Legality of Placing Regular Employees on “Floating Status” in the Philippines: A Comprehensive Guide

Executive Summary

“Floating status” (also called temporary layoff, off-detail, or temporary suspension of work) is lawful only in narrowly defined circumstances and only for a limited duration. Properly invoked, it does not terminate employment and generally entails no wages under the “no work, no pay” rule. If the arrangement exceeds the lawful period, lacks good faith or business necessity, or skirts procedural safeguards, it ripens into constructive/illegal dismissal with the attendant remedies (reinstatement, backwages, and/or separation pay).

Core Legal Bases

Labor Code — Article 301 (formerly 286): Recognizes the bona fide suspension of business operations or undertaking for reasons beyond the employer’s control or due to legitimate business exigencies, not exceeding six (6) months. During this suspension, the employment tie is preserved.
Authorized Causes (Articles 298–299, formerly 283–284): If the disruption is permanent or will clearly exceed six months, the employer must shift to authorized cause terminations with 30-day prior written notice to both the employee and the DOLE, and pay separation pay at statutory rates (see below).
Civil Code & Jurisprudence (Good Faith, Abuse of Rights, Constructive Dismissal): Jurisprudence has long treated temporary layoff as valid by analogy to Article 301: allowed for up to six months, grounded in good faith and genuine business necessity; beyond that, it becomes constructive dismissal. Courts scrutinize the necessity, duration, and fairness of the measure.

Practical reading: “Floating status” is not a stand-alone creature of statute; it is a court-recognized management prerogative tethered to Article 301’s six-month cap, subject to good faith and reasonableness.

What “Floating Status” Is—and Isn’t

What it is: A temporary, exceptional pause in providing work to a still-employed worker due to legitimate business reasons (e.g., a sudden loss of client, temporary shutdown for repairs, supply chain paralysis, force majeure), with the intention to recall within six months.
What it is not:
- A stealth redundancy or retrenchment without notices and separation pay.
- A license to rotate indefinite “no-pay” periods or to evade regularization.
- A device to punish or pressure employees.

Lawful Requisites

To withstand challenge, placing a regular employee on floating status should meet all of the following:

Grounded in good faith and necessity
- There must be a real, demonstrable business exigency (e.g., client contract ended; temporary plant closure; compliance shutdown; calamity).
- The cause should be temporary and remediable within six months.
Defined and reasonable duration (hard cap: 6 months)
- The aggregate period of non-work must not exceed six months.
- If it becomes apparent that operations will not resume within that period, the employer must pivot to authorized causes (Articles 298–299) before the cap expires.
Procedural fairness
- Written notice to the employee explaining the reason, start date, and expected end/recall window; provide contact channels and reporting instructions.
- Documentation: board/management resolution, client notices, audit reports, or other proof of the business exigency.
- Transparent recall criteria (e.g., seniority, skills match, client assignment).
Non-discriminatory application
- The selection of who is placed on floating status must be objective and fair (e.g., project- or client-based alignment), not retaliatory or discriminatory.
No disguised termination
- The employer must actually intend to recall; token or speculative recall efforts are not enough.

Duration and the Six-Month Rule

Maximum: six (6) months from the start of the floating period.
Exceeding the cap: keeping an employee on floating status beyond six months without valid conversion to an authorized cause ends up as constructive/illegal dismissal.
Restarting the clock is disallowed: artificial breaks (e.g., recalling for a day and re-floating) to reset the six months are bad faith and vulnerable to challenge.

Pay, Benefits, and Statutory Contributions

Wages
- General rule: no work, no pay during a valid floating period.
- Exceptions may arise from CBA, company policy, or express agreements (e.g., subsistence allowance).
Benefits
- 13th month accrues only on wages actually earned in the calendar year.
- Leave accrual may pause unless policy/CBA says otherwise.
- HMO/insurance continuation depends on plan terms and company policy; many employers keep basic coverage for goodwill and retention.
Social contributions
- The employment relationship continues; employers commonly maintain SSS/PhilHealth/HDMF enrollment. If there is zero compensation, remittance amounts may be affected by agency rules; coordinate with the payroll/compliance team to avoid coverage gaps.

Interaction with Other Flexible Work Arrangements

Before resorting to floating status, employers should evaluate less intrusive measures that keep people partially working and paid, such as:

Reduced workweeks/hours, work rotation, compressed workweeks
Telecommuting/alternative work sites
Forced leave using available paid leave credits (with consent and policy support)

Courts look favorably on employers who considered and tried these proportionate alternatives before imposing a full non-work status.

After Six Months: Required Next Steps

If operations cannot resume within six months:

Redundancy / Installation of Labor-Saving Devices (Art. 298):
- Separation pay: One (1) month pay per year of service (at least one month).
- Notices: 30 days’ written notice to the employee and DOLE.
Retrenchment to Prevent Losses / Closure not due to serious losses (Art. 298):
- Separation pay: One-half (1/2) month pay per year of service (at least one month).
- Notices: 30 days’ written notice to the employee and DOLE.
- Business losses or downturn must be substantiated (e.g., financial statements).
Disease as cause (Art. 299):
- If continued employment is prohibited by serious disease not curable within six months and certified by a competent public health authority.
- Separation pay: the greater of one month pay or one-half month pay per year of service.

Failure to take these steps on time typically converts the situation into constructive/illegal dismissal.

Rights and Remedies of Employees

During a valid floating period
- Remain an employee; keep seniority; expect recall efforts.
- May seek written updates and the basis for the floating status.
- If evidence suggests bad faith, discrimination, or that the six-month cap will be breached, the employee may file a complaint (illegal dismissal; money claims; damages).
If the floating status is invalid or excessive
- Illegal dismissal: reinstatement (or separation pay in lieu) plus full backwages from the time of dismissal (often counted from the date the six-month cap lapsed or from the unlawful act) until actual reinstatement or finality of judgment.
- Damages and attorney’s fees in proper cases.
Limitations periods
- Illegal dismissal actions (an injury to rights) are typically brought within four (4) years.
- Money claims (e.g., wage differentials) must be filed within three (3) years.

Special Sectors and Recurring Scenarios

Security, merchandising, and project-deployment industries
- “Off-detail” happens when a client ends a service contract. The agency must show genuine efforts to re-assign within six months. Reassignment offers must be realistic (commensurate pay, reasonable location and schedule). Repeated off-detail without real placements can evidence bad faith.
Calamity/force majeure and compliance shutdowns
- Natural disasters, government closures, or mandatory retrofitting may justify a temporary suspension; keep a paper trail (orders, inspection reports, repair schedules) and give periodic employee updates.
Intermittent business cycles
- Seasonal or cyclical downturns do not give employers carte blanche to serially float the same people; courts examine the pattern and predictability. For truly seasonal work, seasonal employment rules, not floating status, may apply.

Employer Compliance Checklist

Before imposing floating status:

Identify and document the specific business exigency.
Evaluate lesser alternatives (rotation, reduced hours).
Draft clear written notices: reason, start date, expected end, contact/recall protocol.
Define objective selection criteria.
Coordinate with payroll/benefits on contributions and benefit continuity.
Prepare recall plan (who, when, how notified).

During the floating period:

Keep the duration strictly under six months (track the calendar).
Send periodic updates (e.g., monthly).
Proactively offer suitable reassignment when available and document acceptance/refusal.
Maintain records: postings, client bids, repair progress, compliance steps.

At or before six months (if work has not resumed):

Decide and implement the appropriate authorized cause with statutory notices and separation pay; or
Recall the employee to comparable work.

Model Clauses and Letters (Short Forms)

Temporary Layoff / Floating Status Notice

Reference: Article 301 (bona fide suspension, ≤6 months)

Reason: [specific, documented cause]

Effective date: [dd mmm yyyy]

Target resumption/recall window: [no later than dd mmm yyyy]

Reporting/Contact: [HR contact]

Benefits during period: [state clearly]

Reassignment protocol: [how offers will be issued and how to respond]

Recall Notice

Position/Assignment: [role/site/schedule]

Start date: [dd mmm yyyy]

Terms: [pay, shift, location] (comparable to pre-floating terms unless justified)

Conversion to Authorized Cause

Cause invoked: [redundancy / retrenchment / closure / disease]

Effective date: [dd mmm yyyy ≥ 30 days from notice]

Separation pay computation: [basis and figures]

DOLE notice: [date filed]

Frequent Pitfalls—and How to Avoid Them

Letting the calendar lapse beyond six months → constructive dismissal.
Vague or oral notices → issue written, specific notices.
“Paper” recall (unrealistic offers) → make genuine, documented reassignment offers.
Selective targeting of unionists or complainants → invites ULP/illegal dismissal findings.
Back-to-back floating cycles on the same employee → suggests abuse of rights.

Separation Pay at a Glance (if conversion becomes necessary)

Redundancy / Installation of Labor-Saving Devices: 1 month pay per year of service (≥ 1 month).
Retrenchment / Closure (not due to serious losses): 1/2 month pay per year of service (≥ 1 month).
Disease: Greater of 1 month pay or 1/2 month per year of service.

“Per year of service” is typically prorated for a fraction of at least six months counted as one year (unless policy/CBA provides better terms).

Bottom Line

Floating status is lawful but exceptional: use sparingly, document thoroughly, and cap at six months.
Employees retain their status, seniority, and recall rights; they can challenge bad-faith or overlong floating as illegal dismissal.
Employers must either recall within six months or properly convert to an authorized cause with statutory notices and separation pay.
The safest path is early planning, clear paperwork, and timely decisions anchored on Article 301 and the authorized-cause framework.