Difference between Retrenchment and Redundancy

PUBLISHED ON: December 3, 2020
LAST UPDATED ON: May 1, 2021

The difference between Redundancy and Retrenchment is that the latter reducing manpower to avoid financial loss while the former only requires proof that manpower is in excess of what is demanded. The terms "Retrenchment" and "Redundancy" are not household terminologies and sometimes occur confusion between the two (2). However, the process and elements termination of employment via either of the two (2) are different and Human Resource (HR) Officers should be aware of such.

Termination of Employment due to Retrenchment or Redundancy are valid forms of termination of employment in the Philippines. Presidential Decree No. 442 also known as the Labor Code of the Philippines provides the legal basis for Retrenchment and Redundancy:

Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of laborsaving 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.

Art. 298 [283] of the Labor Code of the Philippines

Differences in meaning between Retrenchment and Redundancy

What is the differences in the meaning or definition of Retrenchment and Redundancy? Department of Labor and Employment (DOLE) issued Department Order 147, series of 2015 has defined the terms.

Meaning of Retrenchment

“Retrenchment” is defined as the economic ground for dismissing employees and is resorted to primarily to avoid or minimize business losses.

Meaning of Redundancy

“Redundancy” is defined as the condition when the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise or superfluous.

Differences in the Elements between Retrenchment and Redundancy

Elements of Retrenchment

  1. The retrenchment must be reasonably necessary and likely to prevent business losses;
  2. The losses, if already incurred are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent;
  3. The expected or actual losses must be proved by sufficient and convincing evidence.
  4. The retrenchment must be in good faith for the advancement of its interest and not to defeat or circumvent the employees' right to security of tenure; and
  5. Finally, there must be fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

Elements of Redundancy

  1. There must be superfluous positions or services of employees;
  2. The positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;
  3. There must be good faith in abolishing redundant positions;
  4. There must be fair and reasonable criteria in selecting the employees to be terminated; and
  5. There must be an adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring.

The Elements of Retrenchment are similar in that it must be done in good faith, have reasonable criteria in the selection of employees to be terminated, and there must be an actual need to terminate the employment of an employee. Termination of Employment due to Redundancy is done to have an efficient manpower and thus increase the company's profit however Proof of Financial losses is not a requirement in the process.

Difference between the process of Retrenchment and Redundancy

What is the difference in the process of Termination of Employment between Retrenchment and Redundancy? The following is a comparison between the process of Retrenchment and Redundancy.

Process of Retrenchment

  1. Necessity of the termination of employment of an employee whose services are determined to be superfluous;
  2. A written notice to the employee concerned;
  3. Furnish a copy of the notice to DOLE at least one (1) month prior to the intended date of retrenchment; and
  4. Payment of Separation Pay.

Process of Redundancy

  1. Necessity of the retrenchment to prevent losses, and proof of such losses
  2. A written notice to the employee concerned
  3. Furnish a copy of the notice to DOLE at least one (1) month prior to the intended date of retrenchment
  4. Payment of separation pay

The process of Termination of Employment due to Retrenchment or Redundancy follows the same four (4) steps. However, the process performed should consider the elements involved in the Termination of Employment. Specifically, the criteria must be established and the economic or business study involved with the particular type of Termination of Employment.

Difference between Retrenchment and Redundancy in Separation Pay

Separation Pay for Retrenchment

Separation pay 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 six (6) months service is considered as one (1) whole year.

Separation Pay for Redundancy

Separation pay equivalent to at least one (1) month pay or at least one (1) month pay for every year of service, whichever is higher, a fraction of six (6) months service is considered as one (1) whole year.

Separation Pay is a requirement for due process to be followed in the Termination of Employment due to either Redundancy or Retrenchment. The Separation Pay of an employee must be given within 30 days within the date of termination of employment as stated in the issuance of Department of Labor and Employment (DOLE) regarding Final Pay.

Termination of Employment due to Redundancy would give higher pay compared to Retrenchment. Logically, Retrenchment is done by an employer who is encountering financial losses and is only terminating the employment of employees due save the company and other employees. Imposing a higher or the same amount for the Separation Pay would only further hasten the cessation of the business and would therefore result in further losses in jobs.


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