Labor Law I

1st semester, AY 2006-2007

Prof. D. Disini

This reviewer was made with much love, care, and procrastination by the LABOR team of UP Law 2009B.
Statements without cited sources, usually immediately following statutory provisions, were taken from Azucena’s annotations.
Headings for some cases as well as [bracketed text] were merely invented by Andrea P. R. Lacuesta for your studying ease and convenience.
All such inventions are without prejudice and merely supplementary to the black-letter text of the law, jurisprudence, or annotations.
Should you, dear law student, find any mistakes or oversights in this text, please consider that she probably replicated
those very same mistakes and oversights in her own exams much to her own damage and prejudice, and forgive her.
Such contingencies notwithstanding, may you find this reviewer helpful. ♥

Part II. Labor Standards Law

Section 14. Termination of Employment
‘87C, Art. XIII, Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and
promote full employment and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure,
humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and employers and the preferential use of
voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster
industrial peace.
The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the
fruits of production and the right of enterprises to reasonable returns to investments, and to expansion and growth.

Omnibus Rules, Book VI, Title I, SEC. 5. Regular and casual employment. —
(a) The provisions of written agreements to the contrary notwithstanding and regardless of the oral agreements of the
parties, an employment shall be considered to be regular employment for purposes of Book VI of the Labor Code where
the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer except where the employment has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement of the employee or where the work or service to
be performed is seasonal in nature and the employment is for the duration of the season.
(b) Employment shall be deemed as casual in nature if it is not covered by the preceding paragraph; Provided, That any
employee who has rendered at least one year of service, whether such service is continuous or not, shall be considered a
regular employee with respect to the activity in which he is employed and his employment shall continue while such
activity exists.
(c) An employee who is allowed to work after a probationary period shall be considered a regular employee.

SECTION 6. Probationary employment. —

(a) Where the work for which an employee has been engaged is learnable or apprenticeable in accordance with the
standards prescribed by the Department of Labor, the probationary employment period of the employee shall be limited
to the authorized learnership or apprenticeship period, whichever is applicable.
(b) Where the work is neither learnable nor apprenticeable, the probationary employment period shall not exceed six (6)
months reckoned from the date the employee actually started working.
(c) The services of an employee who has been engaged on probationary basis may be terminated only for a just cause or
when authorized by existing laws, or when he fails to qualify as a regular employee in accordance with reasonable
standards prescribed by the employer.
(d) In all cases involving employees engaged on probationary basis, the employer shall make known to the employee the
standards under which he will qualify as a regular employee at the time of his engagement.

SECTION 7. Termination of employment by employer. — The just causes for terminating the services of an employee shall be
those provided in Article 283 of the Code. The separation from work of an employee for a just cause does not entitle him
to the termination pay provided in the Code, without prejudice, however, to whatever rights, benefits, and privileges he
may have under the applicable individual or collective agreement with the employer or voluntary employer policy or
practice.
A. General Concepts
14.01 Security of Tenure
A. Nature of Security of Tenure
• Rationale of policy of security of tenure. By operation of law, then, Fadriquela had attained the regular status of her
employment with the petitioner, and is thus entitled to security of tenure.
It is the Const’lly mandated policy of the State to assure the workers of security of tenure and free them from the
bondage of uncertainty of tenure woven by some employers into their contracts of employment. The guarantee is an
act of social justice. When a person has no property, his job may possibly be his only possession or means of livelihood
and those of his dependents. When a person loses his job, his dependents suffer as well. The worker should therefore
be protected and insulated against any arbitrary deprivation of his job. (Philips Semiconductors v Fadriquela, 2004)
• With cause vs. without. A termination without just cause entitles to worker reinstatement regardless of whether he
was accorded due process. On the other hand, termination for cause, even without procedural due process, does not
warrant reinstatement, but the employer does incur liability for damages. (Alhambra Industries v NLRC, 1994)
[Note: This case follows the beloved Wenphil doctrine.]

• With cause. The worker’s right to security of tenure is not an absolute right for the law provides that he may be
dismissed for cause. The law in protecting the rights of laborers authorizes neither oppression nor self-destruction of
the employer. The erring employee forfeited his right to security of tenure by acts of dishonesty prejudicial to the
interests of his employer. His dismissal is therefore justified. The employer cannot be legally compelled to continue
with the employment of a person who admittedly was guilty of breach of trust. (MERALCO v NLRC, 1991)
• Remedies for violation of security of tenure. [Quick backstory: Ruiz was a bank internal auditor, then she was
named branch manager, then suspended and terminated because she complained that it was a demotion. She filed a
case etc., so the bank was made to hire her again but since her old position had been abolished, she was made
manager of the Auditing Dept. instead. But she complained again, and the SC agreed, that it was not a position
“substantially equivalent” to her old one.]
Pursuant to Art. 280, there is no merit in the bank’s contention that Ruiz is entitled to only 3 years of backwages and no
more. She is, in addition, entitled to reinstatement without loss of seniority rights.
Backwages are for earnings which a worker has lost due to his illegal dismissal. [The SC’s earlier order for the payment
of only 3 years’ backwages, to cover the time she wasn’t employed, was just an interim measure considering the
circumstances at that time. But that was only the 1st component of the relief granted by law to those who are illegally
dismissed, so this case is now about the 2nd component.]
The 2nd component of the relief is reinstatement either to one’s former position or if, this was not possible, to a
substantially equivalent position. Reinstatement contemplates a restoration to a position from which one has been
removed or separated so that the employee concerned may resume the functions of the position he already held. The
order to reinstate an employee to a former position or to a substantially equivalent position is a positive mandate of the
law with which strict compliance is required. This is an affirmation that those deprived of a recognized and protected
interest should be made whole so that the employer will not profit from his misdeeds.
BUT since Ruiz has already retired from the bank, reinstatement is now academic. Instead, she should be [additionally]
paid [the salary differentials between her original post as Internal Auditor and her later post as Auditing Dept. Mgr.]
(Citytrust Banking v NLRC, 1996)
• Not applicable to showbiz? The right of labor to security of tenure as guaranteed in the Constitutionarises only if
there is an employer-employee relationship under labor laws. Not every performance of services for a fee creates an
employer-employee relationship.
Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors.
The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to
security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his
right to contract as an independent contractor. An individual like an artist or talent has a right to render his services
without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret
the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio
and television program hosts can render their services only as employees, the station owners and managers can dictate
to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press. (Sonza v
ABS-CBN Broadcasting, 2004)
B. Importance of Employment
Employment
Employment is not merely a contractual relationship. It has assumed the nature of a property right. It may spell the
difference WON a family will have food on their table, roof over their heads & education for their children. It is for
this reason that the State has taken up measures to protect employees from unjustified dismissals. It is also because of
this that the right to security of tenure is not only a statutory right but, more so, a constitutional right. (Gonzales v
NLRC, 1999)

C. State Regulation
Rationale
Although the power to dismiss is a normal prerogative of the employer, the same is not without limitations. The right
of the employer must not be exercised arbitrarily and without just cause. Otherwise, the constitutional guarantee of
security of tenure of the workers would be rendered nugatory. The right of employer to freely select or discharge his
employees is regulated by the State, because the preservation of the lives of the citizens is a basic duty of the State,
more vital than the preservation of the corporate profit. In addition, security of tenure is a right of paramount value
guaranteed by the Constitution and should not be denied on mere speculation. Protection for labor and social justice
provisions of the Constitution and the labor laws and rules and regulations are interpreted in favor of the exercise of
labor rights. (Llosa-Tan v Silahis International Hotel, 1990)

D. Coverage

Art. 278. Coverage. – all establishments or undertakings, whether for profit or not.

Contract Employee
As probationary and contractual employees, the employees enjoyed security of tenure but only to a limited extent, i.e.
they remained secure in their employment during the period of time their respective contracts remained in effect. That
temporary security of tenure however ended when their contracts expired. Consequently, as the school was not under
obligation to renew their contracts, the separation cannot be said to have been without justifiable cause, much less
illegal. (Labajo v Alejandro, 1988)

Probationary Employee
Probationary employees have limited tenure, but they enjoy const’l protection of security of tenure nonetheless.
During the term of his employment therefore, or before his contract expires, a probationary employee cannot be
removed except for cause as provided for by law. (Skillworld Mgt. and Mktg. Corp. v NLRC, 1990)

Managerial Employee
• Security of tenure applicable. Confidential and managerial employees cannot be arbitrarily dismissed at any
time, and without cause as reasonably established in an appropriate investigation. Such employees are entitled
to security of tenure, fair standards of employment and protection of labor laws. (Inter-Orient Maritime
Enterprises v NLRC, 1994)
• Special case of ship captains. The captain of a vessel is a confidential and managerial employee within the
meaning of the above doctrine. A master or captain, for purposes of maritime commerce, is one who has
command of a vessel. A captain commonly performs three roles: general agent of the owner, commander and
technical director of the vessel, and representative of the country under whose flag he navigates. Of these roles,
by far the most important is the commander of the vessel, for such role has to do with the operation and
preservation of the vessel during its voyage and the protection of the passengers and crew and cargo.
A ship’s captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the
ship and of its crew and cargo specifically requires on a stipulated ocean voyage. Where his decision does not
constitute merely arbitrary, capricious or grossly insubordinate behavior on his part, it may not constitute a legal
basis for his summary dismissal and for termination of his contract with petitioners prior to the expiration of the
term. (Inter-Orient Maritime Enterprises v NLRC, 1994)

E. Management Rights and Security of Tenure

• Good faith; no to ULP! While the right of the employer to terminate the services of an employee for a
just/authorized cause is recognized, nevertheless the dismissal of employees must be made within the
 parameters of law & pursuant to the tenets of equity and fair play. The employer’s right to terminate the services
of an employee for just/authorized cause must be exercised in good faith. More importantly, it must not amount
to interfering with or restraining/coercing employees in the exercise of their right to self-organization, because it
would amount to unfair labor practice. (Colegio de San Juan de Letran v Ass’n of Employees, 2000)
• Good faith and management prerogative. Except as limited by special laws, an employer is free to regulate,
according to his own discretion and judgment, all aspects of employment, including hiring, work assignments,
working methods, time, place and manner of work, tools to be used, processes to be followed, supervision of
workers, working regulations, transfer of employees, work supervision, layoff of workers and the discipline,
dismissal and recall of work.
Every business enterprise endeavors to increase its profits. In the process, it may adopt or devise means designed
towards that goal. “Even as the law is solicitous of the welfare of the employees, it must also protect the right of an
employer to exercise what are clearly management prerogatives.” The free will of management to conduct its own
business affairs to achieve its purpose cannot be denied.
So long as a company's management prerogatives are exercised in good faith for the advancement of the
employer's interest and not for the purpose of defeating or circumventing the rights of the employees under special
laws or under valid agreements, this Court will uphold them. (San Miguel Brewery v Ople, 1989)

F. Guidelines on the Imposition of Penalties

• Ye Olde “Totality of Circumstances” Rule. The totality of infractions / the number of violations committed
during the period of employment shall be considered in determining the penalty to be imposed on an erring
employee. His offenses should not be taken singly and separately, but in their totality. Fitness for continued
employment cannot be compartmentalized into tight little cubicles of aspects of character, conduct, and ability
separate and independent of each other. (Valiao v CA, 2004)
• Due process. The essence of DP is simply an opportunity to be heard, or Example to admin proceedings, an
opportunity to explain one’s side or to seek a reconsideration of the action/ruling complained of. A formal or
trial-type hearing is not at all times and in all instances essential, as the DP req’ments are satisfied where the
parties are afforded fair and reasonable opportunity to explain their side of the controversy. What is frowned
upon is absolute lack of notice and hearing. (Valiao v CA, 2004)
• Due process, procedural. As a procedural requirement, the employer must comply with the twin requirements
of two notices and hearing.
The second notice the company gave to Farrol does not clearly cite the reasons for his dismissal, merely states a
conclusion (breach of trust) without stating the facts and circumstances (how it was committed). Even if there was
breach, there is no evidence that Farrol was a managerial employee [meriting dismissal therefor], or that the
anomaly, which may be expected in a cashier’s work, was deliberately due to a fraudulent/wrongful purpose.
(Farrol v CA, 2000)
• Penalty commensurate to the infraction. Although the employer has the prerogative to dismiss its employee,
such cannot be exercised wantonly, but must be controlled by substantive due process and tempered by the
fundamental policy of protection to labor enshrined in the Constitution. Infractions committed by an employee
should merit only the corresponding sanction demanded by the circumstances. The penalty must be
commensurate with the act, conduct or omission imputed to the employee and imposed in connection with the
employer’s disciplinary authority. (Farrol v CA, 2000)
• Penalty commensurate to the infraction. While an employer enjoys a wide latitude of discretion in the
promulgation of policies, rules and regulations on work-related activities of employees, those directives must
always be fair and reasonable. Corresponding penalties, where prescribed, must be commensurate to the offense
involved and to the degree of the infraction. Here, dismissal for [allegedly] sleeping on the job, where it is the
first offense after 9 years of unblemished service and caused no prejudice to the employer, appears too harsh a
penalty. (VH Mfg. v NLRC, 2000)
• State intervention. [Even when there exist some rules agreed upon between the employer and employee on the
subject of dismissal,] they cannot preclude the State from inquiring whether their strict or rigid application or
interpretation would be unduly harsh to the employee. (Farrol v CA, 2000)
• Standard of proof. Substantial proof, and not clear and convincing evidence or proof beyond reasonable doubt,
is sufficient as basis for the imposition of any disciplinary action upon the employee. The standard of substantial
evidence is satisfied where the employer, as in this case, has reasonable ground to believe that the employee is
responsible for the misconduct and his participation therein renders him unworthy of trust and confidence
demanded by his position.
Reyno’s infractions were proved by the affidavits of his own subordinates. (Reyno v MERALCO, 2004)
• Length of employment. The longer an employee stays in the service of the company, the greater is his
responsibility for knowledge and compliance with the norms of conduct and the code of discipline in the
company. An employee’s length of service with the company even aggravates his offense. He should have been
more loyal to the company from which he has derived his family bread and butter for [x number of] years.
(Reyno v MERALCO, 2004)

Factors
• Type of employee. Felizardo is not a managerial or confidential employee in whom greater trust is placed by
management and from whom greater fidelity to duty is correspondingly expected. An unfaithful employee who
is holding a position of trust and confidence in a company poses a greater danger to its security than a mere clerk
or machine operator like Felizardo. (Associated Labor Union v NLRC, 1999)
• Type of employee. Another reason violations by non-confidential employees of company rules and regulations
are considered minor: Such employees are generally mere wage earners whose dismissal from employment can
have severe financial consequences on their families especially at a time like the present when unemployment is
quite high. Consequently, whatever missteps may have been committed by them ought not to be visited with a
consequence so severe as dismissal. It is not only because of the law's concern for the workingman. There is, in
addition, his family to consider. Unemployment brings untold hardships and sorrows on those dependent on the
wage-earner. The misery and pain attendant to the loss of jobs then could be avoided if there be acceptance of
the view that, under certain circumstances, the workers should not be deprived of their means of livelihood.
(Associated Labor Union v NLRC, 1999)
• Factors. [(1) value of articles stolen (2) previous derogatory record (3) WON non-dismissal would work undue
prejudice to the viability of the operation, or would be patently inimical to the company’s interest.] (Associated
Labor Union v NLRC, 1999)
• Type of employee. The basic requisite for dismissal on the ground of loss of confidence is that the employee
concerned must be one holding a position of trust and confidence. However, loss of confidence must not be
indiscriminately used as a shield by the employer against a claim that the dismissal of an employee was
arbitrary. (PLDT v NLRC, 1999)
• Length of employment. Even when an employee is found to have transgressed the employer's rules, in the
actual imposition of penalties upon the erring employee, due consideration must still be given to his length of
service and the number of violations committed during his employ. (PLDT v NLRC, 1999)
• Penalty commensurate to the infraction. Dismissal is the ultimate penalty that can be meted to an employee.
Where a penalty less punitive would suffice, whatever missteps may have been committed by the worker ought
not to be visited a consequence so severe such as dismissal from employment. For the Constitution guarantees
the right of workers to security of tenure. (PLDT v NLRC, 1999)
• Doubt resolved in favor of labor. Given that (1) there was no written rule expressly providing for dismissal as
a sanction for Gabriel’s infraction, (2) there is no evidence of loss to the company or profit to Gabriel therefrom,
and (3) the company did not rebut his claim that it in fact approved Gabriel’s actions, a substantial doubt as to
the validity of the termination appears. The employee's claim of illegal dismissal accordingly gains credence
because such doubt must be resolved in his favor. (PLDT v NLRC, 1999)

Dismissal as Penalty
• Ultimate penalty. In labor-management relations, there can be no higher penalty than dismissal from
employment. Dismissal severs employment ties and could well be the economic death sentence of an employee.
Dismissal prejudices the socio-economic well being of the employee's family and threatens the industrial peace.
Due to its far reaching implications, our Labor Code decrees that an employee cannot be dismissed, except for
the most serious causes. The overly concern of our laws for the welfare of employees is in accord with the social
justice philosophy of our Constitution. (Cebu Filveneer v NLRC, 1998)
• Ensuring validity of dismissal, also in the employer’s interests. Dismissal is the ultimate penalty that can be
meted out to an employee. It must therefore be based on a clear and not on an ambiguous or ambivalent ground.
The right to terminate should be utilized with extreme caution because its immediate effect is to put an end to an
employee’s present means of livelihood while its distant effect, upon a subsequent finding of illegal dismissal, is
just as pernicious to the employer who will most likely be required to reinstate the employee and grant him full
backwages and other benefits. (Golden Thread Knitting Services v NLRC, 2003)
• Need for criteria. In selecting the employees to be dismissed, a fair and reasonable criteria must be used, such as
but not limited to: (a) less preferred status (e.g. temporary employees); (b) efficiency; and (c) seniority. The
records disclose that no criterion whatsoever was adopted by the company in dismissing some of the employees.
(Golden Thread Knitting Services v NLRC, 2003)
 • Standard of proof. Dismissal of employees for willful breach of trust or loss of confidence does not require
proof beyond reasonable doubt of their misconduct, it being sufficient that there is some basis for the same or
that the employer has reasonable ground to believe that they are responsible for the misconduct and their
participation therein rendered them unworthy of the trust and confidence demanded of their position. (Central
Pangasinan Electric Cooperative v Macaraeg, 2003) [sorry blockmates, ito lang talaga yung mejo pinakarelated na sa topic
na nasa case. ]

• Penalty commensurate to the infraction. While an employee may be dismissed for violation of reasonable
regulation/rules promulgated by the employer, where a penalty less punitive would suffice, whatever missteps
may have been committed by the worker ought not to be visited with a consequence as severe as dismissal from
employment. The Constitution guarantees the right of workers to security of tenure.
The fact that she was repeatedly given a contract shows that she was an efficient worker and, therefore, should be
retained despite occasional lapses in attendance. Perfection cannot, after all, be demanded. (Philips
Semiconductors v Fadriquela, 2004)
• Limits to management prerogative. The power to dismiss is a formal prerogative of the employer. However,
this is not without limitations. The employer is bound to exercise caution in terminating the services of his
employees. Dismissals must not be arbitrary and capricious. Due process must be observed in dismissing an
employee because it affects not only his position but also his means of livelihood. Employers should respect and
protect the rights of their employees which include the right to labor.
The right of a person to his labor is deemed to be his property within the meaning of the constitutional guarantee.
This is his means of livelihood. He cannot be deprived of his labor or work without due process of law. (Philips
Semiconductors v Fadriquela, 2004)

G. Rules – Managerial vs. Rank-and-File Employees

• Trust and confidence. As a general rule, employers are allowed wider latitutde of discretion in terminating the
employment of managerial employees as they perform functions which require the employer’s full trust and
confidence. As foreman and shift boss, Salvador was not an ordinary R&F employee. He had overall control of the
care, supervision, and operations of the entire plant. Fairness dictates that the company should not be compelled to
continue with the employment of Salvador who has breached the confidence reposed in him. The company had
every right to dismiss him, a managerial employee, as a measure of self-preservation against acts patently inimical to
its intersts. (Salvador v Phil. Mining Service, 2003)
• Standard of proof. R&F: There must be proof of involvement in the alleged events. Mere uncorroborated assertions
and accusations by the employer will not be sufficient.
Managerial employees: Mere existence of a basis for believing that such employee has breached the trust of his
employer would suffice for his dismissal, such as when the employer has reasonable ground to believe that the
employee is responsible for the purported misconduct, and the nature of his participation therein renders him
unworthy of the T&C demanded by his position. Proof beyond reasonable doubt is not required. (Caoile v NLRC,
1998)

B. Termination of Employment by Employee

14.02 Causes
A. Just Causes
ART. 285. Termination by employee. -
(b) An employee may put an end to the relationship without serving any notice on the employer for any of the
following just causes:
1. Serious insult by the employer or his representative on the honor and person of the employee;
2. Inhuman and unbearable treatment accorded the employee by the employer or his representative;
3. Commission of a crime or offense by the employer or his representative against the person of the employee or
any of the immediate members of his family; and
4. Other causes analogous to any of the foregoing.

B. Without Just Cause - Requisites

ART. 285. Termination by employee. -
(a) An employee may terminate without just cause the employee-employer relationship by serving a written notice
on the employer at least 1 month in advance.
The employer upon whom no such notice was served may hold the employee liable for damages.
C. Resignation
Definition
Voluntary resignation = the voluntary act of an employee who finds himself in a situation where he believes that
personal reasons cannot be sacrificed in favor of the exigency of the service and he has no other choice but to
dissociate himself from his employment. (Habana v NLRC, 1998)

Requisites
• Unconditional, intentional relinquishment. Must be unconditional and with the intent to operate as a
resignation. There must be an intention to relinquish a portion of the term of office accompanied by an act of
relinquishment.
The fact that Capulso signified his desire to resume his work when he went back to AZCOR after recuperating from
his illness, and actively pursued his case for illegal dismissal before the labor courts when he was refused
admission by his employer, negated any intention on his part to relinquish his job.
Even assuming arguendo that he did in fact sign and execute the purported resignation letters, there is no showing
that Capulso was aware that they were in fact resignation letters or understood their contents. The companies
adduced the letters in evidence, so theirs was the burden of proving clearly and convincingly their genuineness and
due execution, esp. considering the serious doubts as to their authenticity. (Azcor Mfg. v NLRC, 1999)
• Acting with discernment. The resignation was not voluntarily done as the legal department’s representative
advised Garcia to resign while the latter was thoroughly confused and bothered by a family problem. Judging
from the circumstances, Garcia could not have understood what he was doing nor could have foreseen the
consequences thereof.
There is no valid resignation where it was made without proper discernment, such as when an employee’s writing
and handing of resignation letter to his employer were a knee-jerk reaction triggered by that singular moment
when he was left with no alternative but to accede, having been literally forced into it by being presented with the
more unpleasant fate of being terminated. (Metro Transit Organization v NLRC, 1998)

Voluntary Resignation
• Definition. Voluntary resignation = the act of an employee who finds himself in a situation where he believes
that personal reasons cannot be sacrificed in favor of the exigency of the service and has no other choice but to
disassociate himself from his employment.
A constructive dismissal is an involuntary resignation resorted to when continued employment is rendered
impossible, unreasonable or unlikely when there is demotion in rand and/or diminution in pay or when a clear
discrimination, insensibility or disdain by an employer becomes unbearable to the employee. (A demotion is a
transfer which results in reduction in position, rank or salary.) (Phil. Wireless v NLRC, 1999)
• Definition. Basic is the doctrine that resignation must be voluntary and made with the intention of relinquishing
the office, accompanied with an act of relinquishment. (Pascua v NLRC, 1998)
• Definition. Resignation is a formal pronouncement of relinquishment of an office. It must be made with the
intention of relinquishing the office accompanied by an act of relinquishment. Resignation would be inconsistent
with the filing of the instant complaint for illegal dismissal. (Valdez v NLRC, 1998)
• Definition. Must be unconditional and with the intent to operate as a resignation. There must be an intention to
relinquish a portion of the term of office accompanied by an act of relinquishment. (Azcor Mfg. v NLRC, 1999)
• Example. Pets here did not voluntarily quit their jobs. Rather, they were forced to resign or were summarily
dismissed without just cause. They forthwith took steps to protest their layoff and thus, cannot, by any logic, be
said to have abandoned their work. (Pascua v NLRC, 1998)
• Example. The alleged resignation letters are identically worded, and are actually pre-drafted with just blank
spaces filled up with purported dates of effectivity. They were also written in English, a language with which
Capulso was not conversant given his low level of education. Moreover, Capulso categorically denied having
signed and executed either. Even assuming arguendo that Capulso did in fact sign and execute the purported
resignation letters, there is no showing that he was aware that they were in fact resignation letters or understood
their contents. (Azcor Mfg. v NLRC, 1999)

Validity of Policy
A rule may be valid but not effective for lack of publication. In this case, the company policy allegedly violated is not
written. It must be written and published so as to lend certainty to its excistence and definiteness to its scope.
 [Otherwise,] doubts may be raised as to whether it was strictly enforced. Otherwise the impression may be given that
the enforcement is only discretionary and may be susceptible to interpretation. (Manila Broadcasting v NLRC, 1998)

14.03 No Termination – Performance of Military / Civic Duty

ART. 286. When employment not deemed terminated. - The bona-fide suspension of the operation of a business or
undertaking for a period not exceeding 6 months, or the fulfillment by the employee of a military or civic duty shall not
terminate employment. In all such cases, the employer shall reinstate the employee to his former position without loss of
seniority rights if he indicates his desire to resume his work not later than 1 month from the resumption of operations of
his employer or from his relief from the military or civic duty.

SECTION 12, Title I, Book VI, Omnibus Rules. Suspension of relationship. — The employer-employee relationship shall be
deemed suspended in case of suspension of operation of the business or undertaking of the employer for a period not
exceeding 6 months, unless the suspension is for the purpose of defeating the rights of the employees under the Code,
and in case of mandatory fulfillment by the employee of a military or civic duty. The payment of wages of the employee
as well as the grant of other benefits and privileges while he is on a military or civic duty shall be subject to special laws
and decrees and to the applicable individual or collective bargaining agreement and voluntary employer practice or
policy.

C. Termination of Employment by Employer

1. Preliminary Matters
14.04 Basis of Right and Requirements
Basis
• Hindi basta-basta lang. Even on the assumption that Gutierrez in fact committed the cited infractions, they are not
major violations but only minor ones which do not merit the supreme penalty of dismissal from employment.
Moreover, the evidence adduced to prove them did not fairly show they fall exactly within the rules and regulations
allegedly violated.
Extreme caution should be exercised in terminating the services of a worker for his job may be the only lifeline on
which he and his family depend for survival in these difficult times. That lifeline should not be cut off except for a
serious, just and lawful cause, for, to a worker, the loss of his job may well mean the loss of hope for a decent life for
him and his loved ones. (Gutierrez v Singer Sewing Machine, 2003)
• Hindi basta-basta lang. Suspicion has never been valid ground for an EE’s dismissal. The right of management to
dismiss must be balanced against the managerial employee’s right to security of tenure, which is not one of the
guaranties he gives up. Although the standards for a managerial employee’s dismissal are less stringent, the LoT&C
must be substantial and founded on clearly established facts sufficient to warrant his separation from the company.
Substantial evidence is of critical importance and the burden rests on the employer to prove it. (PLDT v Tolentino,
2004)
• Bias in favor of labor, BUT. The const’l policy to provide full protection to labor is not meant to be a sword to
oppress employers. Certainly, an employer should not be compelled to pay employees for work not actually
performed and in fact abandoned. [And although the right of an employer to freely select and discharge his
employees is within the regulation of the State,] the employer should not be compelled to continue employing a
person who is admittedly guilty of misfeasance/malfeasance and whose continued employment is patently inimical
to the employer. The law protecting the rights of the laborer authorizes neither oppression nor self-destruction of the
employer. (Agabon v NLRC, 2004; Manila Trading & Supply v Zulueta, 1940)
• You don’t get something for nothing. The law imposes many obligations on the employer, such as providing just
compensation to workers, observance of the procedural req’ts of notice & hearing in the termination of employment.
On the other hand, the law also recognizes the right of the employer to expect from its workers not only good
performance, adequate work and diligence, but also good conduct and loyalty. The employer may not be compelled
to continue to employ such persons whose continuance in the service will patently be inimical to his interests.
(Agabon v NLRC, 2004)
• Guidelines for Termination In A Nutshell. While an employer has its own interest to protect, and pursuant thereto,
it may terminate a managerial employee for a just cause, such prerogative to dismiss or lay-off an employee must be
exercised without abuse of discretion. Its implementation should be tempered with compassion and understanding.
The employer should bear in mind that, in the execution of the said prerogative, what is at stake is not only the
employee’s position, but his very livelihood. The Constitution does not condone wrongdoing by the employee;
nevertheless, it urges a moderation of the sanction that may be applied to him. Where a penalty less punitive would
suffice, whatever missteps may have been committed by the worker ought not be visited with a consequence so
severe as dismissal from employment. Indeed, the consistent rule is that if doubts exist between the evidence
 presented by the employer and the employee, the scales of justice must be tilted in favor of the latter. The employer
must affirmatively show rationally adequate evidence that the dismissal was for justifiable cause. (Fujitsu Computer
Products v CA, 2005) Wala ito sa syllabus pero baka maging useful siya. 

Requirements
ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(a) Serious misconduct / willful disobedience of the lawful orders of his employer / representative in connection
with his work;
(b) Gross and habitual neglect of one’s duties;
(c) Fraud / willful breach of the trust reposed in him by his employer or duly authorized representative;
(d) Commission of a crime or offense against the person of his employer/immediate family
member/representative; and
(e) Other causes analogous to the foregoing.

ART. 283. Closure of establishment and reduction of personnel. -

The employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and Employment
at least 1 month before the intended date thereof.
IF installation of labor-saving devices or redundancy,
THEN separation pay = ≥1 month pay OR ≥1 month pay / year of service, whichever is higher.
IF retrenchment to prevent losses [OR]
IF closure/cessation of operations of establishment / undertaking not due to serious business losses / financial
reverses,
THEN separation pay = 1 month pay OR ≥ 1/2 month pay / year of service, whichever is higher.
A fraction of ≥ 6 months shall be considered 1 whole year.

ART. 284. Disease as ground for termination. - An employer may terminate the services of an employee
who has been found to be suffering from any disease and
whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-
employees:
Provided, separation pay = ≥ 1 month salary OR 1/2 month salary / year of service, whichever is greater,
a fraction of ≥ 6 months being considered as 1 whole year.

SECTION 8. Disease as a ground for dismissal. —

Where the employee suffers from a disease and
his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees,
the employer shall not terminate his employment
unless there is a certification by competent public health authority
that the disease is of such nature OR at such a stage that it cannot be cured within 6 months even with proper
medical treatment.
If the disease or ailment can be cured within the period, the employee shall not terminate the employee
but shall ask the employee to take a leave of absence.
The employer shall reinstate such employee to his former position immediately upon the restoration of his normal
health.

ART. 277. Miscellaneous provisions. –

(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against
dismissal except for a just and authorized cause and
without prejudice to the requirement of notice under Article 283 of this Code,
the employer shall furnish the worker whose employment is sought to be terminated
a written notice containing a statement of the causes for termination
and shall afford the latter ample opportunity to be heard and to defend himself
with the assistance of his representative if he so desires
in accordance with company rules and regulations promulgated pursuant to guidelines set by the DOLE.
 Any decision taken by the employer shall be without prejudice to the right of the worker
to contest the validity or legality of his dismissal by filing a complaint with the regional branch of the NLRC.
The burden of proving that the termination was for a valid or authorized cause shall rest on the employer.
The Secretary of the Department of Labor and Employment may suspend the effects of the termination
pending resolution of the dispute in the event of a prima facie finding
by the appropriate DOLE official before whom such dispute is pending
that the termination may cause a serious labor dispute or is in implementation of a mass lay-off.
(As amended by Section 33, Republic Act No. 6715, March 21, 1989).

Substantive and Procedural Due Process

• To constitute a valid dismissal from employment, 2 requisites must concur: (a) the dismissal must be for any of the
causes provided for in Article 282; and (b) the employee must be afforded an opportunity to be heard and defend
himself. This means that an employer can terminate the services of an employee for just and valid causes, which
must be supported by clear and convincing evidence. It also means that, procedurally, the employee must be given
notice, with adequate opportunity to be heard, before he is notified of his actual dismissal for cause. (Fujitsu
Computer Products v CA, 2005)
• In termination cases, the employer bears the onus of proving that the dismissal was for just cause. Indeed, a
condemnation of dishonesty and disloyalty cannot arise from suspicions spawned by speculative inferences.
(Fujitsu Computer Products v CA, 2005)
• Philex’s failure to use a reasonable and fair standard in the computation of the supervisors’ demerits points is not
merely a procedural but a substantive defect which invalidates the dismissal. Furthermore, Philex implemented the
supervisors’ MOA arbitrarily. (Ariola v Philex Mining, 2005)
• When the defect is procedural, the dismissal remains valid because the basis of the dismissal is not in any way
affected by such defect. The dismissal of an employee who commits a crime against an employer cannot be
invalidated because of lack of notice of dismissal to the employee. The lack of notice does not in any way erase or
mitigate the crime. To invalidate a dismissal merely because of a procedural defect creates absurdity and runs
counter to public interest. A substantive defect invalidates a dismissal because the ground for such dismissal is
negated by such substantive defect, rendering the dismissal without basis. (Ariola v Philex Mining, 2005)
• Cabansag was not notified of the specific act or omission for which her dismissal was sought. Neither was she given
any chance to be heard, as required by law. The bank tendered to her a notice of the termination of her employment
effective the very same day. Moreover, nothing in the law gives an employer the option to substitute the required
prior notice and opportunity to be heard with the mere payment of a month’s salary. (PNB v Cabansag, 2005)
• The twin requirements of notice and hearing constitute the essential elements of procedural DP, and neither of these
elements can be eliminated without running afoul of the constitutional guarantee. In dismissing employees, the
employer must furnish them with 2 written notices: one to apprise them of the particular acts or omissions for which
their dismissal is sought; and theo ther to inform them of the decision to dismiss them. As to the requirement of a
hearing, its essence lies simply in the opportunity to be heard. (PNB v Cabansag, 2005)
• The employer has the burden of proving that the dismissal was done for any of the just / authorized causes. (PNB v
Cabansag, 2005)

14.05 Just Causes – Substantive Due Process – Grounds for Termination

A. Serious Misconduct

ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(a) Serious misconduct / willful disobedience of the lawful orders of his employer / representative in connection
with his work;

Definition and Acts

• Definition. Misconduct is a transgression of some established and definite rule of action, a forbidden act, a
dereliction of duty, willful in character, and implies wrongful intent and not mere error in judgment. The
misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant.
Such misconduct, however serious, must, nevertheless, be in connection with the employee’s work to constitute
just cause for his separation.
Disobedience, as a just cause for termination, must be willful or intentional. Willfulness is characterized by a
wrongful and perverse mental attitude rendering the employee’s act inconsistent with proper subordination.
(Lakpue Drug v Belga, 2005)
 • Definition. For misconduct or improper behavior to be just cause for dismissal, the same must be related to the
performance of the employee’s duties and must show that he has become unfit to continue working for the
employer. (Coca-Cola Bottlers Phils. v Kapisanan ng Manggagawa sa Coca-Cola, 2005)
• Must be connected with work. According to both Art. 282 and the company rules, to constitute gross misconduct
as a ground for a valid termination of the employee, an act must be committed in connection with the latter’s work
or employment. BUT Pehid’s alleged misappropriation or malversation was committed, assuming it to be true,
against the common funds of the Locker Room personnel, which did not belong to and was not sanctioned by the
company. [Therefore, Pehid’s dismissal by the company for gross misconduct in the performance of his duties and
acts of dishonesty was illegal.] (Villamor Golf Club v Pehid 2005)
• Habitual absence and tardiness. Valiao’s habitual absenteeism and tardiness constitute gross and habitual neglect
of duties that justified his termination of employment. His repeated acts of absences without leave and his
frequent tardiness reflect his indifferent attitude to and lack of motivation in his work. The absences and tardiness
were not isolated incidents but manifested a pattern of habituality. More importantly, his repeated and habitual
infractions, committed despite several warnings, constitute gross misconduct unexpected from an employee of
petitioner’s stature. (Valiao v CA, 2005)

Willful Disobedience
• Definition. For willful disobedience to be a valid cause for dismissal, the following twin elements must concur:
1. the employee's assailed conduct must have been willful, that is, characterized by a wrongful and perverse
attitude; and 2. the order violated must have been reasonable, lawful, made known to the employee and must
pertain to the duties which he had been engaged to discharge. (Bascon v CA, 2004; Micro Sales Operation
Network v NLRC, 2005)
• Penalties. Not every case of willful disobedience by an employee of a lawful work-connected order of the
employer may be penalized with dismissal. There must be reasonable proportionality between the willful
disobedience by the employee and the penalty imposed. (Bascon v CA, 2004)
• The company is barred to negate the existence of an employer-employee relationship. In its petition filed before
this Court, it invoked our rulings on the right of an employer to dismiss an employee for just cause. By adopting
said rulings, the company impliedly admitted that it was in fact the employer of private respondent. According to
the control test, the power to dismiss an employee is one of the indications of an employer-employee relationship.
(R Transport v Ejandra, 2004) This case contains absolutely nothing about willful disobedience. x_x

B. Gross and Habitual Neglect of Duties

ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(b) Gross and habitual neglect of one’s duties;

Requisites
• Definition. Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid
them. (Judy Phils. v NLRC, 1998; Chavez v NLRC, 2005)
• Definition. Habitual neglect implies repeated failure to perform one’s duties for a period of time. Habitual
absenteeism without leave constitute gross negligence and is sufficient to justify termination of an employee.
(Challenge Socks v CA, 2005)
• Definition. Gross and habitual neglect of duties, as a just cause for termination, includes gross inefficiency,
negligence and carelessness. (Challenge Socks v CA, 2005)
• Gross and habitual. The neglect must not only be gross, but “gross and habitual” in character. Dismissal in this
case is quite severe given that it was Antiola’s first infraction after four years without any known previous bad
record. (Judy Phils. v NLRC, 1998)
• Gross and habitual. The single and isolated act of Chavez’s negligence in the proper maintenance of the truck
alleged by the company does not amount to “gross and habitual neglect” warranting dismissal. (Chavez v NLRC,
2005)
• Example. Elvie’s 3 violations of company rules and regulations, including her unauthorized absences and
tardiness, all committed in the span of two years, shows that she did not only fail to observe due diligence in
performing her job, but she has little regard for the consequences of her acts and inactions. (Challenge Socks v
CA, 2005)
 Gross and Habitual Negligence Defined
• Definition. Gross negligence connotes want of care in the performance of one’s duties. Habitual neglect implies
repeated failure to perform one’s duties for a period of time, depending upon the circumstances. (Valiao v CA,
2004; Chua v NLRC, 2005)
• Definition. Gross negligence = negligence characterized by want of even slight care, acting or omitting to act in a
situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious
indifference to consequences insofar as other persons may be affected. (Reyes v Maxim’s Tea House, 2003)
• Definition. Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid
them. The negligence, to warrant removal from service, should not merely be gross but also habitual. (Citibank
N.A. v Gatchalian, 1995; Cebu Filveneer v NLRC, 1998; Philippine Aeolus Automotive United v NLRC, 2000)
• Example. Valiao’s habitual absenteeism and tardiness constitute gross and habitual neglect of duties that justified
his termination of employment. His repeated acts of absences without leave and his frequent tardiness reflect his
indifferent attitude to and lack of motivation in his work. More importantly, his repeated and habitual infractions,
committed despite several warnings, constitute gross misconduct unexpected from an employee of petitioner’s
stature. Habitual absenteeism without leave constitute gross negligence and is sufficient to justify termination of
an employee. (Valiao v CA, 2004)
• Example. Records reveal that Villaflor was not remiss in the past in the preformance of her duties, hence she
cannot be charged with habitual negligence. Nor was her negligence gross in character; at most, the trust
misplaced by Villaflor constitutes error of judgment, but not gross negligence. (Cebu Filveneer v NLRC, 1998)
• Example. Llonillo’s negligence is both gross and habitual. She immediately acceded to a verbal request to pick up
the newly issued credit cards and personally delivered them to Verendia, whom she had never met before, on the
basis of a mere description over the telephone. She did not realize the discrepancy between Verendia’s excuses
about not being able to meet her on the bank premises and Verendia’s ability to personally meet her in order to
obtain the cards from her. She did not verify the identity of the messenger who arrived allegedly representing
Verendia, or ask him to sign a receipt when she gave the cards to him. All this was in violation of the bank’s
policy. That she demonstrated the same kind of negligence on 5 separate occasions bespeak of habituality.
(Citibank N.A. v Gatchalian, 1995)
• Example. Chua’s repeated failure to submit his Daily Coverage Reports on time, as well as the doctors’ call cards,
constitute habitual neglect of duties. (Chua v NLRC, 2005)

Simple Negligence
Mere involvement in an accident, absent any showing of fault or recklessness on the part of an employee, is not a valid
ground for dismissal. (Paguio Transport v NLRC, 1998)

C. Fraud – Willful Breach of Trust

ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(c) Fraud / willful breach of the trust reposed in him by his employer or duly authorized representative;

• Misappropriation by a corporate officer. As Finance Director, Santos was in charge of the custody, handling, care
and protection of the company’s funds. The encashment of personal checks and her private use of such funds, albeit
for short periods of time, are contrary to the fiduciary nature of her duties. Misappropriation of company funds,
even if the shortages have been fully restituted, is a valid ground to terminate the services of an employee for loss of
trust and confidence. (Santos v San Miguel Corp., 2003)
• Merely clerical dutis. Belga was an assistant cashier whose primary function was to assist the cashier (duh) in
essentially clerical duties. While ostensibly, the documents she prepared as Assistant Cashier pertained to her
employer’s property, her work did not call for independent judgment or discretion. Hence, her position cannot be
considered as one of responsibility, or imbued with T&C.
The employer’s right to dismiss employees by reason of LoT&C has been recognized. However, such ground is
premised on the fact that the employee concerned holds a position of responsibility or T&C. The act complained of
must be work-relatd such as would show the employee concerned to be unfit to continue working for the employer.
More importantly, the LoT&C must be based on the willful breach of the trust reposed in the employee by his
employer. A breach of trust is willful if done intentionally, knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly, or inadvertently. (Lakpue Drug v Belga, 2005)
Loss of Confidence - Requisites
• The Fab Five. It is settled that loss of confidence as a just cause for terminating employment must be premised on
the fact that an (1) employee concerned holds a position of trust and confidence. This situation obtains where a
person is entrusted with confidence on delicate matters, such as care and protection, handling or custody of the
employer's property, as in this case.
But, in order to constitute a just cause for dismissal, the (2) act complained of must be "work-related" such as would
show the employee concerned to be unfit to continue working for the employer. Likewise, it must be noted that
proof beyond reasonable doubt is not required to dismiss an employee on the ground of loss of confidence.
It is sufficient that there is some basis for such loss of confidence, such as when the employer has (3) reasonable
ground to believe that the employee concerned is responsible for the purported misconduct, and the (4) nature of his
participation therein renders him unworthy of the trust and confidence demanded of his position.
Loss of confidence to be a valid ground for dismissal, such (5) loss of confidence must arise from particular proven
facts. In other words, this ground must be founded on facts established by the employer who must clearly and
convincingly prove by substantial evidence the facts and incidents upon which loss of confidence in the employee
may be fairly made to rest; otherwise the dismissal will be rendered illegal. (Jardine Davies v NLRC, 1999)
• Especially for managerial employees. Tolentino was a managerial employee and therefore LoT&C would have
been a valid ground for dismissal. The mere existence of a basis for the LoT&C justifies the dismissal of the
employee, because when an employee accepts a promotion to a managerial position or an office requiring full
T&C, he gives up some of the rigid guaranties of the ordinary workers. A company’s resort to acts of self-defense
would be more easily justified. Proof beyond reasonable doubt is not required, provided there is valid reason for
the LoT&C.
Although the standards for a managerial employee’s dismissal are less stringent, the LoT&C must be substantial and
founded on clearly established facts sufficient to warrant his separation from the company. Substantial evidence is
of critical importance and the burden rests on the employer to prove it. Suspicion has never been valid ground for
dismissal. (PLDT v Tolentino, 2004)
• Must be work-related. Loss of confidence as a just cause for termination of employment is premised on the fact
that the employee concerned holds a position of responsibility, trust & confidence. In order to constitute a just
cause for dismissal, the act complained of must be so related to the performance of the duties of the dismissed
employee as would show that s/he is unfit to continue working for the employer. (PNCC v Matias, 2005)
• Not just an ordinary breach. Loss of confidence must be based on fraud or willful breach by the employee of the
trust reposed in him by his employer or duly authorized representative. Ordinary breach does not suffice.
(PNCC v Matias, 2005)
• Not just an excuse. Loss of confidence should not be used as a subterfuge for causes w/c are
illegal/improper/unjustified. It must be genuine, not a mere afterthought to justify an earlier action taken in bad
faith. (PNCC v Matias, 2005)
• Example. As Senior Sales Manager, De la Cruz was holding a managerial position in which he was tasked to
perform key functions in accordance with an exacting work ethic. His position required full T&C. While he could
exercise some discretion, this obviously did not cover acts for his own personal benefit, e.g. unauthorized use of
company cellphone for overseas calls, unauthorized reimbursement of plane tickets of his wife and child. His acts
amounted to fraud or deceit which led to the LoT&C of his employer. (De la Cruz v NLRC, 2003)

Breach of Trust – Loss of Confidence

The acts of respondents were inimical to the financial interest of the cooperative. They took advantage of their highly
sensitive positions to intentionally violate their duties. It is not material that they did not “misappropriate any amount
of money, nor incur any shortage relative to the funds in their possession” because the premise for dismissal on the
ground of loss of confidence is that the employees concerned hold positions of trust. The betrayal of this trust is the
essence of the offense for which an employee is penalized.
Reinstatement of respondents is neither sound in reason nor just in policy and is irreconcilable with trust and
confidence that has been irretrievably lost. (Central Pangasinan Electric Cooperative v Macaraeg, 2003)

Position of Trust and Confidence

• Finance Director. As Finance Director, Santos is in charge of the custody, handling, care, and protection of the
company’s funds. The encashment of personal checks and her private use of such funds, albeit for short periods of
time, are contrary to the fiduciary nature of her duties. Moreover, she has functional control over all the plant and
the regional finance officers, including cashiers, within the Luzon Operations Area. In act, she is the highest-
 ranking managerial employee for the finance section of the Luzon Beer Division Operations. (Santos v San
Miguel Corp., 2003)
• Branch Accountant. A position of T&C is one where a person is entrusted with confidence on delicate matters, or
with the custody, handling, or care and protection of the ER’s property. As Branch Accountant, Panday occupied a
position of T&C.
A special and unique employment relationship exists bet. a corporation and its cashiers. More than most key
positions, that of cashier calls for the utmost T&C. When an employee accepts a prootion to a managerial position or
to an office requiring full T&C, she gives up some of the rigid guaranties available to ordinary workers. Infractions
which, if committed by others, would be overlooked or condoned or penalties mitigated, may be visited with more
severe disciplinary action. A company’s resort to acts of self-defense would be more justified. It would be most
unfair to require an employer to continue employing as its cashier a person whom it reasonably believes is no longer
capable of giving full and wholehearted trustworthiness in the stewardship of company funds. (Panday v NLRC,
1992)
• Acting Salesman. Loss of confidence, as a just cause for termination of employment, is premised on the fact that
the employee concerned holds a position of responsibility, trust and confidence. He must be invested with
confidence on delicate matters such as the custody, handling, care and protection of the employer’s property
and/or funds.
By virtue of his job as driver/helper and being occasionally designated as Acting Salesman, Cruz is entrusted with
the property and funds which belong to the company. (Cruz v Coca-Cola Bottlers Phils., 2005)
• 3-day route salesman. The designation of Ramirez as temporary route salesman for only 3 days did not
automatically make him an employee in whom the company reposed T&C. He remained a driver/helper. Thus he
cannot be dismissed on ground of LoT&C. (Coca-Cola Bottlers Phils. v Kapisanan ng Manggagawa sa Coca-
Cola, 2005) Not in syllabus but might be useful.

Guidelines
Guidelines for the application of the doctrine of loss of confidence:

(a) The loss of confidence should not be simulated.

(b) It should not be used as a subterfuge for cause which are improper, illegal or unjustified.
(c) It should not be arbitrarily asserted in the face of overwhelming evidence to the contrary.
(d) It must be genuine, not a mere afterthought to justify earlier action taken in bad faith.
(e) The employee involved must hold a position of trust and confidence. (Vitarich v NLRC, 1999; Coca-Cola Bottlers
Phils. v Kapisanan ng Manggagawa sa Coca-Cola, 2005)

Willful Breach
The breach of trust must be willful—that is, done intentionally, knowingly, and purposely, without justifiable excuse, as
distinguished rom an act done carelessly, thoughtlessly, heedlessly, or inadvertently. It must rest on substantial
grounds and not on employer’s arbitrariness, whims, caprices or suspicion; otherwise the employee would eternally
remain at the mercy of the employer. It should be genuine and not situated; nor should it appear as a mere
afterthought to justify earlier action taken in bad faith or subterfuge for causes which are improper, illegal, and
unjustified. It has never been intended to afford an occasion for abuse because of its subjective nature.
Villavicencio’s failue to inspect the logbook for about 2 months before the occurrence of the anomalies therein was due
to preoccupation with some emergency works brought about by a storm. Thus it cannot be said that his failure was
fillful. (Atlas Consolidated Mining & Devt. v NLRC, 1998)

Coverage
The term “trust and confidence” is restricted to managerial employees. (Fujitsu Computer Products v CA, 2005)

Proof
Rematek has the burden of establishing the facts as bases for their loss of confidence in De los Reyes. But their evidence
is insubstantial and inadequate to support a conclusion that she engaged in anomalous transactions. Rematek relied
mainly on the audit findings of its external auditor to bolster its claims of misappropriation. However, the Asst. Prov.
Prosecutor recommended the dismissal of the estafa case against De los Reyes for lack of probable cause and
recommended the filing of informations for Perjury against the said auditor and another employee for making
untruthful statements in their respective affidavits.
 Against De los Reyes’s allegations exculpating her from the charges, substantiated by corroborating testimonies and
documents, Rematek did not submit any countervailing evidence. Rematek thus failed to substantiate their charges
against her with competent and credible evidence. (Rematek Phils. v De los Reyes, 2005)

Lack of Damage
Lack of material or pecuniary damages would not in any way mitigate a person’s liability nor obliterate the loss of trust
and confidence. Whether or not the respondent bank was financially prejudiced is immaterial. Also, what matters is
not the amount involved, be it paltry or gargantuan; rather the fraudulent scheme in which the petitioner was involved,
which constitutes a clear betrayal of trust and confidence. (Cadiz v CA, 2005)

D. Commission of Crime
ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member
of his family or his duly authorized representatives;

E. Analogous Causes

ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
(e) Other causes analogous to the foregoing.

Quarrelsome – Bossy
• Bawal nakasimangot dito. Vallejera had a difficult personality and a sour disposition at work. The Chief
Librarian resigned due to irreconcilable differences with her. The Directress informed her of the negative reports
but she resented it, storming out of the office without waiting to be dismissed repeatedly saying, “Ok, I will
resign. I will resign.” Vallejera refused to settle her differences with the Directress.
The behavior that Vallejera exhibited on several occasions smack of sheer disrespect and defiance of authority and
assumes the proportion of serious misconduct or insubordination (hence an analogous case), any of which
constitutes just cause for dismissal from employment. (Cathedral School of Technology v NLRC, 1992)
• An “attitude problem” may be a valid ground for dismissal. An employee who cannot get along with his co-
employees is detrimental to the company, for he can upset and strain the working environment. Without the
necessary teamwork and synergy, the office cannot function well. Thus, management has the prerogative to take
the necessary action to correct the situation and protect its organization. When personal differences between
employees and management affect the work environment, the peace of the company is affected.
Galay allegedly had an attitude problem and did not get along with her coworkers, for which she was constantly
warned to improve. The mere mention of negative feedback from her team members is not proof of her attitude
problem. Likewise, her failure to refute the employees’ allegations of her negative attitude does not amount to
admission. (Heavylife Manila v CA, 2005)

Probable Cause
The trial court dismissed the case for “insufficiency of evidence,” and such ruling is tantamount to an acquittal of the
crime charged, and proof that Javier’s arrest and detention were without factual and legal basis in the first place. SEMC
acted with precipitate haste in terminating Javier’s employment on the ground that he had raped the complainant
therein. Javier had yet to be tried for the said charge. In fine, the SEMC prejudged him, and preempted the ruling of
the RTC.
Javie was detained pending the case, which detention cannot be divorced from the prolonged absence that led to his
termination. One caused the other. The causes for the detention, which in turn gave the employer a ground to dismiss
Javier, proved to be nonexistent. Absent the reason which gave rise to his separation from employment, there is no
intention on the part of th employer to dismiss the employee; consequently, the termination was illegal and
reinstatment is warranted. (Standard Electric Mfg. v Standard Electric Employees’ Union, 2005)

Conviction – Moral Turpitude

• Definition. Moral turpitude = an act of baseness, vileness, or depravity in the private and social duties which a
man owes to his fellowmen, contary to justice, honesty, modesty, or good morals. What crime involves moral
turpitude is for the SC to decide. There can be crimes which are mala in se but do not involve MT, and there can be
crimes mala prohibita that may involve MT. MT is a vague and indefinite term, the meaning of which must be left
 to the process of jud’l inclusion or exclusion as the cases are reached. IRRI here simply assumed that conviction
for homicide is conviction of a crime involving moral turpitude. (IRRI v NLRC, 1993)
• An affidavit of desistance, in criminal cases, may create serious doubts as to the liability of the accused. At the
very least, such affidavit calls for a second hard look at the records of the case and the basis for the judgment of
conviction. In labor cases where technical rules of procedure are not to be strictly applied if the result would be
detrimental to the working man, an affidavit of desistance gains added importance in the absence of any evidence
on record explicitly showing that the dismissed employees committed the act which caused their dismissal. The
inevitable conclusion is that their having mauled Malong was not proved by substantial evidence and is therefore
open to question. (Oania v NLRC, 1995)

[Gross Inefficiency]
“Gross inefficiency” does fall within the purview of “other causes analogous to the foregoing” and constitutes therefore
just cause for termination. One is analogous to another if it is susceptible of comparison with the latter either in general
or in some specific detail; or has a close relationship with the latter. “Gross inefficiency” is closely related to “gross
neglect”: Both involve specific acts of omission on the part of the EE resulting in damage to the ER or to his business.
Buiser v Leogardo: Failure to observe prescribed standards of work, or to fulfill reasonable work assignments due to
inefficiency, may constitute just cause for dismissal. (Lim v NLRC, 1996)

F. Others – Just Causes Claimed by Employer

1. Abandonment
Defined
• Definition. Abandonment is the deliberate and unjustified refusal of an EE to resume his employment; it is a
form of neglect of duty. Abandonment of office is a species of resignation – while resignation in general is a
formal relinquishment, abandonment is a voluntary relinquishment through nonuse. (Nueva Ecija Electric
Cooperative v NLRC, 2005)
• Elements of abandonment:
(1) failure to report for work or absence without valid or justifiable reason; and
(2) clear intention to sever the ER-EE relationship with the second element as the more determinative factor
manifested by some overt acts. (Leonardo v NLRC, 2000; R.P.Dinglasan Construction v Atienza, 2004; Nueva
Ecija Electric Cooperative v NLRC, 2005; Chavez v NLRC, 2005; Floren Hotel v NLRC, 2005)
• Example. The factors considered for finding a valid abandonment are present: Petitioners’ failure to report for
work or absence was without valid or justifiable cause, and their refusal to report for work notwithstanding
their receipt of letters requiring them to return to work, show their clear intention to sever the employer-
employee relationship. (Gabuay v Oversea Paper Supply, 2004)

Requisites
• Mere absence at work does not constitute abandonment. Moreover, if the workers really did abandon their
jobs, then the hotel should have served them with a notice of termination on the ground of abandonment (Sec.
2, Rule XIV, Book V, Rules & Regs Implementing the LC). (Floren Hotel v NLRC, 2005)
• Case filed. An employee who takes steps to protest his layoff cannot be said to have abandoned his work.
(Floren Hotel v NLRC, 2005)
• Example. We have accordingly held that the filing of a complaint for illegal dismissal, as in this case, is
inconsistent with a charge of abandonment.
On the other hand, Leonardo definitely abandoned his work. After being pressed by the company to present the
customer who allegedly solicited his sideline work, he never reported back to work anymore and even got
employed elsewhere. While he alleges that he was illegally dismissed, he never stated any reason they might
want to ease him out of his job. It also took him 10 long months to file his case. These indicate that the filing of
his case was a mere afterthought on his part. (Leonardo v NLRC, 2000)
• Example. The employees reported back to the company at least 10 times expressing their desire to continue
work. They sought DOLE’s intervention in seeking reinstatement. They submitted the documents requested
by the company. They also lost no time in filing for illegal dismissal, which is clearly inconsistent with a desire
to sever the employment relationship and abandon work. (R.P.Dinglasan Construction v Atienza, 2004)
• Example. Chavez could not have intended to sever his relationship with the company for at the time that he
allegedly abandoned his job, he had just filed a complaint for regularization, which was forthwith amended to
one for illegal dismissal. A charge of abandonment is totally inconsistent with the immediate filing of a
complaint for illegal dismissal, more so when it includes a prayer for reinstatement. (Chavez v NLRC, 2005)
Inference
A charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal. It’s
inconceivable that someone who’s been working at the hacienda since 1977 and cultivating a substantial portion of a
6-ha. lot therein for himself would just abandon his work in 1992 for no apparent reason.
Nor could intent to abandon be presumed from Barrientos’s subsequent employment with another employer. The
fact that the start of such employment coincides with the date of the original complaint strongly indicates that such
employment was only meant to help Barrientos and his family survive during the pendency of this case.
Abandonment of position cannot be lightly inferred, much less legally presumed from certain equivocal acts such as
an interim employment. (Hda. Dapdap v NLRC, 1998)

Specific Acts
The burden of proof is on the employer to show a clear and deliberate intent on the part of the employee to
discontinue employment. The law, however, does not enumerate what specific overt acts can be considered as
strong evidence of the intention to sever the employer-employee relationship. An employee who merely took steps
to protest her indefinite suspension and to subsequently file an action for damages cannot be said to have
abandoned her work, nor is it indicative of an intention to sever the relationship. Her failure to report for work was
due to her indefinite suspension. (Premiere Development Bank v NLRC, 1998)

1. Loans – Borrowing Money

• Okay. Borrowing money is neither dishonest nor immoral nor illegal, much less criminal. Borrowing money
and paying the same is not an act of dishonesty, of immorality, of illegality, or of omissions punishable by law
as to be a ground for dismissal as in this case.
Elona paid the money she borrowed and was even recommended for permanent employment from her
probationary status. Further, Elona must have been compelled to borrow because of economic necessity, which
circumstance could evoke sympathy from the Court, the very constitutional organ mandated by the
fundamental law to implement the social justice guarantee for the protection of the lowly, efficient and honest
employee, who is economically disadvantaged, like herein respondent. (Medical Doctors v NLRC, 1985)
• Not okay. Borrowing money is neither dishonest nor immoral nor illegal, much less criminal. However, the
act becomes serious misconduct that may justly be asserted as a ground for dismissal when reprehensible
behavior, such as the use of a trust relationship as leverage for borrowing money, is involved.
Aliarte eventually had to seek assistance from the Foundation to collect the money Querimit borrowed from
her. Querimit, a case worker at the Foundation assigned to look after Aliarte’s son, violated the trust of the
Foundation by thus committing an apparent impropriety. There may be no contractual rule that the
Foundation’s employees should have no commercial or other dealings with wards’ parents. However, the
Foundation was not a third person with respect to the transactions between Querimit and Aliarte, because the
Foundation solicits money abroad to support its wards. The fact that Aliarte depended on foreign charity to
support her child indicates that there was no other source for the money she loaned to Querimit except for the
trust fund from the Foundation. (Pearl S. Buck Foundation v NLRC, 1990)

2. Courtesy Resignation
By directing its employees to submit letters of courtesy resignation, the bank, in effect forced upon its
employees an act which they themselves should voluntarily do. It should be emphasized that resignation per se
means voluntary relinquishment of a position or office. Adding the word “courtesy” did not change the essence
of resignation. That courtesy resignations were utilized in government reorganization did not give private
respondent the right to use it as well in its own reorganization and rehabilitation plan. There is no guarantee
that all employers will not use it to rid themselves arbitrarily of employees they do not like, in the guise of
streamlining its organization. On the other hand, employees would be unduly exposed to outright termination
of employment which is anathema to the constitutional mandate of security of tenure.
Petitioner’s dismissal was effected through a letter accepting his resignation. Private respondent rationalizes
that this was done, even if petitioner did not actually submit such letter, so as not to jeopardize his chances of
future employment. But it is also clear from its pleadings that private respondent terminated petitioner’s
employment for insubordination in view of his failure to comply with the order to submit his letter of courtesy
resignation. We hold, however, that insubordination may not be imputed to the one who refused to follow an
unlawful order.
 The record fails to show any valid reasons for terminating the employment of petitioner. To clothe with legality
petitioner’s dismissal for his failure to submit his letter of courtesy resignation is to add a ground for
termination of employment to the provisions of the Labor Code. (Batongbacal v Associated Bank, 1989)

3. Work Attitude – Absences

The service record of Cortez is perpetually characterized by unexplained absences and unauthorized sick leave
extensions. The nature of his job requires his presence to minister to incessant complaints often faulted with
electricity. The habitual absenteeism of an errant EE is not concordant with the public service that Meralco has
to assiduously provide. A deep sense of duty would, therefore, command that Cortez should limit his absence
for justifiable reasons.
Cortez violated the Code of EE Discipline not only once but 10 times. Meralco imposed penalties and for the 9th
time he was informed that dismissal will be imposed. In total disregard, he committed the 10th infraction. All
these constitute a violation of the Code and gross neglect of duty and serious misconduct. (Meralco v NLRC,
1996)

4. Term Employment
• Policy. The language of the law evidently manifests the intent to safeguard the tenurial interest of the worker
who may be denied the rights and benefits due a regular employee by virtue of lopsided agreements with the
economically powerful employer who can maneuver to keep an employee on a casual status for as long as
convenient. (Romares v NLRC, 1998)
• The leading case. The employment contract was executed in 1971, when there was still no LC. At that time,
there was no doubt as to the validity of term employment (RA 1052 as amended by RA 1787). It was perfectly
legitimate for the parties to include in the contract a stipulation fixing the duration of employment.
Fixed period employment also continues to enjoy the status of legitimacy under the LC. Since the entire
purpose behind the development of legislation culminating in the present Article 280 clearly appears to have
been to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article,
indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular
employment as defined therein, should be construed to refer to the substantive evil that the Code itself has
singled out: agreements entered into precisely to circumvent security of tenure.
[The prohibition] should have no application to instances where a fixed period of employment was agreed upon
knowingly and voluntarily by the parties, without any force, duress, or improper pressure being brought to
bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on more or less equal terms with no moral
dominance whatever being exercised by the former over the latter. Unless thus limited in its purview, the law
would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless
and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences. (Brent School v
Zamora, 1990)
• In a nutshell. The Court has upheld the legality of a fixed-term employment, but with a stern admonition
that where from the circumstances it is apparent that the period has been imposed to preclude the acquisition
of tenurial security by the employee, then it should be struck down as being contrary to law, morals, good
customs, public order and public policy. (Magsalin v National Organization of Working Men, 2003)
• Example: circumvention of rights. Consecutive 2- and 3-month employment contracts expressly stating that
his temporary job/service as mason would be terminated at the end of the said period or upon completion of
the project were obtrusively a convenient subterfuge utilized to prevent his regularization. It was a clear
circumvention of the employee's right to security of tenure and to other benefits. (Romares v NLRC, 1998)
• Test. The criteria under which "term employment" cannot be said to be in circumvention of the law on
security of tenure:
1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any
force, duress, or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent; and
2) It satisfactorily appears that the employer and the employee dealt with each other on more or less equal
terms with no moral dominance exercised by the former or the latter. (Romares v NLRC, 1998; Medenilla v
Phil. Veterans Bank, 2000)
• Remedy. If the contract is for a fixed term & the employee is dismissed w/o just cause, he is entitled to the
payment of his salaries corresponding to the unexpired portion of the employment contract. (Medenilla v
Phil. Veterans Bank, 2000)
5. Past Infractions – Past Offenses
• Previous infractions may be used as justification for an employee’s dismissal from work in connection w/ a
subsequent similar offense.
Such is not the case here. Stellar’s reliance on Pepito’s past infractions as sufficient grounds for his eventual
dismissal, in addition to his prolonged absence, is unavailing. Moreover, his past infractions had already either
been satisfactorily explained, sufficiently penalized, condoned, or not proven by Stellar. (Stellar Industrial
Services v NLRC, 1996)
• The correct rule has always been that previous offenses may be used as valid justification for dismissal from
work only if the infractions are related to the subsequent offense upon which basis the termination of
employment is decreed. The previous infraction, in other words, may be used if it has a bearing to the
proximate offense warranting dismissal. (La Carlota Planters Ass’n v NLRC, 1998)

6. Professional Training – Residency Training

Petitioners’ temporary assignments after the reorganization did not violate his constitutional right to security of
tenure. A residency or resident physician position in a medical specialty is never a permanent one. Residency
connotes training and temporary status. It is a step taken by a physician right after post-graduate internship
prior to his recognition as a specialist or sub-specialist in a given field. (Felix v Buenaseda, 1995)

7. Love and Morals

Immorality
Sec. 94, Manual of Regulations for Private Schools: “Causes of Terminating Employment. In addition to the just
causes enumerated in the Labor Code, the employment of school personnel, including faculty, may be
terminated for any of the ff causes: xxx E. Disgraceful or immoral conduct.”
To constitute immorality, the circumstances of each particular case must be holistically considered and
evaluated in light of the prevailing norms of conduct and applicable laws.
American jurisprudence: immorality = a course of conduct which offends the morals of the community and is a
bad example to the youth whose ideals a teacher is supposed to foster and to elevate; incl. sexual misconduct.
Having an extra-marital affair is an affront to the sanctity of marriage, which is a basic institution of society. FC:
rights & obligations of marriage. Our laws, in implementing this const’l edict on marriage and the family,
underscore their permanence, inviolability, and solidarity.
As a teacher, Santos serves as an example to his pupiles, esp. during their formative years and stands in loco
parentis to them. To stress their importance in our society, teachers are given substitute and special parental
authority under our laws (remember FC?).
Teachers must adhere to the exacting standards of morality and decency. There is no dichotomy of morality. A
teacher, both in his official and personal conduct, must display exemplary behavior. He must freely and
willingly accept restrictions on his conduct that might be viewed irksome by ordinary citizens. In other words,
the personal behavior of teachers, in and outside the classroom, must be beyond reproach. Teachers must abide
by a standard of personal conduct which not only proscribes the commission of immoral acts, but also prohibits
behavior creating a suspicion of immorality because of the harmful impression it might have on the students.
When a teacher engages in extramarital relationships, esp. when both the parties are married, such behavior
amounts to immorality, justifying his termination from employment. (Santos v NLRC, 1998)

Love
• The Love Doctrine. To constitute immorality, the circumstances of each particular case must be holistically
considered and evaluated in light of the prevailing norms of conduct and applicable laws.
The school failed to show that Chua took advantage of her position to court her student Qua. If the two
eventually fell in love, despite the disparity in their ages and academic levels, this only lends substance to the
truism that the heart has reasons of its own which reason does not know. But, yielding to this gentle and
universal emotion is not to be so casually equated with immorality. The deviation of the circumstances of
their marriage from the usual social pattern cannot be considered as a defiance of contemporary social mores.
The avowed policy of the school in rearing and educating children does not justify Chua’s dismissal because
the policy is not at odds with, and should not be capitalized on to defeat, the security of tenure granted by the
Constitution to labor. (Chua-Qua v Clave, 1990)
• Company interest prevails. Glaxo’s policy of prohibiting its employees from having relationships with
employees of competitors is a valid exercise of its management prerogatives. Glaxo possesses the right to
 protect its economic interests & prevent a competitor from gaining access to its secrets/procedures/policies.
Under the circumstances, the prohibition against personal or marital relationships with employees of
competitor companies is reasonable because such relationships might compromise the company’s interests.
Glaxo does not impose an absolute prohibition. What it merely seeks to avoid is a conflict of interest bet. the
employee & the company that may arise out of such relationship. (Duncan Ass’n v Glaxo-Wellcome, 2004)

8. Violation of Company Rules

Company policies and regulations, unless shown to be grossly oppressive or contrary to law, are generally valid
and binding on the parties and must be complied with until finally revised or amended, unilaterally or
preferably through negotiation, by competent authority. The Court has upheld a company’s management
prerogatives so long as they are exercised in good faith for the advancement of the employer’s interest and not
for the purpose of defeating or circumventing the rights of the employees under special laws or under valid
agreements. (Aparente v NLRC, 2000)

9. Criminal Case
Effect of Acquittal
The dismissal of the criminal case against an employee shall not necessarily be a bar to his dismissal from
employment on the ground of loss of trust and confidence. (Ramos v NLRC, 1998)

Conviction
Santos’s conviction for theft (of company property), after the NLRC ruled in her favor and ordered her
reinstatement but before such order had been executed, was justification enough for the NLRC to suspend the
execution of said decision. Such conviction is a supervening cause which rendered unjust and inequitable the
decision of reinstatement with back wages. No separation pay either, because she was found guilty of a crime
involving moral turpitude.
(Once a judgment has final and executory it can no longer be disturbed, except only for correction of errors or
when supervening events render its execution impossible or unjust. The power of the NLRC to issue a writ of
execution carries with it the right of the correctness of the execution of the decision and the right to consider
supervening events that may affect such execution.) (Sampaguita Garments v NLRC, 1994)

Dismissal of Criminal Case

In assessing the evidence before him, the fiscal considers the basic rule that to successfully convict the accused,
the evidence must be beyond reasonable doubt, and not merely substantial. On the other hand, to support
findings and conclusions of administrative bodies, only substantial evidence is required. It does not follow that
once the fiscal dismissed the complaint, the officials of the DOLE should also have decided in favor of Lacorte.
For one, the evidence presented before the two bodies may not necessarily be identical. Secondly, the
appreciation of the facts and evidence presented is an exercise of discretion on the part of administrative
officials over which one cannot impose his conclusion on the other.
The conviction of an employee in a crim case is not indispensable to warrant his dismissal, and the fact that a
crim complaint against the employee has been dropped by the fiscal is not binding and conclusive upon a labor
tribunal. (Lacorte v Inciong, 1988)

Guilt or Innocence
While the criminal complaint was dismissed, such dismissal did not preclude a finding by the competent
administrative authorities that Chua had indeed committed acts inimical to the interest of the company. Guilt
or innocence in the criminal case is not determinative of the existence [or non-existence] of a just and authorized
cause for dismissal.
Since Chua’s active personal involvement in the unlawful and violent strike was amply shown by substantial
evidence, the NLRC was correct in holding that the dismissal of petitioner was for a just and authorized cause.
(Chua v NLRC, 1993)

10. Moonlighting
In February 1999 the Agabons were frequently absent, having subcontracted for an installation work for another
company. Subcontracting for another company clearly showed the intention to sever the employer-employee
 relationship with Riviera Home Improvements. This was not the first time they did this. In January 1996, they
also did not report for work because they were working for another company. The company at that time
warned them that they would be dismissed if this happened again. The Agabons disregarded the warning and
exhibited a clear intention to sever their employer-employee relationship.
An employee who deliberately absents from work without leave or permission from his employer, for the
purpose of looking for a job elsewhere, is considered to have abandoned his job. There is all the more reason to
apply the rule to the Agabons, who were absent because they were already actually working in another
company. (Agabon v NLRC, 2004)

14.06 Transfers – Discharge and Suspension

• Management prerogative. Security of tenure, although provided in the Constitution, does not give an employee an
absolute vested right in a position as would deprive the company of its prerogative to change their assignment or
transfer them where they will be most useful. When a transfer is not unreasonable/inconvenient/prejudicial to an
employee & it does not involve a demotion in rank or diminution of his pay/benefits/privileges, the employee may not
complain that it amounts to constructive dismissal.
The employer has a right to transfer/assign employees from one area of operation to another, or from one office to
another, in pursuit of its legitimate business interests, provided there is no demotion in rank or diminution of
salary/benefits/privileges & it is not motivated by discrimination, made in bad faith, or effected as a form of
punishment/demotion without sufficient cause. This matter is a prerogative inherent in the employer’s right to effectively
control and manage the enterprise. (Lanzaderas v Amethyst Security and General Services, 2003)
• Management prerogative. It is the prerogative of the employer to transfer and reassign employees for valid reasons
and according to the requirement of its business. An owner of a business enterprise is given considerable leeway in
managing his business. Our law recognizes certain rights collectively called management prerogative as inherent in
the management of business enterprises.
The Court as a rule will not interfere with an employer’s prerogative to regulate all aspects of employment, which
includes, among others, work assignment, working methods, and place and manner of work. Labor laws discourage
interference with an employer’s judgment in the conduct of his business.
[At the same time,] the managerial prerogative to transfer personnel must be exercised without grave abuse of discretion,
putting to mind the basic elements of justice and fair play. It cannot be used as subterfuge by the employer to rid himself
of an undesirable worker. (Castillo v NLRC, 1999)
• Management prerogative. It is the employer's prerogative, based on its assessment and perception of its employee's
qualifications, aptitudes and competence, to move him around in the various areas of its business operations in order
to ascertain where the employee will function with utmost efficiency and maximum productivity or benefit to the
company. (Westin Phil. Plaza hotel v NLRC, 1999)
• Management prerogative. Service-oriented enterprises, e.g. security agencies, generally adhere to the business adage
“The customer is always right.” Employers adopt means designed toward the ends of satisfying their clients’ interests,
conforming to their needs, and catering to their whims and wishes. These are called management prerogatives in
which the will of management to conduct its own affairs to achieve its purpose takes form.
Transfer of an employee lies within the ambit of management prerogatives. However, a transfer amounts to constructive
dismissal when the transfer is unreasonable, inconvenient, or prejudicial to the employee, and it involves a demotion in
rank or diminution of salaries, benefits and other privileges. (OSS Security and Allied Services v NLRC, 2000)
• Limits on management prerogative. Management prerogatives are subject to limitations provided by law, CBAs, and
the general principles of fair play and justice. (Mendoza v Rural Bank, 2004)
• Burden of proof. The employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial
to the employee and does not involve a demotion in rank or a diminution of his salaries, privileges or other benefits. If
the employer fails to overcome this burden of proof, the transfer shall be tantamount to constructive dismissal.
(Mendoza v Rural Bank, 2004)
• Example. The company’s right to transfer is expressly recognized in the CBA between the hotel management and the
employees union as well as in the hotel employees handbook. The transfer order was issued in the exercise of
management prerogative in view of the negative reports vis-à-vis Rodriguez’s performance as doorman. It was a lateral
movement, as the positions of doorman and linen room attendant are equivalent in rank and compensation. It was a
reasonable relocation from a guest contact area to a non-guest contact area. (Westin Phil. Plaza hotel v NLRC, 1999)
• Example. No malice should be imputed to the fact that Legaspi was reassigned right after being relieved of her
previous assignment. Unlike other contracts of service, the availability of assignment for security guards is primarily
subservient to the contracts entered into by the agency. Being temporarily sidelined is a standard stipulation in
employment contracts. There is no evidence that OSS discriminated against Legaspi; the request of the client was
 reasonable. Besides, a relief and transfer order does not sever employment rel’ship between a guard and her agency.
(OSS Security and Allied Services v NLRC, 2000)
• Example. Legaspi’s new assigned post entailed changes in her routine because of the different location, which changes
she found disagreeable. However, the mere fact that she was inconvenienced does not make the transfer illegal. (OSS
Security and Allied Services v NLRC, 2000)

11. Resignation and Effectivity

• Definition. Resignation is the voluntary act of employees who are compelled by personal reasons to
dissociate themselves from their employment. It must be done with the intention of relinquishing an office,
accompanied by the act of abandonment. (EMCO Plywood v Abelgas, 2004)
• vs. abandonment. Voluntary resignation = The act of an employee, who finds himself in a situation in
which he believes that personal reasons cannot be sacrificed in favor of the exigency of the service; thus he
has no other choice but to disassociate himself from his employment. Acceptance of a resignation tendered
by an employee is necessary to make the resignation effective.
Abandonment is a matter of intention and cannot lightly be presumed from certain equivocal acts. To
constitute abandonment, there must be clear proof of deliberate & unjustified intent to sever the employer-
employee relationship. Clearly, the operative act is still the employee’s ultimate act of putting an end to his
employment. (Shie-Jie Corp./Seastar Export-Import Corp v Nat’l Federation of Labor, 2005)

12. Abolition of Position

The abolition of a position deemed no longer necessary is a management prerogative. Absent any findings of
malice and arbitrariness on the part of management, the Court will not efface such privilege solely to protect
the person holding that office.
In cases where an employee’s position is abolished due to corporate restructuring, the law in general, permits
the severance of the employer-employee relationship, provided that certain requirements are met. (Benguet
Electric Cooperative v Fianza, 2004

13. Dishonesty
Naguit released petty cash even though he knew that Cabuhat did not hire any jeep nor conduct field work on
that day. Naguit asserts that it was mere oversight. But as custodian of the petty cash fund, Naguit had the
duty to ascertain that the circumstances which brought about any claim therefrom were in order. He cannot
now shirk from this responsibility by indirectly pinning the blame on the approving officer and asserting that
the transgression was the result of mere inadvertence. Naguit thus committed dishonesty and breached
Meralco’s trust. (Naguit v NLRC, 2003)

Constructive Discharge
Defined
• Definition. Constructive dismissal = a quitting, an involuntary resignation resorted to when continued
employment becomes impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in
pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the
employee. (Philippine-Japan Active Carbon v NLRC, 1989; Duncan Ass’n v Glaxo-Wellcome, 2004; Mobile
Protective and Detective Agency v Ompad, 2005; Dusit Hotel Nikko v National Union in Hotel, Restaurant
and Allied Industries, 2005)
• Definition. When his transfer is not unreasonable, nor inconvenient, nor prejudicial to him, and it does not
involve a demotion in rank or a diminution of his salaries, benefits, and other privileges, the employee may not
complain that it amounts to a constructive dismissal. (Philippine-Japan Active Carbon v NLRC, 1989)
• Definition. Constructive dismissal exists where there is a cessation of work because continued employed is
rendered impossible, unreasonable, or unlikely. It is present when an EE’s functions which were originally
supervisory in nature were reduced and such reduction is not grounded on valid grounds such as genuine
business necessity. (Go v CA, 2004)
• Burden of proof. Go submitted a letter of resignation. It is thus incumbent upon him to substantiate his claim
that his resignation was not voluntary. He who asserts must prove. After he went on leave, he worked for the
release of his clearance and the payment of his 13th month pay and leave pay benefits, acts which an employee
normally does after he resigns. If he was indeed forced to resign, he would not have sought to be cleared. The
 voluntary nature of Go’s acts has manifested itself clearly and belie his claim of constructive dismissal. (Go v
CA, 2004)
• Example. Quiñanola’s assignment did not involve a remotion in rank—her rank was still that of a dept secretary
—nor a change in her place of work—the office is in the same building—nor a diminution in
pay/benefits/privileges. She was therefore not constructively dismissed. (Philippine-Japan Active Carbon v
NLRC, 1989)
• Example. The hotel’s redundancy program was but a ploy, a contrivance scripted to subvert the Union and
unlawfully dismiss many of its employees. Thus the hotel was guilty of unfair labor practice. The position of
Agoncillo was not abolished or declared redundant; in fact, the hotel hired an entirely new set of employees to
perform the same tasks. (Dusit Hotel Nikko v National Union in Hotel, Restaurant and Allied Industries,
2005)
• Example. Tecson was not demoted or unduly discriminated upon by reason of such transfer. The challenged
policy has been implemented by Glaxo impartially and disinterestedly for a long period of time. The company
properly exercised its management prerogative in reassigning Tecson to the Butuan City sales area, being
merely in keeping with the policy of the company in avoidance of conflict of interest. The proximity of the
original areas of responsibility of Tecson and his wife, all in the same Bicol Region, renders the conflict of
interest not only possible, but actual, as learning by one spouse of the other’s market strategies in the region
would be inevitable. Glaxo’s acts of accommodation toward Tecson dispel any suspicion of unfairness and bad
faith on the part of Glaxo.
Also, by the very nature of his employment, a drug salesman or medical representative is expected to travel. He
should anticipate reassignment according to the demands of their business. (Duncan Ass’n v Glaxo-Wellcome,
2004)
• Example. The company committed constructive dismissal when it offered to reassign private respondents to
another company but with no guaranteed working hours and payment of only the minimum wage, after they
had been employed for 32 and 21 years respectively. The terms of the redeployment thus became unacceptable
for private respondents and foreclosed any choice but to reject the offer, involving as it did a demotion in status
and diminution in pay. (R.P.Dinglasan Construction v Atienza, 2004)

Constructive Discharge and Illegal Dismissal

• Justice and fair play. The managerial prerogative to transfer personnel must be exercised without grave abuse
of discretion. It must always bear in mind the basic elements of justice and fair play. Having the right should not
be confused with the manner that right is exercised. Thus, it cannot be used as a subterfuge by the employer to
rid himself of an undesirable worker.
In constructive dismissal, the employer has the burden of proving that the transfer and demotion of an employee
are for just and valid grounds such as genuine business necessity. The employer must be able to show that the
transfer is not unreasonable, inconvenient or prejudicial to the employee. If the employer cannot overcome this
burden of proof, the employee’s demotion shall be tantamount to unlawful constructive dismissal. (Globe
Telecom v Florendo-Flores, 2003)
• Example. The dismissal of the workers was not a constructive dismissal but rather an illegal dismissal. They
were simply told without prior warning or notice that there was no more work for them. Evidently it was the
organization of a union within the company which led to the dismissal of the workers, and not the company’s
allegations of absence or abandonment. (Mark Roche Int’l v NLRC, 1999)
• Example. Florendo-Flores was constructively dismissed. She was singularly edged out of employment by the
unbearable or undesirable treatment she received from her immediate superior who discriminated against her
without reason. Although she continued to have the rank of a supervisor, her functions were reduced to a mere
house-to-house sales agent – this was tantamount to a demotion. (Globe Telecom v Florendo-Flores, 2003)

Preventive Suspension
• Definition. Preventive suspension, which is never obligatory on the part of the employer, may be resorted to only
when the continued employment of the employee poses a serious and imminent threat to the life or property of
the employer or of his co-workers. (Cadiz v CA, 2005)
• Defensive, not offensive. By itself, preventive suspension does not signify that the company has adjudged the
employee guilty of the charges s/he was asked to answer to & explain. Such disciplinary measure is resorted to for
the protection of the company’s property pending investigation of any malfeasance/misfeasance allegedly
committed by the employee. (Globe-Mackay Cable & Radio v NLRC, 1992)
 • Example. During the pendency of an investigation, the employeer may place the worker concerned under
preventive suspension if his continued employment poses a serious & imminent threat to the life/property of the
employer/his coworkers.
BUT here, there was no indication that Valiao posed such a threat, or that he was in such a position as to unduly
influence the outcome of the investigation. His preventive suspension therefore being unjustified, he should be paid
salary differentials. (Valiao v CA, 2004)
• Example. Petitioners insist that respondent bank never lost trust and confidence in them as it did not place them
under preventive suspension, and more tellingly, it even promoted them after the LA had ordered their
reinstatement. The bank, however, points out that the Alfiscar account through which the anomalous transactions
were coursed was no longer active at the time the fraud was discovered. Clearly, the bank had reason to conclude
that the imminence of the threat posed by the employees was not as vital as it would have been had the dubious
account still been open. (Cadiz v CA, 2005)

Rationale
The day after the head office was told of the irregularities, Vargas was placed under indefinite preventive
suspension. Although the company vice-president allegedly held an investigation the day prior to the imposition of
preventive suspension, such investigation is not sufficient to comply with the due process requirement. The records
don’t show that a formal notice of the charge was given to Vargas prior to the suspension, or that the said
investigation gave adequate opportunity for her to defend herself. An employee whose services are sought to be
terminated has the right to he informed beforehand of his proposed suspension as well as of the reasons therefor,
and to be afforded an adequate opportunity to defend himself from the charges leveled against him. (Kwikway
Engineering Works v NLRC, 1991) sorry mjo walang konek... yun lang talaga e...

Number of Offenses
Aparente’s dismissal was warranted even though it was his first offense after 18 years of satisfactory and unblemished
service. The damage caused to the company due to the truck accident amounted to more than P5k; thus, as provided
by CCBPI’s Code of Disciplinary Rules and Regulations, the penalty of discharge was properly imposable. Moreover,
Aparente’s acts amounted to willful disobedience: He took and drove the truck even though the company knew he had
no license and had therefore prohibited him from driving, and he even lied that he had a new license.
The law warrants the dismissal of an employee without making any distinction between a first offender and a habitual
delinquent where the totality of the evidence was sufficient to warrant his dismissal. In protecting the rights of the
laborer, the law authorizes neither oppression nor self-destruction of the employer. (Aparente v NLRC, 2000)

Other Causes – Business-Related Causes

Recognition of Right – Business-Related Causes
• Rationale. The law imposes many obligations on the employer such as providing just compensation to workers,
observance of the procedural requirements of notice and hearing in the termination of employment. On the other
hand, the law also recognizes the right of the employer to expect from its workers not only good performance,
adequate work and diligence, but also good conduct and loyalty. The employer may not be compelled to continue
to employ such persons whose continuance in the service will patently be inimical to his interests.
The constitutional policy to provide full protection to labor is not meant to be a sword to oppress employers. The
commitment of this Court to the cause of labor does not prevent us from sustaining the employer when it is in the
right, as in this case. Certainly, an employer should not be compelled to pay employees for work not actually
performed and in fact abandoned.
Justice in every case should only be for the deserving party. It should not be presumed that every case of illegal
dismissal would automatically be decided in favor of labor, as management has rights that should be fully respected
and enforced by this Court. As interdependent and indispensable partners in nation-building, labor and
management need each other to foster productivity and economic growth; hence, the need to weigh and balance the
rights and welfare of both the employee and employer. (Agabon v NLRC, 2004)
• Right and its limitations. The law recognizes the right of every business entity to reduce its work force if the
same is made necessary by compelling economic factors which would endanger its existence or stability. In spite of
overwhelming support granted by the social justice provisions of our Constitution in favor of labor, the
fundamental law itself guarantees, even during the process of tilting the scales of social justice towards workers
and employees, "the right of enterprises to reasonable returns of investment and to expansion and growth." To
hold otherwise would not only be oppressive and inhuman, but also counterproductive and ultimately subversive
of the nation's thrust towards a resurgence in our economy which would ultimately benefit the majority of our
people. Where appropriate and where conditions are in accord with law and jurisprudence, the Court has
 authorized valid reductions in the work force to forestall business losses, the hemorrhaging of capital, or even to
recognize an obvious reduction in the volume of business which has rendered certain employees redundant.
Nevertheless, while retrenchment is a management prerogative, it is subject to faithful compliance with the
substantive and procedural requirements laid down by law and jurisprudence. And since retrenchment strikes at
the very core of an individual’s employment, which may be the only lifeline on which he and his family depend for
survival, the burden clearly falls upon the employer to prove economic and business losses with appropriate
supporting evidence. Any claim of actual or potential business losses must satisfy certain established standards
before any reduction of personnel becomes legal. (Uichico v NLRC, 1997)

ART. 283. Closure of establishment and reduction of personnel. -

The employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and Employment
at least 1 month before the intended date thereof.
IF installation of labor-saving devices or redundancy,
THEN separation pay = ≥1 month pay OR ≥1 month pay / year of service, whichever is higher. x x x
A fraction of ≥ 6 months shall be considered 1 whole year.

A. Installation of Labor-Saving Devices

SMC conducted a viability study of its business operations and adopted a modernization program. High speed
machines were brought into the plant; consequently, several bottling lines ceased to operate. Several functions of the
employees were declared redundant. The installation of labor-saving devices was here held to be a proper ground
for terminating employment. (Abapo v CA, 2004)

B. Redundancy
• Art. 283 deals with authorized causes. Authorized causes involve measures taken by the employer because of
business exigencies. They generally entail payment of separation pay.
• Automation. Reduction of the number of workers in a factory made necessary by the introduction of machinery in
the manufacture of its products is justified. There can be no question as to the right of the manufacturer to use
new labor-saving devices with a view to effecting more economy and efficiency in its method of production. (Phil.
Sheet Metal Workers’ Union v CIR)
• Whom to retrench. Mgt has the right to choose whom to lay off, depending on the work still required to be done
and the qualities of the workers to be retained. (Almoite, 1986) But the employer may not totally disregard
seniority of employees (Phil. Tuberculosis Society, 1998).
o [Invalid retrenchment.] If the ground for retrenchment is not proved, the retrenchment will be declared illegal
and of no effect. Any quitclaims the retrenched EE may have signed will be declared invalid for vitiation of
consent (mistake/fraud). Acceptance of retrenchment pay will not amount to estoppel against him. The EE
will be entitled to reinstatement, but if it this is not feasible, e.g. he asks for sep pay instead, such may be
awarded. In addition, full backwages shall be paid. (F.F. Marine Corp., 2005)
• Sale of company
oGood faith: purchaser not required to absorb the employees of the selling corporation, only give preference to
qualified separated employees. However, payment of separation pay still required.
o Bad faith: parties are liable to the employees
• Merger
o Succession of employment rights and obligations involved.
o The principle that employment contract is in personam and binding only between the parties applies only when
the transferee is an entirely new corporation with a distinct personality from the integrating firms. Where the
transferee was found to be merely an alter ego of the different merging firms, there is an obligation, not only to
absorb the workers, but also to include the length of service earned by the absorbed employees with their
former employers as well.

Business Judgment
• Management prerogative. The employer has no legal obligation to keep in its payroll more employees than are
necessary for the operation of its business.
Wiltshire, in view of the contraction of its volume of sales and in order to cut down its operating expenses, effected
some changes in its organization by abolishing some positions and thereby effecting a reduction of its personnel.
The characterization of respondent’s services as no longer necessary or sustainable, and therefore properly
terminable, was an exercise of business judgment on part of the petitioner. The wisdom or soundness of such
judgment is not subject to discretionary review so long as no violation of law or merely arbitrary and malicious
action is shown.
(BTW, an employer has a much wider discretion in terminating the employment relationship of managerial
personnel as compared to rank and file employees. However, such management prerogative must be exercised
with no abuse of discretion or merely arbitrary or malicious action on the part of management is not shown.)
(Wiltshire File v NLRC, 1991; Asufrin v San Miguel Corp., 2004)
• Management prerogative. Reorganization as a cost-saving device is acknowledged by jurisprudence. An
employer is not precluded from adopting a new policy conducive to a more economical and effective mgt, and
the law does not require that the employer should be suffering financial losses before he can terminate
employees’ services on the ground of redundancy. The employer has a right to save on labor costs. So long as
the undertaking to save on labor costs is not attended by malice, arbitrariness, or intent to circumvent the law,
the Court will not interfere in such endeavor. (DOLE Phils. v NLRC, 2001)
• When notice to DOLE not required. If an employee consented to his retrenchment or voluntarily applied for
retrenchment with the employer due to the installation of labor-saving devices, redundancy, closure or cessation
of operation or to pevent financial losses to the business of the employer, the required previous notice to the
DOLE is not necessary, as the employee thereby acknowledged the existence of a valid cause for termination of
his employment. (DOLE Phils. v NLRC, 2001)
• Good faith. Whether it be by redundancy or retrenchment or any of the other authorized causes, no employee
may be dismissed without observance of the fundamentals of good faith. (Asufrin v San Miguel Corp., 2004)
• Example. The program does not appear to be tainted with bad faith. It is part of a widescale restructuring of
the company, supported by the company’s undisputed history toward these ends. Among the goals of such
restructuring is the reduction of absenteeism in the company. The harsh economic and political climate at that
time also emphasized the need for cost-saving measures. (DOLE Phils. v NLRC, 2001)

Financial Loss
While Art.283 does not require that the employer should be suffering financial losses before he can terminate the
services of the employee on the ground of redundancy, it does not mean either that a company which is doing well
can effect such a dismissal whimsically or capriciously. The fact that a company is suffering from business losses
merely provides stronger justification for the termination. (Escareal v NLRC, 1992)

Law-Required Position
The company had no valid & acceptable basis to declare the position of “Pollution Control & Safety Manager”
redundant. The same may not be considered superfluous because, inter alia, the creation of said position was
created/mandated by law: (1) LOI 588, (2) Memo Circular #2, & (3) Art.162, LC. (Escareal v NLRC, 1992)

When Redundancy
• In a nutshell. Retrenchment, in contrast to redundancy, is an economic ground to reduce the number of
employees. In order to be justified, the termination of employment by reason of retrenchment must be due to
business losses or reverses which are serious, actual and real. Not every loss incurred or expected to be incurred
by the employer will justify retrenchment, since, in the nature of things, the possibility of incurring losses is
constantly present, in greater or lesser degree, in carrying on the business operations. Retrenchment is normally
resorted to by management during periods of business reverses and economic difficulties occasioned by such
events as recession, industrial depression, or seasonal fluctuations. The institutions of "new methods or more
efficient machinery, or of automation" is technically a ground for termination of employment by reason of
installation of labor saving devices but where the introduction of these methods were resorted to not merely to
effect greater efficiency in the operations of the business but principally because of serious business reverses
and to avert further losses, the device could then verily be considered as one of retrenchment. (Edge Apparel v
NLRC, 1998)
• Definition; burden of proof. It is the burden of the employer to prove the factual and legal basis for the
dismissal of its employees on the ground of redundancy. Redundancy exists when the service capability of the
work force is in excess of what is reasonably needed to meet the demands of the enterprise. A redundant
 position is one rendered superfluous by any number of factors, such as overhiring of workers, decreased
volume of business, dropping of a particular product line or phasing out of a service activity. Under these
conditions, the employer has no obligation to keep in its payroll more employees than are necessary for the
operation of its business. (Edge Apparel v NLRC, 1998; Lopez Sugar v Franco, 2005)
• Definition. Redundancy in an employer’s personnel force does not necessarily or even ordinarily refer to
duplication of work. That no other person was holding the same position that Ong held does not show that his
position had not become redundant. Redundancy exists where the services of an employee are in excess of what
is reasonably demanded by the actual requirements of the enterprise. A position is redundant where it is
superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as
overhiring or workers, decreased volume of business, or dropping of a particular product line or service activity
previously manufactured or undertaken by the enterprise. (Wiltshire File v NLRC, 1991; Tierra Int’l
Construction v NLRC, 1992; Escareal v NLRC, 1992)
• Definition. The law does not make any distinction between a technical and non-technical position for purposes
of determining the validity of termination due to redundancy. Neither does the law nor stipulations of the
employment contract here involved that junior employees should first be terminated. In redundancy, what is
looked into is the position itself, the nature of the services performed by the employee and the necessity of the
position. (Tierra Int’l Construction v NLRC, 1992)
• Test. The employer must comply with the following requisites to ensure the validity of the implementation of a
redundancy program:
(1) written notice served on both the employees and the DOLE at least 1 month prior to the intended date of
retrenchment;
(2) payment of separation pay equivalent to 1 month pay or at least 1 month pay for every year of service,
whichever is higher;
(3) good faith in abolishing the redundant positions; and
(4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly
abolished. (Lopez Sugar v Franco, 2005)
• Losses not absolutely necessary, but. While Art.283 does not require that the employer should be suffering
financial losses before he can terminate the services of the employee on the ground of redundancy, it does not
mean either that a company which is doing well can effect such a dismissal whimsically or capriciously. The fact
that a company is suffering from business losses merely provides stronger justification for the termination.
(Escareal v NLRC, 1992)
• Partial or total. The law acknowledges the right of every business entity to reduce its work force if such
measure is made necessary or compelled by economic factors that would otherwise endanger it stability or
existence. In exercising its right to retrench employees, the firm may choose to close all, or a part of, its business
to avoid further losses or mitigate expenses. Such changes may take various forms. Clearly, the fact alone that a
mere portion of the business of an employer, not the whole of it, is shut down does not necessarily remove that
measure from the ambit of the term "retrenchment." (Edge Apparel v NLRC, 1998)

Criteria – Selection of Employees

• In a nutshell. It is important for a company to have fair and reasonable criteria in implementing its redundancy
program, such as but not limited to (a) preferred status, (b) efficiency, and (c) seniority. (Panlilio v NLRC, 1997;
Golden Thread Knitting Industries v NLRC, 1999)
• Example. The company failed to present substantial evidence to justify Panlilio’s dismissal on the ground of
redundancy. The affidavits and documents it submitted do not prove the superfluity of his position and do not
present the necessary factors that would confirm redundancy of a position, e.g. overhiring of workers,
decreased volume of business, or dropping of a product line/service activity. (Panlilio v NLRC, 1997)
• Example. The hiring, firing, or emotion or employees is a management prerogative, but is subject to limitations
stated in the CBA, if any, or general principles of fair play and justice. The Court will not hesitate to strike down
a redundancy program structured by a corporation to downsize its personnel, solely for the purpose of
weakening the union leadership, thereby preventing it from securing reasonable terms and conditions or
employment in the their CBA with the employer. (Lopez Sugar v Franco, 2005)
• This Court has consistently recognized and affirmed the employer’s management right and prerogative to
terminate the services of its employees in order to obviate or minimize business losses. (Tanjuan v Phil. Postal
Savings Bank, 2003) wala talagang on-topic sa case na ‘to...

Employment of Independent Contractor – Effect

 An employer’s good faith in implementing a redundancy program is not necessarily destroyed by availment of the
services of an independent contractor to replace the services of the terminated employees. The reduction of the
number of workers in a company made necessary by the introduction of the services of an independent contractor is
justified when the latter is undertaken in order to effectuate more economic & efficient methods of production.
Absent any proof that management acted in a malicious/arbitrary manner in engaging the services of an
independent contractor to operate the company, the court has no basis to interfere with the bona fide management
decision to effect more economic & efficient production methods. (Asian Alcohol v NLRC, 1999)

Procedure – Requirements
For the implementation of a redundancy program to be valid, the employer must comply w/ the ff. req’ts:
1. Written notice served to both the employees & the DOLE ≥ 1 month prior to the intended date of
retrenchment;
2. Payment of sep. pay is ≥ [1 month pay] OR [1 month pay/year of service], whichever is higher;
3. Good faith in abolishing the redundant positions; &
4. Fair & reasonable criteria in ascertaining what positions are to be declared redundant and accordingly
abolished. (Asian Alcohol v NLRC, 1999)

Hearing
Rule XIV ("Termination of Employment") of the Rules to Implement the LC:
Sec.2. Notice of dismissal. –– Any employer who seeks to dismiss a worker shall furnish him a written notice stating
the particular acts/omission constituting the grounds for his dismissal. In cases of abandonment of work, the
notice shall be served at the worker's last known address.
Sec.5. Answer & hearing. –– The worker may answer the allegations stated against him in the notice of dismissal
w/in a reasonable period from receipt of such notice. The employer shall afford the worker ample opportunity to
be heard & to defend himself with the assistance of his representative if he so desires.
Where the ground for dismissal / termination of services does not relate to a blameworthy act/omission on the part of
the employee, there is no need for an investigation & hearing to be conducted by the employer who does not, to
begin with, allege any malfeasance/non-feasance on the part of the employee. In such case, there are no allegations
which the employee should refute & defend himself from. (Wiltshire File v NLRC, 1991)

Venue of Complaint
The employee may contest the reality / good faith character of the retrenchment/redundancy asserted as grounds for
termination of services. The appropriate forum for such controversion would be the DOLE, & not an
investigation/hearing to be held by the employer itself. It is precisely for this reason that an employer seeking to
terminate services of an employee because of "closure of establishment & reduction of personnel" is legally required
to give a written notice, not only to the employee, but also to the DOLE, at least 1 month before the effectivity date of
the termination. (Wiltshire File v NLRC, 1991)

C. Retrenchment to Prevent Losses

ART. 283. Closure of establishment and reduction of personnel. -
The employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and Employment
at least 1 month before the intended date thereof.
xxx
IF retrenchment to prevent losses x x x
THEN separation pay = 1 month pay OR ≥ 1/2 month pay / year of service, whichever is higher.
A fraction of ≥ 6 months shall be considered 1 whole year.
Defined
Retrenchment is the termination of employment initiated by the employer through no fault of the employees and
without prejudice to the latter, resorted to by the management during periods of business recession, industrial
depression or seasonal fluctuations or during lulls occasioned by lack of orders, shortage of materials, conversion of
plant for production program or the introduction of new methods or more efficient machinery or automation.
Retrenchment is a valid management prerogative. It is however subject to faithful compliance with the substantive
and procedural requirements laid down by law and jurisprudence.
Where the ground for retrenchment availed of by an employer is not sufficiently established, the retrenchment is
illegal and of no effect. (FF Marine v NLRC, 2005)

Distinction: Redundancy and Retrenchment

It is necessary to distinguish “redundancy” from “retrenchment.” Both are mentioned in Art. 283 as just causes for
the closing of an establishment or the reduction of personnel. ”Redundancy” exists when the services of an
employee are in excess of what is required by an enterprise. “Retrenchment” is one of the economic grounds for
dismissing employees and is resorted to primarily avoid or minimize business losses. To retrench or not to retrench
is a management prerogative.
Here, the company’s “redundancy program” is more precisely termed as “retrenchment” because it primarily
intended to previous serious business losses. Records show that aside from its “redundancy program,” the company
had to resort to cost-cutting measures in order to stave off impending losses. (AG&P United Rank and File Ass’n v
NLRC, 1996)

Distinction: Closure and Retrenchment

• Closure of business is the reversal of fortune of the employer whereby there is a complete cessation of business
operations and/or actual locking-up of the doors of establishment, usually due to financial losses. As an
authorized cause for termination, it aims to prevent further financial drain upon an employer who cannot pay
anymore his employees since business has already stopped. On the other hand, retrenchment is reduction of
personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and
wages to prevent bankruptcy of the company. It is sometimes referred to as down-sizing. Retrenchment is an
authorized cause for termination of employment which the law accords an employer who is not making good in
its operations in order to cut back on expenses for salaries and wages by laying off some employees. The
purpose of retrenchment is to save a financially ailing business from eventually collapsing.
While the company did not sufficiently establish substantial losses to justify closure of business, its income
statement showed declining sales, prompting it to suspend operations and eventually to permanently close.
Apparently, they saw the declining sales figures and the unsustainable business environment with no hope of
recovery during the period of suspension as indicative of bleak business prospects, justifying a permanent closure
of operations to save its business from further collapse. (JAT General Services v NLRC, 2004)
• Distinctions. The Court views the case as one involving closure of a business undertaking, not retrenchment.
While retrenchment and closure of a business establishment or undertaking are often used interchangeably and
are interrelated, they are actually two separate and independent authorized causes for termination of
employment.
Retrenchment is the reduction of personnel for the purpose of cutting down on costs of operations in terms of
salaries and wages resorted to by an employer because of losses in operation of a business occasioned by lack of
work and considerable reduction in the volume of the business.
Closure of a business or undertaking due to business losses is the reversal of fortune of the employer whereby
there is a complete cessation of business operations to prevent further financial drain upon an employer who
cannot pay anymore his employees since business has already stopped.
One of the prerogatives of management is the decision to close the entire establishment or to close or abolish a
department or section thereof for economic reasons, such as to minimize expenses and reduce capitalization.
As in the case of retrenchment, however, for the closure of a business or a department due to serious business
losses to be regarded as an authorized cause for terminating employees, it must be proven that the losses incurred
are substantial and actual or reasonably imminent, that the same increased through a period of time; and that the
condition of the company is not likely to improve in the near future. (Alabang Country Club v NLRC, 2005)

Coverage
• Even nonprofit entities. Although petitioner is a non-stock, non-profit organization, retrenchment as a
measure adopted to stave off threats to its existence is available to it. Art. 278 states that the fiscal measures
recognized therein, which an employer may validly adopt, apply to “all establishments/undertakings, WON for
profit.” (Phil. Tuberculosis Society v NLRC, 1998)
• Small enterprises. On the surface of things, the net income of respondent bank for the period 1984-1989 did not
show a loss. In fact, the bank appeared to have actually registered a small net profit. However, these profits
were really “more imaginary than real.” Moreover, unlike huge commercial banks with large capitalization, the
bank here is a small rural bank barely afloat and surviving on a measly capitalization of P500k. Were We to
deny its urgent request to streamline its work force to enable it to maintain stability and modest profitability, we
would be sending a small financial institution teetering on the verge of financial ruin tumbling down on the
road to bankruptcy.
The bank’s action in retrenching the complainants should thus be viewed as an urgent and immediate surgical
move, if only to avert eventual closure. Retrenchment was rightfully undertaken here before the anticipated losses
were actually sustained or realized. While courts must be constantly vigilant in validating claims of business
losses to prevent unscrupulous employers from feigning such losses in order to dismiss their personnel, here We
are satisfied that the bank undertook the drastic act of cutting down its workforce in order to prevent imminent
substantial loss to its business. (Balbalec v NLRC, 1995)

Procedure
We are not impressed by petitioner's claim that severe business losses justified their failure to reinstate respondents.
The evidence to prove this fact inconclusive. But more important, serious business losses do not excuse an employer
from the clearance or report required under Art. 283 before terminating the employment of its workers, i.e. a written
notice on the worker one month before the intended date thereof and a written notice to MOLE within the same span
of time. In the absence of justifying circumstances, the failure of petitioners to observe the procedural requirements
set out under Article 284 taints their actuations with bad faith.
To say the least, if it were true that the lay-off was temporary but then serious business losses prevented the
reinstatement of respondents, then petitioners should have complied with the requirements of written notice. The
requirement of law mandating the giving of notices was intended not only to enable the employees to look for
another employment and therefore ease the impact of the loss of their jobs and the corresponding income, but more
importantly, to give the DOLE the opportunity to ascertain the verity of the alleged authorized cause of termination.
(Mayon Hotel & Restaurant v Adana, 2005)

Temporary Retrenchment
There is no specific provision of law which treats temporary retrenchment and provides for requisites in effecting it
or a period of duration. Employees cannot forever be temporarily laid-off. Art. 286 (bonafide suspension of business
or fulfillment by employee of military / civic duty) may be applied, but only by analogy to set a specific period that
employees may remain temporarily laid-off. 6 months is the period set by law that the operation of a business may
be suspended thereby suspending employment. Temporary lay-off should also not last longer than 6 months. After
this, employees should either be recalled or permanently retrenched following the requirements set by law, and
failing to comply would be tantamount to dismissal and the employer would be liable. (Sebuguero v NLRC, 1995)

Requirements – Standards
• Standards. It may be useful to sketch the general standards in terms of which the acts of employer must be
appraised. A company must meet the following standards to justify retrenchment and to guard against abuse:
Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly
sought to be forestalled by retrenchment is clearly shown to insubstantial and inconsequential in character, the
bonafide nature of the retrenchment would appear to be seriously in question.
Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived
obejectively and in good faith by the employer. There should in other words, be a certain degree of urgency for the
retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees
retired or otherwise laid off.
Because of the consequential nature of retrenchment, it must thirdly, be reasonably necessary and likely to prevent
the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall
losses, i.e., cut other costs than labor costs. To impart operational meaning to the constitutional policy of providing
'full protection" to labor, the employer's prerogative to bring down the labor costs by retrenching must be
exercised essentially as a measure of last resort.
Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses
sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this
quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this
ground for termination of services of employees.
Also, nature of loss is always a question of fact to be determined by the NLRC and LA.
 In the discharge of these requirements, it is the employer who has the onus, this being in the nature of an
affirmative defense. (Lopez Sugar v Federation of Free Workers, 1990; EMCO Plywood v Abelgas, 2004; San
Miguel Corp. v Aballa, 2005)
• Prevention of loss. The phrase "to prevent losses" means that retrenchment or termination of the services of
some employees is authorized to be undertaken by the employer sometime before the losses anticipated are
actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel the employer to
stay his hand and keep all his employees until sometime after losses shall have in fact materialized. However,
not every possibility of incurring losses is sufficient to warrant retrenchment. The possibility of incurring losses
is constantly present. (Lopez Sugar v Federation of Free Workers, 1990)
• Other cost-cutting measures. Retrenchment is one of the authorized causes for the dismissal of employees. It is
only “a measure of last resort when other less drastic means have been tried and found to be inadequate.” The
only less drastic measure that EMCO undertook was the rotation work scheme: the three-day-work per
employee per week schedule. It did not try other measures, such as cost reduction, lesser investment on raw
materials, adjustment of the work routine to avoid the scheduled power failure, reduction of the bonuses and
salaries of both management and rank-and-file, improvement of manufacturing efficiency, trimming of
marketing and advertising costs, and so on. The fact that petitioners did not resort to other such measures
seriously belies their claim that retrenchment was done in good faith to avoid losses. (EMCO Plywood v
Abelgas, 2004)
• Proof of loss. Normally, the condition of business losses is shown by audited financial documents like yearly
balance sheets, profit and loss statements and annual income tax returns. The financial statements must be
prepared and signed by independent auditors failing which they can be assailed as self-serving documents.
(San Miguel Corp. v Aballa, 2005)
• Example. To prove incurred losses, Blucor presented its ITR and Audited Financial Statements. Previously
however, the company had admittedly enjoyed profitable initial years of operation and this situation falls short
of the requirement. Blucor also failed to show the income for the immediately preceding years or to prove that it
expected no abatement of such losses in the coming years. It is necessary to show that the losses increased
through a period of time and that the company is not likely to improve in the near future. Blucor also
terminated the respondents in same year when it admitted that it began to incur losses. Blucor thuss failed to
show any reasonable necessity for the retrenchment. (Blucor Minerals v Amarilla, 2005)
• Example. Here, company losses were duly established by audited financial documents showing that the
aquaculture operations of SMC’s Agribusiness Division accumulated losses resulting in the closure of its
Calatrava Aquaculture Center, its San Fernando Shrimp Processing Plant, and the Bacolod Shrimp Processing
Plant. SMC has thus proven substantial business reverses justifying retrenchment of its employees. (San
Miguel Corp. v Aballa, 2005)
• Example. The LA failed to find evidence that the company would suffer serious business losses or reverses as a
consequence of the alleged major economic problems. The principal difficulty with the company’s case was that
no proof of actual declining gross and net revenues was submitted. Moreover, while it made passing reference
to cost reduction measures it had allegedly undertaken, it was, once more, a fairly conspicuous failure to specify
the cost-reduction measures actually undertaken in good faith before resorting to retrenchment. Upon the other
hand, it appears from the record that the company, after reducing its work force, advised 110 casual workers to
register with the company personnel officer as extra workers. This militated its claim to reduce its work force to
set up cost reduction. It must be stated that settled is the rule that serious business losses or reverses must be
actual, real and amply supported by sufficient and convincing evidence. (Lopez Sugar v Federation of Free
Workers, 1990)

Nature of Loss
• When the loss justifies retrenchment. In its ordinary connotation, “to prevent losses” means that retrenchment
is authorized to be taken before the losses anticipated become realized. On the other end of the spectrum, it
seems equally clear that not every assorted possibility of loss is sufficient legal warrant for reduction of
personnel. In the nature of things, the possibility of incurring losses is constantly present. The difficult question
is the determination of when, or under what circumstances, the employer becomes legally privileged to retrench
and reduce the number of his employees. (Lopez Sugar v Federation of Free Workers, 1990)
• Partial or total closure. The law acknowledges the right of every business entity to reduce its work force if such
measure is made necessary or compelled by economic factors that would otherwise endanger its stability or
existence. 25 In exercising its right to retrench employees, the firm may choose to close all, or a part of, its
business to avoid further losses or mitigate expenses. Business enterprises today are faced with the pressures of
economic recession, stiff competition, and labor unrest. Thus, businessmen are always pressured to adopt
certain changes and programs in order to enhance their profits and protect their investments. Such changes may
take various forms. Management may even choose to close a branch, a department, a plant, or a shop. Clearly,
 the fact alone that a mere portion of the business of an employer, not the whole of it, is shut down does not
necessarily remove that measure from the ambit of the term "retrenchment" within the meaning of Section
283(c). (Edge Apparel v NLRC, 1998)
• How to establish. To justify retrenchment, the employer must prove serious business losses. Not all business
losses suffered by the employer would justify retrenchment under Art. 283. Otherwise, a company could easily
feign excuses to suit its whims and prejudices or to rid itself of unwanted employees. In this case, the company
should have come out with their books of accounts, profit and loss statements, and better still, should have
presented their accountant to competently amplify their financial position. A comparative statement of revenue
and expenses for 2 years, by itself, is not conclusive proof of serious business losses. Failure to show its income
or loss for the immediately preceding years or to prove it expected no abatement of such losses in the coming
years bespeaks weakness of its cause. (Bogo-Medellin Sugar Cane Planters Ass’n v NLRC, 1998)
• Example. The Court tested the company’s liquidity, solvency and profitability using the 1997 and 1998 financial
statements. The company’s liquidity and profitability worsened. For every peso of sales earned in 1997, less than
half a centavo represented profit. In 1998, for every peso of sales, a loss of 50 centavos was incurred. The
company was held to have closed due to serious business losses. (Cama v Joni’s Food Services, 2004)
• Example. The LA found no sufficient and convincing evidence to sustain the company’s essential contention
that it was acting in order to prevent substantial and serious losses. There was no proof of actual declining gross
and net revenues. Neither were audited financial statements showing financial conditions of the company
submitted. (Lopez Sugar v Federation of Free Workers, 1990)

Sliding Income
Sliding incomes = Decreasing gross revenues.
What the law speaks of is “serious business losses or financial reverses.” Sliding incomes are not necessarily losses,
much less serious business losses within the meaning of the law. Adverse business conditions justify the exercise of
management prerogative to retrench in order to avoid the not-so-remote possibility of closure of the entire business;
however, not every asserted possibility of loss is sufficient legal warrant for reduction of personnel. In the nature of
things, the possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying of business
operations, since some, indeed many, of the factors which impact upon the profitability/viability of such operations
may be substantially outside the control of the employer.
All the foregoing considerations simply require that the employer bears the burden of proving his allegation of
economic/business reverses with clear & satisfactory evidence, it being in the nature of an affirmative defense. (San
Miguel Jeepney Service v NLRC, 1996)

Proof of Loss
• Evidence. The condition of business losses justifying retrenchment is normally shown by audited financial
documents like yearly balance sheets and profit and loss statements as well as annual income tax returns.
Financial statements must be prepared and signed by independent auditors. Otherwise, they may be assailed as
self-serving. Since the losses incurred must be substantial and actual or reasonably imminent, it is necessary that
the employer show that the losses increased through a period of time and that the condition of the company is
not likely to improve in the near future.
The same evidence is generally required when the termination of employees is by reason of closure of the
establishment or a division thereof for economic reasons, although the more overriding consideration is food faith.
The employer must prove that the cessation of or withdrawal from the business operations was bona fide in
character and mot impelled by a motive to defeat and circumvent the tenurial rights of employees. (Danzas Int’l v
Daguman, 2005)
• Not proven. There was no sufficient and convincing evidence to sustain the company’s essential contention that
it was acting in order to prevent substantial and serious losses. The company alleged that in two crop years
1975-76 and 1980-81, the amount of cane deliveries made to the Central, the degree of utilization of the mill’s
capacity, and the sugar recovery from cane actually processed were all declining. But no proof of actual
declining gross and net revenues was submitted and no audited financial statements showing the financial
condition of the company during the crop years. Since financial statements audited by independent external
auditors constitute the normal method of proof of the profit and loss performance by a company, it is not easy to
understand why the company should have failed to submit them. (Lopez Sugar v Federation of Free Workers,
1990)
• Not proven. A comparative statement of revenue and expenses for two years, by itself, is not conclusive proof
of serious business losses. Rather, financial statements audited by independent external auditors constitute the
normal method of proof of the profit and loss performance of a company. While the company avers that it was
 not required to file audited financial statements under the Tax Code [because it earned less than a stated
amount], it failed to establish this alleged exemption with evidence; thus, its claim that it did not need to have
its financial statements certified by a certified public accountant is without basis in fact and in law and does not
excuse it from complying with the usual requirement. Besides, the requirement of the Tax Code is one thing,
and the requirement of the Labor Code is quite another.
Moreover, the financial statement of the company for two crop years is insufficient proof of serious business losses
that would justify the retrenchment of private respondents. By itself, it does not sufficiently prove the allegation
that it 'already suffered actual serious losses,' because it does not show whether its losses increased or decreased.
Although it apparently posted a loss for those years, it is also possible that such loss was considerably less than
those previously incurred, thereby indicating the company's improving condition. (Bogo-Medellin Sugarcane
Planters Ass’n v NLRC, 1998)
• Proven. Business reverses or losses are recognized by law as an authorized cause for termination of
employment. Still, it is an essential requirement that alleged losses in business operations must be proven
convincingly.
Mitsubishi submitted 3-year financial statements and its application for retrenchment. Its Statements of Income
and Unappropriated Retained Earning show that even after the retrenchment, it still suffered net losses. To reduce
said losses, it had to dispose of some of its current assets to cover the increased liability incurred in 1997, and
resorted to borrowings in 1998. The continuity of losses which started in 1997 is further illustrated in the figures on
retained earnings for 1996, 1997 and 1998. Its losses in 1997 and 1998 were not insignificant. It is beyond cavil then
that the serious and actual business reverses suffered by the petitioner justified its resort to retrenchment of 700
employees.
(The unfavorable financial conditions of the petitioner may justify reinstatement. However, it is not a sufficient
ground to deny backwages to respondent Paras who was illegally dismissed.) (Mitsubishi Motors Phils. v
Chrysler Phils. Labor Union, 2004)

Burden of Proof
• In termination cases, the burden is upon the employee to show by substantial evidence that the termination was
for a lawful cause and validly made. Art. 227(b) puts the burden of proving that the dismissal of an employee
was for a valid and authorized cause on the employer, without distinction whether the employer admits or does
not admit dismissal. For an employee’s dismissal to be valid, (a) the dismissal must be for a valid cause, and (b)
the employee must be afforded due process.
The requirement for a medical certificate cannot be dispensed with; otherwise, it would sanction the unilateral and
arbitrary determination by the employer of the gravity or extent of the employee’s illness and thus defeat the
public policy in the protection of labor. (Sy v CA, 2003)
• The onus of proving that the dismissal of the employee was for a valid and authorized cause rests on the
employer and failure to discharge the same would mean that the dismissal was not justified and therefore
illegal. The company must show with convincing evidence that the dismissal was based on any of the just or
authorized causes provided by law for termination of employment by an employer.
Loss of trust and confidence to be a valid ground for dismissal must be based on a willful breach of trust and
founded on clearly established facts. Here NBS failed to establish with certainty the facts upon which it could be
based – indeed NBS lost some fund but that respondents were responsible therefore was not supported by any
substantial evidence. (National Bookstore v CA, 2002)

When Effected
• In its ordinary connotation, the phrase "to prevent losses" means that retrenchment or termination of the
services of some employees is authorized to be undertaken by the employer sometime before the losses
anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel
the employer to stay his hand and keep all his employees until sometime after losses shall have in fact
materialized;7 if such an intent were expressly written into the law, that law may well be vulnerable to
constitutional attack as taking property from one man to give to another. This is simple enough.
At the other end of the spectrum, it seems equally clear that not every asserted possibility of loss is sufficient legal
warrant for reduction of personnel. In the nature of things, the possibility of incurring losses is constantly present,
in greater or lesser degree, in the carrying on of business operations, since some, indeed many, of the factors which
impact upon the profitability or viability of such operations may be substantially outside the control of the
employer. Thus, the difficult question is determination of when, or under what circumstances, the employer
becomes legally privileged to retrench and reduce the number of his employees.
 Whether or not an employer would imminently suffer serious or substantial losses for economic reasons is
essentially a question of fact. Even assuming arguendo that the company was, in fact, surrounded by the major
economic problems stated earlier, the question may be asked-will it suffer serious losses as a result of the said
economic problems? (Lopez Sugar v Federation of Free Workers, 1990)
• Art. 283 entails inter alia a situation where there is “retrenchment to prevent losses.” The phrase “to prevent
losses” means that retrenchment/termination from the service of some employees is authorized to be
undertaken by the employer sometime before the losses anticipated are actually sustained/realized. Evidently,
actual losses need not set in prior to retrenchment. (Cajucom VII v Phil. Cement, 2005)

Procedure (Retrenchment and Redundancy)

• Test. For an employer to validly terminate the service of his employees under Art. 283, there are three basic
requisites for a valid retrenchment:
1. The retrenchment is necessary to prevent losses and such losses are proven;
2. Written notice to the employees and to the Department of Labor and Employment at least one month prior to
the intended date of retrenchment; and
3. Payment of separation pay equivalent to 1-month pay OR at least 1/2 month pay for every year of service,
whichever is higher.
The requirement of notice must be given to both DOLE and the employees concerned 1 month before the intended
date of retrenchment. This is allow the employees to look for other employment. The purpose of notice to the
DOLE is to allow the department to assess whether the retrenchment is being done in good faith. (EMCO
Plywood v Abelgas, 2004)
• Required notices. Petitioners were given notice of the temporary lay-off but there is no evidence [of compliance
with the notice requirement]. GTI conveyed to the petitioners the impossibility of recalling them, but what the
law requires is a written notice to the employees concerned. Such requirement is mandatory. The notice must
be given at least 1 month in advance of the intended retrenchment, to enable the employees to look for other
means of employment & therefore ease the impact of the loss of their jobs & incomes.
That petitioners were already on temporary lay-off at the time notice should have been given is not an excuse to
forego the written notice, because this time their lay-off is to become permanent.
A written notice given to the DOLE is also required by law. This notice is essential because the right to retrench is
not an absolute prerogative of an employer but is subject to the requirement of law that the retrenchment be done
to prevent losses. The DOLE is the agency that will determine whether the planned retrenchment is justified &
adequately supported by facts.
Where the req’d notices to the employees & to the DOLE are not given, the retrenchment is defective. (Sebuguero
v NLRC, 1995)

Rehiring Effect
While it is true that the company rehired or reemployed some of the dismissed workers, it was shown that such
action was made only as company projects became available and that this was done in pursuance of the company’s
policy of giving preference to its former workers in the hiring of project employees. The rehiring or reemployment
does not negate the imminence of the losses which prompted the company to retrench. (Atlantic Gulf & Pacific v
NLRC, 1999)

Liability
Employers are accorded rights and privileges to assure their self-determination and independence and reasonable
return of capital. This mass of privileges comprises the so-called management prerogatives. Although they may be
broad and unlimited in scope, the State has the right to determine whether an employer’s privilege is exercised in a
manner that complies with the legal requirements and does not offend the protected rights of labor. One of the
rights accorded an employer is the right to close an establishment or undertaking. The right to close the operation of
an establishment or undertaking is explicitly recognized under the Labor Code as one of the authorized causes in
terminating employment of workers, the only limitation being that the closure must not be for the purpose of
circumventing the provisions on termination of employment embodied in the Labor Code.
The phrase “closures or cessation of operations of establishment or undertaking” includes a partial or total closure or
cessation. The phrase recognizes the right of the employer to close or cease his business operations or undertaking
even if he is not suffering from serious business losses or financial reverses, as long as he pays his employees their
termination pay in the amount corresponding to their length of service. The ultimate test of the validity of closure or
 cessation of establishment or undertaking is that it must be bona fide in character. And the burden of proving such
falls upon the employer.
Reinstatement not being feasible since the work or position he formerly held no longer exists, Dr. Meris is entitled to
payment of separation pay and full backwages from the time of his dismissal until the expiration of his term as Chief
of ISU or his mandatory retirement, whichever comes first.
The award by the appellate court of moral damages, however, cannot be sustained, solely upon the premise that the
employer fired his employee without just cause or due process. Additional facts must be pleaded and proven to
warrant the grant of moral damages, such as that the act of dismissal was attended by bad faith or fraud, or was
oppressive to labor, or done in a manner contrary to morals, good customs, or public policy; and of course, that
social humiliation, wounded feelings, grave anxiety, etc., resulted therefrom. Such circumstances, however, do not
obtain in the instant case. Lack of bad faith is mirrored in Dr. Clemente’s offer to Dr. Meris to be a consultant of
Capitol, despite the abolition of the ISU. (Capitol Medical Center v Meris, 2005) There seemed to be nothing in the case
directly related to liability, so kinopya ko na lang yung ibang ratio, baka maka-chamba pa. Sowy guys!

D. Closing of Business
ART. 283. Closure of establishment and reduction of personnel. -
The employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and Employment
at least 1 month before the intended date thereof.
xxx
IF closure/cessation of operations of establishment / undertaking not due to serious business losses / financial
reverses,
THEN separation pay = 1 month pay OR ≥ 1/2 month pay / year of service, whichever is higher.
A fraction of ≥ 6 months shall be considered 1 whole year.
• A282: just causes of employment termination; A283-284: authorized causes. NOT intrinsically different, though;
indeed, the difference in labels is not strictly observed even in jurisprudence.
However, just causes = acts done by the EE. Authorized causes (except disease) = measures taken by the ER because
of business exigencies.
Just causes generally do not entail payment of sep pay; authorized causes generally do.
• Other cases of cessation. An ER who has to cease operations because of compulsory acquisition by the govt of its
land for purposes of agrarian reform is not liable to pay sep pay to its affected EEs (Nat’l Fed’n of Labor, 2000).

Right
• In a nutshell. The existence of business losses is not required to justify the closure or cessation of establishment
as a ground to terminate employment. Even if the ISU were not incurring losses, its abolition could be justified
on other grounds like that proffered (but unsubstantiated) by Capitol – extinct demand.
Employers are accorded rights and privileges to assure their self-determination and independence and reasonable
return of capital. This mass of privileges comprises the so-called management prerogatives. Although they may be
broad and unlimited in scope, the State has the right to determine whether an employer’s privilege is exercised in a
manner that complies with the legal requirements and does not offend the protected rights of labor. One of the
rights accorded an employer is the right to close an establishment or undertaking. The right to close the operation
of an establishment or undertaking is explicitly recognized under the Labor Code as one of the authorized causes
in terminating employment of workers, the only limitation being that the closure must not be for the purpose of
circumventing the provisions on termination of employment embodied in the Labor Code.
The ultimate test of the validity of closure or cessation of establishment or undertaking is that it must be bona fide
in character. And the burden of proving such falls upon the employer. (Capitol Medical Center v Meris, 2005)
• May close anytime. Under Art. 283, the owner of a business establishment is allowed to close its shop even if
the business is not undergoing economic losses. The owner, for any bona fide reason, can lawfully close shop at
any time. Just as no law forces anyone to go into business, no law can compel anybody to continue with it. It
would indeed be stretching the intent and the spirit of the law if we were to unjustly interfere with the
management's prerogative to close or cease its business operations, just because said business operation or
undertaking is not suffering from any loss or simply to provide the workers continued employment.
 (MacAdams Metal Engineering Workers Union v MacAdams Metal Engineering, 2003; Alabang Country
Club v NLRC, 2005)
• Test. Art 283 is clear that an employer may close or cease his business operations or undertaking even if he is
not suffering from serious business losses or financial reverses, as long as he pays his employees their
termination pay in the amount corresponding to their length of service. Even as the law is solicitous of the
welfare of the employees, it must also protect the right of an employer to exercise what are clearly management
prerogatives. As long as the company’s exercise of the same is in good faith to advance its interest and not for
the purpose of defeating or circumventing the rights of employees under the laws or valid agreements, such
exercise will be upheld. (Catatista v NLRC, 1995; Alabang Country Club v NLRC, 2005; Capitol Medical
Center v Meris, 2005)

Partial Closure
• Example. We need not belabor the issue of notice requirement for a suspension of operation of business under
Art. 286. Suffice it to state that there is no termination of employment during the period of suspension, thus the
procedural requirement for terminating an employee does not come into play yet.
The complete closure of business operation by petitioners, in our view, is not tainted with bad faith or other
circumstance that arouses undue suspicion of malicious intent. The decision to permanently close business
operations was arrived at after a suspension of operation for several months precipitated by a slowdown in sales
without any prospects of improving. (JAT General Services v NLRC, 2004)
• Relocation tantamount to closure. Broadly speaking, there appears no complete dissolution of petitioner's
business undertaking but the relocation of petitioner's plant to Batangas, in our view, amounts to cessation of
petitioner's business operations in Makati. It must be stressed that the phrase "closure or cessation of operation
of an establishment or undertaking not due to serious business losses or reverses" under Article 283 includes
both the complete cessation of all business operations and the cessation of only part of a company's business.
Petitioner has legitimate reason to relocate its plant because of the expiration of the lease contract on the premises
it occupied. That is its prerogative. But even though the transfer was due to a reason beyond its control, petitioner
has to accord its employees some relief in the form of severance pay. (Cheniver Deco Print Technics v NLRC,
2000)

Requisites
The reason invoked by petitioners to justify the cessation of corporate operations was alleged business losses. Yet,
other than generally referring to the financial crisis in 1998 and to their supposed difficulty in obtaining an export
quota, interestingly, they never presented any report on the financial operations of the corporation during the period
before its shutdown. Neither did they submit any credible evidence to substantiate their allegation of business losses.
Basic is the rule in termination cases that the employer bears the burden of showing that the dismissal was for a just
or authorized cause. Otherwise, the dismissal is deemed unjustified.
More importantly, no written notices were sent either to the DOLE or the employees concerned one month before the
intended closure or termination. Notice to the DOLE is mandatory to enable the proper authorities to ascertain
whether the closure and dismissal were being done in good faith and not just as a pretext for evading compliance
with the employer's just obligation to the affected employees. This requirement is intended to protect the worker's
rights to security of tenure. (Me-Shurn v Me-Shurn Workers Union, 2005)

E. Temporary Cessation of Operations

ART. 286. When employment not deemed terminated. - The bona-fide suspension of the operation of a business or
undertaking for a period not exceeding 6 months, or the fulfillment by the employee of a military or civic duty
shall not terminate employment. In all such cases, the employer shall reinstate the employee to his former position
without loss of seniority rights if he indicates his desire to resume his work not later than 1 month from the
resumption of operations of his employer or from his relief from the military or civic duty.

SECTION 12, Title I, Book VI, Omnibus Rules. Suspension of relationship. — The employer-employee relationship
shall be deemed suspended in case of suspension of operation of the business or undertaking of the employer for a
period not exceeding 6 months, unless the suspension is for the purpose of defeating the rights of the employees
under the Code, and in case of mandatory fulfillment by the employee of a military or civic duty. The payment of
wages of the employee as well as the grant of other benefits and privileges while he is on a military or civic duty
shall be subject to special laws and decrees and to the applicable individual or collective bargaining agreement
and voluntary employer practice or policy.
• There is no specific provision of law which treats of a temporary retrenchment/layoff. A286 may be applied to
remedy this situation, but only by analogy to set a specific period that EEs may remain temporarily laid-off / in
floating status.
• No notice of termination need be given to the employee or to DOLE.
• After 6 months, the employees should either be recalled to work or permanently retrenched. Otherwise, it would
amount to constructive dismissal, for which the ER would be liable.

Basis
• Temporary suspension of operation is recognized as a valid exercise of management prerogative provided it is
not carried out in order to circumvent the rights of the workers. The determination to cease / suspend
operations is a management prerogative that the State usually does not interfere with, as no business can be
required to continue operating at a loss simply to maintain the workers in employment. Such an act would
amount to a taking of property without due process of law, which the employer has a right to resist. But where
it is shown that the closure is motivated not by a desire to prevent further losses, but to discourage the workers
from organizing themselves into a union for more effective negotiations with management, the State is bound to
intervene. (San Pedro Hospital of Digos v Secretary of Labor, 1996; Me-Shurn v Me-Shurn Workers Union,
2005)
• Undue interference with an employer’s judgment in the conduct of his business is uncalled for. Even as the law
is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what is clearly
a management prerogatives. As long as the company’s exercise of the same is in good faith to advance its
interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid
agreement such exercise will be upheld. (JAT General Services v NLRC, 2004)
• While the closure of the hotel operations in April of 1997 may have been temporary, the evidence belies any
claim that the lay-off of respondents on that same date was merely temporary. On the contrary, we find
substantial evidence that petitioners intended the termination to be permanent. Even assuming arguendo that
said cessation of employment was merely temporary, it became dismissal by operation of law when petitioners
failed to reinstate respondents after the lapse of 6 months, pursuant to Article 286.
While we recognize the right of the employer to terminate the services of an employee for a just or authorized
cause, the dismissal of employees must be made within the parameters of law and pursuant to the tenets of fair
play. (Mayon Hotel & Restaurant v Adana, 2005)

Effect on Employer-Employee Relationship

If a legitimate, valid and legal suspension of operations does not terminate, but merely suspends, the employer-
employee relationship, with more reason will an invalid and illegal suspension of operations, as in this case, not
affect the employment relationship.
There is no basis for petitioner to claim that a new CBA should not be entered into or that collective bargaining
should not be conducted during the effectivity of a temporary suspension of operations. In the absence of any other
information, the plain and natural presumption will be that petitioner would resume operations after 6 months, and
it follows that a new CBA will be needed to govern the employment relations of the parties, the old one having
already expired. (San Pedro Hospital of Digos v Secretary of Labor, 1996)

F. Floating Status
Disease
ART. 284. Disease as ground for termination. - An employer may terminate the services of an employee
who has been found to be suffering from any disease and
whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-
employees:
Provided, separation pay = ≥ 1 month salary OR 1/2 month salary / year of service, whichever is greater,
a fraction of ≥ 6 months being considered as 1 whole year.

SECTION 8, Rule I, Book VI, IRR. Disease as a ground for dismissal. —

Where the employee suffers from a disease and
his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees,
the employer shall not terminate his employment
unless there is a certification by competent public health authority
that the disease is of such nature OR at such a stage that it cannot be cured within 6 months even with proper
 medical treatment.
If the disease or ailment can be cured within the period, the employee shall not terminate the employee
but shall ask the employee to take a leave of absence.
The employer shall reinstate such employee to his former position immediately upon the restoration of his normal
health.
* “competent public health authority” ≠ company’s own physician (Cebu Royal Plant v Deputy Minister, 1987)

The requirement for a medical certificate cannot be dispensed with; otherwise it would sanction the unilateral and
arbitrary determination by the employer of the gravity or extent of the employee’s illness and thus defeat the public
policy in the protection of labor. (Sy v CA, 2003)

F. Special Case of Business Transfers

Nature of Labor Contract [a.k.a.
Unless expressly assumed, labor contracts are not enforceable against a transferee of the enterprise, labor contracts
being in personam, thus binding only between the parties. A labor contract does not create any real right which should
be respected by 3rd parties. This conclusion draws force from the right of an employer to select employees & to decide
when to engage them, as protected by the Constitution. It can be restricted only through police power.
As a general rule, there is no law requiring a bona fide purchaser of assets of an ongoing concern to absorb in its employ
the employees of the latter, UNLESS if the transaction is colored/clothed w/ bad faith, in which case the parties will be
liable to the employees. (Sundowner Devt. v Drilon, 1989)

G. Procedural Due Process

1. Requirements
In General
Due process under the Labor Code, like Constitutional due process, has two aspects: substantive, i.e., the valid and
authorized causes of employment termination under the Labor Code; and procedural, i.e., the manner of
dismissal. Procedural due process requirements for dismissal are found in the Labor Code of the Philippines.
Breaches of these due process requirements violate the Labor Code. Therefore statutory due process should be
differentiated from failure to comply with constitutional due process.
The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of the Omnibus Rules.
“Standards of due process: Req’ts of notice. – In all cases of termination of employment, the following standards of
due process shall be substantially observed:
I. For termination of employment based on just causes as defined in Art.282, LC:
(a) A written notice served on the employee specifying the ground/s for termination, & giving to said
employee reasonable opportunity w/in w/c to explain his side;
(b) A hearing/conference during w/c the employee concerned, w/ the assistance of counsel if the employee
so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence
presented against him; &
(c) A written notice of termination served on the employee indicating that upon due consideration of all
the circumstances, grounds have been established to justify his termination.
In case of termination, the foregoing notices shall be served on the employee’s last known address.”
(1) If the dismissal is based on a just cause under Art. 282, the employer must give the employee 2 written notices
& a hearing or opportunity to be heard. If requested by the employee before terminating the employment, a notice
specifying the grounds for w/c dismissal is sought a hearing or an opportunity to be heard and after hearing or
opportunity to be heard, a notice of the decision to dismiss.
(2) If the dismissal is based on authorized causes under Art.283-284, the employer must give the employee &
DOLE written notices 30 days prior to the effectivity of his separation.
Riviera did not follow the notice requirements and instead argued that sending notices to the last known
addresses would have been useless because they did not reside there anymore. Unfortunately for the company,
this is not a valid excuse because the law mandates the twin notice requirements to the employee’s last known
address. Thus, it should be held liable for non-compliance with the procedural requirements of due process.
The violation of the Agabons’ right to statutory due process by Riviera warrants the payment of indemnity in the
form of nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking
into account the relevant circumstances. (Agabon v NLRC, 2003)
Essence of Due Process
• Substantive and procedural. Two requisites for valid dismissal:
(1) must be for a just or authorized cause, and (2) employee must be afforded due process.
Due process is simply an opportunity to be heard. In separate memoranda, the respondents were both
appraised of the particular acts or omissions constituting the charges against them. They gave their own
“answer” to the charges. They participated in and were represented by counsel during the investigation.
Notices were sent to them informing them of the basis of their termination. In fine, private respondents were
given due process before they were dismissed. (Central Pangasinan Electric Cooperative v Macaraeg, 2003)
• The essence of due process is simply an opportunity to be heard, or as applied to admin proceedings, an
opportunity to explain one’s side or to seek a reconsideration of the action/ruling complained of. A formal or
trial-type hearing is not at all times and in all instances essential, as the DP req’ments are satisfied where the
parties are afforded fair & reasonable opportunity to explain their side of the controversy. What is frowned
upon is absolute lack of notice & hearing. (Valiao v CA, 2004)

Right to Counsel
Salaw was denied the assistance of counsel during the investigation conducted by the bank. No reasons were
proffered which vitiated the denial with irregularity and unfairness. It is true that administrative and quasi-
judicial bodies are not bound by the technical rules of procedure in the adjudication of cases. However, the right to
counsel, a very basic requirement of substantive due process, has to be observed. Indeed, the right to counsel and
to due process of law are two of the fundamental rights guaranteed by the constitution to any person under
investigation, be the proceeding administrative, civil, or criminal. (Salaw v NLRC, 1991)

Notice
• Required. The college failed to give Villas the first notice, which should have informed the latter of the
intention to dismiss her. The letters did not comply with the requirements of the law that the first written
notice must apprise the employee that his termination is being considered due to a certain act / omission.
These letters merely required her to submit proof of her studies. The fact that there was a hearing conducted
by the grievance committee pursuant to the collective bargaining agreement does not work in the college’s
favor because this was done after it had informed Villas that she was already considered resigned from her
teaching job. Besides, the rights of an employee to be informed of his proposed dismissal are personal to him
and, therefore, the notice to the union was not notice to the employee. (Colegio de San Juan de Letran-
Calamba v Villas, 2003)
• Not required. When Tercero abandoned her teaching position in 1971, there was no special law governing
the dismissal or separation pay of professors, and the law in force was RA 1052 (Termination Pay Law).
Abandonment of work then being a just cause for termination, the school was under no obligation to serve a
written notice. That Tercero was given a plaque of appreciation for 30 years of service, or that she was not
paid separation pay or retirement benefits in 1971, should not obliterate the fact that she abandoned her
employment in 1971. (Sta. Catalina College v NLRC, 2003)

Two-Notice Rule
• Example. Since the company failed to observe fully the procedural requirement of due process for the
termination of Caingat’s employment, incl. the 2-notice rule, the company has to pay damages. Only the first
notice was made, i.e. the 20 June 1996 memorandum. Neither the public notice in a newspaper of general
circulation nor the demand letter could constitute substantial compliance. The public notice merely informed
the public of Caingat’s separation from service. (Caingat v NLRC, 2005)
• Example. Heavylift, thru a letter signed by the Administrative and Finance Manager, informed Galay of her
low performance rating and the negative feedback from her team members. Galay was told that she was
being relieved of her functions. She was subsequently terminated for alleged loss of confidence.
The letter does not constitute the required notice. The letter did not inform her of the specific acts complained
of and their corresponding penalty. Additionally, the letter never gave respondent Galay an opportunity to
explain herself, hence denying her due process. (Heavylift Manila v CA, 2005)
• Must be sent to last-known address. The company did not follow the notice requirements and instead
argued that sending notices to the last known addresses would have been useless because they did not reside
there anymore. Unfortunately for the company, this is not a valid excuse because the law mandates the twin
 notice requirements to the employee’s last known address. Thus, it should be held liable for non-compliance
with the procedural requirements of due process. (Agabon v NLRC, 2004)

Hearing
• In a nutshell. Before termination, an employee must be given the twin requirements of due process: proper
notice and hearing. The essence of due process is that a party be afforded a reasonable opportunity to be
heard and to submit any evidence he may have in support of his defense.
Although a hearing is essential to due process, no formal hearing is necessary when the respondent already
admitted his responsibility for the act of which he was accused. Even if no hearing was conducted, the
requirement of due process was sufficiently met where he was allowed to explain his side. (Magos v NLRC,
1998)
• The essence of due process is simply an opportunity to be heard, or as applied to administrative
proceedings, an opportunity to explain one’s side. That the investigations conducted may not be considered
formal or recorded hearings/investigations is immaterial. A formal or trial-type hearing is not at all times and
in all instances essential to due process, the requirements of which are satisfied where the parties are afforded
fair and reasonable opportunity to explain their side of the controversy. It is deemed sufficient for the
employer to follow the natural sequence of notice, hearing, and judgment. (National Semiconductor
Distribution v NLRC, 1998)
• Opportunity given, but might not be availed of. The company was duly informed of the pendency of the
illegal dismissal case, but it chose not to participate therein without any known justifiable cause. The LA sent
notices of hearing or arbitration to the parties, requiring them to submit position papers. The company did
not attend the hearing. Another notice for hearing or arbitration was sent to the parties, but it wasn’t until
much later that counsel appeared for the company. The company was again given time to submit its position
paper and documentary evidence, “otherwise, [the LA] will be constrained to resolve this case based on
available evidence on record.” Still the company failed to file its position paper.
Clearly, the company was given an opoprtunity to present its evidence, but it failed or refused to avail itself of
this opportunity without any legal rason. Due process is not violated where a person is given the opportunity
to be heard, but chooses not to give his side of the case. (Caurdenetan Piece Workers Union v Laguesma, 1998)
• Ample opportunity. The law requires an employer to afford his employee ample opportunity to be heard.
Even if, after 30 days, Compacion still did not give his explanation for the accident, the company did not have
outright license to terminate him. They should again have sent a notice of dismissal stating the acts or
omission constituting grounds for dismissal and Compacion should again be allowed to answerr and be
heard, and thereafter another notice about the decision of dismissal should be sent.
Management must accord the employee ample opportunity, or every kind of assistance, to enable him to
adequately prepare for his defense, incl. legal representation. Due process also means an opportunity to
confront the witnesses against him and to adduce evidence in his defense. (La Carlota Planters Ass’n v NLRC,
1998)
• Example. Due process was not observed here as no hearing was conducted despite Lavador’s request. The
violation of her right to statutory due process by the company warrants the payment of indemnity in the form
of nominal damages. (Lavador v J Mktg., 2005)

Position Paper
• Hearing discretionary. Despite a warning by the LA that no further motions for postponement would be
entertained, ITELCO’s counsel again sought to postpone the case. The motion was denied by the LA who
deemed the case submitted for decision on the basis of the position papers, memoranda, and other pleadings
relevant to the case. A lawyer should not presume that his motion for postponement will be granted.
Sec 5, Rule V, New Rules of Procedure of the NLRC grants an LA wide latitude to determine, after the
submission of the parties of their position papers or memoranda, whether there is need for a formal trial or
hearing. Thus the holding of a trial is discretionary upon the LA and cannot be demanded by the parties as a
matter of right. (Iriga Telephone Co. v NLRC, 1998)
• Hearing discretionary. The company did not have a vested right to a formal hearing just because the
previous LA set the case for hearing. It is entirely within his authority to decide a labor case before him,
based on the position papers and supporting documents of the parties, without a trial or formal hearing. The
requirements of due process are satisfied when the parties are given the opportunity to submit position
papers wherein they are supposed to attach all the documents that would prove their claim in case it be
decided that no hearing should be conducted or was necessary.
 The order of the previous LA granting the company’s motion for a hearing of the case was not conclusive and
binding on LA Cuyuca, who had the discretion either to hear the case before deciding it, or to forego with the
hearing if, in her view, there was no longer a need therefor as the case could be resolved on its merits based on
the records. (Shoppes Manila v NLRC, 2004)

Effect of Failure [to Observe] Due Process [i.e. the great WenPhil-vs.-Serrano-vs.-Agabon debate!]
The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of the Omnibus Rules.
4 possible situations may be derived:
(1) the dismissal is for a just cause under Article 282 of the Labor Code, for an authorized cause under Article 283,
or for health reasons under Article 284, and due process was observed;
(2) the dismissal is without just or authorized cause but due process was observed;
(3) the dismissal is without just or authorized cause and there was no due process; and
(4) the dismissal is for just or authorized cause but due process was not observed.
In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any liability.
In the second and third situations where the dismissals are illegal, Article 279 mandates that the employee is
entitled to reinstatement without loss of seniority rights and other privileges and full backwages, inclusive of
allowances, and other benefits or their monetary equivalent computed from the time the compensation was not
paid up to the time of actual reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot be cured, it should
not invalidate the dismissal. However, the employer should be held liable for non-compliance with the procedural
requirements of due process.
Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not given any notice.
Wenphil Corp. v NLRC, the Belated Due Process Rule: Where the employer had a valid reason to dismiss an
employee but did not follow the due process requirement, the dismissal may be upheld but the employer will be
penalized to pay an indemnity to the employee.
Serrano v NLRC: The violation by the employer of the notice requirement in termination for just or authorized
causes was not a denial of due process that would nullify the termination. However, the dismissal was ineffectual
and the employer must pay full backwages from the time of termination until it was judicially declared that the
dismissal was for a just or authorized cause.
(Why the change? The significant number of cases involving dismissals without requisite notices. Apparently,
the imposition of penalty by way of damages for violation of the notice requirement was not serving as a deterrent
and instead gave rise to the “dismiss now, pay later” practice.
However, Serrano did not consider the full meaning of Article 279. This means that the termination is illegal only if
it is not for any of the justified or authorized causes provided by law. Payment of backwages and other benefits,
including reinstatement, is justified only if the employee was unjustly dismissed.
The better rule therefore is to abandon the Serrano doctrine and to follow Wenphil: The dismissal was for just
cause, but sanctions must be imposed on the employer. Such sanctions, however, must be stiffer than those
imposed in Wenphil. Thus justice would be dispensed not just to employees, but to employers as well.
The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but not complying with
statutory due process may have far-reaching consequences. This would encourage frivolous suits, where even the
most notorious violators of company policy are rewarded by invoking due process. This also creates absurd
situations where there is a just or authorized cause for dismissal but a procedural infirmity invalidates the
termination.
Where the dismissal is for a just cause the lack of statutory due process should not nullify the dismissal, or render
it illegal or ineffectual. However, the employer should indemnify the employee for the violation of his statutory
rights. The sanction should be in the nature of indemnification or penalty and should depend on the facts of each
case, taking into special consideration the gravity of the due process violation of the employer. This indemnity is
intended not to penalize the employer but to vindicate or recognize the employee’s right to statutory due process
which was violated by the employer. The violation of the petitioners’ right to statutory due process by the private
respondent warrants the payment of indemnity in the form of nominal damages. (Agabon v NLRC, 2004)
∗ The policy of ordering the reinstatement to service of an employee without loss of seniority rights and the
payment of backwages, where it appears he was not afforded due process, although his dismissal was found
to be for just and authorized cause in an appropriate proecedings in the MOLE, should be re-examined. It
would be highly prejudicial to the interests of the employer to impose on him the services of an employee
who has been shown to be guilty of the charges that warranted his dismissal from employment. Indeed, it
would demoralize the rank and file if the undeserving, if not undesirable, remain in the service.
 Mallare’s dismissal for just cause should be maintained. He has no right to return to his former employer.
However, the company must nevertheless be held to account for failure to extend to Mallare his right to an
investigation before causing his dismissal. There must be imposed a sanction for failure to give formal notice
and conduct an investigation as required by law before dismissing Mallare from employment. The company
must indemnify him P1k. The measure of this award depends on the facts of each case and the gravity of the
omission by the employer. (Wenphil Corp. v NLRC, 1989)
∗ The number of cases involving dismissals without the requisite notice to the employee, although effected for
just or authorized causes, suggests that the impositio n of fine for violation of the notice requirement has not
been effective in deterring such violations. The monetary sanctions are “too insignificant, too niggardly, and
sometimes even too late.” It is said to have fostered a “dismiss now, pay later” policy.
We do not agree, however, that disregard of the notice requirement by an employer renders the dismissal or
termination of employment null and void. Such rule was abandoned in Wenpil because it is really unjust to
require an employer to keep in his service one who is guilty of the charges leveled against him.
Rather, the remedy is to order the payment to the employee of full backwages from the time of his dismissal
until the court finds that the dismissal was for a just cause. But otherwise, his dismissal must be upheld and he
should not be reinstated, because his dismissal is ineffectual!!!
RARRR!!!!!!@$~!*#%*&!!! *pant pant* [sorry, bored na ko e. :p]

For the same reason, should an employee be laid off for [authorized causes without observance of the due
process requirements], then his termination should be considered ineffectual, not void, and he should be paid
backwages and separation pay.
There are 3 reasons violation by the employer of the notice requirement cannot be considered a requirement of
the Constitutional Due Process Clause, or a denial of due process resulting in the nullity of the dismissal:
(1) The Due Process Clause of the Constitution is a limitation on governmental powers. It does not apply to
the exercise of private power. This is plain from the text.

(2) Notice and hearing are required under the Due Process Clause before the power of organized society is
brought to bear upon the individual. This is obviously not the case of termination of employment. Here
the employee is not faced with an aspect of the adversary system. Under Art. 283, the purpose of the
requirement notice is to give him time to prepare for the eventual loss of his job, and the DOLE an
opportunity to determine whether economic causes do exist justifying his termination.
As for Art. 282, the purpose of the due process requirements is not to comply with the Due Process
Clause of the Constitution. The time for notice and hearing is at the trial stage [before the courts]. Thus,
compliance by the employer with the notice requirement before dismissal does not foreclose the
employee’s right to question the legality thereof.

(3) The employer cannot really be exepcted to be entirely an impartial judge of his own cause.
Not all notice requirements are requirements of due process. Some are simply part of a procedure to be
followed before a right granted to a party can be exercised. Others are simply an application of the Justinian
precept: to act with justice, give everyone his due, and observe honesty and good faith toward one's fellowmen.
Such is the notice requirement in Arts. 282-283.
The consequence of the failure either of the employer or the employee to live up to this precept is to make him
liable in damages, not to render his act (dismissal or resignation, as the case may be) void. The measure of
damages is the amount of wages the employee should have received were it not for the termination of his
employment without prior notice. If warranted, nominal and moral damages may also be awarded.
Therefore, with respect to Art. 283, the employer's failure to comply with the notice requirement does not
constitute a denial of due process but a mere failure to observe a procedure for the termination of employment
which makes the termination of employment merely ineffectual.
It is similar to the failure to observe the provisions of Art. 1592, in relation to Art. 1191, of the Civil Code, in
rescinding a contract for the sale of immovable property: A notice of rescission not given by means of a notarial
demand has no legal effect; the vendee can make payment even after the due date since no valid notice of
rescission has been given.
Indeed, under the Labor Code, only the absence of a just cause for the termination of employment can make the
dismissal of an employee illegal. This is clear from the text of Art. 279.
Thus, only if the termination of employment is not for any of the causes provided by law is it illegal and,
therefore, the employee should be reinstated and paid backwages. To contend that even if the termination is for
a just or authorized cause the employee concerned should be reinstated and paid backwages would be to
amend Art. 279 by adding another ground for considering a dismissal illegal.
 Moreover, under Art. 285, if it is the employee who fails to give a written notice to the employer that he is
leaving the service of the latter, at least one month in advance, his failure to comply with the legal requirement
does not result in making his resignation void but only in making him liable for damages. This disparity in
legal treatment cannot simply be [excused] by invoking “He who has less in life should have more in law.”
The appropriate sanction for the failure to give notice is the payment of backwages for the period when the
employee is considered not to have been effectively dismissed or his employment terminated. The sanction is
not the payment alone of nominal damages. (Serrano v NLRC, 2000)

♥ Some additional notes, because Sir loves the Unholy Triumvirate of WenPhil + Serrano + Agabon that much ♥

- first question to ask where there is dismissal/termination:

Was there compliance with substantive & procedural due process?
 substantive DP = Arts. 282-284
 procedural DP = Art. 277(b) (2 notices + hearing)
- Is there such a thing as due process after the fact?

- Serrano suddenly introduced the concept of “deterrent value.”

- Serrano: The focus is no longer on the Const’l guarantee of DP, but rather statutory DP; DP as part of the
procedure. (Justinian precept)

- WenPhil: “indemnity” (Sir: wrong term!)

Serrano: full backwages
Agabon: damages

[Aladdin Transit v CA (2005) and Glaxo-Wellcome v Nagkakaisang Empleyado ng Glaxo-Wellcome (2005) merely reiterate the Agabon ruling.]

2. Other Procedural Matters

Burden of Proof
• On the employer. Basic is the rule in termination cases that the employer bears the burden of showing that
the dismissal was for a just or authorized cause. Otherwise, the dismissal is deemed unjustified. Apropos
this responsibility, petitioner corporation should have presented clear and convincing evidence of imminent
economic or business reversals as a form of affirmative defense in the proceedings before the labor arbiter or,
under justifiable circumstances, even on appeal with the NLRC. (Me-Shurn v Me-Shurn Workers Union,
2005)
• Strength of own evidence. The employer’s case rises or falls on the strength of his evidence, not on the
weakness of the employee’s defense. The employer, however, needs only to adduce substantial evidence =
such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. (Equitable
PCIBank v Caguioa, 2005)
• Technicalities not binding. It is not necessary that the affidavits and other documents presented conform
with the technical rules of evidence prevailing in courts of law or equity are not controlling. It is sufficient
that the documents submitted by the parties have a bearing on the issue at hand and support the positions
taken by them. (Equitable PCIBank v Caguioa, 2005)

Degree of Proof
• Not proof beyond reasonable doubt. Article 282(c) allows an employer to dismiss employees for willful
breach of trust or loss of confidence. Proof beyond reasonable doubt of their misconduct is not required, it
being sufficient that there is some basis for the same or that the employer has reasonable ground to believe
that they are responsible for the misconduct and their participation therein rendered them unworthy of the
trust and confidence demanded of their position. (Central Pangasinan Electric Cooperative v Macaraeg,
2003)
• Substantial evidence. The LC provides that termination of an employee’s services may be had for just cause,
if supported by substantial evidence. In administrative and quasi-jud’l proceedings, proof beyond reasonable
doubt or even preponderance of evidence is not required in determining the legality of such a dismissal.
Susbtantial evidence = more than a mere scintilla of evidence; relevant evidence as a reasonable mind might
accept as adequate to suppot a conclusion, even if other minds, equally reasonable, might conceivably opine
otherwise. (Salvador v Phil. Mining Service, 2003)
 Prescription Period
An action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within 4
years from the time of dismissal, pursuant to Art. 1146 of the Civil Code. Hence, Capulso's case, which was filed
after a measly delay of 4 months, should not be treated with skepticism or cynicism. Such a delay is more than
sufficient compliance with the prescriptive period. It may betray an unlettered man's lack of awareness of his
rights as a lowly worker but, certainly, he must not be penalized for his tarrying. (Azcor Mfg. v NLRC, 1999)

Offer to Reinstate
An offer for reinstatement does not cure an illegal dismissal. The wrong has been committed and the harm done.
Notabley, it was only after the complaint had been filed that Chang, in a belated gesture of good will, invited
Ranara back to work in his store. Chang’s sincerity is suspect. At any rate, sincere or no, the company incurred
liability under the LC from the moment Ranara was illegally dismissed, and the liability did not abate as a result of
Chang’s performance. (Ranara v NLRC, 1992)

G. Sanctions and Remedies

14.07 General Rule
Nature of Remedies – Twin Remedies
• Copy-pasted from the LC. An employee who was illegally dismissed from work is entitled to reinstatement without
loss of seniority rights, and other privileges and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the
time of his actual reinstatement. (Lakpue Drug v Belga, 2005)
• In a nutshell. The legal consequences of an illegal dismissal are reinstatement of the employee without loss of
seniority rights and other privileges, and payment of his full backwages, inclusive of allowances and other benefits
or their monetary equivalent.
Clearly, the law intended reinstatement to be the general rule. It is only when reinstatement is no longer feasible that
payment of separation pay is awarded.
Reinstatement = the restoration to a state or condition from which one had been removed or separated.
In providing foremost for the reinstatement of an illegally dismissed employee, theLC not only recognizes the security
of tenure granted by law to regular employees, but also gives substance and meaning to the protection accorded to
labor by the Const. Employment being the means by which every working man sustains himself and his family, the
law mandates reinstatement.
Payment of sep pay as a substitute for reinstatement is allowed only under exceptional circumstances, viz.:
(1) when reasons exist which are not attributable to the fault or beyond the control of the employer, e.g. when the
employer, being in severe financial straits and having suffered serious business losses, has ceased operations,
implemented retrenchment, or abolished the position due to the installation of labor-saving devices;
(2) when the illegally dismissed employee has contracted a disease and his reinstatement will endanger the safety of
his co-employees; or

(3) where a strained relationship exists between the employer and the former employee. (Pheschem Industrial v
Moldez, 2005)
• Not estopped. A thorough scrutiny of the purported resignation letters reveals the true nature of these documents.
In reality, they are waivers or quitclaims which are not sufficient to show valid separation from work or bar
respondents from assailing their termination. Deeds of release or quitclaim cannot bar employees from demanding
benefits to which they are legally entitled or from contesting the legality of their dismissal.
Acceptance of those benefits would not amount to estoppel. The reason is plain. Employer and employee, obviously,
do not stand on the same footing. The employer drove the employee to the wall. The latter must have to get hold of
money. Because, out of job, he had to face the harsh necessities of life. He thus found himself in no position to resist
money proffered. His, then, is a case of adherence, not of choice. One thing sure, however, is that petitioners did not
relent their claim. They pressed it. They are deemed not to have waived any of their rights. (Great Southern
Maritime Services v Acuña, 2005)
• No deductions. Backwages to be awarded to an illegally dismissed employee, should not, as a general rule, be
diminished or reduced by the earnings derived by him elsewhere during the period of his illegal dismissal. The
underlying reason is that the employee, while litigating the legality (illegality) of his dismissal, must still earn a
living to support himself and family, while full backwages have to be paid by the employer as part of the price or
penalty he has to pay for illegally dismissing his employee. The clear legislative intent is to give more benefits to
workers than was previously given them under the Mercury Drug rule or the “deduction of earnings elsewhere” rule.
 “Full backwages” = no deductions from backwages of earnings derived elsewhere by the EE during the period of his
illegal dismissal. The provision’s phrasing [as amended by RA 6715] is clear, plain, and free from ambiguity.
The grant of sep pay does not impede an award for backwages as the latter represents the amount of earnings lost by
reason of unjustified dismissal. (Cabatulan v Buat, 2005)
• Example. Having been illegally dismissed, individual petitioners are entitled to reinstatement from the time they
were illegally dismissed, until they were reinstated on March 16, 1993. For that period they are likewise entitled to
backwages minus the amount petitioners were forced to receive as "retirement" pay. In the event that the amount of
"retirement" pay received by an individual petitioner exceeds the amount of his backwages, then the excess should
be deemed as advances of salary which should be refundable until fully repaid by him. Where the dismissal is
without just or authorized cause and there was no due process, Article 279 mandates that [...see Lakpue Drug above].
(Nueva Ecija Electric Cooperative v NLRC, 2005)

Rationale for Remedies

The intendment of the law in prescribing the twin remedies of reinstatement and payment of backwages is, in the former,
to erstore the dismissed employee to her status before she lost her job, and in the latter, to give her back the income lost
during the period of unemployment. Both remedies, looking to the past, would perforce make Salazar “whole” as a
victim who lost her job and her compensation. (Globe-Mackay v NLRC, 1992)

14.08 Reinstatement
Defined
• Reinstatement = restoration to a state from which one has been removed or separated. It is the return to the position
from which he was removed and assuming again the functions of the office already held [before]. It presupposes
that the previous position from which one was removed still exists, or that there is an unfilled position more or less
of a similar nature as the one previously occupied. (Union of Supervisors v Secretary of Labor, 1984)
• Reinstatement is the restoration to a state or condition from which one had been removed or separated. In providing
foremost for the reinstatement of an illegally dismissed employee, the Labor Code not only recognizes the security of
tenure granted by law to regular employees, but also gives substance and meaning to the protection accorded by the
Constitution to labor. Employment is significant to every working man. It is the means by which he sustains himself
and his family, hence, the law mandates the reinstatement of an illegally dismissed employee to his former position.
Payment of separation pay as a substitute for reinstatement is allowed only under exceptional circumstances.
Where reinstatement is adjudged, the award of backwages and other benefits continues beyond the date of the LA’s
decision ordering reinstatement and extends up to the time said order of reinstatement is actually carried out.
(Pheschem Industrial v Moldez, 2005)

Employee Right
• An illegally dismissed employee is entitled to reinstatement as a matter of right. However, where reinstatement is
not feasible, expedient, or practical as where it would only exacerbate the tension and strained relations, or where the
employer-employee relationship has been unduly strained by reason of irreconcilable differences, particularly where
the employee held a key or managerial position, it would be more prudent to order sep pay.
To protect security of tenure, the doctrine of strained relations should be stricly applied so as not to deprive an illegally-
dismissed employee of his right to reinstatement. Every labor dispute almost always ends in “strained relations” and
thus cannot be given an overarching interpretation. (Quijano v Mercury Drug, 1998)
• Under Art. 282, if it is shown that the employee was dismissed for any just cause, then he should not be resinstated.
However, he must be paid backwages [in accordance with the Serrano doctrine]. The procedural infirmity of lack of
notice and hearing is remedied by ordering the payment to the employee of his full backwages from the time of his
dismissal until the court finally rules that such had been for valid cause. (Rosario v Victory Ricemill, 2003)

Effect of Failure to Ask Relief

• No effect. Since Basa’s deanship was terminated without legal basis, he is entitled to reinstatement despite his failure
to specifically pray for relief of reinstatement in the complaint he filed before the NLRC with a prepared form.
(General Baptist Bibl College v NLRC, 1993)
• Not waived. The company assails the order of the CA affirming Moldez’s reinstatement, on the ground that in his
complaint before the LA, he did not pray for reinstatement, but rather for payment of sep pay and backwages. BUT
Moldez’s omission to pray for reinstatement in his position paper before the LA cannot be considered as an implied
waiver to be reinstated. It was a mere procedural lapse which should not affect his substantive right to
 reinstatement. Technicalities have no place in labor cases as rules of procedure are designed primarily to give
substance and meaning to the objectives of the Labor Code to accord protection to labor. (Pheschem Industrial v
Moldez, 2005)

Rules on Reinstatement
Rationale
• In authorizing execution pending appeal of the reinstatement aspect of a decision, RA 6715 lays down a
compassionate policy which vivifies and enhances the provisions of the Constitution on labor and the working
man. The State may authorize an immediate implementation, pending appeal, of a decision reinstating a
dismissed employee since that saving act is designed to stop, although temporarily since the appeal may yet be
decided in favor of the employer, a continuing threat or danger to the survival or even the life of the employee and
his family. (Roquero v PAL, 2003)
• An employee who is separated from his employment on a false or nonexistent cause is entitled to be reinstated to
his formar position because his separation was illegal. If the position is no longer available for any other valid or
justifiable reason, however the reinstatement of the illegally dismissed employee to his former position would be
neither fair nor just. The law itself cannot exact compliance with what is impossible. The employer’s remedy is to
reinstate the employee to a substantially equivalent position without loss of seniority rights. (PNOC Energy Devt
v Abella, 2005)

Exceptions
Business Conditions
• Loss of T&C. The position of branch manager is one of trust and confidence and therefore the incumbent
manager who has won the trust and confidence of the new maagement by reason of his capability and probity
should not be dismissed in favor of one whose competence and integrity the management has not yet tested.
Luna can stlil be reinstated because, although his previous position is now held by another, there is an unfilld
position more or less of a similar nature as the one previously occupied. (Union of Supervisors v Secretary of
Labor, 1984)
• Already retired. We sustain the challenged decision insofar as it disallowed reinstatement for having become
moot and academic considering that Espejo is already 60 years old. The law recognizes as valid any retirement
plan, agreement or management policy regarding retirement at an earlier or older age. In Espejo’s case, the
company does not have any retirement plan for its employees. According to Sec. 13, Book IV, Omnibus Rules,
an employee may retire or be retired by his employer upon reaching 60. Thus, an employee held to be illegally
dismissed cannot be reinstated if he had already reached the age of 60 years at the time of his complaint for
reinstatement before the LA.
Generally, an illegally dismissed employee who cannot be reinstated is granted separation pay and backwages.
However since Espejo has already reached the statutory retirement age of, he is entitled only to backwages. The
payment of backwages is a form of relief that restores the income lost by reason of the unlawful dismissal;
separation pay, in contrast, is oriented towards the immediate future, the transitional period the dismissed
employee must undergo before locating a replacement job.
The period covered in the payment of backwages should only cover the time when Espejo was illegally dismissed
up to the time he reached 60. For backwages are granted on grounds of equity for earnings which a worker or
employee has lost due to his illegal dismissal. (Espejo v NLRC, 1996)

Strained Relations
• Kung ayaw mo, huwag mo. The parties should not be forced into a situation where a peaceful relationship is not
feasible. The Foundation appears to have lost its trust in Querimit, who in turn is not seeking reinstatement. It
would be an act of oppression to compel them to return to the status quo ante. (Pearl S. Buck Foundation v
NLRC, 1990)
• Loss of T&C. Umlas was terminated on grounds of serious misconduct and dishonesty in the performance of
duties, and fraud and willful breach and LoT&C. The company filed a criminal complaint, although it was later
dropped. The circumstances of this case would render inappropriate Umlas’s reinstatement as an item of relief.
A more equitable disposition is the award, in lieu of reinstatement, of separation pay at the rate of 1 month’s
salary per year of service, so that the employee can be spared the agony of having to work anew with the
employer under an atmosphere of antipathy and antagonism, and the latter does not have to endure the
continued service of the former in whom it has lost confidence. (Commercial Motors v NLRC, 1990)
 • Loss of T&C. Reinstatement is no longer possible here, since Gonzales’s position was one of trust and
confidence, he having been in charge of overall hotel security as Chief of Security. So the company is liable
instead for separation pay. (Acesite Corp. v NLRC, 2005)
• No more vacancy. While the guards were allegedly merely placed “off detail” or on “floating status” for more
than 6 months, the agency was proved to have hired new guards. Reinstatement is thus no longer; also the
complainants refuse to accept other assignments. Such refusal is indicative of strained relations. Thus sep pay
is awarded in lieu of reinstatement. (Sentinel Security Agency v NLRC, 1998)
• Strained relations. The alleged conflict between Sibal and the director Garcia was strictly official in nature, the
cause of which was the violation of the terms of employment by the latter. Sibal’s assertion of her right to unpaid
salaries and bonus differential was not motivated by any personal consideration. Rather, she simply claimed
benefits which, under the law, she was entitled to and legally due, observing utmost tact, courtesy and civility,
waiting for his full recovery from his illness before sending her formal letter of demand. Only after the school
refused to satisfy her money claims did she file the formal complaint. Ironically, the director gave her a
downright shabby treatment by terminating her services without [giving her due process]. The school did not
even give credit to her more than 9 years of continuous service. (Sibal v Notre Dame of Greater Manila, 1990)
• Strained relations, qualified. The principle of "strained relations" cannot be applied indiscriminately.
Otherwise, reinstatement can never be possible simply because some hostility is invariably engendered between
the parties as a result of litigation. That is human nature.
Besides, no strained relations should arise from a valid and legal act of asserting ones right, such as in the instant
case, for otherwise, an employee who shall assert his/ her right could be easily separated from the service by
merely paying his/her separation pay on the pretext that his/her relationship with his/her employer had already
become strained. (Sibal v Notre Dame of Greater Manila, 1990; Naga College Foundation Education Workers
Organization v Bose, 1998)
• Strained relations, qualified. Strained relations, in order to justify the award of separation pay in lieu of
reinstatement with backwages, should be so compelling and so serious in character that the continued
employment of an employee is so obnoxious to the person or business of the employer, and that the
continuation of such employment has become inconsistent with peace and tranquility which is an ideal
atmosphere in every workplace. (Sibal v Notre Dame of Greater Manila, 1990)
• Strained relations, qualified. Mere allegation of strained relations to bar reinstatement is frowned upon. The
strained relations doctrine should be strictly applied so as not to deprive an illegally dismissed employee of his
right to reinstatement. Some unscrupulous employers have take advantage of the overgrowth of the doctrine by
using it as a cover to get rid of its employees and thus defeat their right to job security. (BPI Employees Union v
BPI, 2005; Sagum v CA, 2005)
• Strained relations, qualified. The existence of strained relations is a factual finding and should be raised,
argued, and proven before the LA. (Sagum v CA, 2005)
• Strained relations, qualified. The doctrine of “strained relations” is inapplicable to a situation where the
employee has no say in the operation of the employer’s business. To protect labor’s security of tenure, we
emphasize that the doctrine of “strained relations” should be strictly applied so as not to deprive an illegally
dismissed employee of his right to reinstatement. Every labor dispute almost always results in “strained
relations,” and the phrase cannot be given an overarching interpretation, otherwise, an unjustly dismissed
employee can never be reinstated. Petitioners herein are nurse and nursing aide, respectively, in MCCH and
thus have no prerogative in the operation of the business. (Bascon v CA, 2004)
• Example. The Cosmianos charged Cabatulan with qualified theft and even [tried to] coerce him into dropping
the labor case against them. Therefore antagonism is likely to have already caused a severe strain in the
relationship between them. (Cabatulan v Buat, 2005)
• Example. For one, petitioners did not occupy any managerial or confidential position in the Naga College
Foundation which might be affected by any bad feeling which might have been engendered as a result of the
execution of the decision. For another, it was private respondents who appear to have caused a strain in the
relation of the parties. Any bad feeling was caused by its failure to comply in good faith with their undertaking
under the compromise agreement. (Naga College Foundation Education Workers Organization v Bose, 1998)

Implementation – Options and Rationale

• Employee may refuse. The order of immediate reinstatement pending appeal, in cases of illegal dismissal is an
ancillary relief under R.A. 6715 granted to a dismissed employee to cushion him and his family against the impact
of economic dislocation or abrupt loss of earnings. If the employee chooses not to report for work pending
resolution of the case on appeal, be foregoes such a temporary relief and is not paid of his salary. (Jardine Davies
v NLRC, 1993)
 • Immediately executory. Does an order for reinstatement need a writ of execution? Art. 223: “Decisions, awards,
or orders of the Labor Arbiter are final and executory unless appealed to the Commission by any or both parties
within 10 calendar days from receipt of such decisions, awards, or orders. x x x In any event, the decision of the
Labor Arbiter reinstating a dismissed or separated employee insofar as the reinstatement aspect is concerned shall
immediately be executory, even pending appeal. The employee shall either he admitted back to work under the
same terms and conditions prevailing prior to his dismissal or separation or at the option of' the employer, merely
reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement
provided herein.”
Under Article 223, an employer has two options in order for him to comply with an order of reinstatement, which 'is
immediately executory, even pending appeal. Firstly, he can admit the dismissed employee back to work under the
same terms and conditions prevailing prior to his dismissal or separation or to a substantially equivalent position if
the former position is already filled up. Secondly, he can reinstate the employee merely in the payroll. Failing to
exercise any of the above options, the employer can be compelled under pain of' contempt, to pay instead the salary
of the employee. This interpretation is more in consonance with the constitutional protection to labor. The employee
should not be left without any remedy in case the employer unreasonably delays reinstatement. Therefore, the
unjustified refusal of the employer to reinstate an illegally dismissed employee entities the employee to payment of
his salaries. Thus, the order of reinstatement shall indicate that the employee shall either be admitted back to work
under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer,
merely reinstated in the payroll.
Article 224 states that the need for a writ of execution applies only within 5 years from the date a decision, an order
or awwards becomes final and executory. It cannot relate to an award or order of reinstatement still to be appealed or
pending appeal, which Article 223 contemplates.
To require the application for and issuance of a writ of execution as prerequisites for the execution of a reinstatement
award would certainly betray and run counter to the very object and intent of Article 223, i. e., the immediate
execution of a reinstatement order. The reason is simple. An application for a writ of execution and its issuance could
be delayed for numerous reasons. A mere continuance or postponement of a scheduled hearing, for instance, or an
inaction on the part of the LA or the NLRC could easily delay the issuance of the writ.
Thus an award or order for reinstatement is self-executory. After receipt of the decision or resolution ordering the
employee's reinstatement, the employer has the right to choose whether to re-admit the employee to work under the
same terms and conditions prevailing prior to his dismissal or to reinstate the employee in the payroll. In either
instance, the employer has to inform the employee of his choice. The notification is based on practical considerations
for without notice, the employee has no way of knowing if he has to report for work or not. (Pioneer Texturizing v
NLRC, 1997; Int’l Container Services v NLRC, 1998)
• Strained relations. Reinstatement may be inadmissible due to ensuing strained relations between the employer
and the employee. In such cases, it should be proved that the employee concerned occupies a position where he
enjoys the T&C of his employer, and that it is likely that if reinstated, an atmosphere of antipathy and antagonism
may be generated as to adversely affect the effiiency and productivity of the employee concerned. (Kiamco v
NLRC, 1999)

14.09 Backwages
Definition
• Definition. Backwages = the earnings lost by a worker due to his illegal dismissal. Backwages are granted on
grounds of equity. Payment is a form of relief that restores the income lost by reason of unlawful dismissal. It is not
private compensation or damages, but is awarded in furtherance and effectuation of the public objectives of the LC.
Nor is it a redress of private right, but is rather in the nature of a command to the employer to make public
reparation for dismissing an employee, due to unlawful acts or bad faith.
But where the dismissal has been adjudged valid and lawful, the award of backwages is improper and contrary to law
and jurisprudence. (St. Theresa’s School of Novaliches v NLRC, 1998)
• Unpaid salaries pertain to compensation due the employee for services actually rendered before termination.
Backwages, on the other hand, refer to the supposed earnings had he not been illegally dismissed. Unpaid salaries
refer to those earned prior to dismissal whereas backwages refer to those earnings lost after illegal dismissal.
Reinstatement would always bring with it payment of backwages but not necessarily payment of unpaid salaries.
(General Baptist Bible College v NLRC, 1993)
• An award for backwages actually refers to backwages without qualifications and deductions. The workers are to be
paid their backwages fixed as of the time of the dismissal or strike without deduction for their earnings elsewhere
during their layoff and unqualified by any wage increases or other benefits that may have been received by their
coworkers who are not dismissed or did not go on strike. Awards, including salary differentials, are not allowed.
 The salary base properly used should, however, include not only the basic salary but also the emergency COLA and
also transportation allowances.
However, since Basa did not contest the error committed by the NLRC in excluding the allowances as Academic Dean
in the computation of his backwages, the Court has no jurisdiction to grant such relief. (General Baptist Bible College
v NLRC, 1993)
• Copy-pasted from the LC. Art. 279, as amended by RA 6715, provides that an illegally dismissed employee is
entitled to full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed
from the time his compensation was withheld from him up to the time of his actual reinstatement. (Viernes v NLRC,
2003)

Nature and Purpose

The payment of backwages is generally granted on the ground of equity. IT is a form of relief that restores the income lost
by reason of unlawful dismissal. The grant thereof is intended to restore the earnings that would have accrued ot the
dismissed employee during the period of dismissal until it is determined that the termination of employment is for a just
cause. It is not private compensation or damages, but is awarded in furtherance and effectuation of the public objective of
the LC. Nor is it a redress of a private right, but it is rather in the nature of a command to the employer to make public
reparation for dismissing an employee either due to the former’s unlawful act or bad fatih. The award of backwages is
not conditioned on the employee’s ability or inability to, in the interim, earn any income. (Tomas Claudio Memorial
College v CA, 2004)

Effect of Failure to Claim

The LA and NLRC committed GAD when they refused to award backwages to Dela Cruz simply because he failed to ask
for such relief in his complaint. Art. 279 states that an employee who is illegally dismissed is entiteld to full backwages. It
is thus a substantial right. Thus failure to claim backwages in a complaint for illegal dismissal is a mere procedural lapse
which cannot a defeat a right granted under substantive law. (De la Cruz v NLRC, 1998)

Effect of Failure to Order

As a general rule, a party who has not appealed is not entitled to affirmative relief other than the ones granted in the
decision of the lower court. But law and jurisprudence authorize a tribunal to consider errors, even if unassigned, if they
involved, e.g., plain errors not specified. Here, the failure of the LA and the NLRC to award backwages amounts to a
plain error which we may rectify in this petition. Rules of procedure ar emere tools designed to facilitate the attainment
of justice. Strict and rigid application which would result in technicalities tending to frustrate rather than promote
substantial justice must always be avoided. Thus substantive rights like the award of backwages resulting from illegal
dismissal should not be prejudiced by a rigid and technical application of the rules. (Aurora Land Projects v NLRC,
1997)

Period – Computation [a.k.a. “ To Deduct or Not To Deduct – That is the

Question”]
• Deduct, yes. Backwages should not be awarded from the time of their dismissal 10 years ago to their actual
reinstatement. Instead, guidelines in ascertaining total backwages payable:

(1) Deduct the total earnings obtained by the worker from other employment(s) from the date of dismissal to the date
of reinstatement from the backwages accruing to him. Should the worker decide that it is not preferable to return
to work, deduction is to be made up to the time judgment became final. employees should not be permitted to
enrichthemselvces at the expense of their employer. Besides, there is the law’s abhorrence for double
compensation.

(2) Account should be taken of whether, in the exercise of due diligence, the workers might have obtained income
from suitable remunerative employment. This should mitigate the damages to which they are entitled because it
is really unjust that the discharged employee should, with folded arms, remain inactive in the expectation of the
windfall to come to him. A contrary view would breed idleness and would be conducive to the lack of initiative
on the part of a laborer. (Itogon-Suyoc Mines v Sangilo, 1968)
• Deduct, no; 3-year rule. New formula: Resp should be paid a fixed amount of backwages “without further
qualifications,”that is to say, without having to determine and deduct earnings from the general award of
backwages, from the date of unlawful dismissal until actual reinstatement. Such deductions heretofore customarily
made in ULP and reinstatement cases from general awards generally led to long delays in the execution of the
decision for backwages and reinstatement, due to protracted hearings and unavoidable delays and difficulties
encountered in determining the earnings of the laid-off employees during the pendency of the case.
 This new principle—fixing the amount of backwages at a reasonable level witout qualiication and deduction so as to
relieve the employees from proving their earnings during their lay-offs and their employer from submitting counter-
proofs, and thus obviate the twin evils of idleness on the part of the employees and attrition and undue delay in
satisfying the award on the part of the employer—is to be hailed as a realistic, reasonable, and mutually beneficial
solution.
Normally, the trial of the case and resolution of the appeal should be given preference and terminated within a period
of 3 years (1 year for trial and decision in the industrial court, 2 years before the SC).
Hence, an award of backwages equivalent to 3 years (where the case is not terminated sooner) should serve as the base
figure for such awards without deduction, subject to deduction where there are mitigating circumstances in favor of the
employer but subject to increase by way of exemplary damages where there are aggravating circumstances on the
employer’s part, e.g. oppression or dilatory appeals. [The 3-year rule effectively qualified Art. 279’s provisions –
Bustamante v NLRC, 1996]
Here, resolution of the case on appeal was delayed without fault of the parties, but the facts and circumstances clearly
show the lack of merit in the appeal taken by the employer and its stubborn insistence on depriving Resp of the extra
compensation justly due them. The minimum award to which Resp shoiuld be entitled should be at the very least the
equivalent of 3 years’ base pay.
employers should be put on notice as a deterrent that if they pursure manifestly dilatory and unmeritorious appeals
and thus delay satisfaction of the judgment justly due their employees, they run the risk of exemplary and punitive
damages being assessed against them, commensurate to the delay caused by the appeal process. (Mercury Drug v
CIR, 1974)
• 3 schoolyears. The fixing and limitation of the awarded backwages to the equivalent of 3 school years (of 10 months
each) without qualification or deduction to the professors/instructors who have not been readmitted by the
University is just and reasonable. No further amount shall be due them. (FEATI University Faculty Club v FEATI
University, 1974)
• Deduction...yes again?? Backwages should be paid in full, inclusive of allowances and other benefits or their
monetary equivalent pursuant to Art. 279 as amended by RA 6715, subject to deduction of income earned elsewhere
during the period of dismissal, if any, to be computed from the time they were dismissed up to the time of their
actual reinstatement.
Pvt Resps were dismissed illegally after the effectivity of RA 6715 which amended the LC. However, in ascertaining the
total amount of backwages payable to them, we go back to the pre-Mercury Drug rule: The total amount derived from
employment elsewhere between the date of dismissal and the date of reinstatement, if any, should be deduccted
therefrom. employees should not be permitted to enrich themselves at the expense of their employer. (Pines City
Educational Center v NLRC, 1993)
• Deduction, no, again. The ruling in Pines City no longer controls. The new rule is that backwages awarded to an
illegally dismissed employee shall not be diminished or reduced by the earnings derived by him elsewhere during
the period of illegal dismissal. (Torres v NLRC, 2000)
• Goodbye 3-year rule. The 3-year limit is no longer applied due to the promulgation of RA 6715, which amended the
LC: “...full backwages... computed from the time his compensation was withheld from him up tot he time of his
actual reinstatement.” The backwages should not, as a general rule, be diminished or reduced by the earnings
derived by him elsewhere during the period of illegal dismissal. The underlying reason is that the employee, while
litigating the legality of his dismissal, must still earn a living to support himself and his family. Full backwages
should be paid by the employer as part of the price or penalty he has to pay for illegally dismissing his employee.
(BPI Employees Union v BPI, 2005)
• Project employees. A project employee illegally dismissed may be ordered reinstated with full backwages.
However, if the project/work is completed during the pendency of the ensuing suit for illegal dismissal, the
employees shall be entitled only to full backwages from the date of the termination of their employment until the
actual completion of the project/work. BUT IF the project was in fact completed during the pendency of this suit,
then Puente, as project employee, can no longer be reinstated. Instead, he shall be entitled to the payment of his
salary and other benefits corresponding to the unexpired portion of his employment. (Filipinas Pre-Fabricated
Building Systems v Puente, 2005)
• No cause vs. false/nonexistent cause. A distinction should be made between a dismissal without cause and a
dismissal for a false/nonexistent cause. In the former, it is the intent of the employer to dismiss his employee for no
cause whatsoever, in which case the Termination Pay Law should apply. In the latter case, the employer does not
intend to dismiss the employee but for a specific cause which turns out to be false or nonexistent. Hence, absent the
reason which gave rise to his separation from employment, there is no intention on the part of the employer to
dismiss the employee concerned. Consequently, reinstatement is in order. (Standard Electric Mfg. V Standard
Electric Employees Union, 2005)
 • Rationale of amendment. Backwages shall be paid from the time of the illegal dismissal up to the time of
reinstatement. If reinstatement is no longer possible, one month’s salary shall be paid in addition to the backwages.
The purpose of RA 6715’s amendment of Art. 279 is that the employee, while litigating, must still earn a living to
support himself and his family. Further, full backwages shall serve as part of the penalty against the employer for
illegally dismissing his employee. The intent is clearly to give more benefits to the workers and not to diminish the
backwages by earnings derived elsewhere. (Bustamante v NLRC, 1996)
• Rationale. Bad faith on the part of the company may be gleaned from the fact that they transferred the employees to
2 employment agencies just so they could evade their legal responsibility as employers to accord them the status of
regular employees under the LC. Thus moral damages and exemplary damages are hereby awarded.
An illegally dismissed employee who, in contemplation of the law, never left his office, should be granted the
compensation which rightfully belongs to him from the moment he was unduly deprived of it up to the time it was
restored to him. The backwages should not be diminished or reduced by earnings derived elsewhere during the term
of his illegal dismissal. (Kay Products v NLRC, 2005)

Effect of Inflation
The LA awarded, in addition to retirement benefits, 10% interest from the date of separation. Such cannot be justified by
so-called extraordinary inflation. The effects of extraordinary inflation are not to be applied without an agreement
between the parties and without an official declaration thereof by competent authority. (Lantion v NLRC, 1998)

14.10 Financial Assistance

Allowed Financial Assistance
• Social justice. Strictly speaking, it is not correct to say there is no express justification for the grant of sep pay to
lawfully dismissed employees other than abstract consideration of equity. Our Constitution is replete with positive
commands for the promotion of social justice, and particularly the protection of the rights of workers.
Where it comes to such valid but not iniquitous causes as failure to comply with work standards, the grant of sep pay
to the dismissed employee may be both just and compassionate, particularly if he has worked for some time in the
company. E.g. a subordinate who has irreconcilable policy/personal differences with his employer, a working mother
who has to be frequently absent in order to take care of her child.
But where the cause of the separation is more serious than mere inefficiency, the generosity of the law must be more
discerning. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral
turpitude, the employer may not be required to give the dismissed employee sep pay, or financial asisstance, or
whatever other name it is called, on the ground of social justice.
Henceforth, sep pay shall be allowed as a measure of social justice onlyin those instances where the employee is validly
dismissed for causes other than serious misconduct or those reflecting on his moral character. A contrary rule would
have the effect of rewarding rather than punishing the erring employee for his offense. (PLDT v NLRC, 1988)
• Social justice, qualified. There are no exceptional circumstances to warrant the grant of financial assistance or sep
pay to Gustilo. His infractions manifest his slack of moral principle. It has been held that sep pay shall be allowed as
a measure of social justice only in those instances where the employee is validly dismissed for causes other than
serious misconduct or those reflecting on his moral character. However, in this case, Gustilo cannot rely on the
social justice policy because “those who invoke social justice may do so only if their hands are clean and their
motivces blameless.” (Gustilo v Wyeth Phils., 2004)
• Equity. As a general rule, an employee who is dismissed for cause is not entitled to any financial assistance;
however, equity considerations provide an exception. (Salavarria v Letran College, 1998)
• Equity. Equity considerations provide an exception to the rule that an employee who is dismissed for cause is
generally not entitled to any financial assistance. Equity should be accorded due weight, because labor
determinations are not only secundum rationem but also secundum caritatem. (Pinero v NLRC, 2004)

Not Allowed
• “Clean hands.” The policy of social justice is not intended to countenance the wrongdoing simply because it is
committed by the underprivileged. Those who invoke social justice may do so only if their hands are clean and their
motives blameless, and not simply because they happen to be poor. This police of the Constitution is not meant for
protection of those whohave proved they are not worthy of it, like workers who have tainted the cause of labor with
the blemishes of their own character. Since Manreza was found guilty of dishonesty for having stolen company
property and was thus dismissed for cause, he is not entitled to sep pay. (Phil. Construction v NLRC, 1989)
 • Authorized causes. The only cases when sep pay shall be paid, although the employee was lawfully dismissed, are
when the cause of the termination was not attributable to the employee’s fault but due to authorized causes under
Arts. 283-284. Otherwise, an employee who is dismissed for just and lawful cause is not entitled to sep pay even if
the award were to be called by another name. (Eastern Paper Mills v NLRC, 1989)
• (Im)moral character. Chua’s participation in the unlawful and violent strike which resulted in multiple deaths and
extensive property damage constituted serious misconduct. Accordingly, the award of “financial assistance” was
bereft of basis and would render the finding of just cause for termination merely illusory. (Chua v NLRC, 1993)

14.11 Separation Pay

When – Alternative
• Instead of reinstatement. Although Vital, who was illegally dismissed, is entitled to reinstatement, antagonism has
caused a severe strain in their relationship. A more equitable disposition would be an award of sep pay equivalent to
at least 1 month, OR 1 month pay for every year of service, whichever is higher; in addition to his full backwages,
allowances, and other benefits. (Coca-Cola Bottlers Phils. v Vital, 2004)
• Instead of reinstatement, qualified. Law intended reinstatement to be the general rule. It is only when
reinstatement is no longer feasible that payment of sep pay is awarded to an illegally dismissed employee. Payment
of sep pay as a substitute for reinstatement is allowed only under exceptional circumstances:

(a) cessation of operations, retrenchment, or abolition of positions due to the installation of labor-saving devices by an
employer who is in severe financial straits and has suffered serious business losses, and thus there are reasons not
attibutable to the fault, or beyond the control, of the employer;

(b) contraction of disease by the employee, where reinstatement would endanger the safety of his co-employees; or

(c) strained relations. (Pheschem Industrial v Moldez, 2005)

• Only in certain cases. Sep pay shall be allowed only in those instances where the employee is validly dismissed for
causes other than serious misconduct or those reflecting on his moral character. Otherwise, he is not worthy of
compassion as to deserve at least sep pay for his length of service. (Etcuban v Sulpicio Liner, 2005)
• CBA prov. There is no provision in the LC which grants sep pay to employees who voluntarily resign. Under the
Code, sep pay may be awarded only in cases of termination of employment due to authorized causes, or when an
illegal dismissal is found but reinstatement is no longer feasible. However, in this case, there is a stipulation in the
CBA provided for sep pay to an employee who voluntarily resigns; hence the grant of sep pay is valid. (Hanford
Phils. v Joseph, 2005)
• No CBA prov. Pursuant to the CBA, laid-off workers affected would be entitled to termination pay as by the LC. The
parties did not incorporate in the CBA a specific provision providing that employees terminated from employment
due to the closure of business operations would be entitled to separation pay equivalent to one-month pay for every
year of service. The parties opted to be bound by the provisions of the Labor Code and not by company policy. Thus
Art. 283—pertinently providing that in case of closures not due to serious business losses, an employee may not get
less than 1 month’s sep pay, provided he has already served for at least 6 months—should apply. (National
Federation of Labor v CA, 2004)

When Not Allowed

Where the closure of a business was due to business losses, the LC does not impose any obligation on the employer to pay
sep benefits. The practice of giving 1 month’s pay per year of service can no longer be continued precisely because the
company can no longer afford it.
When a business enterprise completely ceases operations, e.g. upon hits death as an ongoing business concern, its vital
lifeblood—its cashflow—literally dries up. Therefore, the fact that less sep benefits were granted when the company
finally met its business death cannot be characterized as a discrimination. Such action was dictated not be a
discriminatory management but by its complete inability to continue its business life due to accumulated losses. (North
Davao Mining v NLRC, 1996)

Computation
The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of the salary,
because the nature of the grant should be considered. The subject allowances here were received temporarily, not
regularly, by the workers. When the conditions for availment ceased to exist, the allowance reached the cutoff point.
The salary base properly used in computing sep pay should include not just the basic salary but also the regular
allowances that the employee had been receiving. The rationale: It is the obligation of the employer to pay an illegally
 dismissed employee the whole amount of his salaries plus all otherbenefits, bonuses, and general increases to which he
would have been normally entitled had he not been dismissed and had he not stopped working. (Millares v NLRC, 1999)

Effect of Acceptance
A dismissed employee who has accepted sep pay is not necessarily estopped from challenging the validity of his
dismissal. Neither does it relieve the employer of legal obligations.
Acceptance of those benefits would not amount to estoppel. The reason is plain: employer and employee, obviously, do
not stand on the same footing. The employer drove the employee to the wall. The latter must have to get hold of money.
Because he was out of a job, he had to face the harsh necessities of life. He thus found himself in no position to resist
money proffered. His, then, is a case of adherence, not choice. (Anino v NLRC, 1998)

Liability of Corporate Officers

• Conditions for piercing the corporate veil. Unless they have exceeded their authority, corporate officers are, as a
general rule, not personally liable for their official acts, because a corporation, by legal fiction, has a personality
separate and distinct from its officers/stockholders/members. However, this fictional veil may be pierced whenever
the corporate personality is used as a means of perpetuating fraud or illegal acts, evading obligations, or confusing a
legitimate issue. In cases of illegal dismissal, corporate directors/officers are solidarily liable with the corporation
where terminations of employment are done with malice or in bad faith. (Bogo-Medellin Sugarcane Planters Ass’n
v NLRC, 1998)
• Example. A corporation is an artificial person. It must have an officer who can be presumed to be the employer,
being the person acting in the interest of the employer. The corporation is the employer in the technical sense only.
As the manager of NYK, Cathy Ng cannot be exonerated from her liability. (NYK International v NLRC, 2003)
• Example. WON Tan acted with malice or bad faith in ordering Timbal’s suspension is a question of fact submitted
by the parties to the LA for resolution. The LA did not make any such finding, nor did he hold Tan liable, either
jointly or severally, with the company for the monetary award. Therefore, the alias writ of execution for said award
should be directed only against the company and not against Tan, even though the latter was the General Manager;
Tan’s real and personal property should not be burdened by such award. (Tan v Timbal, 2004)
• Example. There is no showing of any inhuman treatment of Gonzales by his American employers. His superiors
just happen to be foreigners. Bad faith or malice was not proven. The Resident Manager, acting on behalf of the
company, may have simply formed too-hasty conclusions of willful disobedience. Hence, there is no solidary
liability between the Resident Manager and the company. (Acesite Corp. v NLRC, 2005)

14.12 Damages
Moral / Exemplary
• Moral damages. Villas is not entitled to moral and exemplary damages and atty’s fees because there is no showing
that bad faith or malice attended her dismissal. Moral damages are recoverable only where the dismissal is attended
by bad faith or fraud, or constitutes an act oppressive to labor, or is done contrary to morals, good customs, or public
policy. A dismissal may be contrary to law, but by itself alone, it does not necessarily establish bad faith. (Colegio de
San Juan de Letran-Calamba v Villas, 2003; Kay Products v CA, 2005; Acesite Corp. v NLRC, 2005)
• Conditions and considerations. Farolan was deprived of due process and denied the basic precepts of fairness
when she was terminated. Her resultant sufferings entitle her to an award of moral damages.
Award of moral and exemplary damages for an illegally dismissed employee is proper where the employee had been
harassed and arbitrarily terminated by the employer.
In determining the amount of moral damages recoverable, however, the business, social and financial position of the
offended party and the business or financial position of the offender are taken into account. (Asia Pacific Chartering v
Farolan, 2002)
• Conditions. The violation of the right to due process warrants the payment of indemnity in the form of nominal
damages. The amount is addressed to the sound discretion of the court.
Actual or compensatory damages are not available as a matter of right to an employee dismissed for just cause but
denied due process. The award must be based on clear factual and legal bases and correspond to the pecuniary loss
suffered by the employee as duly proven.
Exemplary damages may avail if the dismissal was effected in a wanton, oppressive, or malevolent manner.
(Maquiling v Phil. Tuberculosis Society, 2005; Kay Products v CA, 2005; Acesite Corp. v NLRC, 2005)
• Conditions. The award of moral and exemplary damages is proper when an illgally dismissed employee had been
harassed and arbitrarily terminated by the employer, as when the altter committed an antisocial and oppressive
 abuse of its rights to investigate and dismiss an employee. The person claiming moral damages must prove the
existence of bad faith by clear and convincing evidence, for the law always presumes good faith. It is not enough
that one merely suffered sleepless nights, mental anguish, or serious anxiety as the result of the actuations of the
other party. (Sagum v CA, 2005)
• Jurisdiction. The NLRC and the LA had no jurisdiction over Tolosa’s claim for damages, because that ruling was
based on a quasi delict or tort per Art. 2176CC. The jurisdiction of labor tribunals is limited to disputes arising from
employer-employee relations.
The allegations in the complaint determine the nature of the action and, consequently, the jurisdiction of the courts.
The allegations in Tolosa’s complaint/position paper are in the nature of an action based on a quasidelict or tort. It is
evident that she sued Garate and Asis for gross negligence resulting in the death of complainant’s husband, Capt.
Virgilio Tolosa.
The complaint/position paper refers to and extensively discusses the negligent acts of shipmates Garate and Asis, who
had no employer-employee relation with Captain Tolosa. Specifically, the paper alleges the following tortious acts:
failure to regularly [and diligently] monitor Tolosa’s condition; failure to consult with other officers regarding possible
urgent emergency measures resulting in Tolosa’s untimely demise.
The loss she claims does not refer to the actual earnings of the deceased, but to his earning capacity based on a life
expectancy of 65 years. This amount is recoverable if the action is based on a quasi delict as provided for in Art. 2206
CC, but not in the Labor Code. A worker’s loss of earning capacity and blacklisting are not to be equated with wages,
overtime compensation or separation pay, and other labor benefits that are generally cognized in labor disputes. The
loss of earning capacity is a relief or claim resulting from a quasi delict or a similar cause within the realm of civil law.
While it is true that LAs and the NLRC have jurisdiction to award not only reliefs provided by labor laws, but also
damages governed by the Civil Code, these reliefs must still be based on an action that has a reasonable causal
connection with the Labor Code, other labor statutes, or collective bargaining agreements.
Tolosa cannot anchor her claim for damages on Article 161 LC, which does not grant or specify a claim or relief. This
provision is only a safety and health standard under Book IV of the same Code. The enforcement of this labor standard
rests with the labor secretary Thus, claims for an employer’s violation thereof are beyond the jurisdiction of the labor
arbiter.
It is not the NLRC but the regular courts that have jurisdiction over actions for damages in which the employer-
employee relation is merely incidental, and in which the cause of action proceeds from a different source of obligation,
such as a tort. Since Tolosa’s claim for damages is predicated on a quasi delict or tort that has no reasonable causal
connection with any of the claims provided for in Art. 217, other labor statutes, or collective bargaining agreements,
jurisdiction over the action lies with the regular courts-- not with the NLRC or the LA. (Tolosa v NLRC, 2003)

Nominal Damages
• Deprivation of due process. The violation of the employee’s right to statutory due process by the employer warrants
the payment of indemnity in the form of nominal damages. The amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant circumstances. This form of damages would serve to deter
employers from future violations of the statutory due process rights of employees. At the very least, it provides a
vindication / recognition of the fundamental right granted to the employee under the LC and its IRR. (Central
Luzon Conference v CA, 2004)
• vs. backwages. An award of indemnity is not incompatible with an award for backwages. The two are based on
different considerations. Indemnity is meant to vindicate or recognize the right of an employee to due process which
has been violated by the employer.
An employer becomes liable to pay indemnity to an employee who has been dismissed if, in effecting such dismissal,
the employer fails to comply with the requirements of due process. The indemnity is in the form of nominal damages
intended not to penalize the employer, but to vindicate or recognize the employee’s right to due process which was
violated. Under Art. 2221 CC, nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him. (Viernes v NLRC, 2003) not in syllabus but sounds helpful.

15.01 Retirement

Art. 287, LC. Retirement. - Any employee may be retired upon reaching the retirement age established in the collective
bargaining agreement or other applicable employment contract.
 In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under
existing laws and any collective bargaining agreement and other agreements: Provided, however, That an employee’s
retirement benefits under any collective bargaining and other agreements shall not be less than those provided therein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an
employee upon reaching the age of 60 years or more, but not beyond 65 years which is hereby declared the compulsory
retirement age, who has served at least 5 years in the said establishment, may retire and shall be entitled to retirement pay
equivalent to at least 1/2 month salary for every year of service, a fraction of at least 6 months being considered as one
whole year.
Unless the parties provide for broader inclusions, the term ‘1/2 month salary’ shall mean 15 days plus 1/12 of the 13th
month pay and the cash equivalent of not more than 5 days of service incentive leaves.
"An underground mining employee upon reaching the age of 50 years or more, but not beyond 60 years which is
hereby declared the compulsory retirement age for underground mine workers, who has served at least 5 years as
underground mine worker, may retire and shall be entitled to all the retirement benefits provided for in this Article.
Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are
exempted from the coverage of this provision.
Violation of this provision is hereby declared unlawful and subject to the penal provisions under Article 288 of this Code.
"Nothing in this Article shall deprive any employee of benefits to which he may be entitled under existing laws or
company policies or practices."
[Lines in boldface inserted by virtue of RA 8558.]

Art. 287 implements RA 7641, which took effect 7 Jan 1993. The 5th paragraph, regarding underground mine workers, is a
further amendment introduced by RA 8558, approved 26 Feb 1998.
Recognizing RA 7641 as a social legislation, the SC applied its benefits to an employee who retired before it took effect, but
whose case was pending resolution at the NLRC when it did take effect (Oro Enterprises, 1994).
The retroaction of RA 7641 includes services rendered prior to its effectivity by employees in the employ of covered
employers at the time the law took effect and who are eligible to benefits under that statute (MLQ University, 2001).
The retirement pay payable under this article is apart from the retirement benefit claimable by the qualified employee under
the social security law. RA 7641, §2: “Nothing in this Act shall deprive any employee of benefits to which he may be
entitled under existing law/company policies/practices.”
An agreement for compulsory retirement before 60 y.o. is valid and enforceable if it is part of a CBA freely entered into and
subsequently duly ratified by the employees (Pantranco North, 1996).
Restriction in private retirement plan will not prevent the employee from retiring optionally at age 60 (MLQ University,
1997).
A CBA may validly stipulate that the employer has the option to retire an employee who has reached a specific age or a
retirement criterion. When such option is exercised there is no need to consult the employee (Phil. Airlines, 2002).
If the CBA provides for retirement benefits greater than that under the LC, the benefit should be computed according to the
CBA formula (Phi. Airlines).

Definition
• By themselves, the vouchers in question, which allegedly evidence receipt of “retirement gratuities,” do not suffice to
prove petitioners’ retirement from Philex. Retirement results from a voluntary agreement between the employer and
the employee where the latter, after reaching a certain age, agrees to sever his employment with the former. Thus if,
as in the present case, the intent to retire is not clearly established or if the retirement is involuntary, it is to be treated
as a discharge. (Ariola v Philex Mining, 2005)
• Retirement has been defined as a withdrawal from office, public station, business, occupation, or public duty. It is
the result of a bilateral act of the parties, a voluntary agreement between the employer and the employee whereby
the latter, after reaching a certain age, agrees and/or consents to sever his employment with the former. In this
connection, the modern socio-economic climate has fostered the practice of setting up pension and retirement plans
for private employees, initially through their voluntary adoption by employers, and lately, established by legislation.
Pension schemes, while initially humanitarian in nature, now concomitantly serve to secure loyalty and efficiency on
the part of employees, and to increase continuity of service and decrease the labor turnover by giving to the
employees some assurance of security as they approach and reach the age at which earning ability and earnings are
materially impaired or at an end.
It must be noted, however, that the nature of the rights conferred by a retirement or pension plan depends in large
measure upon the provisions of such particular plan. From the provisions of Art. 287, it can be gleaned that employer
 and employee are free to stipulate on retirement benefits, as long as these do not fall below the floor limits provided by
law. (Brion v South Phil. Union Mission of the Seventh-Day Adventist Church, 1999) (not in syllabus)

Types
There are 3 kinds of retirement schemes. The first type is compulsory and contributory in character. The second type is
one set up by agreement between the employer and the employees in CBAs or other agreements between them. The third
type is one that is voluntarily given by the employer, expressly as in an announced company policy, or impliedly as in a
failure to contest the employee’s claim for retirement benefits. (Gerlach v Reuters, 2005)

Basis
• Retirement benefits, where not mandated by law, may be granted by agreement of the employees and their
employer, or as a voluntary act on the part of the employer. Retirement benefits are intended to help the employee
enjoy the remaining years of his life, lessening the burden of worrying for his financial support, and are a form of
reward for his loyalty and service to the employer. (Aquino v NLRC, 1992)
• Retirement [benefits] result from voluntary agreement between the employees and the employer whereby the
former, after reaching a certain age, agrees to sever his employment with the latter. Creditable service referred to in
the retirement plan is the retiree’s continuous years of service with the company. Since retirement pay solely comes
from company funds in this case, it is but natural that it should disregard Gamogamo’s service in another company
for the computation of his retirement benefits. (Gamogamo v PNOC Shipping and Transport, 2002)

Interpretation
• Retirement laws are to be liberally construed in favor of the persons intended to be benefited. However, such
interpretation cannot be made here, in light of the clear lack of consensual and statutory basis of the grant of
retirement benefits to the Pets. No provision in the CBA authorizes the grant to Pets of retirement benefits in
addition to their retrenchment pay, and there is no reason to invalidate their Releases and Quitclaims. (Lopez v
National Steel, 2004; Salomon v Ass’n of International Shipping Lines, 2005)
• Pension and retirement plans, in line with the Constitutional mandate of affording full protection to labor, must be
liberally construed in favor of the employee, it being the general rule that pension plans formulated by an employer
are to be construed most strongly against the employer. Hence, where two constructions of a retirement plan are
possible, one of which requires the retiree to devote his life to the service of the church even after retirement, and the
other of which sanctions the severance by the retiree of his employment thereto at retirement, this Court will not
hesitate to adopt the latter interpretation. (Brion v South Phil. Union Mission of the Seventh-Day Adventist
Church, 1999) not in syllabus

Age
The matter of reinstatement here had already become moot and academic by the time Nolasco filed his second complaint
for reinstatement, because he had already reached the age of 69, which is the retirement age fixed by the LC. (MAI Phils.
v NLRC, 1988)

Rationale
The very essence of retirement is the termination of the employer-employee relationship.
Retirement of an employee does not, in itself, affect his employment status, especially when it involves all rights and
benefits due him, since these must be protected as though there had been no interruption of service. The retirement
scheme was part of the employment package and the benefits to be derived therefrom constituted a continuing
consideration for services rendered, as well as an effective inducement for remaining in the company. It is intended to
help the employee enjoy the remaining years of his life, releasing him from the burden of worrying for his financial
support, and are a form of reward for his loyalty. (Producers Bank of the Phils. v NLRC, 1998)

Eligibility
Pension and retirement plans create a contractual obligation in which the promise to pay benefits is made in consideration
of the continued faithful service of the employee for the requisite period. In other words, before a right to retirement
benefits or pension vests in an employee, he must have met the stated conditions of eligibility with respect to the nature of
employment, age, and length of service. This is a condition precedent to his acquisition of rights thereunder.
The conditions of eligibility for retirement must be met at the time of retirement at which juncture the right to retirement
benefits or pension, if the employee is eligible, vests in him.
 Brion was adjudged by the SDA in 1983 to be qualified for retirement, such that it began paying petitioner retirement
benefits in said year. It may not now reverse its decision to his detriment.
With the termination of employment, the right of the employer to control the employee’s conduct, the so-called “control
test” also terminates; hence, after retirement, the SDA may no longer require petitioner to devote his life to the work of the
church, it having lost control over its erstwhile employee.
Brion has already retired. Hence, he already had a vested right to receive retirement benefits, a right which could not be
taken away from him by expulsion or excommunication, this not being a ground for termination of retirement benefits
under the SDA’s retirement plan. (Brion v South Phil. Union Mission of the Seventh-Day Adventist Church, 1999)

15.02 Accrual of Benefits

Accrual
• In a nutshell. Examination of Article 287 shows that entitlement to retirement benefits may accrue either (a) under
existing laws or (b) under a collective bargaining agreement or other employment contract, It is at once apparent that
Article 287 does not itself purport to impose any obligation upon employers to set up a retirement scheme for their
employees over and above that already established under existing laws. In other words, Article 287 recognizes that
existing laws already provide for a scheme by which retirement benefits may be earned or accrue in favor of
employees, as part of a broader social security system that provides not only for retirement benefits but also death
and funeral benefits, permanent disability benefits, sickness benefits and maternity leave benefits.
Article 287 of the Labor Code also recognizes that employers and employees may, by a collective bargaining or other
agreement, set up a retirement plan in addition to that established by the Social Security law, but prescribes at the same
time that such consensual additional retirement plan cannot be subtituted for or reduce the retirement benefits
available under the compulsory scheme established by the Social Security law. Such is the thrust of the second
paragraph of Article 287.
Section 14, Rule I, Book VI, IRR: Where termination pay is otherwise payable to an employee under an applicable
provision of the Labor Code, and an additional or consensual retirement plan exists, then payments under such
retirement plan may be credited against the termination pay that is due, provided that:
(a) that payments under the additional retirement plan cannot have the effect of reducing the amount of termination
pay due and payable to less than 1/2 month's salary for every year of service, and
(b) the employee cannot be made to contribute to the termination pay that he is entitled to receive under some
provision of the Labor Code: in other words, the employee is entitled to the full amount of his termination pay plus at
least the return of his own contributions to the additional retirement plan. (Llora Motors v Drilon, 1989)
• Example. Here, there was no consensual basis for the required payment of additional retirement benefits. Nor was
Alviar found to have been illegally dismissed or dismissed for authorized causes. Thus no award of retirement
benefits or termination pay is justified. (Llora Motors v Drilon, 1989)
• Example. The employees’ right to payment of retirement benefits and/or separation pay is governed by the
Retirement Plan of the parties. If there is no prohibition both in the Retirement Plan and the Collective Bargaining
Agreement, the employee has the right to recover from the employer his separation pay and retirement benefits.
Thus the right of the concerned employees to receive both retirement benefits and separation pay depends upon the
provisions in the Retirement Plan. (Cruz v Phil. Global Communications, 2004)

15.03 Private Plan

Employer Obligation
Art. 287 does not in itself purport to impose any obligation upon employers to set up a retirement scheme for their
employees over and above that already established under existing laws, like the SSA. (GVM Security and Protective
Agency v NLRC, 1993)

15.04 Benefits and Gratuity

Gratuity pay is paid to the beneficiary for past services or favors rendered purely out of the generosity of the giver/grantor.
Grauity, therefore, is not intended to pay a worker for actual services rendered or for actual performance. It is a money
benefit or bounty given to the worker, the purpose of which is to reward employees who have rendered satisfactory service
to the company.
Retirement benefits, on the other hand, are intended to help the employee enjoy the remaining years of his life, releasing
him from the burden of worrying for his financial support, and are a form of reward for his loyalty to the employer. (Sta.
Catalina College v NLRC, 2003)
O Good luck UPLaw2009B! K