Security of Tenure and End-of-Contract Issues in the Philippine Context

1) Why this topic matters: security of tenure is the default rule

In Philippine labor law, security of tenure means an employee who is regular (or otherwise protected by law) may be dismissed only for a just cause or an authorized cause, and only with due process. Company closures, reorganizations, and “end of contract” arrangements are common flashpoints because they are often used—legally or illegally—to end employment without meeting these standards.

Even when a business shuts down or an employee is moved to another entity, the questions remain the same:

Was there a lawful ground to end employment?
Was proper notice and procedure followed?
What monetary entitlements are due?
Is there a disguised dismissal (constructive dismissal), illegal dismissal, or contracting violation?

2) Key categories of employment status (because rights depend on status)

A. Regular employees

A regular employee is generally one who performs activities usually necessary or desirable in the employer’s business, or one who has completed the required period of service for regularization (subject to lawful probation). Regular employees enjoy strong tenure protection.

Effect on closure/transfer: Regulars can be terminated only for just/authorized causes, and they commonly qualify for separation pay in authorized-cause terminations.

B. Probationary employees

Probationary employees may be terminated for:

failing to meet reasonable standards made known at hiring, or
a lawful just/authorized cause.

Common issue: Employers invoke “probationary” status to avoid obligations; however, if standards were not clearly communicated, termination can be attacked.

C. Project employees

Project employment is valid when:

the employee is hired for a specific project, and
the project duration/scope is defined and known at engagement.

End-of-contract issue: Project completion can validly end employment, but repeated rehiring or continuous work in core business can trigger claims of regularization depending on facts.

D. Seasonal employees

Seasonal work tied to a season or cyclical demand can be lawful. Repeated seasonal engagement may still create protected status during the season and can generate disputes on continuity depending on patterns and company practice.

E. Fixed-term employees (“end of contract”)

Fixed-term employment is not automatically illegal. The leading doctrine (from Brent School) recognizes fixed terms if they are not used to circumvent tenure and if the term is knowingly and voluntarily agreed under fair conditions.

Red flags suggesting circumvention:

fixed terms for roles that are inherently regular and continuous,
repeated renewals to avoid regularization,
“sign a new contract or you’re out” practices without real choice,
use of fixed term to mask labor-only contracting or to suppress union activity.

3) Company closure: the lawful pathways and employee entitlements

Philippine law recognizes closure-related terminations primarily as authorized causes (commonly referred to under Labor Code provisions on authorized causes; numbering has been updated over time, but the concepts remain consistent).

A. Total closure or cessation of business

This occurs when the employer genuinely shuts down operations.

1) Closure not due to serious business losses

If the business closes for reasons other than proven serious losses (e.g., owner retirement, strategic exit, relocation abroad, expiration of franchise not tied to losses, etc.), employees terminated due to closure are generally entitled to separation pay, commonly computed as:

One (1) month pay, or one-half (1/2) month pay per year of service, whichever is higher (With a fraction of at least six months often treated as one year under standard labor computations.)

2) Closure due to serious business losses / financial reverses

If closure is because of serious business losses, the general rule is that the employer may be exempt from paying separation pay—but the burden is on the employer to prove the losses with credible evidence (typically audited financial statements and related documentation).

Important: “Losses” must be substantial, actual, and not merely anticipated; and closure must be bona fide—not a scheme to defeat labor rights.

B. Partial closure / shutdown of a department or branch

If only a unit is closed, the company may still invoke authorized causes such as:

redundancy (positions become excess),
retrenchment (cost-cutting due to losses/expected losses),
installation of labor-saving devices,
closing a branch/line of business.

The legality depends on the ground and evidence supporting it, and on compliance with procedural rules.

4) Authorized causes commonly invoked in closures and reorganizations

A. Redundancy

Redundancy exists when a position becomes in excess of what is reasonably demanded by the business. It is not enough to declare redundancy; there should be a fair and documented basis (e.g., reorganization plan, new staffing pattern, business justification).

Typical separation pay standard: often one (1) month pay per year of service (or the statutory formula applicable to redundancy under Labor Code principles).

Selection criteria matters: Employers are expected to adopt fair criteria (e.g., efficiency, seniority, status, discipline record). Arbitrary selection can lead to findings of bad faith.

B. Retrenchment

Retrenchment is a cost-saving measure undertaken to prevent losses (or arrest serious financial decline).

Common requirements in principle:

losses are substantial and proven (or reasonably imminent and supported),
retrenchment is necessary and likely effective,
fair and reasonable criteria in selecting employees,
good faith; not a shortcut to remove unwanted workers.

Typical separation pay standard: often one-half (1/2) month pay per year of service (or the statutory minimum formula generally applied).

C. Installation of labor-saving devices

If technology reduces manpower needs, affected employees are entitled to separation pay (commonly one month per year under standard doctrine), with the usual notice requirements.

D. Closure of establishment or undertaking

This overlaps with Section 3 above. It may be total or partial and may or may not involve losses.

5) Procedural due process in authorized-cause termination (closures, redundancy, retrenchment)

A closure or authorized-cause termination is vulnerable if procedure is ignored, even if the business rationale exists.

A. The “30-day notice” rule

For authorized causes, the standard rule requires:

Written notice to each affected employee, and
Written notice to the Department of Labor and Employment (DOLE) at least 30 days before the effective date of termination.

Failure to comply can result in liability (often in the form of damages or findings that taint the termination, depending on circumstances and jurisprudence).

B. Documentation and transparency

Employers should have:

board or owner resolutions,
closure/reorganization plans,
audited financials (if invoking losses),
staffing patterns and selection criteria,
proof of service of notices.

Employees should ask for copies of notices and keep records.

6) What employees are typically entitled to upon closure/authorized termination

A. Separation pay (when applicable)

As discussed, separation pay depends on the ground:

Closure not due to serious losses → separation pay applies (commonly 1 month or 1/2 month per year, whichever higher).
Closure due to proven serious losses → separation pay may be not required, but proof is crucial.
Redundancy / labor-saving devices → commonly higher statutory formula than retrenchment.

B. Final pay components (distinct from separation pay)

Regardless of cause, employees generally remain entitled to earned compensation and statutory benefits such as:

unpaid wages,
pro-rated 13th month pay,
unused service incentive leave conversions (if applicable),
unpaid commissions/bonuses that are already earned under policy or practice (fact-specific),
tax refunds/adjustments (as applicable),
release of Certificate of Employment (COE), subject to standard rules.

C. Government benefits / unemployment insurance concepts

Employees may explore:

SSS unemployment benefit (subject to statutory eligibility and conditions; typically tied to involuntary separation and other requirements),
other social insurance or welfare benefits depending on sector.

(Eligibility is highly fact- and contribution-dependent; denials can occur if the separation is treated as voluntary or if requirements are unmet.)

7) When “closure” is not a valid defense: bad faith, sham shutdowns, and reopening

A claimed closure can be challenged as illegal dismissal when facts show the shutdown is a pretext.

Indicators of bad faith include:

closure announced, but business continues under a new name in the same place with the same operations,
rapid “reopening” with substantially the same business and workforce but excluding certain employees,
transfer of assets to an affiliate to avoid obligations,
selective termination targeting union members or complainants,
no credible evidence supporting alleged losses.

Where bad faith is established, employees may seek:

reinstatement (or separation pay in lieu if reinstatement is no longer feasible),
full backwages,
damages and attorney’s fees (in proper cases).

8) Transfers of workers: what’s legal, what’s not

“Transfer” can mean very different things:

transfer to another position/branch within the same employer,
transfer to a related company (affiliate),
transfer due to sale/merger, or
movement due to contracting/subcontracting.

Each has different legal consequences.

A. Transfer within the same employer (management prerogative)

Employers generally have management prerogative to transfer employees, but it must be:

for legitimate business reasons,
not a demotion in rank or diminution of pay/benefits,
not unreasonable, inconvenient, or prejudicial,
not done in bad faith or as punishment.

A transfer that effectively forces resignation—e.g., unreasonably distant assignment, impossible schedule, punitive relocation—may amount to constructive dismissal.

B. Transfer to an affiliate or a “new company”

A worker cannot be compelled to become the employee of a different juridical entity without valid legal basis and proper consent/arrangement. A mere “memo” saying “you’re now under Company B” is not automatically effective to erase rights under Company A.

Common lawful pathways include:

a genuine rehiring by the new entity (with clear terms), or
a lawful business transfer where employment continuity is recognized by agreement/policy, or
a merger scenario where the surviving corporation assumes obligations per corporate law effects.

But if the “transfer” is used to cut tenure or benefits, it can be attacked.

C. Sale of business: asset sale vs. stock sale (practical labor effects)

1) Stock sale (change in shareholders; same employer entity remains)

If only the ownership of shares changes but the corporation remains the same employer, employment generally continues with the same employer entity. Terminations still require just/authorized cause.

2) Asset sale (business/undertaking sold; employer identity may change)

In an asset sale, the selling company may terminate employees for authorized causes (often closure/redundancy). The buyer is not automatically required in all cases to absorb employees, unless:

absorption is part of the sale agreement, or
the circumstances show a scheme to defeat labor rights, or
there are special legal doctrines applied based on continuity, bad faith, or assumptions of obligations.

Employees should examine:

whether the seller actually closed,
whether the buyer continued the same business in the same place with substantially the same workforce,
whether there was an agreement to absorb and recognize prior service (important for seniority and benefits).

D. Mergers and consolidations

In corporate combinations, labor issues usually turn on:

whether the surviving entity assumes obligations and continues operations,
whether positions are duplicated (possible redundancy),
whether employees are dismissed with authorized-cause compliance.

Employees may assert that the corporate event does not itself justify termination without authorized/just cause and due process.

9) Contracting/subcontracting and “end-of-contract” (ENDO) problems

A. Legitimate contracting vs. labor-only contracting

Philippine rules prohibit labor-only contracting, where the contractor is essentially a manpower supplier and the principal controls the work without the contractor having substantial capital, investment, or independent business.

If the arrangement is labor-only contracting:

the workers may be deemed employees of the principal,
security of tenure attaches against the principal,
“end of contract” between principal and contractor does not automatically end employment rights.

B. Fixed-term arrangements used to mimic contracting

Some employers label workers as “fixed-term” repeatedly to avoid regularization, especially where the work is continuous and necessary/desirable. This can be attacked as circumvention depending on facts.

C. When service contracts end

A principal’s contract with a contractor may end, but the workers’ rights depend on:

whether they are truly employees of a legitimate contractor (and what the contractor does next),
whether they are effectively employees of the principal due to labor-only contracting,
whether termination is for authorized cause (e.g., closure of contractor’s project) and with proper notices.

D. “Floating status” / temporary off-detail

In some industries, employees may be placed on temporary off-detail due to lack of assignment. But indefinite or abusive floating status can amount to constructive dismissal. There are recognized limits and reasonableness standards that depend heavily on facts and regulations applicable to the sector.

10) End-of-contract is not a magic phrase: when “expiration” is lawful vs. illegal

Lawful expiration scenarios (generally)

Genuine fixed-term employment that meets fairness and voluntariness requirements.
Genuine project employment ending upon project completion with proper documentation and reporting practices.
Seasonal employment ending after the season.
Probationary employment ending due to failure to meet known standards (with due process).

High-risk / commonly illegal scenarios

Repeated short-term contracts for core business roles to avoid regularization.
Project labels with no real project scope or with continuous work unrelated to a specific project.
Termination at “contract end” used to remove employees who assert rights (retaliation).
Using contractor switching (“cabo system”) so workers are repeatedly rehired through different contractors but doing the same work under the same principal.

Where “end of contract” is found to be a pretext, remedies can mirror illegal dismissal cases: reinstatement, backwages, and monetary awards.

11) Employee remedies and where to assert rights

A. Immediate practical steps for employees

Secure copies/screenshots of: notices, memos, emails, HR announcements, payslips, ID, job descriptions, and any employment contracts.
Demand (in writing if possible) the basis for termination: redundancy? closure? retrenchment? project completion?
Ask for proof of DOLE notice (authorized causes require notice to DOLE and employees).
Compute expected monetary entitlements (final pay, separation pay if applicable, 13th month pro-rating, leave conversions).
Avoid signing quitclaims without understanding implications; not all quitclaims are invalid, but those executed under pressure or for unconscionable consideration may be challenged.

B. The usual dispute pathway

Many disputes begin with SEnA (Single Entry Approach) for mandatory conciliation-mediation.
If unresolved, cases may proceed to the proper forum such as the NLRC for illegal dismissal and money claims (depending on claim type and jurisdictional rules).

C. Prescription (time limits)

Time limits can be complex because different claims may have different prescriptive periods under labor and civil law doctrines. As a practical matter, employees should act promptly because delay can complicate evidence and defenses even when a claim is timely.

12) Common employer defenses—and how they are tested

“We closed because we’re losing money.”

Tested by:

credibility and completeness of financial evidence,
whether losses are serious and actual,
consistency with business behavior (e.g., continuing operations elsewhere).

“You were project-based / fixed-term, so it ended.”

Tested by:

the actual nature of the work,
contract clarity and voluntariness,
continuity and necessity of the role,
repeated renewals and employer control.

“We transferred you; you refused, so you abandoned work.”

Tested by:

reasonableness and legality of the transfer,
whether refusal was justified by prejudice or diminution,
whether the employee clearly intended to sever employment (abandonment requires intent and overt acts).

“You signed a quitclaim.”

Tested by:

voluntariness,
adequacy of consideration,
presence of coercion, threat, or deception,
whether it waives non-waivable statutory rights in an unconscionable way.

13) Special points: unions, CBAs, and closure

If a workplace is unionized or covered by a CBA:

closure/retrenchment may still be lawful, but employers must comply with statutory standards and any CBA provisions on separation benefits, notice, or redeployment.
bad-faith closure targeting union activity may raise unfair labor practice implications depending on facts.

14) A condensed employee checklist (closure/transfer/endo)

If told the company is closing:

Did you receive written notice at least 30 days before effectivity?
Was DOLE notified?
Is the closure total or partial?
Are they claiming serious losses—do they have credible proof?
Are you receiving separation pay (if applicable) plus final pay components?

If told you are being transferred:

Same employer entity or different company?
Any pay/benefit reduction or demotion?
Is the transfer reasonable and in good faith?
Are they forcing you to resign or sign a new contract under pressure?

If told “end of contract”:

Is the role actually continuous and core to the business?
Have you been repeatedly renewed?
Do you have evidence of control, schedules, evaluations, and integration into regular operations?
Is the contracting arrangement legitimate or labor-only?

15) Bottom line principles

Closure can be lawful, but must be bona fide and procedurally compliant; separation pay depends largely on whether serious losses are proven and on the specific authorized cause invoked.
Transfers must be reasonable and not a disguised dismissal or forced migration to a different employer without proper basis.
“End of contract” is lawful only when the employment category is genuine; repeated short terms for regular work are high-risk and often litigated.
Evidence and paperwork matter: notices, DOLE compliance, financial proof, selection criteria, and the real nature of the work usually decide outcomes.