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 under taking 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.
Article 283 of the Labor Code identifies closure or cessation of operation of the establishment as an authorized cause for terminating an employee. Similarly, the said provision mandates that employees who are laid off from work due to closures that are not due to business insolvency should be paid separation pay equivalent to one-month pay or to at least one-half month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered one whole year.
Although business reverses or losses are recognized by law as an authorized cause, it is still essential that the alleged losses in the business operations be proven convincingly; otherwise, this ground for termination of employment would be susceptible to abuse by conniving employers, who might be merely feigning business losses or reverses in their business ventures in order to ease out employees.