Closure or cessation of business operations

Can an employer close its business even if it is not suffering from business losses?

● Yes. For any bona fide reason, an employer can lawfully close shop anytime. Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would be stretching the intent and spirit of the law if a court interferes with management's prerogative to close or cease its business operations just because the business is not suffering from any loss or because of the desire to provide the workers continued employment. (MPCEU vs Manila Polo Club, G.R. No. 172846, July 24, 2013)

● Even if the employer is not suffering from business losses, it can still resort to closure of business as long as the company’s exercise of the same is done in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement (Maya Farms Employees Organization vs. NLRC, G.R. No. 10625, December 28, 1994).


What are the requisites for a valid cessation of business operations?

● Closure or cessation of operations of establishment or undertaking may or may not be due to serious business losses or financial reverses. However, in both instances, proof must be shown that: (1) it was done in good faith to advance the employer's interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement; and (2) a written notice on the affected employees and the DOLE is served at least one month before the intended date of termination of employment. (MPCEU vs Manila Polo Club) 

● There are three requisites for a valid cessation of business operations:

1. service of a written notice to the employees and to the Department of Labor and Employment (DOLE) at least one month before the intended date thereof; 
2. the cessation of business must be bona fide in character; and 
3. payment to the employees of termination pay amounting to one month pay or at least one-half month pay for every year of service, whichever is higher. (Marc II Marketing, Inc. vs. Joson)

Is the employer closing his business obliged to pay his employees their separation pay?

●The employer can lawfully close shop even if not due to serious business losses or financial reverses but separation pay, which is equivalent to at least one month pay as provided for by Article 283 of the Labor Code, as amended, must be given to all the affected employees.

If the closure or cessation of operations of establishment or undertaking is due to serious business losses or financial reverses, the employer must prove such allegation in order to avoid the payment of separation pay. Otherwise, the affected employees are entitled to separation pay. (MPCEU vs Manila Polo Club)

● The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the employer, the affected employee is entitled to separation pay. This is consistent with the state policy of treating labor as a primary social economic force, affording full protection to its rights as well as its welfare. The exception is when the closure of business or cessation of operations is due to serious business losses or financial reverses duly proved, in which case, the right of affected employees to separation pay is lost for obvious reasons. (Marc II Marketing, Inc. vs. Joson)

Closure of Business vs. Retrenchment

Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped.

On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is sometimes also referred to as down-sizing. Retrenchment is an authorized cause for termination of employment which the law accords an employer who is not making good in its operations in order to cut back on expenses for salaries and wages by laying off some employees. The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing. (JAT General Services vs. NLRC, G.R. No. 148340. January 26, 2004)


Total or Partial Closure of Business

Closure or cessation of business may mean either total closure or partial closure, as in the case of abolition of only a department or section of the establishment or of only a part of company activities. (La Union Cement Workers’ Union vs. NLRC, G.R. No. 174621, January 30, 2009)


Relevant principles:

● Closure of department or section and hiring of workers supplied by independent contractor as replacements is valid.

● Relocation of business may amount to cessation of operations.

● Closure of business to merge or consolidate with another or to sell or dispose all of its assets, held valid.

● Audited financial statements necessary only in closure due to losses.


Cases:

● The company terminated its employees when its plant was relocated from Makati to Batangas. The relocation was in view of the expiration of the lease contract on the premises it occupied in Makati and the refusal of the lessor to renew the same. The termination was for authorized cause as there was cessation of the company’s operations in Makati. (Cheniver Deco vs. NLRC, G.R. No. 122876, February 17, 2000.)

●The closure of business by the owner after she became sickly and her health did not improve despite proper medical attention, was affirmed as valid as it was done in good faith although the business was not undergoing economic losses. (Mac Adams Union vs. Mac Adams, G.R. No. 141615, October 24, 2003.)