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THIRD DIVISION

HOTEL ENTERPRISES OF THE G.R. No. 165756


PHILIPPINES, INC. (HEPI), owner of
Hyatt Regency Manila,
Petitioner, Present:

- versus - YNARES-SANTIAGO, J.,


Chairperson,
CARPIO,*
SAMAHAN NG MGA MANGGAGAWA CORONA,**
SA HYATT-NATIONAL UNION OF NACHURA, and
WORKERS IN THE HOTEL AND PERALTA, JJ.
RESTAURANT AND ALLIED
INDUSTRIES (SAMASAH- Promulgated:
NUWHRAIN),
Respondent. June 5, 2009

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DECISION

NACHURA, J.:

The Constitution affords full protection to labor, but the policy is not to be blindly
followed at the expense of capital. Always, the interests of both sides must be
balanced in light of the evidence adduced and the peculiar circumstances
surrounding each case.

This is a petition for review on certiorari under Rule 45 of the Rules of


Court assailing the Court of Appeals (CA) Decision[1] dated July 20, 2004 and the
Resolution[2] dated October 20, 2004 in CA-G.R. SP No. 81153. The appellate
court, in its decision and resolution, reversed the April 3, 2003 Resolution[3] of the
National Labor Relations Commission (NLRC) and reinstated the October 30,
2002 Decision[4] issued by Labor Arbiter Aliman Mangandog upholding the
legality of the strike staged by the officers and members of respondent Samahan ng
mga Manggagawa sa Hyatt-National Union of Workers in the Hotel Restaurant and
Allied Industries (Union).

We trace the antecedent facts below.

Respondent Union is the certified collective bargaining agent of the rank-


and-file employees of Hyatt Regency Manila, a hotel owned by petitioner Hotel
Enterprises of the Philippines, Inc. (HEPI).
In 2001, HEPIs hotel business suffered a slump due to the local and
international economic slowdown, aggravated by the events of September 11, 2001
in the United States. An audited financial report made by Sycip Gorres Velayo
(SGV) & Co. on January 28, 2002 indicated that the hotel suffered a gross
operating loss amounting to P16,137,217.00 in 2001,[5] a staggering decline
compared to its P48,608,612.00 gross operating profit[6] in year 2000.[7]

2000 2001
Income from Hotel P 78,434,103 P 12,230,248
Operations
-------------------------------------------------------------------------------------
-
Other Deductions

Provision for hotel 20,000,000 20,000,000


rehabilitation

Provision for replacements of


and
additions to furnishings and 9,825,491 8,367,465
equipment
29,825,491 28,367,465
Gross Operating Profit P 48,608,612 (P 16,137,217)
(Loss)
According to petitioner, the management initially decided to cost-cut by
implementing energy-saving schemes: prioritizing acquisitions/purchases; reducing
work weeks in some of the hotels departments; directing the employees to avail of
their vacation leaves; and imposing a moratorium on hiring employees for the year
2001 whenever practicable.[8]

Meanwhile, on August 31, 2001, the Union filed a notice of strike due to a
bargaining deadlock before the National Conciliation Mediation Board (NCMB),
docketed as NCMB-NCR-NS 08-253-01.[9] In the course of the proceedings, HEPI
submitted its economic proposals for the rank-and-file employees covering the
years 2001, 2002, and 2003. The proposal included manning and staffing standards
for the 248 regular rank-and-file employees. The Union accepted the economic
proposals. Hence, a new collective bargaining agreement (CBA) was signed on
November 21, 2001, adopting the manning standards for the 248 rank-and-file
employees.[10]

Then, on December 21, 2001, HEPI issued a memorandum offering a Special


Limited Voluntary Resignation/Retirement Program (SLVRRP) to its regular
employees. Employees who were qualified to resign or retire were given separation
packages based on the number of years of service.[11] The vacant positions, as well
as the regular positions vacated, were later filled up with contractual personnel and
agency employees.[12]

Subsequently, on January 21, 2002, petitioner decided to implement a downsizing


scheme after studying the operating costs of its different divisions to determine the
areas where it could obtain significant savings. It found that the hotel could save on
costs if certain jobs, such as engineering services, messengerial/courier services,
janitorial and laundry services, and operation of the employees cafeteria, which by
their nature were contractable pursuant to existing laws and jurisprudence, were
abolished and contracted out to independent job contractors. After evaluating the
hotels manning guide, the following positions were identified as redundant or in
excess of what was required for the hotels actual operation given the prevailing
poor business condition, viz.: a) housekeeping attendant-linen; b) tailor; c) room
attendant; d) messenger/mail clerk; and e) telephone technician. [13] The effect was
to be a reduction of the hotels rank-and file employees from the agreed number of
248 down to just 150[14] but it would generate estimated savings of
around P9,981,267.00 per year.[15]

On January 24, 2002, petitioner met with respondent Union to formally


discuss the downsizing program.[16] The Unionopposed the downsizing plan
because no substantial evidence was shown to prove that the hotel was incurring
heavy financial losses, and for being violative of the CBA, more specifically the
manning/staffing standards agreed upon by both parties in November 2001. [17] In a
financial analysis made by the Union based on Hyatts financial statements
submitted to the Securities and Exchange Commission (SEC), it noted that the
hotel posted a positive profit margin with respect to its gross operating and net
incomes for the years 1998, 1999, 2000, and even in 2001. [18] Moreover, figures
comprising the hotels unappropriated retained earnings showed a consistent
increase from 1998 to 2001, an indication that the company was, in fact, earning,
contrary to petitioners assertion. The net income from hotel operations slightly
dipped from P78,434,103.00 in 2000 to P12,230,248.00 for the year 2001, but
nevertheless remained positive.[19] With this, the Union, through a letter, informed
the management of its opposition to the scheme and proposed instead several cost-
saving measures.[20]

Despite its opposition, a list of the positions declared redundant and to be


contracted out was given by the management to the Union on March 22, 2002.
[21]
Notices of termination were, likewise, sent to 48 employees whose positions
were to be retrenched or declared as redundant. The notices were sent on April 5,
2002 and were to take effect on May 5, 2002. [22] A notice of termination was also
submitted by the management to the Department of Labor and Employment
(DOLE) indicating the names, positions, addresses, and salaries of the employees
to be terminated.[23] Thereafter, the hotel management engaged the services of
independent job contractors to perform the following services: (1) janitorial
(previously, stewarding and public area attendants); (2) laundry; (3) sundry shop;
(4) cafeteria;[24] and (5) engineering.[25] Some employees, including one Union
officer, who were affected by the downsizing plan were transferred to other
positions in order to save their employment.[26]

On April 12, 2002, the Union filed a notice of strike based on unfair labor
practice (ULP) against HEPI. The case was docketed as NCMB-NCR-NS-04-139-
02.[27] On April 25, 2002, a strike vote was conducted with majority in the
bargaining unit voting in favor of the strike. [28] The result of the strike vote was
sent to NCMB-NCR Director Leopoldo de Jesus also on April 25, 2002.[29]

On April 29, 2002, HEPI filed a motion to dismiss notice of strike which
was opposed by the Union. On May 3, 2002, the Union filed a petition to suspend
the effects of termination before the Office of the Secretary of Labor. On May 5,
2002, the hotel management began implementing its downsizing plan immediately
terminating seven (7) employees due to redundancy and 41 more due to
retrenchment or abolition of positions.[30] All were given separation pay equivalent
to one (1) months salary for every year of service.[31]

On May 8, 2002, conciliation proceedings were held between petitioner and


respondent, but to no avail. On May 10, 2002, respondent Union went on strike. A
petition to declare the strike illegal was filed by petitioner on May 22, 2002,
docketed as NLRC-NCR Case No. 05-03350-2002.

On June 14, 2002, Acting Labor Secretary Manuel Imson issued an order in
NCM-NCR-NS-04-139-02 (thence, NLRC Certified Case No. 000220-02),
certifying the labor dispute to the NLRC for compulsory arbitration and directing
the striking workers, except the 48 workers earlier terminated, to return to work
within 24 hours. On June 16, 2002, after receiving a copy of the order, members of
respondent Union returned to work.[32] On August 1, 2002, HEPI filed a
manifestation informing the NLRC of the pending petition to declare the strike
illegal. Because of this, the NLRC, on November 15, 2002, issued an order
directing Labor Arbiter Aliman Mangandog to immediately suspend the
proceedings in the pending petition to declare the strike illegal and to elevate the
records of the said case for consolidation with the certified case. [33] However, the
labor arbiter had already issued a Decision [34] dated October 30, 2002 declaring the
strike legal.[35] Aggrieved, HEPI filed an appeal ad cautelam before the NLRC
questioning the October 30, 2002 decision.[36] The Union, on the other hand, filed a
motion for reconsideration of the November 15, 2002 Order on the ground that a
decision was already issued in one of the cases ordered to be consolidated.[37]

On appeal, the NLRC reversed the labor arbiters decision. In a


Resolution[38] dated April 3, 2003, it gave credence to the financial report of SGV
& Co. that the hotel had incurred huge financial losses necessitating the adoption
of a downsizing scheme. Thus, NLRC declared the strike illegal, suspended all
Union officers for a period of six (6) months without pay, and dismissed the ULP
charge against HEPI.[39]

Respondent Union moved for reconsideration, while petitioner HEPI filed its
partial motion for reconsideration. Both were denied in a Resolution [40] dated
September 24, 2003.

The Union filed a petition for certiorari with the CA on December 19,
[41]
2003 questioning in the main the validity of the NLRCs reversal of the labor
arbiters decision.[42] But while the petition was pending, the hotel management, on
December 29, 2003, issued separate notices of suspension against each of the 12
Union officers involved in the strike in line with the April 3, 2003 resolution of the
NLRC.[43]

On July 20, 2004, the CA promulgated the assailed Decision,[44] reversing the
resolution of the NLRC and reinstating the October 30, 2002 decision of the Labor
Arbiter which declared the strike valid. The CA also ordered the reinstatement of
the 48 terminated employees on account of the hotel managements illegal
redundancy and retrenchment scheme and the payment of their backwages from
the time they were illegally dismissed until their actual reinstatement. [45] HEPI
moved for reconsideration but the same was denied for lack of merit.[46]

Hence, this petition.

The issue boils down to whether the CAs decision, reversing the NLRC
ruling, is in accordance with law and established facts.

We answer in the negative.

To resolve the correlative issues (i.e., the validity of the strike; the charges of
ULP against petitioner; the propriety of petitioners act of hiring contractual
employees from employment agencies; and the entitlement of Union officers and
terminated employees to reinstatement, backwages and strike duration pay), we
answer first the most basic question: Was petitioners downsizing scheme valid?
The pertinent provision of the Labor Code states:

ART. 283. x x x

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 worker and the [Department] of Labor and Employment at least one
(1) month before the intended date thereof. In case of termination due to
the installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at least
his one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one-
half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered as one (1) whole
year.

Retrenchment is the reduction of work personnel usually due to poor


financial returns, aimed to cut down costs for operation particularly on salaries and
wages.[47] Redundancy, on the other hand, exists where the number of employees is
in excess of what is reasonably demanded by the actual requirements of the
enterprise.[48] Both are forms of downsizing and are often resorted to by the
employer during periods of business recession, industrial depression, or seasonal
fluctuations, and during lulls in production occasioned by lack of orders, shortage
of materials, conversion of the plant for a new production program, or introduction
of new methods or more efficient machinery or automation. [49] Retrenchment and
redundancy are valid management prerogatives, provided they are done in good
faith and the employer faithfully complies with the substantive and procedural
requirements laid down by law and jurisprudence.[50]
For a valid retrenchment, the following requisites must be complied with:
(1) the retrenchment is necessary to prevent losses and such losses are proven; (2)
written notice to the employees and to the DOLE at least one month prior to the
intended date of retrenchment; and (3) payment of separation pay equivalent to
one-month pay or at least one-half month pay for every year of service, whichever
is higher.[51]

In case of redundancy, the employer must prove that: (1) a written notice
was served on both the employees and the DOLE at least one month prior to the
intended date of retrenchment; (2) separation pay equivalent to at least one month
pay or at least one month pay for every year of service, whichever is higher, has
been paid; (3) good faith in abolishing the redundant positions; and (4) adoption of
fair and reasonable criteria in ascertaining which positions are to be declared
redundant and accordingly abolished.[52]

It is the employer who bears the onus of proving compliance with these
requirements, retrenchment and redundancy being in the nature of affirmative
defenses.[53] Otherwise, the dismissal is not justified.[54]

In the case at bar, petitioner justifies the downsizing scheme on the ground
of serious business losses it suffered in 2001. Some positions had to be declared
redundant to cut losses. In this context, what may technically be considered as
redundancy may verily be considered as a retrenchment measure.[55] To substantiate
its claim, petitioner presented a financial report covering the years 2000 and 2001
submitted by the SGV & Co., an independent external auditing firm. [56] From an
impressive gross operating profit of P48,608,612.00 in 2000, it nose-dived to
negative P16,137,217.00 the following year. This was the same financial report
submitted to the SEC and later on examined by respondent Unions auditor. The
only difference is that, in respondents analysis, Hyatt Regency Manila was still
earning because its net income from hotel operations in 2001 was P12,230,248.00.
However, if provisions for hotel rehabilitation as well as replacement of and
additions to the hotels furnishings and equipments are included, which respondent
Union failed to consider, the result is indeed a staggering deficit of more than P16
million. The hotel was already operating not only on a slump in income, but on a
huge deficit as well. In short, while the hotel did earn, its earnings were not enough
to cover its expenses and other liabilities; hence, the deficit. With the local and
international economic conditions equally unstable, belt-tightening measures
logically had to be implemented to forestall eventual cessation of business.

Losses or gains of a business entity cannot be fully and satisfactorily


assessed by isolating or highlighting only a particular part of its financial report.
There are recognized accounting principles and methods by which a companys
performance can be objectively and thoroughly evaluated at the end of every fiscal
or calendar year. What is important is that the assessment is accurately reported,
free from any manipulation of figures to suit the companys needs, so that the
companys actual financial condition may be impartially and accurately gauged.

The audit of financial reports by independent external auditors is strictly


governed by national and international standards and regulations for the accounting
profession.[57] It bears emphasis that the financial statements submitted by
petitioner were audited by a reputable auditing firm and are clear and substantial
enough to prove that the company was in a precarious financial condition.

In the competitive and highly uncertain world of business, cash flow is as


important as and oftentimes, even more critical than profitability.[58] So long as the
hotel has enough funds to pay its workers and satisfy costs for operations,
maintenance and other expenses, it may survive and bridge better days for its
recovery. But to ensure a viable cash flow amidst the growing business and
economic uncertainty is the trick of the trade. Definitely, this cannot be achieved if
the cost-saving measures continuously fail to cap the losses. More drastic, albeit
painful, measures have to be taken.

This Court will not hesitate to strike down a companys redundancy program
structured to downsize its personnel, solely for the purpose of weakening the union
leadership.[59] Our labor laws only allow retrenchment or downsizing as a valid
exercise of management prerogative if all other else fail. But in this case, petitioner
did implement various cost-saving measures and even transferred some of its
employees to other viable positions just to avoid the premature termination of
employment of its affected workers. It was when the same proved insufficient and
the amount of loss became certain that petitioner had to resort to drastic measures
to stave off P9,981,267.00 in losses, and be able to survive.
If we see reason in allowing an employer not to keep all its employees until
after its losses shall have fully materialized,[60]with more reason should we allow
an employer to let go of some of its employees to prevent further financial slide.

This, in turn, gives rise to another question: Does the implementation of the
downsizing scheme preclude petitioner from availing the services of contractual
and agency-hired employees?

In Asian Alcohol Corporation v. National Labor Relations


Commission, [61] we answered in the negative. We said:

In any event, we have held that an employers 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. We have previously ruled that 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 and
efficient methods of production. In the case at bar, private respondent
failed to proffer any proof that the management acted in a malicious or
arbitrary manner in engaging the services of an independent contractor to
operate the Laura wells. Absent such proof, the Court has no basis to
interfere with the bona fide decision of management to effect more
economic and efficient methods of production.

With petitioners downsizing scheme being valid, and the availment of


contractual and agency-hired employees legal, the strike staged by officers and
members of respondent Union is, perforce, illegal.

Given the foregoing finding, the only remaining question that begs
resolution is whether the strike was staged in good faith. On this issue, we find for
the respondent.

Procedurally, a strike to be valid must comply with Article 263 of the Labor
Code, which pertinently reads:

Article 263. x x x
xxxx

(c) In cases of bargaining deadlocks, the duly certified or


recognized bargaining agent may file a notice of strike or the employer
may file a notice of lockout with the [Department] at least 30 days
before the intended date thereof. In cases of unfair labor practice, the
period of notice shall be 15 days and in the absence of a duly certified or
recognized bargaining agent, the notice of strike may be filed by any
legitimate labor organization in behalf of its members. However, in case
of dismissal from employment of union officers duly elected in
accordance with the union constitution and by-laws, which may
constitute union busting where the existence of the union is threatened,
the 15-day cooling-off period shall not apply and the union may take
action immediately.

(d) The notice must be in accordance with such implementing


rules and regulations as the [Secretary] of Labor and Employment may
promulgate.

(e) During the cooling-off period, it shall be the duty of the


[Department] to exert all efforts at mediation and conciliation to effect a
voluntary settlement. Should the dispute remain unsettled until the lapse
of the requisite number of days from the mandatory filing of the notice,
the labor union may strike or the employer may declare a lockout.

(f) A decision to declare a strike must be approved by a majority


of the total union membership in the bargaining unit concerned, obtained
by secret ballot in meetings or referenda called for that purpose. A
decision to declare a lockout must be approved by a majority of the
board of directors of the corporation or association or of the partners in a
partnership, obtained by secret ballot in a meeting called for the
purpose. The decision shall be valid for the duration of the dispute based
on substantially the same grounds considered when the strike or lockout
vote was taken. The [Department] may at its own initiative or upon the
request of any affected party, supervise the conduct of the secret
balloting. In every case, the union or the employer shall furnish the
[Department] the results of the voting at least seven days before the
intended strike or lockout, subject to the cooling-off period herein
provided.
Accordingly, the requisites for a valid strike are: (a) a notice of strike filed
with the DOLE 30 days before the intended date thereof or 15 days in case of ULP;
(b) a strike vote approved by a majority of the total union membership in the
bargaining unit concerned obtained by secret ballot in a meeting called for that
purpose; and (c) a notice to the DOLE of the results of the voting at least seven (7)
days before the intended strike.[62] The requirements are mandatory and failure of a
union to comply therewith renders the strike illegal.[63]

In this case, respondent fully satisfied the procedural requirements


prescribed by law: a strike notice filed on April 12, 2002; a strike vote reached on
April 25, 2002; notification of the strike vote filed also on April 25, 2002;
conciliation proceedings conducted on May 8, 20002; and the actual strike on May
10, 2002.

Substantively, however, there appears to be a problem. A valid and legal


strike must be based on strikeable grounds, because if it is based on a non-
strikeable ground, it is generally deemed an illegal strike. Corollarily, a strike
grounded on ULP is illegal if no acts constituting ULP actually exist. As an
exception, even if no such acts are committed by the employer, if the employees
believe in good faith that ULP actually exists, then the strike held pursuant to such
belief may be legal. As a general rule, therefore, where a union believes that an
employer committed ULP and the surrounding circumstances warranted such
belief in good faith, the resulting strike may be considered legal although,
subsequently, such allegations of unfair labor practices were found to be
groundless.[64]

Here, respondent Union went on strike in the honest belief that petitioner
was committing ULP after the latter decided to downsize its workforce contrary to
the staffing/manning standards adopted by both parties under a CBA forged only
four (4) short months earlier. The belief was bolstered when the management hired
100 contractual workers to replace the 48 terminated regular rank-and-file
employees who were all Union members. [65] Indeed, those circumstances
showed prima facie that the hotel committed ULP. Thus, even if technically there
was no legal ground to stage a strike based on ULP, since the attendant
circumstances support the belief in good faith that petitioners retrenchment scheme
was structured to weaken the bargaining power of the Union, the strike, by
exception, may be considered legal.

Because of this, we view the NLRCs decision to suspend all the Union
officers for six (6) months without pay to be too harsh a punishment. A suspension
of two (2) months without pay should have been more reasonable and just. Be it
noted that the striking workers are not entitled to receive strike-duration pay, the
ULP allegation against the employer being unfounded. But since reinstatement is
no longer feasible, the hotel having permanently ceased operations on July 2, 2007,
[66]
we hereby order the Labor Arbiter to instead make the necessary adjustments in
the computation of the separation pay to be received by the Union officers
concerned.

Significantly, the Manifestations[67] filed by petitioner with respect to the


quitclaims executed by members of respondent Union state that 34 of the 48
employees terminated on account of the downsizing program have already
executed quitclaims on various dates.[68] We, however, take judicial notice that 33
of these quitclaims failed to indicate the amounts received by the terminated
employees.[69] Because of this, petitioner leaves us no choice but to invalidate and
set aside these quitclaims. However, the actual amount received by the employees
upon signing the said documents shall be deducted from whatever remaining
amount is due them to avoid double recovery of separation pay and other monetary
benefits. We hereby order the Labor Arbiter to effect the necessary computation on
this matter.

For this reason, this Court strongly admonishes petitioner and its counsel for
making its former employees sign quitclaim documents without indicating therein
the consideration for the release and waiver of their employees rights. Such
conduct on the part of petitioner and its counsel is reprehensible and puts in serious
doubt the candor and fairness required of them in their relations with their hapless
employees. They are reminded to observe common decency and good faith in their
dealings with their unsuspecting employees, particularly in undertakings that
ultimately lead to waiver of workers rights. This Court will not renege on its duty
to protect the weak against the strong, and the gullible against the wicked, be it for
labor or for capital.
However, with respect to the second batch of quitclaims signed by 85 of the
remaining 160 employees who were terminated following Hyatts permanent
closure,[70] we hold that these are valid and binding undertakings. The said
documents indicate that the amount received by each of the employees represents a
reasonable settlement of their monetary claims against petitioner and were even
signed in the presence of a DOLE representative. A quitclaim, with clear and
unambiguous contents and executed for a valid consideration received in full by
the employee who signed the same, cannot be later invalidated because its
signatory claims that he was pressured into signing it on account of his dire
financial need. When it is shown that the person executing the waiver did so
voluntarily, with full understanding of what he was doing, and the consideration
for the quitclaim is credible and reasonable, the transaction must be recognized as
a valid and binding undertaking.[71]

WHEREFORE, the petition is PARTLY GRANTED. The downsizing


scheme implemented by petitioner is hereby declared a valid exercise of
management prerogative. The penalty of six (6) months suspension without pay
imposed in the April 3, 2003 NLRC Resolution[72] is hereby reduced to two (2)
months, to be considered in the Labor Arbiters computation of the separation pay
to be received by the Union officers concerned. The first batch of quitclaims signed
by 33 of the 48 terminated employees is hereby declared invalid and illegal for
failure to state the proper consideration therefor, but the amount received by the
employees concerned, if any, shall be deducted from their separation pay and other
monetary benefits, subject to the computation to be made by the Labor Arbiter. The
second batch of quitclaims signed by 85 of the 160 terminated employees,
following Hyatt Regency Manilas permanent closure, is declared valid and
binding.

SO ORDERED.

2. FIRST DIVISION

[G.R. No. 97846. September 25, 1998]


BOGO-MEDELLIN SUGARCANE PLANTERS ASSOCIATION, INC and
HORACIO FRANCO, petitioners, vs.NATIONAL LABOR
RELATIONS COMMISSION, ASSOCIATED LABOR UNIONS,
BONIFACIO MONTILLA, JOSE YBAEZ JR., BERNARDO DELA
RAMA,, ILDEFONSO CARREDO, ROSETO CANALES,
FORTUNATO MIGABON JR. and HERACLEO
MEGABON, respondents.

DECISION
PANGANIBAN, J.:

To justify retrenchment, the employer must prove, among other things, serious business
losses, and not just any kind or amount of loss. Furthermore, if the requisites provided in Article
283 of the Labor Code are not fulfilled, a deed of quitclaim and release is unavailing to exculpate
an employer from liability for illegal retrenchment.

The Case

In this special civil action for certiorari filed before this Court, petitioners seek the reversal
of the November 12, 1990 Decision[1] and the March 4, 1991 Resolution of the National Labor
Relations Commission in NLRC NCR Case No. RAB VII-0801-85, both of which affirmed the
labor arbiters Decision finding them liable for illegal dismissal.
Acting on private respondents amended Complaint for illegal dismissal and unfair labor
practice, Executive Labor Arbiter Irenea E. Ceniza rendered a Decision dated May 5, 1989,
which disposed as follows:[2]

WHEREFORE, premises considered, judgment is hereby rendered declaring the


[Petitioners] Bogo Medellin Sugar Cane Planters Association and Horacio Franco
guilty of unfair labor practice for dismissing the [private respondents] for their union
activities; ordering the said [petitioners] to reinstate the [private respondents] to their
former position with backwages and other benefits and without loss of seniority
rights; ordering the [petitioners] jointly and severally to pay to the [private
respondents] their service incentive leave[s], backwages and 13 th month from the date
of their dismissal until the date of this decision in the following amounts less the
amount paid to some [private respondents] as separation/gratuity benefits[:]

NAME 13th Month SERVICE BACK- SEPARATION NET


Pay INCENTIVE WAGES PAY/GRATUITY
PAY BENEFITS
1. BONIFACIO P4,915.24 P820.00 P61,440.00 P12,017.94 P55,157.30
MONTILLA

2. JOSE YBAEZ, 4,915.24 820.00 61,440.00 4,745.48 62,429.76


JR.

3. BERNARDO 4,915.24 820.00 61,440.00 2,580.84 64,594.40


DELA RAMA

4. ILDEFONSO 4,915.24 820.00 61,440.00 12,991.00 51,184.24


CARREDO

5.FORTUNATO 4,915.24 820.00 61,440.00 --- 67,175.24


MIGABON3 JR

6. ROSETO 4,915.24 820.00 61,440.00 --- 67,175.24


CANALES

7. HERACLEO 4,915.24 820.00 61,440.00 --- 67,175.24


MEGABON

P34,406.68 P5,740.00 P430,080.00 P32,335.26 P437,891.42

and to pay the [private respondents] counsel 10% of the foregoing amount or the sum
of FORTY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE AND 14/100
(P43,789.14) as attorneys fees; ordering further the [petitioners] to deposit the
[aggregate] amount of FOUR HUNDRED EIGHTY ONE THOUSAND SIX
HUNDRED EIGHTY PESOS AND 56/100 (P481,680.56) with this Branch of the
Commission within ten (10) days from receipt of this decision.

All other claims are hereby dismissed for lack of merit.

On appeal, the National Labor Relations Commission (Cebu Branch), in its assailed
Decision, affirmed with modification the labor arbiters judgment:4
WHEREFORE, in view of all the foregoing, the decision appealed from is
MODIFIED by setting aside the award for the money claims of the [private
respondents] as contained in the decision and directing the recomputation thereof in
accordance with Section 3, Rule XI of the NLRC Rules to determine [the] correct
amount to be awarded to the [private respondents].

Except for the foregoing modification the rest of the decision stands AFFIRMED.

Respondent Commission denied reconsideration in its challenged Resolution.5

The Facts

As found by the labor arbiter, the facts of this case are as follows:6

x x x [T]he [private respondents] were former employees of the respondents with


services ranging as follows;

Bonifacio Montilla - 15 years

Roseto Canales - 17 years

Ildefonso Carredo - 16 years

Heracleo Megabon - 8 years

Jose Ybaez, Jr. - 6 years

Bernardo Dela Rama - 3 years

Fortunato Megabon, Jr. - 1 year

They performed the functions of computer, sampler and scalers. [O]n May 31,
1985, the [private respondents] joined and became members of [Private
Respondent] Associated Labor Unions, with [Private Respondent] Bonifacio
Montilla as its [l]ocal [p]resident. With 13 original members[,] Bonifacio Montilla
being the president actively campaigned and convinced the rest of their co-
employees to join with the union. While campaigning among his co-employees
for union membership, the [t]reasurer of respondent firm Mr. Jose Mari Miranda
called [Private Respondent] Montilla to his office and told him to withdraw his
membership from the Associated Labor Unions or else they will not be hired at
the start of the milling season and will be dismissed. That he and the [private
respondents] herein did not heed the warning of Mr. Miranda and stuck to their
membership with the private respondent union. As a consequence and as earlier
warned of being dismissed if they persist[ed] in their union activities, notices of
termination were sent to [Private Respondents] Bernardo Dela Rama, Ildefonso
Carredo, Bonifacio Montilla and Jose Ybaez, Jr. (Exhibits 4-7), informing them
that their services will be terminated due to financial difficulties. While the said
notices stated that their services will be terminated 30 days from date[,] they were
not allowed to work within that 30 day period and Montilla was immediately
replaced by Gavino Negapatan (TSN June 18, 1987, p. 31). The [private
respondents] alleged that their dismissal was sought due to their membership [in]
the private respondent union as they have not violated any company rules and
regulations. There is also no allegation to this effect by the respondents and the
latter strongly advocated retrenchment to prevent losses as their basis in
terminating the [private respondents]. Aggrieved of the respondents actuations
they filed the present complaint on December 20, 1985, or before the expiration
of the 30 days notice dated November 28, 1985. On December 28, 1985, or just
on the 30th day of the notice of termination[,] four of the [private respondents],
namely Bonifacio Montilla, [I]ldefonso Carredo, Bernardo Dela Rama and Jose
Ybaez, Jr., were paid their corresponding separation/gratuity pay and accordingly
signed their Quitclaim and Release (Exhibit 8-11).

The respondents on the other hand strongly maintained that the dismissal of the
[private respondents] was validly carried out in accordance with corporate powers
to prevent losses. To support this stand they submitted a comparative statement of
Revenue and Expenses for the crop years 1983-1984 and 1984-1985, to show they
suffered losses in the amount of P54,692.31 in the crop year ending August
1985. In addition they claimed that the [private respondents] [were] already
barred from filing this present case by virtue of their Quitclaim and Release.

The Ruling of Respondent Commission

While Respondent Commission agreed with petitioners that management had the
prerogative to terminate employment on account of business reversals, it held, however, that
petitioners failed to present adequate proof of such losses. First, the Comparative Statement of
Revenue and Expenses submitted by Petitioner Corporation was neither sufficient nor substantial
to support the claim that private respondents were retrenched pursuant to Article 283 of the
Labor Code.
Second, petitioners failed to show that, in undertaking the retrenchment, fair and reasonable
standards were used in determining who among its employees would be separated from the
service.
Third, petitioners failed to show that they gave the required 30-day notice to the labor
department before effecting the retrenchment.
Fourth, petitioners hired additional personnel after the private respondents were
retrenched. Such actuation strengthened, rather than negated, private respondents contention that
their dismissal was an orchestrated move to ease them out of employment due to their union
activities.
Fifth, Respondent Commission gave credence to Private Respondent Montillas
testimony, thus upholding the ruling of the labor arbiter who was in a unique position [to
observe] the demeanor of the witness.
It also rejected the posturing of the petitioners that the execution of a deed of quitclaim and
release exculpated them from liability, as such undertaking did not bar the private respondents
from questioning the legality of their dismissal.
Hence, this petition.7

Assignment of Errors

Petitioners impute the following errors to Respondent Commission:8

[I]: Respondent xxx Commission erred in setting aside the deeds of quitclaim and
release signed and executed by individual [private respondents] as
without any legal effect to bar and preclude them from proceeding
against petitioners, the same being contrary to law and jurisprudence.

[II]: Respondent xxx Commission disregarded the fact that said deeds of quitclaim
and release were signed and executed by individual private respondents
after they filed their complaints in its regional arbitration branch.

[III]: Respondent xxx Commission erred in sustaining the findings and conclusion
of the executive labor arbiter as to the illegality of the dismissal of the
[private respondents] which is tantamount to grave abuse of discretion.

[IV]: Assuming arguendo there was illegal dismissal, it was error to find
Petitioner Horacio Franco personally liable, jointly and severally, with
petitioner association.

[V]: Respondent xxx Commission erred in giving due credence to the testimony
of Respondent Bonifacio Montilla and deciding the case in favor of
[private respondents] and finding [petitioners] liable for the alleged
claims and for unfair labor practice on the sole basis of his testimony.
[VI]: Respondent xxx Commission commit[ted] grave abuse of discretion in
rendering a decision in favor of [private respondents] who did not appear
at all in the case to prosecute their claims and support their charges
against herein petitioners, thus denying the latter due process of law
guaranteed by the Constitution.

Put differently, the issues raised by petitioners are as follows:

1. Whether private respondents retrenchment was valid and legal under Article 283 of
the Labor Code

2. Whether the Quitclaim and Release barred the private respondents from charging
petitioners with illegal dismissal

3. Whether a corporate officer could be held liable for illegal dismissal without a
showing that he acted maliciously and in bad faith in dismissing private respondents

4. Whether Respondent Commission gravely abused its discretion by denying due


process to petitioners

The Courts Ruling

The petition is devoid of merit.

First Issue: No Proof of Business Losses To Justify Retrenchment

Retrenchment is the termination of employment effected by management during periods of


business recession, industrial depression, seasonal fluctuations, lack of work or considerable
reduction in the volume of the employers business. 9 Resorted to by an employer to avoid or
minimize business losses,10 it is a management prerogative consistently recognized by this
Court11 and allowed under Article 283 of the Labor Code as follows:

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 undue taking 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 one (1) month before the intended
date thereof. x x x x In case of retrenchment to prevent losses xxx, the separation pay
shall be equivalent to one (1) month pay for every year of service, which ever is
higher. A fraction of at least six (6) months shall be considered one (1) whole year.

In a number of cases, the Court has laid down the following requisites of a valid
retrenchment: (1) the losses incurred are substantial and not de minimis; (2) the losses are actual
or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to be effective
in preventing the expected losses; and (d) the alleged losses, if already incurred, or the expected
imminent losses sought to be forestalled, are proven by sufficient and convincing evidence. 12 In
the present case, petitioners miserably failed to prove (1) substantial losses and (2) the
reasonable necessity of the retrenchment.
No Sufficient and Substantial Evidence of Business Loss

To justify retrenchment, the employer must prove serious business losses. 13 Indeed, not all
business losses suffered by the employer would
justifyretrenchment under this article. The Court has held that the loss referred to in Article 283
14

cannot be just any kind or amount of loss; otherwise, a company could easily feign excuses to
suit its whims and prejudices or to rid itself of unwanted employees.15
In the case at bar, Petitioner Corporation claimed that the retrenchment of private
respondents was justified, because it suffered business losses, as evidenced by its Comparative
Statement of Revenue and Expenses for crop years 1983-1984 and 1984-1985.16
On the other hand, Respondent Commission and the executive labor arbiter held that this
evidence was neither sufficient nor substantial, viz.:17

The only evidence adduced by the [petitioners] to prove that they suffered economic
losses and [had] therefore to cut down expenses and reduce personnel is [E]xhibit 3
which is a [C]omparative [S]tatement of Revenue and Expenses for two crop years,
1983-1984 and 1984-1985, which was allegedly submitted to the [B]ureau of Internal
Revenue on November 12, 1985. This piece of evidence was prepared by Ligaya R.
Arcenas, [o]ffice [m]anager, certified correct by Jose Mari M. Miranda, [t]reasurer,
Rosendo S. Hernaez, [a]uditor[,] and attested [to] by its president Mr. Horacio M.
Franco. xxxx.

In the present case no financial statement, or statement of profit and loss or books of
account have been presented to substantiate the alleged losses. It is also dubious why
the said [C]omparative [S]tatement of Revenue and Expenses was prepared by the
office manager instead of their accountant. Besides the said [C]omparative
[S]tatement of [R]evenue and [E]xpenses is inconsistent with the statement of Jose
Mari M. Miranda that the [petitioners had] to cut down expenses and do some
retrenchment to prevent further losses and that they [had] been incurring losses
of P54,692.21 for crop year 1984-1985, and P54,110.94 for the previous crop year
1983-1984 (TSN December 7, 1 988, [pp.] 12-13). A closer scrutiny of Exhibit 3
[C]omparative [S]tatement of Revenue and Expenses [would] readily reveal that for
the crop year 1983-1984, the [petitioners] had a net income of P54,110.94. The total
revenue indicated therein being P798,750.20 while the total expenses is
only P744,639.26. Another instance which would clearly negate that the [petitioners]
did cut down on expenses to prevent any further losses are the marked increase in the
amount of over P13,000.00 in the expenses for conferences, meetings and conventions
in 1984-1985 over the previous year, the increase in the printing of office supplies xxx
for over P13,000.00 and the National Federation dues [which] were [unpaid] in 1983-
1984[,] but in 1984-1985 the amount of P36,410.59 was paid. In this light the alleged
losses become unjustifiable to warrant the dismissal of the [private respondents]. As
earlier observed the [petitioners] 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.

In their rebuttal, petitioners allege the following: (1) the comparative financial statement of
the corporation duly reflects its income and expenses in a given taxable year and, despite its
different nomenclature, is substantially the same as a profit and loss statement or any other
financial statement; and (2) the National Internal Revenue Code (NIRC) requires the certification
of an independent certified public accountant only if the taxpayers gross receipts exceed P25,000
in any quarter of any taxable year.
The contentions of petitioners are untenable. A comparative statement of revenue and
expenses for two years, by itself, is not conclusive proof of serious business losses. The Court
has previously ruled that financial statements audited by independent external auditors constitute
the normal method of proof of the profit and loss performance of a company.18 While Petitioner
Corporation avers that it was not required to file audited financial statements under Section 232
of the Tax Code, it failed to establish its exemption through any evidence showing that its
quarterly gross revenues did not exceed P25,000. 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 Petitioner Corporation for two crop years is insufficient
proof of serious business losses that would justify the retrenchment of private respondents. Thus,
the Court held in Somerville Stainless Steel Corporation v. NLRC:19

xxx The failure of petitioner to show its income or loss for the immediately preceding
years or to prove that it expected no abatement of such losses in the coming years
bespeaks the weakness of its cause. The financial statement for 1992, by itself, does
not sufficiently prove petitioners allegation that it already suffered actual serious
losses,20 because it does not show whether its losses increased or decreased. Although
petitioner posted a loss for 1992, it is also possible that such loss was considerably
less than those previously incurred, thereby indicating the companys improving
condition.

No Reasonable Necessity of Retrenchment


Petitioner Corporation also failed to rebut the allegation that new employees were hired to
replace the private respondents after the latter had been retrenched. The executive labor arbiter
found that Gavino Negapatan replaced Private Respondent Montilla, 21 while Reynaldo Parilla
and Godofredo Florita replaced the other private respondents who had worked as sugar checkers
or samplers. The employment of these replacements clearly belies petitioners contention that the
retrenchment was necessary to prevent or offset the expected losses effectively.
We also note the observation of the executive labor arbiter that petitioners did not consider
the long years of service rendered by the private respondents, ranging from one to sixteen
years. We agree with her conclusion that the real motive behind the retrenchment must have been
to discriminate against private respondents as a consequence of their membership in Respondent
Union.22

Assessment of Credibility by Respondent Commission

Petitioners further assail the labor arbiter and the NLRC for giving credence to Private
Respondent Montillas testimony, as the same was replete with substantial contradictions and
material inconsistencies. Petitioners maintain that Montilla failed to substantiate his claim that he
had been forced and intimidated to sign the quitclaim and release. They add that the new
workers, who allegedly replaced the private respondents, had been working for Petitioner
Corporation several months before the retrenchment.
Montillas testimony regarding the hiring of replacements after he and his co-private
respondents had been retrenched was given credence by Respondent Commission in this wise:23

xxx [C]ertain persons were hired or rehired after [private respondents] were
dismissed. Why would [petitioners] take in additional workers if it had to
retrench? It becomes immaterial whether the persons hired had previously worked
for [petitioners]. The fact that there was hiring of additional personnel right after
[private respondents] were retrenched is enough to destroy whatever pretense
[petitioners] ha[d] with respect to retrenchment.Whether those hired were
intended to replace [private respondents] or not is immaterial. The crucial point is
that immediately after the so-called retrenchment, [petitioners] hired other
workers. Such actuation is inconsistent with retrenchment and merely
strengthen[s] the observation that there was an orchestrated move to terminate the
[private respondents] on account of their union activities.

The Court finds no sufficient reason to modify or reverse the assessments of the labor arbiter
and the Respondent Commission on the credibility of Montilla and his testimony. In fact, the
testimony of Parilla and Florita that they used to be extras, who substituted for absent workers,
corroborate Montillas claims. They were taken in, after the retrenchment of the private
respondents, and made to perform the tasks formerly assigned to the latter.
It is well-settled that factual findings of Respondent Commission affirming those of the
labor arbiter, when sufficiently supported by evidence on record, are accorded respect if not
finality.24

Written Notice to DOLE a Mandatory Requirement

Petitioners brush aside the procedural notice which Article 283 of the Code requires to be
sent to the labor department before the retrenchment can be effected. The written notice to the
labor department has been previously declared to be a mandatory requirement. 25 Although the
absence of this notice renders the dismissal merely defective, not illegal, 26 the failure of
petitioners to comply with this requirement shows nonetheless the bankruptcy of their cause.

Second Issue: When Deed of Quitclaim and Release Is Not Bar

Petitioners pray that the present action should be barred, because private respondents have
voluntarily executed quitclaims and releases and received their separation pay. Petitioners claim
that the present suit is a grave derogation of the fundamental principle that obligations arising
from a valid contract have the force of law between the parties and must be complied with in
good faith.
The Court disagrees. Jurisprudence holds that the constitutional guarantee of non-
impairment of contracts is subject to the police power of the state and to reasonable legislative
regulations promoting public health, morals, safety and welfare. Not all quitclaims are per
se invalid or against public policy, except (1) where there is clear proof that the waiver was
wangled from an unsuspecting or gullible person, or (2) where the terms of settlement are
unconscionable on their face. In these cases, the law will step in to annul the questionable
transactions.27 Such quitclaim and release agreements are regarded as ineffective to bar the
workers from claiming the full measure of their legal rights.28
In the case at bar, the private respondents agreed to the quitclaim and release in
consideration of their separation pay. Since they were dismissed allegedly for business losses,
they are entitled to separation pay under Article 283 of the Labor Code. And since there was thus
no extra consideration for the private respondents to give up their employment, such
undertakings cannot be allowed to bar the action for illegal dismissal.

Third Issue Liability of a Corporate Officer

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 and members. 29 However, this fictional veil
may be pierced whenever the corporate personality is used as a means of perpetuating a fraud or
an illegal act, evading an existing obligation, or confusing a legitimate issue.30 In cases of illegal
dismissal, corporate directors and officers are solidarily liable with the corporation, where
terminations of employment are done with malice or in bad faith.31
Respondent Commission adopted the executive labor arbiters findings and held that it can be
reasonably inferred that private respondents dismissal was tainted with bad faith. However,
nowhere in the records is there such evidence to show malice or bad faith on Petitioner Francos
part. The executive labor arbiter found that it was Miranda, the corporate treasurer, who told
Private Respondent Montilla to withdraw membership from the union and threatened not to
rehire him and his companions if they refused. Petitioner Francos liability is based only on his
being the chief executive officer ofPetitioner Corporation and the lone signatory to the Notice of
Termination received by the private respondents. These findings, however, do not in themselves
support the allegation of bad faith or malice and are, therefore, insufficient to hold him solidarily
liable with Petitioner Corporation for illegal dismissal.

Fourth Issue: No Violation of Due Process

Petitioners deny liability for the illegal dismissal of Private Respondents Fortunato Migabon
Jr. and Roseto Canales, since said employees neither appeared before the hearing officer nor
presented any evidence to support their claim. Therefore, to hold them liable will be a violation
of their right to due process.
The Court disagrees. The amendment of the complaint32 to include Private Respondents
Fortunato Migabon Jr. and Roseto Canales was filed on April 24, 1986 or twenty-five days
before May 19, 1986, when petitioners submitted their position paper.33Petitioners were not
denied their day in court, because they were given an opportunity to rebut and refute said private
respondents allegations in their position paper. The case was even further appealed
to Respondent Commission, where petitioners were undeniably accorded due process.34
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution are
hereby AFFIRMED, with the MODIFICATION that Petitioner Franco is exempted from liability
for the illegal dismissal of private respondents. Costs against Petitioner Corporation.
SO ORDERED.

3. Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 131108 March 25, 1999


ASIAN ALCOHOL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, FOURTH DIVISION, CEBU CITY and ERNESTO
A. CARIAS, ROBERTO C. MARTINEZ, RAFAEL H. SENDON, CARLOS A. AMACIO, LEANDRO
O. VERAYO and ERENEO S. TORMO, respondents.

PUNO, J.:

Contending that the dismissal of private respondents Ernesto A. Carias, Roberto C. Martinez, Rafael
H. Sendon, Carlos A. Amacio, Leandro O. Verayo and Ereneo S. Tormo, was valid on the twin
grounds of redundancy and retrenchment to prevent business losses, petitioner Asian Alcohol
Corporation (hereinafter referred to as Asian Alcohol) filed this petition for certiorari. Asian Alcohol
ascribes grave abuse of discretion to public respondent National Labor Relations
Commission 1 (hereinafter referred to as NLRC) when, on May 30, 1997, it set aside 2 the decision 3 of
the Executive Labor Arbiter dismissing the illegal termination complaints filed by private respondents.

We first unfurl the facts.

In September, 1991, the Parsons family, who originally owned the controlling stocks in Asian Alcohol,
were driven by mounting business losses to sell their majority rights to Prior Holdings, Inc.
(hereinafter referred to as Prior Holdings). The next month, Prior Holdings took over its management
and operation. 4

To thwart further losses, Prior Holding implemented are organizational plan and other cost-saving
measures. Some one hundred seventeen (117) employees out of a total workforce of three hundred
sixty (360) were separated. Seventy two (72) of them occupied redundant positions that were
abolished. Of these positions, twenty one (21) held by union members and fifty one (51) by non-
union members.

The six (6) private respondents are among those union members 5 whose positions were abolished
due to redundancy. Private respondents Carias, Martinez, and Sendon were water pump tenders; Amacio
was a machine shop mechanic; Verayo was a briquetting plant operator while Tormo was a plant helper
under him. They were all assigned at the Repair and Maintenance Section of the Pulupandan plant. 6

In October, 1992, they received individual notices of termination effective November 30, 1992. 7 They
were paid the equivalent of one month salary for every year of service as separation pay, the money
value of their unused sick, vacation, emergency and seniority leave credits, thirteenth (13th) month pay
for the year 1992, medicine allowance, tax refunds, and goodwill cash bonuses for those with at least ten
(10) years of service. 8 All of them executed sworn releases, waivers and quitclaims. 9 Except for Verayo
and Tormo, they all signed sworn statements of conformity to the company retrenchment program. 10 And
except for Martinez, they all tendered letters of resignation. 11

On December 18, 1992 the six (6) private respondents filed with the NLRC Regional Arbitration
Branch VI, Bacolod City, complaints for illegal dismissal with a prayer for reinstatement with
backwages, moral damages and attorney's fees. They alleged that Asian Alcohol used the
retrenchment program as a subterfuge for union busting. They claimed that they were singled out for
separation by reason of their active participation in the union. They also asseverated that Asian
Alcohol was not bankrupt as it has engaged in an aggressive scheme of contractual hiring.

The executive Labor Arbiter dismissed the complainants. He explained, thus:

The fact that respondent AAC incurred losses in its business operations was not
seriously challenged by the complainants. The fact that it incurred losses in its
business operations prior to the implementation of its retrenchment program is amply
supported by the documents on records, (sic) namely: (1) Balance Sheet of AAC as
December 31, 1991 . . . , (2) Statement of Income and Deficit for the year ended
December 31, 1991 . . . , (3) Income Tax for Fiscal Year ending September 30, 1989 .
. . , (4) Income Tax Return for Fiscal Year ending December 31, 1989 . . . , (5)
Income Tax Return for Fiscal Year ending December 31, 1990 . . . , and (6) Income
Tax Return for Fiscal Year ending December 31, 1991 . . . , indicating an
accumulated deficit of P26,117,889.00.

It has to be emphasized that the law allows an employer to retrench some of its
employees to prevent of its employees to prevent losses. In the case of respondent
AAC, it implemented its retrenchment program not only to prevent losses but to
prevent further losses as it was then incurring huge losses in it operations.

Complainants would want us to believe that their positions were abolished because
they are union members, and that they were replaced by casual employees.
Complainants' pretense is rather untenable. For one thing, the retrenchment program
of AAC affected not only union members but also the non-union members. As earlier
said, there were 117 employees of AAC who were affected by the reorganization. Of
the 117 positions, 72 positions were abolished due to redundancy, 21 of which were
occupied by unions members, while 51 were held by non-union members. Thus, the
theory of complainants that they were terminated from work on ground of their union
membership is far from the truth.

On the contrary, we find that complainants Ernesto Carias, Roberto Martinez and
Rafael Sendon who were all Water Pump Tenders assigned to AAC's water wells in
Ubay, Pulupandan, Negros Occidental which were drilled and operated before under
the old management by virtue of a right-of-way with the landowner, were
retrenchment as an offshoot to the termination of the lease agreement as the water
thereunder had become salty due to extensive prawn farming nearby, so that AAC
could no longer use the water for its purpose. As a consequence, the services of
Ernesto Carias, Roberto Martinez and Rafael Sendon had become unnecessary,
redundant and superfluous.

As regards complainants Leandro Verayo and Ereneo Tormo, the grounds cited by
respondent AAC in support of its decision to retrench them are too convincing to be
ignored. According to respondent AAC, its boiler before was 100% coal fired. The
boiler was manned by a briquetting plant operator in the person of Leandro Verago
and three (3) briquetting helpers, namely, Ereneo Tormo, Eriberto Songaling, Jr. and
Rudy Javier, Jr. Since AAC had shifted to the use of bunker fuel by about 70% to fire
its boiler, its usage of coal had been drastically reduced to only 30% of its total fuel
usage in its production plant, thereby saving on fuel cost. For this reason, there was
no more need for the position of briquetting plant operator and the services of only
two briquetting helpers were determined to be adequate for the job of briquetting
coal. Of the three (3) briquetting helpers, Ereneo Tormo was the oldest, being
already 41 years old, the other two, Javier and Songaling, being only 28 and 35,
respectively. Considering the manual nature of the work of coal briquetting, younger
workers are always preferred for reasons of efficiency [sic]. Hence the abolition of the
position of Ereneo Tormo. We have to stress that Eriberto Songaling, Jr. and Rudy
Javier, Jr. are also union member. . . .

With respect to Carlos Amacio, he was retrenched not because of his being a union
member but because of his poor health condition which greatly affect[ed] his work
efficiency. Records show that Carlos Amacio was among the ten machine shop
mechanics employed by respondent AAC. Under AAC's reorganization plan, it needs
only nine mechanics.

xxx xxx xxx

On the whole, therefore, the dismissal of complainants on ground of redundancy /


retrenchment was perfectly valid or legal. 12

Private respondents appealed to the NLRC.

On May 30,1997, the NLRC rendered the challenged decision. It rejected the evidence proffered by
Asian Alcohol to prove its business reversals. It ruled that the positions of private respondents were
not redundant for the simple reason that they were replaced by casuals. The NLRC essayed this
explanation:

In this case, [that] the respondent terminated complainants "to protect the company
from future losses," does not create an impression of imminent loss. The company at
the time of retrenchment was not then in the state of business reverses. There is
therefore no reason to retrench. . . .

The alleged deficits of the corporation did not prove anything for the respondent. The
financial status as shown in the Statement of Income and Deficits and Income Tax
Returns from 1989 to 1991, submitted by respondent was before the respondent,
new management of Prior Holdings, Inc., took over the operation and management
of the corporation in October, 199[1]. This is no proof that on November 30, 1992
when the termination of complainant[s] took effect the company was experiencing
losses or at least imminent losses. Possible future losses do not authorize
retrenchment.

Secondly in the case of REDUNDANCY.


Redundancy exists where the service[s] of . . . employee[s] are in excess of what is
reasonably demanded by the actual requirements of the enterprise. The evidence,
however, proved that, in truth and in fact, the positions of the complainants were not
redundant for the simple reason that they were replaced by casuals.

xxx xxx xxx

Admittedly, from the testimonies of Engr. Palmares, the wells of the respondent were
operated by contractors. Otherwise stated, complainant[s] who are regular workers of
the respondent, performing jobs necessary and desirable to the business or
redundancy [so that] their jobs [will be performed by workers belonging to a
contractor.

In summation, retrenchment and/or redundancy not having been proved,


complainants, therefore, were illegally dismissed. 13

The dispositive portion of the decision of the NLRC provides as follows:

WHEREFORE, premises considered, the Decision appealed from is hereby ordered


SET ASIDE and VACATED and in lieu thereof, the respondent Asian Alcohol
Corporation is hereby ordered to reinstate complainants with full backwages from the
time they were dismissed on November 30, 1992 and up to actual reinstatement.
Plus 10% attorney's fees.

SO ORDERED. 14

On July 2, 1997, Asian Alcohol moved for reconsideration of the foregoing decision. On September
25, 1997, the NLRC denied the motion. 15

On January 12 l998, Asian Alcohol filed in this Court a petition for certiorari assailing both the
decision of the NLRC and the resolution denying its reconsideration. It invoked the following
grounds:

6. GROUNDS FOR PETITION

6.1 Public respondent has committed as hereinafter shown, a manifest grave abuse
of discretion amounting to lack or excess of jurisdiction in declaring in its assailed
Decision . . . and Resolution . . . that the termination of the employment of private
respondents by the petitioner herein is illegal and ordering their reinstatement with
full backwages from the time they were dismissed on November 30, 1992 up to their
actual reinstatement, plus 10% attorney's fees, said Decision and Resolution of the
public respondent being contrary to the established facts of the case, well settled
jurisprudence and the law on the matter.

6.2 Public respondent has likewise committed, as hereinafter shown, a manifest


grave abuse of discretion amounting to lack or excess of jurisdiction by totally
disregarding and refusing to consider the factual findings of the Executive Labor
Arbiter with respect to the circumstances which rendered the positions of the private
respondents unnecessary redundant and superfluous, thereby justifying the
termination of their employment.

6.3 Public respondent has furthermore committed, as hereinafter shown, a manifest


grave abuse of discretion amounting to lack or excess of jurisdiction in giving full
credit to the oral testimonies quoted in its assailed Decision . . . and taking them as
conclusive proof of the alleged replacement of the private respondents with casual
workers despite the fact that said quoted testimonies clearly amount to nothing but
speculations, surmises and conjectures. 16

On March 25, 1998 we issued a Temporary Restraining Order 17 enjoining the NLRC from enjoining its
Decision and Resolution dated May 30, 1997 and September 25, 1997, respectively.

We find the petition meritorious.

Out of its concern for those with less privilege in life, this Court has inclined towards the worker and
upheld his cause in his conflicts with the employer. 18 This favored treatment is directed by the social
justice policy of the Constitution. 19 But while tilting the scales of justice in favor of workers, the
fundamental law also guarantees the right of the employer to reasonable returns from his
investment. 20 Corollarily, the law allows an employer to downsize his business to meet clear and
continuing economic threats. 21 Thus, this Court has upheld reductions in the work force to forestall
business losses or stop the hemorrhaging of capital. 22

The right of management to dismiss workers during periods of business recession and to install
labor saving devices to prevent losses is governed by Art. 283 of the labor Code, as amended. It
provides, viz.:

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 one (1) month
before the intended date thereof. In case of termination due to the installation of labor
saving devices or redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least one (1) month pay or to at least one (1) month
pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in case of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation
pay shall be equivalent to one (1) month pay at least one-half (1/2), month pay for
every year of service, whichever is higher. A fraction of at least six (6) month shall be
considered one (1) whole year. [emphasis ours]

Under the foregoing provision, retrenchment and redundancy are just causes for the employer to
terminate the services of workers to preserve the viability of the business. In exercising its right,
however, management must faithfully comply with the substantive and procedural requirements laid
down law and jurisprudence. 23

The requirements for valid retrenchment which must be proved by clear and convincing evidence
are: (1) that the retrenchment is reasonably necessary and likely to prevent business losses, which,
if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in good faith by the
employer; 24 (2) that the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intend date of retrenchment; 25 (3) that the
employer pays the retrenched employees separation pay equivalent to one month pay or at least 1/2
month pay for every year of service, whichever is higher; 26 (4) that the employer exercises its prerogative
to retrench employees in good faith for the advancement of its interest of its interest and not to defeat or
circumvent the employees' right to security of tenure; 27 and (5) that the employer used fair and
reasonable
criteria 28 in ascertaining who would be dismissed and who would be retained among the employees, such
as status (i.e., whether they are temporary, casual, regular or managerial employees), efficiency,
seniority, 29 physical fitness, age, and financial hardship for certain workers. 30

The condition of business losses is normally shown by audited financial documents like yearly
balance sheets and profit and loss statements as well as annual income tax returns. 31 It is our ruling
that financial statements must be prepared and signed by independent auditors. 32 Unless duly audited,
they can be assailed as self-serving documents. 33But it is not enough that only the financial statements
for the year during which retrenchment was undertaken, are, presented in evidence. For it may happen
that while the company has indeed been losing, its losses may be on a downward trend, indicating that
business is picking up and retrenchment, being a drastic move, should no longer be resorted to. 34Thus,
the failure of the employer to show its income or loss for the immediately preceding year or to prove that it
expected no abatement of such losses in the coming years, may be speak the weakness of its cause. 35 It
is necessary that the employer also show that its losses increased through a period of time and that the
condition of the company is not likely to improve in the near future. 36

In the instant case, private respondents never contested the veracity of the audited financial
documents proffered by Asian Alcohol before the Executive Labor Arbiter. Neither did they object to
their admissibility. They show that petitioner has accumulated losses amounting to P306,764,349.00
and showing nary a sign of abating in the near future. The allegation of union busting is bereft of
proof. Union and non-union members were treated alike. The records show that the positions of fifty
one (51) other non-union members were abolished due to business losses.

In rejecting petitioner's claim of business losses, the NLRC stated that "the alleged deficits, of the
corporation did not prove anything for the [petitioner]" 37 since they were incurred before the take over
of Prior Holdings. Theorizing that proof of losses before the take over is no proof of losses after the take
over, it faulted Asian Alcohol for retrenching private respondents on the ground of mere "possible future
losses." 38

We do not agree. It should be observed that Article 283 of the Labor Code uses the phrase
"retrenchment to prevent losses". In its ordinary connotation, this phrase means that retrenchment
must be undertaken by the employer before losses are actually sustained. 39 We have, however,
interpreted the law to mean that the employer need not keep all his employees until after his losses shall
have materialized. 40 Otherwise, the law could be vulnerable of attack as undue taking of property for the
benefit of another. 41

In the case at bar, Prior Holdings took over the operations of Asian Alcohol in October 1991. Plain to
see, the last quarter losses in 1991 were already incurred under the new management. There were
no signs that these losses would abate. Irrefutable was the fact that losses have bled Asian Alcohol
incessantly over a span of several years. They were incurred under the management of the Parsons
family and continued to be suffered under the new management of Prior Holdings. Ultimately, it is
Prior Holdings that will absorb all the losses, including those incurred under the former owners of the
company. The law gives the new management every right to undertake measures to save the
company from bankruptcy.

We find that the reorganizational plan and comprehensive cost-saving program to turn the business
around were not designed to bust the union of the private respondents. Retrenched were one
hundred seventeen (117) employees. Seventy two (72) of them including private respondents were
separated because their positions had become redundant. In this context, what may technically be
considered as redundancy may verily be considered as retrenchment
measures. 42 Their positions had to be declared redundant to cut losses.

Redundancy exists when the service capability of the work force is in excess of what is reasonably
needed to meet the demands on 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 previously manufactured by the company or phasing out of a service activity
priorly undertaken by the business. 43 Under these conditions, the employer has no legal obligation to
keep in its payroll more employees than are necessary for the operation of its business. 44

For the implementation of a redundancy program to be valid, the employer must comply with the
following requisites: (1) written notice served on both the employees and the Department of Labor
and Employment at least one month prior to the intended date of retrenchment; 45 (2) payment of
separation pay equivalent to at least one month pay or at least one month pay for every year of service,
whichever is higher; (3) good faith in abolishing the redundant
positions; 46 and (4) fair and reasonable criteria in ascertaining what positions are to be declared
redundant and accordingly abolished. 47

In the case at bar, private respondents Carias, Martinez and Sendon were water pump tenders.
They tended the water wells of Asian Alcohol located in Ubay, Pulupanban, Negros Occidental.
However, Asian Alcohol did not own the land where the wells stood. It only leased them.

In 1992, the lease contract, which also provided for a right of way leading to the site of the wells, was
terminated. Also, the water from the wells had become salty due to extensive prawn farming nearby
and could no longer be used by Asian Alcohol for its purpose. The wells had to be closed and
needless to say, the services of Carias, Martinez and Sendon had to be terminated on the twin
grounds of redundancy and retrenchment.

Private respondent Verayo was the briquetting plant operator in charge of the coal-fired boiler.
Private respondent Tormo was one of the three briquetting helpers. To enhance production
efficiency, the new management team shifted to the use of bunker fuel by about seventy percent
(70%) to fire its boiler. The shift meant substantial fuel cost savings. In the process, however, the
need for a briquetting plant operator ceased as the services of only two (2) helpers were all that was
necessary to attend to the much lesser amount of coal required to run the boiler. Thus, the position
of private respondent Verayo had to be abolished. Of the three (3) briquetting helpers, Tormo was
the oldest, being already 41 years old. The other two, Rudy Javier, Jr. and Eriberto Songaling, Jr.,
were younger, being only 28 and 35, respectively. Age, with the physical strength that comes with it,
was particularly taken into consideration by the management team in deciding whom to separate.
Hence, it was private respondent Tormo who was separated from service. The management choice
rested on a rational basis.

Private respondent Amacio was among the ten (10) mechanics who manned the machine shop at
the plant site. At their current production level, the new management found that it was more cost
efficient to maintain only nine (9) mechanics. In choosing whom to separate among the ten (10)
mechanics, the management examined employment records and reports to determine the least
efficient among them. It was private respondent Amacio who appeared the least efficient because of
his poor health condition.

Not one of the private respondents refuted the foregoing facts. They only contend that the new
management should have followed the policy of "first in, last out" in choosing which positions to
declare as redundant or whom to retrench to prevent further business losses. No law mandates such
a policy. And the reason is simple enough. A host of relevant factors come into play in determining
cost efficient measures and in choosing the employees who will be retained or separated to save the
company from closing shop. In determining these issues, management has to enjoy a pre-eminent
role. The characterization of positions as redundant is an exercise of business judgment on the part
of the employers. 48 It will be upheld as long as it passes the test of arbitrariness. 49

Private respondents call our attention to their allegation that casuals were hired to replace Carias,
Martinez and Sendon as water pump tenders at the Ubay wells. They rely on the testimony of Engr.
Federico Palmares, Jr., the head of the Mechanical Engineering Services Department who admitted
the engagement of independent contractors to operate the wells. A reading of the testimony of Engr.
Palmares, however, will reveal that he referred not to the Ubay wells which were tended by private
respondent Carias, Martinez and sendon, but to the Laura wells. Thus, he declared in cross
examination:

ATTY. YMBALLA: (cross-examination of respondent witness,


Federico Palmares)

Q But in the Laura well?

WITNESS:

A Mansteel was hired as contractor.

ATTY. YMBALLA:
Q In other words, the persons mentioned are all workers of
independent contractors?

WITNESS:

A I am not sure, maybe. 50

In any event, we have held that 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. We have previously ruled that the reduction of the number of
workers in a company made necessary by the introduction of an independent contractor is justified
when the latter is undertaken in order to effectuate more economic and efficient methods of
production. 51 In the case at bar, private respondents failed to proffer any proof that the management
acted in a malicious or arbitrary manner in engaging the services of an independent contractor to operate
the Laura wells. Absent such proof, the Court has no basis to interfere with the bona fide decision of
management to effect more economic and efficient methods of production.

Finally, private respondent now claim that they signed the quitclaims, waivers and voluntary
resignation letters only to get their separation package. They maintain that in principle, they did not
believe that their dismissal was valid.

It is true that this Court has generally held that quit claims and releases are contrary to public policy
and therefore, void. Nonetheless, voluntary agreements that represent a reasonable settlement are
binding on the parties and should not later be disowned. It is only where there is clear proof that the
waiver was wangled from an unsuspecting or gullible person, or the terms of the settlement are
unconscionable, that the law will step in to bail out the employee. While it is our duty to prevent the
exploitation of employees, it also behooves us to protect the sanctity of contracts that do not
contravene our laws.

In the case at bar, there is no showing that the quitclaims, waivers and voluntary resignation letters
were executed by the private respondents under force or duress. In truth, the documents embodied
separation benefits that were well beyond what the company was legally required to give private
respondents. We note that out of the more than one hundred workers that were retrenched by Asian
Alcohol, only these six (6) private respondents were not impressed by the generosity of their
employer. Their late complainants have no basis and deserves our scant consideration.

In VIEW WHEREOF, the petition is GRANTED. The Decision of the National Labor Relations
Commission dated May 30, 1997 and its Resolution dated September 25, 1997 are ANNULLED
AND SET ASIDE. The Decision of the Executive Labor Arbiter dated January 10, 1996 in RAB Case
No. 06-12-10893-92 is ORDERED REINSTATED. The complainants for illegal dismissal filed by
private respondents against Asian Alcohol Corporation are hereby ORDERED DISMISSED FOR
LACK OF MERIT. No costs.

SO ORDERED.
4. SECOND DIVISION

[G.R. No. 127718. March 2, 2000]

NATIONAL FEDERATION OF LABOR, ABELARDO SANGADAN, LUCIANO


RAMOS, NESTOR TILASAN, GREGORIO TILASAN, JOAQUIN GARCIA,
ROGELIO SABAITAN, CASTRO LEONARDO, PILARDO POTENCIANO,
RONILLO POTENCIANO, SANTIAGO SABAITAN, JOVENCIO
BARTOLOME, JUANITO CONCERMAN, GEORGE TUMILAS, PATROCINIO
DOMINGO, AVELINO FRANCISCO, MELITON SANGADAN, ALEXANDER
GERONIMO, JOAQUIN GERONIMO, RAMIL MACASO, LAMBERTO
JOVEN, CRISTINO GARINA, SAMMY GANTAAN, NACIAL USTALAN,
EDWIN USTALAN, ROLAND POTENCIANO, RODY CONCERMAN, ELMER
DOMINGO, ARNAGUEZ SANGADAN, UNDING BOLENG, EDUARDO
BOLENG, ROBERTO PANEO and HENRY
SANGADAN, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION (5th Division), PATALON COCONUT ESTATE and/or
CHARLIE REITH as General Manager and SUSIE GALLE REITH, as
owner, respondents.

DECISION

DE LEON, JR., J.:

Before us is a special civil action for certiorari to set aside and annul two (2)
resolutions of the National Labor Relations Commission promulgated on April
[1]

24, 1996 and August 29, 1996 denying the award of separation pay to
[2] [3]

petitioners.

The pertinent facts are as follows:

Petitioners are bona fide members of the National Federation of Labor (NFL),
a legitimate labor organization duly registered with the Department of Labor
and Employment. They were employed by private respondents Charlie Reith
and Susie Galle Reith, general manager and owner, respectively, of the 354-
hectare Patalon Coconut Estate located at Patalon, Zamboanga City. Patalon
Coconut Estate was engaged in growing agricultural products and in raising
livestock.

In 1988, Congress enacted into law Republic Act (R.A.) No. 6657, otherwise
known as the Comprehensive Agrarian Reform Law (CARL), which mandated
the compulsory acquisition of all covered agricultural lands for distribution to
qualified farmer beneficiaries under the so-called Comprehensive Agrarian
Reform Programme (CARP).

Pursuant to R.A. No. 6657, the Patalon Coconut Estate was awarded to the
Patalon Estate Agrarian Reform Association (PEARA), a cooperative
accredited by the Department of Agrarian Reform (DAR), of which petitioners
are members and co-owners.

As a result of this acquisition, private respondents shut down the operation of


the Patalon Coconut Estate and the employment of the petitioners was
severed on July 31, 1994. Petitioners did not receive any separation pay.

On August 1, 1994, the cooperative took over the estate. A certain Abelardo
Sangadan informed respondents of such takeover via a letter which was
received by the respondents on July 26, 1994. Being beneficiaries of the
Patalon Coconut Estate pursuant to the CARP, the petitioners became part-
owners of the land.[4]

On April 25, 1995, petitioners filed individual complaints before the Regional
Arbitration Branch (RAB) of the National Labor Relations Commission (NLRC)
in Zamboanga City, praying for their reinstatement with full backwages on the
ground that they were illegally dismissed. The petitioners were represented by
their labor organization, the NFL.

On December 12, 1995, the RAB rendered a decision, the dispositive portion
of which provides:

"WHEREFORE, in view of the foregoing, judgment is hereby


rendered dismissing complainants charge for illegal dismissal for
lack of merit, but ordering respondents thru [sic] its owner-
manager or its duly authorized representative to pay complainants
separation pay in view of the latters cessation of operations or
forced sale, and for 13th month differential pay in the amount, as
follows, for:

Names Separation Pay 13th Mo. Pay Diff. Total

Abelardo Sangadan P23,879.06 N o n e P23,879.06

Luciano Ramos 43,605.24 P711.25 44,316.49

Nestor Tilasan 19,726.18 401.46 20,127.64

Gregorio Tilasan 25,955.50 N o n e 25,955.50

Joaquin Garcia 7,267.54 1,211.25 8,478.79

Rogelio Sabaitan 21,798.00 1,211.25 23,009.25

Castro Leonardo, Jr. 25,955.50 63.10 26,018.60

Pilardo Potenciano 5,191.10 911.25 6,102.35

Ronillo Potenciano 7,267.54 N o n e 7,267.54

Jovencio Bartolome 8,305.76 477.25 8,783.01

Santiago Sabaitan 4,152.88 1,011.25 5,164.13

Juanito Concerman 7,267.54 611.25 7,928.79

George Tumilas 16,611.52 1,011.25 17,622.77

Patrocinio Domingo 2,076.44 1,011.25 3,087.69

Avelino Francisco 3,114.66 1,211.25 4,325.91

Meliton Sangadan 15,573.30 392.50 15,965.80

Alexander Geronimo 15,573.00 N o n e 15,573.30

Joaquin Geronimo 24,917.28 1,211.25 26,128.53

Ramil Macaso 6,229.32 861.25 7,090.57


Lamberto Joven 16,611.62 1,011.25 17,622.77

Cristino Garina 35,299.48 849.65 36,149.13

Sammy Gantaan 14,535.08 961.25 15,496.33

Nacial Ustalan 38,414.14 79.95 38,494.09

Edwin Ustalan 7,267.54 1,011.25 8,278.79

Roland Potenciano 5,191.10 911.25 6,102.35

Rody Concerman 7,267.54 691.25 7,958.79

Elmer Domingo 3,114.66 1,211.25 4,325.91

Aranquez Sangada 45,681.68 711.25 46,392.93

Unding Boleng 31,146.60 N o n e 31,146.60

Eduardo Boleng 35,299.48 759.30 36,058.78

Roberto Paneo 23,876.06 911.25 24,787.31

Henry Sangadan 16,611.52 1,011.25 17,622.77

Total Benefits P586,774.22

"FURTHER, complainants claim for Muslim Holiday, overtime pay and rest day
pay should be dismissed for lack of merit, too."[5]

Appeal was taken by private respondents to public respondent NLRC. [6]

On April 24, 1996, the NLRC issued a resolution, the dispositive portion of
which provides:

"WHEREFORE, the decision appealed from is hereby modified in


favor of the following findings:

1) Respondents are not guilty of illegally dismissing complainants.


Respondents cessation of operation was not due to a unilateral
action on their part resulting in the cutting off of the employment
relationship between the parties. The severance of employer-
employee relationship between the parties came about
INVOLUNTARILY, as a result of an act of the State. Consequently,
complainants are not entitled to any separation pay.

2) The award of 13th month pay differential is, however, Set


Aside. Any award of 13th month pay differentials to complainants
should be computed strictly based on their reduced pay,
equivalent to six (6) hours work, Monday to Friday, pursuant to
what the parties agreed in the November 18, 1991 Compromise
Agreement."

SO ORDERED. [7]

Petitioners filed a motion for reconsideration which was denied by the NLRC
in its resolution dated August 29, 1996.
[8]

Hence, this petition.

The issue is whether or not an employer that was compelled to cease its
operation because of the compulsory acquisition by the government of its land
for purposes of agrarian reform, is liable to pay separation pay to its affected
employees.

The petition is bereft of merit.

Petitioners contend that they are entitled to separation pay citing Article 283 of
the Labor Code which reads:

"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 one (1) month before
the intended date thereof. In case of termination due to the
installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to
at least his one (1) month pay or to at least one (1) month pay for
every year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay
shall be equivalent to one (1) month pay or at least one-half ()
month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered as one (1)
whole year."

It is clear that Article 283 of the Labor Code applies in cases of closures of
establishment and reduction of personnel. The peculiar circumstances in the
case at bar, however, involves neither the closure of an establishment nor a
reduction of personnel as contemplated under the aforesaid article. When the
Patalon Coconut Estate was closed because a large portion of the estate was
acquired by DAR pursuant to CARP, the ownership of that large portion of the
estate was precisely transferred to PEARA and ultimately to the petitioners as
members thereof and as agrarian lot beneficiaries. Hence, Article 283 of the
Labor Code is not applicable to the case at bench.

Even assuming, arguendo, that the situation in this case were a closure of the
business establishment called Patalon Coconut Estate of private respondents,
still the petitioners/employees are not entitled to separation pay. The closure
contemplated under Article 283 of the Labor Code is a unilateral and voluntary
act on the part of the employer to close the business establishment as may be
gleaned from the wording of the said legal provision that "The
employer may also terminate the employment of any employee due to...".
The use of the word "may," in a statute, denotes that it is directory in nature
[9]

and generally permissive only. The "plain meaning rule" or verba legis in
[10]

statutory construction is thus applicable in this case. Where the words of a


statute are clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. [11]

In other words, Article 283 of the Labor Code does not contemplate a situation
where the closure of the business establishment is forced upon the employer
and ultimately for the benefit of the employees.
As earlier stated, the Patalon Coconut Estate was closed down because a
large portion of the said estate was acquired by the DAR pursuant to the
CARP. Hence, the closure of the Patalon Coconut Estate was not effected
voluntarily by private respondents who even filed a petition to have said estate
exempted from the coverage of RA 6657. Unfortunately, their petition was
denied by the Department of Agrarain Reform. Since the closure was due to
the act of the government to benefit the petitioners, as members of the
Patalon Estate Agrarian Reform Association, by making them agrarian lot
beneficiaries of said estate, the petitioners are not entitled to separation pay.
The termination of their employment was not caused by the private
respondents. The blame, if any, for the termination of petitioners employment
can even be laid upon the petitioner-employees themselves inasmuch as they
formed themselves into a cooperative, PEARA, ultimately to take over, as
agrarian lot beneficiaries, of private respondents landed estate pursuant to RA
6657. The resulting closure of the business establishment, Patalon Coconut
Estate, when it was placed under CARP, occurred through no fault of the
private respondents.

While the Constitution provides that "the State x x x shall protect the rights of
workers and promote their welfare", that constitutional policy of providing full
protection to labor is not intended to oppress or destroy capital and
management. Thus, the capital and management sectors must also be
protected under a regime of justice and the rule of law.

WHEREFORE, the petition is DISMISSED. The Resolutions of the National


Labor Relations Commission dated April 24, 1996 and August 29, 1996 are
hereby AFFIRMED. No costs.

SO ORDERED.

5.

Republic of the Philippines


Supreme Court
Manila
FIRST DIVISION

NELSON A. CULILI, G.R. No. 165381

Petitioner,

Present:

- versus -
CORONA, C.J.,

Chairperson,

VELASCO, JR.,
EASTERN TELECOMMUNICATIONS LEONARDO-DE CASTRO,
PHILIPPINES, INC., SALVADOR
HIZON (President and Chief Executive DEL CASTILLO, and
Officer), EMILIANO JURADO PEREZ, JJ.
(Chairman of the Board), VIRGILIO
GARCIA (Vice President) and STELLA Promulgated:
GARCIA (Assistant Vice President),

Respondents. February 9, 2011


x--------------------------------------------------
--x
DECISION

LEONARDO-DE CASTRO, J.:

Before Us is a petition for review on certiorari[1] of the


February 5, 2004 Decision[2] and September 13, 2004
Resolution[3] of the Court of Appeals in CA-G.R. SP No.
75001, wherein the Court of Appeals set aside the March 1, 2002
Decision[4] and September 24, 2002 Resolution[5] of the National
Labor Relations Commission (NLRC), which affirmed the Labor
Arbiters Decision[6] dated April 30, 2001.

Respondent Eastern Telecommunications Philippines, Inc.


(ETPI) is a telecommunications company engaged mainly in the
business of establishing commercial telecommunications systems
and leasing of international datalines or circuits that pass through
the international gateway facility (IGF). [7] The other respondents
are ETPIs officers: Salvador Hizon, President and Chief Executive
Officer; Emiliano Jurado, Chairman of the Board; Virgilio Garcia,
Vice President; and Stella Garcia, Assistant Vice President.

Petitioner Nelson A. Culili (Culili) was employed by ETPI as a


Technician in its Field Operations Department on January 27,
1981. On December 12, 1996, Culili was promoted to Senior
Technician in the Customer Premises Equipment Management Unit
of the Service Quality Department and his basic salary was
increased.[8]
As a telecommunications company and an authorized IGF
operator, ETPI was required, under Republic Act. No. 7925 and
Executive Order No. 109, to establish landlines in Metro Manila
and certain provinces.[9] However, due to interconnection
problems with the Philippine Long Distance Telephone Company
(PLDT), poor subscription and cancellation of subscriptions, and
other business difficulties, ETPI was forced to halt its roll out of
one hundred twenty-nine thousand (129,000) landlines already
allocated to a number of its employees. [10]

In 1998, due to business troubles and losses, ETPI was


compelled to implement a Right-Sizing Program which consisted
of two phases: the first phase involved the reduction of ETPIs
workforce to only those employees that were necessary and
which ETPI could sustain; the second phase entailed a company-
wide reorganization which would result in the transfer, merger,
absorption or abolition of certain departments of ETPI. [11]

As part of the first phase, ETPI, on December 10, 1998,


offered to its employees who had rendered at least fifteen years
of service, the Special Retirement Program, which consisted of the
option to voluntarily retire at an earlier age and a retirement
package equivalent to two and a half (2) months salary for every
year of service.[12] This offer was initially rejected by the Eastern
Telecommunications Employees Union (ETEU), ETPIs duly
recognized bargaining agent, which threatened to stage a
strike. ETPI explained to ETEU the exact details of the Right-Sizing
Program and the Special Retirement Program and after
consultations with ETEUs members, ETEU agreed to the
implementation of both programs. [13] Thus, on February 8, 1999,
ETPI re-offered the Special Retirement Program and the
corresponding retirement package to the one hundred two (102)
employees who qualified for the program. [14] Of all the employees
who qualified to avail of the program, only Culili rejected the offer.
[15]

After the successful implementation of the first phase of the


Right-Sizing Program, ETPI, on March 1, 1999 proceeded with the
second phase which necessitated the abolition, transfer and
merger of a number of ETPIs departments.[16]

Among the departments abolished was the Service Quality


Department. The functions of the Customer Premises Equipment
Management Unit, Culilis unit, were absorbed by the Business and
Consumer Accounts Department. The abolition of the Service
Quality Department rendered the specialized functions of a Senior
Technician unnecessary. As a result, Culilis position was abolished
due to redundancy and his functions were absorbed by Andre
Andrada, another employee already with the Business and
Consumer Accounts Department.[17]

On March 5, 1999, Culili discovered that his name was


omitted in ETPIs New Table of Organization. Culili, along with three
of his co-employees who were similarly situated, wrote their union
president to protest such omission.[18]

In a letter dated March 8, 1999, ETPI, through its Assistant


Vice President Stella Garcia, informed Culili of his termination
from employment effective April 8, 1999. The letter reads:

March 8, 1999
To: N. Culili

Thru: S. Dobbin/G. Ebue

From: AVP-HRD

---------------------------------------------------------------------------------
---------

As you are aware, the current economic crisis has


adversely affected our operations and undermined our
earlier plans to put in place major work programs and
activities. Because of this, we have to implement a
Rightsizing Program in order to cut
administrative/operating costs and to avoid losses. In line
with this program, your employment with the company
shall terminate effective at the close of business hours on
April 08, 1999. However, to give you ample time to look
for other employment, provided you have amply turned
over your pending work and settled your accountabilities,
you are no longer required to report to work starting
tomorrow. You will be considered on paid leave until April
08, 1999.

You will likewise be paid separation pay in compliance


with legal requirements (see attached), as well as other
benefits accruing to you under the law, and the CBA. We
take this opportunity to thank you for your services and
wish you well in your future endeavors.

(Signed)

Stella J. Garcia[19]
This letter was similar to the memo shown to Culili by the
union president weeks before Culili was dismissed. The memo was
dated December 7, 1998, and was advising him of his dismissal
effective January 4, 1999 due to the Right-Sizing Program ETPI
was going to implement to cut costs and avoid losses. [20]

Culili alleged that neither he nor the Department of Labor


and Employment (DOLE) were formally notified of his
termination. Culili claimed that he only found out about it
sometime in March 1999 when Vice President Virgilio Garcia
handed him a copy of the March 8, 1999 letter, after he was
barred from entering ETPIs premises by its armed security
personnel when he tried to report for work. [21] Culili believed that
ETPI had already decided to dismiss him even prior to the March
8, 1999 letter as evidenced by the December 7, 1998 version of
that letter. Moreover, Culili asserted that ETPI had contracted out
the services he used to perform to a labor-only contractor which
not only proved that his functions had not become unnecessary,
but which also violated their Collective Bargaining Agreement
(CBA) and the Labor Code. Aside from these, Culili also alleged
that he was discriminated against when ETPI offered some of his
co-employees an additional benefit in the form of motorcycles to
induce them to avail of the Special Retirement Program, while he
was not.[22]

ETPI denied singling Culili out for termination. ETPI claimed


that while it is true that they offered the Special Retirement
Package to reduce their workforce to a sustainable level, this was
only the first phase of the Right-Sizing Program to which ETEU
agreed.The second phase intended to simplify and streamline the
functions of the departments and employees of ETPI. The
abolition of Culilis department - the Service Quality Department -
and the absorption of its functions by the Business and Consumer
Accounts Department were in line with the programs goals as the
Business and Consumer Accounts Department was more
economical and versatile and it was flexible enough to handle the
limited functions of the Service Quality Department. ETPI averred
that since Culili did not avail of the Special Retirement Program
and his position was subsequently declared redundant, it had no
choice but to terminate Culili. [23] Culili, however, continued to
report for work.ETPI said that because there was no more work for
Culili, it was constrained to serve a final notice of termination [24] to
Culili, which Culili ignored. ETPI alleged that Culili informed his
superiors that he would agree to his termination if ETPI would give
him certain special work tools in addition to the benefits he was
already offered. ETPI claimed that Culilis counter-offer was
unacceptable as the work tools Culili wanted were worth almost a
million pesos. Thus, on March 26, 1999, ETPI tendered to Culili his
final pay check of Eight Hundred Fifty-Nine Thousand Thirty-Three
and 99/100 Pesos (P859,033.99) consisting of his basic salary,
leaves, 13th month pay and separation pay. [25] ETPI claimed that
Culili refused to accept his termination and continued to report for
work.[26] ETPI denied hiring outside contractors to perform Culilis
work and denied offering added incentives to its employees to
induce them to retire early. ETPI also explained that the December
7, 1998 letter was never given to Culili in an official capacity.ETPI
claimed that it really needed to reduce its workforce at that time
and that it had to prepare several letters in advance in the event
that none of the employees avail of the Special Retirement
Program. However, ETPI decided to wait for a favorable response
from its employees regarding the Special Retirement Program
instead of terminating them.[27]

On February 8, 2000, Culili filed a complaint against ETPI and


its officers for illegal dismissal, unfair labor practice, and money
claims before the Labor Arbiter.
On April 30, 2001, the Labor Arbiter rendered a decision
finding ETPI guilty of illegal dismissal and unfair labor practice, to
wit:

WHEREFORE, decision is hereby rendered declaring the


dismissal of complainant Nelson A. Culili illegal for having
been made through an arbitrary and malicious
declaration of redundancy of his position and for having
been done without due process for failure of the
respondent to give complainant and the DOLE written
notice of such termination prior to the effectivity thereof.

In view of the foregoing, respondents Eastern


Telecommunications Philippines and the individual
respondents are hereby found guilty of unfair labor
practice/discrimination and illegal dismissal and ordered
to pay complainant backwages and such other benefits
due him if he were not illegally dismissed, including moral
and exemplary damages and 10% attorneys
fees. Complainant likewise is to be reinstated to his
former position or to a substantially equivalent position in
accordance with the pertinent provisions of the Labor
Code as interpreted in the case of Pioneer texturing
[Pioneer Texturizing Corp. v. National Labor Relations
Commission], G.R. No. 11865[1], 16 October 1997. Hence,
Complainant must be paid the total amount of TWO
MILLION SEVEN HUNDRED FORTY[-]FOUR THOUSAND
THREE [HUNDRED] SEVENTY[-] NINE and 41/100
(P2,744,379.41), computed as follows:

I. Backwages (from 16 March 1999 to 16 March


2001)
a. Basic Salary (P29,030 x 24
mos.) P696,720.96

b. 13th Month Pay (P692,720.96/12) 58,060.88

c. Leave Benefits

1. Vacation Leave (30 days/annum)

P1,116.54 x 60 days 66,992.40

2. Sick Leave (30 days/annum)

P1,116.54 x 60 days 66,992.40

3. Birthday Leave (1 day/annum)

P1,116.54 x 2 days 2,233.08

d. Rice and Meal Subsidy

16 March 31 July 1999

(P1,750 x 4.5 mos. = P7,875.00)

01 August 1991 31 July 2000

(P1,850 x 12 mos. = P22,200.00)

01 August 2000 16 March 2001


(P1,950 x 7.5 mos. = P14,625.00) 44,700.00

e. Uniform Allowance

P7,000/annum x 2 years __14,000.00

P949,699.72

II. Damages

a. MoralP500,000.00

b. ExemplaryP250,000.00

III. Attorneys Fees (10% of award) __94,969.97

GRAND TOTAL: P2,744,379.41[28]

The Labor Arbiter believed Culilis claim that ETPI intended to


dismiss him even before his position was declared redundant. He
found the December 7, 1998 letter to be a telling sign of this
intention. The Labor Arbiter held that a reading of the termination
letter shows that the ground ETPI was actually invoking was
retrenchment and not redundancy, but ETPI stuck to redundancy
because it was easier to prove than retrenchment. He also did not
believe that Culilis functions were as limited as ETPI made it
appear to be, and held that ETPI failed to present any reasonable
criteria to justify the declaration of Culilis position as
redundant. On the issue of unfair labor practice, the Labor Arbiter
agreed that the contracting out of Culilis functions to non-union
members violated Culilis rights as a union member. Moreover, the
Labor Arbiter said that ETPI was not able to dispute Culilis claims
of discrimination and subcontracting, hence, ETPI was guilty of
unfair labor practice.

On appeal, the NLRC affirmed the Labor Arbiters decision but


modified the amount of moral and exemplary damages
awarded, viz:

WHEREFORE, the Decision appealed from


is AFFIRMED granting complainant the money claims
prayed for including full backwages, allowances and other
benefits or their monetary equivalent computed from the
time of his illegal dismissal on 16 March 1999 up to his
actual reinstatement except the award of moral and
exemplary damages which is modified to P200,000.00 for
moral and P100,000.00 for exemplary damages. For this
purpose, this case is REMANDED to the Labor Arbiter for
computation of backwages and other monetary awards to
complainant.[29]

ETPI filed a Petition for Certiorari under Rule 65 of the Rules of


Civil Procedure before the Court of Appeals on the ground of
grave abuse of discretion. ETPI prayed that a Temporary
Restraining Order be issued against the NLRC from implementing
its decision and that the NLRC decision and resolution be set
aside.
The Court of Appeals, on February 5, 2004, partially granted ETPIs
petition. The dispositive portion of the decision reads as follows:
WHEREFORE, all the foregoing considered, the petition
is PARTIALLY GRANTED. The assailed Decision of public
respondent National Labor Relations Commission
is MODIFIED in that petitioner Eastern
Telecommunications Philippines Inc. (ETPI) is
hereby ORDERED to pay respondent Nelson Culili full
backwages from the time his salaries were not paid until
the finality of this Decision plus separation pay in an
amount equivalent to one (1) month salary for every year
of service. The awards for moral and exemplary damages
are DELETED. The Writ of Execution issued by the Labor
Arbiter dated September 8, 2003 is DISSOLVED.[30]

The Court of Appeals found that Culilis position was validly


abolished due to redundancy.The Court of Appeals said that ETPI
had been very candid with its employees in implementing its
Right-Sizing Program, and that it was highly unlikely that ETPI
would effect a company-wide reorganization simply for the
purpose of getting rid of Culili. The Court of Appeals also held that
ETPI cannot be held guilty of unfair labor practice as mere
contracting out of services being performed by union members
does not per se amount to unfair labor practice unless it interferes
with the employees right to self-organization. The Court of
Appeals further held that ETPIs officers cannot be held liable
absent a showing of bad faith or malice. However, the Court of
Appeals found that ETPI failed to observe the standards of due
process as required by our laws when it failed to properly notify
both Culili and the DOLE of Culilis termination. The Court of
Appeals maintained its position in its September 13, 2004
Resolution when it denied Culilis Motion for Reconsideration and
Urgent Motion to Reinstate the Writ of Execution issued by the
Labor Arbiter, and ETPIs Motion for Partial Reconsideration.

Culili is now before this Court praying for the reversal of the Court
of Appeals decision and the reinstatement of the NLRCs decision
based on the following grounds:

THE COURT OF APPEALS DECIDED A QUESTION OF


SUBSTANCE NOT IN ACCORD WITH THE APPLICABLE LAW
AND JURISPRUDENCE WHEN IT REVERSED THE DECISIONS
OF THE NLRC AND THE LABOR ARBITER HOLDING THE
DISMISSAL OF PETITIONER ILLEGAL IN THAT:

A. CONTRARY TO THE FINDINGS OF THE


COURT OF APPEALS, RESPONDENTS
CHARACTERIZATION OF PETITIONERS
POSITION AS REDUNDANT WAS TAINTED
BY BAD FAITH.

B. THERE WAS NO ADEQUATE


JUSTIFICATION TO DECLARE PETITIONERS
POSITION AS REDUNDANT.

II
THE COURT OF APPEALS DECIDED A QUESTION OF
SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN FINDING THAT NO UNFAIR LABOR
PRACTICE ACTS WERE COMMITTED AGAINST THE
PETITIONER.

III

THE COURT OF APPEALS DECIDED A QUESTION OF


SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN DELETING THE AWARD OF MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR
OF PETITIONER AND IN DISSOLVING THE WRIT OF
EXECUTION DATED 8 SEPTEMBER 2003 ISSUED BY THE
LABOR ARBITER.

IV

THE COURT OF APPEALS DECIDED A QUESTION OF


SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN ABSOLVING THE INDIVIDUAL
RESPONDENTS OF PERSONAL LIABILITY.

CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE,


THE COURT OF APPEALS, IN A CERTIORARI PROCEEDING,
REVIEWED THE FACTUAL FINDINGS OF THE NLRC WHICH
AFFIRMED THAT OF THE LABOR ARBITER AND,
THEREAFTER, ISSUED A WRIT OF CERTIORARI REVERSING
THE DECISIONS OF THE NLRC AND THE LABOR ARBITER
EVEN IN THE ABSENCE OF GRAVE ABUSE OF DISCRETION.
[31]

Procedural Issue: Court of Appeals

Power to Review Facts in a Petition

For Certiorari under Rule 65

Culili argued that the Court of Appeals acted in contravention of


applicable law and jurisprudence when it reexamined the facts in
this case and reversed the factual findings of the Labor Arbiter
and the NLRC in a special civil action for certiorari.

This Court has already confirmed the power of the Court of


Appeals, even on a Petition for Certiorari under Rule 65,[32] to
review the evidence on record, when necessary, to resolve factual
issues:

The power of the Court of Appeals to review NLRC


decisions via Rule 65 or Petition for Certiorari has been
settled as early as in our decision in St. Martin Funeral
Home v. National Labor Relations Commission. This Court
held that the proper vehicle for such review was a Special
Civil Action for Certiorari under Rule 65 of the Rules of
Court, and that this action should be filed in the Court of
Appeals in strict observance of the doctrine of the
hierarchy of courts. Moreover, it is already settled that
under Section 9 of Batas Pambansa Blg. 129, as amended
by Republic Act No. 7902[10] (An Act Expanding the
Jurisdiction of the Court of Appeals, amending for the
purpose of Section Nine of Batas Pambansa Blg. 129 as
amended, known as the Judiciary Reorganization Act of
1980), the Court of Appeals pursuant to the exercise of its
original jurisdiction over Petitions for Certiorari is
specifically given the power to pass upon the evidence, if
and when necessary, to resolve factual issues.[33]

While it is true that factual findings made by quasi-judicial


and administrative tribunals, if supported by substantial evidence,
are accorded great respect and even finality by the courts, this
general rule admits of exceptions. When there is a showing that a
palpable and demonstrable mistake that needs rectification has
been committed[34] or when the factual findings were arrived at
arbitrarily or in disregard of the evidence on record, these findings
may be examined by the courts.[35]

In the case at bench, the Court of Appeals found itself unable


to completely sustain the findings of the NLRC thus, it was
compelled to review the facts and evidence and not limit itself to
the issue of grave abuse of discretion.

With the conflicting findings of facts by the tribunals below


now before us, it behooves this Court to make an independent
evaluation of the facts in this case.
Main Issue: Legality of Dismissal

Culili asserted that he was illegally dismissed because there


was no valid cause to terminate his employment. He claimed that
ETPI failed to prove that his position had become redundant and
that ETPI was indeed incurring losses. Culili further alleged that
his functions as a Senior Technician could not be considered a
superfluity because his tasks were crucial and critical to ETPIs
business.

Under our laws, an employee may be terminated for reasons involving


measures taken by the employer due to business necessities. Article 283 of the
Labor Code provides:

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
Department of Labor and Employment at least one (1)
month before the intended date thereof. In case of
termination due to the installation of labor-saving devices
or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one
(1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closures
or cessation of operations of establishment or
undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent
to one (1) month pay or at least one-half (1/2) month pay
for every year of service, whichever is higher. A fraction
of at least six (6) months shall be considered one (1)
whole year.

There is redundancy when the service capability of the


workforce is greater than what is reasonably required to meet the
demands of the business enterprise. A position becomes
redundant when it is rendered superfluous by any number of
factors such as over-hiring of workers, decrease in volume of
business, or dropping a particular product line or service activity
previously manufactured or undertaken by the enterprise. [36]

This Court has been consistent in holding that the


determination of whether or not an employees services are still
needed or sustainable properly belongs to the employer.Provided
there is no violation of law or a showing that the employer was
prompted by an arbitrary or malicious act, the soundness or
wisdom of this exercise of business judgment is not subject to the
discretionary review of the Labor Arbiter and the NLRC. [37]

However, an employer cannot simply declare that it has become


overmanned and dismiss its employees without producing
adequate proof to sustain its claim of redundancy. [38]Among the
requisites of a valid redundancy program are: (1) the good faith of
the employer in abolishing the redundant position; and (2) fair
and reasonable criteria in ascertaining what positions are to be
declared redundant,[39] such as but not limited to: preferred
status, efficiency, and seniority.[40]
This Court also held that the following evidence may be proffered
to substantiate redundancy: the new staffing pattern, feasibility
studies/ proposal on the viability of the newly created positions,
job description and the approval by the management of the
restructuring.[41]

In the case at bar, ETPI was upfront with its employees about
its plan to implement a Right-Sizing Program. Even in the face of
initial opposition from and rejection of the said program by ETEU,
ETPI patiently negotiated with ETEUs officers to make them
understand ETPIs business dilemma and its need to reduce its
workforce and streamline its organization. This evidently rules out
bad faith on the part of ETPI.

In deciding which positions to retain and which to abolish,


ETPI chose on the basis of efficiency, economy, versatility and
flexibility. It needed to reduce its workforce to a sustainable level
while maintaining functions necessary to keep it operating. The
records show that ETPI had sufficiently established not only its
need to reduce its workforce and streamline its organization, but
also the existence of redundancy in the position of a Senior
Technician. ETPI explained how it failed to meet its business
targets and the factors that caused this, and how this
necessitated it to reduce its workforce and streamline its
organization. ETPI also submitted its old and new tables of
organization and sufficiently described how limited the functions
of the abolished position of a Senior Technician were and how it
decided on whom to absorb these functions.

In his affidavit dated April 10, 2000,[42] Mr. Arnel D. Reyel, the
Head of both the Business Services Department and the Finance
Department of ETPI, described how ETPI went about in
reorganizing its departments. Mr. Reyel said that in the course of
ETPIs reorganization, new departments were created, some were
transferred, and two were abolished. Among the departments
abolished was the Service Quality Department. Mr. Reyel said that
ETPI felt that the functions of the Service Quality Department,
which catered to both corporate and small and medium-sized
clients, overlapped and were too large for a single department,
thus, the functions of this department were split and simplified
into two smaller but more focused and efficient departments. In
arriving at the decision to abolish the position of Senior
Technician, Mr. Reyel explained:

11.3. Thus, in accordance with the reorganization of


the different departments of ETPI, the Service Quality
Department was abolished and its functions were
absorbed by the Business and Consumer Accounts
Department and the Corporate and Major Accounts
Department.

11.4. With the abolition and resulting simplification of the


Service Quality Department, one of the units thereunder,
the Customer Premises Equipment Maintenance (CPEM)
unit was transferred to the Business and Consumer
Accounts Department. Since the Business and Consumer
Accounts Department had to remain economical and
focused yet versatile enough to meet all the needs of its
small and medium sized clients, it was decided that, in
the judgment of ETPI management, the specialized
functions of a Senior Technician in the CPEM unit whose
sole function was essentially the repair and servicing of
ETPIs telecommunications equipment was no longer
needed since the Business and Consumer [Accounts]
Department had to remain economical and focused yet
versatile enough to meet all the multifarious needs of its
small and medium sized clients.
11.5. The business reason for the abolition of the position
of Senior Technician was because in ETPIs judgment, what
was needed in the Business and Consumer Accounts
Department was a versatile, yet economical position with
functions which were not limited to the mere repair and
servicing of telecommunications equipment. It was
determined that what was called for was a position that
could also perform varying functions such as the actual
installation of telecommunications products for medium
and small scale clients, handle telecommunications
equipment inventory monitoring, evaluation of
telecommunications equipment purchased and the
preparation of reports on the daily and monthly activation
of telecommunications equipment by these small and
medium scale clients.

11.6. Thus, for the foregoing reasons, ETPI decided that


the position of Senior Technician was to be abolished due
to redundancy. The functions of a Senior Technician was
to be abolished due to redundancy. The functions of a
Senior Technician would then be absorbed by an
employee assigned to the Business and Consumer
Accounts Department who was already performing the
functions of actual installation of telecommunications
products in the field and handling telecommunications
equipment inventory monitoring, evaluation of
telecommunications equipment purchased and the
preparation of reports on the daily and monthly activation
of telecommunications equipment. This employee would
then simply add to his many other functions the duty of
repairing and servicing telecommunications equipment
which had been previously performed by a Senior
Technician.[43]
In the new table of organization that the management
approved, one hundred twelve (112) employees were redeployed
and nine (9) positions were declared redundant. [44] It is
inconceivable that ETPI would effect a company-wide
reorganization of this scale for the mere purpose of singling out
Culili and terminating him. If Culilis position were indeed
indispensable to ETPI, then it would be absurd for ETPI, which was
then trying to save its operations, to abolish that one position
which it needed the most. Contrary to Culilis assertions that ETPI
could not do away with his functions as long as it is in the
telecommunications industry, ETPI did not abolish the functions
performed by Culili as a Senior Technician. What ETPI did was to
abolish the position itself for being too specialized and
limited. The functions of that position were then added to another
employee whose functions were broad enough to absorb the tasks
of a Senior Technician.

Culili maintains that ETPI had already decided to dismiss him


even before the second phase of the Right-Sizing Program was
implemented as evidenced by the December 7, 1998 letter.

The December 7, 1998 termination letter signed by ETPIs


AVP Stella Garcia hardly suffices to prove bad faith on the part of
the company. The fact remains that the said letter was never
officially transmitted and Culili was not terminated at the end of
the first phase of ETPIs Right-Sizing Program. ETPI had given an
adequate explanation for the existence of the letter and
considering that it had been transparent with its employees,
through their union ETEU, so much so that ETPI even gave ETEU
this unofficial letter, there is no reason to speculate and attach
malice to such act. That Culili would be subsequently terminated
during the second phase of the Right-Sizing Program is not
evidence of undue discrimination or singling out since not only
Culilis position, but his entire unit was abolished and absorbed by
another department.
Unfair Labor Practice

Culili also alleged that ETPI is guilty of unfair labor practice for violating
Article 248(c) and (e) of the Labor Code, to wit:

Art. 248. Unfair labor practices of employers. -


It shall be unlawful for an employer to commit any of the
following unfair labor practice:

xxxx

c. To contract out services or functions being


performed by union members when such will interfere
with, restrain or coerce employees in the exercise of their
rights to self-organization;

xxxx

e. To discriminate in regard to wages, hours of work,


and other terms and conditions of employment in order to
encourage or discourage membership in any labor
organization. Nothing in this Code or in any other law
shall stop the parties from requiring membership in a
recognized collective bargaining agent as a condition for
employment, except those employees who are already
members of another union at the time of the signing of
the collective bargaining agreement. Employees of an
appropriate collective bargaining unit who are not
members of the recognized collective bargaining agent
may be assessed a reasonable fee equivalent to the dues
and other fees paid by members of the recognized
collective bargaining agent, if such non-union members
accept the benefits under the collective agreement:
Provided, that the individual authorization required under
Article 242, paragraph (o) of this Code shall not apply to
the non-members of the recognized collective bargaining
agent.

Culili asserted that ETPI is guilty of unfair labor practice because his
functions were sourced out to labor-only contractors and he was discriminated
against when his co-employees were treated differently when they were each
offered an additional motorcycle to induce them to avail of the Special Retirement
Program. ETPI denied hiring outside contractors and averred that the motorcycles
were not given to his co-employees but were purchased by them pursuant to their
Collective Bargaining Agreement, which allowed a retiring employee to purchase
the motorcycle he was assigned during his employment.

The concept of unfair labor practice is provided in Article 247


of the Labor Code which states:

Article 247. Concept of unfair labor practice


and procedure for prosecution thereof. -- Unfair labor
practices violate the constitutional right of workers and
employees to self-organization, are inimical to the
legitimate interest of both labor and management,
including their right to bargain collectively and otherwise
deal with each other in an atmosphere of freedom and
mutual respect, disrupt industrial peace and hinder the
promotion of healthy and stable labor-management
relations.

In the past, we have ruled that unfair labor practice refers to


acts that violate the workers' right to organize. The prohibited
acts are related to the workers' right to self-organization and to
the observance of a CBA.[45] We have likewise declared that there
should be no dispute that all the prohibited acts constituting
unfair labor practice in essence relate to the workers' right to self-
organization.[46] Thus, an employer may only be held liable for
unfair labor practice if it can be shown that his acts affect in
whatever manner the right of his employees to self-organize. [47]

There is no showing that ETPI, in implementing its Right-


Sizing Program, was motivated by ill will, bad faith or malice, or
that it was aimed at interfering with its employees right to self-
organize. In fact, ETPI negotiated and consulted with ETEU before
implementing its Right-Sizing Program.

Both the Labor Arbiter and the NLRC found ETPI guilty of unfair labor
practice because of its failure to dispute Culilis allegations.

According to jurisprudence, basic is the principle that good


faith is presumed and he who alleges bad faith has the duty to
prove the same.[48] By imputing bad faith to the actuations of
ETPI, Culili has the burden of proof to present substantial
evidence to support the allegation of unfair labor practice. Culili
failed to discharge this burden and his bare allegations deserve
no credit.

Observance of Procedural Due Process

Although the Court finds Culilis dismissal was for a lawful


cause and not an act of unfair labor practice, ETPI, however, was
remiss in its duty to observe procedural due process in effecting
the termination of Culili.

We have previously held that there are two aspects which


characterize the concept of due process under the Labor Code:
one is substantive whether the termination of employment was
based on the provision of the Labor Code or in accordance with
the prevailing jurisprudence; the other is procedural the manner
in which the dismissal was effected.[49]

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor


Code provides:

(d) In all cases of termination of employment, the


following standards of due process shall be substantially
observed:

xxxx
For termination of employment as defined in Article
283 of the Labor Code, the requirement of due process
shall be deemed complied with upon service of a written
notice to the employee and the appropriate Regional
Office of the Department of Labor and Employment at
least thirty days before effectivity of the termination,
specifying the ground or grounds for termination.

In Mayon Hotel & Restaurant v. Adana,[50] we observed:

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 Department of
Labor and Employment (DOLE) the opportunity to
ascertain the verity of the alleged authorized cause of
termination.[51]

ETPI does not deny its failure to provide DOLE with a written
notice regarding Culilis termination. It, however, insists that it has
complied with the requirement to serve a written notice to Culili
as evidenced by his admission of having received it and
forwarding it to his union president.

In Serrano v. National Labor Relations Commission,[52] we noted


that a job is more than the salary that it carries. There is a
psychological effect or a stigma in immediately finding ones self
laid off from work.[53] This is exactly why our labor laws have
provided for mandating procedural due process clauses. Our laws,
while recognizing the right of employers to terminate employees
it cannot sustain, also recognize the employees right to be
properly informed of the impending severance of his ties with the
company he is working for. In the case at bar, ETPI, in effecting
Culilis termination, simply asked one of its guards to serve the
required written notice on Culili. Culili, on one hand, claims in his
petition that this was handed to him by ETPIs vice president, but
previously testified before the Labor Arbiter that this was left on
his table.[54] Regardless of how this notice was served on Culili,
this Court believes that ETPI failed to properly notify Culili about
his termination. Aside from the manner the written notice was
served, a reading of that notice shows that ETPI failed to properly
inform Culili of the grounds for his termination.

The Court of Appeals, in finding that Culili was not afforded


procedural due process, held that Culilis dismissal was ineffectual,
and required ETPI to pay Culili full backwages in accordance with
our decision in Serrano v. National Labor Relations Commission.
[55]
Over the years, this Court has had the opportunity to
reexamine the sanctions imposed upon employers who fail to
comply with the procedural due process requirements in
terminating its employees. In Agabon v. National Labor Relations
Commission,[56] this Court reverted back to the doctrine
in Wenphil Corporation v. National Labor Relations
Commission [57]
and held that where the dismissal is due to a just
or authorized cause, but without observance of the due process
requirements, the dismissal may be upheld but the employer
must pay an indemnity to the employee. The sanctions to be
imposed however, must be stiffer than those imposed
in Wenphil to achieve a result fair to both the employers and the
employees.[58]
In Jaka Food Processing Corporation v. Pacot,[59] this Court,
taking a cue from Agabon, held that since there is a clear-cut
distinction between a dismissal due to a just cause and a
dismissal due to an authorized cause, the legal implications for
employers who fail to comply with the notice requirements must
also be treated differently:

Accordingly, it is wise to hold that: (1) if the


dismissal is based on a just cause under Article 282 but
the employer failed to comply with the notice
requirement, the sanction to be imposed upon him should
be tempered because the dismissal process was, in effect,
initiated by an act imputable to the employee; and (2) if
the dismissal is based on an authorized cause under
Article 283 but the employer failed to comply with the
notice requirement, the sanction should be stiffer because
the dismissal process was initiated by the employer's
exercise of his management prerogative.[60]

Hence, since it has been established that Culilis termination was


due to an authorized cause and cannot be considered unfair labor
practice on the part of ETPI, his dismissal is valid.However, in view
of ETPIs failure to comply with the notice requirements under the
Labor Code, Culili is entitled to nominal damages in addition to his
separation pay.

Personal Liability of ETPIs Officers

And Award of Damages


Culili asserts that the individual respondents, Salvador
Hizon, Emiliano Jurado, Virgilio Garcia, and Stella Garcia, as ETPIs
officers, should be held personally liable for the acts of ETPI which
were tainted with bad faith and arbitrariness. Furthermore, Culili
insists that he is entitled to damages because of the sufferings he
had to endure and the malicious manner he was terminated.

As a general rule, a corporate officer cannot be held liable


for acts done in his official capacity because a corporation, by
legal fiction, has a personality separate and distinct from its
officers, stockholders, and members. To pierce this fictional veil, it
must be shown that the corporate personality was used to
perpetuate fraud or an illegal act, or to evade an existing
obligation, or to confuse a legitimate issue. In illegal dismissal
cases, corporate officers may be held solidarily liable with the
corporation if the termination was done with malice or bad
faith. [61]

In illegal dismissal cases, moral damages are awarded only


where the dismissal was attended by bad faith or fraud, or
constituted an act oppressive to labor, or was done in a manner
contrary to morals, good customs or public policy. [62] Exemplary
damages may avail if the dismissal was effected in a wanton,
oppressive or malevolent manner to warrant an award for
exemplary damages.[63]

It is our considered view that Culili has failed to prove that


his dismissal was orchestrated by the individual respondents
herein for the mere purpose of getting rid of him. In fact, most of
them have not even dealt with Culili personally. Moreover, it has
been established that his termination was for an authorized
cause, and that there was no bad faith on the part of ETPI in
implementing its Right-Sizing Program, which involved abolishing
certain positions and departments for redundancy. It is not
enough that ETPI failed to comply with the due process
requirements to warrant an award of damages, there being no
showing that the companys and its officers acts were attended
with bad faith or were done oppressively.

WHEREFORE, the instant petition is DENIED and the


assailed February 5, 2004 Decision and September 13, 2004
Resolution of the Court of Appeals in CA-G.R. SP No.
75001 are AFFIRMED with
the MODIFICATION that petitioner Nelson A. Culilis dismissal is
declared valid but respondent Eastern Telecommunications
Philippines, Inc. is ordered to pay petitioner Nelson A. Culili the
amount of Fifty Thousand Pesos (P50,000.00) representing
nominal damages for non-compliance with statutory due process,
in addition to the mandatory separation pay required under
Article 283 of the Labor Code.

SO ORDERED.

6. PECIAL THIRD DIVISION

FLIGHT ATTENDANTS AND G.R. No. 178083


STEWARDS ASSOCIATION OF
THE PHILIPPINES (FASAP),
Petitioner, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Chico-Nazario,

Nachura,

Peralta, and
Bersamin,* JJ.

PHILIPPINE AIRLINES, INC.,

PATRIA CHIONG and COURT Promulgated:

OF APPEALS,

Respondents. October 2, 2009

x ----------------------------------------------------------------------------------------
x

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is respondent Philippine Airlines, Inc.s


(PAL) Motion forReconsideration[1] of our Decision of July 22, 2008,
the dispositive portion of which provides:

WHEREFORE, the instant petition is GRANTED. The


assailed Decision of the Court of Appeals in CA-G.R. SP
No. 87956 dated August 23, 2006, which affirmed the
Decision of the NLRC setting aside the Labor Arbiters
findings of illegal retrenchment and its Resolution of May
29, 2007 denying the motion for reconsideration, are
REVERSED and SET ASIDE and a new one is rendered:
1. FINDING respondent Philippine Airlines,
Inc. GUILTY of illegal dismissal;

2. ORDERING Philippine Airlines, Inc. to


reinstate the cabin crew personnel who were
covered by the retrenchment and demotion
scheme of June 15, 1998 made effective on July
15, 1998, without loss of seniority rights and
other privileges, and to pay them full
backwages, inclusive of allowances and other
monetary benefits computed from the time of
their separation up to the time of their actual
reinstatement, provided that with respect to
those who had received their respective
separation pay, the amounts of payments shall
be deducted from their backwages. Where
reinstatement is no longer feasible because the
positions previously held no longer exist,
respondent Corporation shall pay backwages
plus, in lieu of reinstatement, separation pay
equal to one (1) month pay for every year of
service;

3. ORDERING Philippine Airlines, Inc. to


pay attorneys fees equivalent to ten percent
(10%) of the total monetary award.

Costs against respondent PAL.

SO ORDERED.
In its Motion for Reconsideration, PAL maintains that it was
suffering from financial distress which justified the retrenchment
of more than 1,400 of its flight attendants. This, it argued, was an
established fact. Furthermore, FASAP never assailed the economic
basis for the retrenchment, but only the allegedly discriminatory
and baseless manner by which it was carried out.

PAL asserts that it has presented proof of its claimed losses


by attaching its petition for suspension of payments, as well as
the June 23, 1998 Order of the Securities and Exchange
Commission (SEC) approving the said petition for suspension of
payments, in its Motion to Dismiss and/or Consolidation of
Case filed with the Labor Arbiter in NLRC-NCR Case No. 06-05100-
98, or the labor case subject of the herein petition. Also attached
to the petition for suspension of payments were its audited
financial statements for its fiscal year ending March 1998, and
interim financial statements as of the end of the month prior to
the filing of its petition for suspension of payments, as well as:

a) A summary of its debts and other liabilities;

b) A summary of its assets and properties;

c) List of its equity security shareholders showing


the name of the security holder and the kind of interest
registered in the name of each holder;
d) A schedule which contains a full and true
statement of all of its debts and liabilities, together with a
list of all those to whom said debts and liabilities are due;

e) An inventory which contains an accurate


description of all the real and personal property, estate
and effects of PAL, together with a statement of the value
of each item of said property, estate and effects, their
respective location and a statement of the encumbrances
thereon.

In the instant Motion for Reconsideration, PAL attached a


copy of its audited financial statements for fiscal years 1996,
1997 and 1998. It justifies the submission before the Court of
Appeals of its 2002-2004, and not the 1996-1998, audited
financial statements, to show that as of the time of their
submission with the Court of Appeals, PAL was still under
rehabilitation, and not for the purpose of establishing its financial
problems during the retrenchment period.

PAL asserts further that the Court should have accorded the
SECs findings as regards its financial condition respect and
finality, considering that said findings were based on the financial
statements and other documents submitted to it, which PAL now
submits, albeit belatedly, via the instant Motion for
Reconsideration. It cites the case of Clarion Printing House Inc. v.
National Labor Relations Commission,[2] where the Court declared
that the appointment of a receiver or management committee by
the SEC presupposes a finding that, inter alia, a company
possesses sufficient property to cover all its debts but foresees
the impossibility of meeting them when they respectively fall due
and there is imminent danger of dissipation, loss, wastage or
destruction of assets or other properties or paralyzation of
business operations. On the other hand, it claims that in Rivera v.
Espiritu,[3] the Court made a finding that as a result of the pilots
three-week strike that began on June 5, 1998, PALs financial
situation went from bad to worse and it was faced with
bankruptcy, requiring it to seek rehabilitation and downsize its
labor force by more than one-third; and that said pilots strike was
immediately followed by another four-day employee-wide strike
on July 22, 1998, which involved 1,899 union[4] members.

PAL likewise cites previous decisions of the Court which


declared a suspension of claims against it in light of pending
rehabilitation proceedings and the issuance of a stay order in the
enforcement of all claims, whether for money or otherwise, which
is effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings.
[5]
Moreover, it claims that the infusion of $200 million in PAL in
June 1999 is proof of the airlines financial distress, and was a
condition sine qua non if PALs Amended and Restated
Rehabilitation Plan were to be approved by the SEC, and if the
absolute closure of PAL were to be averted.

PAL underscores that its situation in 1998 was unique, as it


had to contend with

the very distinct possibility that its losses would


eventually result in default on its payments to creditors
for its aircraft leases. If that happened, creditors could
have immediately seized all its leased planes and that
would have spelled PALs demise. The petition for
rehabilitation and suspension of payments was precisely
intended to avoid PALs collapse and eventual liquidation. [6]
Exercising its management prerogative and sound business
judgment, it decided to cut its fleet of aircraft in order to minimize
its operating losses and rescue itself from total downfall; which
meant that a corresponding company-wide reduction in
manpower necessarily had to be made. As a result, 5,000 PAL
employees (including the herein 1,400 cabin attendants) were
retrenched.

Further, PAL argues that aside from the confluence of


simultaneous unfortunate events that occurred during the time,
like successive strikes, peso depreciation and the Asian currency
crisis, there was a serious drop in passenger traffic which
necessitated the closure of PALs entire European, Australian,
and Middle East operations and numerous Asian stations, as well
as some of its domestic stations. Consequently, its 27
international routes were reduced to only 7, and its 37 domestic
routes to just 17.

PAL claims that it did not act with undue haste in effecting
the mass retrenchment of cabin attendants since, as early as
February 17, 1998, consultations were being held in connection
with the proposed retrenchment, and that twice-weekly meetings
between the union and the airline were being held since February
12, 1998. It claims that it took PAL four months before the
retrenchment scheme was finally implemented.

With regard to the implementation of Plan 22 instead of the


original Plan 14, PAL asserts that, in so doing, it should not be
found guilty of bad faith. It sets out the chronology of events that
led it to implement Plan 22 instead of Plan 14, thus:
The initial plan was, indeed, to reduce PALs fleet
from 54 planes to 14. With a smaller fleet, PAL necessarily
had to reduce manpower accordingly, and this was the
basis for the retrenchment. The retrenchment was done
on the basis of the conditions and circumstances existing
at that time. However, a series of events ensued

PAL was placed under corporate rehabilitation by the


SEC on June 23, 1998.

Later, on July 22, 1998, the rank-and-file employees


belonging to PALEA staged a strike.

Then, on August 28, 1998, President Joseph Ejercito


Estrada issued Administrative Order No. 16 creating Inter-
Agency Task Force to aid PAL and its employees in solving
the problem.

On September 4, 1998, PAL submitted an offer to


the Task Force of a plan to transfer shares of stocks to its
employees with a request to suspend existing Collective
Bargaining Agreements, which was later rejected by the
employees.

On September 23, 1998, PAL ceased operations.


Then, President Estrada intervened again through
the request of PAL employees. PALEA made an offer,
which was rejected by PAL. Finally, PALEA made an offer
again which was successfully ratified by the employees
on October 2, 1998 and accepted by PAL.

Subsequently, PAL partially resumed domestic


operations on October 7, 1998 believing that the mutually
beneficial terms of the suspension agreement could
possibly redeem PAL. Later, it partially resumed its
operations internationally (Los Angeles and San
Francisco, United States).

True enough, with some degree of relief as a result


of the suspension of payment and rehabilitation
proceedings in the SEC and the suspension of the CBA,
PAL began to see slow but steady improvements. Also,
airline industry experts who were commissioned by PAL to
assist in drafting its Amended and Restated Rehabilitation
Plan came to a conclusion that PAL had to increase its
fleet of planes to improve its financial and operational
viability. This advice was adopted by PAL in its Amended
and Restated Rehabilitation Plan, which was eventually
approved by the SEC.

With these supervening events, PAL decided to


implement Plan 22 upon reevaluation and optimistic
future projection for its operations. The decision to
abandon Plan 14 was not done with precipitate haste. The
Honorable Court should appreciate that the chain of
unfolding events after the retrenchment encouraged PAL,
in the exercise of its sound business discretion, to
implement Plan 22. This was not a capricious decision. In
fact, the SEC approved PALs Amended and Restated
Rehabilitation Plan, which includes, among others, PALs
Fleet Plan composed of 22 planes.

Neither does it show that PAL was uncertain of its


financial condition when it retrenched based on Plan 14.
PAL would not have even petitioned the SEC for its
rehabilitation were it not certain of its dire financial state.
The decision to later abandon Plan 14 was a business
judgment that PAL made in good faith upon the advice of
foreign airline industry experts and in light of the
supervening circumstances explained above.

In this regard, this Honorable Court has once held


that

Questions of policy or of management are left


solely to the honest decision of the board as
the business manager of the corporation, and
the court is without authority to substitute its
judgment for that of the board, and as long as
it acts in good faith and in the exercise of
honest judgment in the interest of the
corporation, its orders are not reviewable by
the courts.

On the basis of Plan 22, PAL


decided to recall/rehire some of
the retrenched employees.
With due respect, this Honorable Court is mistaken
in its ruling that PAL acted in bad faith simply because it
later on decided to recall or rehire the employees it
initially retrenched. The decision to recall/rehire was a
logical consequence of PALs decision to increase its fleet
from 14 to 22 planes, which as discussed earlier, was a
business judgment exercised in good faith by PAL after a
series of significant events.

PAL did not even have any legal obligation to rehire


the employees who have already been paid their
separation pay and who have executed valid quitclaims.
PAL, instead of being accused of bad faith for rehiring
these employees, should in fact be commended. That the
retrenched employees were given priority in hiring is
certainly not bad faith. Noteworthy is the fact that PAL
never hired NEW employees until November 2000 or
more than 2 years after the 1998 retrenchment.

It is respectfully submitted that the legality of the


retrenchment could not be made to depend on the fact
that PAL recalled/rehired some of the employees after five
months without taking into account the supervening
events. At the exact time of retrenchment, PAL was not in
a position to know with certainty that it could actually
recover from the precarious financial problem it was
facing and, if so, when.

The only thing PAL knew at that exact point in time


was that it was in its most critical condition when its
liabilities amounted to about Php 85,109,075,351.00,
while its assets amounted to only about Php
90,642,330,919.00 aggravated by many other
circumstances as explained earlier. At the time of the
retrenchment in June 1998, PAL was at the brink of total
collapse and it could not have known that in five months,
there will be supervening events that will impel it to
reassess its initial decisions.

xxxx

In the present case, PAL beseeches this Honorable


Court to take a second look at the peculiar facts and
circumstances that clearly show that the recall/rehire was
done in good faith. These facts and circumstances make
the case of PAL totally different from the other cases
decided by this Honorable Court where it found bad faith
on the part of the employer for immediately rehiring or
hiring employees after retrenchment.

xxxx

But even then, PAL still endeavored to recall or


rehire the maximum number of FASAP members that it
could. Thus, out of the 1,423 FASAP members who were
retrenched, 496 were eventually recalled or reinstated
(those who did not receive separation pay and opted to
resume their employment with PAL with no loss of
seniority).
On the other hand, 321 FASAP members were
rehired (those who received separation pay and
voluntarily rejoined PAL as new employees). In this
regard, PAL would like to take exception to the Honorable
Courts observation that these employees were taken in as
new hires without due regard to their long years of
service. The FASAP members who were rehired as new
employees were those who already received their
separation pay because of the retrenchment but
voluntarily accepted PALs offer for them to be rehired
when Plan 22 was implemented. It cannot be said that
they were prejudiced by the rehire process, as they
already cashed in on their tenure when they accepted the
separation pay. That they later on accepted PALs offer to
rehire them as new employees was purely voluntary on
their part.

Meanwhile, around 591 FASAP members opted not


to return anymore after receiving their full separation pay.
Thus, including those who voluntarily opted not to resume
their employment with PAL, only about 591 can be
considered to have remained unrecalled or unrehired.

It is significant to mention that FASAP directly and


actively participated in the recall process, and even
suggested the names of its members for prospective
recall.

Likewise, in the recall process, PAL followed the


provisions of the CBA and as a result, some of the recalled
employees were assigned to lower positions (or demoted
as noted by this Honorable Court). However, this was only
because there were not enough positions for all of them
to be restored to their previous posts. Evidently, with
lesser planes flying international routes, not all
international flight attendants would be restored to
international flight posts. Some of them would be
downgraded to domestic flights. This was the natural and
logical effect of the fleet downsizing that PAL adopted.
This could not be a badge of bad faith, as this Honorable
Court seems to believe.

xxxx

Likewise, no bad faith should be inferred from PALs


closure in September 1998. That decision was by no
means easy being the national flag carrier and the oldest
airline in Asia (having operated for 57 years at the time).
The closure could not have been a mere retaliation for
rejecting the offer of PAL, as it would have aggravated
matters further and rendered rehabilitation impossible.

Hence, PALs decision to resume operations when the


employees acceded to its request to suspend the CBA
should be seen in this context. This was not a coercive
posture. PAL resumed operations only because the
suspension of the CBA, among others, gave it hope that it
could recover.

Furthermore, any issue on the legality of the


suspension of the CBA had already been put to rest by no
less than this Honorable Court in the case of Rivera vs.
Espiritu where it held that
The assailed PAL-PALEA agreement was the
result of voluntary collective bargaining
negotiations undertaken in the light of the
severe financial situation faced by the
employer, with the peculiar and unique
intention of not merely promoting industrial
peace at PAL, but preventing the latters
closure.[7] (Emphasis supplied)

PAL explains that the 140 probationary cabin attendants who


were fired and subsequently rehired were part of an earlier
retrenchment process in February and March 1998, a component
of PALs less drastic cost cutting measures then being
implemented. Eventually, these rehired probationary cabin
attendants were included in the subject retrenchment of more
than 1,400. Thus, it claims that it was inaccurate for the Court to
have held that these 140 probationary cabin attendants were
retained while those with permanent status were fired.

Finally, PAL begs the Court to reconsider its finding that the
retrenchment scheme in question did not pass the test of fairness
and reasonableness with respect to the criteria used in selecting
those whose services should be retained or terminated. That it
merely used the criteria stipulated in its CBA with FASAP where
efficiency rating and inverse seniority are the basic considerations
as carried over from the parties previous CBAs could allegedly be
seen from the manner the retrenchment plan was carried out. The
rating variables contained in the Performance Evaluation Form of
each and every cabin crew personnels Grooming and Appearance
Handbook are fair and reasonable since they are inherent
requirements (necessarily intertwined, as PAL would put it) for
employment as flight attendant or steward. More significantly, it
claims that the criteria used in the implementation of the
retrenchment scheme in question was based on the ratified PAL-
FASAP 1996-2000 CBA, which should be considered as the law
between the parties.

PAL believes that the Court may have misconstrued the


significance of the term other reasons which the NLRC utilized in
its summary of FASAP members and causes for their
retrenchment,[8] arguing that the use of the phrase does not
necessarily mean that the employees were retrenched for obscure
reasons that are not acceptable under the law; it simply points to
the NLRCs economy of language in lumping together various
reasons for retrenchment, such as excess sick leaves, previous
admonitions, suspensions, passenger complaints, poor
performance, tardiness, etc. It claims that it used seniority in
conjunction with a combination of these grounds in arriving at a
conclusion of whether to retain or retrench.

PAL defends as well its use of a single year (1997) as basis


for assessing the cabin attendants fitness for retention or
retrenchment, stressing that its CBA with FASAP requires as basis
for reduction in personnel only one efficiency rating, which should
be construed as that obtained by each cabin attendant for
a single year, in accordance with Section 112 of the CBA which
provides:

In the event of redundancy, phase-out of equipment


or reduction of operations, the following rules in the
reduction of personnel shall apply:

A. Reduction in the number of Pursers:


1. In the event of a reduction of purser
OCARs, pursers who have not
attained an efficiency rating of 85% shall
be downgraded to international Cabin
Attendant in the reverse order of seniority.

2. If the reduction of purser OCARs would


involve more than the number of pursers
who have not attained an efficiency
rating of 85%, then pursers who have
attained an efficiency rating of 85% shall
be downgraded to international Cabin
Attendant in the inverse order of seniority.

B. In reducing the number of international


Cabin Attendants due to reduction in
international Cabin Attendant OCARs, the same
process in paragraph A shall be observed.
International Cabin Attendants shall be
downgraded to domestic.

C. In the event of reduction of domestic OCARs


thereby necessitating the retrenchment of
personnel, the same process shall be observed.

In no case, however, shall a regular Cabin Attendant


be separated from the service in the event of
retrenchment until all probationary or contractual Cabin
Attendant in the entire Cabin Attendants Corps, in that
order, shall have been retrenched. (Emphasis and
underscoring supplied)
PAL asserts that since efficiency ratings for each cabin or
flight attendant are computed on an annual basis, it should
therefore mean that when Section 112 referred toan efficiency
rating of 85%, then it should logically and practically follow that
only one years worth of performance should be used as criteria
for the retrenchment of cabin attendants that is, the most recent
efficiency rating obtained by each of them. For purposes of the
present case, it would necessarily be that for the year 1997, or
the year immediately prior to the retrenchment, and no other.

Finally, regarding the quitclaims executed, PAL maintains


that since the retrenchment scheme it implemented was
essentially valid, then it should follow that the quitclaims are
regular as well, and more so given the absence of mistake,
duress, fraud or misrepresentation.

In its Comment[9] to PALs Motion for Reconsideration, FASAP


asserts that the issue is not centered on PALs financial condition
but whether the retrenchment of the 1,400 cabin personnel was
warranted. It alleges that:

The issue is whether or not the nature and extent of the


financial circumstances and the methods used to resolve
fiscal difficulties warranted the illegal and unceremonious
dismissal of around 1,400 flight attendants, stewards, and
cabin crew. It was the termination without considering the
legal factors for retrenchment. Because of the difficulties
that the entire nation was going through, the ostensible
name given was retrenchment. But it was really an illegal
dismissal and arbitrary termination. x x x
The casualties of illegal action, the ones sacrificed in the
early stages of the situation and not as a last resort, are
not the employer and its officers or owner. As the
Honorable Court pointed out, the questioned action struck
at the very heart of the workers employment, the
lifeblood upon which the worker and his family owe their
survival. No proof has been adduced in ten long years of
litigation that retrenchment was only a measure of last
resort, (that) other less drastic means were considered
and tried and found inadequate.

xxxx

The Court has treated the instant case for what it


truly is an illegal retrenchment, one that was prematurely
done and whimsically carried out. x x x

This is about a bad faith retrenchment one which


neither complied with the legal prerequisites therefor nor
observed the provisions of the PAL-FASAP CBA thereon;
one which was not employed as a last resort and which
did not have any fair and reasonable criteria to serve as
basis for selecting who would be retrenched; one which
was capriciously and whimsically implemented; one which
was illegally made.[10]

FASAP declares that although it recognized PALs financial


difficulties in 1997 and 1998, it never conceded the same to be
valid reason upon which to base the questioned retrenchment,
citing that in proceedings below, the reasonable necessity of the
retrenchment and its effectiveness in preventing losses to PAL
had been squarely raised. FASAP maintains that prior negotiations
with PAL (on the possible implementation of cost-cutting
measures, employee rotation plans, triple and quadruple room
sharing arrangements, allocation of vacation leaves without pay,
etc.) is proof of that recognition, but that ultimately, it was
incumbent upon PAL to have shown that it undertook a
retrenchment scheme that was in proportion to and
commensurate with the financial distress it was experiencing at
the time.

Essentially, FASAP merely echoed our pronouncements,


focusing upon our dissertation on each of the elements required
in order to justify retrenchment, most of which were found lacking
in PALs retrenchment program or scheme. Specifically, FASAP
points to the lack of prior resort to cost-cutting measures, the
rehiring of probationary employees, prior assurances by PAL that
retrenchment was no longer necessary, and lack of fair and
reasonable criteria in selecting the employees to retrench.

Specifically, mention is made that there is nothing in its then


existing CBA with PAL which mandates that a single year 1997
should be used as the gauge or measure for determining the flight
attendants performance for purposes of retrenchment. Asserting
that PALs justification of its use of a single year was a very
strained interpretation of the provisions in the CBA, FASAP insists
that seniority, loyalty and past efficiency are requirements of law
and jurisprudence which may not be summarily disregarded in
choosing whom to retrench, demote or retain, a proposition it
claims to find support in Article III, Section 7(A) of its CBA which
provides:
The Association (FASAP) hereby acknowledges that
the management of the Company (PAL) and the direction
of its employees; x x x; and the lay-off and re-
employment of employees in connection with increases or
decreases in the work force are the exclusive rights and
functions of management provided only that the
Company act in accordance with applicable laws and the
provisions of this Agreement.[11] (Words in parentheses
supplied)

FASAP goes on further to suggest that the basic criterion for


effecting the retrenchment scheme should have been seniority, as
enunciated in Maya Farms Employees Organization v. National
Labor Relations Commission.[12] In said case, the employer was
constrained to streamline its manpower base owing to losses and
setbacks in operations. Management sent notices of termination
(due to redundancy) to 66 of its employees. In the labor case that
ensued, the union pointed to a violation of a specific provision in
its CBA which declared, thus:

Sec. 2. LIFO RULE. In all cases of lay-off or


retrenchment resulting in termination of employment in
the line of work, the Last-In-First-Out (LIFO) Rule must
always be strictly observed.

Ultimately, we held therein that the employer did not violate the
LIFO rule in the CBA. We explained therein that

It is not disputed that the LIFO rule applies to


termination of employment in the line of work. Verily,
what is contemplated in the LIFO rule is that when there
are two or more employees occupying the same position
in the company affected by the retrenchment program,
the last one employed will necessarily be the first to go.

Moreover, the reason why there was no violation of


the LIFO rule was amply explained by public respondent
in this wise:

. . . The LIFO rule under the CBA is


explicit. It is ordained that in cases of
retrenchment resulting in termination of
employment in line of work, the employee who
was employed on the latest date must be the
first one to go. The provision speaks of
termination in the line of work. This
contemplates a situation where employees
occupying the same position in the company
are to be affected by the retrenchment
program. Since there ought to be a reduction in
the number of personnel in such positions, the
length of service of each employee is the
determining factor, such that the employee
who has a longer period of employment will be
retained.

In the case under consideration,


specifically with respect to Maya Farms, several
positions were affected by the special
involuntary redundancy program. These are
packers, egg sorters/stockers, drivers. In the
case of packers, prior to the involuntary
redundancy program, twenty-one employees
occupied the position of packers. Out of this
number, only 5 were retained. In this group of
employees, the earliest date of employment
was October 27, 1969, and the latest packer
was employed in 1989. The most senior
employees occupying the position of packers
who were retained are as follows:

Santos, Laura C. Oct. 27, 1969

Estrada, Mercedes Aug. 20, 1970

Hortaleza, Lita June 11, 1971

Jimenez, Lolita April 25, 1972

Aquino, Teresita June 25, 1975

All the other packers employed after June


2, 1975 (sic) were separated from the service.

The same is true with respect to egg


sorters. The egg sorters employed on or before
April 26, 1972 were retained. All those
employed after said date were separated.

With respect to the position of drivers,


there were eight drivers prior to the involuntary
redundancy program. Thereafter only 3
positions were retained. Accordingly, the three
drivers who were most senior in terms of
period of employment, were retained.
They are: Ceferino D. Narag, Efren
Macaraig and Pablito Macaraig.

The case of Roberta Cabrera and Lydia C.


Bandong, Asst. Superintendent for packing and
Asst. Superintendent for meat processing
respectively was presented by the union as an
instance where the LIFO rule was not observed
by management. The union pointed out that
Lydia Bandong who was retained by
management was employed on a much later
date than Roberta Cabrera, and both are
Assistant Superintendent. We cannot sustain
the union's argument. It is indeed true that
Roberta Cabrera was employed earlier (January
28, 1961) and (sic) Lydia Bandong (July 9,
1966). However, it is maintained that in meat
processing department there were 3 Asst.
Superintendents assigned as head of the 3
sections thereat. The reason advanced by the
company in retaining Bandong was that as
Asst. Superintendent for meat processing she
could already take care of the operations of the
other sections. The nature of work of each
assistant superintendent as well as experience
were taken into account by management. Such
criteria was not shown to be whimsical nor
carpricious (sic).[13]

Finally, FASAP claims that PAL did not provide reasons for
retrenching the more than 1,400 flight attendants; that it was
only when it filed its Supplemental Memorandum before the Labor
Arbiter in March 2000 that the airline submitted in evidence the
ICCD Masterank and Seniority 1997 Ratings, which allegedly took
into account the subjective factors such as appearance and good
grooming, which supposedly require the written conformity of its
members if they were to be considered at all, in accordance with
Section 124, Article XXVI of the CBA.

By way of reply to FASAPs Comment, PAL insists that its


decision to downsize the flight fleet was the principal reason why
it had to put into effect a corresponding downsizing of cabin crew
personnel; that the reduction in fleet size was an integral part of
its SEC-approved rehabilitation plan; that the reduction in the
number of its aircraft by 75% from 54 to just 14 likewise
necessitated a corresponding 75% reduction in its total cabin
crew personnel; and that its subsequent decision to increase its
remaining fleet from 14 aircraft to 22 was a business judgment
exercised in good faith after a series of significant events and
upon the advice of airline industry experts who were assisting it in
its rehabilitation efforts.[14] This increase from 14 to 22 aircraft was
then included in its Amended and Restated Rehabilitation Plan,
which was subsequently approved by the SEC. Because of this, it
then had to increase its manpower; it recalled or rehired the
services of the employees it had previously terminated.

PAL begs the Court to recognize this downsizing of aircraft as


a valid exercise of its management prerogative to close its
business operations, and not merely to reduce personnel. In other
words, PAL would have the Court believe that its retrenchment
program is not merely a reduction of personnel for the purpose of
cutting on costs of operations, but as a closure of its business, a
cessation of business operations to prevent further financial drain.
[15]
PAL argues that cost-cutting measures could not have sufficed
to nurse the airline back to financial health; it had to resort to
partial closure of its business. Thus:

18. Moreover, how can PAL possibly implement the


cost-cutting measures allegedly suggested by FASAP with
75% of its fleet already gone? The situation would be
different if PAL retained its 54-plane fleet, and PALs only
concern was to save on salaries and wages. In such a
situation, PAL is indeed obliged to resort to less drastic
cost-cutting measures before it can validly proceed with
retrenchment. But this is not the case here. PALs financial
condition could not have improved by merely adopting
cost-cutting measures such as work rotation and forced
leaves. In fact, retrenchment alone could not have saved
PAL from financial ruin. PAL had to resort to the drastic
action of partially closing its business operations by
downsizing its fleet of aircrafts. This naturally resulted in
the reduction of PALs personnel.

19. Assuming arguendo that the jurisprudence relied


upon by FASAP apply, the proven facts in this case show
that retrenchment was not the only option for PAL. The
problem with FASAP is that it is taking a myopic view of
what truly happened. It stubbornly claims that the
reduction of employees is a simple case of retrenchment
program that was implemented in the first instance. But it
is clear from the record that when PAL suffered serious
business losses, retrenchment was not the only option,
obviously because the objective was to cut down on
operating expenses as a whole, and not merely in terms
of salaries and wages, which is the only purpose of a
retrenchment.
20. What PAL did was to reduce its fleet of 54 planes
to only 14 planes. It was only after PAL reduced its fleet of
aircrafts that it had to terminate the employment of its
employees who were already in excess of the workforce
required under the reduced fleet set-up. In other words,
retrenchment was merely a necessary and natural
consequence of PALs earlier decision to downsize its fleet
of aircrafts. There is thus simply no basis to say that PAL
implemented retrenchment in the first instance.

xxxx

22. Neither is there basis to FASAPs claim that PAL


made the assurance that there will be no more need for
retrenchment. How could have PAL given such assurance
in light of its huge business losses, bordering on
bankruptcy? The truth is, no such assurance was ever
given by PAL. This is clear in the minutes of all of the
meetings with FASAP where the only issue discussed was
how to proceed with the retrenchment. These meetings
were held in February to April 1998, or two to three
months before the decision to reduce operations was
made by PAL due to various serious supervening events
the strike staged by the Airline Pilots Association of the
Philippines (ALPAP) and by the Philippine Airlines
Employees Association (PALEA).[16]

On the use of efficiency ratings obtained for the year 1997


as singular basis for determining the fitness of cabin crew
personnel to continue working with it, PAL explains that
24. There is nothing unreasonable in using the year
1997 as basis for arriving at the efficiency ratings. FASAPs
insinuations that it ignored the employees alleged
exceptional performance ratings and exemplary
attendance records in the past are simply baseless,
misleading and erroneous.

24.1. First, while an employee may rack


up hundreds of awards and commendations
and hundreds of hours of leave credits, it does
not necessarily follow that the same employee,
although admittedly of exceptional caliber,
cannot be terminated if just or authorized
cause subsequently exists. For instance, if
there is redundancy, an employee holding a
superfluous position may be terminated
regardless of numerous awards and leave
credits he may have earned. In this case, it
cannot be denied that PALs reduction, or partial
closure, of its business operations, i.e.,
downsizing its flight fleet from 54 to 14
aircrafts, in order to prevent business losses
and avoid total closure of its business, is one of
the recognized authorized causes expressly
provided under Article 283 of the Labor Code.

PAL could, therefore, retrench employees


regardless of the number of commendations,
awards and accumulated leave credits the
latter obtained in the course of employment
provided, of course, that the retrenchment is
valid and legal. In this case, the Labor Arbiter,
the NLRC and the Court of
Appeals unanimously found that the
retrenchment is intrinsically valid and
legal based on the same set of evidence. In
fact, the Labor Arbiter categorically ruled:

there is no question that the rules


imposed by law and jurisprudence to
sustain retrenchment have been
amply satisfied by PAL. The only
issue at hand is whether or not the
retrenchment can be upheld for
complying with rules set forth in the
collective bargaining agreement.

24.2. Second, in implementing


retrenchment, the law does not require an
employer to look back into far reaches of time
to check every good deed performed by every
employee. This would not only be highly
impractical, but manifestly absurd as well. In
evaluating job efficiency, it is enough for an
employer to fix a determinate time frame
within which to base its evaluation. It can be
six months, one year, two years, three years or
ten years. It can in fact be any period of time,
subject to managements sound discretion.

But to be fair and reasonable, the


application of the period must be uniform and
consistent. It cannot be one year for employee
A, two years for employee B and three years
for employee C. In this case, PAL selected a
period of one year (the year 1997), which was
uniformly and consistently applied to all,
without exception.

The year 1997 was chosen by PAL as it


was the most logical period being the year
immediately preceding the retrenchment. All
relevant records for the year 1997, such as
attendance and performance evaluation, were
complete and accurate. Certainly, the year
1997 was not selected for the purpose of
discriminating against any employee, but with
the sole objective of retaining the more
efficient among the employees.

xxxx

26. FASAP then insists that the basic criterion to


effect lay-off or retrenchment is seniority. FASAP cites
Article VII, Section 23 of the PAL-FASAP 1995-2000 CBA:

The term seniority whenever used in this


Agreement shall be deemed to mean a
measure of a regular Cabin Attendants claim in
relation to other regular Cabin Attendants
holding similar positions, to preferential
consideration whenever the Company
exercises its right to promote to a higher
paying position or lay-off of any Cabin
Attendant.
27. FASAP obviously misread and misinterpreted
Section 23 of the PAL-FASAP 1995-2000 CBA. The
provision does not even mandate seniority to be a
criterion whenever PAL implements a reduction or
retrenchment, much less does it say that seniority is the
one and only criterion to be applied. Section 23 simply
defines seniority and states that seniority may be
given preferential consideration whenever PAL exercises
its right to promote to a higher paying position or lay-off
of cabin attendants. PAL did just that in complying with
Section 112 of the PAL-FASAP CBA 1995-2000 when
seniority was applied whenever all other factors were
found to be equal. PAL clearly followed Section 23 of the
PAL-FASAP CBA in giving seniority preferential
consideration. This is also reflected in the tabulation
made by the NLRC in its Decision.[17]

PAL argues that in its past two CBAs with FASAP prior to the
one under controversy, the same provisions and criteria for
appearance, grooming, efficiency and performance were used,
without objections having been advanced by FASAP.

During oral arguments, PAL advanced an altogether new line


of reasoning that has, until now, never been advanced as the
primary argument in defense of its retrenchment scheme: that
the principal and true reason why PAL had to implement
the mass lay-off of cabin personnel was not the
downsizing of aircraft fleet size, but the June 5, 1998
pilots strike, where approximately six hundred (600) of its pilots
apparently abandoned their planes and simultaneously refused to
fly. Thus, counsel for PAL manifested to the Court that
ATTY. MENDOZA

As a consequence, if your Honor please, but what really


brought about, shall we say, the really perilous
situation of closure was that on June 5, 1998, the
pilots went on strike, ninety (90%) per cent of the
pilots went on strike, approximately six hundred (600).
These pilots strike was so devastating because the pilots,
if your Honors please, even left their place where they
were at the time, somewhere in Bangkok, somewhere
in Taipei and they just left the planes. Without any pilots
no plane can fly, your Honor, that is the stark reality of
the situation, and without airplanes flying, there
would be no place for employment of cabin
attendants.[18] (Emphasis supplied)

As a result of this pilots strike, PAL claims to have suffered


daily revenue losses equivalent to P100 million and P50 million of
lost fixed costs, which came at a time when PAL had no more
money.[19] Owing to this pilots strike, PAL was brought to the brink
of disaster and emergency that it needed to align the number of
cabin attendants with the number of airplanes that were flying.
[20]
After the pilots went on strike, PAL was left with only 68 pilots
who chose to remain, but with 2,039 cabin attendants. Faced with
this disproportionate ratio of pilots to cabin attendants, PAL
immediately decided to terminate the services of more than 1,400
cabin attendants via the retrenchment scheme in question. At the
same time, the reduction in fleet which until that time remained a
mere proposal had to be immediately implemented, and cost-
cutting measures were simply out of the question. Thus:
ATTY. MENDOZA

While meetings between PAL and FASAP may have


occurred prior to June 1998 to discuss measures in which
to possibly avoid retrenchment with its planned reduction
of fleet, PALs financial circumstances drastically changed
in June 1998 that necessitated immediate and
corresponding measures. Harsh reality was that, there
simply was no time. FASAP-suggested less drastic
measures of work rotation, forced vacation leaves,
hotel sharing etc. were no longer feasible. Indeed,
reduction by about 5,000 employees, including
1,423 cabin crew, was the less drastic measure. The
alternative, harsher obviously, was closure and
liquidation.[21] (Emphasis supplied)

All throughout, it has been impressed upon us that PALs


decision to downsize its fleet size is the principal reason why it
had to put into effect a corresponding downsizing of cabin crew
personnel. However, on oral arguments before us, PAL now makes
a total turnaround and attributes the retrenchment to the June 5,
1998 pilots strike. Repeatedly, counsel for PAL blamed the pilots
strike as the main culprit, thus:

ATTY. MENDOZA

As a consequence, if your Honor please, but what really


brought about, shall we say, the really perilous
situation of closure was that on June 5, 1998, the
pilots went on strike, ninety (90%) per cent of the
pilots went on strike, approximately six hundred (600).
These pilots strike was so devastating x x x. Without any
pilots no plane can fly, your Honor, that is the stark reality
of the situation, and without airplanes flying, there
would be no place for employment of cabin
attendants.

xxxx

ATTY. MENDOZA

Well, according to the Court, Your Honor, the Court


principally invalidated this because, according to the
Court it was fraudulent. And it was fraudulent because
PAL misrepresented that it was losing, but in fact it was
not as the Court found. So, in other words, if Your Honor
please, as I have explained, there was no
misrepresentation because the members of FASAP could
not have but known that there were less planes that were
flying. And they could not have but known that the
number of cabin attendants cannot have exceed that
which were required by the number of planes that were
flying. So that was basically the reason for the
redundancy and so it can never be said that this was
redundant. But as I have said, if Your Honor please, if the
Court reconsiders its finding that there was illegal
dismissal there would really be no relevance to this
quitclaim because, in any event, the separation pay has
been received by some, except for those who declined it.

So therefore, if Your Honor please, if I may conclude


since my time is practically up. First, there can hardly be
any question, in fact, it is considered by FASAP and found
by the National Labor Relations Commission, the Labor
Arbiter, and the Court of Appeals that circumstances
existed that did not only warrant the reduction of
personnel including the members of FASAP and the cabin
attendants but that these were compelled by
circumstances. If the cabin attendants were not
retrenched you would have a situation where cabin
attendants would be there but were not needed but would
earn compensation.

Second, if Your Honor please, as to the second


issue, cost-cutting measures they were
contemplated. But when the pilots struck, an
emergency situation arose and so there needed to
be an immediate response to that situation and the
only one of the components of that response is this
retrenchment.

Incidentally, if Your Honor please, a basic core of the


rehabilitation of PAL was for the creditors to agree. PAL is
a different business than other businesses, Your Honor. An
airline cannot stand still and the creditors demands are
not met immediately, PAL would simply lose its airplanes.
And so far as Point No. 3 is concerned, if Your Honor
please, PAL did the best it could under the circumstances.
And as to number 3, as I said, if Your Honor please, PAL
acted in accordance with criteria in the Collective
Bargaining Agreement which it followed meticulously and
religiously.
Whereas for the fourth, if Your Honor please, there
was no fraud in the execution of the quitclaim but I must
emphasize once again that PALs case does not really rest
on the quitclaims. PALs case rests on the response that
we made on the first three (3) questions.

xxxx

ATTY. MENDOZA

Yes. As I explained, Your Honor, when the 1997


economic crisis took place and PAL saw that it was going
to create a problem, PAL started studying measures
already. But before it could implement any of these
measures, even conclude the study the pilots
struck, when the pilots struck the situations
changed entirely. It put PAL in complete peril of
total closure because no planes could fly, so that
changed the picture, there was no more time to
engage in cost-cutting measures. What needed to be
done, if Your Honor please, is to do what was necessary to
survive at that point? The first thing to do to survive was
to fly as many planes as possible in order to earn some
revenue. But you could only fly as many planes as there
were pilots, and that was the reason for the initial flights.

xxxx

ASSOCIATE JUSTICE NACHURA


During these conferences, did FASAP not suggest
any other cost-cutting measures in order to determine the
immediate implementation of a retrenchment program?

ATTY. MENDOZA

Well, there was an endorsed initial conversation;


there were suggestions if there is to be reduction of
personnel, rotations, and so on and so forth, Your Honor.
So, by the time the pilots struck you have to
retrench quickly x x x.

ASSOCIATE JUSTICE NACHURA

Because related to this is a statement in our


Decision that the retrenchment was illegal because it was
not actually the last resort that PAL could have; it was not
the last resort that PAL could have attended, well used.
That means, there were other options that would probably
have opened to PAL which would not be as detrimental to
FASAP as retrenchment.

ATTY. MENDOZA

If Your Honor please, may I put it this way? It was


not just the last; it was the only resort, Your Honor,
because of these circumstances. There was no
other option, but to operate flghts and spend only as
necessary. If you have more cabin attendants than we
required for those planes which were flying you are
spending needlessly actually, Your Honor, and that is
certainly not conducive to bring about a recovery of
Philippine Airlines.

xxxx

ASSOCIATE JUSTICE DE CASTRO

You mentioned thatbefore that, that there is a need


for rehabilitation because the PAL was in dire financial
condition at that time, and it was

ATTY. MENDOZA

Your Honor please, the rehabilitation came after the


pilots strike. Actually, before the pilots strike the effort of
PAL is to find the way to address the Asian economic
crisis. Its just like, if Your Honor please, a factory which is
to be more efficient in order to be able to compete, let us
say, with the imported goods, so you downsize or you
may try to be more efficient but the situation PAL
confronted after the pilots strike was entirely
different. It was a case of survival already, Your
Honor, because it meant closure and PAL was able to
operate some planes only because of what they called
management pilots. There were certain pilots who were
occupying supervisory positions but who were employed
still by PAL. They were the ones who actually flew the
plane because the members of the pilots union simply
stopped working.[22] (Emphasis supplied)

On the other hand, FASAP argued and reiterated its original


contentions, inter alia, that during negotiations for the
implementation of cost-cutting measures, it was assured by PAL
that since there were negotiations with possible investors who
were being eyed as business partners, retrenchment was no
longer necessary;[23] that although it admitted PALs financial
difficulties, it did not concede that these losses justified the
urgency, necessity and extent of the questioned retrenchment
scheme;[24] that the ICCD Masterank Listing was an afterthought,
the same having been presented only on March 13, 2000, and
was never shown to the retrenched employees during the period
of retrenchment;[25] that the criteria for retrenchment did not
conform to the CBA;[26] and that no cost-cutting measures were
implemented.[27]

PAL has all this time tried to convince the Court that its
decision to downsize its flight fleet was the principal reason why it
undertook a corresponding downsizing of cabin crew
personnel. This time, however, it significantly changed stance and
blamed the June 5, 1998 pilots strike as the real culprit which
drove it to undertake the massive retrenchment under
scrutiny. This time, PAL characterizes the retrenchment scheme
and the downsizing of aircraft as mere necessary reactions to or
unfortunate consequences of the pilots strike, which it claims
likewise necessitated a disregard of all previous negotiations for
the implementation of cost-cutting measures that could have
rendered the retrenchment scheme unnecessary, and which cost-
cutting measures it no longer found necessary to undertake.
We find this argument untenable. The strike was a temporary
occurrence that did not necessitate the immediate and sweeping
retrenchment of 1,400 cabin or flight attendants. By PALs own
account, some of the striking pilots went back to work in July
1998, or less than one month after the strike began. Moreover,
PAL admitted that it remedied the situation by employing
management pilots.[28] It could have hired new pilots as
well. Certainly, it could have implemented the cost-cutting
measures being discussed as a temporary measure to obviate the
adverse effects of the pilots strike. There was no reason to
drastically implement a permanent retrenchment scheme in
response to a temporarystrike, which could have ended at any
time, or remedied promptly, if management acted with
alacrity. Juxtaposed with its failure to implement the required
cost-cutting measures, the retrenchment scheme was a knee-jerk
solution to a temporary problem that beset PAL at the time.

Besides, we cannot simply allow PAL to conveniently blame


the striking pilots for causing the massive retrenchment of cabin
personnel. Using them as scapegoats to validate a comprehensive
retrenchment scheme of cabin personnel without observing the
requirements set by law is both unfair and underhanded. PAL
must still prove that it implemented cost-cutting measures to
obviate retrenchment, which under the law should be
the last resort. By PALs own admission, however, the cabin
personnel retrenchment scheme was one of the first remedies it
resorted to, even before it could complete the proposed
downsizing of its aircraft fleet. It admittedly dropped all plans of
implementing cost-cutting measures as soon as the pilots went on
strike, and right away it sent notices of termination to its cabin
personnel.[29] This knee-jerk reaction would explain why it had to
eventually recall and rehire some of the cabin attendants almost
immediately after it retrenched them, because the retrenchment
simply was not commensurate with the downsizing of aircraft fleet
size. This outcome only proves to show that the decision to
retrench came even before a final determination of how many
aircraft were needed to be retained or discarded, or even before
the rehabilitation plan could be approved. [30]

Again, it must be emphasized that in order for a


retrenchment scheme to be valid, allof the following elements
under Article 283 of the Labor Code must concur or be present,
to wit:

(1) That retrenchment is reasonably necessary and


likely to prevent business losses which, if already
incurred, are not merely de minimis, but substantial,
serious, actual and real, or if only expected, are
reasonably imminent as perceived objectively and in good
faith by the employer;

(2) That the employer served written notice both to


the employees and to the Department of Labor and
Employment at least one month prior to the intended
date of retrenchment;

(3) That the employer pays the retrenched


employees separation pay equivalent to one (1) month
pay or at least one-half () month pay for every year of
service, whichever is higher;

(4) That the employer exercises its prerogative to


retrench employees in good faith for the advancement of
its interest and not to defeat or circumvent the
employees right to security of tenure; and,

(5) That the employer uses fair and reasonable


criteria in ascertaining who would be dismissed and who
would be retained among the employees, such as status,
efficiency, seniority, physical fitness, age, and financial
hardship for certain workers.

In the absence of one element, the retrenchment scheme


becomes an irregular exercise of management prerogative. The
employers obligation to exhaust all other means to avoid further
losses without retrenching its employees is a component of the
first element as enumerated above. To impart operational
meaning to the constitutional policy of providing full protection to
labor, the employers prerogative to bring down labor costs by
retrenching must be exercised essentially as a measure of last
resort, after less drastic means have been tried and found
wanting.[31]

In the instant case, PAL admitted that since the pilots strike
allegedly created a situation of extreme urgency, it no longer
implemented cost-cutting measures and proceeded directly to
retrench. This being so, it clearly did not abide by all the
requirements under Article 283 of the Labor Code. At the time it
was implemented, the retrenchment scheme under scrutiny was
not triggered directly by any financial difficulty PAL was
experiencing at the time, nor borne of an actual implementation
of its proposed downsizing of aircraft. It was brought about by and
resorted to as an immediate reaction to a pilots strike which, in
strict point of law and as herein earlier discussed, may not be
considered as a valid reason to retrench, nor may it be used to
excuse PAL for its non-observance of the requirements of the law
on retrenchment under the Labor Code.

On the basis of the foregoing disquisition, we find no further


need to discuss the other arguments advanced by the parties in
their pleadings and during the oral arguments.

Therefore, this Court finds no reason to disturb its finding


that the retrenchment of the flight attendants was illegally
executed. As held in the Decision sought to be reconsidered, PAL
failed to observe the procedure and requirements for a valid
retrenchment. Assuming that PAL was indeed suffering financial
losses, the requisite proof therefor was not presented before the
NLRC which was the proper forum. More importantly, the manner
of the retrenchment was not in accordance with the procedure
required by law. Hence, the retrenchment of the flight attendants
amounted to illegal dismissal. Consequently, the flight attendants
affected are entitled to the reliefs provided by law, which include
backwages and reinstatement or separation pay, as the case may
be.

PAL begs the compassion of this Court and alleges that the
monetary award it stands to pay to the affected flight attendants
totals a whopping P2.3 billion, the payment of which will certainly
paralyze its operations and even lead to its untimely
demise. However, a careful review of the records of the case, as
well as the respective allegations of the parties, shows that
several of the crew members do not need to be paid full
backwages or separation pay. A substantial fraction of the 1,400
flight attendants have already been either recalled, reinstated or
relieved from the service. Still, some of them have reached the
age of compulsory retirement or even died. Likewise, a significant
portion of these retrenched flight attendants have already
received separation pay and signed quitclaim. All of these factors,
to the mind of the Court, will greatly reduce the quoted amount of
the money judgment that PAL will have to pay.

After finality of this case, the records will have to be


remanded to the Labor Arbiter who decided the case at the first
instance. There, the actual amount of PALs liability to each and
every flight attendant will be computed. Both parties will have a
chance to submit further proof and argument in support of their
respective proposed computations. For the guidance of the Labor
Arbiter as well as the parties, this Court lays down the following
yardsticks in the computation of the final amount of liability, in
order to avoid any protracted and heated debates which can
again lead to further delays in the final resolution of this case and
the full realization by the retrenched flight attendants of the
amounts necessary to compensate and indemnify them for the
wrongful retrenchment.

1. Flight attendants who have been re-employed without loss


of seniority rights shall be paid backwages but only up to the time
of their actual reinstatement.

2. Flight attendants who have been re-employed as new


hires shall be restored their seniority and other preferential
rights. However, their backwages shall be computed only up to
the date of actual re-hiring.

3. Flight attendants who have reached their compulsory age


of retirement shall receive backwages up to the date of their
retirement only. The same is true as regards the heirs of those
who have passed away.

4. Flight attendants who have not been re-employed by PAL,


including those who executed quitclaims and received separation
pay or financial assistance, shall be reinstated without loss of
seniority rights and paid full backwages. However, the amounts
they already received should be deducted from whatever
amounts are finally adjudged to them individually.

Four members of the Division voted to include a fifth (5 th)


criterion, namely that flight attendants who had obtained
substantially equivalent or even more lucrative employment
elsewhere in 1998 or thereafter are deemed to have severed their
employment with PAL.They shall be entitled to full backwages
from the date of their retrenchment only up to the date they
found employment elsewhere.

On a final note, this Court finds that the award of attorneys


fees equivalent to 10% of the total monetary award should be
tempered, considering the number of flight attendants who stand
to receive monetary awards and the totality of all amounts due to
them. To be sure, attorneys fees in labor cases are awarded
specifically in actions for recovery of wages or where an employee
was forced to litigate and thus incurred expenses to protect his
rights and interests. In such cases, a maximum of 10% of the total
monetary award is justifiable under Article 111 of the Labor Code,
Section 8, Rule VIII, Book III of its Implementing Rules and
paragraph 7, Article 2208 of the Civil Code.[32] The award of
attorneys fees is proper where there is a showing that the lawful
wages were not paid accordingly.[33]
x x x [T]here are two commonly accepted concepts of attorneys
fees, the so-called ordinary and extraordinary. In its ordinary concept, an
attorneys fee is the reasonable compensation paid to a lawyer by his
client for the legal services he has rendered to the latter. The basis of this
compensation is the fact of his employment by and his agreement with
the client. In its extraordinary concept, attorneys fees are deemed
indemnity for damages ordered by the court to be paid by the losing
party in a litigation. The instances where these may be awarded are those
enumerated in Article 2208 of the Civil Code, specifically par. 7 thereof
which pertains to actions for recovery of wages, and is payable not to the
lawyer but to the client, unless they have agreed that the award shall
pertain to the lawyer as additional compensation or as part thereof. The
extraordinary concept of attorneys fees is the one contemplated in Article
111 of the Labor Code, which provides:

Art. 111. Attorneys fees. (a) In cases of unlawful


withholding of wages, the culpable party may be assessed
attorneys fees equivalent to ten percent of the amount of
wages recovered x x x

The afore-quoted Article 111 is an exception to the declared


policy of strict construction in the awarding of attorneys
fees. Although an express finding of facts and law is still necessary to
prove the merit of the award, there need not be any showing that the
employer acted maliciously or in bad faith when it withheld the
wages. There need only be a showing that the lawful wages were not
paid accordingly, as in this case.

In carrying out and interpreting the Labor Codes provisions and


its implementing regulations, the employees welfare should be the
primordial and paramount consideration. This kind of interpretation
gives meaning and substance to the liberal and compassionate spirit of
the law as provided in Article 4 of the Labor Code which states that [a]ll
doubts in the implementation and interpretation of the provisions of [the
Labor] Code including its implementing rules and regulations, shall be
resolved in favor of labor, and Article 1702 of the Civil Code which
provides that [i]n case of doubt, all labor legislation and all labor
contracts shall be construed in favor of the safety and decent living for
the laborer. (Emphasis supplied)[34]

In the case of Concept Placement Resources, Inc. v. Funk,[35] this Court reduced the
amount of attorneys fees which it ruled to be iniquitous and unconscionable after
finding that the lawyer did not encounter difficulty in representing his client. It was
held:

We observe, however, that respondent did not


encounter difficulty in representing petitioner. The
complaint against it was dismissed with prejudice. All that
respondent did was to prepare the answer with
counterclaim and possibly petitioners position
paper.Considering respondents limited legal services and
the case involved is not complicated, the award
of P50,000.00 as attorneys fees is a bit excessive. In First
Metro Investment Corporation vs. Este del Sol Mountain
Reserve, Inc., we ruled that courts are empowered to
reduce the amount of attorneys fees if the same is
iniquitous or unconscionable. Under the circumstances
obtaining in this case, we consider the amount
of P20,000.00 reasonable.[36]

In the case at bar, we find that the flight attendants were


represented by respondent union which, in turn, engaged the
services of its own counsel. The flight attendants had a common
cause of action. While the work performed by respondents
counsel was by no means simple, seeing as it spanned the whole
litigation from the Labor Arbiter stage all the way to this Court,
nevertheless, the issues involved in this case are simple, and the
legal strategies, theories and arguments advanced were common
for all the affected crew members. Hence, it may not be
reasonable to award said counsel an amount equivalent to 10% of
all monetary awards to be received by each individual flight
attendant. Based on the length of time that this case has been
litigated, however, we find that the amount of P2,000,000.00 is
reasonable as attorneys fees. This amount should include all
expenses of litigation that were incurred by respondent union.

WHEREFORE, for lack of merit, the Motion for


Reconsideration is hereby DENIED with FINALITY. The assailed
Decision dated July 22, 2008 is AFFIRMED with
MODIFICATION in that the award of attorneys fees and expenses
of litigation is reduced to P2,000,000.00. The case is
hereby REMANDED to the Labor Arbiter solely for the purpose of
computing the exact amount of the award pursuant to the
guidelines herein stated.

No further pleadings will be entertained.

SO ORDERED.

7. Republic of the Philippines


Supreme Court
Manila

FIRST DIVISION
LAMBERT PAWNBROKERS G.R. No. 170464
and JEWELRY CORPORATION
and LAMBERT LIM,
Petitioners, Present:

CORONA, C. J., Chairperson,


BRION,
- versus - DEL CASTILLO,
ABAD, and
PEREZ, JJ.

HELEN BINAMIRA, Promulgated:


Respondent. July 12, 2010
x-----------------------------------------------------------------
--x

DECISION

DEL CASTILLO, J.:

It is fundamental that an employer is liable for illegal dismissal when it terminates the
services of the employee without just or authorized cause and without due process of law.

This Petition for Review on Certiorari[1] assails the Decision[2] dated August 4, 2005 of
the Court of Appeals (CA) in CA-G.R. CEB SP No. 00010, which reversed and set aside
the Resolutions dated July 30, 2003[3] and May 31, 2004[4] issued by the National Labor
Relations Commission (NLRC) in NLRC Case No. V-000454-00 (RAB VII-01-0003-
99-B).

Factual Antecedents

Petitioner Lambert Lim (Lim) is a Malaysian national operating various businesses in


Cebu and Bohol one of which is Lambert Pawnbrokers and Jewelry Corporation. Lim is
married to Rhodora Binamira, daughter of Atty. Boler Binamira, Sr., (Atty. Binamira),
who is also the counsel and father-in-law of respondent Helen Binamira (Helen).
Lambert Pawnbrokers and Jewelry Corporation Tagbilaran Branch hired Helen as an
appraiser in July 1995 and designated her as Vault Custodian in 1996.

On September 14, 1998, Helen received a letter[5] from Lim terminating her
employment effective that same day. Lim cited business losses necessitating
retrenchment as the reason for the termination.

Helen thus filed a case for illegal dismissal against petitioners docketed as NLRC
RAB-VII CASE NO. 01-0003-99-B.[6] In her Position Paper[7] Helen alleged that she was
dismissed without cause and the benefit of due process. She claimed that she was a mere
casualty of the war of attrition between Lim and the Binamira family. Moreover, she
claimed that there was no proof that the company was suffering from business losses.

In their Position Paper,[8] petitioners asserted that they had no choice but to
retrench respondent due to economic reverses. The corporation suffered a marked decline
in profits as well as substantial and persistent increase in losses. In its Statement of
Income and Expenses, its gross income for 1998 dropped from P1million
to P665,000.00.

Ruling of the Labor Arbiter

On November 26, 1999, Labor Arbiter Geoffrey P. Villahermosa rendered a


Decision[9]which held that Helen was not illegally dismissed but was validly retrenched.
The dispositive portion of the Labor Arbiters Decision reads:

WHEREFORE, all the foregoing premises being considered judgment


is hereby rendered declaring the respondent not guilty of illegally terminating
the complainant but is however directed to pay the complainant her
retrenchment benefit in the amount of Seven Thousand Five Hundred Pesos
(P7,500.00), considering that she was receiving a monthly salary of P5,000.00
and rendered service for three (3) years.

SO ORDERED.[10]

Ruling of the NLRC


On appeal, the NLRC reversed and set aside the Decision of the Labor Arbiter. It
observed that for retrenchment to be valid, a written notice shall be given to the employee
and to the Department of Labor and Employment (DOLE) at least one month prior to the
intended date thereof. Since none was given in this case, then the retrenchment of Helen
was not valid. The dispositive portion of the Decision[11] reads:

WHEREFORE, premises duly considered, the decision of the Labor


Arbiter dated 26 November 1999 is hereby REVERSED and SET ASIDE and
respondents are ordered to reinstate complainant Helen Binamira to her former
position without loss of seniority rights and with full backwages from the time
of her dismissal up to the promulgation of this decision.

Other claims are denied for lack of merit.

SO ORDERED.[12]
Petitioners filed a Motion for Reconsideration.[13] On July 30, 2003, the NLRC set
aside its Decision dated September 27, 2002 and entered a new one, the dispositive
portion of which reads:

WHEREFORE, the Decision of November [sic] 27, 2002 is hereby


SET ASIDE and a New One Entered declaring as valid the redundancy of the
position of the complainant. Accordingly respondent is hereby ordered to pay
the complainant her redundancy pay of one month for every year of service
and in lieu of notice, she should also be paid one (1) month salary as
indemnity.

SO ORDERED.[14]

In arriving at this conclusion, the NLRC opined that what was actually
implemented by the petitioners was not retrenchment due to serious business losses but
termination due to redundancy. The NLRC observed that the Tagbilaran operations was
overstaffed thus necessitating the termination of some employees. Moreover, the
redundancy program was not properly implemented because no written notices were
furnished the employee and the DOLE one month before the intended date of
termination.
The Motion for Reconsideration filed by Helen was denied by the NLRC through
its Resolution[15] dated May 31, 2004.

Ruling of the Court of Appeals

On petition for certiorari,[16] the CA found that both the Labor Arbiter and the
NLRC failed to consider substantial evidence showing that the exercise of management
prerogative, in this instance, was done in bad faith and in violation of the employees right
to due process. The CA ruled that there was no redundancy because the position of vault
custodian is a requisite, necessary and desirable position in the pawnshop business. There
was likewise no retrenchment because none of the conditions for retrenchment is present
in this case.

On August 4, 2005, the CA issued its Decision which provides:

WHEREFORE, the Resolution dated July 30, 2003 and May 31,
2004 issued by the National Labor Relations Commission in NLRC Case No.
V-000454-00 (RAB VII-01-0003-99-B), is hereby REVERSED and SET
ASIDE.

A new Decision is hereby entered declaring the dismissal of petitioner,


Helen B. Binamira, as illegal and directing the private respondents, Lamberts
Pawnbroker and Jewelry Corporation and Lambert Lim, jointly and solidarily,
to pay to the petitioner, the following monetary awards:

1. Backwages from the date of her illegal suspension and dismissal


until she is reinstated;

2. Considering that reinstatement is not feasible in view of the


strained relations between the employer and the employee, separation pay is
hereby decreed at the rate of one (1) months pay for every year of service;

3. Moral damages in the amount of Twenty Five Thousand Pesos


(P25,000.00);

4. Exemplary damages in the amount of Twenty Five Thousand


Pesos (P25,000.00);
5. Attorneys fees in the amount equivalent to Ten Percent (10%) of
the monetary awards herein above enumerated; and

6. Costs.

SO ORDERED.[17]

The Motion for Reconsideration filed by petitioners was denied by the CA through its
Resolution[18] dated November 7, 2005.

Issues

Hence, this petition raising the following issues:

I.
Whether the CA gravely erred in reversing, through the extra-ordinary remedy
of certiorari, the findings of facts of both the Labor Arbiter and the NLRC that
the dismissal of respondent was with valid and legal basis.

II.
Whether the CA gravely erred in reversing, through the extra-ordinary remedy
of certiorari, the unanimous findings of fact of both the Labor Arbiter and the
NLRC that the dismissal of respondent was not attended by bad faith or fraud.

III.
Whether the CA erred in reversing, through the extra-ordinary remedy of
certiorari, the findings of facts of both the Labor Arbiter and the NLRC based
merely on the allegations and evidences made and submitted by the former
counsel, adviser and business partner of petitioners.[19]

Petitioners Arguments

Petitioners assail the propriety of the reversal by the CA of the factual findings of both the
Labor Arbiter and the NLRC on a Petition for Certiorari under Rule 65. Petitioners posit
that a writ of certiorari is proper only to correct errors of jurisdiction or when there is
grave abuse of discretion tantamount to lack or excess of jurisdiction committed by the
labor tribunals. They asserted that where the issue or question involved affects the
wisdom or legal soundness of a decision, the same is beyond the province of a special
civil action for certiorari.

Petitioners further contend that the CA erred in ruling that the dismissal was not valid and
that it was done in bad faith.

Respondents Arguments

On the other hand, Helen avers that the contradictory findings of fact of the Labor
Arbiter and the NLRC justifies the CA to review the findings of fact of the labor
tribunals. She further submits that both labor tribunals failed to consider substantial
evidence showing that petitioners exercise of management prerogative was done in utter
bad faith and in violation of her right to due process.
Our Ruling

The petition is without merit.

The CA correctly reviewed the factual findings


of the labor tribunals.

As a rule, a petition for certiorari under Rule 65 is valid only when the question involved
is an error of jurisdiction, or when there is grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the court or tribunals exercising quasi-judicial
functions. Hence, courts exercising certiorari jurisdiction should refrain from reviewing
factual assessments of the respondent court or agency. Occasionally, however, they are
constrained to wade into factual matters when the evidence on record does not support
those factual findings; or when too much is concluded, inferred or deduced from the bare
or incomplete facts appearing on record,[20] as in the present case.

We find that the CA rightfully reviewed the correctness of the labor tribunals factual
findings not only because of the foregoing inadequacies, but also because the NLRC and
the Labor Arbiter came up with conflicting findings. The Labor Arbiter found that Helens
dismissal was valid on account of retrenchment due to economic reverses. On the other
hand, the NLRC originally ruled that Helens dismissal was illegal as none of the
requisites of a valid retrenchment was present.However, upon motion for reconsideration,
the NLRC changed its posture and ruled that the dismissal was valid on the ground of
redundancy due to over-hiring. Considering the diverse findings of the Labor Arbiter and
the NLRC, it behooved upon the CA in the exercise of its certiorari jurisdiction to
determine which findings are more in conformity with the evidentiary facts.

There was no valid dismissal based on

retrenchment.

Retrenchment is the termination of employment initiated by the employer through


no fault of and without prejudice to the employees. It is resorted to during periods of
business recession, industrial depression, seasonal fluctuations, or during lulls occasioned
by lack of orders, shortage of materials, conversion of the plant to a new production
program, or automation.[21] It is a management prerogative resorted to avoid or minimize
business losses, and is recognized by Article 283 of the Labor Code, which reads:

Art. 283. Closure of establishment and reduction of personnel.- The


employer may also terminate the employment of any employee due to x x x
retrenchment to prevent losses or the closing or cessation of operations of the
establishment x x x by serving a written notice on the worker and the DOLE at
least one month before the intended date thereof. x x x In case of retrenchment
to prevent losses, the separation pay shall be equivalent to one (1) month pay
or at least one-half month for every year of service whichever is higher. x x x
(Emphasis ours)

To effect a valid retrenchment, the following elements must be present: (1) the
retrenchment is reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious and real, or only if
expected, are reasonably imminent as perceived objectively and in good faith by the
employer; (2) the employer serves written notice both to the employee/s concerned and
the DOLE at least one month before the intended date of retrenchment; (3) the employer
pays the retrenched employee separation pay in an amount prescribed by the Code; (4)
the employer exercises its prerogative to retrench in good faith; and (5) the employer uses
fair and reasonable criteria in ascertaining who would be retrenched or retained.[22]
The losses must be supported by sufficient and convincing evidence. The normal method
of discharging this is by the submission of financial statements duly audited by
independent external auditors. In this case, however, the Statement of Income and
Expenses[23] for the year 1997-1998 submitted by the petitioners was prepared only
on January 12, 1999. Thus, it is highly improbable that the management already knew
on September 14, 1998, the date of Helens retrenchment, that they would be incurring
substantial losses.

At any rate, we perused over the financial statements submitted by petitioners and we
find no evidence at all that the company was suffering from business losses. In fact, in
their Position Paper, petitioners merely alleged a sharp drop in its income in 1998
from P1million to onlyP665,000.00. This is not the business losses contemplated by the
Labor Code that would justify a valid retrenchment. A mere decline in gross income
cannot in any manner be considered as serious business losses. It should be substantial,
sustained and real.

To make matters worse, there was also no showing that petitioners adopted other cost-
saving measures before resorting to retrenchment. They also did not use any fair and
reasonable criteria in ascertaining who would be retrenched. Finally, no written notices
were served on the employee and the DOLE prior to the implementation of the
retrenchment. Helen received her notice only on September 14, 1998, the day when her
termination would supposedly take effect. This is in clear violation of the Labor Code
provision which requires notice at least one month prior to the intended date of
termination.

There was no valid dismissal based on


redundancy.

Redundancy, on the other hand, exists when the service capability of the workforce 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 over hiring of
workers, decreased volume of business, dropping of a particular product line previously
manufactured by the company, or phasing out of a service activity previously undertaken
by the business. Under these conditions, the employer has no legal obligation to keep in
its payroll more employees than are necessary for the operation of its business.[24]

For the implementation of a redundancy program to be valid, the employer must comply
with the following requisites: (1) written notice served on both the employees and the
DOLE at least one month prior to the intended date of termination of employment; (2)
payment of separation pay equivalent to at least one month pay for every year of service;
(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.[25]

In this case, there is no proof that the essential requisites for a valid redundancy program
as a ground for the termination of the employment of respondent are present. There was
no showing that the function of respondent is superfluous or that the business was
suffering from a serious downturn that would warrant redundancy considering that such
serious business downturn was the ground cited by petitioners in the termination letter
sent to respondent.[26]

In fine, Helens dismissal is illegal for lack of just or authorized cause and failure to
observe due process of law.

Lambert Pawnbrokers and Jewelry


Corporation is solely liable for the illegal
dismissal of respondent.

As a general rule, only the employer-corporation, partnership or association or any other


entity, and not its officers, which may be held liable for illegal dismissal of employees or
for other wrongful acts. This is as it should be because a corporation is a juridical entity
with legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it.[27] A corporation, as a juridical entity, may act
only through its directors, officers and employees. Obligations incurred as a result of the
directors and officers acts as corporate agents, are not their personal liability but the direct
responsibility of the corporation they represent.[28] It is settled that in the absence of
malice and bad faith, a stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities. [29] They are only solidarily liable with the
corporation for the illegal termination of services of employees if they acted with malice
or bad faith. In Philippine American Life and General Insurance v. Gramaje,[30] bad faith
is defined as a state of mind affirmatively operating with furtive design or with some
motive of self-interest or ill will or for ulterior purpose. It implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

In the present case, malice or bad faith on the part of Lim as a corporate officer was not
sufficiently proven to justify a ruling holding him solidarily liable with the
corporation. The lack of authorized or just cause to terminate ones employment and the
failure to observe due process do not ipso facto mean that the corporate officer acted with
malice or bad faith. There must be independent proof of malice or bad faith which is
lacking in the present case.

There is no violation of attorney-client


relationship.

We find no merit in petitioners assertion that Atty. Binamira gravely breached and abused
the rule on privileged communication under the Rules of Court and the Code of
Professional Responsibility of Lawyers when he represented Helen in the present
case. Notably, this issue was never raised before the labor tribunals and was raised for the
first time only on appeal. Moreover, records show that although petitioners previously
employed Atty. Binamira to manage several businesses, there is no showing that they
likewise engaged his professional services as a lawyer.Likewise, at the time the instant
complaint was filed, Atty. Binamira was no longer under the employ of petitioners.

Respondent is entitled to the following relief


under the law.

An illegally dismissed employee is entitled to reinstatement without loss of seniority


rights and other privileges and to this full backwages, inclusive of allowances, and to her
other benefits or their monetary equivalent, computed from the time the compensation
was withheld up to the time of actual reinstatement. Where reinstatement is no longer
feasible, separation pay equivalent to at least one month salary or one month salary for
every year of service, whichever is higher, a fraction of at least six months being
considered as one whole year, should be awarded to respondent.
In this case, Helen is entitled to her full backwages from the time she was illegally
dismissed on September 14, 1998. Considering the strained relations between the parties,
reinstatement is no longer feasible. Consequently, Helen is also entitled to receive
separation pay equivalent to one month salary for every year of service.

A dismissal may be contrary to law but by itself alone, it does not establish bad faith to
entitle the dismissed employee to moral damages. The award of moral and exemplary
damages cannot be justified solely upon the premise that the employer dismissed his
employee without authorized cause and due process.[31]
Considering that there is no clear and convincing evidence showing that the termination
of Helens services had been carried out in an arbitrary, capricious and malicious manner,
the award of moral and exemplary damages is not warranted.

Consequently, the moral and exemplary damages awarded by the CA are hereby deleted.

However, the award of attorneys fee is warranted pursuant to Article 111 of the
Labor Code. Ten (10%) percent of the total award is usually the reasonable amount of
attorneys fees awarded. It is settled that where an employee was forced to litigate and,
thus, incur expenses to protect his rights and interest, the award of attorneys fees is
legally and morally justifiable.[32]

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision
of the Court of Appeals in CA-G.R. CEB SP No. 00010 dated August 4, 2005 finding the
dismissal of respondent Helen B. Binamira as illegal is AFFIRMED WITH
MODIFICATIONS that respondent is entitled to receive full backwages from the time
she was illegally dismissed on September 14, 1998 as well as to separation pay in lieu of
reinstatement equivalent to one month salary for every year of service. The amounts
awarded as moral damages and exemplary damages are deleted for lack of basis. Finally,
only petitioner Lambert Pawnbrokers and Jewelry Corporation is found liable for the
illegal dismissal of respondent.

SO ORDERED.

8. Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 172846 July 24, 2013

MANILA POLO CLUB EMPLOYEES' UNION (MPCEU) FUR-TUCP, Petitioner,


vs.
MANILA POLO CLUB, INC., Respondent.

DECISION

PERALTA, J.:

Challenged in this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure are the February 2, 2006 Decision1 and May 29, 2006 Resolution2 of the Court of Appeals
(CA) in CA-G.R. SP No. 73127 affirming in toto the August 28, 2002 Decision3 and September 13,
2002 Resolution4 of Voluntary Arbitrator Jesus B. Diamonon (VA Diamonon), which dismissed the
complaint for illegal retrenchment filed by petitioner.

The facts are uncomplicated.

Petitioner Manila Polo Club Employees Union (MPCEU), which is affiliated with the Federation of
Unions of Rizal (FUR)-TUCP, is a legitimate labor organization duly registered with the Department
of Labor and Employment (DOLE), while respondent Manila Polo Club, Inc. is a non-profit and
proprietary membership organization which provides recreation and sports facilities to its proprietary
members, their dependents, and guests.

On December 13, 2001, the Board of Directors of respondent unanimously resolved to completely
terminate the entire operations of its Food and Beverage (F & B) outlets, except the Last Chukker,
and award its operations to a qualified restaurant operator or caterer.5 Cited as reasons were as
follows:

WHEREAS, the Food and Beverage (F & B) operations has resulted in yearly losses to the Club in
six (6) out of the last eight (8) years with FY 2001 suffering the largest loss at P10,647,981 and that
this loss is due mainly to the exceedingly high manpower cost and other management inefficiencies;

WHEREAS, due to the substantial losses incurred by the Club in both F&B operations and in its
recurring operations, the Board and management had instituted cost and loss-cutting measures;

WHEREAS, the Board recognized the non-viability of the operations of the Food and Beverage
Department and that its continued operations by the Club will result in substantial losses that will
seriously impair the Clubs financial health and membership satisfaction;

WHEREAS, the Board recognized the urgent need to act and act decisively and eliminate factors
contributing to substantial losses in the operations of the Club, more particularly the food and
beverage operations. Thus, F & B operations are to cease wholly and totally, subject to observance
and requirements of the law and other rules. x x x6

Subsequently, on March 22, 2002, respondents Board7 approved the implementation of the
retrenchment program of employees who are directly and indirectly involved with the operations of
the F & B outlets and authorized then General Manager Philippe D. Bartholomi to pay the
employees separation pay in accordance with the following scheme:
Length of Service (# Years) Separation Pay (Php)
2 years of service and below 1 month pay
More than 2 years to 9 years of service 1/2 month pay for every year of service
At least 10 years of service 1 month pay for every year of service
At least 15 years of service 1.25 month(s) pay for every year of
At least 20 years of service service
1.5 month(s) pay for every year of
service8

On even date, respondent sent notices to the petitioner and the affected employees (via registered
mail) as well as submitted an Establishment Termination Report to the DOLE. 9 Respondent informed,
among others, of the retrenchment of 123 employees10 in the F & B Division and those whose
functions are related to its operations; the discontinuance of the F & B operations effective March 25,
2002; the termination of the employment relationship on April 30, 2002; and, the continued payment
of the employees salaries despite the directive not to report to work effective immediately.

Unaware yet of the termination notice sent to them by respondent, the affected employees of
petitioner were surprised when they were prevented from entering the Club premises as they
reported for work on March 25, 2002. They later learned that the F & B operations of respondent had
been awarded to Makati Skyline, Inc. effective that day. Treating the incident as respondents way of
terminating union members under the pretense of retrenchment to prevent losses, petitioner filed a
Step II grievance and requested for an immediate meeting with the Management. 11 When the
Management refused, petitioner filed a Notice of Strike before the National Conciliation and
Mediation Board (NCMB) for illegal dismissal, violation/non-implementation of the Collective
Bargaining Agreement (CBA), union busting, and other unfair labor practices (ULP). 12 In view of the
position of respondent not to refer the issues to a voluntary arbitrator or to the Secretary of DOLE,
petitioner withdrew the notice on April 9, 2002 and resolved to exhaust all remedies at the enterprise
level.13

Later, on May 10, 2002, petitioner again filed a Notice of Strike, based on the same grounds, when it
sensed the brewing tension brought about by the CBA negotiation that was in the meantime taking
place.14 A month after, however, the parties agreed, among others, to maintain the existing provisions
of the CBA (except those pertaining to wage increases and signing bonus) and to refer to the
Voluntary Arbitrator the issue of retrenchment of 117 union members, with the qualification that "the
retrenched employees subject of the VA will receive separation package without executing quitclaim
and release, and without prejudice to the decision of the voluntary arbitrator." 15

On June 17, 2002, the parties agreed to submit before VA Diamonon the lone issue of whether the
retrenchment of the 117 union members is legal.16 Finding the pleadings submitted and the evidence
adduced by the parties sufficient to arrive at a judicious determination of the issue raised, VA
Diamonon resolved the case without the need of further hearings.

On August 28, 2002, VA Diamonon dismissed petitioners complaint for lack of merit, but without
prejudice to the payment of separation pay to the affected employees. In supporting his factual
findings, the cases of Catatista v. NLRC,17 Dangan v. NLRC (2nd Div.), et al.,18 Phil. Tobacco Flue-
Curing & Redrying Corp. v. NLRC,19 Special Events & Central Shipping Office Workers Union v. San
Miguel Corp,20 and San Miguel Corporation v. Ubaldo21were relied upon. Petitioners motion for
reconsideration was likewise denied.
Upon an exhaustive examination of the evidence presented by the parties, the CA affirmed in toto
the VAs Decision and denied the substantive aspects of petitioners motion for reconsideration;
hence, this petition.

We deny.

It is apparent from the records that this case involves a closure of business undertaking, not
retrenchment. The legal requirements and consequences of these two authorized causes in the
termination of employment are discernible. We distinguished, in Alabang Country Club Inc. v.
NLRC:22

x x x 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 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.

While the Labor Code provides for the payment of separation package in case of retrenchment to
prevent losses, it does not obligate the employer for the payment thereof if there is closure of
business due to serious losses.23

Likewise, the case of Eastridge Golf Club, Inc. v. Eastridge Golf Club, Inc., Labor-Union,
Super24 stressed the differences:

Retrenchment or lay-off is the termination of employment initiated by the employer, through no fault
of the employees and without prejudice to the latter, during periods of business recession, industrial
depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of
materials, conversion of the plant for a new production program or the introduction of new methods
or more efficient machinery, or of automation. It is an exercise of management prerogative which the
Court upholds if compliant with certain substantive and procedural requirements, namely:

1. That retrenchment is necessary to prevent losses and it is proven, by sufficient and


convincing evidence such as the employer's financial statements audited by an independent
and credible external auditor, that such losses are substantial and not merely flimsy and
actual or reasonably imminent; and that retrenchment is the only effective measure to
prevent such imminent losses;

2. That written notice is served on to the employees and the DOLE at least one (1) month
prior to the intended date of retrenchment; and
3. That the retrenched employees receive separation pay equivalent to one (1) month pay or
at least one-half (1/2) month pay for every year of service, whichever is higher.

The employer must prove compliance with all the foregoing requirements. Failure to prove the first
requirement will render the retrenchment illegal and make the employer liable for the reinstatement
of its employees and payment of full backwages. However, were the retrenchment undertaken by the
employer is bona fide, the same will not be invalidated by the latter's failure to serve prior notice on
the employees and the DOLE; the employer will only be liable in nominal damages, the reasonable
rate of which the Court En Banc has set at P50,000.00 for each employee.

Closure or cessation of business is the complete or partial cessation of the operations and/or shut-
down of the establishment of the employer. It is carried out to either stave off the financial ruin or
promote the business interest of the employer.

Unlike retrenchment, closure or cessation of business, as an authorized cause of termination of


employment, need not depend for validity on evidence of actual or imminent reversal of the
employer's fortune. Article 283 authorizes termination of employment due to business closure,
regardless of the underlying reasons and motivations therefor, be it financial losses or not. 25

To be precise, closure or cessation of an employers business operations, whether in whole or in


part, is governed by Article 283 of the Labor Code, as amended. It states:

Article 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 one (1)
month before the intended date thereof. In case of termination due to the installation of labor-saving
devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent
to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever
is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or financial reverses,
the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year.26

In Industrial Timber Corporation v. Ababon,27 the Court explained the above-quoted provision in this
wise:

A reading of the foregoing law shows that a partial or total closure or cessation of operations of
establishment or undertaking may either be due to serious business losses or financial reverses or
otherwise. Under the first kind, the employer must sufficiently and convincingly prove its allegation of
substantial losses, while under the second kind, the employer can lawfully close shop anytime as
long as cessation of or withdrawal from business operations was bona fide in character and not
impelled by a motive to defeat or circumvent the tenurial rights of employees, and as long as he
pays his employees their termination pay in the amount corresponding to their length of service. Just
as no law forces anyone to go into business, no law can compel anybody to continue the same. It
would be stretching the intent and spirit of the law if a court interferes with management's
prerogative to close or cease its business operations just because the business is not suffering from
any loss or because of the desire to provide the workers continued employment.
In sum, under Article 283 of the Labor Code, three requirements are necessary for a valid cessation
of business operations: (a) service of a written notice to the employees and to the DOLE at least one
month before the intended date thereof; (b) the cessation of business must be bona fide in
character; and (c) payment to the employees of termination pay amounting to one month pay or at
least one-half month pay for every year of service, whichever is higher.28

Our pronouncements in Alabang Country Club Inc. and Eastridge Golf Club, Inc. are significant in
the resolution of the instant case; thus, their discussion is apposite.

Alabang Country Club Inc. (ACCI) is a stock and non-profit corporation that operates and maintains
a country club and various sports and recreational facilities for the exclusive use of its members.
Realizing that it was no longer profitable for ACCI to maintain its own F & B Department, the
Management decided to cease the operation of said department and to open the same to a
contractor such as a concessionaire. On December 1, 1994, ACCI entered into an agreement with
La Tasca Restaurant Inc. for the operation of the F & B Department. Also, on even date, ACCI sent
to its employees in the F & B Department individual letters informing them that their services would
be terminated effective January 1, 1995; that they would be paid separation pay equivalent to 125%
percent of their monthly salary for every year of service; that La Tasca agreed to absorb all affected
employees immediately with the status of regular employees without need of undergoing a
probationary period; and, that all affected employees would receive the same salary they were
receiving from ACCI at the time of their termination. On December 11, 1994, the Union filed before
the NLRC a complaint for illegal dismissal, ULP, regularization, and damages with prayer for the
issuance of a writ of preliminary injunction. While the Labor Arbiter (LA) dismissed the complaint and
the National Labor Relations Commission (NLRC) dismissed the appeal, the CA found in favor of the
complainants. It ruled that ACCI failed to prove by sufficient and competent evidence that its alleged
losses were substantial, continuing and without any immediate prospect of abating. This Court,
however, granted ACCIs petition on the view that the case did not involve retrenchment but closure
of a business undertaking. Despite ACCIs failure to prove that the closure of its F & B Department
was due to substantial losses, We still opined that the complainants were legally dismissed on the
ground of closure or cessation of an undertaking not due to serious business losses or financial
reverses, which is allowed under Article 283 of the Labor Code, as amended. It was held:

The closure of operation of an establishment or undertaking not due to serious business losses or
financial reverses includes both the complete cessation of operations and the cessation of only part
of a company's activities.

For any bona fide reason, an employer can lawfully close shop anytime. Just as no law forces
anyone to go into business, no law can compel anybody to continue the same. It would be stretching
the intent and spirit of the law if a court interferes with management's prerogative to close or cease
its business operations just because the business is not suffering from any loss or because of the
desire to provide the workers continued employment.

While petitioner did not sufficiently establish substantial losses to justify closure of its F & B
Department on this ground, there is basis for its claim that the continued maintenance of said
department had become more expensive through the years. An evaluation of the financial figures
appearing in the audited financial statements prepared by the SGV & Co. shows that ninety-one to
ninety-six (91%-96%) percent of the actual revenues earned by the F & B Department comprised the
costs and expenses in maintaining the department. Petitioner's decision to place its F & B operations
under a concessionaire must then be respected, absent a showing of bad faith on its part.

In fine, management's exercise of its prerogative to close a section, branch, department, plant or
shop will be upheld as long as it is done in good faith to advance the employer's interest and not for
the purpose of defeating or circumventing the rights of employees under the law or a valid
agreement.29

On the other hand, in Eastridge Golf Club, Inc., complainants were kitchen staff of the Golf Clubs F
& B Department. They were terminated from employment on the ground that the operations of the F
& B Department had been turned over to a concessionaire as a result of alleged company
reorganization/downsizing. Claiming that their dismissal was not based on any of the causes allowed
by law and that it was made without due process, the employees filed with the NLRC a complaint for
illegal dismissal, ULP, and payment of 13th month pay. To controvert the GolfClub's claim that the
partial cessation of operations was bona fide, complainants presented documentary evidence that
there was no real transfer of operations and that the Golf Club remained to be the real employer of
all the F & B staff. Their documentary evidence consisted of payslips, monthly payroll register,
Philippine Health Insurance Corporation Contribution Payment Return, Employer Quarterly
Remittance Report, and the Social Security System Contribution Payment Return. Both the CA and
the LA found that the cessation of the Golf Club's F & B operations was a mere subterfuge, because
the latter continued to act as the real employer by paying for the salaries and insurance contributions
of the employees of the F & B Department even after the concessionaire took over its operations.
The NLRC saw otherwise, opining that the evidence did not establish that the cessation of
petitioner's F & B operations was in bad faith. When the matter was elevated to this Court, We
agreed with the Golf Club that the CA erred when it declared that, for lack of evidence of financial
losses, the cessation of its F & B operations was not a valid cause to terminate the employment of
complainants. The Court held that the Golf Club need not present evidence of financial losses to
justify such business decision, since the cause invoked in the termination of complainants
employment was the cessation of its F & B operations. Nonetheless, it was ruled that the CA
correctly held that the cessation of petitioner's F & B operations and the transfer to the
concessionaire were merely simulated, and that the employees dismissal by reason thereof was
illegal. We cited similar cases, thus:

In Me-Shurn Corporation v. Me-Shurn Workers Union-FSM, the corporation shut down its operations
allegedly due to financial losses and paid its workers separation benefits. Yet, barely one month after
the shutdown, the corporation resumed operations. In light of such evidence of resumption of
operations, the Court held that the earlier shutdown of the corporation was in bad faith.

With a similar outcome was the closure of the brokerage department of the corporation in Danzas
Intercontinental, Inc. v. Daguman. In view of evidence consisting of a mere letter written by the
corporation to its clientele that its brokerage department was still operating but with a new staff, the
Court declared the earlier closure of the corporation's brokerage department not bona fide and
ordered the reinstatement of its former staff, despite the latter having signed quitclaims and release
forms acknowledging payment of separation benefits.

The closure of a high school department in St. John Colleges, Inc. v. St. John Academy Faculty and
Employees Union was likewise annulled upon evidence that barely one year after the announced
closure, the school reopened its high school department. The Court found the closure of the high
school in bad faith notwithstanding payment to the affected teachers of separation benefits.

In Capitol Medical Center, Inc. v. Meris, the hospital justified the closure of a unit and the dismissal of
its head doctor by claiming that there was a dwindling demand for the unit's services. However, upon
examination of the records, the Court found that service demand had in fact been rising, thus
negating the very reason proffered by the hospital in closing down the unit. On that score, the Court
declared the action of the hospital in bad faith.30

Based on the above and cases31 of similar import, We summarize:


1. Closure or cessation of operations of establishment or undertaking may either be partial or
total.

2. Closure or cessation of operations of establishment or undertaking may or may not be due


to serious business losses or financial reverses. However, in both instances, proof must be
shown that: (1) it was done in good faith to advance the employer's interest and not for the
purpose of defeating or circumventing the rights of employees under the law or a valid
agreement; and (2) a written notice on the affected employees and the DOLE is served at
least one month before the intended date of termination of employment.

3. The employer can lawfully close shop even if not due to serious business losses or
financial reverses but separation pay, which is equivalent to at least one month pay as
provided for by Article 283 of the Labor Code, as amended, must be given to all the affected
employees.

4. If the closure or cessation of operations of establishment or undertaking is due to serious


business losses or financial reverses, the employer must prove such allegation in order to
avoid the payment of separation pay. Otherwise, the affected employees are entitled to
separation pay.

5. The burden of proving compliance with all the above-stated falls upon the employer.

Guided by the foregoing, the Court shall refuse to dwell on the issue of whether respondent was in
sound financial condition when it resolved to stop the operations of its F & B Department. As stated,
an employer can lawfully close shop anytime even if not due to serious business losses or financial
reverses. Furthermore, the issue would entail an inquiry into the factual veracity of the evidence
presented by the parties, the determination of which is not Our statutory function. Indeed, petitioner
is asking Us to sift through the evidence on record and pass upon whether respondent had, in truth
and in fact, suffered from serious business losses or financial reverses.

That task, however, would be contrary to the well-settled principle that this Court is not a trier of
facts, and cannot re-examine and re-evaluate the probative value of the evidence presented to the
VA and the CA, which formed the basis of the questioned decision.

Respondent correctly asserted in its Memorandum that the instant case is similar to Alabang Country
Club Inc. When it decided to cease operating its F & B Department and open the same to a
1wphi1

concessionaire, respondent did not reduce the number of personnel assigned thereat; instead, it
terminated the employment of all personnel assigned at the department and those who are directly
and indirectly involved in its operations. The closure of the F & B Department was due to legitimate
business considerations, a resolution which the Court has no business interfering with. We have
already resolved that the characterization of the employee's service as no longer necessary or
sustainable, and therefore, properly terminable, is an exercise of business judgment on the part of
the employer; the determination of the continuing necessity of a particular officer or position in a
business corporation is a management prerogative, and the courts will not interfere with the exercise
of such so long as no abuse of discretion or arbitrary or malicious action on the part of the employer
is shown.32 As recognized by both the VA and the CA, evident proofs of respondents good faith to
arrest the losses which the F & B Department had been incurring since 1994 are: engagement of an
independent consulting firm to conduct manpower audit/organizational development; institution of
cost-saving programs, termination of the services of probationary employees, substantial reduction
of a number of agency staff and personnel, and the retrenchment of eight (8) managers. After the
effective date of the termination of employment relation, respondent even went on to aid the
displaced employees in finding gainful employment by soliciting the assistance of respondents
members, Makati Skyline, Human Resource Managers of some companies, and the Association of
Human Resource Managers.33These were not refuted by petitioner. Only that, it perceives them as
inadequate and insists that the operational losses are very well covered by the other income of
respondent and that less drastic measures could have been resorted to, like increasing the
membership dues and the prices of food and beverage. Yet the wisdom or soundness of the
Management decision is not subject to discretionary review of the Court for, even the VA admitted, it
enjoys a pre-eminent role and is presumed to possess all relevant and necessary information to
guide its business decisions and actions.

Further, unlike in the case of Eastridge Golf Club, Inc., there is nothing on record to indicate that the
closure of respondents F & B Department was made in bad faith. It was not motivated by any
specific and clearly determinable union activity of the employees; rather, it was truly dictated by
economic necessity. Despite petitioners allegations, no convincing and credible proofs were
presented to establish the claim that such closure qualifies as an act of union-busting and ULP. No
evidence was shown that the closure is stirred not by a desire to avoid further losses but to
discourage the workers from organizing themselves into a union for more effective negotiations with
the management.34 Allegations are not proofs and it is incumbent upon petitioner to substantiate the
same. On the contrary, respondent continued to negotiate with petitioner even after April 30, 2002. In
fact, a Memorandum of Agreement was executed before the NCMB between petitioner and
respondent on June 10, 2002 whereby the parties agreed, among others, to maintain the existing
provisions of the CBA, except those pertaining to wage increases and signing bonus. 35

Finally, even if the members of petitioner are not considered as illegally dismissed, they are entitled
to separation pay pursuant to Article 283 of the Labor Code, as amended. Per respondent's
information, however, the separation packages of all 117 union members were already paid during
the pendency of the case.36 Petitioner did not oppose this representation;

hence, We shall treat the fact of receipt of separation pay as having been voluntarily entered into,
with a full understanding of its import, and the amount received as credible and reasonable
settlement that should be respected by the Court as the law between the parties are valid and
binding between them.

WHEREFORE, the foregoing considered, the instant Petition is DENIED. The February 2, 2006
Decision and May 29, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 73127 sustaining
in toto the August 28, 2002 Decision and September 13, 2002 Resolution of Voluntary

Arbitrator Jesus B. Diamonon, which dismissed petitioners complaint for illegal retrenchment, are
AFFIRMED.

SO ORDERED.

9. THIRD DIVISION

[G.R. No. 157611. August 9, 2005]

ALABANG COUNTRY CLUB INC., ROBERTO ANONAS, CATALINO


SANTOS, ERNESTO CAYETANO and ROGELIO
MANALO, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, ALABANG COUNTRY CLUB INDEPENDENT
EMPLOYEES UNION, MARILOU ABADIANO, ERNESTO BANAL,
BENEDICTO CATALAN, ABNER CAVESTANY, ROMULO
DALAYGON, ELENA DELA CRUZ, RONALDO IBARRA, MA.
ISABELITA PIZARRO, FELIX ARISME, EDILBERTO BANTILLES,
BERNARDO DE CHAVEZ, MEDARDO ENRIQUEZ, ERNESTO
DEREZA, DOMINGO IBALLAR, GINA DUMALAON, JOSE
MASAGCA, MARIO FRANCHE, SHARON DANTES-PLATERO,
ANNALISSA GARCIA, JULIET TENORIO, ROLANDO
GANNABAN, EMERSON ARGOSO, ANICETO GLEAN, FELIPE
CADENA, PERLITA HENARES, JOSEPH TAYONG, JAIME
HIDALGO, ROSANNA ROSARIAL, LEODEGARIO HUMIRANG,
EFREN ABIADA, FILIPINO DIZON, ELPIDIO IBUOS, JR.,
ROBERTO LANON, ARNOLD LAYUG, JOEL LINAOGO,
EDUARDO LLENAS, JOSELITO LORINO, FERDINAND
MABITASAN, GEORGE MARASIGAN, PERLA MARGES,
CYNTHIA MATHAY, WERLITO NAVARRO, CRISTINA OLEGARIO,
CRISTINA OMAYAO, NENEN ORTIGOZA, ELEONOR PALIMA,
MARIA PANTALITA, EDUARDO PERALTA, RICHARD PEREZ,
JOVITO PIDLAOAN, PACITA PILONGO, BENJAMIN PINTOR,
NARCISO QUIZANA, AGRIFINO REYES, DENNIS REYES,
EDUARDO RUBINA, ARISTEO SANTOS, ROBERTO SOLANTE,
ARMANDO SUAREZ, DOLORES VALIENTE, REMEDIOS UMALI,
INGERSOL POMIDA, and FLORO MACABIT, respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner Alabang Country Club Inc. (ACCI), a stock, non-profit


corporation that operates and maintains a country club and various sports and
recreational facilities for the exclusive use of its members, seeks to set aside
the appellate courts Decision of August 14, 2002 as well as its Resolution of
[1] [2]

March 6, 2003 denying petitioners motion for reconsideration. The appellate


court reversed and set aside the National Labor Relation Commissions
(NLRC) Decision of March 15, 2002, and ordered the reinstatement of herein
[3]

sixty-three (63) respondents-members of a duly registered labor organization -


Alabang Country Club Independent Employees Union (the Union), without
loss of seniority rights and other privileges, and the payment of their full
backwages including attorneys fees.

Sometime in 1993, Francisco Ferrer, then President of ACCI, requested its


Internal Auditor, Irene Campos-Ugalde, to conduct a study on the profitability
of ACCIs Food and Beverage Department (F & B Department). Ugalde made [4]

use of the audited figures in the financial statements prepared by Sycip


[5]

Gorres Velayo & Co. (SGV&Co.) for the years 1989-1993 in reflecting the total
revenue and costs and expenses of the F & B Department. However, while
SGV&Co. deducted the entire undistributed operating costs and expenses
consisting of general and maintenance costs from the total income of ACCI,
Ugalde allocated a percentage of these expenses and charged the same
[6]

against the total revenue of the F & B Department. Consequently, her report
[7]

showed that from1989 to 1993, F & B Department had been incurring


substantial losses in the aggregate amount of Eight Million Seven Hundred
Twenty-Seven Thousand One Hundred Thirty-Five Pesos (P8,727,135.00).
Her report further showed that:
[8]

1. It was only in 1993 when the losses dropped as compared to the 1992 figures.
This was the result of an effective joint management employee undertaking in
1993 towards cost-cutting and efficient resource administration; and

2. The endeavor succeeded only in reducing losses but not totally raising the
figures upward to at least a break-even level;

3. ACCI can generate income from F & B Department if its operation will be
transferred to a concessionaire;

4. Actual breakages alone w[ere] approximately P298,000 [from] January 1,


1994 to May 15, 1994 or an average of P60,000 a month. [9]

Realizing that it was no longer profitable for ACCI to maintain its own F &
B Department, the management decided to cease from operating the
department and to open the same to a contractor, such as a concessionaire,
which would be willing to operate its own food and beverage business within
the club. [10]
ACCIs Labor Committee Chairman Catalino Santos thus met on
November 11, 1994 with the Union officers and members and discussed the
financial standing of the F & B Department. [11]

ACCI subsequently entered on December 1, 1994 into an agreement with


La Tasca Restaurant Inc. (La Tasca), for it to operate the F & B Department.
Under the agreement, La Tasca would pay ACCI fifteen (15%) percent of its
[12]

gross sales net of sales tax plus the expenses for light and water in the
amount of five (5%) percent of monthly gross sales net of sales tax. [13]

Also on December 1, 1994, ACCI sent its F & B Department employees


individual letters informing them that their services were being terminated
effective January 1, 1995; and that they would be paid separation pay
[14]

equivalent to one hundred twenty five (125%) percent of their monthly salary
for every year of service. ACCI also informed them that La Tasca agreed to
[15]

absorb all affected employees immediately with the status of regular


employees without need of undergoing a probationary period, and that all
affected employees would receive the same salary they were receiving from
ACCI at the time of their termination.[16]

On December 11, 1994, the Union, with the authority of individual


respondents, filed before the NLRC a complaint for illegal dismissal, unfair
labor practice, regularization and damages with prayer for the issuance of a
writ of preliminary injunction against ACCI. [17]

The Union then filed a notice of strike. ACCI, finding that the
[18]

requirements under the Labor Code had not been complied with, suspended
on December 28, 1994 those who participated in the strike. [19]

The Union averred, however, that no strike was actually held and that it
was caught by surprise when, upon reporting for work on December 28, 1994,
employees of La Tasca brought their equipment and took over the posts held
by most of [the individual respondents]. [20]

As scheduled, ACCI ceased operating its F & B Department by January 1,


1995 as La Tasca began operating its own F & B business at the Alabang
Country Club.
Meanwhile, in the proceedings before the Labor Arbiter, respondent union
and individual respondents informed that the F & B Division had been
reporting gaining profits as shown by the Statement of Income and Deficit
prepared by SGV&Co. They thus argued that compliance with the standards
[21]

for losses in Lopez Sugar Corporation v. Federation of Free Workers to [22]

justify their retrenchment were not met by ACCI.

ACCI averred, however, that it may exercise management prerogatives to


adopt a cost-saving and cost-consciousness program to improve efficiency in
its operations, prevent losses, and concentrate on core businesses, and to
[23] [24]

lay-off workers and contract out their jobs.


[25]

During the pendency of the complaint for illegal dismissal before the Labor
Arbiter, forty-seven (47) of the individual respondents accepted separation
benefits from ACCI at 125% of their monthly salary for every year of service,
on account of which they executed Waivers and Quitclaims in favor of ACCI:
Marilou Abadiano, Ernesto Banal, Benedicto Catalan, Abner Cavestany,
Romulo Dalaygon, Elena dela Cruz, Ernesto Dereza, Gina Dumalaon, Mario
Franche, Annalissa Garcia, Rolando Gannaban, Aniceto Glean, Perlita
Henares, Jaime Hidalgo, Leodegario Humirang, Elpidio Ibuos, Jr., Roberto
Lanon, Arnold Layug, Joel Linaogo, Eduardo Llenas, Joselito Lorino,
Ferdinand Mabitasan, George Marasigan, Perla Marges, Cynthis Mathay,
Werlito Navarro, Cristina Olegario, Cristina Omayao, Nenen Ortigoza, Eleonor
Palima, Maria Pantalita, Eduardo Peralta, Richard Perez, Jovito Pidlaoan,
Pacita Pilongo, Benjamin Pintor, Narciso Quizana, Agrifino Reyes, Dennis
Reyes, Eduardo Rubina, Aristeo Santos, Roberto Solante, Armando Suarez,
Dolores Valiente, Remedios Umali, Ingersol Pomida and Floro Macabit. [26]

By decision of April 30, 1999, the Labor Arbiter dismissed the complaint for
illegal dismissal on the ground that a business entity has the right to reduce its
work force if necessitated by compelling economic factors which endanger its
existence or stability. The Labor Arbiter in fact found that the study made by
[27]

Ugalde which was a more detailed version of the financial statements


prepared by SGV&Co. clearly established that the F & B Department was
incurring losses, thus justifying ACCI to exercise its inherent prerogative to
retrench its workers to prevent further losses. [28]
On appeal, the NLRC acknowledged the right of ACCI to regulate,
according to its own discretion and judgment, all aspects of employment
including the lay-off of workers because of losses in the operation of its
business, lack of work and considerable reduction in the volume of business.
It thus dismissed the appeal.
[29]

Private respondents motion for reconsideration of the NLRCs dismissal of


the appeal was denied by Resolution of April 28, 2000.
[30]

Private respondents thereupon brought their case, via petition


for certiorari, before the Court of Appeals, alleging that the Labor Arbiter and
[31]

the NLRC committed grave abuse of discretion and utter ignorance of the law
in completely disregarding the audited financial statements prepared by
SGV&Co. showing that ACCIs F & B Department had been consistently
earning profits. [32]

During the pendency of the petition before the appellate court, fifteen (15)
of the individual respondents received their separation package equivalent to
125% of their monthly salary for every year of service, on account of which
they executed Waivers and Quitclaims in favor of ACCI: Ronaldo Ibarra, Ma.
Isabelita Pizarro, Felix Arisme, Edilberto Bantilles, Bernardo de Chavez,
Medardo Enriquez, Domingo Iballar, Jose Masagca, Sharon Dantes-Platero,
Juliet Tenorio, Emerson Argoso, Felipe Cadena, Joseph Tayong, Rosanna
Rosarial, and Efren Abadia. [33]

By decision of August 14, 2002, the Court of Appeals reversed those of the
NLRC and the Labor Arbiter. It held that due to ACCIs failure to prove by
sufficient and competent evidence that its alleged losses were substantial,
continuing and without any immediate prospect of abating them, the bona fide
nature of the retrenchment appeared doubtful. Passing on ACCIs financial
[34]

status, the appellate court, citing Bogo-Medellin Sugarcane Planters


Association, Inc. v. NLRC and Dela Salle University v. Dela Salle University
[35]

Employees Association, held that financial statements audited by


[36]

independent external auditors, and not a mere study report of an internal


auditor of a company, constitute the normal method of proof of the profit and
loss of the company. [37]
ACCIs motion for reconsideration having been denied by the appellate
[38]

court by Resolution of March 6, 2003, it comes before this Court via petition
[39]

for review on certiorari, advancing the following arguments:

A.

CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE, THE COURT OF


APPEALS GRAVELY DISREGARDED THE CLUBS RIGHT TO TERMINATE ITS
EMPLOYEES FOR AN AUTHORIZED CAUSE, PARTICULARLY TO SECURE
ITS CONTINUED VIABILITY AND EXISTENCE.

B.

CONSISTENT WITH ESTABLISHED LAW AND JURISPRUDENCE, INASMUCH


AS BOTH FINDINGS OF PUBLIC RESPONDENT NLRC AND THE LABOR
ARBITER A QUO THAT THE CLUBS F & B EMPLOYEES WERE VALIDLY
TERMINATED, ARE SUPPORTED BY AUDITED FINANCIAL STATEMENTS
AND OTHER SUBSTANTIAL EVIDENCE, THE PETITION BELOW SHOULD
HAVE BEEN DISMISSED.

C.

THE ORDER FOR REINSTATEMENT, PAYMENT OF BACKWAGES, AND THE


AWARD OF ATTORNEYS FEES ARE NOT PROPER SINCE RESPONDENTS
WERE TERMINATED FOR AN AUTHORIZED CAUSE AND AFTER
COMPLIANCE WITH DUE PROCESS.

D.

THE COURT OF APPEALS SHOULD HAVE RECOGNIZED THAT SIXTY-TWO


OUT OF THE SIXTY THREE PETITIONERS INDICATED IN THE PETITION
BELOW HAVE ALREADY ACKNOWLEDGED RECEIPT OF THE MONETARY
AWARD AFFIRMED IN THE COMISSIONS DECISION DATED 15 MARCH 2000
IN FULL SATISFACTION THEREOF. [40]

The petition is impressed with merit.


ACCI, hereinafter referred to as petitioner, justifies the closure of its F & B
Department based on business losses incurred for the past years as reflected
in its letter to its employees dated December 1, 1994, to wit:

As you probably have known, our Food and Beverage Division has been losing for the
past several years. Your management tried to remedy the situation through changes
and innovations but to no avail. This being so and to prevent further losses,
management has deemed it necessary to concessionize (sic) our Food and Beverage
operations. Since La Tasca won in the bidding and pursuant to our agreement with the
same, La Tasca shall, effective January 1, 1995, be operating all our Food and
Beverage outlets. As a consequence thereof, please be informed that effective January
1, 1995, your services shall be terminated as effective said date ACCI shall cease to
operate all Food and Beverage outlets. x x x (Underscoring supplied).
[41]

In Lopez Sugar Corporation v. Federation of Free Workers cited by [42]

respondents, this Court held that retrenchment on the ground of serious


business losses is allowed subject to the conditions that (1) the losses
expected should be substantial and not merely de minimis in extent; (2) the
substantial losses apprehended must be reasonably imminent as such
imminence can be perceived objectively in good faith by the employer; (3)
retrenchment must be reasonably necessary and likely to effectively prevent
the expected losses; and (4) the alleged losses, if already realized and the
expected imminent losses sought to be forestalled, must be proven by
sufficient and convincing evidence. [43]

This Court, however, 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. [44]

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
[45]

employer because of losses in operation of a business occasioned by lack of


work and considerable reduction in the volume of business. [46]
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. [47]

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. [48]

While the Labor Code provides for the payment of separation package in
case of retrenchment to prevent losses, it does not obligate the employer for
the payment thereof if there is closure of business due to serious losses.
[49]

In the present case, when petitioner decided to cease operating its F & B
Department and open the same to a concessionaire, it did not reduce the
number of personnel assigned thereat. It terminated the employment of all
personnel assigned at the department.

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.
[50]

As did the appellate court, this Court finds that the study report submitted
by the internal auditor of petitioner, the only evidence submitted to prove its
alleged losses, is self-serving and falls short of the stringent requirement of
[51]

the law that the employer prove sufficiently and convincingly its allegation of
substantial losses.

In contrast, part of the evidence presented by respondents are audited


financial statements prepared by SGV&Co. for 1989 to 1993 which show a
positive net income for the F & B Department ranging from P959,533
- P2,911,810 and, except for the year 1992, marked increases in annual net
income per year. Moreover, for the year 1994, its last year of operation, the F
[52]

& B Department posted an annual net income of P1,562,385. [53]


In claiming that the F & B Department had been losing, petitioners internal
auditor deducted from the departments annual income the undistributed
operating costs and expenses. However, the study report failed to provide the
necessary details on how the undistributed operating costs and expenses
charged to the F & B Department was arrived at, including the basis, for
example, of allocating association dues and real estate tax directly to the F &
B Department as expenses.

Petitioners failure to prove that the closure of its F & B Department was
due to substantial losses notwithstanding, this Court finds that individual
respondents were dismissed on the ground of closure or cessation of an
undertaking not due to serious business losses or financial reverses, which is
allowed under Article 283 of the Labor Code:

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 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 worker and the Ministry
of Labor and Employment at least one (1) month before its intended date thereof. In
case of termination due to the installation of labor-saving devices or redundancy, the
worker affected thereby shall be entitled to a separation pay equivalent to at least one
(1) month pay for every year of service, whichever is higher. In case of retrenchment
to prevent losses and in cases of closures or cessation of operations of the
establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month pay or at least one-
half () month pay for every year of service, whichever is higher. A fraction of at least
six (6) months shall be considered as one (1) whole year. (Emphasis in the original)

The closure of operation of an establishment or undertaking not due to


serious business losses or financial reverses includes both the complete
cessation of operations and the cessation of only part of a companys
activities.
[54]

For any bona fide reason, an employer can lawfully close shop anytime.
Just as no law forces anyone to go into business, no law can compel anybody
to continue the same. It would be stretching the intent and spirit of the law if
[55]
a court interferes with managements prerogative to close or cease its
business operations just because the business is not suffering from any loss
or because of the desire to provide the workers continued employment. [56]

While petitioner did not sufficiently establish substantial losses to justify


closure of its F & B Department on this ground, there is basis for its claim that
the continued maintenance of said department had become more expensive
through the years. An evaluation of the financial figures appearing in the
audited financial statements prepared by the SGV&Co. shows that ninety one
to ninety six (91% - 96%) percent of the actual revenues earned by the F & B
Department comprised the costs and expenses in maintaining the department.
Petitioners decision to place its F & B operations under a concessionaire
[57]

must then be respected, absent a showing of bad faith on its part.

In fine, managements exercise of its prerogative to close a section,


branch, department, plant or shop will be upheld as long as it is done in good
[58]

faith to advance the employers interest and not for the purpose of defeating or
circumventing the rights of employees under the law or a valid agreement. [59]

While the closure of F & B Department is found to be justified, petitioner is,


under the above-quoted provision of Art. 283 of the Labor Code, mandated to
pay separation pay computed from the time individual respondents
commenced their employment until the time the department ceased
operations, in an amount equivalent to one (1) month pay or at least one-half
() month pay for every year of service, whichever is higher. In petitioners case,
it in fact voluntarily doled out to some of individual respondents separation pay
equivalent to one month and a quarter (1) for every year of service, a fraction
of a year being considered as one year. [60]

Respondents not having been illegally dismissed, they are not entitled to
backwages.

By petitioners information, it had paid, during the pendency of the case,


the separation package of sixty-two (62) of the sixty-three (63) individual
respondents on account of which they executed Releases, Waivers and
Quitclaims in its favor.
[61]
A waiver or quitclaim is a valid and binding agreement between the
parties, provided that it constitutes a credible and reasonable settlement and
the one accomplishing it has done so voluntarily and with a full understanding
of its import. As the waivers and quitclaims executed by individual
[62]

respondents who had been given their separation pay were duly notarized,
the certificate of acknowledgement in each of them serves as prima facie
evidence of their due execution. Not one of individual respondents who
[63]

executed the waivers or quitclaims has come forward to challenge the


reasonableness of the settlement and/or voluntariness of the execution of the
documents.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision of


August 14, 2002 and the Resolution of March 6, 2003 of the Court of Appeals
are hereby REVERSED and SET ASIDE.

Petitioner, Alabang Country Club, Inc., is hereby ORDERED to pay the


remaining individual respondent, Filipino Dizon, who does not appear to have
received separation package equivalent to one month and a quarter (1) for
every year of service, as agreed upon by petitioner.

SO ORDERED.

10. Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 174300 December 5, 2012

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. and/or FORTUNATO V. DE


CASTRO, Petitioners,
vs.
NAGKAHIUSANG MAMUMUO SA MINTERBROSOUTHERN PHILIPPINES FEDERATION OF
LABOR and/or MANUEL ABELLANA, GILBERT ABELLO, SIXTO ABELLO, JR., IRENEO
ABONITA, ALIEZER ADALIM, CONSTANCIO ALBISO, NELSON ANCAJAS, ROGELIO
ANOUEVO, REYNALDO ANTOQUE, DEORIDO ARIOLA, BERNARDINO AROJADO, JAIME
ATILANO, ALBERTO BAHALA, RODRISITO BAHALA, JR., JOVITO BASTASA, TEODORO
BASTASA, PACIANO BATICAN, BENJAMIN BAYNOSA, APOLINARIO BERNALDEZ,
GODOFREDO BIOCO, ERLINDO BRIGOLI, TEODRICO CABATO, ANARITO CABUDLAN,
DARIO CALIBJO, ERDIE CALIBJO, JAIME CAMINERO, BENNY CASI, EDWIN CORTEZ,
ARTURO CRISMAS, ALEJANDRO DIO, CATALINO DIONGZON, JR., MANUEL DORADO,
ZACARIAS DUMAYAC, ORLANDO EBERO, LEONARDO ENRIQUEZ, GABRIEL ESPERA,
ROBERTO ESTRERA, JOEL FERNANDEZ, EDGARDO FLORES, RUSTICO GALAN, ELIEZER
GELECANA, PRIMO GELECANA, DANIEL GIDUCOS, FELIPE GUANZON, GORDONIO
HURANO, FLORENTINO IBAEZ, ALFRED IBORI, NICANOR INTO, ROBERT JAMILA, JESUS
JANDAYAN, EWAN JUGAN, DIEGO JULATON, JOVENCIO JULATON, ANGELITO JULIANE,
WILFREDO LACNO, LAGRAMA DOMINGO, CERILO MAGDASAL, FERNANDO MANGARON,
JOSEPH MANGARON, EDGARDO MANGILAYA, EDGARDO MANSARON, VIRGILIO
MATALANG, JEREMIAS MOLATO, CARLOS MONARES, RAMON NECESARIO, DANILO
OTADAY, ROGELIO PAL, EBELIO PALMA, GAVINO PAMAN, JR., DANILO PANDAPATAN, NOLI
PATRICIO, MODESTO PIOQUINIO, NEMENSIO PLASABAS, JULIUS QUIBOY, RUEL
QUINILATAN, SANTOS RASONABE, ROBERTO REBUCAS, ALEJANDRO REDOBLADO, SR.,
DARIO REYES, RODOLFO ROCA, ROGER MAGAN, NECITO ROSOS, PANTALEON SAGAYNO,
VENANCIO SAGAYNO, VICENTE SALARDE, REYNALDO SALCEDO, JOSE SALINAS, DANIEL
SAPIO, ROMY SEGOVIA, JENELITO SIOCON, RENATO SODE, EDUARDO SOLIZA, PABLITO
TAC-AN, PEPITO TAGALAWAN, ARIEL TIBUS, ARTURO TOLIBAS, ROMEO TUBOG, ALFREDO
VIDAD and ARNOLD TIBlJS, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari 1 of the Decision2 and Resolution3 dated April 21, 2006 and
August 7, 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 51656, which dismissed the
petition for certiorari of petitioners Mindanao Terminal and Brokerage Service, Inc. (Minterbro) and
Fortunato V. De Castro.1

Minterbro is a domestic corporation managed by De Castro and engaged in the business of


providing arrastre and stevedoring services to its clientele at Port Area, Sasa, Davao City.4 It has a
Contract for Use of Pier5 with Del Monte Philippines, Inc. (Del Monte), which provides for the
exclusive use by Del Monte of the Minterbro pier.6Thus, at the time relevant to this controversy, Del
Monte ~as Minterbro's only client.

The docking of vessels at the piers in Davao City, including that of Minterbro, is being carried out by
the Davao Pilots' Association, Inc. (DPAI).7 In a letter8 dated January 6, 1996, DPAI requested
Minterbro to waive any claim of liability against it for any damage to the pier or vessel. DPAI alleged
that Minterbros pier vibrates everytime a ship docks due to weak posts at the underwater portion.

In a letter9 dated January 15, 1997, Minterbro denied the request explaining that DPAIs observation
had no basis as any damage to the pier was actually caused by a vessel under the control of DPAI
which bumped the pier on December 28, 1996. DPAI replied in a letter10 dated January 23, 1997
informing Minterbro of its intention to refrain from docking vessels at Minterbros pier for security and
safety reasons, until such time as Minterbro shall have caused the restoration of the original
independent fenders of the said pier.
This prompted Minterbro to bring up the matter to the Philippine Ports Authority (PPA). The PPA
promptly dispatched a team to conduct ocular inspection on Minterbros pier.11 In a
communication12 dated February 3, 1997, on the basis of its ocular inspection, the PPA advised
Minterbro "to conduct a thorough investigation of the underdeck and underwater structures of the
pier and initiate corrective measures if necessary." Thereafter, Minterbro, DPAI, and the PPA had a
meeting and agreed that Minterbro would seek the assistance of experts for an ocular inspection and
survey of the pier. Minterbro engaged the Davao Engineering Works and Marine Services (Davao
Engineering) to carry out the work.13

In its Survey Report No. 390/9714 dated May 6, 1997, Davao Engineering stated:

OBSERVATIONS:

The Pier facilities of Minterbro at Ilang, Davao City can still be used for loading and unloading of
cargoes provided, however, that docking procedures were properly carried out.

The cracks and spalled concrete on the joints of the RC Piles and Pile caps [do] not affect the
strength and capabilities of the Pier. However, immediate attention should be given to the Pier
damages in order to prevent further deterioration of its structural members which will lead to a costly
[repair] later on.15

Meanwhile, from January 1 until April 13, 1997, a total of sixteen (16) vessels were serviced at the
Minterbro pier:

January 1997 7 vessels

February 1997 3 vessels

March 1997 4 vessels

April 1997 2 vessels16

Subsequently, Minterbro decided to rehabilitate the pier on August 1, 1997 and, on the same day,
sent a letter to the Department of Labor and Employment (DOLE) to inform DOLE of Minterbros
intention to temporarily suspend arrastre and stevedoring operations. Minterbro alleged that, despite
the condition of the pier, it was able to service 16 vessels from January 1997 to April 13, 1997 and it
was ready and awaiting vessels to dock at the pier from April 14, 1997 to July 31, 1997 during which
Minterbros office, motor pool, and field personnel continued operations. 17

On November 4, 1997, respondent Nagkahiusang Mamumuo sa Minterbro-Southern Philippines


Federation of Labor composed of respondents Manuel Abellana, et al., employees of Minterbro
working on a rotation basis and employed for arrastre and stevedoring work depending on the actual
requirements of the vessels serviced by Minterbro, filed a complaint for payment of separation pay
against Minterbro and De Castro in the Regional Arbitration Branch No. XI at Davao City of the
National Labor Relations Commission (NLRC).18
Meanwhile, on December 8, 1997, Minterbro sent a letter 19 to the PPA the pertinent portion of which
reads:

This is to advise you that we have completed the repair of our pier which we did inspite of the earlier
certification issued by the Davao Engineering Works & Services, that after the latter carried out the
underwater/above water ocular inspection and survey of the pier facilities, said pier can still be used
for loading and unloading of cargoes provided that the docking procedures should be properly
carried out.

In view of the foregoing, may we request your office to render your own ocular inspection and survey
for the issuance of the corresponding certification on its readiness to accept vessels for loading and
unloading operations.

At the initial hearing before the Labor Arbiter on December 10, 1997, Minterbro and De Castro
informed the union and its members that the rehabilitation of the pier had been completed and that
they were just awaiting clearance to operate from the PPA. In a manifestation dated December 12,
1997, the union and its members stated, among others, that "they x x x are not anymore amenable
to going back to work with [the] company, for the reason that the latter has not been operating for
more than six (6) months, even if it resumes operation at a later date and would just demand that
they be given Retirement or Separation Pay, as the case may be." 20

On December 17, 1997, the PPA issued the following Certification21 declaring Minterbros pier as
safe and ready for operation:

C E R TI F I C ATI O N

This is to certify that the repair and rehabilitation of Minterbro Wharf owned by Mindanao Terminal &
Brokerage Services, Inc. located at Tibungco, Ilang, Davao City was inspected by our Engineering
Services Division office on Dec. 10, 1997 and was found to be totally completed. The structural
design and the supervision of work was undertaken by Bow C. Moreno, Civil Structural Design
Engineering Office of San Andres St., Manila.

Further, as certified by the Structural Consultants of the Contractor, copy attached, the Port
[M]anagement Office of Davao, Philippine Ports Authority has now declared Minterbro Wharf as safe
and ready for operationalization.

This certification is issued for whatever purpose the Mindanao Terminal & Brokerage Services, Inc.
will deem necessary.

Done in the City of Davao, Philippines, this 17th day of December 1997.

(Sgd.)
MANUEL C. ALBARRACIN
Port Manager

Thereafter, MV Uranus was serviced at the Minterbro pier on December 22 to 28, 1997. 22
On June 15, 1998, the Labor Arbiter rendered a Decision23 with the following decretal portion:

WHEREFORE, judgment is hereby rendered dismissing the complaint for separation pay for lack of
merit and declaring the ninety-five (95) complainants named in the final list filed on February 3, 1998
to have lost their employment status for abandonment of work; and

Declaring complainants Roberto D. Estrera, Sr., Gorgonio Hurao, Jeremias Molato and Constancio
Albiso, who have formally withdrawn their complaint, not to have lost their employment status and
ordering respondents to accept them back to their former positions without loss of seniority rights
and other privileges.24

Aggrieved, the union members appealed the Labor Arbiters Decision to the NLRC. In a
Decision25 dated September 30, 1998, the NLRC modified the Decision of the Labor Arbiter in this
wise:

In denying complainants their separation benefits, the Executive Labor Arbiter considered the period
embraced within August 1, 1997, when respondent formally informed [the] DOLE of the temporary
cessation of operation up to December 16, 1997, when respondent was issued a certificate declaring
the wharf safe and ready for operations and December 22-28, 1997, when the respondent company
serviced a vessel MV Uranus which obviously did not exceed six (6) months, thus denying
complainants their monetary benefits. Incidentally, the period reckoned is incorrect.

It is admitted by respondent that the last vessel that was serviced was on April 11-13, 1997 (MV
Bosco Polar), and after the rehabilitation of the wharf, on December 22-28, 1997 (MV Uranus) was
served, thereby covering a period of more or less eight months.

Respondent cannot conceal or make the August 1, 1997 formal notice to DOLE or the alleged
continued operations of its office personnel until July 31, 1997, an excuse to evade the mandated six
(6) months period (Article 286 of the Labor Code, as amended), since the issue at bar concerns the
complainants who became jobless and penniless because of the December 28, 1996 accident.

With the unrefuted peculiar circumstances, complainants are therefore entitled to their claims for
separation benefits.

Moreover, complainants cannot be considered to have abandoned their jobs for the reason that it
took respondent a long period [of] time to rehabilitate the wharf causing uncertainties in their minds
which culminated in the filing of the case.

WHEREFORE, the assailed Decision is Modified. Respondents are ordered to pay complainants
their separation benefits to be assessed and computed during the post arbitral stage of the
proceedings below upon finality of the herein Decision.26

In a Resolution27 dated January 25, 1999, the NLRC maintained its Decision and denied the motion
for reconsideration of Minterbro and De Castro.
Thereafter, Minterbro and De Castro took the NLRC and the members of the union to task by filing a
Petition for Certiorari28 in the Court of Appeals asserting that the NLRC acted with grave abuse of
discretion in ordering Minterbro and De Castro to pay the union members separation pay under
Article 286 of the Labor Code. This was docketed as CA-G.R. SP No. 51656.

In a Decision dated April 21, 2006, the Court of Appeals dismissed the petition. It ruled that the
seasonal nature of the services rendered by the members of the union did not negate their status as
regular employees and that the temporary suspension of Minterbros operations should be reckoned
from April 14, 1997, the day no more vessel was serviced at Minterbros pier after MV Bosco Polar
was serviced at the said pier on April 11 to 13, 1997. Thus, pursuant to Article 286 of the Labor Code
and its application in Sebuguero v. National Labor Relations Commission,29 the NLRC correctly
ordered Minterbro and De Castro to pay the union members their separation benefits as their
temporary lay-off exceeded six months.

In a Resolution dated August 7, 2006, reconsideration was denied as the Court of Appeals found no
reason to reverse its decision. Hence, this petition.

Petitioners Minterbro and De Castro insist that the Court of Appeals erred when it ruled that the
union members are entitled to separation pay under Article 286 of the Labor Code. Petitioners
concede that, as enunciated in Sebuguero, where a temporary lay-off lasts longer than six months,
the employees should either be recalled to work or permanently retrenched following the
requirements of the law.30 However, according to petitioners, the lack of arrastre and stevedoring
services in the pier after the servicing of MV Bosco Polar on April 11 to 13, 1997 was a result of Del
Montes decision, for reasons unknown to Minterbro, to suddenly stop docking its vessels at
Minterbros pier. And while there were no arrastre and stevedoring services for lack of any vessel to
service, Minterbros office, motorpool and field personnel continued their work until July 31, 1997, or
a day before Minterbro filed the required notices with the DOLE on August 1, 1997. The decision to
rehabilitate the pier is a business decision and had nothing to do with the unfounded complaint of
DPAI in January 1997 about the condition of the pier.31

For their part, the union members contend that the petition is flawed as it presents a question of fact,
not of law. In particular, the determination of the correct reckoning date of the temporary suspension
of Minterbros business, whether April 14, 1997 or August 1, 1997, involves a review of facts and the
respective evidence of the parties, which is prohibited under the Rules of Court. Moreover, the NLRC
and the Court of Appeals have already fully discussed the matter and both came to the same
conclusion, that Minterbro and De Castro are liable to the union members for separation pay. The
factual findings of the NLRC and the Court of Appeals should therefore be accorded respect and
conclusiveness.32

The issue thus presented in this petition is whether the union members/employees were deprived of
gainful employment on April 14, 1997 after the last vessel was serviced prior to the repair of the pier
or on August 1, 1997 when repair works on the pier were commenced. Resolution of this issue will
determine whether petitioners are liable for separation pay for effectively dismissing the union
members through their prolonged lay-off of more than six months.
Petitioners insist on August 1, 1997 as the reckoning date and rely on Article 286 of the Labor Code.
On the other hand, the union members assert that the reckoning date is April 14, 1997 and
invoke Sebuguero.

At the outset, the Court notes that the petition is fatally defective. The issue it presents is factual, not
legal.

There is a question of fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts. There is a question of fact if the issue invites a review of the evidence presented. 33

In this case, this Court is effectively being called upon to determine who among the parties is
asserting the truth regarding the date the union members were laid-off. Such venture requires the
evaluation of the respective pieces of evidence presented by the parties as well as the consideration
of "the existence and relevancy of specific surrounding circumstances as well as their relation to
each other and to the whole, and the probability of the situation." 34 However, the nature of petitioners
action, a petition for review under Rule 45 of the Rules of Court, renders that very action
inappropriate for this Court to take. Only questions of law should be raised in a petition for review
under Rule 45.35 While there are recognized exceptions to that rule, this case is not among them.

Moreover, this Court finds neither compelling reason nor substantial argument that will warrant the
reversal of the NLRC Decision which has been affirmed by the Court of Appeals.

The NLRC and the Court of Appeals found that the union members/employees were not given work
starting April 14, 1997 and that more than six months have elapsed after the union members were
laid off when the next vessel was serviced at the Minterbro pier on December 22 to 28, 1997.

Minterbro claims that it had no hand whatsoever in the lack of work for the union members at the
pier from April 14, 1997. It stated that it did not even have any idea as to why Del Monte suddenly
stopped docking its vessels at Minterbros pier. Nonetheless, as between petitioners and the union
members, it is petitioners who had the right to demand from Del Monte to perform its obligations
under the Contract for Use of Pier. Petitioners right to compel Del Monte to comply with its
contractual obligations becomes stronger in view of the following undertaking of Del Monte:

October 7, 1988

Atty. Eliodoro C. Cruz


Vice-President
Mindanao Terminal and Brokerage Service, Inc.
Davao City

Dear Atty. Cruz:

With reference to our "Contract for Use of Pier", dated 3 October, 1988, (Doc. No. 348, No. 71, Book
XXVI of Notary Public D. A. Soriano of Makati, Metro Manila), we confirm our commitment to
maximize the use of the [Minterbro] Pier at Ilang, Davao City and not to dock any of the
vessels of our principal elsewhere for as long as they can be accommodated therein as per your
commitment in the contract and in the customary and usual manner and for the purpose which they
are intended to serve.

If this reflects our understanding, please sign below and return to us our copy of this letter. This will
serve as our supplemental agreement on the matter.

Very truly yours,

(Sgd.)
JUAN F. SIERRA
President

CONFORME:

Mindanao Terminal and


Brokerage Service, Inc.

By:

(Sgd.)
ELIODORO C. CRUZ
Vice-President36 (Emphasis supplied.)

Unfortunately, petitioners failed to show any effort on their part to hold Del Monte to its end of the
bargain even though the union members were being forced to be laid off. Effectively, when
petitioners allowed Del Monte to abandon its agreement with Minterbro for eight months covering the
middle of April 1997 until the latter part of December 1997 without holding Del Monte accountable for
such breach, petitioners consented to Del Montes unexplained action and the prejudice it caused to
the union members.

Moreover, the communications between Minterbro and the PPA during the relevant period are telling.
Among these is a letter dated February 3, 1997 from the PPA:

03 February 1997

MR. FORTUNATO V. DE CASTRO, SR.


General Manager
Mindanao Terminal & Brokerage Services, Inc.
Port Area, Sasa, Davao City

Dear Mr. de Castro,

We had been furnished copy of the communications of the Davao Pilots, Association dated January
6 and 23, 1997 with the same subject on weakened pier structure of your port facility.
On 22 January 1997, a PMO team was dispatched to conduct an ocular inspection. The related
report is herewith furnished for your perusal.

Any report or observation of this nature from port users is considered critical and this should
be investigated and verified for the safety of all parties concerned. We therefore advise your
company to conduct a thorough investigation of the underdeck and underwater structures of the pier
and initiate corrective measures if necessary.

Please advise this end of your action/s undertaken.

Very truly yours,

(Sgd.)
MANUEL C. ALBARRACIN37 (Emphasis supplied.)

Another material document is the letter dated December 8, 1997 from Minterbro to the PPA wherein
petitioners requested the PPA to confirm the repair and rehabilitation of the Minterbro pier and issue
a certification on the piers "readiness to accept vessels for loading and unloading operations." 38

Petitioners exert much effort to dissociate themselves from Del Montes act of stopping its vessels
from docking at Minterbros pier beginning April 14, 1997. They also went to great lengths not only to
refute the complaint of DPAI that Minterbros pier is damaged and defective but also to establish that
such allegedly baseless claims have no connection with the decision of the vessels not to dock at
the Minterbro pier. The above communications, however, negate petitioners contention. As early as
February 1997, the PPA had already advised petitioners that the observation of DPAI that the pier
had abnormal vibrations "is considered critical."39 And in the Petition for Certiorari40 and
Memorandum41 which they filed in the Court of Appeals, petitioners alleged as follows:

12. MINTERBRO sent copies of the Survey Report No. 390/97 to the PPA, the [Davao Pilots]
Association and Del Monte Philippines, Inc. to inform them that the observation/complaint of the
[Davao Pilots] Association was clearly unfounded and without any factual basis. Despite receipt of
the Survey Report, Del Monte did not dock any of its vessels at MINTERBROs
pier.42 (Emphasis supplied.)

The above statement shows that petitioners were fully aware that Del Montes decision to stop
docking any of its vessels at the Minterbro pier was basically related to the issue of the condition of
the pier. Moreover, petitioners may not rightfully shift the blame to Del Monte in view of the following
provision of their Contract for Use of Pier:

3. MINTERBRO shall maintain the pier in good condition suitable for the loading and unloading
of [Del Monte] or [Del Monte]-related cargoes[.]43 (Emphasis supplied.)

If petitioners really believed their claim that the piers condition was still suitable for normal
operations even without having undertaken the repairs which it took starting August 1997, petitioners
could have simply submitted Survey Report No. 390/97 to the PPA and requested for a certification
similar to the PPA certification dated December 17, 1997. Yet, they did not. They had to rehabilitate
the pier first before they requested for the certification. Furthermore, the very Survey Report No.
390/97 that petitioners use to support their claim that the claim of DPAI as to the condition of the pier
is totally baseless is not completely true. As quoted by petitioners, the Survey Report states that the
Minterbro pier "can still be used for loading and unloading of cargoes provided, however, that
docking procedures were properly carried out."44 This can be reasonably taken to mean as saying
that the operations at the pier should now be carried out in a mistake free manner because one
wrong move may prove to be disastrous. That means that every time arrastre and stevedoring
services are conducted at the pier, a sword would be hanging over the heads of those working at the
pier. Moreover, the said Survey Report expressly directs that "immediate attention should be
given to the Pier damages in order to prevent further deterioration of its structural
members."45 This directive contradicts petitioners stance that the Minterbro pier was in good
condition even prior to its repair and rehabilitation in August 1997. Thus, the Court of Appeals did not
err when it made the following observations:

In view of the inspections and surveys conducted on the pier, it could not have failed to dawn upon
petitioners that no vessel would take the risk of docking in their pier because of its damaged
condition.46

To Our mind, both petitioners and the Labor Arbiter failed to realize that what had been indisputably
established thereby was that petitioners pier was in critical condition, i.e., no longer viable for
docking as early as May 1996 in spite of which petitioners decided to make the necessary repairs
only in August [1996] or four months thereafter.

x x x Petitioners had already been amply notified of the unstable condition of their pier which
required prompt corrective action for the safety of both the facilities and the lives of the laborers
therein, so that petitioners should not have insisted that their pier was still in good shape.

x x x.47

In sum, petitioners inaction on what they allege to be the unexplained abandonment by Del Monte of
its obligations under the Contract for the Use of Pier coupled with petitioners belated action on the
damaged condition of the pier caused the absence of available work for the union members. As
petitioners were responsible for the lack of work at the pier and, consequently, the layoff of the union
members, they are liable for the separation from employment of the union members on a ground
similar to retrenchment. In this connection, this Court has ruled:

A lay-off, used interchangeably with "retrenchment," is a recognized prerogative of management. It is


the termination of employment resorted to by the employer, through no fault of nor with prejudice to
the employees, during periods of business recession, industrial depression, seasonal fluctuations, or
during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new
production program, or the introduction of new methods or more efficient machinery, or of
automation. Simply put, it is an act of the employer of dismissing employees because of losses in
operation of a business, lack of work, and considerable reduction on the volume of his business, a
right consistently recognized and affirmed by this Court. The requisites of a valid retrenchment are
covered by Article 283 of the Labor Code.
When a lay-off is temporary, the employment status of the employee is not deemed terminated, but
merely suspended. Article 286 of the Labor Code provides, in part, that the bona fide suspension of
the operation of the business or undertaking for a period not exceeding six months does not
terminate employment.48 (Citation omitted.)

When petitioners failed to make work available to the union members for a period of more than six
months starting April 14, 1997 by failing to call the attention of Del Monte on the latters obligations
under the Contract of Use of Pier and to undertake a timely rehabilitation of the pier, they are
deemed to have constructively dismissed the union members. As this Court held in Valdez v.
National Labor Relations Commission49:

Under Article 286 of the Labor Code, the bona fide suspension of the operation of a business or
undertaking for a period not exceeding six months shall not terminate employment. Consequently,
when the bona fide suspension of the operation of a business or undertaking exceeds six months,
then the employment of the employee shall be deemed terminated. By the same token and applying
said rule by analogy, if the employee was forced to remain without work or assignment for a
period exceeding six months, then he is in effect constructively dismissed. (Citation omitted.)

In Sebuguero,50 the Court ruled on a case regarding layoff or temporary retrenchment, which
subsequently resulted to the separation from employment of the concerned employee as it lasted for
more than six months, as follows:

Article 283 of the Labor Code which covers retrenchment, reads as follows:

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
servicing a written notice on the workers and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof. In case of termination due to the installation of labor saving
devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent
to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever
is higher. In case of retrenchment to prevent losses and in cases of closure or cessation of
operations of establishment or undertaking not due to serious business losses or financial reverses,
the separation pay shall be equivalent to one (I) month pay or at least one-half ( 1/2) month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall he considered
1wphi1

one (I) whole year.

This provision, however, speaks of a permanent retrenchment as opposed to a temporary lay-off as


is the case here. There is no specific provision of law which treats of a temporary retrenchment or
lay-off and provides for the requisites in effecting it or a period or duration therefor. These employees
cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 may be
applied but only by analogy to set a specific period that employees may remain temporarily laid-off
or in floating status. u Six months is the period set by law that the operation of a business or
undertaking may he suspended thereby suspending the employment of the employees concerned.
The temporary lay-off wherein the employees likewise cease to work should also not last longer than
six months. After six months, the employees should either be recalled to work or permanently
retrenched following the requirements of the law, and that failing to comply with this would be
tantamount to dismissing the employees and the employer would thus he liable for such
dismissal. 51 (Citation omitted.)

As the Court of Appeals did not err in ruling that Sebuguero applies to this case, the consequences
arrived at in Sebuguero also apply. Lay-off is essentially retrenchment and under Article 283 of the
Labor Code a retrenched employee is entitled to separation pay equivalent to one (1) month salary
or one-half (12) month salary per year of service, whichever is higher.

WHEREFORE, the petition 1s hereby DENIED. The Executive Labor Arbiter of the Regional
Arbitration Branch No. XI at Davao City of the National Labor Relations Commission
is DIRECTED to ensure the prompt implementation of this Decision.

SO ORDERED.

11. Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

EVER ELECTRICAL G.R. No. 194795


MANUFACTURING, INC.,
(EEMI) and VICENTE GO,

Petitioners, Present:
PERALTA, J., Acting
Chairperson,
- versus -
ABAD,

VILLARAMA, JR.,

SAMAHANG MENDOZA, and


MANGGAGAWA NG EVER
PERLAS-BERNABE, JJ.
ELECTRICAL/ NAMAWU
LOCAL 224 represented
by FELIMON
PANGANIBAN,

Respondents.

Promulgated:

June 13, 2012

x
------------------------------------------------------------------------------------------------
-----x

DECISION
MENDOZA, J.:

This petition for review on certiorari [1] under Rule 45 of the


1997 Rules of Civil Procedure assails the August 31, 2010
Decision[2] and the December 16, 2010 Resolution[3] of the Court
of Appeals (CA) in CA-G.R. SP No. 108978.

Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a


corporation engaged in the business of manufacturing electrical
parts and supplies. On the other hand, the respondents are
members of Samahang Manggagawa ng Ever Electrical/NAMAWU
Local 224 (respondents) headed by Felimon Panganiban.

The controversy started when EEMI closed its business


operations on October 11, 2006 resulting in the termination of the
services of its employees. Aggrieved, respondents filed a
complaint for illegal dismissal with prayer for payment of
13thmonth pay, separation pay, damages, and attorneys
fees. Respondents alleged that the closure was made without any
warning, notice or memorandum and in full disregard of the
requirements of the Labor Code.

In its defense, EEMI explained that it had closed the business


due to various factors. In 1995, it invested in Orient Commercial
Banking Corporation (Orient Bank) the sum of P500,000,000.00
and during the Asian Currency crises, various economies in the
South East Asian Region were hurt badly. EEMI was one of those
who suffered huge losses. In November 1996, it obtained a loan in
the amount of P121,400,000.00 from United Coconut Planters
Bank (UCPB). As security for the loan, EEMIs land and its
improvements, including the factory, were mortgaged to UCPB.

EEMIs business suffered further losses due to the continued


entry of cheaper goods from China and other Asian countries.
Adding to EEMIs financial woes was the closure of Orient Bank
where most of its resources were invested. As a result, EEMI was
not able to meet its loan obligations with UCPB.

In an attempt to save the company, EEMI entered into


a dacion en pago arrangement with UCPB which, in effect,
transferred ownership of the companys property to UCPB as
reflected in TCT No. 429159. Originally, EEMI wanted to lease the
premises to continue its business operation but under UCPBs
policy, a previous debtor who failed to settle its loan obligation
was not eligible to lease its acquired assets. Thus, UCPB agreed to
lease it to an affiliate corporation, EGO Electrical Supply Co,
Inc. (EGO), for and in behalf of EEMI. On February 2, 2002, a lease
agreement was entered into between UCPB and EGO. [4] The said
lease came to a halt when UCPB instituted an unlawful detainer
suit against EGO before the Metropolitan Trial Court, Branch
5, Makati City (MeTC) docketed as Civil Case No.
88602. On August 11, 2006, the MeTC ruled in favor of UCPB and
ordered EGO to vacate the leased premises and pay rentals to
UCPB in the amount of P21,473,843.65.[5] On September 19, 2006,
a writ of execution was issued. [6] Consequently, on October 11,
2006, the Sheriff implemented the writ by closing the premises
and, as a result, EEMIs employees were prevented from entering
the factory.

On April 25, 2007, the Labor Arbiter (LA) ruled that


respondents were not illegally dismissed. It, however, ordered
EEMI and its President, Vicente Go (Go), to pay their employees
separation pay and 13th month pay respectively.[7] The decretal
portion of the LA decision, reads:

CONFORMABLY WITH THE FOREGOING, Judgment is


hereby rendered ordering the respondent[s] in solidum to pay the
complainants their separation pay, 13th month pay of the three (3)
workers and the balance of their 13 thmonth pay as computed
which computation is made a part of this disposition.

On September 15, 2008, the NLRC reversed and set aside


the decision of the LA. The NLRC dismissed the complaint for lack
of merit and ruled that since EEMIs cessation of business
operation was due to serious business losses, the employees were
not entitled to separation pay.[8]

Respondents moved for reconsideration of the NLRC


decision, but the NLRC denied the motion in its March 23,
2009Resolution.[9]

Unperturbed, respondents elevated the case before the


CA via a petition for certiorari under Rule 65.[10]
On August 31, 2010, the CA granted the petition. [11] It
nullified the decision of the NLRC and reinstated the LA
decision. The dispositive portion of the CA decision reads:

ACCORDINGLY, the petition is GRANTED. The


Decision dated September 15, 2008 and Resolution
dated March 23, 2009 of the National Labor Relations
Commission are NULLIFIED and the Decision dated April
25, 2007 of Labor Arbiter Melquiades Sol Del Rosario,
REINSTATED.

The CA held that respondents were entitled to separation


pay and 13th month pay because the closure of EEMIs business
operation was effected by the enforcement of a writ of execution
and not by reason of business losses. The CA, citing Restaurante
Las Conchas v. Lydia Llego,[12] upheld the solidary liability of EEMI
and Go, declaring that when the employer corporation is no
longer existing and unable to satisfy the judgment in favor of the
employees, the officers should be held liable for acting on behalf
of the corporation.[13]

EEMI and Go filed a motion for reconsideration but it was


denied in the CA Resolution dated December 16, 2010.[14]
Hence, this petition.[15]

Issues:

1. Whether the CA erred in finding that the closure of EEMIs


operation was not due to business losses; and
2. Whether the CA erred in finding Vicente Go solidarily liable
with EEMI.

The petition is partly meritorious.

Article 283 of the Labor Code provides:

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 one (1) month before
the intended date thereof. In case of termination due to the
installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to
at least his one (1) month pay or to at least one (1) month pay for
every year of service, whichever is higher. In case of retrenchment
to prevent losses and in cases of closures or cessation of
operations of establishment or under taking not due to serious
business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one-half ( 1/2) month
pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole year.
Article 283 of the Labor Code identifies closure or cessation
of operation of the establishment as an authorized cause for
terminating an employee. Similarly, the said provision mandates
that employees who are laid off from work due to closures that
are not due to business insolvency should be paid separation pay
equivalent to one-month pay or to at least one-half month pay for
every year of service, whichever is higher. A fraction of at least six
months shall be considered one whole year.

Although business reverses or losses are recognized by law


as an authorized cause, it is still essential that the alleged losses
in the business operations be proven convincingly; otherwise, this
ground for termination of employment would be susceptible to
abuse by conniving employers, who might be merely
feigning business losses or reverses in their business ventures in
order to ease out employees.[16]

In this case, EEMI failed to establish that the main reason for
its closure was business reverses. As aptly observed by the CA,
the cessation of EEMIs business was not directly brought about by
serious business losses or financial reverses, but by reason of the
enforcement of a judgment against it. Thus, EEMI should be
required to pay separation pay to its affected employees.

As to whether or not Go should be held solidarily liable with


EEMI, the Court agrees with the petitioner.

As a general rule, corporate officers should not be held


solidarily liable with the corporation for separation pay for it is
settled that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be
related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation
is not of itself sufficient ground for disregarding the separate
corporate personality.[17]

The LA was of the view that Go, as President of the


corporation, actively participated in the management of EEMIs
corporate obligations, and, accordingly, rendered judgment
ordering EEMI and Go in solidum to pay the complainants [18]their
due. He explained that [r]espondent Gos negligence in not paying
the lease rental of the plant in behalf of the lessee EGO Electrical
Supply, Inc., where EEMI was operating and reimburse expenses
of UCPB for real estate taxes and the like, prompted the bank to
file an unlawful detainer case against the lessee, EGO Electrical
Supply Co. This evasion of an existing obligation, made
respondent Go as liable as respondent EEMI, for complainants
money awards.[19] Added the LA, being the President and the one
actively representing respondent EEMI, in major contracts i.e. Real
Estate Mortgage, loans, dacion en pago, respondent Go has to be
liable in the case.[20] As earlier stated, the CA affirmed the LA
decision citing the case of Restaurante Las Conchas v. Llego,
[21]
where it was held that when the employer corporation is no
longer existing and unable to satisfy the judgment in favor of the
employees, the officers should be held liable for acting on behalf
of the corporation.[22]

A study of Restaurante Las Conchas case, however, bares


that it was an application of the exception rather than the general
rule. As stated in the said case, as a rule, the officers and
members of a corporation are not personally liable for acts done
in the performance of their duties. [23] The Court therein explained
that it applied the exception because of the peculiar
circumstances of the case. If the rule would be applied, the
employees would end up in an empty victory because as the
restaurant had been closed for lack of venue, there would be no
one to pay its liability as the respondents therein claimed that the
restaurant was owned by a different entity, not a party in the
case.[24]

In two subsequent cases, the Courts ruling in Restaurante


Las Conchas was invoked but the Court refused to consider it
reasoning out that it was the exception rather than the rule. The
two cases were Mandaue Dinghow Dimsum House, Co., Inc.
and/or Henry Uytengsu v. National Labor Relations
Commission [25]
and Pantranco Employees Association (PEA-
PTGWO) v. National Labor Relations Commission.[26]

In Mandaue Dinghow Dimsum House, Co., Inc., the


Court declined to apply the ruling in Restaurante Las
Conchasbecause there was no evidence that the respondent
therein, Henry Uytrengsu, acted in bad faith or in excess of his
authority. It stressed that a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to
which it may be related. For said reason, the doctrine of piercing
the veil of corporate fiction must be exercised with caution.
[27]
Citing Malayang Samahan ng mga Manggagawa sa M.
Greenfield v. Ramos,[28] the Court explained that corporate
directors and officers are solidarily liable with the corporation for
the termination of employees done with malice or bad faith. It
stressed that bad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill will; it partakes
of the nature of fraud.
In Pantranco Employees Association, the Court also rejected
the invocation of Restaurante Las Conchas and refused to pierce
the veil of corporate fiction. It explained:
As between PNB and PNEI, petitioners want us to disregard
their separate personalities, and insist that because the company,
PNEI, has already ceased operations and there is no other way by
which the judgment in favor of the employees can be satisfied,
corporate officers can be held jointly and severally liable with the
company. Petitioners rely on the pronouncement of this Court
in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent
cases.

This reliance fails to persuade. We find the aforesaid


decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the
companys cessation of operations were the officers and agents of
the corporation. The rationale is that, since the 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, only in the technical sense, is the
employer. In the instant case, what is being made liable is another
corporation (PNB) which acquired the debtor corporation (PNEI).

Moreover, in the recent cases Carag v. National Labor


Relations Commission and McLeod v. National Labor Relations
Commission, the Court explained the doctrine laid down in AC
Ransom relative to the personal liability of the officers and agents
of the employer for the debts of the latter. In AC Ransom, the
Court imputed liability to the officers of the corporation on the
strength of the definition of an employer in Article 212(c) (now
Article 212[e]) of the Labor Code. Under the said provision,
employer includes any person acting in the interest of an
employer, directly or indirectly, but does not include any labor
organization or any of its officers or agents except when acting as
employer. It was clarified in Carag and McLeod that Article 212(e)
of the Labor Code, by itself, does not make a corporate officer
personally liable for the debts of the corporation. It added that the
governing law on personal liability of directors or officers for
debts of the corporation is still Section 31 of the Corporation Code.

More importantly, as aptly observed by this Court in AC


Ransom, it appears that Ransom, foreseeing the possibility or
probability of payment of backwages to its employees,
organized Rosario to replace Ransom, with the latter to be
eventually phased out if the strikers win their case. The execution
could not be implemented against Ransom because of the
disposition posthaste of its leviable assets evidently in order to
evade its just and due obligations. Hence, the Court sustained the
piercing of the corporate veil and made the officers of Ransom
personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that


the doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation. In the absence of malice, bad
faith, or a specific provision of law making a
corporate officer liable, such corporate officer
cannot be made personally liable for corporate
liabilities.[29] [Emphasis supplied]

Similarly, in the case at bench, the records do not warrant an


application of the exception. The rule, which requires the
presence of malice or bad faith, must still prevail. In the recent
case of Wensha Spa Center and/or Xu Zhi Jie v. Yung,[30] the Court
absolved the corporations president from liability in the absence
of bad faith or malice. In the said case, the Court stated:

In labor cases, corporate directors and officers may be held


solidarily liable with the corporation for the termination of
employment only if done with malice or in bad faith. [31] Bad faith
does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or
interest or ill will; it partakes of the nature of fraud. [32]

In the present case, Go may have acted in behalf of EEMI but the companys
failure to operate cannot be equated to bad faith. Cessation of business operation is
brought about by various causes like mismanagement, lack of demand, negligence,
or lack of business foresight. Unless it can be shown that the closure was
deliberate, malicious and in bad faith, the Court must apply the general rule that a
corporation has, by law, a personality separate and distinct from that of its
owners. As there is no evidence that Go, as EEMIs President, acted maliciously or
in bad faith in handling their business affairs and in eventually implementing the
closure of its business, he cannot be held jointly and solidarily liable with EEMI.

WHEREFORE, the petition is PARTIALLY GRANTED. The


August 31, 2010 Decision of the Court of Appeals
is AFFIRMED with MODIFICATION that Vicente Go is not
solidarily liable with Ever Electrical Manufacturing, Inc.
SO ORDERED.

12. epublic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 78350 September 11, 1991

SAN FELIPE NERI SCHOOL OF MANDALUYONG, INC., ROSA A. SALAZAR, FAUSTINO F.


BONIFACIO, JR., DOMINGO ANGELES, FR. ANASTACIO GAPAC, MARIANO DE LEON, AND
MAGDALENA ANGELES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ROMAN CATHOLIC ARCHBISHOP OF MANILA,
GORGONIA MARAMAG, LILY LIM, ALICIA YANGCO, DELIA CRUZ, JOSEFINA SAGER,
ERLINDA MURIEL, MARILYN O. VILLORENTE, LOURDES SANTOS, ELENITA DALMAN,
PACHO AQUINO, RUDENCIA ANGOCO, GLORIA GREGORIO, NARCISO ALFONSO, LEONILA
BANAG, VIRGILIO BANAG, EMY LARINGAY, ERLINDA SEBASTIAN, JULIETA MABOLO,
ANABELLE ARCEGA, c/o ATTY. PEDRO T. MOLO, respondents.

Delos Reyes, Bonifacio, De los Reyes for petitioners.

Pedro T. Molo for private respondents.

Padilla Law Office for private RCAM.

PARAS, J.:p

This is a petition for certiorari to review and set aside the resolutions of the National Labor Relations
Commission (NLRC), Second Division, * dated February 12, 1987 and April 7, 1987, both affirming
the decision of Labor Arbiter Reynaldo M. Maroan in NLRC Case No. AB-9-676-81, entitled
"Gorgonia Maramag, et al. vs. San Felipe Neri School of Mandaluyong, Inc. and/or Faustino F.
Bonifacio, et al"., adjudging herein petitioners solidarily liable for the payment of separation pay in
favor of herein private respondents.

The antecedent facts of the case as gathered from the records are as follows:

Petitioners were the incorporators, stockholders and/or trustees of a corporation known as the San
Felipe Neri School of Mandaluyong, Inc., which owned and operated petitioner school. Private
respondents were formerly teacher employees of the aforesaid institution.
Sometime on April 18, 1981, petitioner-school and the Roman Catholic Archbishop of Manila (RCAM
for brevity) executed a Deed of Absolute Sale of Real and Personal Properties, the pertinent portions
of which provide that:

(1) The SELLER is the owner of a two (2) storey reinforced concrete building and
other buildings, structures or improvements erected on land belonging to the
BUYER, situated in the grounds of San Felipe Neri Parish Church and presently
used by the SELLER in the operation of the San Felipe School.

(2) The SELLER is also the owner of library books, school equipment, tables, desks,
chairs, blackboards and other personal properties found therein and itemized in the
inventory hereto attached as ANNEX 'A' and made an integral part of this Deed of
Absolute Sale of Real and Personal Properties.

(3) For and in consideration of the sum of FOUR HUNDRED THOUSAND PESOS
(P400,000.00), Philippine Currency, payable at the office of the BUYER on April 30,
1981, the SELLER has sold, transferred and conveyed, as it, by these presents,
does SELL, TRANSFER, AND CONVEY, absolutely and in perpetuity unto the
BUYER, its successors or assigns, the real and personal properties described in
paragraphs 1 and 2 above. (Rollo, p. 5 and p. 60).

Private respondents (former teachers of petitioner school) upon reporting for work sometime in May
of the same year for the opening of the school year 1981-82, were surprised to learn from school
authorities that the school was already under new ownership and management. They (private
respondents) had never been previously notified nor informed of the sale or transfer of the school to
the RCAM (Rollo, p. 34 and pp. 145-146).

The new owner and administrator (RCAM), in turn, required said respondent teachers to apply as
new employees subject to the usual probation (Rollo, p. 34). Demoted to probationary status and
their past services not recognized by the new employer, said teachers inquired about their rights
from the former school owners (herein petitioners), but to no avail. Instead, they were referred to the
new owners of the school, supposedly as the proper party who should answer for and adjust private
respondents' demand and grievances (Rollo, p. 146).

Respondent teachers then filed a complaint before the Labor Arbiter against all the petitioners,
including the RCAM the vendee or transferee, as alternative defendant for separation pay,
differential pay and other claims (Rollo, pp. 22-25). After submitting their respective position papers
and there being no amicable settlement reached between the parties despite sufficient time allowed
for such purpose, hearing ensued at which both complainants (herein private respondents) and
respondents (herein petitioners, including RCAM presented testimonial and documentary evidence
(Rollo, p. 35).

On March 26, 1984, the Labor Arbiter rendered judgment in favor of private respondents, ordering
petitioners to pay the latter their separation pay. The decretal portion of the contested order of the
Labor Arbiter reads:
WHEREFORE, judgment is hereby rendered ordering the respondent San Felipe
Neri School of Mandaluyong, Inc., Faustino F. Bonifacio, Jr., Domingo P. Angeles,
Rosa A. Salazar, Father Anastacio B. Gapac, Mariano de Leon, and Magdalena I.
Angeles, jointly and severally to pay the complainants separation pay equivalent to
one (1) months pay or at least one-half () month pay for every year of service
whichever is higher, plus 12% interest thereon from the filing of the amended
complaint until full satisfaction thereof. The complaint against the Roman Catholic
Archbishop of Manila is hereby dismissed. Likewise, the claims for separation pay of
complainants N. Parada and R. Aviles who are admittedly part time employees of the
school are hereby dismissed. Further, the claim for underpayment of salaries and
allowances and non- payment of summer vacation pay is hereby dismissed for lack
of merit. (Rollo, p. 39)

Petitioners, on April 23, 1984, appealed to the National Labor Relations Commission (NLRC)
contesting the aforequoted order as having been issued contrary to law and jurisprudence, and that
the Commission has no jurisdiction over them, alleging that no employer-employee relationship
exists between said individual petitioners and private respondents, the latter being considered the
employees of the school corporation and not by said petitioners themselves in conformance with the
principle or doctrine that a corporation has a personality separate and distinct from those persons
composing it (Rollo, pp. 41-46).

On February 12, 1987, the Second Division of the NLRC in its Resolution, affirmed the findings and
decision of the Labor Arbiter and dismissed the appeal for lack of merit ruling that there was in fact a
closure of the establishment when the same was sold to the transferee, the RCAM and that the
award of separation pay to herein private respondents was in accordance with the law (Rollo, pp. 62-
63).

Petitioners filed their Motion for Reconsideration on March 13, 1987 (Rollo, pp. 64-69), but the same
was denied by the Commission in its Resolution dated April 7, 1987 (Rollo, p. 70).

Hence, this petition.

The main issue in this case is whether or not respondent teachers' employment was terminated by
the sale and transfer of San Felipe Neri School of Mandaluyong, Inc. to the Archbishop of Manila
that would entitle them to separation pay.

Petitioner argue that they cannot be held accountable to private respondents's claim for separation
pay since there was no cessation of employment insofar as individual respondents are concerned.
The Roman Catholic Archbishop of Manila (RCAM) which assumed the ownership and control of the
school continued with its business operations and hired the said private respond respondents. Only
the ownership of the school has changed. There was no interpretation in the employment of private
respondents who were school teachers, hence there is no basis for payment to them of separation
pay (Rollo, p. 18). Relying on two (2) NLRC cases (the GENBANK and TARELCO cases), petitioners
assume that the security of tenure of employees of the transferor is not affected by the change of
ownership of the establishment and since there was no termination to speak of, it was error for the
NLRC to award separation pay to private respondents (Rollo, pp. 14-19).
Moreover, petitioners maintain that the Commission had no jurisdiction over them since they are not
the employers of the private respondents but the petitioner school as a corporation (Rollo, p. 19).

The petition is devoid of merit.

It is not disputed that San Felipe Neri School of Mandaluyong, Inc. sold its properties and assets to
RCAM on April 18, 1981; but RCAM did not buy the school nor assumed its liabilities. Immediately
thereafter, RCAM as the transferee-purchaser, continued the operation of the school, but applied for
a new permit to operate the same (Rollo, pp. 91-93). In short, there was a change of ownership or
management of the school properties and assets.

Change of ownership or management of an establishment or company, however, is not one of the


just causes provided by law for the termination of employment (Junio, et al. vs. NLRC, et al., 127
SCRA 390 [1984]). There can be no controversy, however, for it is a principle well-recognized, that it
is within the employer's legitimate sphere of management control of the business to adopt economic
policies or make some changes or adjustments in their organization or operations that would insure
profit to itself or protect the investment of its stockholders. As in the exercise of such management
prerogative, the employer may merge or consolidate its business with another, or sell or dispose all
or substantially all of its assets and properties which may bring about the dismissal or termination of
its employees in the process. Such dismissal or termination should not, however, be interpreted in
such a manner as to insulate the employer or selling corporation (petitioner school) from its
obligation to its employees, particularly the payment of separation pay. Such situation is not
envisioned in the law. It strikes at the very concept of social justice (Insular Lumber Co. vs. CA, 29
SCRA 371 [1969]) (Emphasis supplied).

A close scrutiny of the pertinent Deed of Sale dated April 18, 1981 reveals no express stipulation
whatsoever relative to the continued employment by the transferee, RCAM of the employees (herein
private respondents) of the erstwhile employer (petitioner). On the contrary, records show that
RCAM expressly manifested its unwillingness to absorb the petitioner school's employees or to
recognize their prior service. As correctly found by the Labor Arbiter and the NLRC, respondent
teachers' employment has been effectively terminated and there was in effect a closure (Rollo, pp.
37 and 62). Obviously, therefore, the fate of private respondents under the new owner (RCAM)
appeared unprovided for. And there is no law which requires the purchaser to absorb the employees
of the selling corporation (MDII Supervisors and Confidential Employees Association (FFW) vs.
Presidential Assistant on Legal Affairs, 79 SCRA 40 [1977]).

As there is no such law, the most that the purchasing company may do, for purposes of public policy
and social justice, is to give preference to the qualified separated employees of the selling company,
who in their judgment are necessary in the continued operation of the business establishment (Ibid.).
This, RCAM did. It required private respondents to re-apply as new employees as a condition for
rehiring, subject to the usual probationary status, the latter's past services with the petitioners-
transferors not recognized (Rollo, pp. 60 and 99).

Records further reveal that the negotiations for the sale of the assets and properties of petitioner
school were held behind the back of the private respondents who were taken by surprise when they
reported for work finding a new owner of the school. As mentioned at the outset they were not
formally notified of the sale or transfer to RCAM and its attendant consequences with respect to their
continued employment status under the new owners. As such, the recognition of their past services
as teachers remains uncertain. Worse, they were not at all given the required notice of their
termination.

On all fours with the instant case is the ruling in Central Azucarera del Danao vs. Court of
Appeals, 137 SCRA 295, 306 [1985], pertinent portions of which read:

The records further reveal that the negotiations for the sale of the assets and
properties of Central Danao to Dadeco were held behind the back of the employees
who were taken by surprise upon the consummation of the sale. They were not
formally notified of the impending sell-out to Dadeco and its attendant consequences
with respect to their continued employment status under the purchasing company. As
such, they were uncertain of being retained, hired, or absorbed by the new owner
and its management. Technically then, the employees were actually terminated
and/or separated from the service on the date of the sale, or on July 7, 1961. Worse,
they were not at all given the required notice of their termination. Inasmuch as there
was no notice of termination whatsoever given to the employees of Central Danao
coupled with the fact that no efforts were exerted by Central Danao to apprise its
employees of the consequences of the sale or disposition of its assets to Dadeco,
justice and equity dictate that private respondents be entitled to their termination or
separation pay corresponding to the number of years of service with Central Danao
until June 7, 1961.

In the earlier case of Philippine Refining Company vs. Garcia, 18 SCRA 107 [1966], this Court,
speaking thru Justice J.B.L. Reyes, stated:

Except where other applicable statutes provide differently, it is not the cause for the
dismissal but the employer's failure to serve notice upon the employee that renders
the employer answerable to the employee for termination pay.

Hence, petitioners' contention that private respondents are not entitled to separation pay on the
ground that there was no termination of the latter's employment but a mere change of ownership in
the assets and properties of the school is untenable. Neither can the flimsy excuse that at the time of
their alleged termination, there was no employer-employee relationship between them (private
respondents) and petitioners, be sustained.

Finally, this Honorable Court took the occasion to remind employers to exercise caution and care in
dealing with their employees to prevent suspicion that the adoption of certain corporate
combinations such as merger or consolidation, or outright sale or disposition of assets is but a
scheme to evade payment of termination pay to their employees (Central Azucarera del
Danao, supra).

With the resolution of the main issue, there appears to be no necessity to go into the other issues,
except to say that only petitioner San Felipe Neri School of Mandaluyong is liable to the private
respondents, the other petitioners not being the employers of the teachers.
WHEREFORE, as hereinabove MODIFIED, the appealed decision and resolution are hereby
AFFIRMED, the school having a separate and distinct personality from the other petitioners.

SO ORDERED.

13. EN BANC

FELIX B. PEREZ and G.R. No. 152048

AMANTE G. DORIA,

Petitioners,

Present:

PUNO, C.J.,

QUISUMBING,

YNARES-SANTIAGO,

CARPIO,

AUSTRIA-MARTINEZ,

- v e r s u s - CORONA,

CARPIO MORALES,

TINGA,

CHICO-NAZARIO,

VELASCO, JR.,

NACHURA,

LEONARDO-DE CASTRO,

BRION and
PERALTA, JJ.

PHILIPPINE TELEGRAPH AND

TELEPHONE COMPANY and

JOSE LUIS SANTIAGO,

Respondents. Promulgated:

April 7, 2009

x------------------------------------------
--------x

DECISION

CORONA, J.:

Petitioners Felix B. Perez and Amante G. Doria were


employed by respondent Philippine Telegraph and Telephone
Company (PT&T) as shipping clerk and supervisor, respectively, in
PT&Ts Shipping Section, Materials Management Group.

Acting on an alleged unsigned letter regarding anomalous


transactions at the Shipping Section, respondents formed a
special audit team to investigate the matter. It was discovered
that the Shipping Section jacked up the value of the freight costs
for goods shipped and that the duplicates of the shipping
documents allegedly showed traces of tampering, alteration and
superimposition.

On September 3, 1993, petitioners were placed on


preventive suspension for 30 days for their alleged involvement in
the anomaly.[1] Their suspension was extended for 15 days twice:
first on October 3, 1993[2] and second on October 18, 1993.[3]

On October 29, 1993, a memorandum with the following


tenor was issued by respondents:

In line with the recommendation of the AVP-Audit as


presented in his report of October 15, 1993 (copy
attached) and the subsequent filing of criminal charges
against the parties mentioned therein, [Mr. Felix Perez
and Mr. Amante Doria are] hereby dismissed from the
service for having falsified company documents.
[4]
(emphasis supplied)

On November 9, 1993, petitioners filed a complaint for illegal


suspension and illegal dismissal. [5] They alleged that they were
dismissed on November 8, 1993, the date they received the
above-mentioned memorandum.
The labor arbiter found that the 30-day extension of
petitioners suspension and their subsequent dismissal were both
illegal. He ordered respondents to pay petitioners their salaries
during their 30-day illegal suspension, as well as to reinstate
them with backwages and 13th month pay.

The National Labor Relations Commission (NLRC) reversed


the decision of the labor arbiter. It ruled that petitioners were
dismissed for just cause, that they were accorded due process
and that they were illegally suspended for only 15 days (without
stating the reason for the reduction of the period of petitioners
illegal suspension).[6]

Petitioners appealed to the Court of Appeals (CA). In its


January 29, 2002 decision,[7] the CA affirmed the NLRC decision
insofar as petitioners illegal suspension for 15 days and dismissal
for just cause were concerned. However, it found that petitioners
were dismissed without due process.

Petitioners now seek a reversal of the CA decision. They


contend that there was no just cause for their dismissal, that they
were not accorded due process and that they were illegally
suspended for 30 days.

We rule in favor of petitioners.


RESPONDENTS FAILED TO PROVE JUST

CAUSE AND TO OBSERVE DUE PROCESS

The CA, in upholding the NLRCs decision, reasoned that


there was sufficient basis for respondents to lose their confidence
in petitioners[8] for allegedly tampering with the shipping
documents. Respondents emphasized the importance of a
shipping order or request, as it was the basis of their liability to a
cargo forwarder.[9]

We disagree.

Without undermining the importance of a shipping order or


request, we find respondents evidence insufficient to clearly and
convincingly establish the facts from which the loss of confidence
resulted.[10] Other than their bare allegations and the fact that
such documents came into petitioners hands at some point,
respondents should have provided evidence of petitioners
functions, the extent of their duties, the procedure in the handling
and approval of shipping requests and the fact that no personnel
other than petitioners were involved. There was, therefore, a
patent paucity of proof connecting petitioners to the alleged
tampering of shipping documents.
The alterations on the shipping documents could not
reasonably be attributed to petitioners because it was never
proven that petitioners alone had control of or access to these
documents. Unless duly proved or sufficiently substantiated
otherwise, impartial tribunals should not rely only on the
statement of the employer that it has lost confidence in its
employee.[11]

Willful breach by the employee of the trust reposed in him by


his employer or duly authorized representative is a just cause for
termination.[12] However, in General Bank and Trust Co. v. CA,
[13]
we said:

[L]oss of confidence should not be simulated. It should


not be used as a subterfuge for causes which are
improper, illegal or unjustified. Loss of confidence may
not be arbitrarily asserted in the face of overwhelming
evidence to the contrary. It must be genuine, not a mere
afterthought to justify an earlier action taken in bad faith.

The burden of proof rests on the employer to establish that


the dismissal is for cause in view of the security of tenure that
employees enjoy under the Constitution and the Labor Code. The
employers evidence must clearly and convincingly show the facts
on which the loss of confidence in the employee may be fairly
made to rest.[14] It must be adequately proven by substantial
evidence.[15] Respondents failed to discharge this burden.

Respondents illegal act of dismissing petitioners was


aggravated by their failure to observe due process. To meet the
requirements of due process in the dismissal of an employee, an
employer must furnish the worker with two written notices: (1) a
written notice specifying the grounds for termination and giving to
said employee a reasonable opportunity to explain his side and
(2) another written notice indicating that, upon due consideration
of all circumstances, grounds have been established to justify the
employer's decision to dismiss the employee. [16]

Petitioners were neither apprised of the charges against


them nor given a chance to defend themselves. They were simply
and arbitrarily separated from work and served notices of
termination in total disregard of their rights to due process and
security of tenure. The labor arbiter and the CA correctly found
that respondents failed to comply with the two-notice requirement
for terminating employees.

Petitioners likewise contended that due process was not


observed in the absence of a hearing in which they could have
explained their side and refuted the evidence against them.
There is no need for a hearing or conference. We note a
marked difference in the standards of due process to be followed
as prescribed in the Labor Code and its implementing rules. The
Labor Code, on one hand, provides that an employer must provide
the employee ample opportunity to be heard and to defend
himself with the assistance of his representative if he so desires:

ART. 277. Miscellaneous provisions. x x x

(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
Department of Labor and Employment. 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 National Labor Relations Commission. The burden of
proving that the termination was for a valid or authorized
cause shall rest on the employer. (emphasis supplied)

The omnibus rules implementing the Labor Code, on the


other hand, require a hearing and conference during which the
employee concerned is given the opportunity to respond to the
charge, present his evidence or rebut the evidence presented
against him:[17]

Section 2. Security of Tenure. x x x

(d) In all cases of termination of employment, the


following standards of due process shall be substantially
observed:

For termination of employment based on just causes


as defined in Article 282 of the Labor Code:

(i) A written notice served on the employee


specifying the ground or grounds for termination, and
giving said employee reasonable opportunity within which
to explain his side.

(ii) A hearing or conference during which the


employee concerned, with the assistance of
counsel if he so desires, is given opportunity to
respond to the charge, present his evidence or
rebut the evidence presented against him.

(iii) 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. (emphasis supplied)
Which one should be followed? Is a hearing (or conference)
mandatory in cases involving the dismissal of an employee? Can
the apparent conflict between the law and its IRR be reconciled?

At the outset, we reaffirm the time-honored doctrine that, in


case of conflict, the law prevails over the administrative
regulations implementing it.[18] The authority to promulgate
implementing rules proceeds from the law itself. To be valid, a rule
or regulation must conform to and be consistent with the
provisions of the enabling statute. [19] As such, it cannot amend the
law either by abridging or expanding its scope. [20]

Article 277(b) of the Labor Code provides that, in cases of


termination for a just cause, an employee must be given ample
opportunity to be heard and to defend himself. Thus, the
opportunity to be heard afforded by law to the employee is
qualified by the word ample which ordinarily means considerably
more than adequate or sufficient. [21] In this regard, the
phrase ample opportunity to be heard can be reasonably
interpreted as extensive enough to cover actual hearing or
conference. To this extent, Section 2(d), Rule I of the
Implementing Rules of Book VI of the Labor Code is in conformity
with Article 277(b).
Nonetheless, Section 2(d), Rule I of the Implementing Rules
of Book VI of the Labor Code should not be taken to mean that
holding an actual hearing or conference is a condition sine qua
non for compliance with the due process requirement in
termination of employment. The test for the fair procedure
guaranteed under Article 277(b) cannot be whether there has
been a formal pretermination confrontation between the employer
and the employee. The ample opportunity to be heard standard is
neither synonymous nor similar to a formal hearing. To confine
the employees right to be heard to a solitary form narrows down
that right. It deprives him of other equally effective forms of
adducing evidence in his defense. Certainly, such an exclusivist
and absolutist interpretation is overly restrictive. The very nature
of due process negates any concept of inflexible procedures
universally applicable to every imaginable situation. [22]

The standard for the hearing requirement, ample


opportunity, is couched in general language revealing the
legislative intent to give some degree of flexibility or adaptability
to meet the peculiarities of a given situation. To confine it to a
single rigid proceeding such as a formal hearing will defeat its
spirit.

Significantly, Section 2(d), Rule I of the Implementing Rules


of Book VI of the Labor Code itself provides that the so-called
standards of due process outlined therein shall be
observed substantially, not strictly. This is a recognition that while
a formal hearing or conference is ideal, it is not an absolute,
mandatory or exclusive avenue of due process.

An employees right to be heard in termination cases under


Article 277(b) as implemented by Section 2(d), Rule I of the
Implementing Rules of Book VI of the Labor Code should be
interpreted in broad strokes. It is satisfied not only by a formal
face to face confrontation but by any meaningful opportunity to
controvert the charges against him and to submit evidence in
support thereof.

A hearing means that a party should be given a chance to


adduce his evidence to support his side of the case and that the
evidence should be taken into account in the adjudication of the
controversy.[23] To be heard does not mean verbal argumentation
alone inasmuch as one may be heard just as effectively through
written explanations, submissions or pleadings. [24] Therefore,
while the phrase ample opportunity to be heard may in fact
include an actual hearing, it is not limited to a formal hearing only.
In other words, the existence of an actual, formal trial-type
hearing, although preferred, is not absolutely necessary to satisfy
the employees right to be heard.
This Court has consistently ruled that the due process
requirement in cases of termination of employment does not
require an actual or formal hearing. Thus, we categorically
declared in Skippers United Pacific, Inc. v. Maguad:[25]

The Labor Code does not, of course, require a


formal or trial type proceeding before an erring
employee may be dismissed. (emphasis supplied)

In Autobus Workers Union v. NLRC,[26] we ruled:


The twin requirements of notice and hearing
constitute the essential elements of due process. Due
process of law simply means giving opportunity to be
heard before judgment is rendered. In fact, there is no
violation of due process even if no hearing was
conducted, where the party was given a chance to
explain his side of the controversy. What is frowned
upon is the denial of the opportunity to be heard.

xxxxxxxxx

A formal trial-type hearing is not even


essential to due process. It is enough that the
parties are given a fair and reasonable opportunity
to explain their respective sides of the controversy
and to present supporting evidence on which a fair
decision can be based. This type of hearing is not even
mandatory in cases of complaints lodged before the Labor
Arbiter. (emphasis supplied)
In Solid Development Corporation Workers Association v.
Solid Development Corporation,[27] we had the occasion to state:

[W]ell-settled is the dictum that the twin requirements of


notice and hearing constitute the essential elements of
due process in the dismissal of employees. It is a cardinal
rule in our jurisdiction that the employer must furnish the
employee with two written notices before the termination
of employment can be effected: (1) the first apprises the
employee of the particular acts or omissions for which his
dismissal is sought; and (2) the second informs the
employee of the employers decision to dismiss him. The
requirement of a hearing, on the other hand, is
complied with as long as there was an opportunity
to be heard, and not necessarily that an actual
hearing was conducted.

In separate infraction reports, petitioners were both


apprised of the particular acts or omissions constituting
the charges against them. They were also required to
submit their written explanation within 12 hours from
receipt of the reports. Yet, neither of them complied. Had
they found the 12-hour period too short, they should have
requested for an extension of time. Further, notices of
termination were also sent to them informing them of the
basis of their dismissal. In fine, petitioners were given due
process before they were dismissed. Even if no hearing
was conducted, the requirement of due process
had been met since they were accorded a chance to
explain their side of the controversy. (emphasis supplied)

Our holding in National Semiconductor HK Distribution, Ltd.


v. NLRC[28] is of similar import:

That the investigations conducted by


petitioner may not be
considered formal or recorded hearings or
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.

The above rulings are a clear recognition that the employer


may provide an employee with ample opportunity to be heard and
defend himself with the assistance of a representative or counsel
in ways other than a formal hearing. The employee can be fully
afforded a chance to respond to the charges against him, adduce
his evidence or rebut the evidence against him through a wide
array of methods, verbal or written.
After receiving the first notice apprising him of the charges
against him, the employee may submit a written explanation
(which may be in the form of a letter, memorandum, affidavit or
position paper) and offer evidence in support thereof, like relevant
company records (such as his 201 file and daily time records) and
the sworn statements of his witnesses. For this purpose, he may
prepare his explanation personally or with the assistance of a
representative or counsel. He may also ask the employer to
provide him copy of records material to his defense. His written
explanation may also include a request that a formal hearing or
conference be held. In such a case, the conduct of a formal
hearing or conference becomes mandatory, just as it is where
there exist substantial evidentiary disputes [29] or where company
rules or practice requires an actual hearing as part of employment
pretermination procedure. To this extent, we refine the decisions
we have rendered so far on this point of law.

This interpretation of Section 2(d), Rule I of the


Implementing Rules of Book VI of the Labor Code reasonably
implements the ample opportunity to be heard standard under
Article 277(b) of the Labor Code without unduly restricting the
language of the law or excessively burdening the employer. This
not only respects the power vested in the Secretary of Labor and
Employment to promulgate rules and regulations that will lay
down the guidelines for the implementation of Article 277(b).
More importantly, this is faithful to the mandate of Article 4 of the
Labor Code that [a]ll doubts in the implementation and
interpretation of the provisions of [the Labor Code], including its
implementing rules and regulations shall be resolved in favor of
labor.

In sum, the following are the guiding principles in connection


with the hearing requirement in dismissal cases:

(a) ample opportunity to be heard means any meaningful


opportunity (verbal or written) given to the employee to
answer the charges against him and submit evidence in
support of his defense, whether in a hearing,
conference or some other fair, just and reasonable way.

(b) a formal hearing or conference becomes mandatory only


when requested by the employee in writing or
substantial evidentiary disputes exist or a company rule
or practice requires it, or when similar circumstances
justify it.

(c) the ample opportunity to be heard standard in the Labor


Code prevails over the hearing or conference
requirement in the implementing rules and regulations.
PETITIONERS WERE ILLEGALLY

SUSPENDED FOR 30 DAYS


An employee may be validly suspended by the employer for
just cause provided by law. Such suspension shall only be for a
period of 30 days, after which the employee shall either be
reinstated or paid his wages during the extended period. [30]

In this case, petitioners contended that they were not paid


during the two 15-day extensions, or a total of 30 days, of their
preventive suspension. Respondents failed to adduce evidence to
the contrary. Thus, we uphold the ruling of the labor arbiter on
this point.

Where the dismissal was without just or authorized cause


and there was no due process, Article 279 of the Labor Code, as
amended, 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.[31] In this case, however, reinstatement is no longer
possible because of the length of time that has passed from the
date of the incident to final resolution. [32] Fourteen years have
transpired from the time petitioners were wrongfully dismissed. To
order reinstatement at this juncture will no longer serve any
prudent or practical purpose.[33]
WHEREFORE, the petition is hereby GRANTED. The
decision of the Court of Appeals dated January 29, 2002 in CA-
G.R. SP No. 50536 finding that petitioners Felix B. Perez and
Amante G. Doria were not illegally dismissed but were not
accorded due process and were illegally suspended for 15 days,
is SET ASIDE. The decision of the labor arbiter dated December
27, 1995 in NLRC NCR CN. 11-06930-93 is
hereby AFFIRMED with the MODIFICATION that petitioners
should be paid their separation pay in lieu of reinstatement.

SO ORDERED.

14. Republic of the Philippines


Supreme Court
Manila

THIRD DIVISION

CULVER B. SUICO, G.R. No. 146762


TERESA D. CENIZA and
RONALD R. DACUT,
Petitioners,

- versus -
NATIONAL LABOR
RELATIONS COMMISSION,
PHILIPPINE LONG
DISTANCE TELEPHONE
COMPANY (PLDT)/
AUGUSTO G. COTELO,
Respondents.
x-------------------x

BENIGNO MARIANO, JR., G.R. No. 153584


Petitioner,

- versus -
NATIONAL LABOR
RELATIONS COMMISSION,
PHILIPPINE LONG
DISTANCE TELEPHONE
COMPANY (PLDT),
Respondents.
x-------------------x

PHILIPPINE LONG G.R. No. 163793


DISTANCE TELEPHONE
COMPANY (PLDT), Present:
Petitioner,
YNARES-SANTIAGO, J.,
- versus - (Chairperson),
AUSTRIA-MARTINEZ,
ERNESTO BORJE, CALLEJO, SR., and
Respondent. CHICO-NAZARIO, JJ.

Promulgated:
January 30, 2007
x------------------------------------------------
x

DECISION

AUSTRIA-MARTINEZ, J.:

By Resolution dated January 17, 2005,[1] the Court ordered


the consolidation of the Petitions for Review on Certiorariunder
Rule 45 of the Rules of Court docketed as G.R. No. 146762, [2] G.R.
No. 153584,[3] and G.R. No. 163793.[4]

They involve parallel facts and issues:

G.R. No. 146762

Culver B. Suico, Teresa D. Ceniza, and Ronald R. Dacut


(complainants) were regular employees of Philippine Long
Distance Telephone Company (PLDT) Cebu Jones Exchange and
members of Manggagawa ng Komunikasyon ng Pilipinas(MKP). In
September 1997, MKP launched a strike against
PLDT. Complainants participated in the strike by picketing the
PLDT.[5]

Acting Department of Labor and Employment (DOLE)


Secretary Crescencio Trajano assumed jurisdiction over the labor
dispute and issued a Return-to-Work Order on September 20,
1997.[6] MKP did not heed said order but merely filed an
Opposition[7] thereto. In an Order[8] dated September 29, 1997,
DOLE Secretary Leonardo A. Quisumbing[9] denied MKPs
Opposition.

Meanwhile, at the PLDT, complainants continued with their


strike. On September 29, 1997, Ann Detelou Fernando (Fernando),
a PLDT managerial employee, sustained injuries when strikers
blocked her way to the premises of PLDT. Complainants were
implicated in said incident. Hence, Emiliano Tanchico (Tanchico),
PLDT Vice-President for Personnel Management
and Development Center, sent to complainants separate notices
dated October 8, 1997, which uniformly read:

Please explain in writing why you should not be


terminated for committing the following act:

On September 30, 1997, while participating in an


obviously illegal strike, you physically assaulted Ms. A
Fernando, a Traffic Supervisor. Attached as Annex A is the
statement of Ms. Fernando.

xxxx

Your illegal act has seriously prejudiced the companys


operations, is a violation of the Code of Conduct and is
considered, among others, serious misconduct, which is a
ground for termination under Article 282 of the Labor
Code.

Kindly submit your notarized explanation to your Division


Head within 48 hours from receipt of this Notice. Failure
on your part to submit a written explanation within the
given period shall constitute a waiver of your right to be
heard. [10]

Annex A to said notices is an unsworn statement in which


Fernando gave a detailed account of the illegal act imputed
tocomplainants.[11]
Complainants did not file any explanation. Tanchico sent
them two other sets of notices dated October 14,
1997 [12]
and October 24, 1997. [13]

On October 27, 1997, complainants sent Tanchico separate


but uniformly-worded letters which read:

This concerns your memo dated October 8, 1997 xxx.

In this regard, I hereby elect to exercise my right to be


heard and defend myself in a formal hearing, to be set
within five (5) days from my receipt of the documents
hereinafter requested, pursuant to my right to due
process and par. 2.5 of PLDT Systems Practice re the
Handling of Administrative Cases. Moreover, kindly
furnish me with the copies of formal (written) complaint
filed against me as well as statements of witness(es) and
preliminary investigation report(s) regarding the
complaint, if any.

My election to exercise my right to be heard and defend


myself in a formal hearing is without prejudice to my right
to submit a written explanation at a later time, which I
hereby expressly reserve.[14]

PLDT Division Head Augusto Cotelo (Cotelo) replied


on November 3, 1997 that PLDT was deferring action on the
request for formal hearing until complainants shall have filed their
answers to the charges. Cotelo wrote:
Please submit the notarized explanation that
we required in our letters of October 8 & 14, 1997
within forty-eight (48) hours upon receipt of this
letter, before we can consider any formal hearing.
Please be reminded that we shall consider your failure to
comply as a waiver of your right to be heard, and
accordingly decide on the charges against you on the
basis of the evidence on hand. [15] (Emphasis ours)

Complainants merely reiterated their request for formal


hearing. Thus, Cotelo sent them termination notices
dated November 19, 1997 which read:

In light of the repeated demands and your consistent


failure to provide the required written explanation for the
following acts:

On September 30, 1997, while participating in an


obviously illegal strike, you physically assaulted Ms. A.
Fernando, a Traffic Supervisor. PLDT has proceeded to
consider the charges against you for violation of Article
264 of the Labor Code and for serious misconduct.

Based on the available evidence, the written copy of


which were duly sent to you, the Company finds you
guilty as charged. The Company cannot see any reason
why the evidence that the statements we considered
were motivated by any purpose other than to bear
witness to the truth. We find these evidence direct and
positive identification of your participation in and
commission of the illegal act charged.
Your act constitutes a just cause for termination under the
Labor Code which authorizes an employer to terminate an
employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or
intimidation, or the obstruction of free ingress and egress,
during a strike (see Art. 282-A & 264, Labor Code). There
is also the additional attendant circumstances that you
committed these acts during a strike that was illegally
declared and conducted. Your services with Philippine
Long Distance Telephone Company are consequently
terminated effective upon receipt of this letter.[16]

Complainants filed a Complaint for illegal dismissal and


damages with the Labor Arbiter (LA). In a Decision dated July 15,
1998, the LA declared the dismissal of complainants illegal and
ordered their reinstatement.[17]

PLDT appealed to the National Labor Relations Commission


(NLRC) which, in its January 3, 2000 Decision, reversed and set
aside the July 15, 1998 LA Decision, thus:

WHEREFORE, premises considered, the decision of the


Labor Arbiter is hereby SET ASIDE and VACATED and a
new one entered DISMISSING the instant complaint.

SO ORDERED.[18]

Complainants filed a Motion for Reconsideration which the


NLRC denied in its Resolution dated March 27, 2000.[19]
Thereafter, complainants filed a Petition for Certiorari under
Rule 65 with the Court of Appeals (CA) but the latter dismissed it
in a Decision[20] dated September 22, 2000, the dispositive portion
of which states:

WHEREFORE, premises considered, the petition is


DISMISSED and the assailed decision and resolution are
affirmed.

SO ORDERED. [21]

The Motion for Reconsideration filed by complainants was


denied by the CA in its January 11, 2001 Resolution.[22]

And so, the present Petition for Review where complainants


question the CA for its September 22, 2000 Decision and January
11, 2001 Resolution on the sole ground that:

THE COURT OF APPEALS HAS DECIDED THE INSTANT


DISPUTE IN A WAY NOT IN ACCORD WITH LAW AND
JURISPRUDENCE WHEN IT REFUSED TO CONSIDER THAT
THE DISMISSAL OF HEREIN PETITIONNERS WAS MADE IN
VIOLATION OF THEIR RIGHT TO PROCEDURAL DUE
PROCESS.[23]

G.R. No. 153584


Benigno Mariano, Jr. (Mariano) was an employee of PLDT Laoag
City Sub-Exchange and an officer of MKP. During the September
1997 strike which MKP launched against PLDT, Mariano led a
picket of the premises of the PLDT. [24] In said picket, Melvyn T.
Guillermo (Guillermo), a PLDT subscriber, suffered injury and
humiliation at the hands of a striker. In his letter to PLDT,
Guillermo identified Mariano as the culprit and demanded that the
latter be dismissed.[25]

Acting on the complaint of Guillermo, Tanchico sent Mariano the


following notice dated October 13, 1997:

Please explain in writing why you should not be


terminated for committing the following act:

On 19 September 1997, at around 11:50 a.m., you


verbally and physically assaulted MELVYN T. GUILLERMO,
a PLDT subscriber xxx. Attached for your reference as
Annex A is the letter-complaint of Mr. Guillermo.

This act is illegal and violates express provisions of the


Labor Code which among others provide:

ART. 264.

xxxx
(e) No person engaged in picketing shall commit any act
of violence, coercion or intimidation or obstruct the free
ingress to or egress from the employers premises for
lawful purposes or obstruct public thoroughfares.

Additionally, as provided in the law, any worker who


knowingly participates in the commission of illegal acts
during a strike may be declared to have lost his
employment status.

Your illegal act has seriously prejudiced the companys


operations, is a violation of the Code of Conduct and is
considered, among others, serious misconduct, which is a
ground for termination under Article 282 of the Labor
Code.

Kindly submit your notarized explanation to your Division


Head within 48 hours from receipt of this Notice. Failure
on your part to submit a written explanation within the
given period shall constitute a waiver of your right to be
heard.[26]

When Mariano did not reply, Tanchico sent him another


notice[27] dated October 24, 1997, instructing him to submit his
notarized explanation otherwise the charges against him will be
resolved based on the available evidence.

On November 6, 1997, Mariano wrote Tanchico:


Sir, your memorandum dated 13 October 1997 xxx is a
gross violation of my constitutional right as worker and
employee to self organization xxx.
Hence, I hereby elect to exercise my right to due process,
i.e., to be heard and defend myself in a formal hearing to
be set within 5 (FIVE) days from receipt of documents
hereinafter requested.

Pursuant to PLDT System Practice #94-016 dated August


10, 1994 (Handling of Administrative Cases), please
furnish me a copy of formal (written) complaint filed
against me, statement of witness/es and preliminary
investigations and/or report/s conducted on the aforesaid
incident, if any.

My option to be heard and defend myself in a formal


hearing is without prejudice to my right of recourse at a
later time which I hereby expressly reserve.[28]

Hence, Reynaldo Puzon, PLDT Assistant Vice-President for North


Luzon, sent Mariano a notice dated November 18, 1997, informing
him of the termination of his employment, thus:

xxx You asked in your letter that you be allowed to


defend yourself in a formal hearing but you failed to
provide a written explanation.

In light of the demands and your failure to provide the


required written explanation for the following acts:

On September 19, 1997, at around 11:50 a.m., you


verbally and physically assaulted Mr. Melvyn Guillermo, a
PLDT subscriber who had just paid his PLDT bill at the
companys Laoag Business Office. After verbally abusing
Mr. Guillermo by shouting invectives in his face, you
boxed and slapped him, striking his face, left shoulder
and arm. PLDT has proceeded to consider the charges
against you for violation of Art. 264 of the Labor Code and
for serious misconduct.

Based on the available evidence, the written copy of


which were duly sent to you, the Company finds you
guilty as charged. The Company cannot see any reason
why the evidence that the statements we considered
were motivated by any purpose other than to bear
witness to the truth. We find these evidence direct and
positive identification of your participation in and
commission of the illegal act charged.

Your act constitutes a just cause for termination under the


Labor Code which authorizes an employer to terminate an
employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or
intimidation, or the obstruction of free ingress and egress,
during a strike (see Art. 282-A & 264, Labor Code). There
is also the additional attendant circumstances that you
committed these acts during a strike that was illegally
declared and conducted. Your services with Philippine
Long Distance Telephone Company are consequently
terminated effective upon receipt of this letter.[29]

Mariano filed a Complaint[30] for illegal dismissal and


damages with the LA but the latter dismissed it in a
Decision[31] dated December 15, 1998. Mariano appealed to the
NLRC but to no avail as the latter, in its December 27,
1999Resolution,[32] affirmed the December 15, 1998 LA
Decision. In its Resolution [33]
of March 3, 2000, the NLRC denied
Marianos Motion for Reconsideration.

Mariano filed a Petition for Certiorari[34] with the CA which


rendered the following Decision[35] on February 7, 2002:

WHEREFORE, premises considered, the petition is


DISMISSED and the assailed decision and resolution are
AFFIRMED.

SO ORDERED.[36]

Mariano sought reconsideration of the foregoing decision but the


CA denied the same in its Resolution[37] of May 9, 2002.

Mariano is now before the Court in the present petition assailing


the CA Decision and Resolution claiming that:

THE COURT OF APPEALS HAD DECIDED THE INSTANT


DISPUTE IN A WAY NOT IN ACCORD WITH LAW AND
JURISPRUDENCE WHEN IT REFUSED TO CONSIDER THAT
THE DISMISSAL OF HEREIN PETITIONER WAS MADE IN
VIOLATION OF [HIS] RIGHT TO PROCEDURAL DUE
PROCESS.[38]

G.R. No. 163793


Ernesto Borje (Borje) was an employee of PLDT SFU Mother
Exchange and a member of MKP. During the September 1997
strike which MKP staged against PLDT, Borje took part by
picketing the premises of PLDT.[39]

In a notice dated October 23, 1997 sent by Tanchico to Borje,


the latter was accused of engaging in violent activities during the
strike. The notice read:

Please explain in writing why you should not be


terminated for committing the following acts:

1. October 15, 1997, at around 8:35 a.m., you hurled a


stone hitting the leg (below the knee) of Mr. Danny N.
Garcia, OPM Supervisor xxx as a result of which Mr. Garcia
suffered a contusion. Attached as Annex A is the incident
report of Mr. Garcia; and

2. October 15, 1997, at around 8:20 p.m, you threw


stones at Mr. Amelito Visico, an employee of Southland
Security Corporation of the Philippines assigned at the
PLDT Exchange, San Fernando, La Union. Minutes later or
at around 8:35 p.m., you again threw stones inside PLDT
premises hitting and damaging the right side window of
PLDTs service vehicle with body no. 96-495 and plate no.
UJW-359. Attached as Annex B is the Affidavit of Mr.
Visico.
This act is illegal and violates express provisions of the
Labor Code xxx.

Additionally, as provided in the law, any worker who


knowingly participates in the commission of illegal acts
during a strike may be declared to have lost his
employment status.

Your illegal act has seriously prejudiced the companys


operations, is a violation of the Code of Conduct and is
considered, among others, serious misconduct, which is
ground for termination under Article 282 of the Labor
Code.

Kindly submit your notarized explanation to your


Division Head within 48 hours from receipt of this Notice.
Failure on your part to submit a written explanation within
the given period shall constitute a waiver of your right to
be heard.[40]

Borje replied on November 7, 1997, to wit:

Sir, your memorandum dated 13 October 1997 xxx


is a gross violation of my constitutional right as worker
and employee to self organization xxx.

Hence, I hereby elect to exercise my right to due process,


i.e., to be heard and defend myself in a formal hearing to
be set within 5 (FIVE) days from receipt of documents
hereinafter requested.

Pursuant to PLDT System Practice #94-016 dated August


10, 1994 (Handling of Administrative Cases), please
furnish me a copy of formal (written) complaint filed
against me, statement of witness/es and preliminary
investigations and/or report/s conducted on the aforesaid
incident, if any.

My election to exercise my right to be heard and


defend myself in a formal hearing is without prejudice to
my right to submit a written explanation at a later time,
which I hereby expressly reserve. [41]

Puzon sent Borje a notice dated November 18, 1997 informing


him of the termination of his employment, thus:
xxx You asked in your letter that you be allowed to defend
yourself in a formal hearing but you failed to provide a
written explanation.

In light of the demands and your failure to provide the


required written explanation for the following acts:

On October 15, 1997, at aroun 8:35 a.m., you hurled a


stone hitting the leg (below the knee) of Mr. Danny
Garcia, OPM Supervisor. As a result of which Mr. Garcia
suffered a contusion. On the same day, at around 8:20
p.m., you threw stones at Mr. Amelito Visico, an employee
of Southland Security Corporation of
the Philippines assigned at the PLDT Exchange, San
Fernando, La Union. Minutes later or at around 8:35 p.m.,
you again threw stones inside PLDT premises hitting and
damaging the right side window of PLDTs service vehicle
with body no. 94-495 and plate no. UJW-359. PLDT has
proceeded to consider the charges against you for
violation of Article 264 of the Labor Code and for serious
misconduct.

Based on the available evidence, the written copy of


which were duly sent to you, the Company finds you
guilty as charged. The Company cannot see any reason
why the evidence that the statements we considered
were motivated by any purpose other than to bear
witness to the truth. We find these evidence direct and
positive identification of your participation in and
commission of the illegal act charged.

Your act constitutes a just cause for termination under the


Labor Code which authorizes an employer to terminate an
employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or
intimidation, or the obstruction of free ingress and egress,
during a strike (see Art. 282-A & 264, Labor Code). There
is also the additional attendant circumstances that you
committed these acts during a strike that was illegally
declared and conducted. Your services with Philippine
Long Distance Telephone Company are consequently
terminated effective upon receipt of this letter.[42]

Borje filed a Complaint[43] for illegal dismissal and damages with


the LA but the latter dismissed it in a Decision dated January 26,
2001.[44] Borje appealed to the NLRC which, in a Resolution
dated September 28, 2001, held:
WHEREFORE, premises considered, the decision
under review is AFFIRMED and complainants appeal,
DISMISSED for lack of merit.

SO ORDERED. [45]

Borjes Motion for Reconsideration was denied by the NLRC in


its January 7, 2002 Resolution.[46]

However, upon Petition for Certiorari[47] filed by Borje, the CA


rendered on April 12, 2002 a Decision[48] the decretal portion of
which reads:

WHEREFORE, premises considered, the instant


petition is GRANTED. The decision of the Labor Arbiter
and the NLRC is REVERSED and new one entered ordering
the REINSTATEMENT of the Petitioner without loss of
seniority rights and other privileges and to grant him full
backwages, to be computed from the time of his illegal
dismissal without qualification or deduction. Let the
records of this case be REMANDED to the Labor Arbiter for
appropriate computation of backwages.

SO ORDERED.[49]

PLDT filed a Motion for Reconsideration but the CA denied the


same in a Resolution[50] dated June 1, 2004.
Petitioner PLDT is now before the Court questioning the
foregoing CA Decision and Resolution on this sole ground:

THE COURT OF APPEALS COMMITTED A REVERSIBLE


ERROR IN HOLDING THAT THE NLRC COMMITTED A GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN AFFIRMING IN TOTO THE LABOR
ARBITERS DECISION UPHOLDING THE VALIDITY OF
RESPONDENTS DISMISSAL ON THE ISSUE OF ALLEGED
LACK OF DUE PROCESS, THE SAME BEING CONTRARY TO
LAW AND ESTABLISHED JURISPRUDENCE THAT FOR
CERTIORARI TO SUCCEED ABUSE OF DISCRETION MUST
SATISFACTORILY BE SHOWN TO BE GRAVE, WHICH IS NOT
SO IN THE CASE AT BAR.[51][sic]

The petitions in G.R. No. 146762 and G.R. No. 153584 are partly
meritorious in that the CA did not err in upholding the validity of
the dismissal of Suico, Ceniza, Dacut, and Mariano but the PLDT
should be ordered to pay said employees nominal
damages pursuant to Agabon v. National Labor Relations
Commission.[52]

The petition in G.R. No. 163793 is meritorious in that the CA


erroneously reversed the NLRC by holding the dismissal of Borje
illegal; but PLDT should also be ordered to pay Borje nominal
damages.

In the three petitions, the substantive bases of the dismissal


of Suico, Ceniza, Dacut, Mariano and Borje (hereinafter
collectively referred to as Suico, et al.) is not in issue. Only the
procedural aspect is in issue, specifically, whether PLDT violated
the requirements of due process under the Labor Code when it
dismissed said employees without heeding their request for the
conduct of a formal hearing as provided for under PLDT Systems
Practice No. 94-016 and prior to submission of their respective
answers to the charges against them.

The minimum standards of due process in all cases of


termination of employment are prescribed under Article 277(b) of
the Labor Code, to wit:

Art. 277. Miscellaneous Provisions.

xxxx

(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 cause 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
Department of Labor and Employment. (Emphasis supplied).

It is implemented by Rule XXIII of the Implementing Rules of Book


V of the Labor Code,[53] which provides:
Section 2. Standards of due process; requirements of
notice.-

I. For termination of employment based on just


causes as defined in Article 282 of the Code:

(a) A written notice served on the employee


specifying the ground or grounds for termination, and
giving to said employee reasonable opportunity within
which to explain his side;

(b) A hearing or conference during which the


employee concerned, with 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; and

(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 xxx.

It is the view of PLDT that in the dismissal of employees for strike-


related violence, it is sufficient to merely declare the latter to
have lost their employment without having to comply with any
procedure for their termination.[54]

PLDT is mistaken. Art. 277 (b) in relation to Art. 264 (a)


[55]
and (e)[56] recognizes the right to due process of all workers,
without distinction as to the cause of their termination. [57] Where
no distinction is given, none is construed. [58]Hence, the foregoing
standards of due process apply to the termination of employment
of Suico, et al. even if the cause therefor was their supposed
involvement in strike-related violence prohibited under Art. 264
(a) and (e).

Moreover, the procedure for termination prescribed under Art.


277(b) and Rule XXII of the Implementing Rules of Book V is
supplemented by existing company policy. Art. 277(b) provides
that the procedure for termination prescribed therein is without
prejudice to the adoption by the employer of company policy on
the matter, provided this conforms with the guidelines set by the
DOLE such as Rule XXII of the Implementing Rules of Book V. This
is consistent with the established principle that employers are
allowed, under the broad concept of management prerogative, to
adopt company policies that regulate all aspects of personnel
administration including the dismissal and recall of workers. [59]

Company policies or practices are binding on the parties.


[60]
Some can ripen into an obligation on the part of the employer,
[61]
such as those which confer benefits on employees [62] or
regulate the procedures and requirements for their termination.
[63]
Thus, in Batangas Laguna Tayabas Bus Company (BLTB) v.
Court of Appeals,[64] the Court held that the employer BLTB is
obliged under the Service Manual it issued to grant an erring
employee the right to be heard and defend himself, and to apply
the table of penalties fixed therein.

In its Comment to the Petition in G.R. No. 146762, PLDT


objected to the application to this case of the ruling in BLTB,
arguing that xxx the more appropriate case is Mendoza v.
National Labor Relations Commission, 194[65] SCRA 606 [1991],
where the Supreme Court ruled that company procedures for
discipline do not require strict observance as long as the essential
requirements of due process had been observed xxx. But
even Mendoza favors the view that company procedure for
termination should be implemented, even if not to the letter. In
fact, in said case, the employer San Miguel Corporation
implemented company procedure for termination by conducting a
formal investigation, in question and answer form, against the
employee Mendoza.

In the present case, PLDT does not deny the existence of a


company procedure in termination cases known as Systems
Practice No. 94-016, which provides:

Effective Date

August 10, 1994

HANDLING OF ADMINISTRATIVE CASES

xxxx

1. PURPOSE

This practice describes the procedural guidelines for


handling administrative cases.

2. GENERAL
2.1 Investigation of offenses or infractions of
Company regulations committed by employees
shall be handled by various investigating units xxx;

xxxx

2.5 An employee under investigation for the


commission of an offense or infraction shall be
informed in writing of the particular act constituting
the offense or infraction imputed to him. He may
answer the charges against him in writing within a
reasonable period of time (at least 48 hours but not
more than 72 hours) or be afforded the
opportunity to be heard and defend himself
with the assistance of his counsel or union
representative, if he so desires. (Emphasis
supplied)

PLDT, however, refused to implement said policy, contending that


it applies to administrative cases only and not to strike-related
cases such as the ones involving Suico, et al.. [66]

We are unable to see the difference. As pointed out by the


CA in G.R. No. 163793, while it is true that Systems Practice No.
94-016 relates to administrative cases, PLDT failed to prove that a
termination proceeding arising from strike-related violence is not
an administrative case. If by administrative case, PLDT refers to
cases arising from violation of company rules and regulations,
then the proceedings against Suico, et al. were of that nature for
the notices sent to said employees accused them not just of
breach of Art. 264 of the Labor Code but also of behavior
prejudicial to company operations and violative of the company
code of conduct.[67] The termination proceedings against Suico, et
al. were therefore administrative in nature, subject to the
requirements of Systems Practice No. 94-016.

To repeat, the requirements of due process by which to test


the validity of the procedure adopted by PLDT in dismissing Suico,
et al. are those embodied in Art. 277 (b) of the Labor Code, Rule
XXII of the Implementing Rules of Book V andSystems Practice No.
94-016.

Apparently, PLDT complied with the two-notice requirement


of due process. The first notices sent to Suico, et al. set out in
detail the nature and circumstances of the violations imputed to
them, required them to explain their side and expressly warned
them of the possibility of their dismissal should their explanation
be found wanting. The last notices informed Suico, et al. of the
decision to terminate their employment and cited the evidence
upon which the decision was based. [68] These two notices would
have sufficed had it not been for the existence of Systems
Practice No. 94-016. Under Systems Practice No. 94-016, PLDT
granted its employee the alternative of either filing a written
answer to the charges or requesting for opportunity to be heard
and defend himself with the assistance of his counsel or union
representative, if he so desires.

Suico, et al. exercised their option under Systems Practice


No. 94-016 by requesting that a formal hearing be conducted and
that they be given copies of sworn statements and other pertinent
documents to enable them to prepare for the hearing. [69]This
option is part of their right to due process. PLDT is bound to
comply with the Systems Practice.
Yet, instead of respecting the option exercised by Suico, et
al., PLDT in G.R. No. 146762 arbitrarily disregarded the same and
insisted that Suico, et al. submit their written answers first before
their request for formal hearing can be entertained. [70] In G.R. No.
153584 and G.R. No. 163793, PLDT straightaway declared
Mariano and Borje to have waived the right to be heard and,
based on the available evidence, decided the cases against them.
[71]
Clearly, such refusal by PLDT to conduct a hearing was
unreasonable and arbitrary as it defeated the exercise by Suico,
et al. of an option which, by virtue of Systems Practice No. 94-
016, was a component of their right to due process. The
impairment of their option constituted an impairment of their
right to due process.

All told, the procedure adopted by PLDT in dismissing Suico, et al.


fell short of the requirements of due process.

It should be emphasized, however, that, consistent with our


ruling in Agabon,[72] the procedural deficiency in the dismissal of
Suico, et al. did not affect the validity or effectivity of the
dismissal as the substantive bases thereof were never put in
issue.[73] Thus, the April 12, 2002 CA Decision in G.R. No. 163793
was erroneous as it declared the dismissal of Borje illegal merely
for failure of PLDT to observe due process. The CA should have
affirmed the validity of the dismissal of Borje and awarded him
nominal damages for the impairment of his statutory right to due
process.

WHEREFORE, the petitions in G.R. Nos. 146762 and 153584


are PARTLY GRANTED. The assailed Decisions of the Court of
Appeals dated September 22, 2000 and February 7, 2002,
respectively, are AFFIRMED with MODIFICATIONto the effect
that Culver B. Suico, Teresa D. Ceniza, Ronald R. Dacut and
Benigno Mariano, Jr. are each awarded nominal damages in the
amount of P30,000.00.

The petition in G.R. No. 163793 is GRANTED. The Decision


dated April 12, 2002 of the Court of Appeals
is REVERSED and SET ASIDE. The Decision of the Labor Arbiter
dated January 26, 2001 and the Resolution of the National Labor
Relations Commission dated September 28,
2001 are REINSTATED with MODIFICATION that Ernesto Borje is
awarded nominal damages in the amount of P30,000.00.

Costs against PLDT.

SO ORDERED.
15. Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 187200 May 5, 2010

GOLDEN ACE BUILDERS and ARNOLD U. AZUL, Petitioners,


vs.
JOSE A. TALDE, Respondent.

DECISION

CARPIO MORALES, J.:

Jose A. Talde (respondent) was hired in 1990 as a carpenter by petitioner Golden Ace Builders of
which its co-petitioner Arnold Azul (Azul) is the owner-manager. In February 1999, Azul, alleging the
unavailability of construction projects, stopped giving work assignments to respondent, prompting
the latter to file a complaint1 for illegal dismissal.
By Decision2 of January 10, 2001, the Labor Arbiter ruled in favor of respondent and ordered his
immediate reinstatement without loss of seniority rights and other privileges, and with payment of full
backwages, which at that time was computed at P144,382.23, and the amount of P3,236.37
representing premium pay for rest days, service incentive leave pay and 13th month pay.

Pending their appeal to the National Labor Relations Commission (NLRC) and in compliance with
the Labor Arbiters Decision, petitioners, through counsel, advised respondent to report for work in
the construction site within 10 days from receipt thereof. Respondent submitted, however, on May
16, 2001 a manifestation3 to the Labor Arbiter that actual animosities existed between him and
petitioners and there had been threats to his life and his familys safety, hence, he opted for the
payment of separation pay. Petitioners denied the existence of any such animosity.

Meanwhile, the NLRC dismissed petitioners appeal by Resolution4 of April 22, 2002, holding that
respondent was a regular employee and not a project employee, and that there was no valid ground
for the termination of his services. Petitioners motion for reconsideration was denied by
Resolution5 of August 6, 2002.

Petitioners appeal to the Court of Appeals was dismissed by Decision6 of August 12, 2004 which
attained finality on September 15, 2004.

As an agreement could not be forged by the parties on the satisfaction of the judgment, the matter
was referred to the Fiscal Examiner of the NLRC who recomputed at P562,804.69 the amount due
respondent, which was approved by the Labor Arbiter by Order 7 of July 5, 2005. A writ of
execution8 dated July 8, 2005 was thereupon issued.

Finding the amount exorbitant, petitioners filed a motion for reconsideration with the NLRC,
contending that since respondent refused to report back to work, he should be considered to have
abandoned the same, hence, the recomputation of the wages and benefits due him should not be
beyond May 15, 2001, the date when he manifested his refusal to be reinstated.

By Resolution9 of March 9, 2006, the NLRC granted petitioners motion and accordingly vacated the
computation. It held that since respondent did not appeal the Decision of the Labor Arbiter granting
him only reinstatement and backwages, not separation pay in lieu thereof, he may not be afforded
affirmative relief; and since he refused to go back to work, he may recover backwages only up to
May 20, 2001, the day he was supposed to return to the job site. Respondents motion for
reconsideration was denied by the NLRC by Resolution 10 of June 30, 2006, hence, he filed a petition
for certiorari with the Court of Appeals.

By Decision11 of September 10, 2008, the appellate court set aside the NLRC Resolutions, holding
that respondent is entitled to both backwages and separation pay, even if separation pay was not
granted by the Labor Arbiter, the latter in view of the strained relations between the parties. The
appellate court disposed:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered by


us GRANTING the petition filed in this case. The assailed RESOLUTIONS dated 30, 2006 and
March 9, 2006 of the NLRC are hereby SET ASIDE.

Thus, the full backwages and separation pay to be awarded to the petitioner shall be computed as
follows:

Full Backwages as of June 30, 2005 = P562,804.69


Separation Pay:
P220.00 x 26 days = P5,720,00
P5,720/month x 8 years = 45,760.00

P608,564.69

We also award an additional 10% of the total monetary award by way of attorneys fees for the
expenses incurred by the petitioner to protect his rights and interests. Furthermore, when the
decision of this Court as to the monetary award becomes final and executory, the rate of legal
interest shall be imposed at 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.

SO ORDERED. (emphasis in the original)

Petitioners motion for reconsideration was denied by Resolution12 of March 12, 2009, hence, the
present petition for review on certiorari.

Petitioners assail the appellate courts award of separation pay. They assailed too as contrary to
prevailing jurisprudence the computation of backwages from the time of dismissal up to actual
reinstatement. They contend that, in effect, the appellate court modified an already final and
executory decision.

The petition fails.

The basis for the payment of backwages is different from that for the award of separation pay.
Separation pay is granted where reinstatement is no longer advisable because of strained relations
between the employee and the employer. Backwages represent compensation that should have
been earned but were not collected because of the unjust dismissal. The basis for computing
backwages is usually the length of the employees service while that for separation pay is the actual
period when the employee was unlawfully prevented from working. 13

As to how both awards should be computed, Macasero v. Southern Industrial Gases


Philippines14 instructs:

[T]he award of separation pay is inconsistent with a finding that there was no illegal dismissal, for
under Article 279 of the Labor Code and as held in a catena of cases, an employee who is dismissed
without just cause and without due process is entitled to backwages and reinstatement or payment
of separation pay in lieu thereof:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and


reinstatement. The two reliefs provided are separate and distinct. In instances where reinstatement
is no longer feasible because of strained relations between the employee and the employer,
separation pay is granted. In effect, an illegally dismissed employee is entitled to either
reinstatement, if viable, or separation pay if reinstatement is no longer viable, and backwages.

The normal consequences of respondents illegal dismissal, then, are reinstatement without
loss of seniority rights, and payment of backwages computed from the time compensation
was withheld up to the date of actual reinstatement. Where reinstatement is no longer viable
as an option, separation pay equivalent to one (1) month salary for every year of service
should be awarded as an alternative. The payment of separation pay is in addition to payment
of backwages. (emphasis, italics and underscoring supplied)

Velasco v. National Labor Relations Commission emphasizes:

The accepted doctrine is that separation pay may avail in lieu of reinstatement if
reinstatement is no longer practical or in the best interest of the parties. Separation pay in lieu
of reinstatement may likewise be awarded if the employee decides not to be reinstated. (emphasis in
the original; italics supplied)

Under the doctrine of strained relations, the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no longer desirable or viable. On one hand,
such payment liberates the employee from what could be a highly oppressive work environment. On
the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.15

Strained relations must be demonstrated as a fact, however, to be adequately supported by


evidence16 substantial evidence to show that the relationship between the employer and the
employee is indeed strained as a necessary consequence of the judicial controversy.17

In the present case, the Labor Arbiter found that actual animosity existed between petitioner Azul
and respondent as a result of the filing of the illegal dismissal case. Such finding, especially when
affirmed by the appellate court as in the case at bar, is binding upon the Court, consistent with the
prevailing rules that this Court will not try facts anew and that findings of facts of quasi-judicial bodies
are accorded great respect, even finality.

Clearly then, respondent is entitled to backwages and separation pay as his reinstatement has been
rendered impossible due to strained relations. As correctly held by the appellate court, the
backwages due respondent must be computed from the time he was unjustly dismissed until his
actual reinstatement, or from February 1999 until June 30, 2005 when his reinstatement was
rendered impossible without fault on his part.

The Court, however, does not find the appellate courts computation of separation pay in order. The
appellate court considered respondent to have served petitioner company for only eight years.
Petitioner was hired in 1990, however, and he must be considered to have been in the service
not only until 1999, when he was unjustly dismissed, but until June 30, 2005, the day he is
deemed to have been actually separated (his reinstatement having been rendered
impossible) from petitioner company or for a total of 15 years.

WHEREFORE, the Court of Appeals Decision dated September 10, 2008 and its Resolution dated
March 12, 2009 in C.A. G.R. SP No. 961082 are AFFIRMED with the MODIFICATION that the
amount of separation pay due respondent is, in light of the discussion in the immediately
foregoing paragraph, computed at P85,800.00.

SO ORDERED.

16. epublic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 167706 November 5, 2009

REYNALDO G. CABIGTING, Petitioner,


vs.
SAN MIGUEL FOODS, INC., Respondent.

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on certiorari1 under Rule 45 of the Rules of Court assailing
the August 31, 2004 Decision2 and April 5, 2005 Resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 82810. The CA declared the dismissal of petitioner as illegal and ordered the payment of his
full backwages, but did not decree his reinstatement.

The facts of the case:

Petitioner Reynaldo G. Cabigting was hired as a receiver/ issuer at the San Miguel Corporation,
Feeds and Livestock Division (B-Meg) on February 16, 1984 and after years of service, he was
promoted as inventory controller.4

On June 26, 2000, respondent San Miguel Foods, Inc., through its President, Mr. Arnaldo Africa,
sent petitioner a letter informing him that his position as sales office coordinator under its logistic
department has been declared redundant. Simultaneously, respondent terminated the services of
petitioner effective July 31, 2000, and offered him an early retirement package. Thereafter, petitioner
was included in the list of retrenched employees (for reason of redundancy) submitted by
respondent to the Department of Labor and Employment.5

Petitioner was surprised upon receipt of the letter because he was not a sales office coordinator, and
yet he was being terminated as such. Accordingly, petitioner refused to avail of the early retirement
package.6

Prior to petitioners termination on July 31, 2000, he was an inventory controller, performing at the
same time the function of a warehouseman. Furthermore, petitioner was an active union officer of
respondents union but upon his termination, was only a member thereof. 7

With the support of his union,8 petitioner filed a Complaint questioning his termination primarily
because he was not a sales office coordinator, but an inventory controller, performing the functions
of both an inventory controller and a warehouseman. 9

In reply, respondent reiterated its declaration that petitioners position as sales office coordinator was
redundant as a result of respondents effort to streamline its operations.10
According to respondent, petitioner was supposed to be separated from employment (effective July
1, 1997) due to the cessation of business of the B-Meg Plant. However, upon petitioners request for
redeployment to another position, he was accommodated and was designated as sales coordinator
from December 1997 to November 1998, even without rendering actual work as sales coordinator.
Respondent claimed that the same was done on the assumption that petitioner would replace Mr.
Luis del Rosario, Sales Coordinator of respondents Luzon Operations Center, upon the latters
impending retirement and for the sole purpose of justifying his inclusion in the payroll. Respondent
averred, however, that the position of Mr. Luis del Rosario as sales coordinator was abolished due to
redundancy as a result of its streamlining efforts.11

On October 14, 2002, the Labor Arbiter (LA) rendered a Decision, 12 where it ruled that petitioner was
illegally dismissed. Accordingly, the LA ordered respondent to pay petitioner backwages, separation
pay in lieu of reinstatement and attorneys fees. The dispositive portion of said Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent SAN
MIGUEL FOODS, INC. to pay complainant REYNALDO CABIGTING the amount of P1,521,588.99,
representing his separation pay under the CBA, backwages and attorneys fees.

All other claims are dismissed for lack of merit.

SO ORDERED.13

Respondent appealed the LAs Decision to the National Labor Relations Commission (NLRC).
Likewise, petitioner partly appealed the LAs Decision as to his non-reinstatement to his previous
post and for not awarding him moral and exemplary damages. 14

On June 30, 2003, the NLRC rendered a Decision15 affirming the LAs finding that petitioner was
illegally dismissed by respondent. More importantly, the NLRC modified the LAs Decision by
ordering the reinstatement of petitioner to his previous post, without loss of seniority rights. The
dispositive portion of said Decision reads:

WHEREFORE, premises considered, the decision under review is hereby MODIFIED by decreeing
the REINSTATEMENT of the complainant to his former position without loss of seniority rights, in lieu
of an earlier award of separation pay.

Accordingly, backwages shall be computed from the time of the dismissal up to actual reinstatement.

All other claims are dismissed for lack of merit.

SO ORDERED.16

Respondent appealed the NLRC Decision to the CA via a Petition for Certiorari 17 under Rule 65 of
the Rules of Court.

On August 31, 2004, the CA rendered a Decision partially granting respondents petition. In said
Decision, the CA affirmed the judgment of the LA and the NLRC finding that petitioner was illegally
dismissed by respondent. However, the CA, on the ground that there were strained relations
between employee and employer, reversed the portion of the NLRC Decision which decreed
petitioners reinstatement. The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the judgment of public respondent NLRC, affirming the
judgment of the Labor Arbiter that private respondent Cabigting was illegally dismissed by petitioner,
is hereby AFFIRMED. However, public respondent NLRCs judgment ordering the reinstatement of
private respondent Cabigting is hereby REVERSED and SET ASIDE.

The awards of backwages, separation pay and attorneys fees by the Labor Arbiter in his Decision
dated October 14, 2002 REMAIN.

SO ORDERED.18

Respondent filed a Motion for Reconsideration19 of the said Decision. Likewise, petitioner filed a
Partial Motion for Reconsideration20 assailing the CA Decision insofar as it ruled against his
reinstatement.

On April 5, 2005, the CA issued a Resolution21 denying both motions.

Hence, herein petition, with petitioner raising the lone assignment of error, to wit:

THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN MODIFYING


THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION, SECOND DIVISION. 22

The petition is meritorious.

The crux of the controversy is whether or not "strained relations" bar petitioners reinstatement.

At the outset, this Court shall address respondents plea to re-open the issue of illegal dismissal.
Respondent argues that it is axiomatic that an appeal, once accepted by the Supreme Court, throws
the entire case open to review.23 Accordingly, respondent posits that petitioner was not illegally
dismissed, but was separated due to a valid redundancy/retrenchment program. 24

The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by this
Court in a petition for review on certiorari. This rule, however, is not ironclad and admits certain
exceptions, such as when (1) the conclusion is grounded on speculations, surmises or conjectures;
(2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
there is no citation of specific evidence on which the factual findings are based; (7) the findings of
absence of facts are contradicted by the presence of evidence on record; (8) the findings of the
Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly
overlooked certain relevant and undisputed facts that, if properly considered, would justify a different
conclusion; (10) the findings of the Court of Appeals are beyond the issues of the case; and (11)
such findings are contrary to the admissions of both parties.25
After a painstaking review of the records, this Court finds no justification to warrant the application of
any exception to the general rule.

It bears to stress that the LA, the NLRC and the CA all ruled that petitioner was illegally dismissed.
Such being the case, factual findings of quasi-judicial bodies like the NLRC, particularly when they
coincide with those of the Labor Arbiter and, if supported by substantial evidence, are accorded
respect and even finality by this Court.26Moreover, it is not the function of this Court to assess and
evaluate the evidence all over again, particularly where the findings of the LA, the NLRC and the CA
coincide. Thus, absent a showing of an error of law committed by the court below, or of whimsical or
capricious exercise of judgment, or a demonstrable lack of basis for its conclusions, this Court may
not disturb its factual findings.27

Having settled the foregoing, this Court shall now address the lone issue of strained relations.

Article 279 of the Labor Code of the Philippines provides the law on reinstatement, viz.:

Article 279. Security of Tenure. -- In cases of regular employment, the employer shall not terminate
the services of an employee except for a just cause or when authorized by this Title. An employee
who is unjustly dismissed from work shall be 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.28

Corollarily, Sections 2 and 3, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code
state, viz.:

Sec. 2. Security of Tenure. - In cases of regular employment, the employer shall not terminate the
services of an employee, except for a just cause as provided in the Labor Code or when authorized
by existing laws.

Sec. 3. Reinstatement. - An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and to backwages. 29

Under the law and prevailing jurisprudence, an illegally dismissed employee is entitled to
reinstatement as a matter of right. However, if reinstatement would only exacerbate the tension and
strained relations between the parties, or where the relationship between the employer and the
employee has been unduly strained by reason of their irreconcilable differences, particularly where
the illegally dismissed employee held a managerial or key position in the company, it would be more
prudent to order payment of separation pay instead of reinstatement. 30

In Globe-Mackay Cable and Radio Corporation v. National Labor Relations Commission, 31 this Court
discussed the limitations and qualifications for the application of the "strained relations" principle, in
this wise:
x x x If, in the wisdom of the Court, there may be a ground or grounds for non-application of the
above-cited provision, this should be by way of exception, such as when the 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 trust and confidence 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 efficiency and productivity
of the employee concerned.

A few examples will suffice to illustrate the Court's application of the above principle: where the
employee is a Vice-President for Marketing and, as such, enjoys the full trust and confidence of top
management; or is the Officer-In-Charge of the extension office of the bank where he works; or is an
organizer of a union who was in a position to sabotage the union's efforts to organize the workers in
commercial and industrial establishments; or is a warehouseman of a non-profit organization whose
primary purpose is to facilitate and maximize voluntary gifts by foreign individuals and organizations
to the Philippines; or is a manager of its Energy Equipment Sales.

Obviously, 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 one's right;
otherwise, an employee who shall assert his right could be easily separated from the service, by
merely paying his separation pay on the pretext that his relationship with his employer had already
become strained.32

Moreover, Chief Justice Reynato S. Puno, in his dissenting opinion in MGG Marine Services, Inc. v.
National Labor Relations Commission,33 gives the following suggestion in the application of the
doctrine of strained relations:

x x x At the very least, I suggest that, henceforth, we should require that the alleged "strained
relationship" must be pleaded and proved if either the employer or the employee does not want the
employment tie to remain. By making "strained relationship" a triable issue of fact before the Arbiter
or the NLRC we will eliminate rulings on "strained relationship" based on mere impression alone. 34

Based on the foregoing, in order for the doctrine of strained relations to apply, it should be proved
that the employee concerned occupies a position where he enjoys the trust and confidence 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 efficiency and productivity of the employee concerned.

Although the determination of the applicability of the doctrine of strained relations is essentially a
question of fact, which should not be the proper subject of herein petition, this Court shall address
said issue in light of the conflicting findings of the LA and the NLRC.

The LA ruled that strained relations barred petitioners reinstatement, to wit:


Anent the aspect of reinstatement, this Office opines that to reinstate complainant to his former
position at this point in time, is no longer practical and would not promote peace considering the
animosity and strained relations that exist between the parties. x x x35

After a perusal of the LA Decision, this Court finds that the LA had no hard facts upon which to base
the application of the doctrine of strained relations, as the same was not squarely discussed nor
elaborated on. Also, it is of notice that said issue was addressed by the LA in just one sentence
without indicating factual circumstances why strained relations exist.

The same is also true for the CA Decision which disposed of the issue in just one sentence without
any elaboration, to wit:

On the matter of reinstatement, We believe that under the circumstances in this case, there has
been, and there will be, animosity and strained relationships between the parties, hence, private
respondent Cabigting shall be entitled to separation pay.36

Accordingly, this Court is of the opinion that both the LA and the CA based their conclusions on
impression alone. It bears to stress that reinstatement is the rule and, for the exception of strained
relations to apply, it should be proved that it is likely that if reinstated, an atmosphere of antipathy
and antagonism would be generated as to adversely affect the efficiency and productivity of the
employee concerned. However, both the LA and the CA failed to state the basis for their finding that
a strained relationship exists.

Based on the foregoing, this Court upholds the ruling of the NLRC finding the doctrine of strained
relations inapplicable to the factual circumstances of the case at bar, to wit:

Finally, it is noted that the position of warehouseman and inventory controller is still existing up to
date. The nature of the controversy where the parties to this case were engaged is not of such
nature that would spawn a situation where the relations are severely strained between them as
would bar the complainant to his continued employment. Neither may it be said that his position
entails a constant communion with the respondent such that hostilities may bar smooth interactions
between them. Accordingly, We find no basis for an award of separation pay in lieu of
reinstatement.37

In its pleadings, however, respondent repeatedly argued against the reinstatement of petitioner, in
the wise:

5.5 Strained relations may result, among others, from the imputations made by the employer and the
employee as against each other or, by the filing of a complaint by the employee against the
employer. 1avvphi1

5.6 As will be discussed below, the strained relationship between the petitioner and the respondent,
aside from the fact that the former was not illegally dismissed, further militates against the
reinstatement of the petitioner.
5.7 The petitioner, in his pleadings submitted before the Honorable Labor Arbiter below, resorted to
imputations and accusations which are totally uncalled for, hitting the respondent "below the belt," so
to speak.

5.8 For instance, in his reply position paper, petitioner declared as a "blatant display of arrogance"
the alleged refusal of respondent to observe certain provisions of the collective bargaining
agreement; that it was "highly ridiculous" on the part of the respondent to assert that his continued
employment was due merely to an act of accommodation on the part of the respondent.

5.9 In fact, in his comment with the Court of Appeals, petitioner intimated that respondent fabricated
evidence when it presented a document which showed that petitioner was a Sales Office
Coordinator, claiming that he was assigned by the respondent to a "new and unknown position and
thereafter declared [the position] redundant." Throughout his allegations, petitioner imputes "malice"
and "bad faith" on the part of respondent.

5.10 These imputations effectively placed a strain on the relationship between the respondent and
the petitioner, notwithstanding the fact that the former did everything within its resources to
accommodate the petitioner so as to provide him employment even when there was no more work
for him to do.

xxxx

5.18 The antagonism and antipathy shown by petitioner towards the respondent is more real than
imaginary. It bears to note that after the respondent extended him accommodation by instituting him
in the payroll, the petitioner "turned the tables" on the respondent by declaring that his continued
employment was not due to an accommodation, even alleging that it was "highly ridiculous" for the
respondent to consider him as an accommodated employee. 38

The claim of respondent is not meritorious. This Court shares petitioners view that the words
allegedly imputing malice and bad faith towards the respondent cannot be made a basis for denying
his reinstatement. Respondents perceived antipathy and antagonism is not of such degree as would
preclude reinstatement of petitioner to his former position.39 In addition, by themselves alone, the
words used by petitioner in his pleadings are insufficient to prove the presence of strained relations.
Thus, this Court finds that one should not fault petitioner for his choice of words, especially in light of
overwhelming evidence showing he was illegally dismissed.

Moreover, the filing of the complaint by petitioner cannot be used as a basis for strained relations. As
a rule, no strained relations should arise from a valid and legal act asserting ones right. 40 Likewise,
respondents claim that it was betrayed by petitioner, after several accommodations it had extended
to him,41 deserves scant consideration. On this note, the NLRC was categorical that no such
accommodation existed, to wit:

On the argument that Cabigting was merely accommodated by the respondent after the closure of
the Tacoma Warehouse, it, however, appears that no such accommodation existed. x x x 42
The doctrine of strained relations has been made applicable to cases 43 where the employee decides
not to be reinstated and demands for separation pay. The same, however, does not apply to herein
petition, as petitioner is asking for his reinstatement despite his illegal dismissal.

Lastly, this Court takes note of the findings of fact of the NLRC that the position of inventory
controller and warehouseman is still existing up to date. 44 Petitioner has been an inventory controller
for so many years, and there should be no problem in ordering the reinstatement with facility of a
laborer, clerk, or other rank-and-file employee.45

In conclusion, it bears to stress that it is human nature that some hostility will inevitably arise
between parties as a result of litigation, but the same does not always constitute strained relations in
the absence of proof or explanation that such indeed exists.

WHEREFORE, premises considered, the petition is GRANTED. The August 31, 2004 Decision and
April 5, 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 82810 are hereby AFFIRMED
with the MODIFICATION that petitioner Reynaldo G. Cabigting is entitled to REINSTATEMENT.
Respondent is ORDERED to IMMEDIATELY REINSTATE petitioner to his previous position without
loss of seniority rights. In case the former position of petitioner is no longer available, respondent is
directed to create an equivalent position and immediately reinstate petitioner without loss of seniority
rights. Accordingly, backwages shall be computed from the time of dismissal up to the time of actual
reinstatement.

SO ORDERED.

17. Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 185280 January 18, 2012

TIMOTEO H. SARONA, Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, ROYALE SECURITY AGENCY (FORMERLY
SCEPTRE SECURITY AGENCY) and CESAR S. TAN, Respondents.

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May 29, 2008 Decision 1 of
the Twentieth Division of the Court of Appeals (CA) in CA-G.R. SP No. 02127 entitled "Timoteo H.
Sarona v. National Labor Relations Commission, Royale Security Agency (formerly Sceptre Security
Agency) and Cesar S. Tan" (Assailed Decision), which affirmed the National Labor Relations
Commissions (NLRC) November 30, 2005 Decision and January 31, 2006 Resolution, finding the
petitioner illegally dismissed but limiting the amount of his backwages to three (3) monthly salaries.
The CA likewise affirmed the NLRCs finding that the petitioners separation pay should be computed
only on the basis of his length of service with respondent Royale Security Agency (Royale). The CA
held that absent any showing that Royale is a mere alter ego of Sceptre Security Agency (Sceptre),
Royale cannot be compelled to recognize the petitioners tenure with Sceptre. The dispositive
portion of the CAs Assailed Decision states:

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED, though piercing
of the corporate veil is hereby denied for lack of merit. Accordingly, the assailed Decision and
Resolution of the NLRC respectively dated November 30, 2005 and January 31, 2006 are
hereby AFFIRMED as to the monetary awards.

SO ORDERED. 2

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in April
1976, was asked by Karen Therese Tan (Karen), Sceptres Operation Manager, to submit a
resignation letter as the same was supposedly required for applying for a position at Royale. The
petitioner was also asked to fill up Royales employment application form, which was handed to him
by Royales General Manager, respondent Cesar Antonio Tan II (Cesar).3

After several weeks of being in floating status, Royales Security Officer, Martin Gono (Martin),
assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8,
2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World Express, Inc.
(WWWE, Inc.). During his assignment at Highlight Metal, the petitioner used the patches and agency
cloths of Sceptre and it was only
when he was posted at WWWE, Inc. that he started using those of Royale. 4

On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been
withdrawn because Royale had allegedly been replaced by another security agency. The petitioner,
however, shortly discovered thereafter that Royale was never replaced as WWWE, Inc.s security
agency. When he placed a call at WWWE, Inc., he learned that his fellow security guard was not
relieved from his post.5

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short
period from September 22, 2003 to September 30, 2003. Subsequently, when the petitioner reported
at Royales office on October 1, 2003, Martin informed him that he would no longer be given any
assignment per the instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This
prompted him to file a complaint for illegal dismissal on October 4, 2003. 6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez) ruled in the petitioners
favor and found him illegally dismissed. For being unsubstantiated, LA Gutierrez denied credence to
the respondents claim that the termination of the petitioners employment relationship with Royale
was on his accord following his alleged employment in another company. That the petitioner was no
longer interested in being an employee of Royale cannot be presumed from his request for a
certificate of employment, a claim which, to begin with, he vehemently denies. Allegation of the
petitioners abandonment is negated by his filing of a complaint for illegal dismissal three (3) days
after he was informed that he would no longer be given any assignments. LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant abandoned his employment. We
are not however, convinced.
There is abandonment when there is a clear proof showing that one has no more interest to return to
work. In this instant case, the record has no proof to such effect. In a long line of decisions, the
Supreme Court ruled:

"Abandonment of position is a matter of intention expressed in clearly certain and


unequivocal acts, however, an interim employment does not mean abandonment." (Jardine
Davis, Inc. vs. NLRC, 225 SCRA 757).

"In abandonment, there must be a concurrence of the intention to abandon and some overt
acts from which an employee may be declared as having no more interest to work." (C.
Alcontin & Sons, Inc. vs. NLRC, 229 SCRA 109).

"It is clear, deliberate and unjustified refusal to severe employment and not mere absence
that is required to constitute abandonment." x x x" (De Ysasi III vs. NLRC, 231 SCRA 173).

Aside from lack of proof showing that complainant has abandoned his employment, the record would
show that immediate action was taken in order to protest his dismissal from employment. He filed a
complaint [for] illegal dismissal on October 4, 2004 or three (3) days after he was dismissed. This
act, as declared by the Supreme Court is inconsistent with abandonment, as held in the case of
Pampanga Sugar Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme Court ruled:

"The immediate filing of a complaint for [i]llegal [d]ismissal by an employee is inconsistent


with abandonment."7

The respondents were ordered to pay the petitioner backwages, which LA Gutierrez computed from
the day he was dismissed, or on October 1, 2003, up to the promulgation of his Decision on May 11,
2005. In lieu of reinstatement, the respondents were ordered to pay the petitioner separation pay
equivalent to his one (1) month salary in consideration of his tenure with Royale, which lasted for
only one (1) month and three (3) days. In this regard, LA Gutierrez refused to pierce Royales
corporate veil for purposes of factoring the petitioners length of service with Sceptre in the
computation of his separation pay. LA Gutierrez ruled that Royales corporate personality, which is
separate and distinct from that of Sceptre, a sole proprietorship owned by the late Roso Sabalones
(Roso) and later, Aida, cannot be pierced absent clear and convincing evidence that Sceptre and
Royale share the same stockholders and incorporators and that Sceptre has complete control and
dominion over the finances and business affairs of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of respondent Royale, complainant avers
that respondent Royal (sic) was using the very same office of SCEPTRE in C. Padilla St., Cebu City.
In addition, all officers and staff of SCEPTRE are now the same officers and staff of ROYALE, that all
[the] properties of SCEPTRE are now being owned by ROYALE and that ROYALE is now occupying
the property of SCEPTRE. We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single proprietorship. Being so, it has no
distinct and separate personality. It is owned by the late Roso T. Sabalones. After the death of the
owner, the property is supposed to be divided by the heirs and any claim against the sole
proprietorship is a claim against Roso T. Sabalones. After his death, the claims should be instituted
against the estate of Roso T. Sabalones. In short, the estate of the late Roso T. Sabalones should
have been impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into another entity now called
Royale Security Agency. There is however, no proof to this assertion. Likewise, there is no proof that
Roso T. Sabalones, organized his single proprietorship business into a corporation, Royale Security
Agency. On the contrary, the name of Roso T. Sabalones does not appear in the Articles of
Incorporation. The names therein as incorporators are:

Bruno M. Kuizon - [P]150,000.00


Wilfredo K. Tan - 100,000.00
Karen Therese S. Tan - 100,000.00
Cesar Antonio S. Tan - 100,000.00
Gabeth Maria K. Tan - 50,000.00

Complainant claims that two (2) of the incorporators are the granddaughters of Roso T. Sabalones.
This fact even give (sic) us further reason to conclude that respondent Royal (sic) Security Agency is
not an alter ego or conduit of SCEPTRE. It is obvious that respondent Royal (sic) Security Agency is
not owned by the owner of "SCEPTRE".

It may be true that the place where respondent Royale hold (sic) office is the same office formerly
used by "SCEPTRE." Likewise, it may be true that the same officers and staff now employed by
respondent Royale Security Agency were the same officers and staff employed by "SCEPTRE." We
find, however, that these facts are not sufficient to justify to require respondent Royale to answer for
the liability of Sceptre, which was owned solely by the late Roso T. Sabalones. As we have stated
above, the remedy is to address the claim on the estate of Roso T. Sabalones. 8

The respondents appealed LA Gutierrezs May 11, 2005 Decision to the NLRC, claiming that the
finding of illegal dismissal was attended with grave abuse of discretion. This appeal was, however,
dismissed by the NLRC in its November 30, 2005 Decision, 9 the dispositive portion of which states:

WHEREFORE, premises considered, the Decision of the Labor Arbiter declaring the illegal dismissal
of complainant is hereby AFFIRMED.

However[,] We modify the monetary award by limiting the grant of backwages to only three (3)
months in view of complainants very limited service which lasted only for one month and three days.

1. Backwages - [P]15,600.00
2. Separation Pay - 5,200.00
3. 13th Month Pay - 583.34
[P]21,383.34 Attorney's Fees - 2,138.33
Total [P]23,521.67

The appeal of respondent Royal (sic) Security Agency is hereby DISMISSED for lack of merit.

SO ORDERED.10

The NLRC partially affirmed LA Gutierrezs May 11, 2005 Decision. It concurred with the latters
finding that the petitioner was illegally dismissed and the manner by which his separation pay was
computed, but modified the monetary award in the petitioners favor by reducing the amount of his
backwages from P95,600.00 to P15,600.00. The NLRC determined the petitioners backwages as
limited to three (3) months of his last monthly salary, considering that his employment with Royale
was only for a period for one (1) month and three (3) days, thus:11

On the other hand, while complainant is entitled to backwages, We are aware that his stint with
respondent Royal (sic) lasted only for one (1) month and three (3) days such that it is Our
considered view that his backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.0012

The petitioner, on the other hand, did not appeal LA Gutierrezs May 11, 2005 Decision but opted to
raise the validity of LA Gutierrezs adverse findings with respect to piercing Royales corporate
personality and computation of his separation pay in his Reply to the respondents Memorandum of
Appeal. As the filing of an appeal is the prescribed remedy and no aspect of the decision can be
overturned by a mere reply, the NLRC dismissed the petitioners efforts to reverse LA Gutierrezs
disposition of these issues. Effectively, the petitioner had already waived his right to question LA
Gutierrezs Decision when he failed to file an appeal within the reglementary period. The NLRC held:

On the other hand, in complainants Reply to Respondents Appeal Memorandum he prayed that the
doctrine of piercing the veil of corporate fiction of respondent be applied so that his services with
Sceptre since 1976 [will not] be deleted. If complainant assails this particular finding in the Labor
Arbiters Decision, complainant should have filed an appeal and not seek a relief by merely filing a
Reply to Respondents Appeal Memorandum.13

Consequently, the petitioner elevated the NLRCs November 30, 2005 Decision to the CA by way of
a Petition for Certiorari under Rule 65 of the Rules of Court. On the other hand, the respondents filed
no appeal from the NLRCs finding that the petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum that an appealed case
is thrown open for the appellate courts review, disagreed with the NLRC and proceeded to review
the evidence on record to determine if Royale is Sceptres alter ego that would warrant the piercing
of its corporate veil.14 According to the CA, errors not assigned on appeal may be reviewed as
technicalities should not serve as bar to the full adjudication of cases. Thus:

In Cuyco v. Cuyco, which We find application in the instant case, the Supreme Court held:

"In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the
interest due, thus, by not filing their own petition for review, respondents waived their privilege to
bring matters for the Courts review that [does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors,
however, it is equally settled that the Court is clothed with ample authority to review matters not
assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just
disposition of the case."

Therefore, for full adjudication of the case, We have to primarily resolve the issue of whether the
doctrine of piercing the corporate veil be justly applied in order to determine petitioners length of
service with private respondents.15 (citations omitted)
Nonetheless, the CA ruled against the petitioner and found the evidence he submitted to support his
allegation that Royale and Sceptre are one and the same juridical entity to be wanting. The CA
refused to pierce Royales corporate mask as one of the "probative factors that would justify the
application of the doctrine of piercing the corporate veil is stock ownership by one or common
ownership of both corporations" and the petitioner failed to present clear and convincing proof that
Royale and Sceptre are commonly owned or controlled. The relevant portions of the CAs Decision
state:

In the instant case, We find no evidence to show that Royale Security Agency, Inc. (hereinafter
"Royale"), a corporation duly registered with the Securities and Exchange Commission (SEC) and
Sceptre Security Agency (hereinafter "Sceptre"), a single proprietorship, are one and the same
entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by both the Labor Arbiter and the
NLRC, was illegally dismissed by Royale on October 1, 2003, alleged that in order to circumvent
labor laws, especially to avoid payment of money claims and the consideration on the length of
service of its employees, Royale was established as an alter ego or business conduit of Sceptre. To
prove his claim, petitioner declared that Royale is conducting business in the same office of Sceptre,
the latter being owned by the late retired Gen. Roso Sabalones, and was managed by the latters
daughter, Dr. Aida Sabalones-Tan; that two of Royales incorporators are grandchildren [of] the late
Gen. Roso Sabalones; that all the properties of Sceptre are now owned by Royale, and that the
officers and staff of both business establishments are the same; that the heirs of Gen. Sabalones
should have applied for dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was incorporated only on March 10,
2003 as evidenced by the Certificate of Incorporation issued by the SEC on the same date; that
Royales incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar
Antonio S. Tan II and [Gabeth] Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly proven by competent evidence and
the burden of proof is on the party making the allegation. Further, Section 1 of Rule 131 of the
Revised Rules of Court provides:

"SECTION 1. Burden of proof. Burden of proof is the duty of a party to present evidence on the
facts in issue necessary to establish his claim or defense by the amount of evidence required by
law."

We believe that petitioner did not discharge the required burden of proof to establish his allegations.
As We see it, petitioners claim that Royale is an alter ego or business conduit of Sceptre is without
basis because aside from the fact that there is no common ownership of both Royale and Sceptre,
no evidence on record would prove that Sceptre, much less the late retired Gen. Roso Sabalones or
his heirs, has control or complete domination of Royales finances and business transactions.
Absence of this first element, coupled by petitioners failure to present clear and convincing evidence
to substantiate his allegations, would prevent piercing of the corporate veil. Allegations must be
proven by sufficient evidence. Simply stated, he who alleges a fact has the burden of proving it;
mere allegation is not evidence.16 (citations omitted)

By way of this Petition, the petitioner would like this Court to revisit the computation of his
backwages, claiming that the same should be computed from the time he was illegally dismissed
until the finality of this decision.17 The petitioner would likewise have this Court review and examine
anew the factual allegations and the supporting evidence to determine if the CA erred in its refusal to
pierce Royales corporate mask and rule that it is but a mere continuation or successor of Sceptre.
According to the petitioner, the erroneous computation of his separation pay was due to the CAs
failure, as well as the NLRC and LA Gutierrez, to consider evidence conclusively demonstrating that
Royale and Sceptre are one and the same juridical entity. The petitioner claims that since Royale is
no more than Sceptres alter ego, it should recognize and credit his length of service with Sceptre. 18

The petitioner claimed that Royale and Sceptre are not separate legal persons for purposes of
computing the amount of his separation pay and other benefits under the Labor Code. The piercing
of Royales corporate personality is justified by several indicators that Royale was incorporated for
the sole purpose of defeating his right to security of tenure and circumvent payment of his benefits to
which he is entitled under the law: (i) Royale was holding office in the same property used by
Sceptre as its principal place of business;19 (ii) Sceptre and Royal have the same officers and
employees;20 (iii) on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to Aida, and her
husband, Wilfredo Gracia K. Tan (Wilfredo),21 the property used by Sceptre as its principal place of
business;22 (iv) Wilfredo is one of the incorporators of Royale; 23 (v) on May 3, 1999, Roso ceded the
license to operate Sceptre issued by the Philippine National Police to Aida; 24 (vi) on July 28, 1999,
the business name "Sceptre Security & Detective Agency" was registered with the Department of
Trade and Industry (DTI) under the name of Aida;25 (vii) Aida exercised control over the affairs of
Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from
employment;26 (viii) Karen, the daughter of Aida, was Sceptres Operation Manager and is one of the
incorporators of Royale;27 and (ix) Cesar Tan II, the son of Aida was one of Sceptres officers and is
one of the incorporators of Royale.28

In their Comment, the respondents claim that the petitioner is barred from questioning the manner by
which his backwages and separation pay were computed. Earlier, the petitioner moved for the
execution of the NLRCs November 30, 2005 Decision29 and the respondents paid him the full
amount of the monetary award thereunder shortly after the writ of execution was issued. 30 The
respondents likewise maintain that Royales separate and distinct corporate personality should be
respected considering that the evidence presented by the petitioner fell short of establishing that
Royale is a mere alter ego of Sceptre.

The petitioner does not deny that he has received the full amount of backwages and separation pay
as provided under the NLRCs November 30, 2005 Decision.31 However, he claims that this does not
preclude this Court from modifying a decision that is tainted with grave abuse of discretion or issued
without jurisdiction.32

ISSUES

Considering the conflicting submissions of the parties, a judicious determination of their respective
rights and obligations requires this Court to resolve the following substantive issues:

a. Whether Royales corporate fiction should be pierced for the purpose of compelling it to
recognize the petitioners length of service with Sceptre and for holding it liable for the
benefits that have accrued to him arising from his employment with Sceptre; and

b. Whether the petitioners backwages should be limited to his salary for three (3) months.

OUR RULING

Because his receipt of the proceeds of the award under the NLRCs November 30, 2005
Decision is qualified and without prejudice to the CAs resolution of his petition for certiorari,
the petitioner is not barred from exercising his right to elevate the decision of the CA to this
Court.
Before this Court proceeds to decide this Petition on its merits, it is imperative to resolve the
respondents contention that the full satisfaction of the award under the NLRCs November 30, 2005
Decision bars the petitioner from questioning the validity thereof. The respondents submit that they
had paid the petitioner the amount of P21,521.67 as directed by the NLRC and this constitutes a
waiver of his right to file an appeal to this Court.

The respondents fail to convince.

The petitioners receipt of the monetary award adjudicated by the NLRC is not absolute,
unconditional and unqualified. The petitioners May 3, 2007 Motion for Release contains a
reservation, stating in his prayer that: "it is respectfully prayed that the respondents and/or Great
Domestic Insurance Co. be ordered to RELEASE/GIVE the amount of P23,521.67 in favor of the
complainant TIMOTEO H. SARONA without prejudice to the outcome of the petition with the CA." 33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,34 this Court ruled that the prevailing partys
receipt of the full amount of the judgment award pursuant to a writ of execution issued by the labor
arbiter does not close or terminate the case if such receipt is qualified as without prejudice to the
outcome of the petition for certiorari pending with the CA. 1avvphi1

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed
despite the pendency of a petition for certiorari, unless it is restrained by the proper court. In the
present case, petitioners already paid Villamaters widow, Sonia, the amount of P3,649,800.00,
representing the total and permanent disability award plus attorneys fees, pursuant to the Writ of
Execution issued by the Labor Arbiter. Thereafter, an Order was issued declaring the case as
"closed and terminated". However, although there was no motion for reconsideration of this last
Order, Sonia was, nonetheless, estopped from claiming that the controversy had already reached its
end with the issuance of the Order closing and terminating the case. This is because the
Acknowledgment Receipt she signed when she received petitioners payment was without prejudice
to the final outcome of the petition for certiorari pending before the CA.35

The finality of the NLRCs decision does not preclude the filing of a petition for certiorari under Rule
65 of the Rules of Court. That the NLRC issues an entry of judgment after the lapse of ten (10) days
from the parties receipt of its decision36 will only give rise to the prevailing partys right to move for
the execution thereof but will not prevent the CA from taking cognizance of a petition for certiorari on
jurisdictional and due process considerations.37 In turn, the decision rendered by the CA on a petition
for certiorari may be appealed to this Court by way of a petition for review on certiorari under Rule 45
of the Rules of Court. Under Section 5, Article VIII of the Constitution, this Court has the power to
"review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court may
provide, final judgments and orders of lower courts in x x x all cases in which only an error or
question of law is involved." Consistent with this constitutional mandate, Rule 45 of the Rules of
Court provides the remedy of an appeal by certiorari from decisions, final orders or resolutions of the
CA in any case, i.e., regardless of the nature of the action or proceedings involved, which would be
but a continuation of the appellate process over the original case. 38 Since an appeal to this Court is
not an original and independent action but a continuation of the proceedings before the CA, the filing
of a petition for review under Rule 45 cannot be barred by the finality of the NLRCs decision in the
same way that a petition for certiorari under Rule 65 with the CA cannot.

Furthermore, if the NLRCs decision or resolution was reversed and set aside for being issued with
grave abuse of discretion by way of a petition for certiorari to the CA or to this Court by way of an
appeal from the decision of the CA, it is considered void ab initio and, thus, had never become final
and executory.39
A Rule 45 Petition should be confined to questions of law. Nevertheless, this Court has the
power to resolve a question of fact, such as whether a corporation is a mere alter ego of
another entity or whether the corporate fiction was invoked for fraudulent or malevolent
ends, if the findings in assailed decision is not supported by the evidence on record or based
on a misapprehension of facts.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is
the question of whether a corporation is a paper company, a sham or subterfuge or whether the
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of the
respondents corporate personality.40

As a general rule, this Court is not a trier of facts and a petition for review on certiorari under Rule 45
of the Rules of Court must exclusively raise questions of law. Moreover, if factual findings of the
NLRC and the LA have been affirmed by the CA, this Court accords them the respect and finality
they deserve. It is well-settled and oft-repeated that findings of fact of administrative agencies and
quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but finality when affirmed by the CA. 41

Nevertheless, this Court will not hesitate to deviate from what are clearly procedural guidelines and
disturb and strike down the findings of the CA and those of the labor tribunals if there is a showing
that they are unsupported by the evidence on record or there was a patent misappreciation of facts.
Indeed, that the impugned decision of the CA is consistent with the findings of the labor tribunals
does not per se conclusively demonstrate the correctness thereof. By way of exception to the
general rule, this Court will scrutinize the facts if only to rectify the prejudice and injustice resulting
from an incorrect assessment of the evidence presented.

A resolution of an issue that has supposedly become final and executory as the petitioner
only raised it in his reply to the respondents appeal may be revisited by the appellate court if
such is necessary for a just disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrezs denial of the petitioners plea to pierce
Royales corporate veil as the petitioner did not appeal any portion of LA Gutierrezs May 11, 2005
Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under Section 4(c), Rule
VI of the NLRC Rules,42 the NLRC shall limit itself to reviewing and deciding only the issues that
were elevated on appeal. The NLRC, while not totally bound by technical rules of procedure, is not
licensed to disregard and violate the implementing rules it implemented. 43

Nonetheless, technicalities should not be allowed to stand in the way of equitably and completely
resolving the rights and obligations of the parties. Technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the working man. 44 This Court may
choose not to encumber itself with technicalities and limitations consequent to procedural rules if
such will only serve as a hindrance to its duty to decide cases judiciously and in a manner that would
put an end with finality to all existing conflicts between the parties.

Royale is a continuation or successor of Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its existence.
It has a personality separate and distinct from the persons composing it, as well as from any other
legal entity to which it may be related. This is basic.45
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons. 46

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.47

Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives.48

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.49

In this regard, this Court finds cogent reason to reverse the CAs findings. Evidence abound showing
that Royale is a mere continuation or successor of Sceptre and fraudulent objectives are behind
Royales incorporation and the petitioners subsequent employment therein. These are plainly
suggested by events that the respondents do not dispute and which the CA, the NLRC and LA
Gutierrez accept as fully substantiated but misappreciated as insufficient to warrant the use of the
equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control and supervision over the
affairs of both Sceptre and Royale. Contrary to the submissions of the respondents that Roso had
been the only one in sole control of Sceptres finances and business affairs, Aida took over as early
as 1999 when Roso assigned his license to operate Sceptre on May 3, 1999. 50 As further proof of
Aidas acquisition of the rights as Sceptres sole proprietor, she caused the registration of the
business name "Sceptre Security & Detective Agency" under her name with the DTI a few months
after Roso abdicated his rights to Sceptre in her favor.51 As far as Royale is concerned, the
respondents do not deny that she has a hand in its management and operation and possesses
control and supervision of its employees, including the petitioner. As the petitioner correctly pointed
out, that Aida was the one who decided to stop giving any assignments to the petitioner and
summarily dismiss him is an eloquent testament of the power she wields insofar as Royales affairs
are concerned. The presence of actual common control coupled with the misuse of the corporate
form to perpetrate oppressive or manipulative conduct or evade performance of legal obligations is
patent; Royale cannot hide behind its corporate fiction.

Aidas control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction.
There must be a showing that a fraudulent intent or illegal purpose is behind the exercise of such
control to warrant the piercing of the corporate veil. 52 However, the manner by which the petitioner
was made to resign from Sceptre and how he became an employee of Royale suggest the perverted
use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner
lavvphil

tendered his resignation and that he applied at Royale at the instance of Karen and Cesar and on
the impression they created that these were necessary for his continued employment. They
orchestrated the petitioners resignation from Sceptre and subsequent employment at Royale, taking
advantage of their ascendancy over the petitioner and the latters lack of knowledge of his rights and
the consequences of his actions. Furthermore, that the petitioner was made to resign from Sceptre
and apply with Royale only to be unceremoniously terminated shortly thereafter leads to the
ineluctable conclusion that there was intent to violate the petitioners rights as an employee,
particularly his right to security of tenure. The respondents scheme reeks of bad faith and fraud and
compassionate justice dictates that Royale and Sceptre be merged as a single entity, compelling
Royale to credit and recognize the petitioners length of service with Sceptre. The respondents
cannot use the legal fiction of a separate corporate personality for ends subversive of the policy and
purpose behind its creation53 or which could not have been intended by law to which it owed its
being.54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole proprietorship. As ruled
in Prince Transport, Inc., et al. v. Garcia, et al.,55 it is the act of hiding behind the separate and
distinct personalities of juridical entities to perpetuate fraud, commit illegal acts, evade ones
obligations that the equitable piercing doctrine was formulated to address and prevent:

A settled formulation of the doctrine of piercing the corporate veil is that when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that these two entities are
distinct and treat them as identical or as one and the same. In the present case, it may be true that
Lubas is a single proprietorship and not a corporation. However, petitioners attempt to isolate
themselves from and hide behind the supposed separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity
seeks to prevent and remedy.56

Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994,
Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of
business by virtue of a Deed of Absolute Sale they executed with Roso. 57 Royale, shortly after its
incorporation, started to hold office in the same property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share the same officers and
employees. Karen assumed the dual role of Sceptres Operation Manager and incorporator of
Royale. With respect to the petitioner, even if he has already resigned from Sceptre and has been
employed by Royale, he was still using the patches and agency cloths of Sceptre during his
assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when he was still with
Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have released the
petitioners cash bond when he resigned and Royale would have required the petitioner to post a
new cash bond in its favor.

Taking the foregoing in conjunction with Aidas control over Sceptres and Royales business affairs,
it is patent that Royale was a mere subterfuge for Aida. Since a sole proprietorship does not have a
separate and distinct personality from that of the owner of the enterprise, the latter is personally
liable. This is what she sought to avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as Royale and Sceptre are
one and the same. His separation pay should, thus, be computed from the date he was hired by
Sceptre in April 1976 until the finality of this decision. Based on this Courts ruling in Masagana
Concrete Products, et al. v. NLRC, et al.,58 the intervening period between the day an employee was
illegally dismissed and the day the decision finding him illegally dismissed becomes final and
executory shall be considered in the computation of his separation pay as a period of "imputed" or
"putative" service:

Separation pay, equivalent to one month's salary for every year of service, is awarded as an
alternative to reinstatement when the latter is no longer an option. Separation pay is computed from
the commencement of employment up to the time of termination, including the imputed service for
which the employee is entitled to backwages, with the salary rate prevailing at the end of the period
of putative service being the basis for computation. 59

It is well-settled, even axiomatic, that if reinstatement is not possible, the period covered in
the computation of backwages is from the time the employee was unlawfully terminated until
the finality of the decision finding illegal dismissal.

With respect to the petitioners backwages, this Court cannot subscribe to the view that it should be
limited to an amount equivalent to three (3) months of his salary. Backwages is a remedy affording
the employee a way to recover what he has lost by reason of the unlawful dismissal. 60 In awarding
backwages, the primordial consideration is the income that should have accrued to the employee
from the time that he was dismissed up to his reinstatement61 and the length of service prior to his
dismissal is definitely inconsequential.

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al.,62 clarified in no uncertain terms
that if reinstatement is no longer possible, backwages should be computed from the time the
employee was terminated until the finality of the decision, finding the dismissal unlawful.

Therefore, in accordance with R.A. No. 6715, petitioners are entitled on their full backwages,
inclusive of allowances and other benefits or their monetary equivalent, from the time their actual
compensation was withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that reinstatement is no longer
feasible, because the company would be adjustly prejudiced by the continued employment of
petitioners who at present are overage, a separation pay equal to one-month salary granted to them
in the Labor Arbiter's decision was in order and, therefore, affirmed on the Court's decision of 15
March 1996. Furthermore, since reinstatement on this case is no longer feasible, the amount
of backwages shall be computed from the time of their illegal termination on 25 June 1990 up
to the time of finality of this decision.63 (emphasis supplied)

A further clarification was made in Javellana, Jr. v. Belen:64

Article 279 of the Labor Code, as amended by Section 34 of Republic Act 6715 instructs:

Art. 279. Security of Tenure. - In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this Title. An employee who
is unjustly dismissed from work shall be 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.
Clearly, the law intends the award of backwages and similar benefits to accumulate past the date of
the Labor Arbiter's decision until the dismissed employee is actually reinstated. But if, as in this case,
reinstatement is no longer possible, this Court has consistently ruled that backwages shall be
computed from the time of illegal dismissal until the date the decision becomes final. 65 (citation
omitted)

In case separation pay is awarded and reinstatement is no longer feasible, backwages shall be
computed from the time of illegal dismissal up to the finality of the decision should separation pay
not be paid in the meantime. It is the employees actual receipt of the full amount of his separation
pay that will effectively terminate the employment of an illegally dismissed employee. 66 Otherwise,
the employer-employee relationship subsists and the illegally dismissed employee is entitled to
backwages, taking into account the increases and other benefits, including the 13th month pay, that
were received by his co-employees who are not dismissed.67 It is the obligation of the employer to
pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all
other benefits and
bonuses and general increases, to which he would have been normally entitled had he not been
dismissed and had not stopped working.68

In fine, this Court holds Royale liable to pay the petitioner backwages to be computed from his
dismissal on October 1, 2003 until the finality of this decision. Nonetheless, the amount received by
the petitioner from the respondents in satisfaction of the November 30, 2005 Decision shall be
deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as indemnity for the
petitioners dismissal, which was tainted by bad faith and fraud, are in order. Moral damages may be
recovered where the dismissal of the employee was tainted by bad faith or fraud, or where it
constituted an act oppressive to labor, and done in a manner contrary to morals, good customs or
public policy while exemplary damages are recoverable only if the dismissal was done in a wanton,
oppressive, or malevolent manner.69

WHEREFORE, premises considered, the Petition is hereby GRANTED. We REVERSE and SET
ASIDE the CAs May 29, 2008 Decision in C.A.-G.R. SP No. 02127 and order the respondents to
pay the petitioner the following minus the amount of (P23,521.67) paid to the petitioner in
satisfaction of the NLRCs November 30, 2005 Decision in NLRC Case No. V-000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date Royale
illegally dismissed the petitioner) until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the rate of one
month pay per year of service;

c) ten percent (10%) attorneys fees based on the total amount of the awards under (a) and
(b) above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and

e) exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay, backwages, and
other monetary awards due the petitioner.
SO ORDERED.

18. Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172149 February 8, 2010

SESSION DELIGHTS ICE CREAM AND FAST FOODS, Petitioner,


vs.
THE HON. COURT OF APPEALS (Sixth Division), HON. NATIONAL LABOR RELATIONS
COMMISSION (Second Division) and ADONIS ARMENIO M. FLORA, Respondents.

DECISION

BRION, J.:

We rule on the petition for review on certiorari assailing the decision 1 and resolution2 of the Court of
Appeals3(CA) in CA-G.R. SP No. 89326. These CA rulings dismissed the petition for certiorari the
petitioner Session Delights Ice Cream and Fast Foods (petitioner) filed to challenge the
resolutions4 of the Second Division of the National Labor Relations Commission 5 (NLRC) that in turn
affirmed the order6 of the Labor Arbiter7 granting a re-computation of the monetary awards in favor of
the private respondent Adonis Armenio M. Flora (private respondent).

The Facts

The private respondent filed against the petitioner a complaint for illegal dismissal, entitled "Adonis
Armenio M. Flora, Complainant versus Session Delights Ice Cream & Fast Foods, et. al, Private
respondents," docketed as NLRC Case No. RAB-CAR 09-0507-00.

The labor arbiter decided the complaint on February 8, 2001, finding that the petitioner illegally
dismissed the private respondent. The decision awarded the private respondent backwages,
separation pay in lieu of reinstatement, indemnity, and attorneys fees, under a computation that the
decision itself outlined in its dispositive portion. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered declaring private respondent guilty of illegal dismissal.
Accordingly, private respondent SESSION DELIGHTS is ordered to pay complainant the following:

Backwages:
a)
P170.00 x 154 days P 26,180.00
Proportional 13th month pay
P 26,180/12 2,181.65 28,361.65
b) Separation Pay:
P 170.00 x 314/12 x 1 4,448.35
c) Indemnity of P5,000.00 for failure to observe due process
d) Attorneys fees which is 10% of the total award in the amount of P3,781.00.

SO ORDERED.8

On the petitioners appeal, the NLRC affirmed the labor arbiters decision in its resolutions dated
May 31, 2002 and September 30, 2002.9 The dispositive portion of the NLRCs resolution of May 31,
2002 states:

WHEREFORE, premises considered, the decision under review is hereby AFFIRMED, and the
appeal, DISMISSED, for lack of merit.10

The petitioner continued to seek relief, this time by filing a petition for certiorari before the CA, which
petition was docketed as CA-G.R. SP No. 74653.

On July 4, 2003, the CA dismissed the petition and affirmed with modification the NLRC decision by
deleting the awards for a proportionate 13th month pay and for indemnity.11 The CA decision became
final per Entry of Judgment dated July 29, 2003.12 The dispositive portion of this CA decision states:

WHEREFORE, premises considered, the instant petition is hereby DISMISSED. The decision of the
National Labor Relations Commission is AFFIRMED with modification that the award of proportional
13th month pay as well as the award of indemnity of P 5,000.00 for failure to observe due process
are DELETED.

In January 2004, and in the course of the execution of the above final judgment pursuant to Section
3, Rule VIII13of the then NLRC Rules of Procedure, the Finance Analyst of the Labor Arbiters Office
held a pre-execution conference with the contending parties in attendance. The Finance Analyst
submitted an updated computation of the monetary awards due the private respondent in the total
amount of P235,986.00.14 This updated computation included additional backwages and separation
pay due the private respondent computed from March 1, 2001 to September 17, 2003. The
computation also included the proportionate amount of the private respondents 13th month pay. On
March 25, 2004, the labor arbiter approved the updated computation which ran, as follows:

C O M P U TATI O N

Total computation as per NLRC CAR


decision dated February 8, 2001 (sic) 41,591.00
1. Additional backwages: (March 1, 2001-Sept. 17, 2003)
March 1, 2001-April 30, 2002:
P178.00 x 52 days = 9,256.00
May 1, 2001-June 30, 2002:
P185.00 x 365 days = 67,525.00
July 1, 2002- Sept. 17, 2003:
P190.00 x 382 days = 72,580.00 149,361.00
Proportional 13th month pay:
P149,361.00/12 = 12,446.75

161,807.75
2. Additional separation pay:
P190.00 x 314/12 x 3 years = 14,915.00
3. Additional attorneys fee:
P176,722.75 x 10% = 17,672.25 194,395.00

TOTAL 253,986.00

The petitioner objected to the re-computation and appealed the labor arbiters order to the NLRC.
The petitioner claimed that the updated computation was inconsistent with the dispositive portion of
the labor arbiters February 8, 2001 decision, as modified by the CA in CA-G.R. SP No. 74653. The
NLRC disagreed with the petitioner and affirmed the labor arbiters decision in a resolution dated
October 25, 2004. The NLRC also denied the petitioners motion for reconsideration in its resolution
dated January 31, 2005.

The petitioner sought recourse with the CA through a petition for certiorari on the ground that the
NLRC acted with grave abuse of discretion amounting to lack or excess of jurisdiction.

The CA Rulings

The CA partially granted the petition in its decision of December 19, 2005 (now challenged before
us) by deleting the awarded proportionate 13th month pay. The CA ruled:

WHEREFORE, the petition is PARTIALLY GRANTED. The Labor Arbiter is DIRECTED to compute
only the following (a) private respondents backwages from the time his salary was withheld up to
July 29, 2003, the finality of the Decision in CA-G.R. SP No. 74653; (b) private respondents
separation pay from July 31, 2000 up to July 29, 2003; and (c) attorneys fees equivalent to 10% of
the total monetary claims from (a) and (b). The total monetary award shall earn legal interest from
July 29, 2003 until fully paid. No pronouncement as to cost.

SO ORDERED.15

The CA explained in this ruling that employees illegally dismissed are entitled to reinstatement, full
backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from
the time actual compensation was withheld from them, up to the time of actual reinstatement. If
reinstatement is no longer feasible, the backwages shall be computed from the time of their illegal
dismissal up to the finality of the decision. The CA reasoned that a re-computation of the monetary
awards was necessary to determine the correct amount due the private respondent from the time his
salary was withheld from him until July 29, 2003 (the date of finality of the July 4, 2003 decision in
CA-G.R. SP No. 74653) since the separation pay, which was awarded in lieu of reinstatement, had
not been paid by the petitioner. The attorneys fees likewise have to be re-computed in light of the
deletion of the proportionate 13th month pay and indemnity awards.
The petitioner timely filed a motion for reconsideration which the CA denied in its resolution of March
30, 2006, now similarly assailed before us.

The Issue

The lone issue the petitioner raised is whether a final and executory decision (the labor arbiters
decision of February 8, 2001, as affirmed with modification by the CA decision in CA-G.R. SP No.
74653) may be enforced beyond the terms decreed in its dispositive portion.

In the pleadings submitted to the Court, the petitioner insists on a literal reading and application of
the labor arbiters February 8, 2001 decision, as modified by the CA in CA-G.R. SP No. 74653. The
petitioner argues that since the modified labor arbiters February 8, 2001 decision did not provide in
its dispositive portion for a computation of the monetary award up to the finality of the judgment in
the case, the CA should have enforced the decision according to its express and literal terms. In
other words, the CA cannot now allow the execution of the labor arbiters original decision (which the
CA affirmed with finality but with modification) beyond the express terms of its dispositive portion;
thus, the amounts that accrued during the pendency of the petitioners recourses with the NLRC and
the CA cannot be read into and implemented as part of the final and executory judgment.

The petitioner, as an alternative argument, argues that even assuming that the body of the CA
decision in CA-G.R. SP No. 74653 intended a computation of the monetary award up to the finality
of the decision, the dispositive portion remains to be the directive that should be enforced, as it is the
part of the decision that governs, settles, and declares the rights and obligations of the parties.

The private respondent, for his part, counters that the computation of the monetary award until the
finality of the CA decision in CA-G.R. SP No. 74653 is in accord with Article 279 of the Labor Code,
as amended.

The Courts Ruling

We resolve to dismiss the petition and, accordingly, affirm the CA decision.

We state at the outset that, as a rule, we frown upon any delay in the execution of final and
executory decisions, as the immediate enforcement of the parties rights, confirmed by a final
decision, is a major component of the ideal administration of justice. We admit, however, that
circumstances may transpire rendering delay unavoidable. One such occasion is when the execution
of the final judgment is not in accord with what the final judgment decrees in its dispositive portion.
Just as the execution of a final judgment is a matter of right for the winning litigant who should not be
denied the fruits of his or her victory, the right of the losing party to give, perform, pay, and deliver
only what has been decreed in the final judgment should also be respected.

That a judgment should be implemented according to the terms of its dispositive portion is a long
and well-established rule.16 Otherwise stated, it is the dispositive portion that categorically states the
rights and obligations of the parties to the dispute as against each other.17 Thus, it is the dispositive
portion which the entities charged with the execution of a final judgment that must be enforced to
ensure the validity of the execution.18

A companion to the above rule on the execution of a final judgment is the principle of its immutability.
Save for recognized exceptions,19 a final judgment may no longer be altered, amended or modified,
even if the alteration, amendment or modification is meant to correct what is perceived to be an
erroneous conclusion of fact or law and regardless of what court, be it the highest Court of the land,
renders it.20 Any attempt on the part of the responsible entities charged with the execution of a final
judgment to insert, change or add matters not clearly contemplated in the dispositive portion violates
the rule on immutability of judgments.

In the present case, with the CAs deletion of the proportionate 13th month pay and indemnity
awards in the labor arbiters February 8, 2001 decision, only the awards of backwages, separation
pay, and attorneys fees remain. These are the awards subject to execution.

Award of backwages and separation pay

A distinct feature of the judgment under execution is that the February 8, 2001 labor arbiter decision
already provided for the computation of the payable separation pay and backwages due, and did not
literally order the computation of the monetary awards up to the time of the finality of the judgment.
The private respondent, too, did not contest the decision through an appeal. The petitioners
argument to confine the awards to what the labor arbiter stated in the dispositive part of his decision
is largely based on these established features of the judgment.

We reject the petitioners view as a narrow and misplaced interpretation of an illegal dismissal
decision, particularly of the terms of the labor arbiters decision.

While the private respondent failed to appeal the February 8, 2001 decision of the labor arbiter, the
failure, at the most, had the effect of making the awards granted to him final so that he could no
longer seek any other affirmative relief, or pray for any award additional to what the labor arbiter had
given. Other than these, the illegal dismissal case remained open for adjudication based on the
appeal made for the higher tribunals consideration. In other words, the higher tribunals, on
appropriate recourses made, may reverse the judgment and declare that no illegal dismissal took
place, or affirm the illegal dismissal already decreed with or without modifying the monetary
consequences flowing from the dismissal.

As the case developed and is presented to us, the issue before us is not the correctness of the
awards, nor the finality of the CAs judgment, nor the petitioners failure to appeal. The issue before
us is the propriety of the computation of the awards made, and, whether this violated the principle of
immutability of final judgments.

In concrete terms, the question is whether a re-computation in the course of execution of the labor
arbiters original computation of the awards made, pegged as of the time the decision was rendered
and confirmed with modification by a final CA decision, is legally proper. The question is posed,
given that the petitioner did not immediately pay the awards stated in the original labor arbiters
decision; it delayed payment because it continued with the litigation until final judgment at the CA
level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way
the original labor arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with
finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages, attorneys fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor
arbiter made shows that it was time-bound as can be seen from the figures used in the computation.
This part, being merely a computation of what the first part of the decision established and declared,
can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no
longer be re-computed because the computation is already in the labor arbiters decision that the CA
had affirmed. The public and private respondents, on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if
reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in
lieu reinstatement.

That the labor arbiters decision, at the same time that it found that an illegal dismissal had taken
place, also made a computation of the award, is understandable in light of Section 3, Rule VIII of the
then NLRC Rules of Procedure which requires that a computation be made. This Section in part
states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiters
decision. As we noted above, this implication is apparent from the terms of the computation itself,
and no question would have arisen had the parties terminated the case and implemented the
decision at that point.

However, the petitioner disagreed with the labor arbiters findings on all counts i.e., on the finding
of illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case
to the NLRC which, in turn, affirmed the labor arbiters decision. By law,21 the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority
in affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently
returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the
original labor arbiters decision, the implementing labor arbiter ordered the award re-computed; he
apparently read the figures originally ordered to be paid to be the computation due had the case
been terminated and implemented at the labor arbiters level. Thus, the labor arbiter re-computed the
award to include the separation pay and the backwages due up to the finality of the CA decision that
fully terminated the case on the merits. Unfortunately, the labor arbiters approved computation went
beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards
the final CA decision had deleted specifically, the proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially


considered the labor arbiters original decision in accordance with its basic component parts as we
discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of the
illegal dismissal, computed as of the time of the labor arbiters original decision.

To illustrate these points, had the case involved a pure money claim for a specific sum (e.g. salary
for a specific period) or a specific benefit (e.g. 13th month pay for a specific year) made by a former
employee, the labor arbiters computation would admittedly have continuing currency because the
sum is specific and any variation may only be on the interests that may run from the finality of the
decision ordering the payment of the specific sum.
In contrast with a ruling on a specific pure money claim, is a claim that relates to status (as in this
case, where the claim is the legality of the termination of the employment relationship). In this type of
cases, the decision or ruling is essentially declaratory of the status and of the rights, obligations and
monetary consequences that flow from the declared status (in this case, the payment of separation
pay and backwages and attorneys fees when illegal dismissal is found). When this type of decision
is executed, what is primarily implemented is the declaratory finding on the status and the rights and
obligations of the parties therein; the arising monetary consequences from the declaration only
follow as component of the parties rights and obligations.

In the present case, the CA confirmed that indeed an illegal dismissal had taken place, so that
separation pay in lieu of reinstatement and backwages should be paid. How much that separation
pay would be, would ideally be stated in the final CA decision; if not, the matter is for handling and
computation by the labor arbiter of origin as the labor official charged with the implementation of
decisions before the NLRC.22

As the CA correctly pointed out, the basis for the computation of separation pay and backwages is
Article 279 of the Labor Code, as amended, which reads:

x x x An employee who is unjustly dismissed from work shall be 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.

By jurisprudence derived from this provision, separation pay may be awarded to an illegally
dismissed employee in lieu of reinstatement.23 Recourse to the payment of separation pay is made
when continued employment is no longer possible, in cases where the dismissed employees
position is no longer available, or the continued relationship between the employer and the
employee is no longer viable due to the strained relations between them, or when the dismissed
employee opted not to be reinstated, or payment of separation benefits will be for the best interest of
the parties involved.24

This reading of Article 279, of course, does not appear to be disputed in the present case as the
petitioner admits that separation pay in lieu of reinstatement shall be paid, computed up to the
finality of the judgment finding that illegal dismissal had taken place. What the petitioner simply
disputes is the re-computation of the award when the final CA decision did not order any re-
computation while the NLRC decision that the CA affirmed and the labor arbiter decision the NLRC
in turn affirmed, already made a computation that on the basis of immutability of judgment and the
rule on execution of the dispositive portion of the decision should not now be disturbed.

Consistent with what we discussed above, we hold that under the terms of the decision under
execution, no essential change is made by a re-computation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal declared in that decision. A re-
computation (or an original computation, if no previous computation has been made) is a part of the
law specifically, Article 279 of the Labor Code and the established jurisprudence on this provision
that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add on
until full satisfaction, as expressed under Article 279 of the Labor Code. The re-computation of the
consequences of illegal dismissal upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal is affected and this is not a violation of the
principle of immutability of final judgments.
1avvphi1
We fully appreciate the petitioners efforts in trying to clarify how the standing jurisprudence on the
payment of separation pay in lieu of reinstatement and the accompanying payment of backwages
ought to be read and reconciled. Its attempt, however, is out of place and, rather than clarify, may
only confuse the implementation of Article 279; the core issue in this case is not the payment of
separation pay and backwages but their re-computation in light of an original labor arbiter ruling that
already contained a dated computation of the monetary consequences of illegal dismissal.

That the amount the petitioner shall now pay has greatly increased is a consequence that it cannot
avoid as it is the risk that it ran when it continued to seek recourses against the labor arbiters
decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is
allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning
point instead of the reinstatement that the law decrees. In allowing separation pay, the final decision
effectively declares that the employment relationship ended so that separation pay and backwages
are to be computed up to that point. The decision also becomes a judgment for money from which
another consequence flows the payment of interest in case of delay. This was what the CA
correctly decreed when it provided for the payment of the legal interest of 12% from the finality of the
judgment, in accordance with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. 25

WHEREFORE, premises considered, we hereby AFFIRM the decision of the Court of Appeals dated
December 19, 2005 and its resolution dated March 30, 2006 in CA-G.R. SP No. 89326.

For greater certainty, the petitioner is ORDERED to PAY the private respondent:

(a) backwages computed from August 28, 2000 (the date the employer illegally dismissed
the private respondent) up to July 29, 2003, the date of finality of the decision of the Court of
Appeals in CA-G.R. SP No. 74653;

(b) separation pay computed from July 31, 2000 (the private respondents first day of
employment) up to July 29, 2003 at the rate of one month pay per year of service;

(c) ten percent (10%) attorneys fees based on the total amount of the awards under (a) and
(b) above; and

(d) legal interest of twelve percent (12%) per annum of the total monetary awards computed
from July 29, 2003, until their full satisfaction.

The labor arbiter is hereby ORDERED to make another re-computation according to the above
directives.

Costs against the petitioner.

SO ORDERED.

19. Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 175283 March 28, 2008

JACKQUI R. MORENO, Petitioner,


vs.
SAN SEBASTIAN COLLEGE-RECOLETOS, MANILA, Respondent.

DECISION

CHICO-NAZARIO, J.:

Assailed in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court is the
Decision2 of the Court of Appeals dated 7 November 2006 in CA-G.R. SP No. 90083. The appellate
courts Decision granted the Special Civil Action for Certiorari filed by respondent San Sebastian
College-Recoletos, Manila (SSC-R), and annulled the Decision 3 dated 23 November 2004 and the
Resolution4 dated 31 March 2005 of the National Labor Relations Commission (NLRC) in NLRC-
NCR-CA No. 037175-03.

The undisputed facts of the case are as follows:

Respondent SSC-R is a domestic corporation and an educational institution duly registered under
the laws of the Philippines, located in C. M. Recto Avenue, Quiapo, Manila.

On 16 January 1999, SSC-R employed petitioner Jackqui R. Moreno (Moreno) as a teaching fellow.
On 23 October 2000, Moreno was appointed as a full-time college faculty member.5 Then, on 22
October 2001, Moreno became a member of the permanent college faculty.6 She was also offered
the chairmanship7 of the Business Finance and Accountancy Department of her college on 13
September 2002.

Subsequently, reports and rumors of Morenos unauthorized external teaching engagements


allegedly circulated and reached SSC-R. The Human Resource Department of the school thereafter
conducted a formal investigation on the said activities. On 24 October 2002, the Department
submitted its report,8 which stated that Moreno indeed had unauthorized teaching assignments at the
Centro Escolar University during the first semester of the School Year 2002-2003, and at the College
of the Holy Spirit, Manila, during the School Years 2000-2001, 2001-2002 and the first semester of
School Year 2002-2003.

On 27 October 2002, Moreno received a memorandum9 from the Dean of her college, requiring her
to explain the reports regarding her unauthorized teaching engagements. The said activities
allegedly violated Section 2.2 of Article II of SSC-Rs Faculty Manual,10 which reads:

Administrative permission is required for all full-time faculty members to teach part-time elsewhere. If
ever teaching permission is granted, the total teaching load should not exceed the maximum allowed
by CHED rules and regulations. Faculty members are required to report all other teaching
assignments elsewhere within two (2) weeks from start of the classes every semester.
On 28 October 2002, Moreno sent a written explanation11 in which she admitted her failure to secure
any written permission before she taught in other schools. Moreno explained that the said teaching
engagements were merely transitory in nature as the aforesaid schools urgently needed lecturers
and that she was no longer connected with them. Moreno further stated that it was never her
intention to jeopardize her work in SSC-R and that she merely wanted to improve her familys poor
financial conditions.

A Special Grievance Committee was then formed in order to investigate and make recommendations
regarding Morenos case. The said committee was composed of Dean Abraham Espejo of the
College of Law, as chairman, and Messrs. Dindo Bunag and Ramon Montierro, as members.

In a letter12 dated 11 November 2002, the grievance committee required Moreno to answer the
following series of questions concerning her case, to wit:

1. Did you teach in other schools without first obtaining the consent of your superiors in SSC-
R?

2. Did you ever go beyond the maximum limit for an outside load?

3. Did you ever truthfully disclose completely to your superiors at SSC-R any outside Load?

4. Do you deny teaching in CEU?

5. Do you deny teaching at Holy Spirit?

Moreno answered the above queries in a letter13 dated 12 November 2002. Moreno admitted she did
not formally disclose her teaching loads at the College of the Holy Spirit and at the Centro Escolar
University for fear that the priest administrators may no longer grant her permission, as prior similar
requests had already been declined; that the Dean of her college was aware of her external teaching
loads; that she went beyond the maximum limit for an outside load in the School Years 2000 until
2002, because she needed to support her mother and sister, her masteral studies, and her sisters
canteen business, all of which coincided with the payment of the emergency loan from the SSC-R
administrators that paid for her mothers illness; that she did not deny teaching part-time in the
aforementioned schools; and that she did not wish to resign because she felt she deserved a second
chance.

On the same day that Moreno sent her letter, the grievance committee issued its resolution, 14 which
unanimously found that she violated the prohibition against a full-time faculty having an unauthorized
external teaching load. The majority of the grievance committee members recommended Morenos
dismissal from employment in accordance with the school manual, but Dean Espejo dissented and
called only for a suspension for one semester.

Thereafter, SSC-R sent a letter15 to Moreno that was signed by the College President, informing her
that they had approved and adopted the findings and recommendations of the grievance committee
and, in accordance therewith, her employment was to be terminated effective 16 November 2002.
Moreno thus instituted with the NLRC a complaint for illegal termination against SSC-R, docketed as
NLRC-NCR Case No. 11-10077-02, seeking reinstatement, money claims, backwages, separation
pay if reinstatement is not viable, and attorneys fees.

In the Decision16 dated 30 April 2003, Labor Arbiter Veneranda C. Guerrero dismissed Morenos
complaint for lack of merit, thus:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaint for
illegal dismissal for lack of merit. Respondent San Sebastian College-Recoletos is hereby ordered to
pay complainant Jackqui R. Moreno the amount of NINE THOUSAND ONE HUNDRED FORTY
THREE AND 75/100 PESOS (P9,143.75) representing her unpaid salaries.

All other claims are DISMISSED for lack of merit.

The Labor Arbiter ruled that Morenos due acceptance of the appointment as a member of the
Permanent Faculty meant that she was bound to the condition therein not to accept any outside
teaching assignments without permission. Morenos admission of her violation was likewise said to
have rendered her liable for the penalty of dismissal as provided for in the SSC-R Faculty Manual.
The Labor Arbiter held that SSC-R had adequately discharged the burden of proof imposed by law in
dismissing Moreno. Except for her unpaid salary for fifteen (15) days, which was not controverted,
the rest of Morenos money claims were denied for being unsubstantiated.

On appeal by Moreno, the NLRC reversed the rulings of the Labor Arbiter in a Decision dated 23
November 2004, the relevant portion of which reads:

The four (4) applications for leave of absence adduced in evidence by the respondent [SSC-R] are
all undated. If the absences indicated in the said documents were the only absences incurred by the
complainant [Moreno] in her four-year tenure, it cannot be said that she had a poor attendance. In
fact, the contrary would be true. On the other hand, it is conceded that in the yearly evaluation of the
performance of teachers, she consistently landed among the five best teachers. Thus, neither can it
be said that her moonlighting activities adversely affected her work performance. Likewise, the
undisputed fact that she was asked to be the chairman of Business Finance and Accountancy for SY
2002-2003 should be considered. This last circumstance could only mean that she was very good at
her job.

There are other extenuating circumstances that should have been taken into consideration in
determining the propriety of the penalty of dismissal meted upon the complainant. These
circumstances are the fact that it was her first offense in four years of unblemished employment, and
the fact that she candidly admitted her fault. x x x

Moreover, it is settled that the existence of some rules agreed upon between the employer and
employee on the subject of dismissal cannot preclude the State from inquiring whether its rigid
application would work too harshly on the employee. (Gelmart Industries Phils. Inc. vs. NLRC, 176
SCRA 295 cited in Caltex Refinery Employees Association vs. NLRC, 246 SCRA 271).
Thus, in the instant case, it must be concluded that the penalty of dismissal meted upon the
complainant [Moreno] was too harsh and unreasonable under the circumstances. At most, a one-
year suspension with a warning against the repetition of the same offense would have been more in
keeping with the generally accepted principles of law.

WHEREFORE, the decision appealed from is hereby REVERSED. The respondent [SSC-R] is
hereby ordered to REINSTATE the complainant [Moreno] to her former position, and to pay her full
backwages counted from November 16, 2003 up to the date of her actual reinstatement. 17

SSC-R filed a Motion for Reconsideration18 of the NLRC Decision, which was denied for lack of merit
in a Resolution19 dated 31 March 2005. 1avvphi1

Thus, SSC-R instituted with the Court of Appeals a Petition for Certiorari under Rule 65 of the Rules
of Court, with a prayer for the issuance of a temporary restraining order and/or a writ of preliminary
injunction,20 docketed as CA-G.R. SP No. 90083, alleging grave abuse of discretion on the part of the
NLRC.

In a Decision21 dated 7 November 2006, the appellate court granted the petition and annulled the
Decision dated 23 November 2004, and Resolution dated 31 March 2005 of the NLRC. In reinstating
the Decision of the Labor Arbiter dated 30 April 2003, the Court of Appeals ruled in this wise:

In the case at bar, there is clearly grave abuse of discretion on the part of the NLRC when it
reversed the Decision of the Labor Arbiter. Its conclusions are highly prejudicial to the interests of
herein petitioner [SSC-R], considering the glaring infractions committed by private respondent
[Moreno], which she even expressly admitted.

xxxx

"Willful disobedience of the employers lawful orders, as a just cause for dismissal of an employee,
envisages the concurrence of at least two (2) requisites: the employees assailed conduct must have
been willful or intentional, the willfulness being characterized by a wrongful or perverse attitude; and
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.

The foregoing requisites are all present in this case. The prohibition against unauthorized outside
teaching engagements found in the Faculty Manual and in private respondents [Moreno]
appointment letter are deemed reasonable under the circumstances. In fact, the petitioners [SSC-R]
policy is actually permissive since it allows other teaching engagements so long as its president
approves of the same.

Concededly, this policy was made known to private respondent [Moreno] for as mentioned earlier, it
is found not only in the Faculty Manual, but more importantly, it is explicitly stated in her appointment
letter. By her own admission, it cannot be clearer that, in spite of her knowledge thereof, private
respondent [Moreno] willfully disobeyed the said prohibition. When she accepted the teaching
opportunities offered to her by other schools and altogether concealed the same from the petitioner
[SSC-R], she risked being administratively held liable therefor. Thus, the excuses she raised upon
the petitioners [SSC-R] discovery of such concealment deserve scant consideration.

The policy is obviously in connection with the private respondents [Moreno] duties as a faculty
member. It is designed to ensure that the petitioners [SSC-R] teaching staff is well fit to function
accordingly, not only for its benefit, but chiefly, for the students who are under their care and
instruction. Private respondent [Moreno] argues that notwithstanding her violations, her
commitments with petitioner [SSC-R] were never compromised. Be that as it may, this fact cannot
absolve her. She may be fit at the time when her infractions were revealed, but there is no
assurance that her health would not deteriorate in time if she persists in carrying on a heavy
workload.

xxxx

WHEREFORE, the instant petition is GRANTED. The 23 November 2004 Decision and the 31
March 2005 Resolution of the National Labor Relations Commission (Second Division) are
hereby ANNULLED and SET ASIDE. The National Labor Relations Commission is permanently
enjoined from executing its 31 March 2005 Resolution. The Decision of the Labor Arbiter dated 30
April 2003 is hereby REINSTATED and AFFIRMED.

Accordingly, Moreno now impugns before this Court the Court of Appeals Decision dated 07
November 2006 raising the following issues:

I.

WHETHER OR NOT THE DISMISSAL OF PETITIONER WAS PROPER AND LAWFUL.

II.

WHETHER OR NOT PETITIONER IS ENTITLED TO THE RELIEF SHE SEEKS AGAINST


RESPONDENT.

Moreno insists that her right to security of tenure is a more significant consideration in this case than
the strict application of a school policy. She laments that her dismissal from employment for failing to
secure the necessary permission is too harsh and undeserved a penalty.

The most basic of tenets in employee termination cases is that no worker shall be dismissed from
employment without the observance of substantive and procedural due process. Substantive due
process means that the ground upon which the dismissal is based is one of the just or authorized
causes enumerated in the Labor Code. Procedural due process, on the other hand, requires that an
employee be apprised of the charge against him, given reasonable time to answer the same,
allowed ample opportunity to be heard and defend himself, and assisted by a representative if the
employee so desires.22 The employee must be furnished two written notices: the first notice apprises
the employee of the particular acts or omissions for which his dismissal is sought, and the second is
a subsequent notice which informs the employee of the employer's decision to dismiss him. 23
Article 282 of the Labor Code provides for the just causes for the termination of employment, to wit:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representative;

(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; and

(e) Other causes analogous to the foregoing.

In termination cases, the burden of proof rests on the employer to show that the dismissal is for just
cause. When there is no showing of a clear, valid and legal cause for the termination of employment,
the law considers the matter a case of illegal dismissal and the burden is on the employer to prove
that the termination was for a valid or authorized cause. 24

Respondent SSC-R contends that Morenos dismissal from employment was valid because she
knowingly violated the prohibition embodied in the aforementioned Section 2.2 of Art. II of the SSC-R
Faculty Manual, in accordance with Section 4525 of the Manual of Regulations for Private Schools,
and which prohibition was likewise contained in Morenos employment contract. 26 In so doing,
Moreno allegedly committed serious misconduct and willful disobedience against the school, and
thereby submitted herself to the corresponding penalty provided for in both the Faculty Manual and
the employment contract, which is termination for cause.

On the basis of the evidence on record, the Court finds that Moreno has indeed committed
misconduct against respondent SSC-R. Her admitted failure to obtain the required permission from
the school before she engaged in external teaching engagements is a clear transgression of SSC-
Rs policy. However, said misconduct falls below the required level of gravity that would warrant
dismissal as a penalty.

Under Art. 282(a) of the Labor Code, willful disobedience of the employers lawful orders as a just
cause for termination of employment envisages the concurrence of at least two requisites: (1) the
employees assailed conduct must have been willful or intentional, the willfulness being
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 has been
engaged to discharge.27

Similarly, with respect to serious misconduct, the Court has already ruled in National Labor Relations
Commission v. Salgarino28 that:

Misconduct is defined as improper or wrong conduct. It is the 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 of judgment. The misconduct to be serious within the meaning
of the act must be of such a grave and aggravated character and not merely trivial or unimportant.
Such misconduct, however serious, must nevertheless be in connection with the work of the
employee to constitute just cause from his separation.

In order to constitute serious misconduct which will warrant the dismissal of an employee under
paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained
of has violated some established rules or policies. It is equally important and required that the
act or conduct must have been performed with wrongful intent. (Emphasis ours.)

After examining the records of the case, the Court finds that SSC-R miserably failed to prove that
Morenos misconduct was induced by a perverse and wrongful intent as required in Art. 282(a) of the
Labor Code. SSC-R merely anchored Morenos alleged bad faith on the fact that she had full
knowledge of the policy that was violated and that it was relatively easy for her to secure the
required permission before she taught in other schools. This posture is utterly lacking.

It bears repeating that it is the employer that has the burden of proving the lawful cause sustaining
the dismissal of the employee. Even equipoise is not enough; the employer must affirmatively show
rationally adequate evidence that the dismissal was for a justifiable cause. 29

In the present case, SSC-R failed to adduce any concrete evidence to prove that Moreno indeed
harbored perverse or corrupt motivations in violating the aforesaid school policy. In her letter of
explanation to the grievance committee dated 12 November 2002, Moreno explained in detail her
role as the breadwinner and the grave financial conditions of her family. As previous requests for
permission had already been denied, Moreno was thus prompted to engage in illicit teaching
activities in other schools, as she desperately needed them to augment her income. Instead of
submitting controverting evidence, SSC-R simply dismissed the above statements as nothing more
than a "lame excuse"30 and are "clearly an afterthought,"31 considering that no evidence was offered
to support them and that Morenos salary was allegedly one of the highest among the universities in
the country.

In addition, even if dismissal for cause is the prescribed penalty for the misconduct herein
committed, in accordance with the SSC-R Faculty Manual and Morenos employment contract, the
Court finds the same to be disproportionate to the offense.

Time and again, we have ruled that while an employer enjoys a wide latitude of discretion in the
promulgation of policies, rules and regulations on work-related activities of the employees, those
directives, however, must always be fair and reasonable, and the corresponding penalties, when
prescribed, must be commensurate to the offense involved and to the degree of the infraction. 32

Special circumstances were present in the case at bar which should have been properly taken into
account in the imposition of the appropriate penalty. Moreno, in this case, had readily admitted her
misconduct, which was undisputedly the first she has ever committed against the school. Her
teaching abilities and administrative skills remained apparently unaffected by her external teaching
engagements, as she was found by the grievance committee to be one of the better professors in
the Accounting Department33 and she was even offered the Chairmanship of her college.34 Also, the
fact that Moreno merely wanted to alleviate her familys poor financial conditions is a justification that
SSC-R failed to refute. SSC-R likewise failed to prove any resulting material damage or prejudice on
its part as a consequence of Morenos misconduct. The claim by SSC-R that the imposition of a
lesser penalty would set a bad precedent35 for the other faculty members who comply with the school
policies is too speculative for this Court to even consider.

Finally, the Court notes that in Morenos contract of employment, 36 one of the provisions therein
categorically stated that should a violation of any of the terms and conditions thereof be committed,
the penalty that will be imposed would either be suspension or dismissal from employment. Thus,
contrary to its position from the beginning, SSC-R clearly had the discretion to impose a lighter
penalty of suspension and was not at all compelled to dismiss Moreno under the circumstances, just
because the Faculty Manual said so.

With regard to the observance of procedural due process, neither of the parties has put the same
into issue. Indeed, based on the evidence on record, Moreno was served with the required twin
notices and was afforded the opportunity to be heard. The first notice was embodied in the
memorandum37 dated 27 October 2002 sent by her College Dean, which required her to explain her
unauthorized teaching assignments. The letter38 by SSC-R that informed Moreno that her services
were being terminated effective 16 November 2002 constituted the second required notice. Moreno
was also given the opportunity to explain her side when the special grievance committee asked her
a series of questions pertaining to their investigation in a letter 39 dated 11 November 2002 and to
which she replied likewise through a letter40 dated 12 November 2002.

In light of the foregoing, the Court holds that the dismissal of petitioner Moreno failed to comply with
the substantive aspect of due process. Despite SSC-Rs observance of procedural due process, it
nonetheless failed to discharge its burden of proving the legality of Morenos termination from
employment. Thus, the imposed penalty of dismissal is hereby declared as invalid.

In so ruling, this Court does not depreciate the misconduct committed by Moreno. Indeed, SSC-R
has adequate reasons to impose sanctions on her. However, this should not be dismissal from
employment. Because of the serious implications of this penalty, "our Labor Code decrees that an
employee cannot be dismissed, except for the most serious causes."41

Considering the presence of extenuating circumstances in the instant case, the Court deems it
appropriate to impose the penalty of suspension of one (1) year on Moreno, to be counted from 16
November 2002, the effective date of her illegal dismissal. However, given the period of time in
which Moreno was actually prevented from working in the respondent school, the said suspension
should already be deemed served.

Furthermore, the Court holds that Moreno should be reinstated to her former position, without loss of
seniority rights and other privileges, but without payment of backwages.

As a general rule, the normal consequences of a finding that an employee has been illegally
dismissed are, firstly, that the employee becomes entitled to reinstatement without loss of seniority
rights; and secondly, the payment of backwages corresponding to the period from his illegal
dismissal up to his actual reinstatement. The two forms of relief are, however, distinct and separate
from each other. Though the grant of reinstatement commonly carries with it an award of
backwages, the appropriateness or non-availability of one does not carry with it the
inappropriateness or non-availability of the other.42

In accordance with Durabuilt Recapping Plant & Co. v. National Labor Relations Commission, 43 the
Court may not only mitigate, but also absolve entirely, the liability of the employer to pay backwages
where good faith is evident. Likewise, backwages may be withheld from a dismissed employee
where exceptional circumstances are availing.44

In the present case, the good faith of SSC-R is apparent. The termination of Moreno from her
employment cannot be said to have been carried out in a malevolent, arbitrary or oppressive
manner. Indeed, the only mistake that the respondent school has committed was to strictly apply the
provisions of its Faculty Manual and its contract with Moreno without regard for the aforementioned
special circumstances that were attendant in this case. Even then, Morenos right to procedural due
process was fully respected, as she was given the required twin notices and an ample opportunity to
be heard. This fact was not even disputed by Moreno herself.

With respect to Morenos claim for moral and exemplary damages, the same were never
satisfactorily pleaded and substantiated.45 Thus, they are hereby denied. Neither is Moreno entitled
to the award of the monetary claims46 in her petition, as no basis and proof for the grant thereof were
ever adduced.

The Court cannot likewise award attorneys fees to Moreno in view of the above-mentioned finding of
good faith on the part of SSC-R47. It is a well-settled principle that even if a claimant is compelled to
litigate with third persons or to incur expenses to protect the claimants rights, attorneys fees may
still not be awarded where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his cause. 48

WHEREFORE, the Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-
G.R. SP No 90083 dated 7 November 2006 is hereby REVERSED. Respondent San Sebastian
College-Recoletos, Manila, is hereby ordered to reinstate Petitioner Jackqui R. Moreno without loss
of seniority rights and other privileges. No pronouncement as to cost.

SO ORDERED.

20. Republic of the Philippines


SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 197353 April 1, 2013

ALEXANDER B. BANARES, Petitioner,


vs.
TABACO WOMEN'S TRANSPORT SERVICE1 COOPERATIVE (T A WTRASCO), represented by
DIR. RENOL BARCEBAL, ET AL., Respondents.

DECISION

VELASCO, JR., J.:

In this Petition for Review on Certiorari under Rule 45, Alexander B. Baares assails and seeks the
reversal of the Decision2 dated October 14, 2010 of the Court of Appeals (CA) in CA-G.R. SP No.
112542 and its Resolution3 of June 15, 2011 denying petitioner's motion for reconsideration. The CA
Decision set aside the July 7, 2009 Decision4 and November 18, 2009 Resolution5 of the National
Labor Relations Commission (NLRC) as well as the April 14, 2008 Order 6 of the Labor Arbiter.

The facts are undisputed.

Petitioner was for some time the general manager of Tabaco Women's Transport Service
Cooperative (T A WTRASCO) until its management, on March 6, 2006, terminated his services. On
March 7, 2006, before the Labor Arbiter (LA) in RAB V of the NLRC in Legaspi City, petitioner filed a
complaint for illegal dismissal and payment of monetary claims which was docketed as NLRC RAB V
Case No. 03-00092-06.

On August 22, 2006, the LA rendered a Decision7 finding for petitioner, as complainant, with the fallo
reading:

WHEREFORE, premises considered, judgment is hereby rendered declaring complainant to have


been illegally dismissed from his employment. Consequently, respondent Tabaco Womens
Transport Service Cooperative (TAWTRASCO) is hereby ordered to immediately reinstate
complainant to his former position, without loss of seniority right and to pay complainant the total
amount of ONE HUNDRED NINETEEN THOUSAND SIX HUNDRED PESOS (P119,600.00),
representing the latters backwages and damages, as computed above.

All other claims and/or charges are hereby dismissed for lack of factual and legal basis.

SO ORDERED.

Since TAWTRASCO opted not to appeal, the LA Decision soon became final and executory. In fact,
TAWTRASCO in no time paid petitioner the amount of PhP 119, 600 by way of damages and
backwages corresponding to the period March 6, 2006 to August 22, 2006. But petitioner was not
immediately reinstated. Owing to the strained employer-employee relationship perceived to exist
between them, TAWTRASCO offered to pay petitioner separation pay of PhP 172, 296, but petitioner
rejected the offer. Eventually, the two entered into a Compromise Agreement, in which petitioner
waived a portion of his monetary claim, specifically his backwages for the period from August 23,
2006 to February 5, 2007, and agreed that the amount due shall be payable in three (3) installments.
In turn, TAWTRASCO undertook to reinstate the petitioner effective February 6, 2007. Accordingly,
the LA issued, on February 5, 2007, an Order8 based on the compromise agreement thus executed,
and declared the instant case closed and terminated.
On February 24, 2007, petitioner received a copy of Memorandum Order No. 04, 9 Series of 2007,
with a copy of a resolution passed by the Board of Directors (BOD) of TAWTRASCO, requiring him
to report at the companys Virac, Catanduanes terminal. The memorandum order contained an
enumeration of petitioners duties and responsibilities.

A day after, petitioner went to see Oliva Barcebal (Oliva), the BOD Chairman, to decry that the
adverted return-to-work memorandum and board resolution contravene the NLRC-approved
compromise agreement which called for his reinstatement as general manager without loss of
seniority rights. Petitioner would later reiterate his concerns in a letter 10 dated March 12, 2007.

On March 20, 2007, TAWTRASCO served petitioner a copy of Memorandum No. 10, 11 Series of
2007 which set forth his location assignment, as follows: temporarily assigned at the Virac,
Catanduanes terminal/office for two months, after which he is to divide his time between the Virac
Terminal and the Araneta Center Bus Terminal (ACBT), three days (Monday to Wednesday) in Virac
and two days (Friday and Saturday) in Cubao, utilizing Thursday as his travel day in between offices.
As ordered, petitioner reported to the Virac terminal which purportedly needed his attention due to its
flagging operations and management problems.

Barely a week into his new assignment, petitioner, thru a memorandum report, proposed the
construction/rehabilitation of the passenger lounge in the Virac terminal, among other improvements.
The proposal came with a request for a monthly lodging accommodation allowance of PhP 1,700 for
the duration of his stay in Virac.

While the management eventually approved the desired construction projects, it denied petitioners
plea for cash lodging allowance. Instead of a straight cash allowance, the company urged petitioner
to use the Virac office for lodging purposes.

Subsequent events saw petitioner requesting and receiving an allocation of PhP 3,000 for his travel,
accommodation, representation and communication allowance subject to liquidation. No
replenishment, however, came after.

On April 12, 2007, Oliva, while conducting, in the company of another director, an ocular inspection
of the Virac terminal, discovered that petitioner had not reported for work since March 31, 2007.
Thus, the issuance of a company memorandum12 asking petitioner to explain his absence.

In response, petitioner addressed a letter-reply13 to management stating the underlying reason for
not reporting and continue reporting for work in his new place of assignment and expressing in detail
his grievances against management. Some excerpts of petitioners letter:

x x x The very reason why I dont go back to Virac Catanduanes x x x is because I realized that in
truth my reinstatement effected by your office which is supposed to be in pursuance to the NLRC
decision is nothing but an artificial, fake, fictitious and a sham kind of return to work order.

I regret to say it so on the following grounds:


1. Our garage/terminal in Virac Catanduanes wherein you would want me to stay is in total disarray
and dirty as it looks until the time that I stayed there and despite having reported that matter to you
and despite having requested by me that the necessary funding for the reconstruction or rebuilding
of the necessary facilities we at least used to have before should be immediately allocated and
released and yet you were too slow in granting it;

2. Despite x x x my request for the allocation of the indispensable travel, representation and
accommodation allowances I need to have while staying in Virac because the garage/terminal
facilities remains in a messy condition but still you fail until now to provide it to me x x x;

3. The manner and nature of work you would want me to do while in Virac is utterly a deviation from
my original work and in effect a demotion in rank;

4. The place of work x x x was completely devoid of any office materials and equipments needed in
the nature of my work. To put in details there was no office table and chairs, no filing cabinets for
safekeeping of important documents, no ball-pens, no bond papers etc. x x x There is nothing at all
in said place of work for me to say that there was really an office of the General Manager. As a
matter of fact, you know that all my reports being submitted x x x are made possible by using my
own personal computer, my computer printer, my computer inks and even my own bond papers.

5. Just recently, I found out that there are employees in our company who are under my jurisdiction
and x x x that are being instructed not to follow my lawful orders. This matter needs no further
explanation because I have already reported it and yet you did nothing to correct it.

6. The free place of accommodation I used to have before when staying in Cubao, Quezon City
remains non-existent x x x despite the fact that x x x I need to be [back] also in Cubao to facilitate
the restoration of our transport operation x x x.

In essence, there is an ongoing mockery of the mandate of the NLRC decision that I should be
reinstated to my former position as General Manager without loss of seniority rights. What is truly
happening now is the obvious evidence that you dont want me to work the way I was doing it before
and the way as mandated by the by-laws of our transport cooperative.

In sum, you cannot charge me for abandonment of work because you are in fact causing me an
inhumane and degrading treatment as General Manager and giving an embarrassing kind of work.

Therefore, in view of the foregoing circumstances, may I hereby demand that my salary should be
paid immediately as soon as you receive this letter of mine that explains in full details the logical
reasons why I really cannot go back to my new place of assigned but temporary work x x x.

xxxx

Finally, let me just frankly tell you that I can only go back to Virac Catanduanes when everything I
need in my work as General Manager is sufficiently given to me and when all employees of
TAWTRASCO are duly advised that in effect Im truly back to work and all the employees need to
follow my orders. Meantime, as General Manager I will utilize my time to do some other works x x x.
On April 27, 2007, petitioner filed a complaint against TAWTRASCO for nonpayment of salaries and
withholding of privileges before the LA. Via a Manifestation with application for the issuance of an
alias writ of execution, petitioner prayed that his complaint be deemed withdrawn "for the purpose of
not confusing the essence of consolidation and in order to give way to the smooth proceedings and
fast adjudication on the merits."14

By Order of April 14, 2008, the LA effectively issued the desired alias writ of execution, as follows:

Consequently, there being no compliance of the reinstatement aspect of the Decision, petitioner is
therefore, entitled to his reinstatement salaries less the amount he already received, reckoned from
date of receipt by respondent [TAWTRASCO] of the decision on October 11, 2006 to date of this
order, subject to further computation until reinstatement is actually carried out religiously plus
monthly allowance of P1,000.00 without prejudice on the part of the respondent to avail of the
remedy available to it under the rules. Hence, the same is computed as follows:

October 11, 2006 to April 18, 2008 = 18 mos.

Basic + Allowance P19,000.00 x 18 mos. = P342,000.00

LESS:

BPI Check: 2/11/07 P18,000.00

BPI Check: 2/12/07 18,000.00

BPI Check: 3/6/07 18,000.00

BPI Check: 4/6/07 18,000.00

CY 2/13/08 7,500.00

2/27/08 7,500.00 87,000.00

P255,000.00

xxxx

Responsive to all the foregoing, respondent [TAWTRASCO] is hereby ordered to reinstate


complainant to his former position as General Manager, without loss of seniority right and pay
petitioner the amount of P255,000.00, representing the latters reinstatement salaries (after
deducting the amount he already received) and monthly allowance, as computed above.

Respondent is also ordered to show proof of compliance of complainants reinstatement immediately


upon receipt hereof.

SO ORDERED.15
TAWTRASCO appealed to the NLRC which dismissed the appeal per its Decision dated July 7,
2009, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered DISMISSING respondents appeal for lack of merit.
The assailed Order of the Labor Arbiter dated 14 April 2008, is hereby AFFIRMED.

SO ORDERED.

In so ruling, the NLRC held that TAWTRASCO only partially complied with the final and executory
August 22, 2006 Decision of the LA, i.e., by paying the PhP 119,000 backwages of petitioner as
ordered. The reinstatement aspect of the LA Decision, however, has yet to be wholly complied with.
To the NLRC, the LA acted within his sound discretion in ordering the authentic and full
reinstatement of petitioner and the payment of PhP 255,000 as reinstatement salaries as computed
from October 11, 2006 to April 18, 2008.

The NLRC denied, through its November 18, 2009 Resolution, TAWTRASCOs motion for
reconsideration.

TAWTRASCO went to the CA on certiorari. On October 14, 2010, the appellate court rendered the
assailed Decision, the fallo of which reads:

WHEREFORE, the instant petition for certiorari is GRANTED. The assailed Decision and Resolution
of the public respondent National Labor Relations Commission, in NLRC LAC No. 08-002800-08
[NLRC RAB V Case No. 03-000092-06], as well as the Order dated 14 April 2008 of the Labor
Arbiter are SET ASIDE.

SO ORDERED.

Contrary to the LAs holding, as affirmed by the NLRC, the CA found TAWTRASCO to have fully
reinstated petitioner to his former post. And without expressly declaring so, the unmistakable thrust
of the CA disposition was that petitioner veritably abandoned his work when he stopped reporting to
his Virac terminal assignment.

His motion for reconsideration having been denied per the CAs assailed Resolution of June 15,
2011, petitioner went to this Court. His petition is predicated on the following assignment of errors:

(A)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN FAILING TO
OBSERVE AND UPHOLD THE FORMAL AND PROCEDURAL REQUIREMENTS IN THE FILING
OF THE PETITION FOR CERTIORARI UNDER RULE 65.

(B)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN IGNORING THE
STRICT RULE ON NON-FORUM SHOPPING AND WHEN DESPITE KNOWLEDGE OF A PRIOR
FINAL JUDGMENT INVOLVING THE SAME AND IDENTICAL ISSUES AND THE SAME AND
IDENTICAL PARTIES, THE COURT A QUO FAILED TO DISMISS OUTRIGHT THE PETITION FOR
CERTIORARI IN VIOLATION OF THE DOCTRINE ON "RES JUDICATA" AND THE PRINCIPLE OF
"LITIS PENDENCIA".

(C)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION WHEN THE COURT A
QUO HAS DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH APPLICABLE
DECISIONS OF THIS SUPREME COURT WITH RESPECT TO THE FORMAL APPEARANCES OF
COUNSEL.

(D)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION WHEN THE COURT A
QUO HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS IN DELVING INTO THE FACTS OF THE CASE. 16

The petition is meritorious.

Essentially, the issues raised boil down to: was there a proper and genuine reinstatement of
petitioner to his former position of General Manager of TAWTRASCO without loss of seniority rights
and privileges? Subsumed in this core issue is the question of whether petitioners refusal to report
in the Virac terminal in early April 2007 constitutes abandonment, not constructive dismissal.

The parallel finding and conclusion of the LA and the NLRC contradict that of the CA which, as
earlier indicated, categorically resolved the first factual poser in the negative. In light of the
divergence between the findings of facts of the LA and the NLRC, on one hand, and the appellate
court, on the other, a review of the records and the clashing arguments of the parties is in order.17

Reinstatement, as a labor law concept, means the admission of an employee back to work prevailing
prior to his dismissal;18 restoration to a state or position from which one had been removed or
separated, which presupposes that there shall be no demotion in rank and/or diminution of salary,
benefits and other privileges; if the position previously occupied no longer exists, the restoration
shall be to a substantially equivalent position in terms of salary, benefits and other
privileges.19 Managements prerogative to transfer an employee from one office or station to another
within the business establishment, however, generally remains unaffected by a reinstatement order,
as long as there is no resulting demotion or diminution of salary and other benefits and/or the action
is not motivated by consideration less than fair or effected as a punishment or to get back at the
reinstated employee.20

Guided by the foregoing reasonable albeit exaction norm, the "reinstatement" of petitioner as
general manager of TAWTRASCO, effected by TAWTRASCO pursuant to the February 5, 2007
compromise agreement, was not a real, bona fide reinstatement in the context of the Labor Code
and pertinent decisional law. Consider:
First, TAWTRASCO at the outset, i.e., after the compromise agreement signing, directed petitioner to
report to the Virac terminal with duties and responsibilities not befitting a general manager of a
transport company. In fine, the assignment partook of the nature of a demotion. The aforementioned
Memorandum Order No. 04, Series of 2007, in its pertinently part, states and directs:

DUTIES AND RESPONSIBILITIES

1) To supervise all TAWTRASCO bus employees, personnels and including authorized callers for the
success of the terminal operation;

2) To have a record of the in and out of freight loaded on all TAWTRASCO buses, regulate freight
charge/s and minimize problems and complaints regarding the freight/cargoes loaded at these
buses;

3) As General Manager to sign on the manifesto or trip records of the buses going out daily at Virac
Terminal attesting his approval except on day-off schedule;

4) To unite, settle differences or disputes between TAWTRASCO key personnels at TAWTRASCO


Virac terminal affecting its management operation particularly x x x;

5) To explore all possibilities and restore the said terminal to its former successful operation;

6) To find solution to all other problems relative to its management operation and to report
complaints affecting transport operations; and

7) To give a written report to the Board of Directors on your accomplishments.

ADDENDUM: On Day-off Schedule

1) Authorized Day-Off Once a week

2) To give Notice three (3) days before regarding vacation leave except on emergency cases.

APPROVED: TAWTRASCO BOARD OF DIRECTORS21

A cursory reading of items (2) and (3) above would readily reveal that petitioner was tasked to
discharge menial duties, such as maintaining a record of the "in" and "out" of freight loaded on all
TAWTRASCO buses and signing the trip records of the buses going out daily. To be sure, these
tasks cannot be classified as pertaining to the office of a general manager, but that of a checker. As
may reasonably be expected, petitioner promptly reacted to this assignment. A day after he received
the memorandum in question, or on February 25, 2007, he repaired to the office of Oliva to
personally voice out his misgivings about the set up and why he believed that the above
memorandum contravened their compromise agreement and the February 5, 2007 Order of the LA
specifically providing for his reinstatement as general manager without loss of seniority rights and
privileges.
Nevertheless, 15 days after the uneventful personal meeting with Oliva, petitioner addressed a letter
to top management inquiring about his reinstatement and assignment. The BOD Secretary of
TAWTRASCO received this letter on March 13, 2007.

TAWTRASCOs action on petitioners aforementioned letter came, as narrated earlier, in the form of
Memorandum No. 10, Series of 2007, which temporarily assigned him to the Virac terminal for two
months. And after the two-month period, he shall divide his time between the Virac and the ACBT
terminals, with Thursday as his travel day in between offices. Notably, this time, TAWTRASCO
explained that its Virac terminal needs petitioners attention due to its flagging operations and
management problems. Thus, petitioner acquiesced and reported to the Virac terminal of
TAWTRASCO.

In a rather unusual turn of events, however, the assailed CA decision made no mention of the
foregoing critical facts despite their being pleaded by petitioner and duly supported by the records,
although that court made a perfunctory reference to the adverted Memorandum Order No. 04.

And second, while Memorandum No. 10 was couched as if TAWTRASCO had in mind the
reinstatement of petitioner to his former position, there cannot be any quibble that TAWTRASCO
withheld petitioners customary boarding house privilege. What is more, TAWTRASCO did not
provide him with a formal office space.

As evidence on record abundantly shows, TAWTRASCO was made aware of its shortcomings as
employer, but it opted not to lift a finger to address petitioners reasonable requests for office space
and free lodging while assigned at the Virac terminal. Thus, the stand-off between employer and
employee led to petitioner writing on April 24, 2007 to TAWTRASCO, an explanatory letter explaining
his failure to report back to work at the Virac terminal. We reproduce anew highlights of that letter:

I regret to say it so on the following grounds:

1. Our garage/terminal in Virac Catanduanes wherein you would want me to stay is in total disarray
and dirty as it looks until the time that I stayed there and despite having reported that matter to you
and despite having requested by me that the necessary funding for the reconstruction or rebuilding
of the necessary facilities we at least used to have before should be immediately allocated and
released and yet you were too slow in granting it;

2. Despite x x x my request for the allocation of the indispensable travel, representation and
accommodation allowances I need to have while staying in Virac because the garage/terminal
facilities remains in a messy condition but still you fail until now to provide it to me because probably
you want me to sleep at night along the sidewalks x x x;

3. The manner and nature of work you would want me to do while in Virac is utterly a deviation from
my original work and in effect a demotion in rank;

4. The place of work x x x was completely devoid of any office materials and equipments needed in
the nature of my work. To put in details there was no office table and chairs, no filing cabinets for
safekeeping of important documents, no ball-pens, no bond papers etc. x x x There is nothing at all
in said place of work for me to say that there was really an office of the General Manager.

As a matter of fact, you know that all my reports being submitted x x x are made possible by using
my own personal computer, my computer printer, my computer inks and even my own bond papers.
xxxx

6. The free place of accommodation I used to have before when staying in Cubao, Quezon City
remains non-existent x x x despite the fact that x x x I need to be [back] also in Cubao to facilitate
the restoration of our transport operation x x x.

Apropos to what petitioner viewed as a demeaning treatment dealt him by TAWTRASCO, the LA had
stated the ensuing observations in his April 14, 2008 Order:

In this case, however, this Branch finds that respondent TAWTRASCO indeed, complied with the
reinstatement of the complainant petitioner Baares, however, the office where he was assigned in
Virac, Catanduanes is not in good and tenantable condition. As shown in complainants Annex "F"
which is the photograph of the place, it is unsafe, dilapidated and in a messy situation. Confronted
with this problem, complainant requested fund from respondent for the rehabilitation of the office.
However, this was not favorably acted upon. To further rub salt in an open wound, respondent
appointed a new General Manager effective November 12, 2007 (Annexes "H" and "I", complainants
Memorandum). This conduct on the part of respondent gave complainant the correct impression that
the respondent did not intend to be bound by the compromise agreement, and its non-materialization
negated the very purpose for which it was executed.22

Annex "F," the photograph23 adverted to by the LA, tells it all. Indeed, petitioner could not reasonably
be expected to work in such a messy condition without any office space, office furniture, equipment
and supplies. And much less can petitioner lodge there. TAWTRASCO pointedly told petitioner
through the March 26, 2007 letter of Oliva denying his request for a PhP 1,700 lodging allowance
that petitioner could instead use the Virac office for his accommodation. It must be borne in mind
and TAWTRASCO has not controverted the factthat, prior to his illegal dismissal, petitioner was
enjoying PhP 5,000-a-month free lodging privilege while stationed in the Cubao terminal.
Accordingly, this lodging privilege was supposed to continue under the reinstatement package. But
as it turned out, TAWTRASCO discontinued the accommodation when it posted petitioner in Virac.

Under Article 223 of the Labor Code, an employee entitled to reinstatement "shall either be admitted
back to work under the same terms and conditions prevailing prior to his dismissal or separation x x
x."24 Verily, an illegally dismissed employee is entitled to reinstatement without loss of seniority rights
and to other established employment privileges, and to his full backwages. 25 The boarding house
privilege being an established perk accorded to petitioner ought to have been granted him if a real
and authentic reinstatement to his former position as general manager is to be posited.

It cannot be stressed enough that TAWTRASCO withheld petitioners salaries for and after his
purported refusal to report for work at the Virac terminal. The reality, however, is that TAWTRASCO
veritably directed petitioner to work under terms and conditions prejudicial to him, the most hurtful
cut being that he was required to work without a decent office partly performing a checkers job. And
this embarrassing work arrangement is what doubtless triggered the refusal to work, which under the
premises appears very much justified.

Generally, employees have a demandable right over existing benefits voluntarily granted to them by
their employers. And if the grant or benefit is founded on an express policy or has, for a considerable
period of time, been given regularly and deliberately, then the grant ripens into a vested right 26 which
the employer cannot unilaterally diminish, discontinue or eliminate 27 without offending the declared
constitutional policy on full protection to labor.28 So it must be here with respect, at the minimum, to
the lodging accommodation which TAWTRASCO, as found by the NLRC, appears to have regularly
extended for free for some time to petitioner.

Contrary to TAWTRASCOs posture and what the CA Decision implied, petitioners refusal, during
the period material, to report for work at the Virac terminal does not, without more, translate to
abandonment. For abandonment to exist, it is essential (1) that the employee must have failed to
report for work or must have been absent without valid or justifiable reason; and (2) that there must
have been a clear intention to sever the employer-employee relationship manifested by some overt
acts.29 These concurring elements of abandonment are not present in the instant case.

As reflected above, the reinstatement order has not been faithfully complied with. And varied but
justifiable reasons obtain which made petitioners work at the Virac terminal untenable. To reiterate,
there was a lack of a viable office: no proper office space, no office furniture and equipment, no
office supplies. Petitioners request for immediate remediation of the above unfortunate employment
conditions fell on deaf ears. This is not to mention petitioners board and lodging privilege which he
was deprived of without so much as an explanation. Thus, it could not be said that petitioners
absence is without valid or justifiable cause.

But more to the point, petitioner has not manifested, by overt acts, a clear intention to sever his
employment with TAWTRASCO. In fact, after submitting his April 24, 2007 letter-explanation to, but
not receiving a reaction one way or another from, TAWTRASCO, petitioner lost no time in filing a
complaint against the former for, inter alia, nonpayment of salaries and forfeiture of boarding house
privilege. Thereafter, via a Manifestation, he sought the early issuance of an alias writ of execution
purposely for the full implementation of the final and executory LA August 22, 2006 Decision, i.e., for
the payment of his salaries and full reinstatement. These twin actions clearly argue against a finding
of abandonment on petitioners part. It is a settled doctrine that the filing of an illegal dismissal suit is
inconsistent with the charge of abandonment, for an employee who takes steps to protest his
dismissal cannot by logic be said to have abandoned his work.30

Given the convergence of events and circumstances above described, the Court can readily declare
that TAWTRASCO admitted petitioner back to work under terms and conditions adversely dissimilar
to those prevailing before his illegal dismissal. Put a bit differently, petitioner was admitted back, but
required to work under conditions crafted to cause unnecessary hardship to or meant to be rejected
by him. And to reiterate, these conditions entailed a demotion in rank and diminution of perks and
standard privileges. The shabby and unfair treatment accorded him or her by the management of
TAWTRASCO is definitely not genuine reinstatement to his former position.
The Court finds, as did the NLRC and the LA, that petitioner was not truly reinstated by
TAWTRASCO consistent with the final and executory August 22, 2006 Decision of the LA and the
February 5, 2007 Compromise Agreement inked by the parties in the presence of the hearing LA.
Perforce, the assailed decision and resolution of the CA must be set aside, and the April 14, 2008
Order of the LA, as effectively affirmed in the July 7, 2009 Decision and November 18, 2009
Resolution of the NLRC, accordingly reinstated.

Supervening events, however, had transpired which inexorably makes the reinstatement infeasible.
For one, on November 12, 2007, TAWTRASCO already appointed a new general manager.
Petitioner no less has raised this fact of appointment. As a matter of settled law, reinstatement and
payment of backwages, as the normal consequences of illegal dismissal, presuppose that the
previous position from which the employee has been removed is still in existence or there is an
unfilled position of a nature, more or less, similar to the one previously occupied by said employee. 31

For another, a considerable period of time has elapsed since petitioner last reported to work in early
2007 or practically a six-year period. And this protracted labor suit have likely engendered animosity
and exacerbated already strained relations between petitioner and his employer.

Reinstatement is no longer viable where, among other things, the relations between the employer
and employee have been so severely strained, that it is not in the best interest of the parties, nor is it
advisable or practical to order reinstatement.32 Under the doctrine of strained relations, payment of
separation pay is considered an acceptable alternative to reinstatement when the latter option is no
longer desirable or viable.33 Indeed, separation pay is made an alternative relief in lieu of
reinstatement in certain circumstances, such as: (1) when reinstatement can no longer be effected in
view of the passage of a long period of time or because of the realities of the situation; (2)
reinstatement is inimical to the employers interest; (3) reinstatement is no longer feasible; (4)
reinstatement does not serve the best interests of the parties involved; (5) the employer is prejudiced
by the workers continued employment; (6) facts that make execution unjust or inequitable have
supervened; or (7) strained relations between the employer and the employee. 34

Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month
salary for every year of service should be awarded as an alternative. 35 In lieu of reinstatement,
petitioner is entitled to separation pay equivalent to one (1) month salary for every year of service
reckoned from the time he commenced his employment with TAWTRASCO until finality of this
Decision.

In addition, petitioner is entitled to backwages and other emoluments due him from the time he did
not report for work on March 31, 2007 until the finality of this Decision. Said backwages and
emoluments shall earn 12% interest from finality of this Decision until fully paid. The payment of
legal interest becomes a necessary consequence of the finality of the Courts Decision, because,
reckoned from that time, the said decision becomes a judgment for money which shall earn interest
at the rate of 12% per annum.36

In accordance with Art. 11137 of the Labor Code and in line with current jurisprudence,38 petitioner
shall be paid attorneys fees in the amount equivalent to 10% of the monetary award.
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed Decision and Resolution
dated October 14, 2010 and June 15, 2011, respectively, of the CA in CA-G.R. SP No. 112542 are
SET ASIDE. The NLRC July 7, 2009 Decision and November 18, 2009 Resolution as well as the
April 14, 2008 Order of the Labor Arbiter are hereby REINSTATED with MODIFICATION in that the
Tabaco Womens Transport Service Cooperative Is ORDERED to pay petitioner Alexander B.
Baares the following:

(1) Backwages and other emoluments due to petitioner from March 31, 2007 when petitioner did not
report for work until finality of this Decision with interest thereon at 12% per annum from finality of
this Decision until paid;

(2) Separation pay equivalent to one (1) month salary for every year of service reckoned from the
time he started his employment with TAWTRASCO until the finality of this Decision; and

(3) 10% attorney's fees computed from the total monetary benefits.

The case is REMANDED to the RAB V of the NLRC in Legaspi City for the computation, as
expeditiously as possible, of the monetary awards.

No pronouncement as to costs.

SO ORDERED.

21. Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 153982 July 18, 2011

SAN MIGUEL PROPERTIES PHILIPPINES, INC., Petitioner,


vs.
GWENDELLYN ROSE S. GUCABAN, Respondent.

DECISION

PERALTA, J.:

This is a Petition for Review under Rule 45 of the Rules of Court assailing the April 11, 2002
Decision1 of the Court of Appeals in CA-G.R. SP No. 60135, as well as the June 14, 2002
Resolution2 therein which denied reconsideration. The assailed decision affirmed the November 29,
1999 decision3 of the National Labor Relations Commission (NLRC) in NLRC NCR-CA No. 019439-
99, but modified the award of damages in the case. In turn, the decision of the NLRC had reversed
and set aside the finding of illegal dismissal in the March 26, 1999 ruling 4of the Labor Arbiter in
NLRC NCR Case No. 00-06-05215-98.
The facts follow.

Respondent Gwendellyn Rose Gucaban (Gucaban) was well into the tenth year of her career as a
licensed civil engineer when she joined the workforce of petitioner San Miguel Properties
Philippines, Inc. (SMPI) in 1991. Initially engaged as a construction management specialist, she, by
her satisfactory performance on the job, was promoted in 1994 and 1995, respectively, to the
position of technical services manager, and then of project development manager. As project
development manager, she also sat as a member of the companys management committee. She
had been in continuous service in the latter capacity until her severance from the company in
February 1998. 5

In her complaint6 for illegal dismissal filed on June 26, 1998, Gucaban alleged that her separation
from service was practically forced upon her by management. She claimed that on January 27,
1998, she was informed by SMPIs President and Chief Executive Officer, Federico Gonzalez
(Gonzalez), that the company was planning to reorganize its manpower in order to cut on costs, and
that she must file for resignation or otherwise face termination. Three days later, the Human
Resource Department allegedly furnished her a blank resignation form which she refused to sign.
From then on, she had been hounded by Gonzalez to sign and submit her resignation letter.7

Gucaban complained of the ugly treatment which she had since received from Gonzalez and the
management supposedly on account of her refusal to sign the resignation letter. She claimed she
had been kept off from all the meetings of the management committee,8 and that on February 12,
1998, she received an evaluation report signed by Gonzalez showing that for the covered period she
had been negligent and unsatisfactory in the performance of her duties. 9 She found said report to be
unfounded and unfair, because no less than the companys Vice-President for Property
Management, Manuel Torres (Torres), in a subsequent memorandum, had actually vouched for her
competence and efficiency on the job.10 She herself professed having been consistently satisfactory
in her job performance as shown by her successive promotions in the company.11 It was supposedly
the extreme humiliation and alienation that impelled her to submit a signed resignation letter on
February 18, 1998.12

Gucaban surmised that she had merely been tricked by SMPI into filing her resignation letter
because it never actualized its reorganization and streamlining plan; on the contrary, SMPI allegedly
expanded its employee population and also made new appointments and promotions to various
other positions. She felt that she had been dismissed without cause and, hence, prayed for
reinstatement and payment of backwages and damages. 13

SMPI argued that it truly encountered a steep market decline in 1997 that necessitated cost-cutting
measures and streamlining of its employee structure which, in turn, would require the abolition of
certain job positions; Gucabans post as project development manager was one of such positions.
As a measure of generosity, it allegedly proposed to Gucaban that she voluntarily resign from office
in consideration of a financial package14 an offer for which Gucaban was supposedly given the first
week of February 1998 to evaluate. Gucaban, however, did not communicate her acceptance of the
offer and, instead, she allegedly conferred with the Human Resource Department and negotiated to
augment her benefits package.15
SMPI claimed that Gucaban was able to grasp the favorable end of the bargain and, expectant of an
even more generous benefits package, she voluntarily tendered her resignation effective February
27, 1998. On the day before her effective date of resignation, she signed a document denominated
as Receipt and Release whereby she acknowledged receipt of P1,131,865.67 cash representing her
monetary benefits and waived her right to demand satisfaction of any employment-related claims
which she might have against management.16 SMPI admitted having made several other
appointments in June 1998, but the same, however, were supposedly part of the full implementation
of its reorganization scheme. 17

In its March 26, 1999 Decision,18 the Labor Arbiter dismissed the complaint for lack of merit, thus:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for lack of merit.

SO ORDERED.19

Addressing in the affirmative the issue of whether the subject resignation was voluntary, the Labor
Arbiter found no proven force, coercion, intimidation or any other circumstance which could
otherwise invalidate Gucabans resignation. He found incredible Gucabans claim of humiliation and
alienation, because the mere fact that she was excluded from the meetings of the management
committee would not be so humiliating and alienating as to compel her to decide to leave the
company.20 He likewise dismissed her claim that SMPI merely feigned the necessity of reorganization
in that while the company indeed made new other appointments following Gucabans resignation,
still, this measure was an implementation of its reorganization plan. 21

Gucaban appealed to the NLRC22 which, in its November 29, 1999 Decision,23 reversed the ruling of
the Labor Arbiter. Finding that Gucaban has been illegally dismissed, it ordered her reinstatement
without loss of seniority rights and with full backwages, as well as ordered the award of damages
and attorneys fees. It disposed of the appeal as follows:

WHEREFORE, the appealed decision is SET ASIDE. On the basis of our finding that the
complainant was illegally dismissed, judgment is hereby rendered directing the respondent to
reinstate complainant to her position last held, and to pay her full backwages computed from the
time of her dismissal until she is actually reinstated. As alleged and prayed for in the complaint, the
respondent is likewise directed to pay complainant moral damages limited however to P200,000.00,
exemplary damages of P100,000.00, and ten percent (10%) of the total award as attorneys fees.

SO ORDERED.24

SMPI sought reconsideration,25 but it was denied.26 It elevated the matter to the Court of
Appeals via a petition for certiorari.27

On April 11, 2002, the Court of Appeals issued the assailed Decision28 finding partial merit in the
petition. It affirmed the NLRCs finding of illegal/constructive dismissal, but modified the monetary
award as follows:
WHEREFORE, we grant the petition for certiorari insofar only in the granting of the exorbitant
amount of P200,000.00 moral damages and P100,000.00 exemplary damages.

The damages awarded are reduced to P50,000.00 moral damages and P25,000.00 exemplary
damages as discussed in the text of the decision. The ten percent (10%) awarded for attorneys fees
shall be based on the total amount awarded.

SO ORDERED.29

SMPIs motion for reconsideration was denied;30 hence, this recourse to the Court.

SMPI posits that the Court of Appeals finding of illegal dismissal was at best conjectural, based as it
is on a misapprehension of facts and on Gucabans self-serving allegations of alienation and
humiliation which, nevertheless, could not have given sufficient motivation for her to resign. It insists
that Gucaban, in exchange for a benefits package, has voluntarily tendered her resignation following
the presentation to her of the possibility of company reorganization and of the resulting abolition of
her office as necessitated by the companys business losses at the time. It adds that Gucaban has,
in fact, been able to negotiate with the company for a better separation package which she
voluntarily accepted as shown by her unconditional resignation letter and the accompanying Receipt
and Release form.31 It cites Samaniego v. NLRC,32 Sicangco v. NLRC,33 Domondon v. NLRC34 and
Guerzon v. Pasig Industries, Inc.35 to support its cause.36

Gucaban stands by the uniform findings of the NLRC and the Court of Appeals. In her Comment on
the Petition, she points out that indeed SMPI was unable to conclusively refute the allegations in her
complaint, particularly those which negate the voluntariness of her resignation. 37 She insists that
SMPI had no intention to reorganize at the time the option to resign was presented to her. She
discloses that while actual reorganization took place more than a year after she was fraudulently
eased out of the company, the said measure was supposedly brought about by the change in
management and not by a need to cut on expenditures. In connection with this, she surmises why
would SMPI actually implement its reorganization plan belatedly if there were, at the time of her
resignation, an existing need to cut on costs, and why would those affected employees be given
financial benefits far better than hers.38 She concludes that given the foregoing, the cases relied on
by petitioner do not apply to the case at bar.39

Replying, SMPI counters that the fact that the company had undertaken an albeit belated
reorganization would mean that there was such a plan in existence at the time of Gucabans
resignation. It professes that in June 1998, the company designated several of its personnel to
different positions which, therefore, indicates a reorganization following respondents resignation.
Moreover, it points out that Gucabans claim of trickery does not sit well with the fact that she is a
well-educated person who naturally cannot be inveigled into resigning from employment against her
will.40

Prefatorily, we note in this case the inconsistency in the factual findings and conclusions of the Labor
Arbiter and the NLRC, yet the incongruence has already been addressed and settled by the Court of
Appeals which affirmed the NLRC. Not being a trier of facts, this Court then ought to accord respect
if not finality to the findings of the Court of Appeals, especially since, as will be shown, they are
substantiated by the availing records.41 Hence, we deny the petition.

Resignation the formal pronouncement or relinquishment of a position or office is the voluntary


act of an employee who is in a situation where he believes that personal reasons cannot be
sacrificed in favor of the exigency of the service, and he has then no other choice but to disassociate
himself from employment.42 The intent to relinquish must concur with the overt act of
relinquishment;43 hence, the acts of the employee before and after the alleged resignation must be
considered in determining whether he in fact intended to terminate his employment. 44 In illegal
dismissal cases, fundamental is the rule that when an employer interposes the defense of
resignation, on him necessarily rests the burden to prove that the employee indeed voluntarily
resigned.45Guided by these principles, we agree with the Court of Appeals that with the availing
evidence, SMPI was unable to discharge this burden.

While indeed the abolition of Gucabans position as a consequence of petitioners supposed


reorganization plan is not the ground invoked in this case of termination, still, the question of whether
or not there was such reorganization plan in place at the time of Gucabans separation from the
company, is material to the determination of whether her resignation was of her own volition as
claimed by SMPI, inasmuch as the facts of this case tell that Gucaban could not have filed for
resignation had Gonzalez not communicated to her the alleged reorganization plan for the company.

In all stages of the proceedings, SMPI has been persistent that there was an existing reorganization
plan in 1998 and that it was implemented shortly after the effective date of Gucabans resignation. As
proof, it submitted a copy of its June 9, 1998 Memorandum which shows that new appointments had
been made to various positions in the company. A fleeting glance at the said document, however,
tells that there were four high-ranking personnel who received their respective promotions, yet
interestingly it tells nothing of a reorganization scheme being implemented within the larger
corporate structure.46

Equally interesting is that SMPI, in its Supplemental Argument to the Motion for Reconsideration filed
with the NLRC, attached copies of the notices it sent to the Department of Labor and Employment
on July 13, 1999 and December 29, 1998 to the effect that effective February 15, August 15 and
September 15, 1999 it would have to terminate the services of its 76 employees due to business
losses and financial reverses.47 True, while a reorganization of SMPIs corporate structure might
have indeed taken place as shown by these notices, nevertheless, it happened only in the latter part
of 1999 or more than a year after Gucabans separation from the company and incidentally, after
she filed the instant complaint.48 SMPIs claim in this respect all the more loses its bearing,
considering that said corporate restructuring was brought about rather by the sudden change in
management than the need to cope with business losses. And this fact has been explained by
Gucaban in her Comment and in her Memorandum filed with the Court of Appeals. 49

It is not difficult to see that, shortly prior to and at the time of Gucabans alleged resignation, there
was actually no genuine corporate restructuring plan in place as yet. In other words, although the
company might have been suffering from losses due to market decline as alleged, there was still no
concrete plan for a corporate reorganization at the time Gonzalez presented to Gucaban the
seemingly last available alternative options of voluntary resignation and termination by abolition of
her office. Certainly, inasmuch as the necessity of corporate reorganization generally lies within the
exclusive prerogative of management, Gucaban at that point had no facility to ascertain the truth
behind it, and neither was she in a position to question it right then and there. Indeed, she could not
have chosen to file for resignation had SMPI not broached to her the possibility of her being
terminated from service on account of the supposed reorganization.

It is then understandable for Gucaban, considering the attractive financial package which SMPI
admittedly offered to her, to opt for resignation instead of suffer termination a consequence the
certainty of which she was made to believe. As rightly noted by the Court of Appeals, that there was
no actual reorganization plan in place when Gucaban was induced to resign, and that she had been
excluded from the meetings of the management committee since she refused to sign her resignation
letter followed by the soured treatment that caused her humiliation and alienation, are matters which
SMPI has not directly addressed and successfully refuted.50

Another argument advanced by SMPI to support its claim that the resignation of Gucaban was
voluntary is that the latter has actually been given ample time to weigh her options and was, in fact,
able to negotiate with management for improved benefits. Again, this contention is specious as the
same is not supported by the availing records.51 Indeed, as clarified by Gucaban, the increased
benefits was the result of practice sanctioned and even encouraged by the mother company in favor
of those availing of early retirement and that the increased basic monthly rate in the computation of
the benefits is applied to April and retroacts to January.52

Besides, whether there have been negotiations or not, the irreducible fact remains that Gucabans
separation from the company was the confluence of the fraudulent representation to her that her
office would be declared redundant, coupled with the subsequent alienation which she suffered from
the company by reason of her refusal to tender resignation. The element of voluntariness in her
resignation is, therefore, missing. She had been constructively and, hence, illegally dismissed as
indeed her continued employment is rendered impossible, unreasonable or unlikely under the
circumstances.53 The observation made by the Court of Appeals is instructive:

x x x As correctly noted by public respondent NLRC, respondent Gucaban did not voluntarily resign
but was forced to do so because of petitioners representation regarding its planned reorganization.
Mr. Gonzale[z] informed respondent that if she does not resign from her employment, she shall be
terminated which would mean less financial benefits than that offered to her. When respondent
initially refused, petitioners subsequent actions as alleged by respondent which were not rebutted
by petitioner, show that she is being eased out from the company. Said actions rendered
respondents continuous employment with petitioner impossible, unreasonable and unlikely. x x x

x x x [R]esignation must be voluntary and made with the intention of relinquishing the office,
accompanied with an act of relinquishment. Indeed, it would have been illogical for private
respondent herein to resign and then file a complaint for illegal dismissal. Resignation is inconsistent
with the filing of the said complaint. x x x

x x x Since respondent could not have resigned absent petitioners broaching to her the idea of
voluntary resignation instead of retrenchment, coupled with petitioners acts of discrimination,
petitioner in effect forced respondent to resign. The same is constructive dismissal and is a dismissal
without cause. x x x

As respondent was dismissed without cause, the NLRC ruling is correct that she is entitled to
reinstatement and backwages, the latter to be computed from her dismissal up to the time of her
actual reinstatement pursuant to Art. 279 of the Labor Code.54

At this juncture, we find that the cases invoked by SMPI are hardly supportive of its case. In
1avvphi1

Samaniego, one of the issues addressed by the Court is whether the resignation of petitioners
therein was voluntary; but while the matter of reorganization was indeed raised as a peripheral
issue, nevertheless, the same has dealt merely with the validity thereof. As in the cases of
Domondon and Guerzon, the Court, in Samaniego, did not tackle the matter of the existence or non-
existence of a genuine and bona fide reorganization at the time the option to resign was presented
to the employee as would affect his decision to voluntarily resign or not. And in Sicangco, the Court
dismissed the allegation of involuntary resignation by a well-educated employee because there was
no proven fraud, intimidation or undue influence that could support it. In the instant case, the
pressing matter is whether there was in place a genuine reorganization plan awaiting immediate
implementation in good faith at or about the time Gucaban resolved to hand in her resignation letter.
This issue is primordial, because to reiterate, Gucaban indeed would not have opted to resign
without the company having laid out to her its prospect of a corporate restructuring which SMPI
failed to establish as existing at the time as well as the certainty of a consequent termination
should she not resign.

A final word. Moral damages are awarded in termination cases where the employees dismissal was
attended by bad faith, malice or fraud, or where it constitutes an act oppressive to labor, or where it
was done in a manner contrary to morals, good customs or public policy 55 In Gucabans case, the
said bases indeed obtain when she was fraudulently induced to resign and accede to a quitclaim
upon the false representation of an impending and genuine reorganization as well as on the pretext
that such option would be the most beneficial. This, coupled with the subsequent oppression that
immediately preceded her involuntary resignation, deserves an award of moral damages consistent
with the Court of Appeals ruling. Accordingly, Gucaban is likewise entitled to exemplary damages as
decreed by the Court of Appeals.

Lastly, reinstatement and payment of backwages, as the normal consequences of illegal dismissal,
presuppose that the previous position from which the employee has been removed is still in
existence or there is an unfilled position of a nature, more or less, similar to the one previously
occupied by said employee.56 Yet, it has been more than a decade since the incident which led to
Gucabans involuntary resignation took place and, hence, with the changes in SMPIs corporate
structure through the years, the former position occupied by Gucaban, or an equivalent thereof, may
no longer be existing or is currently occupied. Furthermore, there is the possibility that Gucabans
rejoining SMPIs workforce would only exacerbate the tension and strained relations which in the first
place had given rise to this incident. This, considering that as project development manager she was
holding a key position in the company founded on trust and confidence and, hence, there is also the
possibility of compromising her efficiency and productivity on the job.57 For these two reasons, the
ruling of the Court of Appeals is modified in this respect. In lieu of reinstatement, an award of
separation pay is in order, equivalent to one (1) month salary for every year of service.
WHEREFORE, the Petition is DENIED. The April 11, 2002 Decision of the Court of Appeals in CA-
G.R. SP No. 60135, as well as its June 14, 2002 Resolution, are hereby AFFIRMED with
the MODIFICATION that petitioner San Miguel Properties Philippines, Inc. is DIRECTED to pay
respondent Gwendellyn Rose S. Gucaban separation pay in lieu of reinstatement and backwages.
The case is REMANDED to the Labor Arbiter for execution and for the proper determination of
respondents separation pay, less any amount which she may have received as financial assistance.

SO ORDERED.

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