Reduction of Work Hours as a Cost-Cutting Measure in the Philippines
1. Concept and Policy Rationale
“Reduction of work hours” (often called short-time work or reduced work-week) is a temporary lowering of the number of hours or days that employees render service, undertaken primarily to trim labor costs without permanently severing employment. Philippine labor policy favors its use over retrenchment because it:
- preserves jobs and social insurance coverage;
- cushions the impact of business downturns; and
- gives employers breathing space to recover while protecting the employee’s right to security of tenure.
2. Statutory Foundations
| Source | Key Provision | Relevance |
|---|---|---|
| 1987 Constitution Art. XIII §3 | State must afford full protection to labor and regulate employer–employee relations. | Guides strict scrutiny of any diminution of employment benefits. |
| Labor Code (renumbered 2016) | • Art. 100 (Non-diminution) – bans unilateral withdrawal of benefits. • Art. 291 (Hours of work) – normal 8-hour day. • Art. 301 (formerly 286) – allows a bona fide suspension of business operations for up to six (6) months without terminating employment. |
Legal anchor for placing workers on short-time or rotating schedules. |
| DOLE Dept. Order 147-15 (2015 IRR of Book VI) | Recognizes short-time work as a preventive alternative to retrenchment and sets due-process requisites. | |
| DOLE Department Advisory 02-09 & Labor Advisories 09-20, 17-20, 18-21 | Enumerate acceptable flexible work arrangements (FWA)—including reduction of workdays/hours, rotation, and forced leave—and lay down notification and documentary rules. | |
| RA 11165 (Telecommuting Act) | Allows off-site work that may complement reduced on-site hours. |
3. Flexible Work Arrangements Recognized by DOLE
- Reduced Workdays/Hours – fewer than the normal six working days or eight hours per day.
- Rotation/Work-Sharing – employees alternately report for work on specified days.
- Compressed Workweek – same 48-hour weekly ceiling but distributed over fewer than six days (e.g., 12 hrs × 4).
- Forced (Vacation) Leave – employees use accrued leave; when exhausted, the no-work-no-pay rule applies.
- Broken-Time Schedule – work split into two or more periods within the day.
Reduction of hours is the most commonly adopted FWA when the objective is pure cost-cutting.
4. When Is Reduction of Hours Legitimate?
| Element | Practical Test | Typical Proof |
|---|---|---|
| Good-faith business necessity | Is the reduction needed to stem actual or imminent losses—not merely to raise profits? | Audited financials, forecast letters, industry reports, cancelled purchase orders. |
| Temporariness | Will operations revert to normal within six months, or sooner if conditions improve? | Written plan with timeframe and milestones. |
| Consultation & Consent | Were employees/unions informed and engaged before implementation? | Minutes of meetings, signed conformity, CBA side letters. |
| DOLE notification | Was a written report filed with the Regional Office within at least 30 days before or within 30 days after implementation (pandemic advisories allowed post-filing)? | DOLE “Establishment Report on FWA” Form, proof of receipt. |
| Non-discrimination | Are all similarly situated employees treated uniformly? | Matrix showing proportionate reduction across ranks/departments. |
| Compliance with wage floors | Does the pro-rated daily pay remain ≥ the statutory daily minimum wage (i.e., wage divided by 8 hours, then multiplied by actual hours worked)? | Payroll summary, wage computation sheets. |
Failure to meet these requisites exposes the employer to findings of constructive dismissal and money claims.
5. Wage, Benefit, and Tenure Consequences
- No Work, No Pay – Employees are paid only for hours actually worked; however, living allowances tied to hours/days worked should likewise be paid pro-rata.
- 13th-Month Pay – Compute on actual basic wage earned in the calendar year.
- Leave Credits & Service Incentive Leave – Accrue pro-rata on days actually worked.
- Social Insurance – SSS, PhilHealth, Pag-IBIG premiums are still due; employer may base the contribution on the decreased salary, but must at least meet the statutory minimum contribution bracket.
- Security of Tenure – Employment status is suspended, not terminated; length of service continues to run for purposes such as retirement and separation pay.
6. Jurisprudence Snapshot
| Case | G.R. No. / Date | Doctrine / Holding |
|---|---|---|
| Asian Transmission Corp. v. CA | 124293, 25 Jun 1999 | A three-day workweek adopted after sales plunge was valid, the measure being temporary, duly bargained with the union, and backed by financial data. |
| Coca-Cola Bottlers Phils. v. NLRC | 114337, 02 Oct 1997 | A two-day workweek without proof of losses and without union consent was held an unfair labor practice amounting to constructive dismissal. |
| Philippine Graphic Arts v. NLRC | 108198-99, 16 Jan 1998 | Reduction of days is allowable if done in good faith and only for as long as needed. Employer must resume normal hours once economic conditions improve. |
| Flexo Mfg. Corp. v. NLRC | 130234, 10 Sep 1999 | During business slump, rotation of work (one-week-on, one-week-off) was sustained; Supreme Court stressed consultation and documentary proof. |
| Marquez v. NLRC (UTEX) | 125402, 29 May 1998 | Reduction of days for eight consecutive months, without signs of recovery plans, was deemed permanent and thus invalid retrenchment. |
These cases distill three constants: proof, participation, and temporariness.
7. COVID-19–Era Issuances (Still Useful for Future Crises)
- Labor Advisory 09-20 (19 Mar 2020) – Encouraged FWAs “to preserve employment” during community quarantine.
- Labor Advisory 17-20 (18 May 2020) – Extended permissible FWAs beyond six months with DOLE approval if pandemic conditions persist.
- Labor Advisory 18-21 (24 Nov 2021) – Clarified that FWAs adopted due to COVID-19 do not require an exhaustion of vacation leave before effectivity.
Employers may still rely on the LA 17-20 template for any future public-health or calamity-driven downturns.
8. Procedural Roadmap for Employers
Diagnose the financial position; secure board resolution authorizing a temporary reduced schedule.
Confer with unions or employee representatives; explain the necessity, proposed duration, and selection criteria.
Execute a written agreement or company notice specifying:
- employees covered,
- new schedule and pay formula,
- start and projected end dates, and
- mechanism for earlier reversion to regular hours.
File the DOLE Establishment Report, attaching financial records and the signed agreement.
Implement the arrangement; monitor operational indicators weekly.
Review not later than the end of the 5th month; decide whether to:
- return to normal hours,
- extend the FWA (with DOLE clearance), or
- pivot to retrenchment/closure under Art. 298 if losses have become permanent.
Notify DOLE and workers of any transition at least 30 days in advance.
9. Common Pitfalls & How to Avoid Them
| Pitfall | Compliance Tip |
|---|---|
| Unilateral wage cut while keeping 8-hour schedule | A reduction in salary without a reduction in hours violates Art. 100. Legitimate cost-cutting must originate from fewer hours. |
| Selective reduction (targeting union officers or pregnant employees) | Follow objective, business-linked criteria. Otherwise, expect discrimination suits. |
| Indefinite FWA (“until further notice”) | Always give a specific maximum period (not > 6 months) and renew only with fresh consultation. |
| Failure to document losses | Maintain updated audited FS, SEC or BIR filings, cost summaries. Courts demand concrete financial evidence. |
| No DOLE report filed | Even if workers agreed, omission of the DOLE notice can still result in an award of indemnity or damages. |
10. Impact on Future Labor-Management Relations
Properly handled FWAs can strengthen workplace cooperation and underscore management openness. Mishandled ones tend to breed litigation, union militancy, and reputational harm. Forward-looking employers therefore complement reduced hours with:
- Upskilling programs during idle days;
- Mental-health support to address anxiety over reduced income; and
- Transparent dashboards that share monthly recovery metrics with employees.
Conclusion
The reduction of work hours is a lawful, humane, and financially sensible cost-containment tool—if and only if it meets the twin tests of necessity and fairness embedded in Philippine labor law. Employers must remember that they carry the burden of proof and the responsibility to engage workers in good faith. Employees, for their part, should remain vigilant yet cooperative, fully exercising their right to participate in decisions that affect their livelihood. When both sides observe the legal guardrails outlined above, short-time work becomes not a harbinger of layoffs, but a strategic bridge to business recovery and sustained employment.