of final pay (including separation pay and earned benefits) within 30 days from effectivity of termination, unless a more favorable company policy or CBA applies.

Types of business transfers and their employment effects

1) Share/stock sale (change in shareholders)

Employer entity remains the same. Only the owners change; the corporation (the employer of record) is identical before and after the transaction.
Effect on jobs. Employment relationships continue automatically; there is no authorized-cause termination, no separation pay triggered, and existing policies and CBAs remain binding.
Liabilities/benefits. All accrued labor obligations stay with the company. Tenure and benefits continue without interruption.

Practical takeaways

Buyers typically perform HR due diligence and require representations/warranties on compliance (SSS, PhilHealth, Pag-IBIG, 13th month, OT pay, wage orders).
Announce continuity to employees to reduce anxiety and attrition.

2) Asset sale (transfer of all/substantially all business assets)

Employer entity typically changes. The selling corporation may close or cease the affected business, triggering authorized-cause terminations (with notice/separation pay, unless due to serious losses).
Buyer’s hiring discretion. The buyer of assets is not automatically obliged to absorb the seller’s employees, unless it expressly assumes that obligation, a law/regulation/contract requires it, or circumstances show bad faith or a scheme to defeat labor rights.
New employment if hired. If the buyer hires, it’s generally a new employment relationship on agreed terms (unless the parties stipulate recognition of past service).

Separation pay responsibility

Ordinarily falls on the seller (the employer effecting the closure). The buyer does not inherit this by default in a bona fide asset sale.

When buyers still face exposure

Assumption agreements. If the buyer contractually undertakes to hire or honor certain benefits.
Continuation in bad faith. If the deal is structured to evade labor obligations (e.g., shutting down Friday, reopening Monday with the same operation but denying benefits), courts may impose successor liability, pierce the corporate veil, or find an illegal dismissal.
Fraudulent or simulated transfers. Sham transactions to ditch employees can lead to solidary liability.

Good-practice checklist (asset deals)

Seller: plan for 30-day DOLE/employee notice, compute separation pay, and budget final pay/benefits and government remittances.
Buyer: clarify in the contract whether it assumes employees, which ones, on what terms, and whether it recognizes past service (for leave, retirement, and CBA purposes).

3) Merger or consolidation

Surviving or consolidated corporation. By operation of corporate law, the survivor generally assumes liabilities of the absorbed entity—including labor liabilities.
Employment impact. If the merged operations continue and employees are retained, relationships typically carry on under the surviving employer. If roles are abolished due to integration (e.g., duplicate positions), the survivor may invoke authorized causes (redundancy/closure of a unit) with 30-day notice and separation pay, if applicable.

4) Internal restructurings (spin-offs, department closures, outsourcing)

Spin-offs/closures. Shutting a department or spinning it off to another entity can be a closure or redundancy scenario. The same notice and pay rules apply.
Outsourcing/contracting out. If functions move to a legitimate contractor:
- The principal may lawfully abolish positions made redundant, observing notice and separation pay.
- The incoming contractor may hire affected workers but is not automatically required to do so (unless law, a CBA, or a contract says otherwise).
- In industries like security, facilities management, and janitorial services, procurement practices and some CBAs may create successorship clauses that favor worker absorption and continuity of pay/benefits; check the specific instrument.

The “successor-employer” doctrine in Philippine practice

While the Labor Code doesn’t spell out a single “successor employer” statute, Philippine jurisprudence calibrates employer liability based on substance over form. Courts typically weigh:

Continuity of business operations (same line of business, location, brand, or assets).
Continuity of workforce (extent to which the new owner retained substantially the same employees).
Continuity of management/policies (is this essentially the same enterprise under a new name?).
Good faith (was the transfer a bona fide commercial transaction or a device to defeat labor rights?).
Explicit undertakings (contracts assuming employment, CBAs with successorship clauses).

General results

Stock sale: employment continues; company remains bound by CBAs and policies.
Asset sale (good faith): seller shoulders separation pay; buyer free to hire or not; if it hires, it may set new terms unless it agreed otherwise.
Merger/consolidation: survivor assumes labor liabilities; employees typically continue unless lawfully separated for authorized causes with due process.
Bad-faith transfers: courts may impose successor liability and treat the separation as illegal dismissal, with potential reinstatement or backwages.

Collective bargaining agreements (CBAs) and unions

Stock sale: The employer is unchanged; the CBA continues to bind the company, and the duty to bargain remains.
Asset sale: A purchaser is not automatically bound by the seller’s CBA; however:
- If the buyer assumes the CBA, it becomes binding.
- If the buyer retains a majority of the union’s employees and continues substantially the same business, labor-relations doctrine supports a duty to recognize and bargain with the incumbent union, subject to representation rules and certification elections.
Merger: The survivor inherits labor-relations obligations. If bargaining units merge or change, the parties may need to reconfigure units and re-negotiate coverage and terms.

Employee rights and options

Notice and pay. Insist on the 30-day written notice and the correct separation pay formula where applicable.
Clearance and final pay. Request a computation of final pay (salary differentials, prorated 13th-month pay, unused leave if convertible to cash per policy/CBA, tax adjustments).
Certificates and records. Secure a Certificate of Employment and, if hired by the buyer, clarify crediting of past service (affects retirement eligibility and leave accrual).
Union rights. If a union exists, coordinate through the union for effects bargaining (e.g., enhanced separation benefits, transition assistance).
Legal remedies. If separation appears to be a sham or in bad faith, employees may contest it as illegal dismissal or seek successor liability.

Employer compliance roadmap (seller side)

Plan the route. Identify whether the transaction is a stock sale, asset sale, or merger—employment consequences differ.
Choose the legal basis. For separations, identify the correct authorized cause (closure vs redundancy) and prepare documentary proof (business rationale, feasibility studies, loss evidence if claiming serious losses).
Serve notices. Deliver written notices to employees and DOLE at least 30 days before effectivity.
Compute benefits. Calculate separation pay, prorations, and remit government contributions/withholdings through the effectivity date.
Engage in effects bargaining. If unionized, bargain in good faith on effects (not the decision to close, which is a management prerogative if made in good faith).
Release final pay. Target release within 30 days from effectivity; issue certificates and tax documents (e.g., separation pay tax treatment, BIR forms).
Record-keeping. File the Establishment Termination Report and keep proofs of service/receipt.

Employer compliance roadmap (buyer side)

HR due diligence. Review payroll, benefits, CBAs, pending labor cases, statutory compliance (SSS, PhilHealth, Pag-IBIG), and wage order adherence.
Contractual clarity. Spell out whether the buyer assumes employees, recognizes past service, and honors CBAs/policies (in whole or in part).
Onboarding plan. If hiring, issue new contracts and handbooks, register as employer where needed, and ensure continuity of mandatory benefits.
Communications. Provide employees with clear timelines and FAQs; avoid implied promises inconsistent with the deal.
Risk controls. Avoid structures that look like sham closures; courts scrutinize continuity of operations and workforce.

Taxes and government compliance notes

Separation benefits due to causes beyond the employee’s control (e.g., closure, redundancy, retrenchment) are generally income tax-exempt under Philippine tax rules, subject to prevailing BIR regulations and thresholds at the time of payment.
Ensure proper withholding (if any), alphalist reporting, and issuance of BIR forms.
Keep SSS/PhilHealth/Pag-IBIG contributions updated through the final payroll; in a stock sale these continue seamlessly, while in asset deals the buyer must register a new employer account (unless the same juridical employer remains).

Special topics

Crediting past service

Not automatic in asset deals. If the buyer recognizes prior service, document it to clarify retirement eligibility, leave conversion, and tenure-linked benefits.

Preferential rights to be absorbed

Statutes do not impose a universal duty on buyers to absorb employees in asset deals, but CBAs, successorship clauses, bid documents, or industry regulations can create absorption expectations (common in security, janitorial, and facilities contracts). Always check the governing instruments.

Preference of workers’ claims

In insolvency or liquidation, workers’ monetary claims enjoy preference over other unsecured claims with respect to the employer’s available assets, subject to specific legal ordering and liens.

Compliance pitfalls to avoid

Treating a stock sale as an asset sale. Don’t “re-hire” everyone after a stock sale—employment never ended.
Skipping DOLE/employee notice. The 30-day rule is mandatory for authorized-cause terminations.
Underpaying separation benefits. Use the higher of one month pay or 1/2 month per year of service for closure not due to serious losses.
“Weekend closure” ruses. Courts look past labels; if the “new” entity is essentially the same employer, expect successor liability risks.
Ignoring CBAs. In stock sales and mergers, CBAs survive and remain enforceable; in asset sales, check for any assumption language or effects bargaining duties.

Model clauses and documentation pointers

Employee-assumption clause (asset sale). Specify which employees are accepted, start dates, whether past service is recognized, and treatment of unused leave and retirement credit.
Separation cost allocation. Clarify that the seller bears separation pay for employees not absorbed (unless the parties agree otherwise).
CBA treatment. State whether the buyer assumes the CBA or will negotiate a new agreement, subject to law.
No-evasion warranty. Include covenants that the transaction is not intended to defeat labor rights and that all statutory obligations up to closing are settled.

Quick decision matrix

Scenario	Who is the employer post-deal?	Do jobs continue automatically?	Separation pay owed?	Who pays?
Stock sale	Same corporation	Yes	No (no termination)	N/A
Asset sale (good faith)	Buyer (new employer if it hires)	No (unless buyer assumes)	Yes, if closure not due to serious losses	Seller
Merger/consolidation	Surviving/consolidated corp	Typically Yes, unless positions abolished	Yes, if roles abolished for authorized causes	Survivor
Outsourcing/change of contractor	Contractor	No automatic absorption (unless stipulated)	Yes, if principal abolishes positions	Principal (or per CBA/contract)

Bottom line

A change in shareholding does not end jobs; employment relationships and CBAs continue.
An asset sale typically results in authorized-cause separations by the seller, with separation pay (unless serious losses) and 30-day notice; the buyer may hire but isn’t obliged to, absent assumption or bad faith.
In mergers, the survivor generally assumes labor liabilities; redundancies must follow the authorized-cause playbook.
Courts enforce substance over form to prevent evasion: where continuity plus bad faith exists, successor-employer liability can attach.

This guide is for general information and does not substitute for legal advice tailored to specific facts. For transactions with unique structures, union environments, or pending labor cases, seek counsel before announcing or effecting workforce moves.