Here’s a comprehensive, practice-oriented guide you can hand to HR, Finance, and Legal as a one-stop reference for retrenchment in the Philippines (i.e., termination due to authorized cause to prevent or minimize business losses). This is general information, not legal advice.

Retrenchment Process Compliance Guide for HR (Philippines)

1) What “retrenchment” is—and isn’t

Retrenchment = management measure to reduce personnel to prevent actual or imminent substantial losses. It’s an authorized cause under the Labor Code (different from “just causes” like misconduct).
Not the same as:
- Redundancy (positions superfluous because of restructuring/duplication; no “losses” proof needed but requires good-faith business reason and fair criteria).
- Closure/cessation (partial/total shutdown of business).
- Installation of labor-saving devices (technology substitution).
Why the label matters: standards of proof and separation pay differ by cause. Choose the right cause and stick to it—don’t mix labels.

2) The four big legal tests for a valid retrenchment

Courts typically look for all of the following:

Necessity: Retrenchment is reasonably necessary and likely to prevent actual or imminent substantial losses (not a convenient way to dismiss).
Substantial losses: Actual losses or serious, reasonably imminent losses—shown by credible business records (e.g., audited financial statements, management accounts, canceled orders, market collapse, cost spikes) and evidence that losses aren’t trivial/temporary.
Good faith: The move isn’t to bust a union, penalize activists, or target protected classes. Communications, timing, and selection outcomes must reflect honest business judgment.
Fair and reasonable selection criteria: Objective standards applied consistently (e.g., efficiency/performance ratings, seniority, critical skills, disciplinary record). “Last-in, first-out” (LIFO) is common but not mandatory; it must make operational sense.

Tip: Courts give management elbow room on business judgment if documentation is strong and process is fair.

3) Mandatory notices (form, timing, where)

Written notice to each affected employee and written notice to DOLE (the Regional/Field Office with jurisdiction) at least 30 calendar days before the effectivity date.
Contents (employee notice): cause (ret•renchment), business grounds, selection criteria, effectivity date, separation pay formula, clearance/last-pay process, HMO/benefit cut-off, and points of contact.
Contents (DOLE notice/report): business grounds and supporting facts; list of affected employees (name, position, salary, tenure); selection criteria; implementation timetable; separation-pay computation; measures taken to avert retrenchment (hiring freeze, reduced OT, work-sharing, cost cutting); and contact person.
Proof of service: maintain registry receipts/courier proof/email receipt logs and the DOLE receiving copy or electronic acknowledgment.

The 30-day notice is a hard requirement in authorized-cause terminations. Paying in lieu of notice is not a compliant substitute for the DOLE/employee notices.

4) Separation pay matrix (know your numbers)

Retrenchment or closure not due to serious losses: at least one (1) month pay or one-half (1/2) month pay per year of service, whichever is higher.
Closure due to serious losses: no separation pay required (but proof of serious losses must be strong).
Redundancy / installation of labor-saving devices (for comparison): at least one (1) month pay or one (1) month pay per year of service, whichever is higher.

Computation notes

Use the employee’s latest basic salary rate as “one month pay.” (If your policy or CBA integrates certain fixed allowances into “basic,” follow the more favorable rule.)
≥ 6 months counts as one year of service for the per-year multiplier.
Always apply the more favorable policy/CBA or company practice if it grants more than the legal minimum.
Separation pay is generally tax-exempt when the separation is beyond the employee’s control (e.g., retrenchment/redundancy/closure) under tax rules; coordinate with BIR for proper withholding/tax treatment and secure required certifications.

5) Due process model (authorized cause)

Unlike “just cause,” there’s no twin-notice requirement. For authorized cause (ret•renchment), due process = 30-day notices + lawful separation pay + substantive justification. Still, good practice includes:

Prior consultation with employees/union (if any) and exploring alternatives (reassignment, work-sharing, temporary layoff where lawful).
Opportunity to clarify data used in selection (transparency reduces disputes).

6) Documentation pack (what to prepare and keep)

Corporate/management records

Board/management resolution setting the business basis, the headcount goal, and the selection framework.
Business proof of losses (audited FS, YTD P&L, budgets vs actuals, sales pipeline collapse, cost spikes, canceled contracts, industry data).
Alternatives considered and why they were inadequate (e.g., cost-cutting already done, non-renewal freeze, salary rationalization).

Selection records

Written selection criteria, weights, and rationale.
Objective data behind each criterion (ratings, KPIs, skills map, tenure lists).
Panel minutes and score sheets signed/dated; checks for disparate impact.

Notice & payout records

Employee notices with proofs of service; DOLE report and receiving proof.
Separation pay computation sheets; payroll advice; proof of payment (bank files, receipts).
Final pay components: prorated 13th-month, monetized unused SIL (if company policy), tax clearances, return of property, HMO/benefit run-off.

Post-implementation

DOLE inspections response file; FAQs for employees; communication plan; preferential re-hire protocol (if company policy).

7) Step-by-step timeline (workback plan)

T-60 to T-45 (diagnose & decide)

Validate business losses and alternatives; pick authorized cause (ret•renchment) and scope; align with Finance and Legal.
Draft selection criteria and run a dry-run impact analysis (discrimination check).

T-40 to T-31 (paper the file)

Finalize Board/management papers; prepare DOLE report and employee notice templates; complete selection scoring; QC the payout math.

T-30 (serve notices)

Serve individual notices to affected staff and submit DOLE notice.
Open help desk channel; coordinate with payroll for funding.

T-29 to T-5 (transition)

Implement knowledge transfer/hand-off; schedule exit processing; confirm bank details; stage COEs.

T-0 (effectivity date)

Process exits; pay separation pay and other due pay; recover assets; disable access; conduct offboarding interviews.

T+3 to T+30

Release final pay within the usual DOLE benchmark of 30 days from separation (or earlier if company policy).
Issue COE promptly upon request (best practice: within 3 days).
Maintain an audit file for DOLE/NLRC and internal audit.

8) Selection criteria—design and fairness guardrails

Common criteria: performance ratings (multi-period average), skills criticality, certifications/licensure, disciplinary record, seniority (tie-breaker or weighted factor).
Avoid: arbitrary criteria, hidden “fit” screens, criteria that indirectly target protected groups.
Implement: calibration meetings, HR-Legal sign-off, disparate-impact check (e.g., by age/sex/union status), and a written justification per employee file.

9) Communications plan (reduce disputes)

Message the cause (ret•renchment due to losses) and the process (criteria, notice, pay).
Offer transition support: job placement letters, schedule for clearance/payout, point persons.
Keep scripts for managers and HRBP; log all Q&As.

10) Payroll & benefits checklist (per employee)

Separation pay (per matrix above).
Pro-rated 13th-month pay.
Unused leave payout per law/policy/CBA (SIL monetization if provided by company policy/CBA; statutory SIL monetization depends on policy/practice).
Tax: treat separation benefits as tax-exempt if due to an authorized cause beyond the employee’s control; ensure correct reporting.
Loans/asset accountabilities: net-off only with lawful deductions and documented consent/obligation; avoid blanket offsets.
HMO/insurance: confirm cut-off and conversion options (self-pay).
Government reporting: update SSS, PhilHealth, Pag-IBIG records as needed.

11) Special populations & edge cases

Probationary/fixed-term/project employees: may be included in retrenchment; authorized-cause separation pay rules still apply (unless a lawful fixed-term ends naturally first).
Unionized employees: honor CBA provisions and consultation duties; observe last-in, first-out if CBA so provides.
Pregnant or on leave: authorized-cause terminations are not per se barred if not discriminatory; handle delicately and document neutrality.
Separated via VSS (voluntary separation scheme): keep it truly voluntary, with clear computation; VSS doesn’t cure a defective retrenchment but can reduce litigation if fairly designed.
Multi-cause programs: If some positions are redundant and others are retrenchment, segregate the justifications and computations.

12) What happens if HR gets it wrong (risk map)

Illegal dismissal exposure → reinstatement (or separation pay in lieu) plus full backwages and benefits from dismissal to finality, plus possible damages/attorney’s fees.
Underpayment of separation pay → differential, legal interest.
Notice defects → may invalidate the termination even if business losses exist; at minimum, increase financial exposure.
Discrimination → moral/exemplary damages and regulatory scrutiny.

13) Manager’s one-page checklist (print-ready)

Choose authorized cause correctly (Retrenchment).
Build losses file (audited FS/management proof).
Approve selection criteria + panel + fairness checks.
Draft employee notices & DOLE report (30-day lead).
Compute separation pay accurately; fund it.
Serve notices; get proofs of service.
Execute transition plan; protect operations/data.
Effectivity: pay out, recover assets, disable access.
Final pay ≤ 30 days; issue COE on request.
Archive full audit file for DOLE/NLRC.

14) Sample language (adapt as needed)

Employee Notice (extract)

Subject: Notice of Retrenchment (Authorized Cause) We regret to inform you that due to sustained [actual/imminent] business losses arising from [state grounds], the Company will implement a retrenchment program. Applying fair and reasonable selection criteria (including [list]), your position has been identified for termination effective [Date]. In compliance with law, we are giving you 30 calendar days’ prior written notice. You will receive separation pay equivalent to [one (1) month pay OR 1/2 month pay per year of service, whichever is higher], computed based on your latest basic salary, together with your other final pay components, to be released in accordance with company procedures. For questions, please contact [HR contact].

DOLE Report (headings)

Business grounds and supporting data summary
Measures taken to avert retrenchment
Implementation timetable
Selection criteria and application summary
Affected employees list (name/position/tenure/salary)
Separation pay formula and estimated total liability
HR/Legal contacts

15) Practical tips from the trenches

Start with Finance: if the numbers don’t show real or imminent losses, don’t force a retrenchment—consider redundancy instead, if the business reason is role-based.
Don’t skip DOLE: a perfect selection process won’t save a notice failure.
Be consistent: selection criteria that coincidentally eliminate union leaders or protected groups will be scrutinized—document neutrality.
Pay correctly, once: separation pay disputes are the #1 avoidable lawsuit—QC all computations.

Bottom line

A compliant retrenchment stands on four legs: (1) credible loss evidence, (2) good-faith necessity, (3) fair selection, and (4) strict 30-day notices plus correct separation pay. Execute those well, and your program is far more likely to withstand DOLE inspection and litigation.

If you want, tell me your DOLE region, headcount affected, and target effectivity date—I can turn this into a tailored timeline, notice set, and computation workbook for your team.