Retrenchment vs. closure of business

A country club, offering various sports and recreational facilities to its members, decided to conduct a study on the profitability of its food and beverage department (F&B Department). An audit was conducted to study the financial statements for the years 1989-1993. The results showed that the F&B Department incurred serious substantial losses amounting to P8,727,135.

Realizing that the F&B Department was no longer profitable, management found it best to have a concessionaire run its own food and beverage business within the club. After finding a contractor for the F&B Department, the Country Club wrote individual letters to the F&B Department employees to inform them that in one month’s time, their services will be terminated. The employees would also receive separation pay equivalent to 125% of their monthly salary for every year of service. Unhappy with the turn of events, the employees collectively filed a case of illegal dismissal against their employer, alleging that there was no justification for their retrenchment.