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COVID-19 retrenchment: How to manage employees with compassion

COVID-19 retrenchment: How to manage employees with compassion

During COVID-19, it’s likely that you are finding yourself at a crossroads for your company. On one hand, you have to find a way for the business to survive the crisis. On the other hand, you need to make humane decisions for your employees.

How do you weigh decisions during a period that requires most to cost-cut? How do you save the company without sacrificing your employees? In this article, JobStreet talks with People and Corporate Culture Strategist Sonnie Santos of to help employers navigate this period of crisis.

First and foremost, know that termination is the last recourse.

Fear of financial loss may lead to rash decisions that will ultimately cost a company to abandon the well-being of its employees. Starting off his discussion on how to deal with labor surplus, Sonnie reminds employers that people are not just numbers; thus, you have to keep in mind how your business decisions will impact them and their families.

Following this, he presents other options that employers may consider before terminating employees. These are all based on the guidelines released by the Department of Labor and Employment (DOLE).

Acceptable Ways to Deal with Employee Oversupply

1. After reducing their own salary, the management can negotiate for a temporary reduction of salary and benefits of employees

If you need to save on finances, first reduce the salary of the management team. During the pandemic, we have seen some companies do this: Top and middle management have initiated to cut their own salaries to help those in the lower salary bracket survive.

In the event that you need to further cost-cut, you may consider negotiating to lower wages and benefits of other employees. A new provision to aid companies during COVID-19, the Labor Advisory No. 17-2020 (LA 17) now allows employers to lead the proposal of a temporary adjustment of salary and benefits of employees.

Note: Prior to LA 17, only employees were allowed to petition for adjustments of salary and benefits. With LA 17 Section 5, employees may voluntarily agree with the adjustments proposed by employers—so as long as the adjustment does not exceed six months.

2. Advise employees to consume their leave credits

According to Labor Advisory No. 09-2020 (LA 09), employers may now ask employees to use up their leaves (Service Incentive Leave/Sick Leave/Vacation Leave) to cover for the man-days lost.

Employers cannot force employees to consume their leave credits. If employees do not agree to use up their leaves, they may go on unpaid absences instead.

3. Reduce employee work hours or work days

Both LA 09 and LA 17 (Section 4.3) provide the option for employers to negotiate for a temporary reduction of employee work hours or work days. With this, your company can minimize the operating hours of your office.

This option cuts down operating and manpower cost to preserve more jobs. As per DOLE, the objective of allowing flexible working hours or days is to benefit both employers and employees during the COVID-19 crisis. As of 29 Jun 2020, over 100 thousand establishments in the Philippines have implemented flexible work arrangements.

4. Create a job rotation scheme

Aside from the reduction of office hours, the job rotation scheme is an alternative that both LA 09 and LA 17 (Section 4.4) offer. Similar to reducing employee work-days, this provision allows the employer and employee to meet halfway for the benefit of the company.

Likewise, there is a downside to this option: Since operations are expected to continue as usual, you might have little to no savings on operational costs.

5. Temporarily transfer employees to another branch

Since the COVID-19 crisis has made public transportation challenging, employees should ideally be assigned to a branch that is more accessible for them. If your company has several branches, consider temporarily cross-assigning employees to more ideal work stations. This option is available as per LA 17 Section 4.1.

6. Temporarily transfer employees to a new job at the same branch

If employees are capable or trainable, assign them to a different task. You are encouraged to do this according to LA 17 Section 4.2, so as to prevent retrenchment.

7. Temporarily and partially shutdown operations

Several laws and advisories speak about temporary partial shutdown of operations. If your business is suffering serious financial losses, it might be time to put your employees in floating status.

Putting employees on a floating status means that you keep their employment status active. In other words, they should continue to receive their benefits even if they are not receiving their monthly salary. This arrangement is only allowed for a maximum of six months.

8. Retrenchment

Finally, if you have exhausted all possible means to keep the livelihood of your employees but still can’t keep up with the cost, retrenchment of employees can now be pursued. However, there is a fair and humane way to do this. Below are reminders for employers who are considering retrenchment during COVID-19.

Minimum Requirements for Retrenchment (Article 298 of the Labor Code)

Substantive Requirements

  • Expected or actual losses must be convincing

  • Fair and reasonable criteria must be consistently implemented

Procedural Requirements

  • Employer must issue at least one month notice to both the DOLE and the employee

Separation Pay

  • Employers must pay affected employees a separation pay equivalent to:

    • Employees of 2 years and below: 1 month pay (because of the whichever is higher clause)

    • Employees of 3 years and more (fraction of 6 months is equivalent to 1 year): 1/2 month pay for every year of service

Other Monetary Obligations Per LA 06-2020 (Final Pay)

  • Unpaid salary

  • Cash conversion of accrued and earned SIL/VL/SL

  • Prorated 13th month pay

  • Tax refund (if applicable)

  • Cash bonds and alike (if applicable)

  • Or whatever is stipulated in CBA

Reminders About Retrenchment During COVID-19

  1. As per LA 06-2020, employers must issue the wages and other monetary benefits, along with the certificate of employment, within one month. If you can release these sooner, do so for the benefit of the employee during this crisis.

  2. On the day the employee receives his/her notice of termination, the employer must release the separation pay and the additional 30 days’ worth of payment to cover the 30 days’ notice. Within this time frame, employers must also allow employees to not report for work so s/he can begin looking for another job or prepare for an alternative livelihood.

  3. As per LA 06-2020, employers must issue the final pay (LA 06) at most a month after the effectivity of separation. The one month period is for the clearing of employee accountabilities.

Another retrenchment intervention to help affected employees is to train them for in-demand skills. Some companies collaborate with other organizations so they can refer displaced employees to industries where they can have new means of livelihood.

Any of the abovementioned solutions are challenging but doable. During this period, Sonnie reminds employers to be as considerate as possible. “Being right is not always value adding,” he says.

“If we will terminate an employee, we must ask ourselves, ‘How can we soften the blow?’”

Because people are an important resource, employers are encouraged to check out JobStreet Laws of Attractionto understand what drives employees to be productive and engaged at work. You may subscribe to get these resources straight to your inbox!

Sonnie Santos is the man behind #HRinHR. An advocacy to promote human centered management or rights-based approach in corporate strategic framework and people management. Together with friends, they are helping young professionals through the #HRMentoring program of Learning and Organization Development Institute, Inc. (LODI, Inc.) which he co-founded. During this pandemic, he is holding a weekly #eHRKamustahan for purposes of learning and mental wellness support to HR professionals. He also introduced the #HREntrepreneurship program to help HR pros conceptualize and operationalize a side gig. You can get a glimpse of his 3 decades of professional and leadership experience, and the reasons why he received 2 awards for his advocacy by visiting

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