In the dynamic landscape of Philippine commerce, ownership changes—whether through the sale of assets, transfer of shares, or corporate mergers—are common. For employees, these transitions often trigger a singular, pressing question: Am I entitled to separation pay?
Under Philippine Labor Law, the answer is rarely a simple "yes" or "no." It depends entirely on the legal mechanism of the ownership change and whether the employer-employee relationship is actually severed.
1. The Two Primary Methods of Transfer
To determine entitlement, one must first distinguish between a transfer of assets and a transfer of shares.
A. Asset Sale (Transfer of Business)
In an asset sale, Entity A sells its physical assets, goodwill, and inventory to Entity B. Legally, Entity B is a different personality and is not required to absorb the employees of Entity A unless stipulated in the contract.
- The Result: The employer-employee relationship with Entity A is terminated.
- Entitlement: Employees are generally entitled to separation pay under the "Closure of Business" provision of Article 298 (formerly 283) of the Labor Code, provided the closure is not due to serious business losses.
B. Share Sale (Transfer of Stock)
In a share sale, the "owner" of the company changes (e.g., Stockholder X sells shares to Stockholder Y), but the Corporate Entity remains exactly the same.
- The Result: The employer remains the same corporation. The employer-employee relationship is uninterrupted.
- Entitlement: Generally, employees are not entitled to separation pay because, in the eyes of the law, no dismissal occurred.
2. Mergers and Consolidations
When two companies merge (where one survives) or consolidate (where a new entity is formed), the surviving corporation or the new corporation automatically assumes all assets and liabilities of the constituent corporations by operation of law (Section 79 of the Revised Corporation Code).
- The "Absorption" Rule: The Supreme Court has held that in a merger, the surviving entity must respect the tenure and benefits of the absorbed employees.
- Separation Pay: If the surviving entity chooses to "re-hire" employees but treats them as new hires (stripping them of seniority), or if there are redundant positions created by the merger, the affected employees are entitled to separation pay.
3. The "Due Process" Requirement
Even if a sale justifies the payment of separation pay, the employer must comply with the procedural requirements of the Labor Code:
- Notice: A written notice must be served to the employees and the Department of Labor and Employment (DOLE) at least thirty (30) days before the intended date of termination.
- Payment: The separation pay must be paid at the time of termination.
4. Computation of Separation Pay
The amount of pay depends on the underlying cause of the ownership change's impact on the workforce:
| Cause of Termination | Computation Standard |
|---|---|
| Redundancy (e.g., duplicate roles after a merger) | One (1) month pay or One (1) month pay per year of service, whichever is higher. |
| Retrenchment or Closure (not due to losses) | One (1) month pay or One-half (1/2) month pay per year of service, whichever is higher. |
Note: A fraction of at least six (6) months is considered as one (1) whole year for the purpose of computation.
5. The "Offer of Re-employment" and Continuity
A common scenario involves a "clean break" where the Seller pays separation pay to all employees, and the Buyer immediately hires them.
- Voluntary Resignation: If an employee refuses an offer of "substantially equivalent" employment from the new owner, they may still claim separation pay from the old owner if the old entity is technically closing.
- The Non-Diminution of Benefits: If the new owner absorbs the employees, they cannot diminish the existing benefits or salary the employees enjoyed under the previous owner, as this could constitute constructive dismissal.
6. Key Jurisprudence: The "Buyer in Good Faith"
Philippine courts generally follow the rule that a purchaser in good faith is not required to absorb the employees of the seller. However, if the sale is a sham (a "colorable" transaction) designed specifically to evade collective bargaining agreements or to get rid of certain employees, the court may pierce the corporate veil and order reinstatement with backwages instead of mere separation pay.