17th Assignment Full text

Case No. 1

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 SA
**
HYATT-NATIONAL UNION OF WORKERS IN CORONA,
THE HOTEL AND RESTAURANT AND NACHURA, and
ALLIED INDUSTRIES (SAMASAH-
PERALTA, JJ.
NUWHRAIN),
Respondent.
Promulgated:

June 5, 2009

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

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 Operations P 78,434,103 P 12,230,248
-------------------------------------------------------------------------------------
-
Other Deductions

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

 Provision for replacements of and
additions to furnishings and
equipment 9,825,491 8,367,465
29,825,491 28,367,465
Gross Operating Profit (Loss) P 48,608,612 (P 16,137,217)

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 Union opposed 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, 2003[41]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.
Case No. 2
[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 13th 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 4,915.24 820.00 61,440.00 4,745.48 62,429.76
YBAEZ, 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 justify retrenchment under this article.14 The Court has held that the loss
referred to in Article 283 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 theaction 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 of Petitioner 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.
Case No. 3

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 DEL CASTILLO, and
(President and Chief Executive Officer),
EMILIANO JURADO (Chairman of the PEREZ, JJ.
Board), VIRGILIO GARCIA (Vice President) Promulgated:
and STELLA GARCIA (Assistant Vice
President),
February 9, 2011
Respondents.
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, 13thmonth 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.
Case No. 4

G.R. No. 174300 December 5, 2012

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. and/or FORTUNATO V. DE
CASTRO, Petitioners,
vs.
NAGKAHIUSANG MAMUMUO SA MINTERBRO–SOUTHERN 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 IBAÑEZ,
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.6 Thus, 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 Minterbro’s
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 DPAI’s 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 Minterbro’s 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 Minterbro’s 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 Minterbro’s 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 Minterbro’s 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 letter19 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 Minterbro’s pier as safe
and ready for operation:
CERTIFICATION
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 Huraño, 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 Arbiter’s 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 Minterbro’s operations should be reckoned from April
14, 1997, the day no more vessel was serviced at Minterbro’s 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 Monte’s decision, for reasons unknown to
Minterbro, to suddenly stop docking its vessels at Minterbro’s pier. And while there were no arrastre and
stevedoring services for lack of any vessel to service, Minterbro’s 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
Minterbro’s 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 Minterbro’s 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 Monte’s 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 Pilot’s, 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 pier’s "readiness to accept vessels for loading and unloading operations." 38
Petitioners exert much effort to dissociate themselves from Del Monte’s act of stopping its vessels from
docking at Minterbro’s pier beginning April 14, 1997. They also went to great lengths not only to refute
the complaint of DPAI that Minterbro’s 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 Certiorari40and 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 MINTERBRO’s pier.42 (Emphasis supplied.)
The above statement shows that petitioners were fully aware that Del Monte’s 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 pier’s 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 latter’s 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.1âwphi1 A fraction of at least six
(6) months shall he considered 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.
Case No. 5

[G.R. No. 109002. April 12, 2000]

DELA SALLE UNIVERSITY, petitioner, vs. DELA SALLE UNIVERSITY EMPLOYEES
ASSOCIATION (DLSUEA) and BUENAVENTURA MAGSALIN, respondents.
[G.R. No. 110072. April 12, 2000]
DELA SALLE UNIVERSITY EMPLOYEES ASSOCIATION-NATIONAL FEDERATION OF
TEACHERS AND EMPLOYEES UNION (DLSUEA-NAFTEU), petitioner, vs. DELA SALLE
UNIVERSITY and BUENAVENTURA MAGSALIN, respondents.
DECISION
BUENA, J.:
Filed with this Court are two petitions for certiorari,[1] the first petition with preliminary injunction and/or
temporary restraining order,[2] assailing the decision of voluntary arbitrator Buenaventura Magsalin, dated
January 19, 1993, as having been rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. These two petitions have been consolidated inasmuch as the factual antecedents, parties
involved and issues raised therein are interrelated.[3]
The facts are not disputed and, as summarized by the voluntary arbitrator, are as follows. On December
1986, Dela Salle University (hereinafter referred to as UNIVERSITY) and Dela Salle University
Employees Association - National Federation of Teachers and Employees Union (DLSUEA-NAFTEU),
which is composed of regular non-academic rank and file employees,[4] (hereinafter referred to as UNION)
entered into a collective bargaining agreement with a life span of three (3) years, that is, from December
23, 1986 to December 22, 1989.[5] During the freedom period, or 60 days before the expiration of the said
collective bargaining agreement, the Union initiated negotiations with the University for a new collective
bargaining agreement[6] which, however, turned out to be unsuccessful, hence, the Union filed a Notice of
Strike with the National Conciliation and Mediation Board, National Capital Region. [7] After several
conciliation-mediation meetings, five (5) out of the eleven (11) issues raised in the Notice of Strike were
resolved by the parties. A partial collective bargaining agreement was thereafter executed by the
parties.[8] On March 18, 1991, the parties entered into a Submission Agreement, identifying the remaining
six (6) unresolved issues for arbitration, namely: "(1) scope of the bargaining unit, (2) union security
clause, (3) security of tenure, (4) salary increases for the third and fourth years [this should properly read
second and third years][9] of the collective bargaining agreement, (5) indefinite union leave, reduction of
the union presidents workload, special leave, and finally, (6) duration of the agreement."[10] The parties
appointed Buenaventura Magsalin as voluntary arbitrator.[11] On January 19, 1993, the voluntary arbitrator
rendered the assailed decision.[12]
In the said decision, the voluntary arbitrator, on the first issue involving the scope of the bargaining unit,
ruled that "the Computer Operators assigned at the CSC [Computer Services Center], just like any other
Computer Operators in other units, [should be] included as members of the bargaining unit,"[13] after
finding that "[e]vidently, the Computer Operators are presently doing clerical and routinary work and had
nothing to do with [the] setting of management policies for the University, as [may be] gleaned from the
duties and responsibilities attached to the position and embodied in the CSC [Computer Services Center]
brochure. They may have, as argued by the University, access to vital information regarding the
Universitys operations but they are not necessarily confidential."[14] Regarding the discipline officers, the
voluntary arbitrator "believes that this type of employees belong (sic) to the rank-and-file on the basis of
the nature of their job."[15] With respect to the employees of the College of St. Benilde, the voluntary
arbitrator found that the College of St. Benilde has a personality separate and distinct from the University
and thus, held "that the employees therein are outside the bargaining unit of the Universitys rank-and-file
employees."[16]
On the second issue regarding the propriety of the inclusion of a union shop clause in the collective
bargaining agreement, in addition to the existing maintenance of membership clause, the voluntary
arbitrator opined that a union shop clause "is not a restriction on the employees right of (sic) freedom of
association but rather a valid form of union security while the CBA is in force and in accordance with the
Constitutional policy to promote unionism and collective bargaining and negotiations. The parties
therefore should incorporate such union shop clause in their CBA."[17]
On the third issue with respect to the use of the "last-in-first-out" method in case of retrenchment and
transfer to other schools or units, the voluntary arbitrator upheld the "elementary right and prerogative of
the management of the University to select and/or choose its employees, a right equally recognized by the
Constitution and the law. The employer, in the exercise of this right, can adopt valid and equitable grounds
as basis for lay-off or separation, like performance, qualifications, competence, etc. Similarly, the right to
transfer or reassign an employee is an employers exclusive right and prerogative."[18]
Regarding the fourth issue concerning salary increases for the second and third years of the collective
bargaining agreement, the voluntary arbitrator opined that the "proposed budget of the University for SY
1992-93 could not sufficiently cope up with the demand for increases by the Union. xxx xxx. With the
present financial condition of the University, it cannot now be required to grant another round of increases
through collective bargaining without exhausting its coffers for other legitimate needs of the University
as an institution,"[19] thus, he ruled that "the University can no longer be required to grant a second round
of increase for the school years under consideration and charge the same to the incremental
proceeds."[20] Misspped
On the fifth issue as to the Unions demand for a reduction of the workload of the union president, special
leave benefits and indefinite union leave with pay, the voluntary arbitrator rejected the same, ruling that
unionism "is no valid reason for the reduction of the workload of its President,"[21] and that there is "no
sufficient justification to grant an indefinite leave."[22]Finding that the Union and the Faculty Association
are not similarly situated, technically and professionally,[23] and that "[w]hile professional growth is highly
encouraged on the part of the rank-and-file employees, this educational advancement would not serve in
the same degree as demanded of the faculty members,"[24]the voluntary arbitrator denied the Unions
demand for special leave benefits.
On the last issue regarding the duration of the collective bargaining agreement, the voluntary arbitrator
ruled that "when the parties forged their CBA and signed it on 19 November 1990, where a provision on
duration was explicitly included, the same became a binding agreement between them. Notwithstanding
the Submission Agreement, thereby reopening this issue for resolution, this Voluntary Arbitrator is
constrained to respect the original intention of the parties, the same being not contrary to law, morals or
public policy."[25] As to the economic aspect of the collective bargaining agreement, the voluntary
arbitrator opined that the "economic provisions of the CBA shall be re-opened after the third year in
compliance with the mandate of the Labor Code, as amended."[26]
Subsequently, both parties filed their respective motions for reconsideration which, however, were not
entertained by the voluntary arbitrator "pursuant to existing rules and jurisprudence governing voluntary
arbitration cases."[27]
On March 5, 1993, the University filed with the Second Division of this Court, a petition
for certiorari with temporary restraining order and/or preliminary injunction assailing the decision of the
voluntary arbitrator, as having been rendered "in excess of jurisdiction and/or with grave abuse of
discretion."[28] Subsequently, on May 24, 1993, the Union also filed a petition for certiorari with the First
Division.[29] Without giving due course to the petition pending before each division, the First and Second
Divisions separately resolved to require the respondents in each petition, including the Solicitor General
on behalf of the voluntary arbitrator, to file their respective Comments. [30] Upon motion by the Solicitor
General dated July 29, 1993, both petitions were consolidated and transferred to the Second Division.[31]
In his consolidated Comment[32] filed on September 9, 1993 on behalf of voluntary arbitrator
Buenaventura C. Magsalin, the Solicitor General agreed with the voluntary arbitrators assailed decision
on all points except that involving the employees of the College of St. Benilde. According to the Solicitor
General, the employees of the College of St. Benilde should have been included in the bargaining unit of
the rank-and-file employees of the University.[33] The Solicitor General came to this conclusion after
finding "sufficient evidence to justify the Unions proposal to consider the University and the CSB [College
of St. Benilde] as only one entity because the latter is but a mere integral part of the University," to wit: [34]
"1. One of the duties and responsibilities of the CSBs Director of Academic Services is to coordinate with
the Universitys Director of Admissions regarding the admission of freshmen, shiftees and transferees
(Annex "3" of the Universitys Reply);
"2. Some of the duties and responsibilities of the CSBs Administrative Officer are as follows:
A. xxx xxx xxx.
4. Recommends and implements personnel policies and guidelines (in accordance with the Staff Manual)
as well as pertinent existing general policies of the university as a whole. xxx.
12. Conducts and establishes liaison with all the offices concerned at the Main Campus as well (sic) with
other government agencies on all administrative-related matters. xxx
B. xxx xxx xxx
7. Handles processing, canvassing and direct purchasing of all requisitions worth more than P10,000 or
less. Coordinates and canvasses with the Main Campus all requisitions worth more than P10,000. xxx
C. xxx xxx xxx
7. Plans and coordinates with the Security and Safety Committee at the Main Campus the development of
a security and safety program during times of emergency or occurrence of fire or other natural calamities.
xxx (Annex "4" of the Universitys Reply).
"3. The significant role which the University assumes in the admission of students at the CSB is revealed
in the following provisions of the CSBs Bulletin for Arts and Business Studies Department for the
schoolyear 1992-1993, thus:
Considered in the process of admission for a (sic) high school graduate applicants are the following
criteria: results of DLSU College Entrance Examination xxx.
Admission requirements for transferees are: xxx and an acceptable score in the DLSU admission test. xxx
Shiftees from DLSU who are still eligible to enroll may be admitted in accordance with the DLSU policy
on shifting. Considering that there sometimes exist exceptional cases where a very difficult but temporary
situation renders a DLSU student falling under this category a last chance to be re-admitted provided he
meets the cut-off scores required in the qualifying examination administered by the university. xxx
He may not be remiss in his study obligations nor incur any violation whatsoever, as such will be taken
by the University to be an indication of his loss of initiative to pursue further studies at DLSU. In sch (sic)
a case, he renders himself ineligible to continue studying at DLSU. DLSU thus reserves the right to the
discontinuance of the studies of any enrolee whose presence is inimical to the objectives of the
CSB/DLSU. xxx
As a college within the university, the College of St. Benilde subscribes to the De La Salle Mission."
(Annexes "C-1," "C-2," and "C-3" of the Unions Consolidated Reply and Rejoinder)
"4. The academic programs offered at the CSB are likewise presented in the Universitys Undergraduate
Prospectus for schoolyear 1992-1993 (Annex "D" of the Unions Consolidated Reply and Rejoinder).
"5. The Leave Form Request (Annex "F" of the Unions Position Paper) at the CSB requires prior
permission from the University anent leaves of CSB employees, to wit:
AN EMPLOYEE WHO GOES ON LEAVE WITHOUT PRIOR PERMISSION FROM THE
UNIVERSITY OR WHO OVEREXTENDS THE PERIOD OF HIS APPROVED LEAVE WITHOUT
SECURING AUTHORITY FROM THE UNIVERSITY, OR WHO REFUSE TO BE RECALLED
FROM AN APPROVED LEAVE SHALL BE CONSIDERED ABSENT WITHOUT LEAVE AND
SHALL BE SUBJECT TO DISCIPLINARY ACTION.
"6. The University officials themselves claimed during the 1990 University Athletic Association of the
Philippines (UAAP) meet that the CSB athletes represented the University since the latter and the CSB
comprise only one entity."
On February 9, 1994, this Court resolved to give due course to these consolidated petitions and to require
the parties to submit their respective memoranda.[35]
In its memorandum filed on April 28, 1994,[36] pursuant to the above-stated Resolution,[37] the University
raised the following issues for the consideration of the Court:[38]
I.
"WHETHER OR NOT GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE
VOLUNTARY ARBITRATOR WHEN HE INCLUDED, WITHIN THE BARGAINING UNIT
COMPRISING THE UNIVERSITYS RANK-AND-FILE EMPLOYEES, THE COMPUTER
OPERATORS ASSIGNED AT THE UNIVERSITYS COMPUTER SERVICES CENTER AND THE
UNIVERSITYS DISCIPLINE OFFICERS, AND WHEN HE EXCLUDED THE COLLEGE OF SAINT
BENILDE EMPLOYEES FROM THE SAID BARGAINING UNIT.
II.
"WHETHER OR NOT GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE
VOLUNTARY ARBITRATOR WHEN HE UPHELD THE UNIONS DEMAND FOR THE
INCLUSION OF A UNION SHOP CLAUSE IN THE PARTIES COLLECTIVE BARGAINING
AGREEMENT.
III.
"WHETHER OR NOT GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE
VOLUNTARY ARBITRATOR WHEN HE DENIED THE UNIONS PROPOSAL FOR THE "LAST-
IN-FIRST-OUT" METHOD OF LAY-OFF IN CASES OF RETRENCHMENT.
IV.
"WHETHER OR NOT GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE
VOLUNTARY ARBITRATOR WHEN HE RULED THAT THE UNIVERSITY CAN NO LONGER BE
REQUIRED TO GRANT A SECOND ROUND OF WAGE INCREASES FOR THE SCHOOL YEARS
1991-92 AND 1992-93 AND CHARGE THE SAME TO THE INCREMENTAL PROCEEDS.
V.
"WHETHER OR NOT GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE
VOLUNTARY ARBITRATOR WHEN HE DENIED THE UNIONS PROPOSALS ON THE
DELOADING OF THE UNION PRESIDENT, IMPROVED LEAVE BENEFITS AND INDEFINITE
UNION LEAVE WITH PAY."
The Union, on the other hand, raised the following issues, in its memorandum,[39] filed pursuant to
Supreme Court Resolution dated February 9, 1994,[40] to wit; that the voluntary arbitrator committed grave
abuse of discretion in:
"(1)......FAILING AND/OR REFUSING TO PIERCE THE VEIL OF CORPORATE FICTION OF THE
COLLEGE OF ST. BENILDE-DLSU DESPITE THE PRESENCE OF SUFFICIENT BASIS TO DO SO
AND IN FINDING THAT THE EMPLOYEES THEREAT ARE OUTSIDE OF THE BARGAINING
UNIT OF THE DLSUS RANK-AND-FILE EMPLOYEES. HE ALSO ERRED IN HIS
INTERPRETATION OF THE APPLICATION OF THE DOCTRINE;
"(2)......DENYING THE PETITIONERS PROPOSAL FOR THE LAST-IN FIRST-OUT METHOD OF
LAY-OFF IN CASE OF RETRENCHMENT AND IN UPHOLDING THE ALLEGED MANAGEMENT
PREROGATIVE TO SELECT AND CHOOSE ITS EMPLOYEES DISREGARDING THE BASIC
TENETS OF SOCIAL JUSTICE AND EQUITY UPON WHICH THIS PROPOSAL WAS FOUNDED;
"(3)......FINDING THAT THE MULTISECTORAL COMMITTEE IN THE RESPONDENT
UNIVERSITY IS THE LEGITIMATE GROUP WHICH DETERMINES AND SCRUTINIZES
ANNUAL SALARY INCREASES AND FRINGE BENEFITS OF THE EMPLOYEES;
"(4)......HOLDING THAT THE 70% SHARE IN THE INCREMENTAL TUITION PROCEEDS IS THE
ONLY SOURCE OF SALARY INCREASES AND FRINGE BENEFITS OF THE EMPLOYEES;
"(5)......FAILING/REFUSING/DISREGARDING TO CONSIDER THE RESPONDENT
UNIVERSITYS FINANCIAL STATEMENTS FACTUALLY TO DETERMINE THE FORMERS
CAPABILITY TO GRANT THE PROPOSED SALARY INCREASES OVER AND ABOVE THE 70%
SHARE IN THE INCREMENTAL TUITION PROCEEDS AND IN GIVING WEIGHT AND
CONSIDERATION TO THE RESPONDENT UNIVERSITYS PROPOSED BUDGET WHICH IS
MERELY AN ESTIMATE.
"(6)......FAILING TO EQUATE THE POSITION AND RESPONSIBILITIES OF THE UNION
PRESIDENT WITH THOSE OF THE PRESIDENT OF THE FACULTY ASSOCIATION WHICH IS
NOT EVEN A LEGITIMATE LABOR ORGANIZATION AND IN SPECULATING THAT THE
PRESIDENT OF THE FACULTY ASSOCIATION SUFFERS A CORRESPONDING REDUCTION IN
SALARY ON THE ACCOUNT OF THE REDUCTION OF HIS WORKLOAD; IN FAILING TO
APPRECIATE THE EQUAL RIGHTS OF THE MEMBERS OF THE UNION AND OF THE FACULTY
FOR PROFESSIONAL ADVANCEMENT AS WELL AS THE DESIRABLE EFFECTS OF THE
INSTITUTIONALIZATION OF THE SPECIAL LEAVE AND WORKLOAD REDUCTION
BENEFITS."[41]
The question which now confronts us is whether or not the voluntary arbitrator committed grave abuse of
discretion in rendering the assailed decision, particularly, in resolving the following issues: (1) whether
the computer operators assigned at the Universitys Computer Services Center and the Universitys
discipline officers may be considered as confidential employees and should therefore be excluded from
the bargaining unit which is composed of rank and file employees of the University, and whether the
employees of the College of St. Benilde should also be included in the same bargaining unit; (2) whether
a union shop clause should be included in the parties collective bargaining agreement, in addition to the
existing maintenance of membership clause; (3) whether the denial of the Unions proposed "last-in-first-
out" method of laying-off employees, is proper; (4) whether the ruling that on the basis of the Universitys
proposed budget, the University can no longer be required to grant a second round of wage increases for
the school years 1991-92 and 1992-93 and charge the same to the incremental proceeds, is correct; (5)
whether the denial of the Unions proposals on the deloading of the union president, improved leave
benefits and indefinite union leave with pay, is proper; (6) whether the finding that the multi-sectoral
committee in the University is the legitimate group which determines and scrutinizes the annual salary
increases and fringe benefits of the employees of the University, is correct; and (7) whether the ruling that
the 70% share in the incremental tuition proceeds is the only source of salary increases and fringe benefits
of the employees, is proper.
Now, before proceeding to the discussion and resolution of the issues raised in the pending petitions,
certain preliminary matters call for disposition. As we reiterated in the case of Caltex Refinery Employees
Association (CREA) vs. Jose S. Brillantes,[42] the following are the well-settled rules in a petition
for certiorari involving labor cases. "First, the factual findings of quasi-judicial agencies (such as the
Department of Labor and Employment), when supported by substantial evidence, are binding on this Court
and entitled to great respect, considering the expertise of these agencies in their respective fields. It is
well-established that findings of these administrative agencies are generally accorded not only respect but
even finality.[43]
"Second, substantial evidence in labor cases is such amount of relevant evidence which a reasonable mind
will accept as adequate to justify a conclusion.[44]
"Third, in Flores vs. National Labor Relations Commission,[45] we explained the role and function of Rule
65 as an extraordinary remedy:
"It should be noted, in the first place, that the instant petition is a special civil action for certiorari under
Rule 65 of the Revised Rules of Court. An extraordinary remedy, its use is available only and restrictively
in truly exceptional cases those wherein the action of an inferior court, board or officer performing judicial
or quasi-judicial acts is challenged for being wholly void on grounds of jurisdiction. The sole office of the
writ of certiorari is the correction of errors of jurisdiction including the commission of grave abuse of
discretion amounting to lack or excess of jurisdiction. It does not include correction of public respondent
NLRC's evaluation of the evidence and factual findings based thereon, which are generally accorded not
only great respect but even finality.
"No question of jurisdiction whatsoever is being raised and/or pleaded in the case at bench. Instead, what
is being sought is a judicial re-evaluation of the adequacy or inadequacy of the evidence on record, which
is certainly beyond the province of the extraordinary writ of certiorari. Such demand is impermissible for
it would involve this Court in determining what evidence is entitled to belief and the weight to be assigned
it. As we have reiterated countless times, judicial review by this Court in labor cases does not go so
far as to evaluate the sufficiency of the evidence upon which the proper labor officer or office based
his or its determination but is limited only to issues of jurisdiction or grave abuse of discretion
amounting to lack of jurisdiction." (emphasis supplied).
With the foregoing rules in mind, we shall now proceed to discuss the merit of these consolidated petitions.
We affirm in part and modify in part.
On the first issue involving the classification of the computer operators assigned at the Universitys
Computer Services Center and discipline officers, the University argues that they are confidential
employees and that the Union has already recognized the confidential nature of their functions when the
latter agreed in the parties 1986 collective bargaining agreement to exclude the said employees from the
bargaining unit of rank-and-file employees. As far as the said computer operators are concerned, the
University contends that " the parties have already previously agreed to exclude all positions in the
University’s Computer Services Center (CSC), which include the positions of computer operators, from
the collective bargaining unit. xxx xxx."[46] The University further contends that "the nature of the work
done by these Computer Operators is enough justification for their exclusion from the coverage of the
bargaining unit of the University’s rank-and-file employees. xxx xxx."[47] According to the University, the
Computer Services Center, where these computer operators work, "processes data that are needed by
management for strategic planning and evaluation of systems. It also houses the University’s confidential
records and information [e.g. student records, faculty records, faculty and staff payroll data, and budget
allocation and expenditure related data] which are contained in computer files and computer-generated
reports. xxx xxx. Moreover, the Computer Operators are in fact the repository of the University’s
confidential information and data, including those involving and/or pertinent to labor relations. xxx
xxx."[48]
As to the discipline officers, the University maintains that "they are likewise excluded from the bargaining
unit of the rank-and-file employees under the parties 1986 CBA. The Discipline Officers are clearly alter
egos of management as they perform tasks which are inherent in management [e.g. enforce discipline, act
as peace officers, secure peace and safety of the students inside the campus, conduct investigations on
violations of University regulations, or of existing criminal laws, committed within the University or by
University employees] xxx xxx."[49] The University also alleges that "the Discipline Officers are privy to
highly confidential information ordinarily accessible only to management."[50]
With regard to the employees of the College of St. Benilde, the Union, supported by the Solicitor General
at this point, asserts that the veil of corporate fiction should be pierced, thus, according to the Union, the
University and the College of St. Benilde should be considered as only one entity because the latter is but
a mere integral part of the University.[51]
The Universitys arguments on the first issue fail to impress us. The Court agrees with the Solicitor General
that the express exclusion of the computer operators and discipline officers from the bargaining unit of
rank-and-file employees in the 1986 collective bargaining agreement does not bar any re-negotiation for
the future inclusion of the said employees in the bargaining unit. During the freedom period, the parties
may not only renew the existing collective bargaining agreement but may also propose and discuss
modifications or amendments thereto. With regard to the alleged confidential nature of the said employees
functions, after a careful consideration of the pleadings filed before this Court, we rule that the said
computer operators and discipline officers are not confidential employees. As carefully examined by the
Solicitor General, the service record of a computer operator reveals that his duties are basically clerical
and non-confidential in nature.[52] As to the discipline officers, we agree with the voluntary arbitrator that
based on the nature of their duties, they are not confidential employees and should therefore be included
in the bargaining unit of rank-and-file employees.
The Court also affirms the findings of the voluntary arbitrator that the employees of the College of St.
Benilde should be excluded from the bargaining unit of the rank-and-file employees of Dela Salle
University, because the two educational institutions have their own separate juridical personality and no
sufficient evidence was shown to justify the piercing of the veil of corporate fiction.[53]
On the second issue involving the inclusion of a union shop clause in addition to the existing maintenance
of membership clause in the collective bargaining agreement, the University avers that "it is in the spirit
of the exercise of the constitutional right to self-organization that every individual should be able to freely
choose whether to become a member of the Union or not. The right to join a labor organization should
carry with it the corollary right not to join the same. This position of the University is but in due recognition
of the individuals free will and capability for judgment."[54] The University assails the Unions demand for
a union shop clause as "definitely unjust and amounts to oppression. Moreover, such a demand is
repugnant to democratic principles and the constitutionally guaranteed freedom of individuals to join or
not to join an association as well as their right to security of tenure, particularly, on the part of present
employees."[55]
The Union, on the other hand, counters that the Labor Code, as amended, recognizes the validity of a
union shop agreement in Article 248 thereof which reads:
"ART. 248. Unfair labor practices of employers.
xxx......xxx......xxx
(e) To discriminate in regard to hire or tenure of employment or any term or condition of employment in
order to encourage or discourage membership in any labor organization. Nothing in this Code or in any
other law shall prevent the parties from requiring membership in a recognized collective bargaining
agent as a condition for employment, except of those employees who are already members of another
union at the time of the signing of the collective bargaining agreement. xxx xxx." (emphasis supplied
We affirm the ruling of the voluntary arbitrator for the inclusion of a union shop provision in addition to
the existing maintenance of membership clause in the collective bargaining agreement. As the Solicitor
General asserted in his consolidated Comment, the Universitys reliance on the case of Victoriano vs.
Elizalde Rope Workers Union[56] is clearly misplaced. In that case, we ruled that "the right to join a union
includes the right to abstain from joining any union. xxx xxx. The right to refrain from joining labor
organizations recognized by Section 3 of the Industrial Peace Act is, however, limited. The legal protection
granted to such right to refrain from joining is withdrawn by operation of law, where a labor union and an
employer have agreed on a closed shop, by virtue of which the employer may employ only members of
the collective bargaining union, and the employees must continue to be members of the union for the
duration of the contract in order to keep their jobs. xxx xxx."[57]
On the third issue regarding the Unions proposal for the use of the "last-in-first-out" method in case of
lay-off, termination due to retrenchment and transfer of employees, the Union relies on social justice and
equity to support its proposition, and submits that the Universitys prerogative to select and/or choose the
employees it will hire is limited, either by law or agreement, especially where the exercise of this
prerogative might result in the loss of employment.[58] The Union further insists that its proposal is "in
keeping with the avowed State policy (q) To ensure the participation of workers in decision and policy-
making processes affecting their rights, duties and welfare (Art. 211, Labor Code, as amended)."[59]
On the other hand, the University asserts its management prerogative and counters that "[w]hile it is
recognized that this right of employees and workers to participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law has been enshrined in the Constitution
(Article III, [should be Article XIII], Section 3, par. 2), said participation, however, does not automatically
entitle the Union to dictate as to how an employer should choose the employees to be affected by a
retrenchment program. The employer still retains the prerogative to determine the reasonable basis for
selecting such employees."[60]
We agree with the voluntary arbitrator that as an exercise of management prerogative, the University has
the right to adopt valid and equitable grounds as basis for terminating or transferring employees. As we
ruled in the case of Autobus Workers' Union (AWU) and Ricardo Escanlar vs. National Labor Relations
Commission,[61] "[a] valid exercise of management prerogative is one which, among others, covers: work
assignment, working methods, time, supervision of workers, transfer of employees, work supervision,
and the discipline, dismissal and recall of workers. Except as provided for, or limited by special laws,
an employer is free to regulate, according to his own discretion and judgment, all aspects of
employment." (emphasis supplied)
On the fourth issue involving the voluntary arbitrators ruling that on the basis of the Universitys proposed
budget, the University can no longer be required to grant a second round of wage increases for the school
years 1991-92 and 1992-93 and charge the same to the incremental proceeds, we find that the voluntary
arbitrator committed grave abuse of discretion amounting to lack or excess of jurisdiction. As we ruled in
the case of Caltex Refinery Employees Association (CREA) vs. Jose S. Brillantes,[62] "xxx xxx. [w]e
believe that the standard proof of a company's financial standing is its financial statements duly audited
by independent and credible external auditors."[63] Financial statements audited by independent external
auditors constitute the normal method of proof of profit and loss performance of a company. [64] The
financial capability of a company cannot be based on its proposed budget because a proposed budget does
not reflect the true financial condition of a company, unlike audited financial statements, and more
importantly, the use of a proposed budget as proof of a companys financial condition would be susceptible
to abuse by scheming employers who might be merely feigning dire financial condition in their business
ventures in order to avoid granting salary increases and fringe benefits to their employees.
On the fifth issue involving the Unions proposals on the deloading of the union president, improved leave
benefits and indefinite union leave with pay, we agree with the voluntary arbitrators rejection of the said
demands, there being no justifiable reason for the granting of the same.
On the sixth issue regarding the finding that the multi-sectoral committee in the University is the legitimate
group which determines and scrutinizes the annual salary increases and fringe benefits of the employees
of the University, the Court finds that the voluntary arbitrator did not gravely abuse his discretion on this
matter. From our reading of the assailed decision, it appears that during the parties negotiations for a new
collective bargaining agreement, the Union demanded for a 25% and 40% salary increase for the second
and third years, respectively, of the collective bargaining agreement.[65] The Universitys counter-proposal
was for a 10% increase for the third year.[66] After the meeting of the multi-sectoral committee on budget,
which is composed of students, parents, faculty, administration and union, the University granted across-
the-board salary increases of 11.3% and 19% for the second and third years, respectively.[67] While the
voluntary arbitrator found that the said committee "decided to grant the said increases based on the
Universitys viability which were exclusively sourced from the tuition fees. xxx xxx.," no finding was
made as to the basis of the committees decision. Be that as it may, assuming for the sake of argument that
the said committee is the group responsible for determining wage increases and fringe benefits, as ruled
by the voluntary arbitrator, the committees determination must still be based on duly audited financial
statements following our ruling on the fourth issue.
On the seventh and last issue involving the ruling that the 70% share in the incremental tuition proceeds
is the only source of salary increases and fringe benefits of the employees, the Court deems that any
determination of this alleged error is unnecessary and irrelevant, in view of our rulings on the fourth and
preceding issues and there being no evidence presented before the voluntary arbitrator that the University
held incremental tuition fee proceeds from which any wage increase or fringe benefit may be satisfied.
WHEREFORE, premises considered, the petitions in these consolidated cases, G.R. No. 109002 and
G.R. No. 110072 are partially GRANTED. The assailed decision dated January 19, 1993 of voluntary
arbitrator Buenaventura Magsalin is hereby AFFIRMED with the modification that the issue on salary
increases for the second and third years of the collective bargaining agreement be REMANDED to the
voluntary arbitrator for definite resolution within one month from the finality of this Decision, on the basis
of the externally audited financial statements of the University already submitted by the Union before the
voluntary arbitrator and forming part of the records.
SO ORDERED.
Case No. 6

[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.
DECISION
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 respondents 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 Holdings implemented a reorganizational 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) were 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 files with the NLRC Regional Arbitration Branch
VI, Bacolod City, complaints for illegal dismissal with a prayer for reinstatement with backwages, moral
damages and attorneys fees. They alleged that Asian Alcohol used the retrenchment program as a
subterfuge for the union busting. They claimed that they were singled out for separation by reason for
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 complaints. He explained, thus:
The fact that respondents AAC incurred losses in its business operations was not seriously challenged by
the complainants. The fact that it incurred substantial 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 of December 31, 1991 x x x, (2) Statement of Income and Deficit
for the year ended December 31, 1991 x x x, (3) Income Tax Return for Fiscal Year ending September
30, 1989 x x x, (4) Income Tax Return for the Fiscal Year ending December 31, 1989 x x x, (5) Income
Tax Return for Fiscal Year ending December 31, 1990 x x x, and (6) Income Tax Return for the Fiscal
Year ending December 31, 1991 x x x, 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
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 its 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 union
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 AACs water wells in Ubay, Pulupandan, Negros Occidental
which were drilled and operated before under the old management by virtue of right-of-way with the
landowner, were retrenched 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. Accordingly to respondent AAC,
its boiler before was 100% coal fired. The boiler was manned by a briquetting plant operator in the person
of Leandro Verayo 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 for 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 members. x x x
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 AACs
reorganization plan, it needs only nine mechanics.
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. x x x
The alleged deficits of the corporations 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 exist where the service[s] of x x x 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
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 of the company, were eased out in the guise of retrenchment 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% attorneys 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, 1998, 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 THE 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 x x x and Resolution x x
x 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% attorneys fees, said Decision and Resolution of the public
respondents 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 respondents 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 x x x 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 enforcing 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
investments.[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 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 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 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.[emphasis ours]
Under the foregoing provisions, 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 by 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 intended date of retrenchment;[25] (3) that the employer pays the retrenched employees
separation pay equivalent to one month pay or at least 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 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.[33] But 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.[34] Thus, 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 bespeak 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 their
admissibility. They show that petitioner has accumulated losses amounting to P306,764,349.00 and
showing nary 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 petitioners claim of business losses, the NLRC stated that the alleged deficits of the
corporation did not prove anything for the [petitioners][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 respondent 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 to 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 Holding 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 nor designed to bust the union of the private respondent. Retrenched were one hundred seventeen
(117) employees. Seventy two (72) of them including private respondent 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 exist when the service capability of the work 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 moth 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 respondent Carias, Martinez and Sendon were water pump tenders. They tended
the water wells of Asian Alcohol located in Ubay, Pulupandan, 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 positions 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 conditions.
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 employer.[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 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 respondents Carias, Martinez
and Sendon, but to the Laura wells. Thus, he declared in cross examinations:
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 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.[51] 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.
Finally, private respondents 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 quitclaims and releases are contrary to public policy and
therefore, void. Nonetheless, voluntary agreements that represents 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 settlement are unconscionable, that the
law will step in to bail out the employees. While it is our duty to prevent the exploitation of employees, it
is 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 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 complaints have no
basis and deserve 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 ANNULED 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 complaints for illegal dismissal filed by private respondents
against Asian Alcohol Corporation are hereby ORDERED DISMISSED FOR LACK OF MERIT. No
cost.
SO ORDERED.
Case No. 7

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.
Case No. 8

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 temporary strike, 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, all of 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 (5th) 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.
Case No. 9

[G.R. No. 141947. July 5, 2001]

ISMAEL V. SANTOS, ALFREDO G. ARCE and HILARIO M. PASTRANA, petitioners,
vs. COURT OF APPEALS, PEPSI COLA PRODUCTS PHILS., INC., LUIS P. LORENZO, JR.
and FREDERICK DAEL, respondents.
DECISION
BELLOSILLO, J.:
This petition for review seeks to annul the Resolution[1] of the Court of Appeals in CA-G.R. SP No. 54853
dated 28 September 1999 which summarily dismissed petitioners special civil action for certiorari for
failing to execute properly the required verification and certification against forum shopping and to specify
the material dates from which the timeliness of the petition may be determined.
Private respondent Pepsi Cola Products Phils., Inc. (PEPSI) is a domestic corporation engaged in the
production, distribution and sale of beverages. At the time of their termination, petitioners Ismael V.
Santos and Alfredo G. Arce were employed by PEPSI as Complimentary Distribution Specialists (CDS)
with a monthly salary of P7,500.00 and P10,000.00, respectively, while Hilario M. Pastrana was employed
as Route Manager with a monthly salary of P7,500.00.
In a letter dated 26 December 1994,[2] PEPSI informed its employees that due to poor performance of its
Metro Manila Sales Operations it would restructure and streamline certain physical and sales distribution
systems to improve its warehousing efficiency. Certain positions, including that of petitioners, were
declared redundant and abolished. Consequently, employees with affected positions were terminated.
On 15 January 1995 petitioners left their respective positions, accepted their separation pays and executed
the corresponding releases and quitclaims. However, before the end of the year, petitioners learned that
PEPSI created new positions called Account Development Managers (ADM) with substantially the same
duties and responsibilities as the CDS. Aggrieved, on 15 April 1996, petitioners filed a complaint with the
Labor Arbiter for illegal dismissal with a prayer for reinstatement, back wages, moral and exemplary
damages and attorneys fees.
In their complaint, petitioners alleged that the creation of the new positions belied PEPSIs claim of
redundancy. They further alleged that the qualifications for both the CDS and ADM positions were similar
and that the employees hired for the latter positions were even less qualified than they were. [3]Likewise
taking note of possible procedural errors, they claimed that while they were notified of their termination,
PEPSI had not shown that the Department of Labor and Employment (DOLE) was also notified as
mandated by Art. 283 of the Labor Code which states -
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
worker and the Ministry of Labor and Employment at least one (1) month before the intended date
thereof x x x x (italics supplied).
PEPSI, on the other hand, maintained that termination due to redundancy was a management prerogative
the wisdom and soundness of which were beyond the discretionary review of the courts.Thus, it had the
right to manage its affairs and decide which position was no longer needed for its operations. It further
maintained that the redundancy program was made in good faith and was not implemented to purposely
force certain employees out of their employment. It also claimed that a close perusal of the job descriptions
of both the CDS and ADM positions would show that the two (2) were very different in terms of the nature
of their functions, areas of concerns, responsibilities and qualifications.[4]
On 18 June 1997, Labor Arbiter Romulus S. Protacio dismissed the complaint for lack of
merit.Furthermore, he ruled that the one (1)-month written notice prior to termination required by Art. 283
was complied with.
On appeal, the National Labor Relations Commission (NLRC) affirmed the ruling of the Labor
Arbiter. However, in its Decision[5] dated 5 March 1999 it found that the Establishment Termination
Report was submitted to the DOLE only on 5 April 1995 or two (2) months after the termination had
already taken place[6] and thus effectively reversing the finding of the Labor Arbiter that the required one
(1)-month notice prior to termination was complied with. Nonetheless, the NLRC dismissed the appeal,
citing International Hardware, Inc. v. NLRC,[7] which held -
x x x x if an employee consented to his retrenchment or voluntarily applied for retrenchment with the
employer due to the installation of labor-saving devices, redundancy, closure or cessation of operation or
to prevent financial losses to the business of the employer, the required previous notice to the DOLE is
not necessary as the employee thereby acknowledged the existence of a valid cause for termination of his
employment x x x x (italics supplied).
On 10 September 1999, petitioners filed a special civil action for certiorari with the Court of
Appeals.[8] The Court of Appeals in the assailed Resolution dismissed the petition outright for failure to
comply with a number of requirements mandated by Sec. 3, Rule 46, in relation to Sec. 1, Rule 65, of the
1997 Rules of Civil Procedure. Respondent appellate court found that the verification and certification
against forum shopping were executed merely by petitioners counsel and not by petitioners. The petition
also failed to specify the dates of receipt of the NLRC Decision as well as the filing of the motion for
reconsideration.[9] Under the aforecited Rules, failure of petitioners to comply with any of the
requirements was sufficient ground for the dismissal of the petition.
Petitioners now present the sole issue of whether there was failure to comply with the requirements of the
Rules in filing their petition for certiorari.
We find no manifest error on the part of the Court of Appeals; hence, we affirm.
It is true that insofar as verification is concerned, we have held that there is substantial compliance if the
same is executed by an attorney, it being presumed that facts alleged by him are true to his knowledge and
belief.[10] However, the same does not apply as regards the requirement of a certification against forum
shopping. Section 3, Rule 46, of the 1997 Rules of Civil Procedure explicitly requires -
x x x x The petitioner shall also submit together with the petition a sworn certification that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the Court of
Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or
proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different
divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts
and other tribunal or agency thereof within five (5) days therefrom x x x x
It is clear from the above-quoted provision that the certification must be made by petitioner himself and
not by counsel since it is petitioner who is in the best position to know whether he has previously
commenced any similar action involving the same issues in any other tribunal or agency.[11]
Petitioners argue that while it may be true that they are in the best position to know whether they have
commenced an action or not, this information may be divulged to their attorney and there is nothing
anomalous or bizarre about this disclosure.[12] They further maintain that they executed a Special Power
of Attorney specifically to authorize their counsel to execute the certification on their behalf.
We are aware of our ruling in BA Savings Bank v. Sia[13] that a certification against forum shopping may
be signed by an authorized lawyer who has personal knowledge of the facts required to be disclosed in
such document. However, BA Savings Bank must be distinguished from the case at bar because in the
former, the complainant was a corporation, and hence, a juridical person. Therefore, that case made an
exception to the general rule that the certification must be made by the petitioner himself since a
corporation can only act through natural persons. In fact, physical actions, e.g., signing and delivery of
documents, may be performed on behalf of the corporate entity only by specifically authorized
individuals. In the instant case, petitioners are all natural persons and there is no showing of any reasonable
cause to justify their failure to personally sign the certification.[14] It is noteworthy that PEPSI in its
Comment stated that it was petitioners themselves who executed the verification and certification
requirements in all their previous pleadings. Counsel for petitioners argues that as a matter of policy,
a Special Power of Attorney is executed to promptly and effectively meet any contingency relative to the
handling of a case. This argument only weakens their position since it is clear that at the outset no
justifiable reason yet existed for counsel to substitute petitioners in signing the certification.In fact, in the
case of natural persons, this policy serves no legal purpose. Convenience cannot be made the basis for a
circumvention of the Rules.
Neither are we convinced that the outright dismissal of the petition would defeat the administration of
justice. Petitioners argue that there are very important issues such as their livelihood and the well being
and future of their families.[15] Every petition filed with a judicial tribunal is sure to affect, even
tangentially, either the well being and future of petitioner himself or that of his family. Unfortunately, this
does not warrant disregarding the Rules.
Moreover, the petition failed to indicate the material dates that would show the timeliness of the filing
thereof with the Court of Appeals. There are three (3) essential dates that must be stated in a petition for
certiorari brought under Rule 65. First, the date when notice of the judgment or final order
or Resolution was received; second, when a motion for new trial or reconsideration was filed; and third,
when notice of the denial thereof was received. Petitioners failed to show the first and second dates,
namely, the date of receipt of the impugned NLRC Decision as well as the date of filing of their motion
for reconsideration. Petitioners counter by stating that in the body of the petition for certiorari filed in the
Court of Appeals, it was explicitly stated that the NLRC Resolution dated 11 May 1999 was received by
petitioners through counsel on 30 July 1999. They even reiterate this contention in their Reply.
The requirement of setting forth the three (3) dates in a petition for certiorari under Rule 65 is for the
purpose of determining its timeliness. Such a petition is required to be filed not later than sixty (60) days
from notice of the judgment, order or Resolution sought to be assailed.[16] Therefore, that the petition for
certiorari was filed forty-one (41) days from receipt of the denial of the motion for reconsideration is
hardly relevant. The Court of Appeals was not in any position to determine when this period commenced
to run and whether the motion for reconsideration itself was filed on time since the material dates were
not stated. It should not be assumed that in no event would the motion be filed later than fifteen (15)
days. Technical rules of procedure are not designed to frustrate the ends of justice.These are provided to
effect the proper and orderly disposition of cases and thus effectively prevent the clogging of court
dockets. Utter disregard of the Rules cannot justly be rationalized by harking on the policy of liberal
construction.[17]
But even if these procedural lapses are dispensed with, the instant petition, on the merits, must still
fail. Petitioners impute grave abuse of discretion on the part of the NLRC for holding that the CDS and
ADM positions were dissimilar, and for concluding that the redundancy program of PEPSI was undertaken
in good faith and that the case of International Hardware v. NLRC[18] was applicable.
This Court is not a trier of facts. The question of whether the duties and responsibilities of the CDS and
ADM positions are similar is a question properly belonging to both the Labor Arbiter and the NLRC. In
fact, the NLRC merely affirmed the finding of the Labor Arbiter on this point and further elaborated on
the differences between the two (2). Thus it ruled -
x x x x We cannot subscribe to the complainants assertions that the positions have similar job
descriptions. First, CDS report to a CD Manager, whereas the ADMs do not report to the CD Manager,
leading us to believe that the organizational set-up of the sales department has been changed.
Second, CDS are field personnel who drive assigned vehicles and deliver stocks to dealers who, under the
job description are those who sell and deliver the same stocks to smaller retail outlets in their assigned
areas. The ADMs are not required to drive trucks and they do not physically deliver stocks to wholesale
dealers. Instead, they help dealers market the stocks through retail. This conclusion is borne out by the
fact (that) ADMs are tasked to ensure that the stocks are displayed in the best possible locations in the
dealers store, that they have more shelf space and that dealers participate in promotional activities in order
to sell more products.
It is clear to us that while CDS are required to physically deliver, sell and collect payments for softdrinks,
they do so not primarily to retail outlets but to wholesale dealers who have retail customers of their
own. They are not required to assist the dealers they deliver to in selling the softdrinks more effectively
whereas ADMs sell softdrinks to big retail outlets (groceries and malls who have shelves and display cases
and who require coolers and other paraphernalia). They do not only sell but they have to effectively market
the products or put them in the best and most advantageous light so that the dealers who sell the softdrinks
retails can sell more softdrinks. The main thrust of the ADMs job is to ensure that the softdrinks products
ordered from them are marketed in a certain manner (Pepsi-Way standards) in keeping with the
promotional thrust of the company.
Factual findings of the NLRC, particularly when they coincide with those of the Labor Arbiter, are
accorded respect, even finality, and will not be disturbed for as long as such findings are supported by
substantial evidence,[19] defined as such relevant evidence as a reasonable mind might accept as adequate
to support a conclusion.[20] In this case, there is no doubt that the findings of the NLRC are supported by
substantial evidence. The job descriptions submitted by PEPSI are replete with information and is an
adequate basis to compare and contrast the two (2) positions.
Therefore, the two (2) positions being different, it follows that the redundancy program instituted by
PEPSI was undertaken in good faith. Petitioners have not established that the title Account Development
Manager was created in order to maliciously terminate their employment. Nor have they shown that PEPSI
had any ill motive against them. It is therefore apparent that the restructuring and streamlining of PEPSIs
distribution and sales systems were an honest effort to make the company more efficient.
Redundancy exists when the service capability of the work force is in excess of what is reasonably needed
to meet the demands of the enterprise.[21] A redundant position is one rendered superfluous by a 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 previously undertaken by the
business.[22]
Based on the fact that PEPSIs Metro Manila Sales Operations were not meeting its sales targets,[23]and on
the fact that new positions were subsequently created, it is evident that PEPSI wanted to restructure its
organization in order to include more complex positions that would either absorb or render completely
unnecessary the positions it had previously declared redundant. The soundness of this business judgment
of PEPSI has been assailed by petitioners, arguing that it is more logical to implement new procedures in
physical distribution, sales quotas, and other policies aimed at improving the performance of the division
rather than to reduce the number of employees and create new positions.[24]
This argument cannot be accepted. While it is true that management may not, under the guise of invoking
its prerogative, ease out employees and defeat their constitutional right to security of tenure, the same
must be respected if clearly undertaken in good faith and if no arbitrary or malicious action is shown.
Similarly, in Wiltshire File Co., Inc. v. NLRC[25] petitioner company effected some changes in its
organization by abolishing the position of Sales Manager and simply adding the duties previously
discharged by it to the duties of the General Manager to whom the Sales Manager used to report. In that
case, we held that the characterization of private respondents services as no longer necessary or
sustainable, and therefore properly terminable, was an exercise of business judgment on the part of
petitioner company. The wisdom or soundness of such characterization or decision is not subject to
discretionary review on the part of the Labor Arbiter or of the NLRC so long as no violation of law or
arbitrary and malicious action is indicated.
In the case at bar, no such violation or arbitrary action was established by petitioners. The subject matter
being well beyond the discretionary review allowed by law, it behooves this Court to steer clear of the
realm properly belonging to the business experts.
We agree with the NLRC in its application of International Hardware v. NLRC that the mandated one (1)
month notice prior to termination given to the worker and the DOLE is rendered unnecessary by the
consent of the worker himself. Petitioners assail the voluntariness of their consent by stating that had they
known of PEPSIs bad faith they would not have agreed to their termination, nor would they have signed
the corresponding releases and quitclaims.[26] Having established private respondents good faith in
undertaking the assailed redundancy program, there is no need to rule on this contention.
Finally, in a last ditch effort to plead their case, petitioners would want us to believe that their termination
was illegal since PEPSI did not employ fair and reasonable criteria in implementing its redundancy
program. This issue was not raised before the Labor Arbiter nor with the NLRC. As it would be offensive
to the basic rules of fair play and justice to allow a party to raise a question which has not been passed
upon by both administrative tribunals,[27] it is now too late to entertain it.
WHEREFORE, in the absence of any reversible error on the part of the Court of Appeals, the petition
is DENIED. The assailed Resolution dated 28 September 1999 which summarily dismissed petitioners
special civil action for certiorari for non-compliance with Sec. 3, Rule 46, in relation to Sec. 1, Rule 65,
of the 1997 Rules of Civil Procedure is AFFIRMED.
SO ORDERED.
Case No. 10

G.R. No. 126428 January 25, 2007

ELCEE FARMS INC. and CORAZON SAGUEMULLER, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (FOURTH DIVISION) and SUGAR
AGRICULTURAL INDUSTRY LABOR ORGANIZATION (SAILO), PAMPELO SEMILLANO,
ARMANDO FERNANDEZ, BIENVENIDO GAUPO, CONSEJO NICOR, RODOLFO NICOR,
EDWIN NICOR, DOMINARDO NICOR, SR., FELIZARDO NICOR, ARLINE NICOR, RONILO
NICOR, MARIA LUZ NICOR, DENNIS NICOR, LOURDES NICOR, PABLO LINGCO, GILDA
LINGCO, JOVEN LINGCO, VICENTE GRANADA, LOLITA GRANADA, JONATHAN
GRANADA, EDUARDO FERNANDEZ, JOEY FERNANDEZ, JESSIE FERNANDEZ,
ESTELITA FERNANDEZ, GREGORIO TOMALIN, MARTIN TOMALIN, SOCORRO
MATIONG, GREGORIO MATIONG, JORIE MANALO, ENRIQUE MANALO, MARIO
MANALO, CRISANTO MANALO, GEORGE BIANGCO, SIGFREDO VILLACANAS, SONIA
VILLACANAS, EDUARDO PABILARIO, NOEL SALANO, MERLITA PUNO, CRISANTO
LUMANAG, GORGINA GAUPO, DAN GAUPO, ROMEO SEMILLANO, BARBARA CABALES,
ERNIE JUNGCO, EDGAR JUNGCO, ROEL BENIGNOS, BELLIE BENIGNOS, JUAN
SEMILLANO, ROMEO POJAS, JOELITA NOBLE, GLORIA NOBLE, RONNIE LINGCO,
IMELDA LINGCO, RAMON BANTANG, BARBARA BANTANG, FAUSTINO SEMILLANO,
RAQUEL PLASIDO, BERNIE PLASIDO, MARTIN NICOR, DOMINADOR NICOR, JR.,
ROLAND NICOR, PRODINCIO NICOR, RADNIE NICOR, DIOSDADO NICOR, JOEY NICOR,
AMPARO NICOR, REGALADO NICOR, REYNALDO NICOR, JOCELYN GARCIA, MARLON
NICOR, JOSEFINA LINGCO, JOSIE LINGCO, ELENITA LINGCO, CIRILO LINGCO, SR.,
ROGELIO LINGCO, MAURA LINGCO, GARY LINGCO, VICTORIA GRANDA, SOTERO
GRANADA, ROSENDO FERNANDEZ, ROY TOMOLIN, GENEBELLE MATIONG, CELSO
ALIPIO, AFOLONIO SEMILLANO, RAMONITA SEMILLANO, ABNER MANALO, ZOSIMO
BIANGCO, ROGELIO ANECITO, PEPITO NOBLE, PATERNO LUMANAG, ANITA
PABILARIO, RENATO CABALES, JOMARIE JUNGCO, MERLINDA CANJA, ANACITA
ORCADA, BIENVINIDO GARCIA, ROGELIO GABIANDAN, NINFA UMALI, DOMINGO
SALCEDO, FERNANDO SALCEDO, RENATO SUERTE, LORNA PABALINAS, SOLEDAD
NOBLE, ANITA ARROYO, ALFREDO NICOR, SR., CONSORCIA MATIONG, ERLINDA
NICOR, CAMELIA NICOR, ALFREDO NICOR, JR., JULIANA NICOR, CRISELDA NICOR,
ROSITA NICOR, JULIETO LINGCO, NIYA LINGCO, ROZENIE GRANADA, ELSA
SEMILLANO, ROSALINDA FERNANDEZ, REMEZILDO FERNANDEZ, ROSALITA
MATIONG, DIANA ALIPIO, EVA MANALO, ARTURO MANALO, RITA ANECITO, SARAH
GAUPO, ALAN BANTANG, MARISSA BANTANG, SIMPLICIO BANTANG, MARIANITA
POJAS, MERLITA GABIANDAN, JUANA VICENTINO, and PRECY PLACIDO, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Certiorari, under Rule 65 of the Rules of Court, assailing the Resolution, dated 29
May 1996, promulgated by the National Labor Relations Commission (NLRC), Fourth
Division,1 ordering the petitioners, Elcee Farms, Inc. (Elcee Farms) and Corazon Saguemuller, to pay each
private respondent separation pay and moral damages.
Pampelo Semillano and one hundred forty-three (143) other complainants, represented by the labor union,
Sugar Agricultural Industrial Labor Organization (SAILO), filed this complaint for illegal dismissal with
prayer for reinstatement with back wages, or in the alternative, separation pay, with damages against Elcee
Farms, Corazon Saguemuller, Hilla Corporation (HILLA), Rey Hilado, and Roberto Montaño. 2 Private
respondents alleged that they were all regular farm workers in Hacienda Trinidad, which was owned and
operated by petitioner corporation Elcee Farms. Complainants alleged that petitioner Corazon
Saguemuller was the president of Elcee Farms, but records disclosed that it was her son, Konrad
Saguemuller, who was the president thereof.3 Some of the complainants allegedly worked in Hacienda
Trinidad as early as 1960. 4 On 27 April 1987, Elcee Farms entered into a Lease Agreement with Garnele
Aqua Culture Corporation (Garnele).5 Nevertheless, most of the private respondents continued to work in
Hacienda Trinidad. On appeal, they presented payrolls and Social Security System (SSS) Forms E-4
issued during the period that Garnele leased the hacienda, naming Elcee Farms as their employer.6
On 15 November 1990, Garnele sub-leased Hacienda Trinidad to Daniel Hilado, who operated HILLA.
The contract of lease executed between Garnele and Daniel Hilado stipulated the continued employment
of 120 of the former’s employees by the latter, but the contract was silent as to the benefits which may
accrue to the employees as a consequence of their employment with Elcee Farms.7 Thus, private
respondents were allowed to continue working in Hacienda Trinidad, under the management of
HILLA.8 Soon after HILLA took over, Daniel Hilado entered into a Collective Bargaining Agreement
(CBA) with the United Sugar Farmers’ Organization (USFO). The CBA contained a closed shop provision
stating that:
Sec. 2 – Employees/laborers, who at the time of the execution of this Agreement are not yet members of
the UNION be required by the EMPLOYER to join the UNION within thirty (30) days from the signing
of this Agreement, and remain members in good standing as condition of continued employment. Should
these employees/laborers refuse and fail to join and affiliate with the UNION within such a period of time,
said employees/laborers shall be dismissed by the EMPLOYER upon recommendation by the UNION.9
Due to their refusal to join the labor union, the private respondents were terminated by HILLA.
On 26 December 1990, SAILO and 144 complainants, including the 131 private respondents herein, filed
against Elcee Farms, Corazon Saguemuller, HILLA and its officers, Ray Hilado and Roberto Montaño, a
complaint for illegal dismissal with reinstatement with back wages and separation pay with damages
before the Labor Arbiter.10 In a Decision, dated 20 October 1993, the Labor Arbiter noted that of the 144
complainants, only three were able to testify and only twenty-eight complainants, including the three who
testified, signed the joint affidavit executed in support of their claims. Complainants who were unable to
sign the said joint affidavit were dropped as party complainants for failure to adduce evidence in their
favor.11 The remaining twenty-eight complainants were considered by the Labor Arbiter as regular
employees of HILLA entitled to separation pay, equivalent to one month pay as they were employed by
HILLA for a period less than one year.12 The Labor Arbiter dismissed their claim for damages and denied
all claims made against Elcee Farms, Corazon Saguemuller, Rey Hilado and Roberto Montaño.13
Complainants appealed and argued that they had an employer-employee relationship with Elcee Farms
before HILLA took possession of the hacienda in November 1990. They pointed out that Elcee Farms
failed to present proof that they were employed by Garnele to substantiate the existence of a valid lease
agreement between Elcee Farms and Garnele. They also pleaded that the closed shop provision of the
CBA between HILLA and USFO cannot be made to apply to the complainants, who were members of
another union.14
In a Decision dated 29 March 1995, the NLRC affirmed the amount awarded by the Labor Arbiter as
separation pay, but modified the assailed Decision by holding Elcee Farms, Corazon Saguemuller, Rey
Hilado and Roberto Montaño liable for the payment of the aforementioned separation pay, and added to
their liability Five Thousand Pesos (P5,000.00) for moral damages to each of the 28 complainants. 15 The
dispositive portion of this Decision reads:
WHEREFORE, respondents Elcee Farms Inc., Corazon Saguemuller, Hilla Corporation, Rey Hillado &
Roberto Montaño are ordered to pay the complainants separation pay as awarded.
The respondents are further ordered to pay the complainants P5,000.00 each as moral damages for all their
troubles and suffering from the disturbance of their rights to labor.
Appealed decision is hereby modified.16
The three sets of parties – (1) the complainants; (2) Elcee Farms and Corazon Saguemuller; and (3) Hilla,
Rey Hilado and Roberto Montaño, filed their own Motions for Reconsideration. In a Resolution, dated 29
May 1996, the NLRC admitted that it overlooked vital points in its earlier Decision and made a finding
that the lease contract between Elcee Farms and Garnele was simulated and that the former continued to
act as the employer of the complainants, until Hacienda Trinidad was sub-leased to HILLA in 1990. It
took into account the fact that the complainants’ payrolls named Elcee Farms as the employer when the
hacienda was supposed to have been leased to Garnele. During the same period, the SSS Forms E-4 used
in paying the complainants’ contributions which named Elcee Farms as employer were also included in
the records. The NLRC ruled that the simulation of the lease agreement between Elcee Farms and Garnele
smacks of bad faith and is the basis for its award of Five Thousand Pesos in moral and exemplary
damages.17
In its Resolution, the NLRC also explained that Elcee Farms should have informed its employees of the
lease made in favor of HILLA. Further, Elcee Farms was obligated to pay its workers’ separation pay and
other benefits due since the lease to HILLA was a virtual termination of the employer-employee
relationship. Moreover, there is no showing that HILLA assumed Elcee Farms’s obligation to pay the
various benefits due to the workers from their employment with Elcee Farms. Thus, Elcee Farms and
Corazon Saguemueller were held liable to pay the complainants separation pay equivalent to one-half
month pay for each year of service or one month pay for those who worked for only one year. 18
On the other hand, the NLRC absolved HILLA and its officers from any liability to the workers since the
dismissal of the complainants was due to their failure to join USFO, in accordance with the closed shop
clause found in its CBA with the USFO. The NLRC found that there was no existing labor union at the
time HILLA took legal possession of Hacienda Trinidad. On the other hand, SAILO filed a petition for
certification elections only on 26 December 1990, after Daniel Hilado entered into the CBA with USFO.19
Finally, the NLRC significantly modified the Decision rendered by the Labor Arbiter. The earlier Decision
rendered by the Labor Arbiter granted the claims of only 28 out of the 144 complainants. The NLRC ruled
that the claim of 131 employees should be granted and that only 14 of the 144 complainants were to be
excluded, based on the testimony of Pampelo Semillano. Incidentally, the NLRC erroneously included
Alfredo Nicor, Sr. in the list of 131 employees who were awarded separation pay and damages even when
it had specifically identified him in its Resolution among the fourteen complainants who were not bona
fide employees of Elcee Farms.20
As a result, petitioners filed the present Petition for Certiorari, assigning to the NLRC the following acts
of grave abuse of discretion:
1. In impleading and adjudging Corazon Saguemuller as party respondent equally liable with Elcee Farms,
Inc., public respondent has exercised its discretion whimsically, capriciously, arbitrarily and with grave
abuse of discretion;
2. In issuing the assailed decision and resolution, public respondent has contravened its own rules and
established jurisprudence that findings of facts of a labor arbiter as the trier of facts based on substantial
evidence should be respected and given weight;
3. The 29 May 1996 resolution which deliberately misappreciated extraneous, incompetent and discredited
evidences already passed upon by the Labor Arbiter was issued capriciously, whimsically and arbitrarily
by public respondent; and
4. Public respondent gravely abused its discretion tantamount to excess of jurisdiction in awarding moral
damages of P5,000.00 to each individual private respondents, without any legal and factual basis, and
without regard to the individual private respondents’ length of service and employment history.21
Petitioners insist that the factual findings of the Labor Arbiter should be given preference over those made
by the NLRC. However, there is no merit in the petitioners’ insistence that the findings of fact of the Labor
Arbiter, which happened to favor them, are infallible. The findings of the Labor Arbiter may be overturned
by the NLRC if unsupported by the records. In this case, most of the factual findings made by the NLRC
are better supported by the records than those made by the Labor Arbiter.
The NLRC made a crucial modification when it overturned the findings of the Labor Arbiter and held that
the lease contract between Elcee Farms and Garnele is simulated. Records show that Elcee Farms was the
employer named in the payrolls at the time when the hacienda was supposed to have been leased to
Garnele. During the same period, the SSS Forms E-4 submitted before the SSS that were used in paying
the complainants’ contributions also named Elcee Farms as employer. Although these pieces of evidence
were submitted only during the appeal before the NLRC, the petitioners had ample opportunity to submit
opposing evidence, but failed to do so. The lease agreement between Garnele and Elcee Farms was a
haphazardly drafted two-page document, which only provided for a uniform minimal rent for a period of
fifteen years, and had not provided for the employment status of the employees of Elcee Farms.
Furthermore, the lease agreement was entered into by the corporate officers of Garnele and Elcee Farms,
who are members of the same family. In addition, the employees were not informed of the lease agreement
and were not paid by Elcee Farms the separation pay due at the time Garnele was supposed to have taken
over and leased the hacienda.
The above findings show that even after the execution of the lease agreement between Elcee Farms and
Garnele, Elcee Farms continued to act as the employer of the farm workers of Hacienda Trinidad. The
employer-employee relationship between the farm workers and Elcee Farms was severed only when
Garnele, acting in behalf of Elcee Farms, entered into a lease agreement with Daniel Hilado and, thereafter,
Hilla took over the management of Hacienda Trinidad in November 1990. The NLRC, then, concluded
that the claims of the private respondents against Elcee Farms had not yet prescribed at the time their
complaint was filed on 26 December1990.
The main issue in this case is whether the private respondents are entitled to the award of separation pay
and moral damages. This Court finds that the NLRC’s award of separation pay and moral damages are in
accordance with law.
Moral damages are recoverable when the dismissal of an employee is attended by bad faith or fraud or
constitutes an act oppressive to labor, or is done in a manner contrary to good morals, good customs or
public policy. Exemplary damages, on the other hand, are recoverable when the dismissal was done in a
wanton, oppressive, or malevolent manner.22
Bad faith on the part of Elcee Farms is shown by the act of simulating a lease agreement with Garnele in
order to evade paying private respondents the proper amount of separation benefits based on the number
of years they worked in the hacienda, as provided by the Labor Code. Records show that Elcee Farms did
not pay any separation benefits to the private respondents when they allegedly leased the hacienda to
Garnele, and again when the hacienda was leased to Daniel Hilado. When the employees filed their
complaint with the Labor Arbiter, Elcee Farms, using the simulated lease agreement with Garnele, tried
to deny liability by claiming that their claims had already prescribed. It claimed that the lease agreement
with Garnele, which was allegedly executed in 1987, effectively terminated the employer-employee
relationship before the complaint was filed in 1990, or more than three years after. These unlaudable acts
undermine the workers’ statutory rights for which moral damages may be awarded.
Liability for separation pay is provided under Article 283 of the Labor Code, as it existed in 1990, for the
following circumstances, particularly the cessation of operations:
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 operations 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. x x x. 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 at least 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. (Emphases supplied.)
From this provision, three requirements are enumerated in cases of cessation of business operations of an
employer company not due to business reverses: (1) service of a written notice to the employees and to
the MOLE (now the Secretary of Labor and Employment) at least one month before the intended date
thereof; (2) the cessation of or withdrawal from business operations must be bona fide in character; and
(3) payment to the employees of termination pay amounting to at least one-half month pay for each year
of service, or one month pay, whichever is higher.23
In the present case, Elcee Farms effectively ceased to operate and manage Hacienda Trinidad when,
through Garnele, it leased the hacienda to Daniel Hilado. The validity of the aforementioned lease was
not questioned by any of the parties. There is no question that the lease to Daniel Hilado effectively
terminated the employer-employee relationship between Elcee Farms and the farmworkers. Private
respondents Pampelo Semillano and Roel Benignos testified that HILLA took possession of the hacienda
in 1990 and managed the same.24 This was corroborated by the testimony of Anonio Sidayon, the
administrator of HILLA.25 After the said lease was executed, the employer-employee relationship between
the farm employees and Elcee Farms was severed. The lease agreement between Garnele and Daniel
Hilado identified the employees who will continue working with the new management and stipulated that
workers who were not in the list, whether new or employed in the past, will not be employed by the
lessee.26 The lease contract even specified that Daniel Hilado will only be liable for all future labor cases,
the cause of which arose during or by virtue of the sublease.27 Clearly, there was a cessation of operations
of Elcee Farms, which renders it liable for separation pay to its employees, under Section 283 of the Labor
Code.
In a similar case, Abella v. National Labor Relations Commission,28 the Court ruled that an employer
whose lease agreement had already expired, and therefore no longer manages and controls the hacienda,
is still required to pay the separation pay due to its former employees in connection with their employment
with such employer, even if the said employees were terminated by the new employer. It justified this
position thus:
The purpose of Article 284 as amended is obvious – the protection of the workers whose employment is
terminated because of the closure of establishment and reduction of personnel. Without said law,
employees like private respondents in the case at bar will lose the benefits to which they are entitled – for
the thirty three years of service in the case of Dionele and fourteen years in the case of Quitco. Although
they were absorbed by the new management of the hacienda, in the absence of any showing that the latter
has assumed the responsibilities of the former employer, they will be considered as new employees and
the years of service behind them would amount to nothing.29
There is a conspicuous change in the number of employees who were awarded separation benefits and
moral damages, but it is supported by the evidence on record. Initially the Labor Arbiter awarded
separation pay only to 28 complainants, which the NLRC increased to 131 complainants. However, it
should be noted that there should only be 130 complainants to whom the NLRC awarded separation pay
and moral damages since one of the complainants, Alfredo Nicor, Sr., was named as one of the 14
complainants who were not bona fide workers entitled to benefits, but was inadvertently included again
as one of the 131 complainants who were awarded said benefits.
As regards the big increase in the number of employees who were awarded separation pay and damages,
the records, indeed, show that only 28 complainants signed the affidavit, and only three were able to
testify. Thus, the Labor Arbiter considered the claims of only the 28 complainants who signed the
affidavit, including the three who testified. The Labor Arbiter reasoned that the other complainants failed
to adduce evidence in their favor. The NLRC, however, took critical note of the testimony of private
respondent Pampelo Semillano identifying who among the complainants were bona fide employees and
those who no longer worked in the hacienda.30 In addition, HILLA had submitted as its Exhibit 4 the list
of 120 Hacienda Trinidad laborers that it was required to absorb,31 which is a corollary affirmation that
there were other laborers employed by Elcee Farms who were not required to be absorbed by HILLA. The
private respondents were also able to present payroll documents showing the names of some of the private
respondents. In stark contrast, the petitioners were not able to present evidence to support the fact that the
private respondents were not bona fide employees.32 Thus, the NLRC’s award to 130 employees,
excluding Alfredo Nicor, Sr., is justified.
This Court, nonetheless, finds merit in the petitioners’ allegation that Corazon Saguemuller should not be
subsidiarily liable with Elcee Farms for separation pay and damages. It is basic 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.33 In the case of Santos v. National Labor
Relations Commission,34 a corporate officer was not held liable for the obligations incurred by the
corporation, where the corporate officer was not even shown to have had a direct hand in the dismissal of
the employee enough to attribute to him an unlawful act.
In the case of Malayang Samahan ng mga Manggagawa sa M. Greenfield. v. Ramos,35 the Court restated
the rule that corporate directors and officers are solidarily liable with the corporation for the termination
of employees done with malice or bad faith. Bad faith was defined by the Court thus: "It has been held
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 the aforecited Santos case, the Court discussed the attendance of exceptional facts and circumstances
that could rightly sanction personal liability on the part of the company officer:
In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be
implemented because of the disposition post-haste of its leviable assets evidently in order to evade its just
and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate.
Chua likewise involved another family corporation, and this time the conflict was between two brothers
occupying the highest ranking positions in the company. There were incontrovertible facts which pointed
to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of
one of the brothers by the other.36
In the case of Naguiat v. National Labor Relations Commission,37 the Court applied the doctrine found in
the case of A. C. Ransom Labor Untion- CCLU v. National Labor Relations Commission. There was a
cessation of the operations of the employer-corporation and, thus, a problem as to who shall pay the
employees. In holding the president solidarily liable, the Court considered that he had actively engaged in
the management and operations of the corporation. Nevertheless, it absolved from liability the vice-
president, since no evidence on the extent of his participation in the management or operation of the
business was proffered.
In the present case, the NLRC took into account the testimony of the witness Roel Benignos who said that
they believed that petitioner Corazon Saguemuller was the president of Elcee Farms because the
employees would approach her if they needed help, as well as the fact that her sons were the officers of
Elcee Farms and Garnele. Beyond these bare suppositions, no evidence, oral or documentary, was
presented to prove that Corazon Saguemuller was truly the President of Elcee Farms. Nor was there even
proof that she was in active management of the corporation and had dictated policies for implementation
by the corporation. Extending help to private respondents certainly did not automatically vest upon her
the position of President of the corporation. There, likewise, appears to be no evidence on record that she
had acted maliciously or in bad faith in terminating the services of the private respondents; nor has it been
shown that she has in any way consented to the simulated lease contract executed by her sons which
effectively terminated the services of the private respondents.
IN VIEW OF THE FOREGOING, the instant Petition is partially granted. This Court AFFIRMS the award
of separation pay and moral damages in favor of the private respondents as decreed in the assailed
Resolution of the NLRC, to be paid by Elcee Farms with the modification that Corazon Saguemuller
should not be held subsidiarily liable. This Court further orders that Alfredo Nicor, Sr. be excluded from
the list of employees who are to be paid separation pay and moral damages, for reason that he was
inadvertently included in the said list. Costs against the petitioners.
SO ORDERED.
Case No. 11

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 ₱10,647,981 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 Club’s 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, respondent’s 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
More than 2 years to 9 years of service
At least 10 years of service
At least 15 years of service
At least 20 years of service
1 month pay
1/2 month pay for every year of service
1 month pay for every year of service
1.25 month(s) pay for every year of
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 respondent’s 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.11When 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 petitioner’s 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. Petitioner’s motion for reconsideration
was likewise denied.
Upon an exhaustive examination of the evidence presented by the parties, the CA affirmed in toto the
VA’s Decision and denied the substantive aspects of petitioner’s 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 ₱50,000.00 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 employer’s 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 ACCI’s petition on the view that the case did not involve
retrenchment but closure of a business undertaking. Despite ACCI’s 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 Club’s 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.1âwphi1When it decided to cease operating its F & B Department and open the same to a
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 respondent’s 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 respondent’s members, Makati Skyline, Human Resource Managers of some companies, and
the Association of Human Resource Managers.33 These 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 respondent’s 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 petitioner’s 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 petitioner’s complaint for illegal retrenchment, are
AFFIRMED.
SO ORDERED.
Case No. 12

EVER ELECTRICAL G.R. No. 194795

MANUFACTURING, INC., (EEMI)
and VICENTE GO,
Present:
Petitioners,

PERALTA, J., Acting Chairperson,*

ABAD,
VILLARAMA, JR.,* *
- versus -
MENDOZA, and
PERLAS-BERNABE, JJ.

SAMAHANG MANGGAGAWA NG
EVER 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 13th month 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 pagoarrangement 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 13th month 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, 2009 Resolution.[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
Conchas because 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.
Case No. 13

[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[1] promulgated on April 24, 1996[2] and August 29, 1996[3] denying the
award of separation pay to 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 [8]dated
August 29, 1996.
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...".[9] The use of the word "may," in a statute, denotes that it is directory in nature and generally
permissive only.[10] The "plain meaning rule" or verba legis in 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.
Case No. 14

G.R. No. 184517 October 8, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR,
JR., Petitioners,
vs.
PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR., ELICERIO GASPAR, , RICARDO
GASPAR JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.
x-----------------------x
G.R. No. 186641
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR,
JR., Petitioners,
vs.
ELICERIO GASPAR, RICARDO GASPAR, JR., EUFEMIA ROSETE, FIDEL ESPIRITU,
SIMEONESPIRITU, JR., and LIBERATO MANGOBA, Respondents.
DECISION
SERENO, CJ.:
Security of tenure is a constitutionally guaranteed right.1 Employees may not be terminated from their
regular employment except for just or authorized causes under the Labor Code2 and other pertinent laws.
A mere change in the equity composition of a corporation is neither a just nor an authorized cause that
would legally permit the dismissal of the corporation’s employees en masse.
Before this Court are consolidated Rule 45 Petitions for Review on Certiorari3 assailing the Decision4 and
Resolution5 of the Court of Appeals(CA) in CA-G.R. SP No. 97510 and its Decision6 and Resolution7 in
CA-G.R. SP No. 97942.
The facts of the case are as follows:
Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.(Ricardo), Eufemia Rosete
(Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato)
were employees of Small and Medium Enterprise Bank, Incorporated (SME Bank).Originally, the
principal shareholders and corporate directors of the bank were Eduardo M. Agustin, Jr. (Agustin) and
Peregrin de Guzman, Jr. (De Guzman).
In June 2001, SME Bank experienced financial difficulties. To remedy the situation, the bank officials
proposed its sale to Abelardo Samson(Samson).8
Accordingly, negotiations ensued, and a formal offer was made to Samson. Through his attorney-in-fact,
Tomas S. Gomez IV, Samson then sent formal letters (Letter Agreements) to Agustin and De Guzman,
demanding the following as preconditions for the sale of SME Bank’s shares of stock:
4. You shall guarantee the peaceful turn over of all assets as well as the peaceful transition of management
of the bank and shall terminate/retire the employees we mutually agree upon, upon transfer of shares in
favor of our group’s nominees;
xxxx
7. All retirement benefits, if any of the above officers/stockholders/board of directors are hereby waived
upon consummation [sic] of the above sale. The retirement benefits of the rank and file employees
including the managers shall be honored by the new management in accordance with B.R. No. 10, S.
1997.9
Agustin and De Guzman accepted the terms and conditions proposed by Samson and signed the conforme
portion of the Letter Agreements.10
Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all the employees
of the head office and of the Talaveraand Muñoz branches of SME Bank and persuaded them to tender
their resignations,11 with the promise that they would be rehired upon reapplication. His directive was
allegedly done at the behest of petitioner Olga Samson.12
Relying on this representation, Elicerio,13 Ricardo,14 Fidel,15 Simeon, Jr.,16 and Liberato17 tendered their
resignations dated 27 August 2001. As for Eufemia, the records show that she first tendered a resignation
letter dated27 August 2001,18 and then a retirement letter dated September 2001.19
Elicerio,20 Ricardo,21 Fidel,22 Simeon, Jr.,23 and Liberato24 submitted application letters on 11 September
2001. Both the resignation letters and copies of respondent employees’ application letters were transmitted
by Espiritu to Samson’s representative on 11 September 2001.25
On 11 September 2001, Agustin and De Guzman signified their conformity to the Letter Agreements and
sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson
then became the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank
president. As it turned out, respondent employees, except for Simeon, Jr.,26 were not rehired. After a
month in service, Simeon, Jr. again resigned on October 2001.27
Respondent-employees demanded the payment of their respective separation pays, but their requests were
denied.1âwphi1
Aggrieved by the loss of their jobs, respondent employees filed a Complaint before the National Labor
Relations Commission (NLRC)– Regional Arbitration Branch No. III and sued SME Bank, spouses
Abelardo and Olga Samson and Aurelio Villaflor (the Samson Group) for unfair labor practice; illegal
dismissal; illegal deductions; underpayment; and nonpayment of allowances, separation pay and 13th
month pay.28 Subsequently, they amended their Complaint to include Agustin and De Guzman as
respondents to the case.29
On 27 October 2004, the labor arbiter ruled that the buyer of an enterprise is not bound to absorb its
employees, unless there is an express stipulation to the contrary. However, he also found that respondent
employees were illegally dismissed, because they had involuntarily executed their resignation letters after
relying on representations that they would be given their separation benefits and rehired by the new
management. Accordingly, the labor arbiter decided the case against Agustin and De Guzman, but
dismissed the Complaint against the Samson Group, as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering respondents Eduardo
Agustin, Jr. and Peregrin De Guzman to pay complainants’ separation pay in the total amount of
₱339,403.00 detailed as follows:
Elicerio B. Gaspar = P 5,837.00
Ricardo B. Gaspar, Jr. = ₱11,674.00
Liberato B. Mangoba = ₱64,207.00
Fidel E. Espiritu = ₱29,185.00
Simeon B. Espiritu, Jr. = ₱26,000.00
Eufemia E. Rosete = ₱202,510.00
All other claims including the complaint against Abelardo Samson, Olga Samson and Aurelio Villaflor
are hereby DISMISSED for want of merit.
SO ORDERED.30
Dissatisfied with the Decision of the labor arbiter, respondent employees, Agustin and De Guzman
brought separate appeals to the NLRC. Respondent employees questioned the labor arbiter’s failure to
award backwages, while Agustin and De Guzman contended that they should not be held liable for the
payment of the employees’ claims.
The NLRC found that there was only a mere transfer of shares – and therefore, a mere change of
management – from Agustin and De Guzman to the Samson Group. As the change of management was
not a valid ground to terminate respondent bank employees, the NLRC ruled that they had indeed been
illegally dismissed. It further ruled that Agustin, De Guzman and the Samson Group should be held jointly
and severally liable for the employees’ separation pay and backwages, as follows:
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. Respondents are
hereby Ordered to jointly and severally pay the complainants backwages from 11 September 2001 until
the finality of this Decision, separation pay at one month pay for every year of service, ₱10,000.00 and
₱5,000.00 moral and exemplary damages, and five (5%) percent attorney’s fees.
Other dispositions are AFFIRMED
SO ORDERED.31
On 28 November 2006, the NLRC denied the Motions for Reconsideration filed by Agustin, De Guzman
and the Samson Group.32
Agustin and De Guzman filed a Rule 65 Petition for Certiorari with the CA, docketed as CA-G.R. SP No.
97510. The Samson Group likewise filed a separate Rule 65 Petition for Certiorari with the CA, docketed
as CA-G.R. SP No. 97942. Motions to consolidate both cases were not acted upon by the appellate court.
On 13 March 2008, the CA rendered a Decision in CA-G.R. SP No.97510 affirming that of the NLRC.
The fallo of the CA Decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED. Accordingly, the Decision dated May
8, 2006, and Resolution dated November 28, 2006 of the National Labor Relations Commission in NLRC
NCR CA No. 043236-05 (NLRC RAB III-07-4542-02) are hereby AFFIRMED.
SO ORDERED.33
Subsequently, CA-G.R. SP No. 97942 was disposed of by the appellate court in a Decision dated 15
January 2008, which likewise affirmed that of the NLRC. The dispositive portion of the CA Decision
states:
WHEREFORE, premises considered, the instant Petition for Certiorari is denied, and the herein assailed
May 8, 2006 Decision and November 28, 2006 Resolution of the NLRC are hereby AFFIRMED.
SO ORDERED.34
The appellate court denied the Motions for Reconsideration filed by the parties in Resolutions dated 1
September 200835 and 19 February 2009.36
The Samson Group then filed two separate Rule 45 Petitions questioning the CA Decisions and
Resolutions in CA-G.R. SP No. 97510 and CA-G.R. SP No. 97942. On 17 June 2009, this Court resolved
to consolidate both Petitions.37
THE ISSUES
Succinctly, the parties are asking this Court to determine whether respondent employees were illegally
dismissed and, if so, which of the parties are liable for the claims of the employees and the extent of the
reliefs that may be awarded to these employees.
THE COURT’S RULING
The instant Petitions are partly meritorious.
I
Respondent employees were illegally dismissed.
As to Elicerio Gaspar, Ricardo Gaspar, Jr., Fidel Espiritu, Eufemia Rosete and Liberato Mangoba
The Samson Group contends that Elicerio, Ricardo, Fidel, and Liberato voluntarily resigned from their
posts, while Eufemia retired from her position. As their resignations and retirements were voluntary, they
were not dismissed from their employment.38 In support of this argument, it presented copies of their
resignation and retirement letters,39 which were couched in terms of gratitude.
We disagree. While resignation letters containing words of gratitude may indicate that the employees were
not coerced into resignation,40 this fact alone is not conclusive proof that they intelligently, freely and
voluntarily resigned. To rule that resignation letters couched in terms of gratitude are, by themselves,
conclusive proof that the employees intended to relinquish their posts would open the floodgates to
possible abuse. In order to withstand the test of validity, resignations must be made voluntarily and with
the intention of relinquishing the office, coupled with an act of relinquishment.41 Therefore, in order to
determine whether the employees truly intended to resign from their respective posts, we cannot merely
rely on the tenor of the resignation letters, but must take into consideration the totality of circumstances
in each particular case.
Here, the records show that Elicerio, Ricardo, Fidel, and Liberato only tendered resignation letters because
they were led to believe that, upon reapplication, they would be reemployed by the new management. 42 As
it turned out, except for Simeon, Jr., they were not rehired by the new management. Their reliance on the
representation that they would be reemployed gives credence to their argument that they merely submitted
courtesy resignation letters because it was demanded of them, and that they had no real intention of leaving
their posts. We therefore conclude that Elicerio, Ricardo, Fidel, and Liberato did not voluntarily resign
from their work; rather, they were terminated from their employment.
As to Eufemia, both the CA and the NLRC discussed her case together with the cases of the rest of
respondent-employees. However, a review of the records shows that, unlike her co-employees, she did
not resign; rather, she submitted a letter indicating that she was retiring from her former position.43
The fact that Eufemia retired and did not resign, however, does not change our conclusion that illegal
dismissal took place.
Retirement, like resignation, should be an act completely voluntary on the part of the employee. If the
intent to retire is not clearly established or if the retirement is involuntary, it is to be treated as a
discharge.44
In this case, the facts show that Eufemia’s retirement was not of her own volition. The circumstances
could not be more telling. The facts show that Eufemia was likewise given the option to resign or retire in
order to fulfill the precondition in the Letter Agreements that the seller should "terminate/retire the
employees [mutually agreed upon] upon transfer of shares" to the buyers.45 Thus, like her other co-
employees, she first submitted a letter of resignation dated 27 August 2001.46 For one reason or another,
instead of resigning, she chose to retire and submitted a retirement letter to that effect.47 It was this letter
that was subsequently transmitted to the representative of the Samson Group on 11 September 2001.48
In San Miguel Corporation v. NLRC,49 we have explained that involuntary retirement is tantamount to
dismissal, as employees can only choose the means and methods of terminating their employment, but are
powerless as to the status of their employment and have no choice but to leave the company. This rule
squarely applies to Eufemia’s case. Indeed, she could only choose between resignation and retirement, but
was made to understand that she had no choice but to leave SME Bank. Thus, we conclude that, similar
to her other co-employees, she was illegally dismissed from employment.
The Samson Group further argues50 that, assuming the employees were dismissed, the dismissal is legal
because cessation of operations due to serious business losses is one of the authorized causes of
termination under Article 283 of the Labor Code.51
Again, we disagree.
The law permits an employer to dismiss its employees in the event of closure of the business
establishment.52However, the employer is required to serve written notices on the worker and the
Department of Labor at least one month before the intended date of closure.53 Moreover, the dismissed
employees are entitled to separation pay, except if the closure was due to serious business losses or
financial reverses.54 However, to be exempt from making such payment, the employer must justify the
closure by presenting convincing evidence that it actually suffered serious financial reverses.55
In this case, the records do not support the contention of SME Bank that it intended to close the business
establishment. On the contrary, the intention of the parties to keep it in operation is confirmed by the
provisions of the Letter Agreements requiring Agustin and De Guzman to guarantee the "peaceful
transition of management of the bank" and to appoint "a manager of [the Samson Group’s] choice x x x
to oversee bank operations."
Even assuming that the parties intended to close the bank, the records do not show that the employees and
the Department of Labor were given written notices at least one month before the dismissal took place.
Moreover, aside from their bare assertions, the parties failed to substantiate their claim that SME Bank
was suffering from serious financial reverses.
In fine, the argument that the dismissal was due to an authorized cause holds no water.
Petitioner bank also argues that, there being a transfer of the business establishment, the innocent
transferees no longer have any obligation to continue employing respondent employees, 56 and that the
most that they can do is to give preference to the qualified separated employees; hence, the employees
were validly dismissed.57
The argument is misleading and unmeritorious. Contrary to petitioner bank’s argument, there was no
transfer of the business establishment to speak of, but merely a change in the new majority shareholders
of the corporation.
There are two types of corporate acquisitions: asset sales and stock sales.58 In asset sales, the corporate
entity59sells all or substantially all of its assets60 to another entity. In stock sales, the individual or corporate
shareholders61sell a controlling block of stock62 to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees, but
is liable for the payment of separation pay under the law.63 The buyer in good faith, on the other hand, is
not obliged to absorb the employees affected by the sale, nor is it liable for the payment of their
claims.64 The most that it may do, for reasons of public policy and social justice, is to give preference to
the qualified separated personnel of the selling firm.65
In contrast with asset sales, in which the assets of the selling corporation are transferred to another entity,
the transaction in stock sales takes place at the shareholder level. Because the corporation possesses a
personality separate and distinct from that of its shareholders, a shift in the composition of its shareholders
will not affect its existence and continuity. Thus, notwithstanding the stock sale, the corporation continues
to be the employer of its people and continues to be liable for the payment of their just claims. Furthermore,
the corporation or its new majority share holders are not entitled to lawfully dismiss corporate employees
absent a just or authorized cause.
In the case at bar, the Letter Agreements show that their main object is the acquisition by the Samson
Group of 86.365% of the shares of stock of SME Bank.66 Hence, this case involves a stock sale, whereby
the transferee acquires the controlling shares of stock of the corporation. Thus, following the rule in stock
sales, respondent employees may not be dismissed except for just or authorized causes under the Labor
Code.
Petitioner bank argues that, following our ruling in Manlimos v. NLRC,67 even in cases of stock sales, the
new owners are under no legal duty to absorb the seller’s employees, and that the most that the new owners
may do is to give preference to the qualified separated employees.68 Thus, petitioner bank argues that the
dismissal was lawful.
We are not persuaded.
Manlimos dealt with a stock sale in which a new owner or management group acquired complete
ownership of the corporation at the shareholder level.69 The employees of the corporation were later
"considered terminated, with their conformity"70 by the new majority shareholders. The employees then
re-applied for their jobs and were rehired on a probationary basis. After about six months, the new
management dismissed two of the employees for having abandoned their work, and it dismissed the rest
for committing "acts prejudicial to the interest of the new management."71 Thereafter, the employees
sought reinstatement, arguing that their dismissal was illegal, since they "remained regular employees of
the corporation regardless of the change of management."72
In disposing of the merits of the case, we upheld the validity of the second termination, ruling that "the
parties are free to renew the contract or not [upon the expiration of the period provided for in their
probationary contract of employment]."73 Citing our pronouncements in Central Azucarera del Danao v.
Court of Appeals,74 San Felipe Neri School of Mandaluyong, Inc. v. NLRC,75 and MDII Supervisors &
Confidential Employees Association v. Presidential Assistant on Legal Affairs,76 we likewise upheld the
validity of the employees’ first separation from employment, pronouncing as follows:
A change of ownership in a business concern is not proscribed bylaw. In Central Azucarera del Danao vs.
Court of Appeals, this Court stated:
There can be no controversy 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 sellor 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 permit the employer to escape
payment of termination pay. For such a situation is not envisioned in the law. It strikes at the very concept
of social justice.
In a number of cases on this point, the rule has been laid down that the sale or disposition must be
motivated by good faith as an element of exemption from liability. Indeed, an innocent transferee of a
business establishment has no liability to the employees of the transfer or to continue employer them. Nor
is the transferee liable for past unfair labor practices of the previous owner, except, when the liability
therefor is assumed by the new employer under the contract of sale, or when liability arises because of the
new owner’s participation in thwarting or defeating the rights of the employees.
Where such transfer of ownership is in good faith, the transferee is under no legal duty to absorb the
transferor’s employees as there is no law compelling such absorption. The most that the transferee may
do, for reasons of public policy and social justice, is to give preference to the qualified separated
employees in the filling of vacancies in the facilities of the purchaser.
Since the petitioners were effectively separated from work due to a bona fide change of ownership and
they were accordingly paid their separation pay, which they freely and voluntarily accepted, the private
respondent corporation was under no obligation to employ them; it may, however, give them preference
in the hiring. x x x. (Citations omitted)
We take this opportunity to revisit our ruling in Manlimos insofar as it applied a doctrine on asset sales to
a stock sale case. Central Azucarera del Danao, San Felipe Neri School of Mandaluyong and MDII
Supervisors &Confidential Employees Association all dealt with asset sales, as they involved a sale of all
or substantially all of the assets of the corporation. The transactions in those cases were not made at the
shareholder level, but at the corporate level. Thus, applicable to those cases were the rules in asset sales:
the employees may be separated from their employment, but the seller is liable for the payment of
separation pay; on the other hand, the buyer in good faith is not required to retain the affected employees
in its service, nor is it liable for the payment of their claims.
The rule should be different in Manlimos, as this case involves a stock sale. It is error to even discuss
transfer of ownership of the business, as the business did not actually change hands. The transfer only
involved a change in the equity composition of the corporation. To reiterate, the employees are not
transferred to a new employer, but remain with the original corporate employer, notwithstanding an equity
shift in its majority shareholders. This being so, the employment status of the employees should not have
been affected by the stock sale. A change in the equity composition of the corporate shareholders should
not result in the automatic termination of the employment of the corporation’s employees. Neither should
it give the new majority shareholders the right to legally dismiss the corporation’s employees, absent a
just or authorized cause.
The right to security of tenure guarantees the right of employees to continue in their employment absent
a just or authorized cause for termination. This guarantee proscribes a situation in which the corporation
procures the severance of the employment of its employees – who patently still desire to work for the
corporation – only because new majority stockholders and a new management have come into the picture.
This situation is a clear circumvention of the employees’ constitutionally guaranteed right to security of
tenure, an act that cannot be countenanced by this Court.
It is thus erroneous on the part of the corporation to consider the employees as terminated from their
employment when the sole reason for so doing is a change of management by reason of the stock sale.
The conformity of the employees to the corporation’s act of considering them as terminated and their
subsequent acceptance of separation pay does not remove the taint of illegal dismissal. Acceptance of
separation pay does not bar the employees from subsequently contesting the legality of their dismissal,
nor does it estop them from challenging the legality of their separation from the service.77
We therefore see it fit to expressly reverse our ruling in Manlimos insofar as it upheld that, in a stock sale,
the buyer in good faith has no obligation to retain the employees of the selling corporation; and that the
dismissal of the affected employees is lawful, even absent a just or authorized cause.
As to Simeon Espiritu, Jr.
The CA and the NLRC discussed the case of Simeon, Jr. together with that of the rest of respondent-
employees. However, a review of the records shows that the conditions leading to his dismissal from
employment are different. We thus discuss his circumstance separately.
The Samson Group contends that Simeon, Jr., likewise voluntarily resigned from his post.78 According to
them, he had resigned from SME Bank before the share transfer took place.79
Upon the change of ownership of the shares and the management of the company, Simeon, Jr. submitted
a letter of application to and was rehired by the new management.80 However, the Samson Group alleged
that for purely personal reasons, he again resigned from his employment on 15 October 2001.81
Simeon, Jr., on the other hand, contends that while he was reappointed by the new management after his
letter of application was transmitted, he was not given a clear position, his benefits were reduced, and he
suffered a demotion in rank.82 These allegations were not refuted by the Samson Group.
We hold that Simeon, Jr. was likewise illegally dismissed from his employment.
Similar to our earlier discussion, we find that his first courtesy resignation letter was also executed
involuntarily. Thus, it cannot be the basis of a valid resignation; and thus, at that point, he was illegally
terminated from his employment. He was, however, rehired by SME Bank under new management,
although based on his allegations, he was not reinstated to his former position or to a substantially
equivalent one.83 Rather, he even suffered a reduction in benefits and a demotion in rank.84 These led to
his submission of another resignation letter effective 15 October 2001.85
We rule that these circumstances show that Simeon, Jr. was constructively dismissed. In
Peñaflor v. Outdoor Clothing Manufacturing Corporation,86 we have defined constructive dismissal as
follows:
Constructive dismissal is an involuntary resignation by the employee due to the harsh, hostile, and
unfavorable conditions set by the employer and which arises when a clear discrimination, insensibility, or
disdain by an employer exists and has become unbearable to the employee.87
Constructive dismissal exists where there is cessation of work, because "continued employment is
rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank or a diminution
in pay" and other benefits.88
These circumstances are clearly availing in Simeon, Jr.’s case. He was made to resign, then rehired under
conditions that were substantially less than what he was enjoying before the illegal termination occurred.
Thus, for the second time, he involuntarily resigned from his employment. Clearly, this case is illustrative
of constructive dismissal, an act prohibited under our labor laws.
II
SME Bank, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr. are liable for illegal dismissal.
Having ruled on the illegality of the dismissal, we now discuss the issue of liability and determine who
among the parties are liable for the claims of the illegally dismissed employees.
The settled rule is that an employer who terminates the employment of its employees without lawful cause
or due process of law is liable for illegal dismissal.89
None of the parties dispute that SME Bank was the employer of respondent employees. The fact that there
was a change in the composition of its shareholders did not affect the employer-employee relationship
between the employees and the corporation, because an equity transfer affects neither the existence nor
the liabilities of a corporation. Thus, SME Bank continued to be the employer of respondent employees
notwithstanding the equity change in the corporation. This outcome is in line with the rule that a
corporation has a personality separate and distinct from that of its individual shareholders or members,
such that a change in the composition of its shareholders or members would not affect its corporate
liabilities.
Therefore, we conclude that, as the employer of the illegally dismissed employees before and after the
equity transfer, petitioner SME Bank is liable for the satisfaction of their claims.
Turning now to the liability of Agustin, De Guzman and the Samson Group for illegal dismissal, at the
outset we point out that there is no privity of employment contracts between Agustin, De Guzman and the
Samson Group, on the one hand, and respondent employees on the other. Rather, the employment
contracts were between SME Bank and the employees. However, this fact does not mean that Agustin, De
Guzman and the Samson Group may not be held liable for illegal dismissal as corporate directors or
officers. In Bogo-Medellin Sugarcane Planters Association, Inc. v. NLRC,90 we laid down the rule as
regards the liability of corporate directors and officers in illegal dismissal cases, as follows:
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. 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. 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.91 (Citations omitted)
Thus, in order to determine the respective liabilities of Agustin, De Guzman and the Samson Group under
the afore-quoted rule, we must determine, first, whether they may be considered as corporate directors or
officers; and, second, whether the terminations were done maliciously or in bad faith.
There is no question that both Agustin and De Guzman were corporate directors of SME Bank. An analysis
of the facts likewise reveals that the dismissal of the employees was done in bad faith. Motivated by their
desire to dispose of their shares of stock to Samson, they agreed to and later implemented the precondition
in the Letter Agreements as to the termination or retirement of SME Bank’s employees. However, instead
of going through the proper procedure, the bank manager induced respondent employees to resign or retire
from their respective employments, while promising that they would be rehired by the new management.
Fully relying on that promise, they tendered courtesy resignations or retirements and eventually found
themselves jobless. Clearly, this sequence of events constituted a gross circumvention of our labor laws
and a violation of the employees’ constitutionally guaranteed right to security of tenure. We therefore rule
that, as Agustin and De Guzman are corporate directors who have acted in bad faith, they may be held
solidarily liable with SME Bank for the satisfaction of the employees’ lawful claims.
As to spouses Samson, we find that nowhere in the records does it appear that they were either corporate
directors or officers of SME Bank at the time the illegal termination occurred, except that the Samson
Group had already taken over as new management when Simeon, Jr. was constructively dismissed. Not
being corporate directors or officers, spouses Samson were not in legal control of the bank and
consequently had no power to dismiss its employees.
Respondent employees argue that the Samson Group had already taken over and conducted an inventory
before the execution of the share purchase agreement.92 Agustin and De Guzman likewise argued that it
was at Olga Samson’s behest that the employees were required to resign from their posts.93 Even if this
statement were true, it cannot amount to a finding that spouses Samson should be treated as corporate
directors or officers of SME Bank. The records show that it was Espiritu who asked the employees to
tender their resignation and or retirement letters, and that these letters were actually tendered to him.94 He
then transmitted these letters to the representative of the Samson Group.95 That the spouses Samson had
to ask Espiritu to require the employees to resign shows that they were not in control of the corporation,
and that the former shareholders – through Espiritu – were still in charge thereof. As the spouses Samson
were neither corporate officers nor directors at the time the illegal dismissal took place, we find that there
is no legal basis in the present case to hold them in their personal capacities solidarily liable with SME
Bank for illegally dismissing respondent employees, without prejudice to any liabilities that may have
attached under other provisions of law.
Furthermore, even if spouses Samson were already in control of the corporation at the time that Simeon,
Jr. was constructively dismissed, we refuse to pierce the corporate veil and find them liable in their
individual steads. There is no showing that his constructive dismissal amounted to more than a corporate
act by SME Bank, or that spouses Samson acted maliciously or in bad faith in bringing about his
constructive dismissal.
Finally, as regards Aurelio Villaflor, while he may be considered as a corporate officer, being the president
of SME Bank, the records are bereft of any evidence that indicates his actual participation in the
termination of respondent employees. Not having participated at all in the illegal act, he may not be held
individually liable for the satisfaction of their claims.
III
Respondent employees are entitled to separation pay, full backwages, moral damages, exemplary damages
and attorney’s fees.
The rule is that illegally dismissed employees are entitled to (1) either reinstatement, if viable, or
separation pay if reinstatement is no longer viable; and (2) backwages.96
Courts may grant separation pay in lieu of reinstatement when the relations between the employer and the
employee have been so severely strained; when reinstatement is not in the best interest of the parties; when
it is no longer advisable or practical to order reinstatement; or when the employee decides not to be
reinstated.97 In this case, respondent employees expressly pray for a grant of separation pay in lieu of
reinstatement. Thus, following a finding of illegal dismissal, we rule that they are entitled to the payment
of separation pay equivalent to their one-month salary for every year of service as an alternative to
reinstatement.
Respondent employees are likewise entitled to full backwages notwithstanding the grant of separation
pay. In Santos v. NLRC,98 we explained that an award of backwages restores the income that was lost by
reason of the unlawful dismissal, while separation pay "provides the employee with 'the wherewithal
during the period that he is looking for another employment."99 Thus, separation pay is a proper substitute
only for reinstatement; it is not an adequate substitute for both reinstatement and backwages.100 Hence,
respondent employees are entitled to the grant of full backwages in addition to separation pay.
As to moral damages, exemplary damages and attorney's fees, we uphold the appellate court's grant thereof
based on our finding that the forced resignations and retirement were fraudulently done and attended by
bad faith.
WHEREFORE, premises considered, the instant Petitions for Review are PARTIALLY GRANTED.
The assailed Decision and Resolution of the Court of Appeals in CA G.R. SP No. 97510 dated 13 March
2008 and 1 September 2008,respectively, are hereby REVERSED and SET ASIDE insofar as it held
Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 97942 dated 15 January
2008 and 19 February 2009,respectively, are likewise REVERSED and SETASIDE insofar as it held
Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
We REVERSE our ruling in Manlimos v. NLRC insofar as it upheld that, in a stock sale, the buyer in
good faith has no obligation to retain the employees of the selling corporation, and that the dismissal of
the affected employees is lawful even absent a just or authorized cause. SO ORDERED.
Case No. 15

G.R. No. 160325 October 4, 2007

ROQUE S. DUTERTE, petitioner,
vs.
KINGSWOOD TRADING CO., INC., FILEMON LIM and NATIONAL LABOR RELATIONS
COMMISSION,respondents.
DECISION
GARCIA, J.:
By this petition for review on certiorari, petitioner Roque S. Duterte seeks the review and setting aside of
the decision1 dated June 20, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 71729, as reiterated in
its resolution2 of October 5, 2003, affirming an earlier resolution3 of the National Labor Relations
Commission (NLRC) which ruled that petitioner was not illegally dismissed from employment due to
disease under Article 284 of the Labor Code.
The facts:
In September 1993, petitioner was hired as truck/trailer driver by respondent Kingswood Trading
Company, Inc. (KTC) of which co-respondent Filemon Lim is the President. Petitioner was on the 6:00
a.m. – 6:00 p.m. shift. He averaged 21 trips per month, getting P700 per trip. When not driving, petitioner
was assigned to clean and maintain respondent KTC’s equipment and vehicles for which he was paid P125
per day. Regularly, petitioner would be seconded by respondent Filemon Lim to drive for one of KTC’s
clients, the Philippine National Oil Corporation, but always subject to respondents’ convenience.
On November 8, 1998, petitioner had his first heart attack and was confined for two weeks at the Philippine
Heart Center (PHC). This was confirmed by respondent KTC which admitted that petitioner was declared
on sick leave with corresponding notification.
A month later, petitioner returned to work armed with a medical certificate signed by his attending
physician at the PHC, attesting to petitioner’s fitness to work. However, said certificate was not honored
by the respondents who refused to allow petitioner to work.
In February 1999, petitioner suffered a second heart attack and was again confined at the PHC. Upon
release, he stayed home and spent time to recuperate.
In June 1999, petitioner attempted to report back to work but was told to look for another job because he
was unfit. Respondents refused to declare petitioner fit to work unless physically examined by the
company physician. Respondents’ promise to pay petitioner his separation pay turned out to be an empty
one. Instead, petitioner was presented, for his signature, a document as proof of his receipt of the amount
of P14,375.00 as first installment of his Social Security System (SSS) benefits. Having received no such
amount, petitioner refused to affix his signature thereon and instead requested for the necessary documents
from respondents to enable him to claim his SSS benefits, but the latter did not heed his request.
On November 11, 1999, petitioner filed against his employer a complaint for illegal dismissal and
damages.
In a decision4 dated September 26, 2000, the labor arbiter found for the petitioner. However, while
categorically declaring that petitioner’s dismissal was illegal, the labor arbiter, instead of applying Article
2795 of the Labor Code on illegal dismissals, applied Article 284 on Disease as ground for termination on
the rationale that since the respondents admitted that petitioner could not be allowed back to work because
of the latter’s disease, the case fell within the ambit of Article 284. We quote the fallo of the labor arbiter’s
decision:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring complainant to have
been terminated from employment on the ground that he has been suffering from a disease.
Respondents are hereby directed to pay complainant as follows:
1. Separation pay equivalent to one-half (1/2) month salary for every year of service computed at six (6)
years of service in the amount of Forty-Two Thousand (P42,000.00) Pesos.
2. Holiday pay for three (3) years in the amount of Twenty-One Thousand (P21,000.00) Pesos; and
3. Service Incentive Leave pay for three (3) years in the amount of Ten Thousand (P10,000.00) Pesos.
All other claims herein sought are hereby denied for lack of merit and factual basis.
SO ORDERED.
On respondents’ appeal, the NLRC, in its Resolution6 of April 24, 2002, set aside the labor arbiter’s
decision, ruling that Article 284 of the Labor Code has no application to this case, there being "no illegal
dismissal to speak of." The NLRC accordingly dismissed petitioner’s complaint for illegal dismissal, thus:
WHEREFORE, the decision appealed from is VACATED and SET ASIDE.7 A new one is hereby entered
DISMISSING the instant case for lack of merit.
Therefrom, petitioner went on certiorari to the CA in CA-G.R. SP No. 71729. In the herein assailed
decision dated June 20, 2003, the CA upheld the NLRC Resolution, saying that the Commission
committed no grave abuse of discretion in holding that petitioner was not illegally dismissed and could
not be granted any relief. With his motion for a reconsideration having been denied by the CA in its
resolution of October 5, 2003, petitioner is now with this Court via the present recourse.
We REVERSE.
At bottom, this case involves the simple issue of the legality of one’s termination from employment made
complicated, however, by over analysis. Simply put, the question at hand pivots on who has the onus of
presenting the necessary medical certificate to justify what would otherwise be classified as legal or illegal,
as the case may be, dismissal from the service. The following may be another formulation of the issue:
For purposes of Article 284 of the Labor Code, would the dismissal of an employee on the ground of
disease under the said Article 284 still require the employer to present a certification from a competent
public health authority that the disease is of such a nature that it could not be cured within a period of six
months even with proper medical treatment? To both the NLRC and the CA, a dismissal on the ground of
disease under Article 284 of the Code is illegal only if the employee himself presents the required
certification from the proper health authority. Since, as in this case, petitioner failed to produce such
certification, his dismissal could not be illegal.
In the precise words of the NLRC which the CA effectively affirmed:
Neither can it be gainsaid that Article 284 of the Labor Code applies in the instant case since the
complainant [petitioner] failed to establish that he is suffering from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees nor
was he able to prove that his illness is of such nature or at such stage that it cannot be cured within a
period of six months even with proper treatment.8
In order for the complainant to be covered by Article 284 of the Labor Code, he must first present
a certification by a competent public health authority that his continued employment will result in
the aforesaid consequences, but unfortunately for the complainant, we find none in the instant
case. For the respondents to require the complainant to submit a medical certificate showing that he is
already physically fit as a condition of his continued employment under the prevailing circumstance
cannot be considered as neither harsh nor oppressive. xxx
Prescinding from the above, there is no illegal dismissal to speak of. This finding is further strengthened
by the fact that no termination letter or formal notice of dismissal was adduced to prove that complainant’s
services have been terminated. Considering that no illegal dismissal took place, the complainant’s claim
that his right to due process of law had been violated finds no application to the case at bar. (Emphasis
added).
The Court disagrees with the NLRC and CA.
Article 284 of the Labor Code explicitly provides:
Art. 284. DISEASE AS GROUND FOR TERMINATION. -- An employer may terminate the services of
an employee who has been found to be suffering from any disease and whose continued employment is
prohibited by law or is prejudicial to his health as well as to the health of his co-employees: Provided,
That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary
for every year of service, whichever is greater, a fraction of at least six (6) months being considered as
one (1) whole year.
Corollarily, in order to validly terminate employment on the basis of disease, Book VI, Rule I, Section 8
of the Omnibus Implementing Rules of the Labor Code requires:
Disease as a ground for dismissal. -- Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a certification by a competent public
health authority that the disease is of such nature or at such a stage that it cannot be cured within
a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured
within the period, the employer shall not terminate the employee but shall ask the employee to take a
leave. The employer shall reinstate such employee to his former position immediately upon the restoration
of his normal health. (Book VI, Rule 1, Sec. 8 of the Implementing Rules)
In a very real sense, both the NLRC and the appellate court placed on the petitioner the burden of
establishing, by a certification of a competent public authority, that his ailment is such that it cannot be
cured within a period of six months even with proper medical treatment. And pursuing their logic,
petitioner could not claim having been illegally dismissed due to disease, failing, as he did, to present such
certification.
To be sure, the NLRC’s above posture is, to say the least, without basis in law and jurisprudence. And
when the CA affirmed the NLRC, the appellate court in effect placed on the petitioner the onus of proving
his entitlement to separation pay and thereby validated herein respondents’ act of dismissing him from
employment even without proof of existence of a legal ground for dismissal.
The law is unequivocal: the employer, before it can legally dismiss its employee on the ground of disease,
must adduce a certification from a competent public authority that the disease of which its employee is
suffering is of such nature or at such a stage that it cannot be cured within a period of six months even
with proper treatment.
Here, the record does not contain the required certification. And when the respondents asked the petitioner
to look for another job because he was unfit to work, such unilateral declaration, even if backed up by the
findings of its company doctors, did not meet the quantum requirement mandated by the law, i.e., there
must be a certification by a competent public authority.9
For sure, the posture taken by both the NLRC and the CA is inconsistent with this Court’s pronouncement
in Tan v. National Labor Relations Commission,10 thus:
Consistent with the Labor Code state policy of affording protection to labor and of liberal construction of
labor laws in favor of the working class, Sec. 8, Rule 1, Book VI, of the Omnibus Rules Implementing the
Labor Code provides – Where the employee suffers from a disease and his continued employment is
prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not
terminate his employment, unless there is a certification by a competent public authority that the disease
is of such nature or at such a stage, that it cannot be cured within a period of six (6) months even with
proper medical treatment.. There is absolutely nothing on record to show that such a certification was
ever obtained by [the employer] much less that one was issued by a competent public
authority …[o]n the contrary, what appears on record is a Medical Certificate dated May 5, 1999 issued
by Dr. Lenita C. de Castro certifying to the contrary, i.e., that [the employee] was in fact already fit to
return to work. However, [the employer] did not accept the certificate and insisted that [the employee]
present one issued by a government physician. For his failure to present such a certificate, [the employee]
was penalized with dismissal. Obviously, the condition imposed by [the employer] finds no basis
under the law. To reiterate, contrary to [the employer’s] insistence that [the employee] first obtain
a medical certificate attesting that he was already cured of pulmonary tuberculosis, the abovequoted
Sec. 9, Rule 1, Book VI, of the Omnibus Rules is clear that the burden is upon [the employer] not
[the employee] to justify the dismissal with a certificate public authority that [the employee’s]
disease is at such stage or of such nature that it cannot be cured within six (6) months even with
proper medical treatment. For [the employer’s] blatant failure to present one, we can only rule that
[the employee’s] dismissal, like that of Garrido, is illegal, invalid and unjustified. (Emphasis and
words in brackets supplied.)
In Triple Eight Integrated Services, Inc. v. NLRC,11 the Court explains why the submission of the requisite
medical certificate is for the employer’s compliance, thus:
The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;
otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or
extent of the employee’s illness and thus defeat the public policy on the protection of labor.
In thus ruling out an illegal dismissal situation in the instant case, the CA effectively agreed with the
NLRC’s view that the fact of dismissal must be evidenced by positive and overt acts, citing Veterans Phil.
Scout Security Agency v. NLRC.12 Said case, however, is not on all fours with the present one. In Veterans,
the employer offered the complainant-employee a monthly cash allowance and other benefit pending a
new assignment. Therein, the employee was not forthrightly nor constructively dismissed. In fact, the
employee in Veterans was found to be in bad faith as he filed his complaint for illegal dismissal the day
immediately after he accepted the company’s offer of employment benefits. Hence, the Court’s ruling
in Veterans that the fact of dismissal must be evidenced by positive and overt acts indicating the intention
to dismiss. These considerations do not obtain here. Petitioner was not allowed back to work. Neither did
he receive any monetary assistance from his employer, and, worse, respondents refused to give him the
necessary documents to enable him to claim his SSS benefits.
Much was made by the NLRC – and the CA – about petitioner’s refusal to comply with respondents’ order
to submit a medical certificate – irresistibly implying that such refusal is what constrained them to refuse
to take petitioner back in.
We are not persuaded.
Even assuming, in gratia argumenti, that petitioner committed what may be considered an act of
insubordination for refusing to present a medical certificate, such offense, without more, certainly did not
warrant the latter’s placement in a floating status, a veritable dismissal, and deprived of his only source of
livelihood.
We are not unmindful of the connection between the nature of petitioner’s disease and his job as a
truck/trailer driver. We are also fully aware that petitioner’s job places at stake the safety of the public.
However, we do not agree with the NLRC that petitioner was validly dismissed because his continued
employment was prohibited by the basic legal mandate that reasonable diligence must be exercised to
prevent prejudice to the public, which justified respondents in refusing work to petitioner. Petitioner could
have been admitted back to work performing other tasks, such as cleaning and maintaining respondent
company’s machine and transportation assets.
As a final consideration, the Court notes that the NLRC, as sustained by the CA, considered the petitioner
as a field worker and, on that basis, denied his claim for benefits under Articles 9413 to 9514 of the Labor
Code, such as holiday pay and service incentive leave pay. Article 82 of the Code lists personnel who are
not entitled to the benefits aforementioned.15 Among the excluded group are "field personnel," referring
to non-agricultural employees who regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual hours of work in the field cannot be determined
with reasonable certainty. As a general proposition, field personnel are those whose job/service are not or
cannot be effectively monitored by the employer or his representative, their workplace being away from
the principal office and whose hours and days of work cannot be determined with reasonable certainty.
Field personnel are paid specific amount for rendering specific service or performing specific work.
If required to be at specific places at specific times, employees, including drivers, cannot be said to be
field personnel despite the fact that they are performing work away from the principal office of the
employer. Thus, to determine whether an employee is a field employee, it is also necessary to ascertain if
actual hours of work in the field can be determined with reasonable certainty by the employer. In so doing,
an inquiry must be made as to whether or not the employee’s time and performance are constantly
supervised by the employer.16
Guided by the foregoing norms, petitioner was definitely a regular employee of respondent company and
not its field personnel, as the term is used in the Labor Code. As it were, he was based at the principal
office of the respondent company. His actual work hours, i.e., from 6:00 a.m. to 6:00 p.m., were
ascertainable with reasonable certainty. He averaged 21 trips per month. And if not driving for the
company, he was paid P125.00 per day for cleaning and maintaining KTC’s equipment. Not falling under
the category of field personnel, petitioner is consequently entitled to both holiday pay and service incentive
leave pay, as mandated by Articles 94 and 95 of the Labor Code.
All told, we rule and so hold that petitioner’s dismissal did not comply with both the substantive and
procedural aspects of due process. Clearly, his dismissal is tainted with invalidity.17
WHEREFORE, the assailed decision of the CA in CA-G.R. SP No. 71729 is REVERSED and SET
ASIDE.Respondents are declared guilty of illegal dismissal and are ordered to pay petitioner separation
pay equivalent to one (1) month pay for every year of service, in lieu of his reinstatement, plus his full
backwages from the time his employment was terminated up to the time this Decision becomes final. For
this purpose, let this case be REMANDED to the labor arbiter for the computation of petitioner’s
separation pay, backwages and other monetary awards due him.
Costs against respondents.
SO ORDERED.
Case No. 16

G.R. No. 199338

PERLAS-BERNABE, J.:
Before the Court is a Petition for Review on Certiorari[1] assailing the June 28, 2011 Decision[2] and
October 27, 2011 Resolution[3] of the Cagayan de Oro City Court of Appeals (CA) in CA-G.R. SP No.
03669-MIN which revoked and set aside the National Labor Relations Commission's (NLRC's)
Resolutions dated December 29, 2009[4] and March 31, 2010[5] and reinstated the Labor Arbiter's (LA's)
Decision dated March 13, 2009[6] with modification.

The Facts

On October 1, 1977, petitioner, the late Eleazar Padillo (Padillo), was employed by respondent Rural Bank
of Nabunturan, Inc. (Bank) as its SA Bookkeeper. Due to liquidity problems which arose sometime in
2003, the Bank took out retirement/insurance plans with Philippine American Life and General Insurance
Company (Philam Life) for all its employees in anticipation of its possible closure and the concomitant
severance of its personnel. In this regard, the Bank procured Philam Plan Certificate of Full Payment No.
88204, Plan Type 02FP10SC, Agreement No. PP98013771 (Philam Life Plan) in favor of Padillo for a
benefit amount of P100,000.00 and which was set to mature on July 11, 2009.[7]

On October 14, 2004, respondent Mark S. Oropeza (Oropeza), the President of the Bank, bought majority
shares of stock in the Bank and took over its management which brought about its gradual rehabilitation.
The Bank's finances improved and eventually, its liquidity was regained. [8]

During the latter part of 2007, Padillo suffered a mild stroke due to hypertension which consequently
impaired his ability to effectively pursue his work. In particular, he was diagnosed with Hypertension S/P
CVA (Cerebrovascular Accident) with short term memory loss, the nature of which had been classified as
a total disability.[9] On September 10, 2007, he wrote a letter addressed to respondent Oropeza expressing
his intention to avail of an early retirement package. Despite several follow-ups, his request remained
unheeded.

On October 3, 2007, Padillo was separated from employment due to his poor and failing health as reflected
in a Certification dated December 4, 2007 issued by the Bank. Not having received his claimed retirement
benefits, Padillo filed on September 23, 2008 with the NLRC Regional Arbitration Branch No. XI of
Davao City a complaint for the recovery of unpaid retirement benefits. He asserted, among others, that
the Bank had adopted a policy of granting its aging employees early retirement packages, pointing out
that one of his co-employees, Nenita Lusan (Lusan), was accorded retirement benefits in the amount of
P348,672.72[10] when she retired at the age of only fifty-three (53). The Bank and Oropeza (respondents)
countered that the claim of Padillo for retirement benefits was not favorably acted upon for lack of any
basis to grant the same.[11]

The LA Ruling

On March 13, 2009, the LA issued a Decision[12] dismissing Padillo's complaint but directed the Bank to
pay him the amount of P100,000.00 as financial assistance, treated as an advance from the amounts
receivable under the Philam Life Plan.[13] It found Padillo disqualified to receive any benefits under
Article 300 (formerly, Article 287) of the Labor Code of the Philippines (Labor Code)[14] as he was only
fifty-five (55) years old when he resigned, while the law specifically provides for an optional retirement
age of sixty (60) and compulsory retirement age of sixty-five (65). Dissatisfied with the LA's ruling,
Padillo elevated the matter to the NLRC.

The NLRC Ruling

On December 29, 2009, the NLRC's Fifth Division reversed and set aside the LA's ruling and ordered
respondents to pay Padillo the amount of P164,903.70 as separation pay, on top of the P100,000.00 Philam
Life Plan benefit.[15]Relying on the case of Abaquin Security and Detective Agency, Inc. v. Atienza
(Abaquin),[16] the NLRC applied the Labor Code provision on termination on the ground of disease
particularly, Article 297 thereof (formerly, Article 323) holding that while Padillo did resign, he did so
only because of his poor health condition.[17] Respondents moved for reconsideration but the same was
denied by the NLRC in its Resolution dated March 31, 2010.[18] Aggrieved, respondents filed a petition
for certiorari with the CA.

The CA Ruling

On June 28, 2011, the CA granted respondents' petition for certiorari and rendered a decision setting aside
the NLRC's December 29, 2009 and March 31, 2010 Resolutions, thereby reinstating the LA's March 13,
2009 Decision but with modification. It directed the respondents to pay Padillo the amount of P50,000.00
as financial assistance exclusive of the P100,000.00 Philam Life Plan benefit which already matured on
July 11, 2009.
The CA held that Padillo could not, absent any agreement with the Bank, receive any retirement benefits
pursuant to Article 300 of the Labor Code considering that he was only fifty-five (55) years old when he
retired.[19] It likewise found the evidence insufficient to prove that the Bank has an existing company
policy of granting retirement benefits to its aging employees. Finally, citing the case of Villaruel v. Yeo
Han Guan (Villaruel),[20] it pronounced that separation pay on the ground of disease under Article 297 of
the Labor Code should not be given to Padillo because he was the one who initiated the severance of his
employment and that even before September 10, 2007, he already stopped working due to his poor and
failing health. [21]

Nonetheless, Padillo was still awarded the amount of P50,000.00 as financial assistance, in addition to the
benefits accruing under the Philam Life Plan, considering his twenty-nine (29) years of service with no
derogatory record and that he was severed not by reason of any infraction on his part but because of his
failing physical condition.[22]

Displeased with the CA's ruling, Padillo (now substituted by his legal heirs due to his death on February
24, 2012) filed the instant petition contending that the CA erred when it: (a) deviated from the factual
findings of the NLRC; (b) misapplied the case of Villaruel vis-à-vis the factual antecedents of this case;
(c) drastically reduced the computation of financial assistance awarded by the NLRC; (d) failed to rule on
the consequences of respondents' bad faith; and (e) reversed and set aside the NLRC's December 29, 2009
Resolution.[23]

The Ruling of the Court

The petition is partly meritorious.

At the outset, it must be maintained that the Labor Code provision on termination on the ground of disease
under Article 297[24] does not apply in this case, considering that it was the petitioner and not the Bank
who severed the employment relations. As borne from the records, the clear import of Padillo's September
10, 2007 letter[25] and the fact that he stopped working before the foregoing date and never reported for
work even thereafter show that it was Padillo who voluntarily retired and that he was not terminated by
the Bank.

As held in Villaruel,[26] a precedent which the CA correctly applied, Article 297 of the Labor Code
contemplates a situation where the employer, and not the employee, initiates the termination of
employment on the ground of the latter's disease or sickness, viz:
A plain reading of the [Article 297 of the Labor Code] clearly presupposes that it is the employer who
terminates the services of the employee found to be suffering from any disease and whose continued
employment is prohibited by law or is prejudicial to his health as well as to the health of his co-
employees. It does not contemplate a situation where it is the employee who severs his or her
employment ties. This is precisely the reason why Section 8, Rule 1, Book VI of the Omnibus Rules
Implementing the Labor Code, directs that an employer shall not terminate the services of the employee
unless there is a certification by a competent public health authority that the disease is of such nature or
at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment.
(Emphasis, underscoring and words in brackets supplied)

Thus, given the inapplicability of Article 297 of the Labor Code to the case at bar, it necessarily follows
that petitioners' claim for separation pay anchored on such provision must be denied.

Further, it is noteworthy to point out that the NLRC's application of Abaquin[27] was gravely misplaced
considering its dissimilar factual milieu with the present case.

To elucidate, a careful reading of Abaquin shows that the Court merely awarded termination pay on the
ground of disease in favor of security guard[28] Antonio Jose because he belonged to a "special class of
employees x x x deprived of the right to ventilate demands collectively."[29] Thus, notwithstanding the fact
that it was Antonio Jose who voluntarily resigned because of his sickness and it was not the security
agency which terminated his employment, the Court held that Jose "deserve[d] the full measure of the
law's benevolence" and still granted him separation pay because of his situation, particularly, the fact that
he could not have organized with other employees belonging to the same class for the purpose of
bargaining with their employer for greater benefits on account of the prohibition under the old law.

In this case, it cannot be said that Padillo belonged to the same class of employees prohibited to self-
organize which, at present, consist of: (1) managerial employees;[30] and (2) confidential employees who
assist persons who formulate, determine, and effectuate management policies in the field of labor
relations.[31] Therefore, absent this equitable peculiarity, termination pay on the ground of disease under
Article 297 of the Labor Code and the Court's ruling in Abaquin should not be applied.

What remains applicable, however, is the Labor Code provision on retirement. In particular, Article 300
of the Labor Code as amended by Republic Act Nos. 7641[32] and 8558[33] partly provides:

Art. 300. Retirement. Any employee may be retired upon reaching the retirement age established in the
collective bargaining agreement or other applicable employment contract.

In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have
earned under existing laws and any collective bargaining agreement and other agreements: Provided,
however, That an employee's retirement benefits under any collective bargaining and other agreements
shall not be less than those provided herein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in
the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five
(5) years in the said establishment, may retire and shall be entitled to retirement payequivalent to at
least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being
considered as one whole year.

Unless the parties provide for broader inclusions, the term one half (1/2) month salary shall mean fifteen
(15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5)
days of service incentive leaves. (Emphasis and underscoring supplied)

Simply stated, in the absence of any applicable agreement, an employee must (1) retire when he is at least
sixty (60) years of age and (2) serve at least (5) years in the company to entitle him/her to a retirement
benefit of at least one-half (1/2) month salary for every year of service, with a fraction of at least six (6)
months being considered as one whole year. Notably, these age and tenure requirements are cumulative
and non-compliance with one negates the employee's entitlement to the retirement benefits under Article
300 of the Labor Code altogether.

In this case, it is undisputed that there exists no retirement plan, collective bargaining agreement or any
other equivalent contract between the parties which set out the terms and condition for the retirement of
employees, with the sole exception of the Philam Life Plan which premiums had already been paid by the
Bank.

Neither was it proven that there exists an established company policy of giving early retirement packages
to the Bank's aging employees. In the case of Metropolitan Bank and Trust Company v. National Labor
Relations Commission, it has been pronounced that to be considered a company practice, the giving of the
benefits should have been done over a long period of time, and must be shown to have been consistent
and deliberate.[34] In this relation, petitioners' bare allegation of the solitary case of Lusan cannot assuming
such fact to be true sufficiently establish that the Bank's grant of an early retirement package to her (Lusan)
evolved into an established company practice precisely because of the palpable lack of the element of
consistency. As such, petitioners' reliance on the Lusan incident cannot bolster their claim.

All told, in the absence of any applicable contract or any evolved company policy, Padillo should have
met the age and tenure requirements set forth under Article 300 of the Labor Code to be entitled to the
retirement benefits provided therein. Unfortunately, while Padillo was able to comply with the five (5)
year tenure requirement as he served for twenty-nine (29) years he, however, fell short with respect to the
sixty (60) year age requirement given that he was only fifty-five (55) years old when he retired. Therefore,
without prejudice to the proceeds due under the Philam Life Plan, petitioners' claim for retirement benefits
must be denied.

Nevertheless, the Court concurs with the CA that financial assistance should be awarded but at an
increased amount. With a veritable understanding that the award of financial assistance is usually the final
refuge of the laborer, considering as well the supervening length of time which had sadly overtaken the
point of Padillo's death an employee who had devoted twenty-nine (29) years of dedicated service to the
Bank the Court, in light of the dictates of social justice, holds that the CA's financial assistance award
should be increased from P50,000.00 to P75,000.00, still exclusive of the P100,000.00 benefit receivable
by the petitioners under the Philam Life Plan which remains undisputed.

Finally, the Court finds no bad faith in any of respondents' actuations as they were within their right,
absent any proof of its abuse, to ignore Padillo's misplaced claim for retirement benefits. Respondents'
obstinate refusal to accede to Padillo's request is precisely justified by the fact that there lies no basis under
any applicable agreement or law which accords the latter the right to demand any retirement benefits from
the Bank. While the Court mindfully notes that damages may be recoverable due to an abuse of right under
Article 21[35] in conjunction with Article 19 of the Civil Code of the Philippines,[36]the following elements
must, however, obtain: (1) there is a legal right or duty; (2) exercised in bad faith; and (3) for the sole
intent of prejudicing or injuring another.[37] Records reveal that none of these elements exists in the case
at bar and thus, no damages on account of abuse of right may be recovered.

Neither can the grant of an early retirement package to Lusan show that Padillo was unfairly discriminated
upon. Records show that the same was merely an isolated incident and petitioners have failed to show that
any bad faith or motive attended such disparate treatment between Lusan and Padillo. Irrefragably also,
there is no showing that other Bank employees were accorded the same benefits as that of Lusan which
thereby dilutes the soundness of petitioners' imputation of discrimination and bad faith. Verily, it is
axiomatic that bad faith can never be presumed it must be proved by clear and convincing
evidence.[38] This petitioners were unable to prove in the case at bar.

WHEREFORE, the petition is PARTLY GRANTED. Accordingly, the assailed Court of Appeals'
Decision dated June 28, 2011 Decision and October 27, 2011 Resolution in CA-G.R. SP No. 03669-MIN
are hereby MODIFIED, increasing the award of financial assistance of P50,000.00 to P75,000.00,
exclusive of the P100,000.00 benefit under the Philam Life Plan.

SO ORDERED.
Case No. 17

G.R. No. 146762 January 30, 2007

CULVER B. SUICO, TERESA D. CENIZA and RONALD R. DACUT, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT)/ AUGUSTO G. COTELO, Respondents.
x-------------------x
G.R. No. 153584 January 30, 2007
BENIGNO MARIANO, JR., Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT), Respondents.
x-------------------x
G.R. No. 163793 January 30, 2007
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT), Petitioner,
vs.
ERNESTO BORJE, Respondent.
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 Opposition7 thereto. In an Order8 dated September 29, 1997, DOLE
Secretary Leonardo A. Quisumbing9denied MKP’s 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 company’s 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 to complainants.11
Complainants did not file any explanation. Tanchico sent them two other sets of notices dated October 14,
199712and 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 Decision20 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.24In 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 employer’s 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 company’s 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 notice27 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 company’s 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 Complaint30 for illegal dismissal and damages with the LA but the latter dismissed it in a
Decision31dated December 15, 1998. Mariano appealed to the NLRC but to no avail as the latter, in its
December 27, 1999 Resolution,32 affirmed the December 15, 1998 LA Decision. In its Resolution33 of
March 3, 2000, the NLRC denied Mariano’s Motion for Reconsideration.
Mariano filed a Petition for Certiorari34 with the CA which rendered the following Decision35 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 Resolution37 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 PLDT’s 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 company’s 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 PLDT’s
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 Complaint43 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 complainant’s appeal,
DISMISSED for lack of merit.
SO ORDERED. 45
Borje’s Motion for Reconsideration was denied by the NLRC in its January 7, 2002 Resolution.46
However, upon Petition for Certiorari47 filed by Borje, the CA rendered on April 12, 2002 a
Decision48 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 Resolution50 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 ARBITER’S DECISION UPHOLDING THE
VALIDITY OF RESPONDENT’S 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, 19465SCRA 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 Mendozafavors 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 and Systems 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 MODIFICATION to 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.