Employee Rights When a Company Is Sold and You’re Not Absorbed (Philippines)

This guide explains what happens to employment when a business is sold in the Philippines but the employees are not taken in by the buyer. It is based on the Labor Code (as renumbered), DOLE rules, and leading jurisprudence. It’s general information, not legal advice.

Quick takeaways

You can be lawfully separated when the seller shuts down or ceases the part of business that employed you due to a sale.
Separation pay is usually due (amount depends on the cause), unless the closure is because of serious business losses proven by the employer.
30-day prior written notice to both the employees and DOLE is mandatory for authorized-cause terminations.
A buyer in an asset sale is not obliged to absorb employees, unless it expressly commits to do so.
In a stock sale, the employer doesn’t change—employment continues; a mere change in shareholders is not a ground to terminate.
If procedure is skipped, employees may still be validly separated but can claim nominal damages for due-process lapses.
You’re entitled to your final pay, pro-rated 13th month, unused SIL, other accrued benefits, and COE.
You may qualify for SSS unemployment benefits (involuntary separation).
Quitclaims are valid only if voluntary, informed, and for reasonable consideration.

1) First things first: what kind of sale is it?

A. Asset sale (sale of business assets/undertaking)

The seller may close or cease the business (in whole or in part) that employed you.
Buyer generally has no legal duty to absorb the workforce unless it agreed to do so (e.g., in the purchase agreement or a separate undertaking).
If you’re not absorbed, your separation by the seller is an authorized cause (closure/cessation).
Separation pay: see Section 3 below.

B. Stock sale (sale of shares/change in ownership)

The corporate employer remains the same legal entity; only the shareholders change.
Employment continues; a change in ownership is not a valid ground to dismiss people.
Any separation still requires a just or authorized cause plus due process.

C. Merger/Consolidation

If your employer survives, employment typically continues.
If your employer is the absorbed entity and stops existing, non-absorption can be processed as closure or redundancy with separation pay; the surviving corporation generally assumes the liabilities (including separation pay) of the absorbed entity.

2) When non-absorption is legal (and when it’s not)

You may be separated under the Labor Code (Art. 298 [formerly 283]) for authorized causes, commonly:

Closure or cessation of business (or a unit/department) not due to serious losses.
Retrenchment to prevent losses.
Redundancy (if, after the sale/restructure, your role is excess).

A buyer choosing not to absorb staff, by itself, is not a “cause.” The cause must be the seller’s closure/cessation, a valid redundancy program, or retrenchment, each with proof and proper notice.

Bad faith (e.g., sham sale to bust a union or evade obligations) can make the dismissal illegal, exposing the employer (and sometimes a successor) to backwages and damages.

3) What separation pay should look like

Under Art. 298 and DOLE rules (DO 147-15):

Authorized cause	Minimum separation pay
Closure/cessation not due to serious losses	One (1) month pay or ½ month pay per year of service, whichever is higher
Retrenchment (to prevent losses)	One (1) month pay or ½ month pay per year of service, whichever is higher
Redundancy	One (1) month pay per year of service or one (1) month pay, whichever is higher
Closure due to serious business losses (proven)	No separation pay

Computation notes

“½ month” = 15 days of your basic monthly wage (regular allowances may be excluded unless they form part of basic wage by law/CBA/practice).
Count a fraction of at least 6 months as one whole year of service.
If there’s a CBA, company policy, or contract granting a higher package, that prevails.
No double recovery: if a retirement plan/CBA says you can’t receive both retirement and separation benefits for the same event, you typically get the higher of the two, unless the governing instrument allows both.

Example Monthly basic pay: ₱20,000; service: 5 years, 8 months → count 6 years.

Closure not due to serious losses → higher of:
- 1 month pay = ₱20,000
- ½ month × 6 = ₱60,000 → ₱60,000 is due (plus final pay items below).

4) Notice and process (what employers must do)

For authorized causes (closure, retrenchment, redundancy):

Written notice to each affected employee and to the DOLE at least 30 days before effectivity (Art. 298).
Provide a written explanation/notice stating the cause, effective date, and (for retrenchment/redundancy) the criteria used.
Pay separation pay on or before the effective date (good practice; delays may draw legal interest).
Failure to observe the 30-day notice can lead to nominal damages (often ₱50,000 per employee) even if the authorized cause is valid.
Redundancy/retrenchment require good-faith, fair, and reasonable criteria (efficiency, seniority, etc.) and, for retrenchment, proof of losses (typically audited financial statements).

5) Final pay and documents you should receive

You’re entitled to:

Unpaid wages up to last day worked;
Pro-rated 13th-month pay (PD 851) for the year of separation;
Cash conversion of unused Service Incentive Leave (Art. 95), if applicable;
Separation pay (per Section 3);
Other accrued benefits (CBA, company policy, commissions earned, etc.);
Tax refund/adjustments, if any;
Certificate of Employment (COE) (must be issued promptly upon request);
Clearance documents as applicable.

DOLE has advised employers to release final pay within 30 days from separation unless a more favorable timeline applies (policy/CBA).

6) Who pays?

In an asset sale leading to closure, the seller (your employer) pays the separation pay and other monetary claims, unless the buyer assumes them by contract.
In a merger where your employer is absorbed, the surviving corporation usually assumes liabilities, including separation pay.
In a stock sale, there’s no separation if employment continues; if the employer later separates you for an authorized cause, that employer pays.

7) What the buyer must (and need not) do

No duty to absorb in an asset sale, absent an agreement.
If the buyer does hire you, that’s generally a new employment (probation rules may apply anew), unless the parties agree to bridge/recognize prior service (often done via tripartite agreement).
Non-diminution rule: if there is continuity/assumption, don’t reduce established benefits without legal basis.

Union/CBA

In a stock sale (same employer), the union and CBA continue.
In an asset sale with a successor employer operating substantially the same business with a workforce largely from the predecessor, the buyer may be obliged to recognize and bargain with the union that still represents the majority (fact-specific).

8) Special situations

Serious business losses: If invoked to deny separation pay, the employer bears a heavy burden to prove real, serious, and actual losses (typically with audited financials).
Temporary shutdown (Art. 301 [formerly 286]): Bona fide suspension of operations up to 6 months is not a termination; beyond that, the employer must reopen or separate with pay.
Bankruptcy/liquidation: Workers have a statutory preference for certain claims in liquidation, but the actual recovery depends on available assets and proper proceedings.
Contracted/agency workers: Your employer is the contractor; separation pay liability generally lies with the contractor, subject to rules on labor-only contracting and solidary liability if the contractor is a mere agent.
Probationary/fixed-term/project employees: They may also receive separation pay when terminated for authorized causes (closure, redundancy, retrenchment), unless a specific law validly excludes them.
Retirement vs separation: Usually whichever is higher applies, unless the CBA/plan allows both.

9) Taxes and government benefits

Separation pay due to involuntary causes (e.g., redundancy, retrenchment, closure not due to serious misconduct by the employee) is generally income tax-exempt under the Tax Code.
13th-month pay is tax-exempt up to the statutory cap for de minimis/13th-month and other benefits; any excess may be taxable.
SSS Unemployment Benefit (RA 11199): If you were involuntarily separated (authorized cause), under the applicable age and contribution requirements, you may claim up to 2 months of benefit (around 50% of your average monthly salary credit). You’ll need a DOLE certification of involuntary separation.
Continue/settle SSS, PhilHealth, and Pag-IBIG contributions/reporting up to separation; you can then shift to voluntary membership.

10) Due-process mistakes and your remedies

If the cause is valid but the employer fails the 30-day dual notice (to employees and DOLE), you may claim nominal damages (commonly ₱50,000).
If the cause is not valid or not proven, the dismissal is illegal → potential reinstatement (or separation pay in lieu) plus backwages, damages, and attorney’s fees.
Quitclaims do not bar complaints when the consideration is unconscionably low or there was fraud/duress/misrepresentation.

11) Practical checklists

For employees (non-absorption)

Ask in writing: What is the exact cause (closure/redundancy/retrenchment)? What is the effectivity date? Was DOLE notified?
Verify computation: monthly rate, years of service (≥6 months rounds up), formula used.
Confirm all finals: unpaid wages, 13th month (pro-rated), SIL conversion, allowances/commissions, tax refund.
Request COE and final payslip/breakdown.
Check benefits: retirement plan, CBA perks, non-compete payouts (if any).
Consider SSS unemployment; secure DOLE involuntary separation certificate.
Read quitclaims carefully; don’t sign if the amount is off—ask for a net-of-tax computation on company letterhead.
Keep copies of notices, payslips, and communications.
If underpaid or process was faulty, consider filing at the DOLE/NLRC within the prescriptive periods.
Update your SSS/PhilHealth/Pag-IBIG status (option to continue as voluntary).

For employers (compliance)

Choose the correct authorized cause and document it (board resolution, audited FS for losses, redundancy matrix/criteria).
Serve 30-day written notice to employees and DOLE (use the prescribed DOLE Establishment Report forms).
Compute and pay separation pay and finals on or before effectivity; issue COE promptly.
Apply fair criteria (redundancy) and keep records.
Coordinate responsibly on personnel data transfers (Data Privacy Act—use a data-sharing agreement).
Avoid blanket waivers; ensure quitclaims are informed and adequately compensated.

12) Frequently asked questions

Can my employer refuse separation pay because the business was sold? Not if the separation is due to closure/cessation not caused by serious losses or redundancy/retrenchment—then separation pay is due. Only proven serious losses can excuse payment for closure.
If I’m absorbed by the buyer, do I still get separation pay? Usually no, because there’s no termination. If there’s no gap and you’re taken under substantially the same terms, separation pay typically isn’t triggered. (Bridging of prior service depends on agreement/CBA.)
Can the buyer put me on probation again? If your employment with the buyer is new, probationary rules can apply, subject to lawful standards and disclosure at hiring. If service is bridged by agreement, you may keep your tenure.
What if I receive both retirement and separation benefits? Generally you get whichever is higher, unless the plan/CBA expressly allows both.

13) Legal bases at a glance (plain-English)

Art. 297 (formerly 282): just causes (not the focus here).
Art. 298 (formerly 283): authorized causes, separation pay, and 30-day notice to DOLE and workers.
Art. 299 (formerly 284): disease (separation with pay).
Art. 301 (formerly 286): temporary suspension of operations (≤ 6 months).
DOLE DO 147-15: procedural and substantive rules on authorized-cause terminations.
PD 851: 13th-month pay.
Tax Code: tax treatment of separation/retirement benefits.
RA 11199: SSS unemployment benefits for involuntary separation.

14) What to do next (if this is happening to you)

Request the employer’s written notice and DOLE filing details.
Recompute your package using the table above.
If something’s off, send a polite written protest asking for correction, then escalate to DOLE (Single-Entry Approach/SEnA) or NLRC if needed.
Consider getting tailored legal advice, especially for mergers, CBAs, or high-value plans.

If you’d like, tell me your monthly rate, years of service, and the stated cause (closure, redundancy, retrenchment), and I’ll compute an exact, itemized separation package you can sanity-check against HR’s figures.