Dole upholds PAL spin-off

June 19, 2010

MANILA, Philippines - The Department of Labor (DOLE) has upheld the legality of the spin-off/outsourcing plan of flag carrier Philippine Airlines (PAL) that would transfer three of the airline’s non-core units to third party service providers.

In a 32-page decision penned by Acting Labor Secretary Romeo C. Lagman, DOLE ruled that PAL’s planned outsourcing/spin-off “are based on lawful ground and all in a valid exercise of managerial prerogative and as such is valid and lawful in all respects.”

The June 15 DOLE order will directly affect over 2,600 PAL workers belonging to the airlines’ Call Center Reservations, In-Flight Catering and Airport Services units.

In dismissing the PAL union’s claim of unfair labor practice, the Labor department said the continuing losses suffered by PAL point to no other conclusion than the intended spin-off/outsourcing “is reasonably necessary.”

In a statement, PAL said it welcomes the DOLE decision insofar as it recognizes PAL’s financial troubles and the need to spin-off non-core services as part of its survival strategy.

“With the DOLE decision, PAL must now focus on the tough challenge of surviving the crisis and competing amidst a difficult operating environment. To do this, PAL must implement various revenue enhancement and cost control initiatives that includes outsourcing,” the airline said.

The DOLE decision also confirmed PAL’s offer to grant separation pay equivalent to one month salary for every year of service to all affected PAL workers.

“We are glad that the Company [PAL] has prevailed upon the service providers to initially hire the workers who would be separated by the closure of In-Flight Catering Operations, the Airport Service Operations and the Call Center Reservations Operations. However, the hiring of these workers shall be subject to the qualification, terms, and conditions laid down respectively by the service providers for admission to employment,” DOLE stressed.

The labor department also upheld PAL’s position that reorganization, as a cost saving device is acknowledged by jurisprudence. “An employer is not precluded from adopting a new policy conducive to more economical and effective management, and the law does not require that the employer should be suffering financial losses before he can terminate the services of an employee on the ground of redundancy,” DOLE said, citing a previous Supreme Court decision.

To assure customers of continuing service, PAL said that airline operations remain normal.

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