Article 298 [283] of the Labor Code: Closure and reduction of personnel
The number in brackets, [283], is the article's number before the 2015 renumbering of the Labor Code.
Status: In force
What does Article 298 [283] say?
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 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.
Read the Labor Code on the DOLE website (it uses the article numbers before 2015)
What does it mean in plain language?
Article 298 (Article 283 before the 2015 renumbering) lets an employer end employment for business reasons that are not the employee's fault. These are called authorized causes: labor-saving devices, redundancy, retrenchment to prevent losses, and closure of the business. The employer must give a written notice to the workers and to the Department of Labor and Employment (DOLE) at least one month before, and must pay separation pay, except in a closure due to serious losses.
The full text:
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 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.
The text still says "Ministry of Labor and Employment", the old name of what is now DOLE. Recent decisions read it as notice "to the DOLE".
How does it work in real life?
Carlo: position declared redundant
Carlo's bank declares his position redundant after 7 years and 7 months of service. The fraction of 7 months counts as a whole year, so his years of service count as 8, and he is entitled to at least one month pay for every year of service.
Weng: the store closes
Weng's store closes, not because of serious losses. She gets one month pay or one-half month pay for every year of service, whichever is higher. If the store had closed because of serious losses that the owner duly proves, no separation pay would be due under Jaka.
A factory with no notice
A factory retrenches workers to cut losses but gives no written notice to DOLE or the workers. If the losses are proven, the retrenchment can stand, but each worker may be awarded nominal damages, as in Jaka.
What does this mean in practice?
- Separation pay under Article 298 is separate from final pay for wages and benefits already earned: see the final pay and separation pay guide.
- A temporary suspension of operations for up to six months does not end employment; after that, workers must be recalled or properly terminated ([Article 301 [286]](/law/labor-code/article-301)).
- For how authorized causes differ from just causes, see just cause vs authorized cause.
- Termination because of an employee's disease has its own rule and its own separation pay ([Article 299 [284]](/law/labor-code/article-299)).
- For the full question-and-answer guide, see retrenchment requirements.
What are the four authorized causes?
- Installation of labor-saving devices: machines or systems that replace work done by people.
- Redundancy: the position is more than what the business needs.
- Retrenchment to prevent losses: cutting staff to avoid losses.
- Closing or cessation of operation of the establishment or undertaking, unless the closing is meant to get around the rules on termination.
In Keng Hua Paper Products v. Ainza (2023), the Supreme Court said that in retrenchment the employer must prove, among other things, that the losses are substantial and that retrenchment is reasonably necessary to avert them, and that in closures the good faith of the employer must be proven.
How much separation pay is due under Article 298?
| Cause | Separation pay in Article 298 |
|---|---|
| Labor-saving devices or redundancy | At least one month pay, or at least one month pay for every year of service, whichever is higher |
| Retrenchment to prevent losses | One month pay or at least one-half month pay for every year of service, whichever is higher |
| Closure not due to serious business losses or financial reverses | One month pay or at least one-half month pay for every year of service, whichever is higher |
| Closure due to serious business losses or financial reverses, duly proved | None (Jaka Food Processing v. Pacot, 2005) |
For every cause, a fraction of at least six months counts as one whole year. The separation pay calculator does the arithmetic.
What procedure must the employer follow?
In Keng Hua, the Supreme Court said that "regardless of cause, there are two procedural requirements": a written notice to the employees and to DOLE at least one month before the intended date, and payment of the separation pay set by the article. It added: "The Labor Code does not provide for exemptions from these two procedural requirements."
The employer does not have to make the workers report during the notice month. In PNCC Skyway Corporation v. The Secretary of Labor and Employment (2016), workers were notified 34 days before their termination date and kept on the payroll for the last month although told not to report. The Supreme Court held that the notice rule was complied with.
What if the employer skipped the one-month notice?
The dismissal can stand, but the employer pays nominal damages. In Jaka Food Processing v. Pacot (2005), the Supreme Court fixed them at P50,000. It explained that the sanction is stiffer than for a dismissal for a just cause (Agabon v. NLRC) because an authorized-cause dismissal is started by the employer's own management decision.
If there is no valid authorized cause at all, for example a retrenchment with no proof of losses, the dismissal is illegal ([Article 294 [279]](/law/labor-code/article-294)).
Which Supreme Court rulings are relevant?
- Jaka Food Processing v. Pacot (G.R. No. 151378)Jaka v. Pacot explained: a retrenchment for proven losses stays valid without the one-month notice, but the employer pays higher nominal damages.
- Agabon v. NLRC (G.R. No. 158693)Agabon v. NLRC explained: a dismissal for a just cause stays valid even without the two notices, but the employer must pay the worker nominal damages.
Frequently asked questions
What are the authorized causes under Article 298 [283]?
Installation of labor-saving devices, redundancy, retrenchment to prevent losses, and the closing or cessation of operation of the establishment or undertaking. A closure meant to get around the rules on termination is not allowed.
How much notice must the employer give?
A written notice to the workers and to the Department of Labor and Employment at least one month before the intended date of termination. In Keng Hua Paper Products v. Ainza (2023), the Supreme Court said the Labor Code does not provide for exemptions from this requirement.
How much separation pay is due for redundancy?
For labor-saving devices or redundancy, at least one month pay, or at least one month pay for every year of service, whichever is higher. A fraction of at least six months counts as one whole year.
How much separation pay is due for retrenchment or closure?
One month pay or at least one-half month pay for every year of service, whichever is higher. For closures, this applies when the closure is not due to serious business losses or financial reverses.
Is separation pay due if the business closed because of serious losses?
No, if the losses are duly proved. In Jaka Food Processing v. Pacot (2005), the Supreme Court said the right to separation pay is lost when the closure is due to serious business losses or financial reverses, and it set aside the award of separation pay.
What if the employer did not give the one-month notice?
The dismissal for an authorized cause can stand, but the employer pays nominal damages. In Jaka Food Processing v. Pacot (2005), the Court fixed them at P50,000, higher than for a just cause, because the employer started the dismissal.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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