History offers a strong lens for understanding modern concerns about Artificial Intelligence (AI). For example, in the 19th century, textile workers destroyed weaving machines and automated looms to oppose what they saw as unfair labor practices and factory mechanization.
Today, sectors involved in Business Process Outsourcing (BPO) and Information Technology (IT) are experiencing unprecedented technological change. Companies, both local and international, are incorporating artificial intelligence to improve efficiency, cut overhead costs, and modernize the delivery of service. Nevertheless, this shift raises complex employment-law issues, especially regarding the fundamental principle of job security guaranteed by our Constitution.
At present, because the House and Senate Bills on AI are still pending, no legislation directly addresses the adoption of AI, as normal legislative and policy-making processes are too slow to keep up with rapidly advancing technology.
As enterprises increasingly deploy AI to automate cognitive and administrative tasks traditionally performed by actual employees, employers more often invoke authorized causes for termination under Article 298 of the Labor Code, specifically the installation of labor-saving devices. This allows businesses to terminate employment based entirely on business-driven requirements, without imputing wrongdoing, fault, or deficiency to the affected worker.
In landmark decisions, such as Magnolia v. NLRC (G.R. No. 114952, Jan. 29, 1996), the Supreme Court has consistently affirmed that installing labor-saving devices is an inherent and protected management prerogative. Courts and labor tribunals generally refrain from interfering with business judgments on technological upgrades, recognizing that capital has the right to secure a return on investment and ensure market viability. The introduction of new methods, more efficient machinery, or automation justifies termination not merely to increase efficiency, but to ensure the continued operation of the business in a competitive landscape.
To constitute a valid ground for termination, the installation of labor-saving devices must satisfy the following substantive requisites:
- The employer must actually introduce machinery, equipment, or other devices;
- The employer must introduce such devices in good faith;
- There is no other option available to the employer than the introduction of machinery, equipment, or devices and the consequent termination of employment of those affected thereby; and
- There must be fair and reasonable criteria in selecting employees to be terminated.
The requirement of “good faith” will likely be the most contested aspect in cases involving AI-induced termination. In the past, when a company replaced employees with labor-saving devices to boost efficiency and cut operational expenses, this kind of strategic move has usually been assumed to be made in good faith, based on the company’s external behavior. But since AI has now become a reality in the Philippine workplace, this legal standard will probably undergo further scrutiny.
Moreover, the following procedural requirements must be satisfied:
- The affected workers must be paid separation pay equivalent to 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 service is legally considered as one whole year for this computation; and
- The employer must give both the affected employees and the relevant Regional Office of the Department of Labor and Employment (DoLE) written notice of dismissal at least one month before the intended effective date of termination. The notice can now be submitted to DoLE through its official online system for collecting mandatory establishment and labor-related reports.
However, it must be noted that failure to observe the mandatory 30-day notice period strictly does not invalidate the dismissal if the substantive cause, the actual technological replacement of the role, is proven valid. Procedural infirmities will merely render the employer liable to pay nominal damages to the dismissed employee.
As our economy, particularly the BPO and IT sectors, is closely linked with global markets, local businesses cannot afford to operate without proper regulation. Adhering to strict foreign standards, such as those set out in the European Union’s AI Act, is moving from a forward-thinking best practice to a mandatory contractual requirement. Any restructuring program that is to be legally valid must adopt a dual-compliance approach such that it complies with both the substantive and procedural due process requirements of local labor tribunals and, at the same time, meets the demands for algorithmic transparency and human oversight expected by international clients.
Ultimately, navigating the future of work requires a delicate balancing act. Employers must proactively audit their technological tools and establish robust, human-led oversight mechanisms long before executing any AI-induced redundancies. True resilience lies not just in adopting the fastest technologies, but in integrating these tools in ways that protect the employer from costly illegal dismissal suits and cross-border contractual breaches. In the age of AI, human dignity, fair play, and strict legal compliance must remain firmly at the center of the workplace.
This article was first published by BusinessWorld at bworldonline.com. It is only for general informational and educational purposes and is not offered as and does not constitute legal advice or legal opinion.
Atty. Martin Luigi G. Samson is a Senior Associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), Davao Branch.
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