This discussion is for general information only and is not a substitute for advice from a Philippine lawyer who knows the specific facts of your situation.

Transferring employees from one company to another is common in group structures, outsourcing arrangements, and mergers and acquisitions. In the Philippines, however, you cannot simply “move” a direct employee to another company as if they were an asset.

Philippine labor law protects security of tenure, and an employment contract is considered a personal contract between a specific employer and employee. Because of this, the legality of “transferring” employees depends heavily on:

Employee consent
The legal structure of the transaction (e.g., secondment vs. outsourcing vs. sale of business)
Compliance with Labor Code requirements on dismissal, contracting, and employer substitution

Below is a comprehensive look at the concepts and rules you need to understand.

1. Basic Legal Framework

1.1 Security of Tenure

Under the Philippine Labor Code and the Constitution, employees enjoy security of tenure. In simple terms:

A regular employee can only be dismissed for just or authorized cause, and
Due process must be observed (notice and hearing for just causes; notice and proper payment for authorized causes).

Changing who the employer is (e.g., from Company A to Company B) can affect security of tenure. So the law is cautious about allowing an employer to “transfer” employees to another entity without their consent or proper legal basis.

1.2 The Employment Contract Is Personal

An employment contract is generally not assignable to a third party without the employee’s consent. In other words:

You can’t unilaterally decide that “starting Monday, your employer is Company B” if the employee was hired by Company A, unless they agree or a special legal situation applies (for example, a legitimate employer substitution in a sale of business).

2. What Do We Mean by “Transfer”?

“Transfer” can mean different things in practice. Legally, these are not all the same:

Intra-company transfer
- Example: From one department or branch of the same corporation to another.
- Employer remains the same legal entity.
Inter-company transfer within a group
- Example: From Company A to its subsidiary/affiliate Company B.
- This usually means a change of employer (A → B).
Temporary secondment
- Employee is lent or assigned temporarily to another company, but original employer remains the employer of record.
Outsourcing / contracting out of services
- Company A terminates or re-structures certain functions and engages Company B (a contractor) to provide workers; employees may apply for employment with Company B.
Business sale, merger, or reorganization
- Employer may change because of a sale of business or merger, giving rise to a substitution of employer.

Each scenario has different legal consequences.

3. Intra-Company Transfers (Same Employer)

If the employee stays with the same legal entity (e.g., “XYZ, Inc.” remains the employer), then:

Transferring them between branches, departments, or roles is generally lawful if:
- There is no diminution of pay or benefits;
- The transfer is done in good faith, not as punishment or harassment;
- It is a valid exercise of management prerogative; and
- Any contractual or CBA limitations are observed.

This kind of transfer doesn’t raise the “is it legal to transfer employees to another company” issue, because the employer remains the same.

4. Inter-Company Transfers (Change of Employer)

This is the heart of the question: Can Company A move its employees to Company B and just make B the new employer?

4.1 General Rule: Employee Consent Is Required

As a rule:

Company A cannot unilaterally assign or transfer an employee’s contract to Company B.
The employee must consent to ending employment with Company A and starting a new one with Company B.

Common ways this is done:

Resignation from Company A + New Employment with Company B
- Employee voluntarily resigns from A and signs a new contract with B.
- Risk: If resignation is not truly voluntary (coerced), it may be challenged as illegal dismissal.
Mutual termination and rehiring
- Company A and the employee sign a mutual separation agreement with proper consideration/benefits.
- Employee then signs a new contract with B.
Tri-partite agreement
- Company A, Company B, and the employee sign an agreement outlining:
  - Termination/transfer terms;
  - Continuity of employment (e.g., recognition of tenure, benefits);
  - Who is responsible for past liabilities.

Without consent, a forced transfer to another employer is usually treated as:

A form of constructive dismissal or
An unlawful alteration of the terms and conditions of employment.

4.2 What If the Employee Refuses to Transfer?

If an employee refuses to move to Company B:

Company A must respect the refusal.
Company A may:
- Keep the employee; or
- If truly necessary, restructure and possibly terminate the employee using authorized causes (e.g., redundancy, retrenchment, closure) with due process and separation pay.

A refusal to transfer cannot be treated as insubordination if what’s being demanded is a change of employer, not just a change in work assignment within the same company.

5. Employer Substitution in Business Transfers

The Labor Code recognizes the concept of employer substitution in cases where a business, undertaking, or enterprise is sold, transferred, or leased as a going concern.

5.1 Asset Sale vs. Share Sale

Share sale (Company’s shares sold but corporate entity remains the same)
- Employer does not change.
- Employees remain with the same corporation.
- No need for a transfer of employees.
Asset/business sale (A sells its business or a unit of its business to B)
- May result in substitution of employer if the entire business or an entire unit is sold as a going concern.
- General principles:
  - The buyer (Company B) becomes the new employer of employees attached to the acquired business.
  - The seller (Company A) remains liable for all obligations accrued before the sale (e.g., unpaid wages, separation pay due before the transfer).
  - The buyer is bound to respect the employees’ tenure and existing terms, unless changes are lawfully agreed or implemented.

However, not every sale of assets creates an automatic employer substitution. Courts will look at:

Whether the business operations continued essentially the same;
Whether the transfer was in good faith or a scheme to defeat labor rights.

5.2 When Is Separation Pay Required?

If Company A completely closes or ceases operations (or closes a department) because of a genuine sale of assets or business:

Employees may be terminated due to closure or redundancy; and
Company A must pay separation pay, following the Labor Code formula (typically one-month pay per year or ½ month per year, depending on the cause).

If the buyer (Company B) chooses to rehire the employees, this is usually treated as new employment unless there is an explicit agreement to recognize tenure.

6. Secondment (Temporary Assignment to Another Company)

Secondment is a common arrangement in corporate groups:

Employee remains employed by Company A, but is temporarily assigned to work in Company B (host entity) for a defined period or project.

6.1 Legality of Secondment

Secondment is generally considered legal if:

Employee consents
- The employee agrees, preferably in writing, to be seconded.
Original employer remains the employer of record
- Company A continues to pay wages and statutory benefits (or ensures they are provided), and remains responsible for employment continuity.
Terms are clear
- Duration of secondment;
- Nature of work;
- Who supervises the employee;
- Handling of benefits, allowances, and liabilities.
No diminution of benefits
- The seconded employee should not receive less than what the law or their contract guarantees.

6.2 Liability During Secondment

Typically:

Company A (home employer) remains primarily responsible for:
- Basic salary;
- Statutory benefits (SSS, PhilHealth, Pag-IBIG, 13th month);
- Security of tenure.
Company B (host entity) may be:
- Jointly liable if the secondment is used to circumvent labor standards, or
- Considered a co-employer depending on how the arrangement is structured.

A written Secondment Agreement (between A and B) and a Secondment Consent (with the employee) are strongly recommended.

7. Outsourcing and Labor-Only Contracting Risks

Sometimes a company will “transfer” employees by outsourcing a function. Example:

Company A outsources its logistics to Company B (a contractor).
The direct employees of A in logistics are asked to:
- Separate from A, then
- Apply and be hired by B.

7.1 Is This Legal?

It can be legal, but it carries risks, especially of labor-only contracting, which is prohibited.

You look at:

Is the contractor (Company B) a legitimate contractor?
- Has substantial capital or investments;
- Exercises control over its employees;
- Performs a distinct and independent business.
Are employees’ rights respected?
- Proper separation pay (if they are terminated from A using an authorized cause);
- No diminution of statutory labor standards.

If Company B is a labor-only contractor, then:

Company A (the principal) may be deemed the real employer of the workers; and
The “transfer” will not shield A from labor claims; A may be liable for illegal dismissal, unpaid benefits, etc.

8. Constructive Dismissal Issues

A “transfer” that is actually a demotion, punitive, or significantly prejudicial to the employee can be attacked as constructive dismissal. Examples:

Employee told: “Sign a new contract with Company B on lower pay or be jobless.”
Employee’s tenure is reset, benefits reduced, and refusal to accept is treated as resignation.

Indicators of constructive dismissal:

Transfer is not in good faith;
Transfer results in substantial changes detrimental to the employee (significant pay cut, lower rank, worse working conditions);
Transfer is primarily aimed at forcing the employee to quit or accept worse terms.

If a court finds constructive dismissal, the employee may be entitled to:

Reinstatement to the previous employer (Company A) with full backwages; or
Separation pay in lieu of reinstatement, plus backwages and damages.

9. Union, CBA, and DOLE Considerations

9.1 Unionized Workplaces

For unionized employees, a Collective Bargaining Agreement (CBA) may contain:

Restrictions on transfers or reassignments;
Provisions on redundancy, retrenchment, closure;
Requirements for consultations or bargaining before major changes.

Any transfer plan must be aligned with the CBA; violations can lead to:

Unfair labor practice charges;
Grievances and arbitration.

9.2 DOLE Regulations and Inspections

Major reorganizations, outsourcing, or closure of establishments can attract DOLE attention, particularly if:

Many employees are terminated or moved at once;
Separation pay is disputed;
There are allegations of labor-only contracting.

DOLE can conduct:

Routine inspections; or
Complaint inspections, if employees file complaints.

10. Data Privacy and Statutory Registration Issues

When transferring or seconding employees, you also need to think beyond the Labor Code:

10.1 Data Privacy

Sharing employees’ personal data (e.g., HR files, medical records, salary data) with another company engages obligations under data privacy rules.

Ideally, get employee consent for data sharing;
Execute a data sharing agreement between companies, setting out:
- Purpose and scope of data sharing;
- Safeguards;
- Retention and disposal policies.

10.2 Government Reporting and Registrations

If employer changes from A to B:

New employer must register employees with:
- SSS, PhilHealth, Pag-IBIG (and BIR for withholding tax);
Previous employer must:
- Stop contributions and properly process final pay and certificates.

11. Practical Approaches to Structuring a Legal Transfer

If a company wants to move direct employees to another company in a lawful, lower-risk manner, here are common approaches:

11.1 Secondment (Preferable for Temporary Moves)

Use secondment when:

The move is temporary;
Original employer is willing to remain the employer of record;
You want to retain continuity of tenure and benefits.

Key documents:

Secondment Agreement (Company A & Company B)
Secondment Consent / Addendum to Employment Contract (with employee)

11.2 Voluntary Transfer + New Employment Contract

For permanent transfers:

Explain the business reason to employees.
Offer terms with Company B:
- Ideally, equal or better than current terms;
- Consider recognizing length of service for practical benefits (e.g., vacation leave scaling, retirement).
Provide time to decide, without coercion.
If employees agree:
- Execute mutual separation agreements or resignations with Company A (with any agreed separation package); and
- Sign new employment contracts with Company B.

11.3 Authorized Cause Termination + Priority Rehire

If some employees do not want to transfer, or if business reorganization truly eliminates positions:

Use authorized causes (redundancy, retrenchment, closure) with:
- DOLE notice and individual notice,
- Proper separation pay,
- Good-faith basis and documentation.
Offer those employees priority hiring in Company B (but they are generally new hires, unless otherwise agreed).

12. High-Level Checklist for Legality

When assessing whether a proposed transfer of direct employees to another company in the Philippines is legal, consider:

Is the employer changing?
- If yes, employee consent is essential, unless covered by a legitimate employer substitution in a bona fide business sale.
Is there a legitimate business reason?
- Document the operational or organizational justification.
Is the transfer voluntary?
- No coercion; give employees realistic options and time.
Are labor standards preserved or improved?
- No unlawful diminution of wages and benefits.
Is there a risk of labor-only contracting?
- Ensure the receiving company is a legitimate contractor, if outsourcing.
Have due process and legal technicalities been followed?
- Notices, separation pay (if any), DOLE compliance, government registrations.
Are agreements properly documented?
- Secondment agreements, mutual separation agreements, employment contracts, data sharing agreements.

13. Summary

It is not automatically legal to “transfer” direct employees to another company in the Philippines.
A change of employer usually requires the employee’s consent, unless there is a legitimate and legally recognized substitution of employer (e.g., bona fide sale of business).
Forcing employees to move to another company, especially on worse terms, can amount to constructive dismissal.
Legitimate pathways include:
- Secondment for temporary assignments;
- Voluntary transfer with proper documentation and new employment contracts; and
- Authorized cause terminations with separation pay, coupled with rehiring opportunities.

Because every corporate structure and transaction is different, it’s important to have the specific plan reviewed by a Philippine labor lawyer before implementation—especially if large numbers of employees, a union, or a complex group structure are involved.