Termination of Employment Due to Installation of Labor-saving Devices

How does an employer carry out installation of labor-saving devices?

The installation of labor-saving devices contemplates the installation of machinery to effect economy and efficiency in its method of production.[1] It is one of the authorized causes available to the employer in terminating the employment of an employee even without fault on the part of the latter. This is provided for in Article 298 of the Labor Code.

What are the requisites for installation of labor-saving devices to be a valid ground for termination?

The following must be present: [2]

1. There must be introduction of machinery, equipment or other devices;

2. The introduction must be done in good faith;

3. The purpose for such introduction must be valid such as to save on cost, enhance efficiency and other justifiable economic reasons;

4. There is no other option available to the employer than the introduction of machinery, equipment or device and the consequent termination of employment of those affected thereby; and

5. There must be fair and reasonable criteria in selecting employees to be terminated.

Must the employee be notified beforehand of the termination?

Yes, the employee must be notified beforehand as this is part of due process. In Magnolia Dairy Products Corporation v. NLRC[3], the Supreme Court (SC) held that:

The law authorizes an employer, like the herein petitioner, to terminate the employment of any employee due to the installation of labor-saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management, as in this case.

Nonetheless, this did not excuse petitioner from complying with the required written notice to the employee and to the Department of Labor and Employment (DOLE) at least one month before the intended date of termination. This procedure enables an employee to contest the reality or good faith character of the asserted ground for the termination of his services before the DOLE.

Is the employer obliged to pay separation pay in this case?

Yes, the law and rules make it mandatory for the employer to pay separation pay. An employee terminated due to installation of labor-saving devices shall be paid by the employer a separation pay equivalent to at least 1 month pay or at least 1 month pay for every year of service, whichever is higher, a fraction of 6 months service is considered as 1 whole year.[4] The computation of separation pay of an employee shall be based on his/her latest salary rate.[5]

Some important things to note:

* Termination of employment due to installation of labor-saving devices may be considered as one due to retrenchment.

In Edge Apparel, Inc. v. NLRC[6], the SC held that the institution of "new methods or more efficient machinery, or of automation" is technically a ground for termination of employment by reason of installation of labor-saving devices but where the introduction of these methods is resorted to not merely to effect greater efficiency in the operations of the business but principally because of serious business reverses and to avert further losses, the device could then verily be considered one of retrenchment.

* Installation of labor-saving devices could result to redundancy.

In Soriano, Jr. v. NLRC[7], private respondent PLDT's utilization of high technology equipment in its operation resulted in the reduction of the demand for the services of a Switchman. Consequently, the said position was considered as redundant.

See related posts:

"Retrenchment - Laying off employees due to business losses"

"Dismissal on the ground of redundancy"

"Due process in employee termination"

You may also check the government's official publication on "Workers Statutory and Monetary Benefits."

[1] Edge Apparel, Inc. v. National Labor Relations Commission (NLRC), G.R. No. 121314, February 12, 1998. [2] 5.4 - Standards on Authorized Causes, DOLE Department Order No. 147-15, Series of 2015, Amending the Implementing Rules and Regulations of Book VI of the Labor Code, as amended. [3] G.R. No. 114952, January 29, 1996.

[4] Sec. 5.5 - Payment of Separation Pay, Supra, note 2. [5] DOLE Bureau of Working Conditions. 2019 Handbook on Worker's Statutory Monetary Benefits.

[6] Supra, note 1. [7] G.R. No. 165594, April 23, 2007.

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