The Supreme Court in discussed extensively retrenchment in the 2017 case of READ-RITE PHILIPPINES, INC. v. FRANCISCO, et. al. (G.R. No. 195457, August 16, 2017), to wit:


Retrenchment to prevent losses is one of the authorized causes for an employee's separation from employment. As explained in Waterfront Cebu City Hotel v. Jimenez1:


Retrenchment is the termination of employment initiated by the employer through no fault of and without prejudice to the employees. It is resorted to during periods of business recession, industrial depression, or seasonal fluctuations or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery or of automation. It is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business. (Citations omitted.)


Article 283 (now Article 298) of the Labor Code, as amended, recognizes retrenchment as a right of the management to meet clear and continuing economic threats or during periods of economic recession to prevent losses.2 Said article reads:


ART. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Emphasis supplied.)


1 687 Phil. 171, 181-182 (2012).

2 Plastimer Industrial Corporation v. Gopo, 658 Phil. 627, 635 (2011).