The Department of Labor and Employment (DOLE), through Department Order No. 215, series of 2020, officially adopted the renumbered provisions of the Labor Code of the Philippines following the repeal of certain articles by Republic Act No. 10151 (night work) and other subsequent amendments. Under this renumbering, the former Article 286 is now Article 301 and governs the bona fide suspension of operations or temporary cessation of work. Meanwhile, redundancy as an authorized cause of termination is now found in Article 298 (formerly Article 283).
The distinction between redundancy (permanent termination) and temporary suspension of work (Article 301) is one of the most litigated issues in Philippine labor law because employers frequently misclassify the nature of their business difficulties in order to avoid payment of separation benefits or to permanently remove employees under the guise of a “temporary” measure.
I. Redundancy (Article 298, Labor Code)
Legal Basis and Definition
Article 298 authorizes termination of employment on the following grounds:
- Installation of labor-saving devices
- Redundancy
- Retrenchment to prevent losses
- Closure or cessation of operation not due to serious business losses
- Disease
Redundancy exists when the position or service of an employee has become superfluous or in excess of what is reasonably necessary for the effective operation of the business. It is not required that the position be completely abolished; it is sufficient that it has become unnecessary (Wiltshire File Co., Inc. v. NLRC, G.R. No. 95555, July 8, 1991; Edge Apparel, Inc. v. NLRC, G.R. No. 121314, February 12, 1998).
Requisites for Valid Redundancy (Jurisprudential Standards)
The Supreme Court has consistently required the concurrence of the following for redundancy to be valid:
Written notice to the affected employee and to DOLE at least one (1) month prior to the intended date of termination (Article 298 in relation to Rule XXIII, Book V, Omnibus Rules, as amended by DOLE D.O. 147-15).
Payment of separation pay equivalent to at least one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher, a fraction of at least six (6) months being considered one (1) whole year.
Good faith in abolishing the redundant position and proof that the position is indeed superfluous. The employer must prove that the redundancy is genuine and not a pretext for dismissing an employee (Asian Alcohol Corporation v. NLRC, G.R. No. 131108, March 25, 1999; Panasonic Communications Imaging Corporation of the Philippines v. NLRC, G.R. No. 147072, April 27, 2007).
Fair and reasonable criteria in selecting which employees to terminate (e.g., status, efficiency rating, seniority). The criteria must be made known to employees (University of the Immaculate Conception v. UIC Teaching and Non-Teaching Personnel, G.R. No. 178085, September 24, 2014).
Efforts to avoid termination or to minimize its impact (reassignment, retraining, etc.) must be undertaken where feasible.
Failure to comply with any of these requisites renders the redundancy illegal, entitling the employee to reinstatement with full backwages, or separation pay in lieu of reinstatement plus full backwages.
II. Temporary Suspension of Work / Bona Fide Suspension of Operations (Article 301, Labor Code)
Exact Text of Article 301 (as renumbered by D.O. 215-20)
“When employment not deemed terminated. — The bona-fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment.
In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from military or civic duty.”
Nature and Effects
- The employer-employee relationship is merely suspended, not severed.
- The employee is not entitled to wages during the period of suspension unless there is a company policy, practice, or CBA provision granting “waiting time pay” or similar benefits.
- Upon resumption of operations within six (6) months, the employer must reinstate the employee to his former position without loss of seniority rights.
- The employee must manifest his desire to return within one (1) month from resumption; otherwise, he may be considered to have abandoned his employment.
Requisites for Valid Temporary Suspension
- The suspension must be bona fide — that is, due to legitimate business reasons (economic downturn, lack of raw materials, retooling, repair of machinery, etc.).
- The period must not exceed six (6) months.
- Notice to the employees and submission of a report to DOLE (usually within the period required by existing advisories; under D.O. 215-20 and related issuances, advance notice is preferred whenever practicable).
Consequences When Suspension Exceeds Six (6) Months
If operations remain suspended beyond six (6) months, the employment is deemed terminated, and the employee becomes entitled to separation pay computed in the same manner as in redundancy/retrenchment cases (one (1) month or ½ month per year of service, whichever is higher), unless the suspension was due to force majeure or circumstances beyond the employer’s control and the employees agreed in writing to wait longer (Mayon Hotel & Restaurant v. Adana, G.R. No. 157634, May 16, 2005; Philippine Industrial Security Agency Corp. v. Aguinaldo, G.R. No. 149974, June 15, 2005).
During the COVID-19 pandemic, DOLE Labor Advisory No. 17-2020 and subsequent advisories temporarily allowed extension of the six-month period without automatic termination, provided there was a written agreement or manifestation of the employees. This, however, was an exceptional measure and does not amend Article 301.
III. Key Distinctions Between Redundancy and Temporary Suspension
| Aspect | Redundancy (Art. 298) | Temporary Suspension (Art. 301) |
|---|---|---|
| Nature of separation | Permanent termination | Temporary; relationship merely suspended |
| Duration | Indefinite (permanent) | Maximum 6 months |
| Separation pay | Mandatory | None (if ≤6 months and resumed) |
| Reinstatement right | None (unless redundancy declared illegal) | Automatic upon resumption within 6 months |
| Wages during period | None after termination | None during suspension |
| Notice requirement | 30 days to employee & DOLE | Advance notice preferred; DOLE report required in practice |
| Purpose | Eliminate superfluous positions permanently | Temporary halt due to business difficulties |
| Effect of exceeding time limit | N/A | Becomes termination with separation pay |
IV. Common Employer Mistakes and Illegal Practices
Declaring “redundancy” when the business difficulty is only temporary — this is illegal because the employer is obliged to use Article 301 suspension instead (JAKA Food Processing Corp. v. Pacot, G.R. No. 151378, March 28, 2005; Exodus International Construction Corp. v. Biscocho, G.R. No. 166109, February 23, 2011).
Implementing “floating status” beyond six (6) months without paying separation benefits — illegal (Agro Commercial Security Services v. NLRC, G.R. No. 82823, July 31, 1989; Superclean Services Corp. v. CA, G.R. No. 227400, November 21, 2018).
Rotating or successive short suspensions to avoid the six-month rule — considered bad faith and constructive dismissal.
Using redundancy to target specific employees (union officers, complainants) — renders the termination illegal for being discriminatory.
V. Remedies Available to Employees
- If redundancy is invalid → illegal dismissal → reinstatement without loss of seniority + full backwages + damages.
- If suspension exceeds 6 months without separation pay → illegal dismissal → same remedies as above.
- If employer refuses to reinstate after valid suspension within 6 months → illegal dismissal.
Employees may file a complaint for illegal dismissal with the NLRC within four (4) years from the date the cause of action accrued (Article 1146, Civil Code; Article 292, Labor Code as renumbered).
Conclusion
The choice between redundancy (permanent termination with separation pay) and temporary suspension of work (Article 301 — no separation pay, automatic reinstatement within 6 months) is not discretionary on the part of the employer. It must correspond to the actual business reality. Temporary financial difficulties, lack of orders, retooling, or seasonal slowdowns must be addressed through Article 301 suspension. Only when the superfluity of positions is permanent and irreversible may the employer resort to redundancy under Article 298.
Misclassification is almost always declared by the Supreme Court as a badge of bad faith, resulting in liability for illegal dismissal with full backwages and, in many cases, moral and exemplary damages. Employers are therefore well-advised to strictly observe the substantive and procedural requirements of the correct mode of employee separation under the renumbered Labor Code.