This content is from: Local Insights

Philippines: Employees in corporate reorganisations

Corporate reorganisations can be classified into two main types: share transfer transactions and asset transfer transactions

Llenocastro
Ronald Mark C LlenoEaster Princess U Castro

Corporate reorganisations can be classified into two main types: share transfer transactions and asset transfer transactions.

In a share transfer, as far as the employees are concerned, the employer remains the same and the same terms and conditions of employment apply. This type of corporate reorganisation is ideal if only a change in management is contemplated. There will be cost savings since the affected employees will not be entitled to separation pay. However, employee practices and policies existing before the transaction may not be modified if doing so would diminish the benefits currently being enjoyed by the employees.

In an asset transfer, unless the transferee assumes the transferor's liabilities or there is bad faith (for example, the transfer is intended to circumvent the employees' right to security of tenure), the transferee does not have to hire the transferor's employees. The affected employees may be validly dismissed on the grounds of closure or cessation of business operations and they will be entitled to separation pay. This type of corporate reorganisation is ideal if the intention is to shield the transferee from the transferor's liabilities to its employees. However, it may be costly since the employees will be entitled to separation pay from the transferor. To save on costs, the transferee may consider offering the affected employees new employment under comparable terms of employment, with recognition of their tenure with the transferor, instead of receiving their separation pay.

Ultimately, in deciding which type of corporate reorganisation shall be implemented from the perspective of Philippine employment law, the parties must decide whether they want to retain the current employer-employee relationship with the affected employees, or whether they want to enter into new employer-employee relationships.

Ronald Mark C Lleno and Easter Princess U Castro

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