Short answer. The Labor Code frames this ground as retrenchment to prevent losses, which is forward-looking rather than tied to losses that have already occurred. On its wording, the article does not require the business to already be losing money — the stated purpose is preventing losses, not reacting to ones that already happened.
What the law says
retrenchment to prevent losses
Labor Code, Article 283 — Closure And Personnel Reduction. Read the full provision →
The phrase itself is forward-looking
Article 283 lists retrenchment to prevent losses as one of the grounds on which an employer may terminate employees. The word "prevent" points ahead, not behind — it describes action taken to keep a loss from happening, not a response to a loss that has already occurred. On this wording alone, the ground does not require the business to be currently, actually losing money.
How this differs from the closure ground elsewhere in the article
The same article separately addresses closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, using the same separation pay bracket as retrenchment. That closure language explicitly contrasts closures caused by losses with closures that are not. Retrenchment's own phrasing, by contrast, is about preventing losses rather than confirming that losses have already set in — the two grounds are worded differently.
What the article does not spell out
Article 283 does not itself define how much anticipated loss, or what evidence of a coming downturn, is enough to justify retrenchment under this ground. It states the ground and its notice and pay consequences; it does not set out a threshold for what "to prevent losses" requires in practice. That leaves a real gap between the bare wording and how it would apply to your employer's specific financial situation.
Separation pay for this ground specifically
Retrenchment to prevent losses carries its own separation pay rate, distinct from the higher one for labor-saving devices or redundancy. The article sets it at one month's pay or at least one-half month's pay for every year of service, whichever is higher, with any fraction of at least six months counted as a whole year. That rate is lower than the full month's pay per year of service given for labor-saving devices or redundancy, which reflects that retrenchment and business closures not caused by serious losses are treated differently from a decision to invest in technology or reorganize.
What is worth asking for
Since the ground is about preventing losses rather than reacting to ones already suffered, it is reasonable to ask what basis your employer is citing for anticipating losses — projections, declining revenue trends, or similar indicators — even though the article itself does not spell out documentation requirements. The notice you received and any explanation given for the retrenchment are the starting point for understanding what your employer is relying on.