EUROTECH HAIR SYSTEMS INC.

vs Go Case Digest
[G.R. No. 160913 August 31, 2006]

EUROTECH HAIR SYSTEMS, INC., LUTZ KUNACK, and JOSE BARIN, vs. ANTONIO S.
GO,Respondent.

FACTS

Petitioner Eurotech Hair Systems, Inc. is a domestic corporation engaged in the manufacture and
export of wigs and toupees. Petitioners Lutz Kunack and Jose E. Barin are the company’s president
and general manager, respectively.Respondent Antonio S. Go served as Eurotech’s operations
manager from September 2, 1996 until he was dismissed on September 27, 1999. As operations
manager, he drafted and implemented the plans for the production of wigs and toupees.
Respondent’s responsibilities included manpower planning to meet the monthly production targets.In
1999, the company suffered production shortfalls. Thus, on September 2, 1999, petitioner Barin
issued respondent a memorandum, strongly advising him to improve his performance. He was also
admonished because of the late shipment of 80 units of hairpieces to one of petitioners’ clients,
Bergmann Company. On September 7, 1999, Eurotech issued another memorandum reiterating the
previous reminder for respondent to improve his performance. Again, on September 21, 1999,
Eurotech issued two memoranda, reminding respondent of his continued failure to improve his
performance. He was given 24 hours to explain in writing why the company should not terminate his
services on the ground of loss of trust and confidence. On September 24, 1999, Eurotech issued yet
another memorandum reminding respondent of his failure to submit his written explanation and
granting him another 24 hours to submit such explanation. The second 24-hour period lapsed
without respondent’s explanation. On September 27, 1999, petitioner Kunack finally issued
respondent a termination letter citing loss of trust and confidence.

Respondent filed against a complaint petitioners. The Labor Arbiter ruled for respondent. The NLRC
reversed the Labor Arbiter and dismissed the complaint. The CA set aside the decision of the NLRC
and essentially reinstated the ruling of the Labor Arbiter.

Respondent received said Decision of the Court of Appeals on July 21, 2003. Prior to such receipt,
he had executed a quitclaim in consideration of P450,000. Hence, on July 16, 2003, the Labor
Arbiter issued an Order dismissing with prejudice the complaint for illegal dismissal in view of the
said waiver.

ISSUE/S

1. Was the respondent's dismissal in accordance with the law?

2. Is the compromise agreement entered into by the parties valid?

HELD

1. No. In the instant case, petitioners failed to prove that respondent was terminated for a valid
cause. Evidence adduced was utterly wanting as to respondent’s alleged inefficiency constituting a
willful breach of the trust and confidence reposed in him by petitioners.

Loss of trust and confidence to be a valid ground for an employee’s dismissal must be based on a
willful breach and founded on clearly established facts. A breach is willful if it is done intentionally,
knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently. While failure to observe prescribed standards of work, or
to fulfill reasonable work assignments due to inefficiency may be a just cause for dismissal, the
employer must show what standards of work or reasonable work assignments were prescribed
which the employee failed to observe. In addition, the employer must prove that the employee’s
failure to observe any such standards or assignments was due to his own inefficiency.

In this case, petitioners showed that respondent failed to meet production targets despite reminders
to measure up to the goals set by the company. However, they were unable to prove that such
failure was due to respondent’s inefficiency. Significant factors that might explain the company’s
poor production include existing market conditions at the time, the overall spending behavior of
consumers, and the prevailing state of the country’s economy as a whole. The company’s production
shortfalls cannot be attributed to respondent alone, absent any showing that he willfully breached the
trust and confidence reposed in him by the petitioners.

2. Yes, the compromise agreement entered into by the parties is valid.

Article 227 of the Labor Code provides:

ART. 227. Compromise agreements. – Any compromise settlement, including those involving labor
standard laws, voluntarily agreed upon by the parties with the assistance of the Bureau or the
regional office of the Department of Labor, shall be final and binding upon the parties. …

Note, however, that even if contracted without the assistance of labor officials, compromise
agreements between workers and their employers remain valid and are still considered desirable
means of settling disputes.

A compromise agreement is valid as long as the consideration is reasonable and the employee
signed the waiver voluntarily, with a full understanding of what he was entering into. All that is
required for the compromise to be deemed voluntarily entered into is personal and specific individual
consent. Thus, contrary to respondent’s contention, the employee’s counsel need not be present at
the time of the signing of the compromise agreement.

In this case, we find the consideration of P450,000 fair and reasonable under the circumstances. In
addition, records show that respondent gave his personal and specific individual consent with a full
understanding of the stakes involved. In our view, the compromise agreement in this case does not
suffer from the badges of invalidity.

The fact that the Order, which dismissed the case in view of the compromise agreement, was issued
during the pendency of the petition for certiorari in the Court of Appeals does not divest the Labor
Arbiter of jurisdiction. A petition for certiorari is an original action and does not interrupt the course of
the principal case unless a temporary restraining order or a writ of preliminary injunction has been
issued against the public respondent from further proceeding. The Labor Arbiter thus acted well
within his jurisdiction. Therefore, the Labor Arbiter’s Order dismissing the case with prejudice in view
of the compromise agreement entered into by the parties must be upheld.