Suspension of Business Operations: Floating Status, Temporary Lay-Off

The employer is allowed to temporarily suspend work due to bona fide suspension of business
operations or undertaking for a period not exceeding six (6) months. This is provided for the
Labor Code, as follows:

ART. 300 [286]. 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 of 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 the military or civic duty.

Concept of work suspension

There is no termination of employment during the bona fide suspension of business operations.

The establishment simply temporarily suspends its operations for legitimate and valid reasons,
including but not limited to, serious financial losses or business reverses, force majeure (fire,
flood, typhoon, etc.), failure to obtain a permit or license to operate, or due to a lawful order by
a competent authority – i.e. Temporary Restraining Order/Injunction by a competent court,
work stoppage order by the DOLE, or cease operations from the LTFRB for public
transportation, etc.

Business operations

In MMCEAFFW Chapter v. Manila Mining Corp., the employer (mining company) was
constrained to temporarily suspend business operations due to its inability in obtaining consent
from the residents of the community where the company would operate its tailing pond. This
consent was one of the conditions required by the DENR-EMB in granting the application for a
permanent permit. This faultless failure on the employer was the primary reason for the bona
fide suspension of business operations as supported by substantial evidence.

Thus, in a bona fide suspension of business operation, the employer does not terminate the
employment of the employee. Rather, there is only “a temporary displacement of employees.”

Conversely, the employee cannot claim to have been dismissed from employment as his
employment status is merely suspended. Any labor complaint for illegal dismissal before the
lapse of the 6-month period is generally considered premature. For the same reasons, the due
process termination of employment is not necessary or required in a bona fide suspension of
business operations.

In ARC-MEN Food Industries, Inc. v. Alcomendras, the employee (company driver) claimed that
he was dismissed during the temporary suspension of operations of the business (an export-
oriented processing company). It was held that he was not dismissed but merely suspended as
there was temporary suspension of plant operations due to recurring problems in the
equipment and machines, dependence on suppliers for raw materials, and essentially lack of
work.

Undertaking

Suspension of work may also be attributable to the bona fide suspension of an undertaking. To

the employer, this may be contractual obligations with clients, partners, or affiliates for which
an employee is assigned or designated. If such undertaking is suspended, the employer may be
justified in placing the employee on “floating status” provided that there is no other available
and similar position.

In Nippon Housing Phil. Inc. v. Leynes, the employer undertook to manage the building of its
one and only client. Thus, it assigned a property manager. Something thereafter, the employee
(property manager) got into a misunderstanding with the Building Engineer assigned to the
employer’s one and only client whose building it manages. To resolve the conflict, the employer
issued a memorandum directing the employee to allow the said engineer entry into the client’s
premises and attributing the incident to “simple personal differences.” Disappointed, the
employee wrote the company president asking for an emergency leave of absence to
supposedly coordinate with her lawyer and subsequently signified her intention to resign. In
response, the employer was constrained to look for a replacement. Surprisingly, the employee
indicated here intention to report back to work. As there is only one post available (and a
replacement had been posted), the employer directed her to report to the main office while on
“floating status”. It was held that “off-detailing” was not a form dismissal so long as it does not
exceed six (6) months. As the company ventured into building management with only one
client, there was no property manager position available for the employee resulting in her
“floating status.” Eventually, the employer was justified in dismissing the employee for
redundancy.

Dire exigency required

As held by Supreme Court, the “paramount consideration” to take note for a bona
fide suspension of business operation is the “dire exigency” of the employer’s business
compelling it “to put some of its employees temporarily out of work.”
There are no hard and fast rules on what may constitute as a dire exigency. Thus, the validity of
a bona fide suspension of business operation will be on a case to case basis and taking into
consideration the surrounding circumstances.

In De Guzman v. Philippine Rabbit Bus Line Company, the employer (Bus Company) was held
liable for illegal dismissal after the employee (bus conductor) was not given any work
assignment for over six (6) months without any justification or explanation.

For security services, guards placed on temporary “off-detail” happens when the agency’s
clients no longer renew their service agreements or exercise the right to replace assigned
personnel. With these, the relieved or replaced security guard may be placed in such temporary
“off-detail” or on “floating status” if there is no available posts or assignments. During this non-
posting, the employee is not entitled to any salary or monetary benefit provided by law.

In Eagle Star Security Services, Inc. v. Mirando, the employee (security guard) was relieved from
his post in a bank and placed on “floating status.” Failing to present evidence that there was a
lack of available posts where he may be re-assigned or that his relief was due to the request of
the client-bank, the employer was held liable.

In Sentinel Security Agency, Inc. v. Cabano, the employer (security service agency) was awarded
a new contract by the client but still placed the employee (security guard) on “floating status”.
Consequently, it was held that there was no bona fide suspension of operation, business or
undertaking that would justify placing the employee on off-detail and make him wait for six (6)
months.

Burden of proof is on employer

Due to the “grim economic consequences” to the employee, the employer has the burden of
proving that suspension of operation is valid. The same rule applies for employees who are
placed on “floating status.” Failure to do so, the employer may be held liable for illegal
dismissal.

For suspension of business operations due to serious financial losses, these are ordinarily
evidenced by the audited financial statements, balance sheets, profit and loss statements,
annual income tax returns. In Manila Mining Corporation v. Amor, the employer (mining
company) was held liable after failing to present substantial evidence to support its claim for
serious financial losses as the basis for temporary suspension of operations.

Notwithstanding, the presentation of an analysis of an independent certified public accountant

was considered sufficient when a company claimed impending future losses which are neither
past nor actual ones. After all, the employer is not required to actually suffer business losses or
financial reverses to suspend business operations.
Further, this burden of proof is designed to guard against scheming employers who may just be
feigning or pretending of business losses or reverses in their business so as to manage or ease
out employees.

Aspect of management prerogative

The employer’s decision to suspend operation is an aspect of management prerogative.

“Closure or [suspension] of operations for economic reasons is, therefore, recognized as a valid
exercise of management prerogative. The determination to cease [or suspend] operations is a
prerogative of management, which the State does not usually interfere with, as no business or
undertaking [is] required to continue operating at a loss simply because it has to maintain its
workers in employment. Such an act would be tantamount to a taking of property without due
process of law.”

Otherwise stated, the employer has every right to suspend its operations in order to avoid
financial ruin. “The decision to suspend operation ultimately lies with the employer, who in its
desire to avert possible financial losses, declares, as here, suspension of operations.”

As with any exercise of management prerogative, it is limited by good faith and with due regard
to the rights of the employees.

In Dela Cruz v. Elin Pharmaceuticals, the employee was temporarily laid-off allegedly due to the
employer’s “cost-saving program” in response to the daily brownouts. Of more than 100
workers, it was only the employee who was subject of such program showing that such was “a
sham” and “a disguise of the true reason or intention of the company” to rid the employee
from service.

In San Pedro Hospital of Digos, Inc. v. The San Pedro Hospital Employees Union – National
Federation of Labor, the employer was held liable after it was shown that temporary closure
was “motivated not by a desire to prevent further losses, but to discourage the workers from
organizing themselves into a union for more effective negotiation with management.”

2 Types of Work Suspension

There are two (2) types of suspension of business operations: (a) entire business, or (b) specific
component.

In Valdez v. Nelbusco, Inc., the employer (Bus Company) was constrained to temporarily stop
the operations of a bus due to the breakdown in its air-conditioning unit. When the assigned
bus driver challenged its validity, it was held that such a ground was a valid reason for
suspension of operations provided it is for a reasonable period of time. Work suspension may
either be for the entire business or of a specific component thereof.
6 Months Period

During the six (6) months period, the employee’s employment status is merely suspended and
not terminated. If it continues beyond that period, the employment is permanently terminated
resulting in illegal dismissal.

Temporary retrenchment or lay-off

Temporary lay-off is neither illegal nor is it a form of unfair labor practice. However, there is no
exact legal provision that applies to temporary retrenchment or lay-off. Instead, Article 300 has
been applied by analogy “to set a specific period that employees may remain temporarily laid-
off or in floating status.” As 6 months is the limitation for suspension of business operations,
the temporary retrenchment or lay-off should also not be longer than 6 months.

After the lapse of 6 months, the employer has two options: (a) recall the employees back to
work, or (b) permanently retrench them. If the employer does not exercise any of these
options, this would be “tantamount to dismissing the employee” with the employer being liable
for the dismissal. If recalled back to work, the employer is required to reinstate the employees
to their former positions without loss of seniority rights provided they exercise such right within
one (1) month from resumption of operations.

In Lagonoy Bus Co., Inc. v. Cariño, the temporarily laid-off employees (bus drivers and
conductors) who were already regular employees were rehired by the employer as
probationary employees after the suspension of operations due to change of management. As
probationary employees, they were dismissed for failure to meet the company standards. The
employer was held liable for illegal dismissal since the returning employees were already
regular employees, and cannot be downgraded to probationary employees, despite a change in
management as the company remains to be the same entity acting as the employer.

More than 6 months: Constructive dismissal or retrenchment

If the bona fide suspension of operations exceeds six (6) months, the employment is considered
terminated and made permanent resulting in constructive dismissal.

In SKM Art Craft Corporation v. Bauca, the employer’s establishment was razed by a fire
resulting in the bona fide suspension of operations. While valid, the employer failed to recall
the employees after the expiration of the six (6) months period resulting in permanent
dismissal.

In International Hardware, Inc. v. Pedroso, the employee (delivery truck driver) was rotated by
the employer for over six (6) months resulted in the reduction of his working days and his
income. By way of defense, the employer explained that the rotation was due to the financial
losses suffered by the business. However, it was held that suspension of operations in excess of
6 months resulted in the termination of employment by way of constructive dismissal or
retrenchment. Thus, the employee was entitled to separation pay.

In Agro Commercial Security Services Agency, Inc. v. Jimenez, the employees (security guards)
were placed on “floating status” for over six (6) months after their assigned companies and
government agencies were sequestered by the Government. While valid, the “floating status”
of an employee should only last “for a reasonable time.” In this case, the employees were
placed on such status for over six (6) months resulting in them being considered illegally
dismissed from service.

Gainful employment elsewhere

The affected employees who find gainful employment elsewhere are considered to have
severed their employment relationship.

In JPL Marketing Promotions v. Gonzales, the employees placed on “floating status” who found
gainful employment within the six (6) month temporary work suspension were considered to
have severed their employment. “As they admitted in their comment, all three [employees]
applied for and were employed by another establishment after they received the notice from
[the employer]. [The employer] did not terminate their employment; they themselves severed
their relations with [the employer]. Thus, they are not entitled to separation pay.”

Despite such case above, it is a best legal practice to still issue a report back to work to the
employees within the six (6) month period. The above jurisprudence does not directly do away
with the responsibility on the employer before the lapse of such period – i.e. (a) recall the
employees back to work, or (b) permanently retrench them. If indeed it is established by
documentary evidence that the employees have been employed elsewhere and they choose to
remain there, the employer should proceed with the process of abandonment –report to work
order, and thereafter notice of termination.

Temporary to Permanent Closure

In San Pedro Hospital of Digos, Inc. v. The San Pedro Hospital Employees Union – National
Federation of Labor, the employer’s temporary suspension resulted in its permanent closure.
While the temporary suspension was invalid as the claim for serious financial losses was
unsubstantiated, the permanent closure was valid as it was corroborated with substantial
evidence. As the Supreme Court noted the irony, it was the temporary suspension of operations
of the hospital “that made inevitable and irreversible (as well as legally tenable) its subsequent
permanent closure.”

Forced Leave of Absence

The bona fide suspension of business operations or undertaking is not to be equated with
forced leave of absence, and vice-versa. If there is indeed a valid ground for work suspension,
then there is no need for a leave of absence from the employees.

In Bontia v. Consolidated Plywood Industries, Inc., the employer imposed an indefinite work
suspension and required employees to submit applications for leave of absence. It was held
that “if there was a bona fide suspension, then there was no necessity to require [the
employees] to sign applications for leave of absence with uncertain and indeterminable terms.”
With an unspecified length on the leave, it was highly inequitable on the pitiful employees who
were compelled and keep reporting for work only to be told that there was no work. They
incurred transportation costs and wasted their time which could have been devoted looking for
other sources of income.