(Philippine labor law article; for general information only, not legal advice.)

1) Why this topic matters

In corporate groups, it’s common to “move” employees from one entity to another—e.g., from Company A to its affiliate/subsidiary/sister company (Company B)—for cost, tax, operational, or regulatory reasons. Problems arise when the move is done through retrenchment (an “authorized cause” termination) and the affected employees are then told to “apply” or are “rehired” by the affiliate.

The core legal question is:

Can an employer lawfully retrench employees if the real purpose is to transfer their work (and sometimes the same people) to an affiliate company?

The answer is: It depends—and it’s high risk if the arrangement looks like a workaround of security of tenure. Philippine law focuses heavily on good faith, genuine business necessity, and substance over form.

2) Key legal framework (Philippines)

A. Security of tenure and lawful termination

Employees may be terminated only for:

Just causes (misconduct, willful disobedience, fraud, etc.) with due process; or
Authorized causes (business reasons) with statutory requirements.

B. Retrenchment as an authorized cause

Retrenchment is a recognized authorized cause (commonly discussed alongside redundancy and closure). In general terms, retrenchment is a cost-cutting measure to prevent losses or further losses, typically involving reduction of manpower.

Employer obligations commonly associated with retrenchment:

Good faith (not a ruse to remove employees or cut pay/benefits).
Reasonable necessity (the measure is necessary and likely effective).
Sufficient proof of financial condition (often expected: audited financial statements and credible documentation).
Fair and reasonable selection criteria (not arbitrary; not discriminatory; applied consistently).
30-day written notice to both:
- the affected employees, and
- the Department of Labor and Employment (DOLE).
Separation pay (for retrenchment, commonly understood as at least 1 month pay or 1/2 month pay per year of service, whichever is higher, with a fraction of at least 6 months counted as 1 year).

C. Redundancy vs. retrenchment vs. closure (important distinctions)

If an employer is eliminating positions because they are no longer needed due to reorganization, technology, outsourcing, or transfer of functions, the more legally “natural” ground is often redundancy (superfluity of positions), not retrenchment.

Why this matters:

Different legal tests and common evidentiary expectations apply.
Separation pay outcomes differ in practice (redundancy is typically more expensive than retrenchment).
Using retrenchment when the situation is really redundancy can be treated as bad faith or misclassification.

3) What is “transfer to an affiliate company” legally?

An “affiliate company” is typically a separate juridical entity (separate corporation) even if it shares owners, directors, branding, or operations.

This means:

Company A cannot unilaterally “transfer” employment to Company B the way it can transfer an employee between departments.
Moving employment to another corporation generally requires either:
- Employee consent (resignation from A + new employment contract with B), or
- A lawful termination by A (authorized cause/just cause) plus a separate hiring by B.

However, Philippine labor law also recognizes doctrines that may treat related entities as effectively one employer in appropriate cases (see Part 6).

4) When retrenchment tied to affiliate transfer can be lawful

Retrenchment may be defensible if the business reality supports it, for example:

Scenario 1: Genuine downsizing at Company A; affiliate hiring is incidental

Company A proves legitimate financial distress (or imminent losses) and implements a real workforce reduction.
Company B later hires some of those terminated employees because it has separate openings.
The hiring is not used to evade obligations and is not a disguised continuation of the same job under the same control.

Risk level: lower, but still depends on evidence and timing.

Scenario 2: Closure of a unit in Company A; different business is run by Company B

Company A stops a business line entirely and lays off staff.
Company B operates a materially different line (different clients, different operations) and hires based on its own staffing needs.

Risk level: medium—must show the closure is real and not a paper shift.

Scenario 3: Legitimate shared-services restructuring with proper handling

The group consolidates certain functions into a shared-services affiliate.
Company A ends the duplicated positions and complies with authorized-cause requirements, pays correct separation pay, and the affiliate offers new employment (not forced) with transparent terms.
Employees are not pressured into waiving rights.

Risk level: medium—requires clean documentation and fair process.

5) When retrenchment for “transfer to affiliate” becomes legally problematic (common red flags)

This is where many cases go wrong. Retrenchment is vulnerable when it looks like a device to avoid:

security of tenure,
union protections/CBAs,
regularization,
higher separation pay (e.g., redundancy),
accrued benefits, seniority, or retirement programs.

Red Flag A: “Same job, same place, same people—only the company name changed”

If employees are “retrench-ed” from Company A, then:

they continue performing the same work,
at the same site,
under the same supervisors,
for the same business,
with minimal operational change,

then the termination may be treated as a sham, and the structure may be attacked as:

illegal dismissal, and/or
evidence of single employer / alter ego / labor-only contracting / circumvention.

Red Flag B: No real financial basis; retrenchment used as “relabeling”

Retrenchment is expected to be backed by credible proof of business necessity. If Company A is not actually in financial distress—or if the documentation is weak—then “retrenchment” may fail.

Red Flag C: Replacements or re-hiring that contradict “retrenchment”

If Company A retrenches but:

hires new employees shortly after for similar roles, or
engages contractors to do the same work, or
“moves” the same positions to the affiliate with continuous demand,

that can undermine the claim that the positions had to be eliminated.

Red Flag D: Selection criteria is unclear or discriminatory

Retrenchment requires fair criteria. Indicators of unfairness:

singling out union officers or vocal employees,
inconsistent scoring,
no documented method,
suddenly changing performance metrics.

Red Flag E: Pressure to sign quitclaims / waivers as a condition to be hired by the affiliate

“Sign this release or you won’t be absorbed” is a frequent litigation trigger. Quitclaims are not automatically invalid, but they are scrutinized; if the terms are unconscionable or the signing is pressured, they can be set aside.

6) Corporate group doctrines that can defeat a “separate affiliate” defense

Even if Company A and Company B are separate corporations, employees may challenge the structure using doctrines such as:

A. Single employer / integrated enterprise (substance over form)

Labor tribunals may treat affiliates as one employer when there is strong evidence of:

common control of labor relations,
interrelated operations,
common management,
common ownership/financial control, and the arrangement is used to defeat labor rights.

Practical impact: liabilities (including reinstatement/backwages) can extend to the affiliate in some situations.

B. Piercing the corporate veil / alter ego

Where the corporate separation is used to justify wrongdoing, avoid obligations, or perpetrate injustice, the veil may be pierced.

C. Successor employer / transfer of business concepts (fact-driven)

Where there is a transfer of business operations, assets, or a continuing enterprise, tribunals may look at continuity and fairness implications—especially if workers are displaced and the “new” entity effectively continues the same business.

Bottom line: Calling it an “affiliate” does not automatically insulate the group from labor liabilities.

7) What is the “right” authorized cause if work is being moved to an affiliate?

A frequent legal issue is mislabeling.

If the job is removed because it is duplicated or centralized elsewhere: redundancy may be more appropriate than retrenchment.
If the employer is reducing headcount due to financial distress: retrenchment may be appropriate.
If the business is stopping operations: closure/cessation may apply.

Using retrenchment when the situation is essentially a functional transfer can look like an attempt to pay less separation or reset employment status.

8) Employee consent and continuity: what can and cannot be forced

A. Transfer within the same company vs. to another company

Within the same corporation: transfers are part of management prerogative, but must be reasonable and not punitive or a demotion.
To a different corporation (affiliate): generally cannot be compelled as a “transfer” of employment. It is effectively ending one employment relationship and starting another, unless structured in a legally sound secondment/assignment arrangement with consent.

B. Constructive dismissal risk

If an employee is “offered” affiliate employment but on materially worse terms (lower pay, reduced benefits, loss of tenure, worse location) under pressure, the employee may claim constructive dismissal or that the “choice” was not voluntary.

C. Continuity of service and benefits

If the group wants a smoother transition, common approaches (still fact-sensitive) include:

recognizing prior service for certain benefits,
bridging seniority,
honoring accrued leaves,
offering a comparable role and pay.

But none of these automatically cures an otherwise defective retrenchment.

9) Procedural essentials employers often miss (and employees should check)

Even when a valid business reason exists, employers can still lose cases for non-compliance.

Mandatory notice timing (commonly applied rule of thumb)

Written notices to employees and DOLE are expected at least 30 days before effectivity.

Documentation and internal record integrity

Board approvals/restructuring papers
financial proof (when retrenchment is claimed)
selection criteria and scoring sheets
org charts before/after
proof the cost-saving measure is real

Poor documentation often converts a defensible reorganization into an adverse finding.

10) Remedies and exposure if retrenchment is found illegal

If illegal dismissal is found (common consequences)

Reinstatement without loss of seniority rights, and
Full backwages from dismissal to reinstatement (or separation pay in lieu of reinstatement in some circumstances)

Possible additional exposure:

damages in appropriate cases,
attorney’s fees (in certain situations),
solidary liability where corporate doctrines apply.

Timing/prescription (practical note)

Labor disputes are time-sensitive. Different claims have different prescriptive periods; employees should act promptly.

11) Practical guidance

For employers: a compliance and risk checklist

Identify the real ground (retrenchment vs redundancy vs closure).
If retrenchment: prepare credible financial evidence and show necessity.
Build and document fair selection criteria (objective and consistent).
Serve proper notices to employees and DOLE on time.
Pay correct separation pay and final pay on schedule.
If offering affiliate employment:
- keep it voluntary,
- avoid coercive waivers,
- ensure transparency (job, pay, benefits, tenure treatment).
Ensure operational reality matches the paper trail (no “same job, same control, different logo” setup).

For employees: questions to ask and documents to gather

Was there a DOLE notice and 30-day employee notice?
What is the claimed reason—losses, reorg, centralization?
Are there replacements or continuing manpower needs?
Is the affiliate job essentially the same work under the same control?
Were you targeted (union activity, complaints, protected status)?
Keep: notices, payslips, org charts, emails about transfer/absorption, job offers, memos showing continuity, proof of who supervises you.

12) A clear rule of thumb

Retrenchment used primarily as a mechanism to “move” employees to an affiliate—especially where the work continues substantially unchanged—carries significant legal risk and is often attacked as circumvention of security of tenure.

A legally safer approach is to:

use the correct authorized cause grounded in the real business reason,
comply strictly with procedural requirements, and
ensure any affiliate hiring is genuinely separate and voluntary, not a disguised continuation.

If you want, paste a short fact pattern (industry, what functions are being moved, timeline, what notices were issued, whether the employees keep the same supervisors/location, and what the affiliate offer looks like). I can map it to the most likely legal issues (retrenchment vs redundancy, “single employer” risk indicators, and procedural weak points) in a structured way.