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DOCTRINE OF STRAINED RELATIONS

The law on reinstatement is provided for under Article 279 of the Labor Code of the Philippines:

Article 279. Security of Tenure. - In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the time of his actual
reinstatement. (emphasis supplied)

Under the law and prevailing jurisprudence, an illegally dismissed employee is entitled to reinstatement
as a matter of right. However, if reinstatement would only exacerbate the tension and strained relations
between the parties, or where the relationship between the employer and the employee has been unduly
strained by reason of their irreconcilable differences, particularly where the illegally dismissed employee
held a managerial or key position in the company, it would be more prudent to order payment of
separation pay instead of reinstatement.

Under the doctrine of strained relations, the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such
payment liberates the employee from what could be a highly oppressive work environment. On the other
hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a
worker it could no longer trust.

In such cases, it should be proved that the employee concerned occupies a position where he enjoys the
trust and confidence of his employer; and that it is likely that if reinstated, an atmosphere of antipathy
and antagonism may be generated as to adversely affect the efficiency and productivity of the employee
concerned.

Here, we agree with the CA that the relations between the parties had been already strained thereby
justifying the grant of separation pay in lieu of reinstatement in favor of the respondent.

First, it cannot be gainsaid that the petitioners reinstatement to his former position would only serve to
intensify the atmosphere of antipathy and antagonism between the parties. Undoubtedly, the petitioners
filing of various criminal complaints against the respondent for qualified theft and the subsequent filing by
the latter of the complaint for illegal dismissal against the latter, taken together with the pendency of the
instant case for more than six years, had caused strained relations between the parties.

Second, considering that the respondents former position as bank encoder involves the handling of
accounts of the depositors of the Bank of Lubao, it would not be equitable on the part of the petitioner to
be ordered to maintain the former in its employ since it may only inspire vindictiveness on the part of the
respondent.

Third, the refusal of the respondent to be re-admitted to work is in itself indicative of the existence of
strained relations between him and the petitioner. In the case ofLagniton, Sr. v. National Labor Relations
Commission, the Court held that the refusal of the dismissed employee to be re-admitted is constitutive
of strained relations:

It appears that relations between the petitioner and the complainants have been so strained that the
complainants are no longer willing to be reinstated. As such reinstatement would only exacerbate the
animosities that have developed between the parties, the public respondents were correct in ordering
instead the grant of separation pay to the dismissed employees in the interest of industrial peace.

Time and again, this Court has recognized that strained relations between the employer and employee is
an exception to the rule requiring actual reinstatement for illegally dismissed employees for the practical
reason that the already existing antagonism will only fester and deteriorate, and will only worsen with
possible adverse effects on the parties, if we shall compel reinstatement; thus, the use of a viable
substitute that protects the interests of both parties while ensuring that the law is respected.



STRAINED RELATIONS (INQUIRER ARTICLE)

As a matter of course, illegally dismissed employees are entitled to both reinstatement and full back-
wages. However if reinstatement is no longer possible due to strained relations, the illegally dismissed
employees are given separation pay instead of being reinstated. Is this doctrine of "strained relations"
applicable to all situations in the employer-employee relationship? This is one of the issues in this case
of Betty and Nita. Also resolved in their case is whether the wearing of arm bands and putting up
placards in support of a strike that has been declared illegal are considered illegal acts.


Betty and Nita were employees of a hospital down south (MCCH). Betty had been a nurse since May
1984 until she was promoted as Head nurse, while Nita was a nursing aide since April 1974. Both were
members of a labor union of the hospital employees (NAMA).


When the CBA with MCCH was up for renegotiation, the mother federation of NAMA (NFL) opposed the
move of NAMA for the renewal of the CBA. Hence MCCH defer negotiations until there was
determination as to which of said unions had the right to negotiate.


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Believing that their union was the certified CBA agent, NAMA officers and members staged a series of
mass actions inside the hospital premises. For union identity and per instructions of union officials, Betty
and Nita wore armbands while nursing patients. They also put up placards of protest without anything
scurrilous, indecent or libelous in them.


Subsequently NAMA was found by DOLE to be an unregistered union. Its notice of strike was
disregarded by the mediation board for lack of legal personality. Since MCCH received reports of Betty
and Nita’s participation, in the mass action, notices were sent to them to desist from participating
in the mass action. They were also notified of an investigation to be conducted on their alleged
participation. Apparently Betty and Nita did not receive said notices. But they were nevertheless
terminated from the service. This prompted other union members to stage more mass actions by
blocking the ingress to and egress from the hospital and harassing patients. Betty and Nita did not
participate in this mass action. Instead they filed with the Labor Arbiter a complaint for illegal dismissal.


The labor arbiter however found their dismissal to be valid and legal. On appeal, the NLRC reversed the
ruling of the Arbiter and ordered the reinstatement of Betty and Nita. Unconvinced of the correctness of
the NLRC decision, MCCH appealed to the Court of Appeals (CA) via certiorari under Rule 65 of the
Rules of Court. MCCH contended that Betty and Nita’s dismissal was valid. Besides according to
them Betty and Nita could no longer be reinstated due to strained relations. The CA agreed with MCCH
and reversed the NLRC decision. The CA held that Nita and Betty were validly terminated for gross
insubordination or willful disobedience for allegedly participating in the illegal strike by wearing arm
bands and putting up placards. Was the CA correct?


No. Mere participation in an illegal strike is a ground for dismissal only of union officers. But for ordinary
union members like Betty and Nita, there must be proof that they knowingly participated in the
commission of illegal acts during the strike. The wearing of armbands and putting up of placards without
scurrilous, indecent or libelous contents cannot be construed as illegal acts. They are within the mantle
of constitutional protection under freedom of speech. The illegal acts were committed by other
unidentified union members during the protracted mass actions after Betty and Nita were already
terminated not during the time they wore the armbands and put up the placards. They cannot be
responsible for the acts they did not commit.


Betty and Nita could not also be guilty of willful disobedience to lawful orders. To be guilty, (1) their
conduct must be characterized by a wrongful and perverse attitude; and (2) the order violated must have
been reasonable, lawful, made known to them and must pertain to the duties which they had been
engaged to discharge. In this case, their act of wearing armbands and putting placards cannot be
characterized as a perverse mental attitude but only an expression of one’s views without violating
the rights of third parties, which is legal per se. They should thus be reinstated with back wages.


The existence of strained relations between them and the hospital could not prevent their reinstatement.
The doctrine of "strained relations" is inapplicable to a situation where the employee has no say in the
operation of the employer’s business. Betty and Nita are mere nurse and nursing aide and thus
have no prerogative in the operation of the hospital business. This doctrine should be strictly construed.
Every labor dispute always results in "strained relations" so the phrase should not be given an
overarching interpretation; otherwise, an unjustly dismissed employee can never be reinstated. ( Bascon
and Cole vs. Court of Appeals et al. G.R. 144899, February 5, 2004)




AHS/PHILIPPINE EMPLOYEES UNION VS. NLRC
G.R. NO. 73721 MARHCH 30, 1987
FERNAN, J.

FACTS

1. Petitioner AHS/Philippines Employees Union [FFW] was the recognized collective bargaining
agent of the rank-and-file employees of private respondent AHS/Philippines Inc., a company
engaged in the sale of hospital and laboratory equipment and Berna and Pharmaton
products.


2. A collective bargaining agreement [CBA] was concluded between the parties for the period
commencing December 1, 1981 to November 30, 1984.


3. Private respondent company claim that as early as October 1983, its operations had been
seriously affected by the suspension of trade and foreign credit facilities, which situation grew
worse in early 1984 when its suppliers of Berna and Pharmaton products insisted on a cash LIC
basis or M guarantee by the mother company.


4. As respondent company could not comply with these requirements, it decided to strengthen
its other division, the HML Division, which sold hospital and laboratory equipment bought from the
parent company.



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5. It posted a job-opening notice for 7 to 10 medical representatives and one field supervisor for
the HML Division. Amelita. Calderon, a member of petitioner union applied for the position of
medical representative, but was rejected for lack of the necessary educational attainment and
unwillingness to accept provincial assignments.

1. When the economic crisis continued until mid-year of 1984, respondent company decided to
change its marketing strategy for the Berna and Pharmaton products to ensure the whole
company's viability. Instead of ethical selling through the field representatives, it was decided
to shift to the over-the counter [OTC] method and to appoint Zuellig Pharma as national
distributor.


2. As this move would result in the abolition of the Pharmaceutical Division, the union president
was advised on July 26, 1984 of the impending dissolution of said division and was asked to
suggest ways and means by which the termination could be effected in the smoothest
manner possible and with least pain.


3. On August 1, 1984, the union president categorically stated to the company president that the
union would oppose any termination at all costs, respondent company decided to proceed
with the announcement of the termination by serving notice on the same day to the 31
employees of the Pharmaceutical Division, said termination to take effect immediately upon
service thereof.


9. In lieu of the 3O day notice required by law, the employees were paid one month's salary.
Fifteen accepted their termination.

ISSUE
Whether or not private respondent company validly terminated its employees.

HELD


NO. Under the New Labor Code, even if the dismissal is based on a just cause under Article 284, the one-
month written notice to both the affected employee and the Minister of Labor is required, on top of the
separation pay. Hence, unlike in the old termination pay laws, payment of a month's salary cannot be
considered substantial compliance with the provisions of Art. 284 of the Labor Code. Since the dismissal of
the 31 employees of the Pharmaceutical Division of respondent company was effected in violation of the
above-cited provision, the same is illegal.

Needless to say, in the absence of a showing that the illegal dismissal was dictated by anti-union motives,
the same does not constitute an unfair labor practice as would be a valid ground for a strike. The remedy is
an action for reinstatement with backwages and damages. Nevertheless, we take this actuation of
respondent company as evidence of the abusive and Oppressive manner by which the retrenchment was
effected. And while the lack of proper notice could not be a ground for a strike, this does not mean that the
strike
staged by petitioner union was illegal because it was likewise grounded on a violation by respondent company
of the CBA, enumerated as an unfair labor Practice under Art. 249 [i] of the Labor Code.



MARANAW HOTELS AND RESORTS CORPORATION (CENTURY PARK SHERATON MANILA) Vs.
COURT OF APPEALS, HON. SANTIAGO O. TAADA (

303 SCRA 540 Labor Law Labor Standards Working Conditions and Rest Periods Illegal
Dismissal
Eddie Damalerio was a roomboy for Maranaw Hotels. One day, he was cleaning theroom of one of the
guests when he saw the private stuff of the guest scattered all over the floor. So he took it upon him to
pick those up and put in the guests bag but then when he was doing so the guest (Jamie Glaser)
entered the room and saw Damalerios hand inside Glasers bag. Glaser filed a complaint against
Damalerio. After investigation by the hotel, Damalerio was dismissed.

ISSUE: Whether or not Damalerio was illegally dismissed.

HELD: Yes. Although it was not completely proper for Damalerio to be touching the things of a hotel
guest while cleaning the hotel rooms, personal belongings of hotel guests being off-limits to roomboys,
under the attendant facts and circumstances, the dismissal of Damalerio was unwarranted. To be sure,
the investigation held by the hotel security people did not unearth enough evidence of culpability. It bears
repeating that Glaser lost nothing. Although Maranaw Hotels may have reasons to doubt the honesty
and trustworthiness of Damalerio, as a result of what happened, absent sufficient proof of guilt,
Damalerio, who is a rank-and-file employee, cannot be legally dismissed.

As for the service charges received by Maranaw Hotels during the period where he was not able to work
hes entitled to the shares therefrom. But if he chooses not to be reinstated by reason of the estranged
relations with the hotel, hes entitled to separation pay but without the shares from the service charges
anymore.







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BUSTAMANTE V. NATIONAL LABOR RELATIONS COMMISSION 265 SCRA 61
PADILLA, J.:

FACTS


1. Private respondent Evergreen Farms, Inc. is engaged in the business of producing high-
grade bananas in its plantation in Davao del Norte. Petitioners were employed as laborers, harvesters,
and sprayers in respondent company's plantation.

2. Petitioners signed contracts of employment for a period of six (6) months from 2 January
1990 to 2 July 1990, but they had started working sometime in September 1989. Previously, they were
hired to do the same work for periods lasting a month or more, from 1985 to 1989


3. Before the contracts of employment expired, petitioners' employments were terminated on 25
June 1990 on the ground of poor performance on account of age, as not one of them was allegedly
below forty (40) years old.


4. Petitioners filed a complaint for illegal dismissal before the Regional Arbitration Branch of the
NLRC in Davao City.


5. Respondent company contends that the petitioners employments were terminated due to the
expiration of their probationary period in June 1990.


6. The Labor Arbiter rendered judgment in favor of petitioners, declaring their dismissal illegal
and ordering respondent Evergreen Farms, Inc. to immediately reinstate complainants to their former
position with six (6) months backwages. However, if reinstatement is no longer feasible an additional one
(1) month salary shall be awarded as a form of separation pay.


7. The NLRC dismissed the appeal and the subsequent motion for reconsideration of private
respondent company for lack of merit. It found that petitioners had become regular employees after
serving for more than one (1) year of broken or non-continuous service as probationary employees.
However, it deleted the award of backwages on the ground that the termination of petitioners' services
"was the result of the private respondents mistaken interpretation of the law and that the same was
therefore not necessarily attended by bad faith, or arbitrariness.


8. Petitioners filed the instant petition assailing the NLRCs resolution that removed the award of
backwages in their favor.

ISSUE Whether or not petitioners are entitled to full backwages

HELD


YES. It is undisputed that petitioners were illegally dismissed from employment. Article 280 of the Labor
Code states:

Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the employment has been fired for a
specific project or undertaking the completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, that,
any employee who has rendered at least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which he is employed and his
employment shall continue while such activity exists.

This provision draws a line between regular and casual employment, a distinction however often abused by
employers. It enumerates two (2) kinds of employees, the regular employees and the casual employees.
The regular employees consist of the following:



1. Those engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer; and


2. Those who have rendered at least one year of service whether such service is continuous or
broken.

The law distinguishes between the two (2) kinds of employees to protect the interests of labor, particularly
the tenurial interest of the worker who may be denied the rights and benefits due a regular employee by
virtue of lopsided agreements with the economically powerful employer who can maneuver to keep an
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employee on a casual status for as long as convenient.

In the case at bar, petitioners were employed at various periods from 1985 to 1989 for the same kind of work
they were hired to perform in September 1989. Both the Labor Arbiter and the NLRC agree that petitioners
were employees engaged to perform activities necessary in the usual business of the employer. As laborers,
harvesters or sprayers in an agricultural establishment which produces high grade bananas, petitioners' tasks
are indispensable to the year-round operations of respondent company. This belies the theory of respondent
company that the employment of petitioners was terminated due to the expiration of their probationary period
in June 1990. If at all significant, the contract for probationary employment was utilized by respondent
company as a chicanery to deny petitioners their status as regular employees and to evade paying them the
benefits attached to such status.

Some of the petitioners were hired as far back as 1985, although the hiring was not continuous. They were
hired and re-hired in a span of from two to four years to do the same type of work which conclusively shows
the necessity of petitioners' service to the respondent company's business. Petitioners have, therefore,
become regular employees after performing activities which are necessary in the usual business of their
employer. But, even assuming that the activities of petitioners in respondent company's plantation were not
necessary or desirable to its business, the Court affirms the NLRC's finding that all of the petitioners have
rendered non-continuous or broken service for more than one (1) year and are consequently considered
regular employees.

The Court does not sustain NLRCs theory that private respondent should not be made to compensate
petitioners for backwages because its termination of their employment was not made in bad faith. The act of
hiring and re-hiring the petitioners over a period of time without considering them as regular employees
evidences bad faith on the part of private respondent. The subsequent rehiring of petitioners on a probationary
status "clearly appears to be a convenient subterfuge on the part of management to prevent petitioners from
becoming regular employees.

In the case at bar, there is no valid cause for dismissal. The petitioners have not performed any act to
warrant termination of their employment. Consequently, petitioners are entitled to their full backwages and
other benefits from the time their compensation was withheld from them up to the time of their actual
reinstatement.

Private respondent moved to reconsider the Courts (First Division) aforesaid decision on grounds that: (a)
Petitioners are not entitled to recover backwages because they were not actually dismissed but their
employment was not converted to permanent employment; and

(b) assuming that petitioners are entitled to backwages, computation thereof should not start from cessation of
work up to actual reinstatement and that salary earned elsewhere (during the period of illegal dismissal)
should be deducted from the award of such backwages.

The Court En Banc declared that there is no compelling reason to reconsider the decision of the Court (First
Division). However, the Court En Banc clarified the computation of backwages due an employee on account of
his illegal dismissal from employment The Court declared: The Court deems it appropriate to reconsider the
earlier ruling on the computation of backwages as enunciated in the Pines City Educational Center case, by
now holding that conformably with the evident legislative intent as expressed in R.A. No. 6715, backwages to
be awarded to an illegally dismissed employee, should not, as a general rule, be diminished or reduced by the
earnings derived by him elsewhere during the period of his illegal dismissal.


The underlying reason for this ruling is that the employee, while litigating the legality (illegality) of his
dismissal, must still earn a living to support himself and family, while full backwages have to be paid by the
employer as part of the price or penalty he has to pay for illegally dismissing his employee. The clear
legislative intent of the amendment in R.A.

6715 is to give more benefits to workers than was previously given them under the Mercury Drug rule or the
deduction of earnings elsewhere rule.


A closer adherence to R.A. No. 6715 points to full backwages as meaning that i.e,. without deducting from
backwages the earnings derived elsewhere by the concerned employee during the period of his illegal
dismissal. In other words, the provision calling for full backwages to illegally dismissed employees is clear,
plain, and free from ambiguity and therefore, must be applied without attempted or strained interpretation.


RELIEFS OF ILLEGALLY DISMISSED EMPLOYEES

In general, an illegally dismissed employee is entitled to one or more of the following reliefs:
1. Reinstatement;
2. Payment of Backwages;
3. Separation Pay;
4. Payment of Damages; and
5. Award of Attorneys Fees.
Right to Reinstatement.
An employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority
rights and other privileges. (Article 279, Labor Code.)
Reinstatement Meaning.
Reinstatement is a relief granted to an illegally dismissed employee which restores him to the position
from which he was removed, that is, to his status quo ante dismissal. Reinstatement should be without
loss of seniority rights and other privileges.
Remedy when Reinstatement is no Longer Possible.
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As a necessary consequence of the finding of illegal dismissal, the illegally dismissed employee
becomes entitled to reinstatement as a matter or right. The employer must reinstate him to the position
he was holding prior to his dismissal. Ideally, this should be the case.
However, in some instances, although the dismissal of the employee is determined to be illegal,
reinstatement may no longer possible for a number of reasons. In such case, separation pay in lieu of
reinstatement may be awarded.
Following are some of the instances where payment of separation pay is allowed in lieu of reinstatement:
1. When the relationship between the employer and the employee had become strained as to preclude a
harmonious working relationship;
2. When reinstatement becomes a legal impossibility;
3. When the employee no longer wish to be reinstated;
4. When prudence and fair play so dictates; and
5. When reinstatement is not practicable due to loss of confidence.
Doctrine of Strained Relations Concept.
Under the doctrine of strained relations, the payment of separation pay has been considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On the one
hand, such payment liberates the employee from what could be a highly oppressive work environment.
On the other, the payment releases the employer from the grossly unpalatable obligation of maintaining
in its employ a worker it could no longer trust. (Coca-Cola Bottlers Phils. vs. De Leon, G.R. No. 156893,
June 21, 2005.)
Nevertheless, the principle of strained relations should not be used so indiscriminately as to bar the
reinstatement of illegally dismissed workers, especially when they themselves have not indicated any
aversion to returning to work, as in this case. It is only normal to expect a certain degree of antipathy and
hostility to arise from a litigation between parties, but not in every instance does such an atmosphere of
antagonism exist as to adversely affect the efficiency and productivity of the employee concerned. (Ibid.)
The doctrine of strained relations may be invoked only against employees whose positions demand trust
and confidence, or whose differences with their employer are of such nature or degree as to preclude
reinstatement.
In Maranaw Hotels vs. NLRC, G.R. No. 123880, February 23, 1999, the Court refused to apply the
doctrine of strained relations on the ground that the position of a room boy is not such a sensitive
position that demands complete trust and confidence.
Right to Backwages.
An employee who is unjustly dismissed from work shall be entitled to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
Backwages Meaning.
Backwages is the restitution of earnings unduly withheld from the employee because of illegal
termination. It partakes the nature of a penalty the employer has to pay for illegally dismissing an
employee.
Computation of Backwages.
Inclusive period. Full backwages is to be computed from the time compensation was withheld from the
employee up to the time of his actual reinstatement.
Base figure. The based figure to be used in the computation shall include not just the basic salary, but
also regular allowances and other benefits or their monetary equivalent, i.e., transportation, emergency
living allowance, 13th-month pay, etc.
Wage rate. The computation of backwages may be based either on the current wage rate or the wage
rate at the time of the dismissal. If current wage rate is awarded, it must be expressly stated in the
decision. If not expressly stated (award is unqualified), the wage rate at the time of the dismissal should
be used. (Paramount Vinyl vs. NLRC, G.R. No. 81200, October 17, 1990.)
Methods of Computing Backwages.

Deduction of earnings elsewhere rule. Under this rule, the award of backwages to an employee could
be reduced by subtracting the wages actually earned by him from employment during the period of his
separation, or the wages which he could have earned had he been diligent enough to find a job. The
employer would be allowed to adduce evidence on these matters. This rule was abandoned in Mercury
drug case primarily because the deduction of evidence was found to only delay execution process.
Mercury Drug rule. To remedy the delay brought about by the first rule, and to speed up execution
process, the Supreme Court in Mercury Drug case, 1974, adopted the policy of granting to employee
backwages for a maximum period of three years without qualification and deduction.
Method used under RA 6715. With the passage of RA 6715, both the rules above were abandoned. The
rule now is that the employees are entitled to full backwages without deduction or qualification.
Illegal Dismissal without Backwages.
As a general rule, an employee who is dismissed due to the unlawful act of the employer or to the latters
bad faith is entitled to backwages as a matter of right, backwages being a direct and necessary
consequence of finding of illegal dismissal.
However, there are instances where despite illegal dismissal, the illegally dismissed employee is not
entitled to backwages. This happens in cases where good faith is evident on the part of the employer in
dismissing the employee, i.e., there is just cause to dismiss employee, but the dismissal is found by the
court to be too harsh a penalty.
Effect of Failure to Claim Backwages.
The award of backwages resulting from illegal dismissal of employee is a substantive right. Thus, it has
been held that the employee does not forfeit his right to claim backwages even if he failed to claim for
the same in his complaint.
Separation Pay.
As stated above, separation pay is the relief awarded to employee when reinstatement is no longer
feasible or practicable, or when reinstatement is no longer desirable or will not serve the best interest of
the parties.
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IMPERIAL TEXTILE MILLS, INC vs. NLRC


HELD:
Petitioner asseverates that since private respondent is already employed elsewhere, respondent
commission erred in awarding separation pay and three years backwages. We disagree.
In the case of Torillo vs. Leogardo, Jr., etc., et. al.,
25
we held:
Backwages and reinstatement are two reliefs given to an illegally dismissed
employee. They are separate and distinct from each other. However, in the event
that reinstatement is no longer possible, separation pay is awarded to the
employee. Thus, the award of separation pay is in lieu of reinstatement and not of
backwages. In other words, an illegally dismissed employee is entitled to (1) either
reinstatement, if viable, or separation pay if reinstatement is no longer viable and
(2) backwages.
The payment of backwages is one of the reliefs which an illegally dismissed employee prays the labor
arbiter and the National Labor Relations Commission to render in his favor as a consequence of the
unlawful act committed by the employer. The award thereof is not private compensation or damages but
is in furtherance and effectuation of the public objectives of the Labor Code. Even though the practical
effect is the enrichment of the individual, the award of backwages is not in redress of a private right, but,
rather, is in the nature of a command upon the employer to make public reparation for his violation of the
Labor Code,
26
such as the dismissal of an employee due to the unlawful act of the employer or the
latter's bad faith.
27
Hence, we have ruled that where the ground of loss of confidence has neither been
established nor sufficient basis thereof presented, the finding that respondent employee was illegally
dismissed was well taken and said employee, although not reinstated, was awarded three years
backwages.


LYDIA SANTOS VS. NLRC
SEPTEMBER 21, 1987
HELD:
The normal consequences of a finding that an employee has been illegally dismissed are, firstly, that the
employee becomes entitled to reinstatement to his former position without loss of seniority rights and,
secondly, the payment of backwages corresponding to the period from his legal dismissal up to actual
reinstatement.
2

The statutory intent on this matter is clearly discernible. Reinstatement restores the employee who was
unjustly dismissed to the position from which he was removed, that is, to his status quo ante dismissal,
while the grant of backwages allows the same employee to recover from the employer that which he had
lost by way of wages as a result of his dismissal.
3
These twin remedies reinstatement and payment
of backwages make the dismissed employee whole who can then look forward to continued
employment. Thus do these two remedies give meaning and substance to the constitutional right of labor
to security of tenure.
4
The two forms of relief are distinct and separate, one from the other.

Though the grant of reinstatement commonly carries with it an award of backwages, the
inappropriateness or non-availability of one does not carry with it the inappropriateness or non-
availability of the other. Separation pay was awarded in favor of petitioner Lydia Santos because the
NLRC found that her reinstatement was no longer feasible or appropriate. As the term suggests,
separation pay is the amount that an employee receives at the time of his severance from the service
and, as correctly noted by the Solicitor General in his Comment, is designed to provide the employee
with "the wherewithal during the period that he is looking for another employment."
5


In the instant case, the grant of separation pay was a substitute for immediate and continued re-
employment with the private respondent Bank. The grant of separation pay did not redress the injury that
is intended to be relieved by the second remedy of backwages, that is, the loss of earnings that would
have accrued to the dismissed employee during the period between dismissal and reinstatement.

Put a little differently, payment of backwages is a form of relief that restores the income that was lost by
reason of unlawful dismissal; separation pay, in contrast, is oriented towards the immediate future, the
transitional period the dismissed employee must undergo before locating a replacement job. It was
grievous error amounting to grave abuse of discretion on the part of the NLRC to have considered an
award of separation pay as equivalent to the aggregate relief constituted by reinstatement plus payment
of backwages under Article 280 of the Labor Code.


The grant of separation pay was a proper substitute only for reinstatement; it could not be an adequate
substitute both for reinstatement and for backwages. In effect, the NLRC in its assailed decision failed to
give to petitioner the full relief to which she was entitled under the statute.


DOMICIANO SOCO vs. MERCANTILE CORPORATION OF DAVAO
G.R. Nos. L-53364-65 March 16, 1987


Nature: Merco Driver in Davao , President of MELO (Union of MERCO) , na dismissed sa trabaho kay he
deviates his work from other things like talking to other employees na mag join ug other union.

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Lastly, petitioner asserts that in affirming his dismissal, the Deputy Minister of Labor violated the
constitutional provision of the security of tenure of employees and that assuming that he indeed violated
the company rule, the fact remains that the damage caused by him, if any, to the company, is only very
minimal which should not warrant the imposition of a penalty of dismissal. Petitioner submits that he has
been employed in the company for eighteen (18) years. Petitioner avers that the damage inflicted on
MERCO by his activities due to his misuse of the company vehicle during working hours did not hamper
the smooth business operations of MERCO.
However, what should not be overlooked is the prerogative of an employer company to prescribe
reasonable rules and regulations necessary or proper for the conduct of its business and to provide
certain disciplinary measures in order to implement said rules and to assure that the same would be
complied with. A rule prohibiting employees from using company vehicles for private purpose without
authority from management is, from our viewpoint, a reasonable one. This regulation cannot be faulted
by petitioner because this is proper and necessary even if only for an orderly conduct of MERCO's
business.
From the evidence presented, petitioner twice used the company vehicle in pursuing his own personal
interests, on company time and deviating from his authorized route, all without permission. To cap off his
infractions, petitioners stubbornly declined even to satisfy MERCO's request for an explanation or to
attend a grievance conference to discuss violations. Certainly, to condone petitioner's own conduct will
erode the discipline that an employer should uniformly apply so that it can expect compliance to the
same rules and regulations by its other employees. Otherwise, the rules necessary and proper for the
operation of its business, would be gradually rendered ineffectual, ignored, and eventually become
meaningless.

Abandonment; elements. Respondents filed an illegal dismissal case against the petitioner-corporation.
For its defense, petitioner-corporation alleged that the respondents abandoned their work and were not
dismissed, and that it sent letters advising respondents to report for work, but they refused.

The Court held that for abandonment to exist, it is essential

(a) that the employee must have failed to report for work or must have been absent without valid or
justifiable reason; and

(b) that there must have been a clear intention to sever the employer-employee relationship manifested
by some overt acts.

The employer has the burden of proof to show the employees deliberate and unjustified refusal to
resume his employment without any intention of returning. Mere absence is not sufficient. There must be
an unequivocal intent on the part of the employee to discontinue his employment. Based on the evidence
presented, the reason why respondents failed to report for work was because petitioner-corporation
barred them from entering its construction sites. It is a settled rule that failure to report for work after a
notice to return to work has been served does not necessarily constitute abandonment.

The intent to discontinue the employment must be shown by clear proof that it was deliberate and
unjustified. Petitioner-corporation failed to show overt acts committed by respondents from which it may
be deduced that they had no more intention to work. Respondents filing of the case for illegal dismissal
barely four (4) days from their alleged abandonment is totally inconsistent with the known concept of
what constitutes abandonment. E.G. & I. Construction Corporation and Edsel Galeos v. Ananias P. Sato,
et al., G.R. No. 182070, February 16, 2011.


LOSS OF CONFIDENCE arising from fraud or willful breach of trust by employee of the trust reposed in
him by his employer or his duly authorized representative is a just cause for termination of employment
under Article 282 of the Labor Code of the Philippines.
Fraud Meaning.
Fraud is any act, omission, or concealment which involves a breach of legal duty, trust, or confidence
justly reposed and is injurious to another.
Breach of Trust Meaning.
Breach of trust refers to the violation by the employee of the trust and confidence reposed in him by his
employer or duly authorized representative.
Elements of Loss of Confidence.
To determine whether the termination of employment based on loss of confidence is justified, the
following elements are generally considered:
1. Whether the fraud or breach of trust is in connection to the employees work; and
2. Whether the employee concerned is holding a position of trust and confidence.
Fraud or Breach must be in Connection to Employees Work.
To constitute just cause, fraud or breach of trust must be committed in connection with the employees
work or related to the performance of the employees functions.
Employee must Hold Position of Trust and Confidence.
The basic premise for dismissal on the ground of loss of confidence is that the employee concerned
holds a position of trust and confidence. It is the breach of this trust that results in the employers loss of
confidence in the employee. (See Natl Sugar Refineries Corp. vs. NLRC, G.R. No. 122277 February 24,
1998.)
Thus, loss of confidence ideally applies only to cases involving employee occupying positions of trust
and confidence, e.g., managerial employees, and those situations where the employee is routinely
charged with the care and custody of the employers money or property, e.g., cashiers, auditors, property
custodian, etc.
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Title not Conclusive Indicator of Trust and Confidence.
However, the title or appellation of the employees position is not a conclusive indicator as to whether or
not an employee holds a position of trust and confidence. The determination should hinge on the
authority actually possessed by employee.
Breach of Trust must be Willful.
Ordinary breach will not suffice. It must be willful and without justifiable excuse, there must be basis
therefor, and it must be supported by substantial evidence and not merely by the whims or caprice of the
employer. (See Falguera vs. Linsangan, G.R. No. 114848 December 14, 1995.)


HERMENEGILDO L. SANTOS vs. NLRC
G.R. No. 76991 October 28, 1988

Dismissal from employment on the ground of abandonment is legal and valid if it is shown that there is a
clear and deliberate intent on the part of the employee to discontinue his employment without any
intention of returning back to work.
5
The employee's deliberate unjustified refusal to continue his
employment must be clearly evidenced by overt acts unerringly pointing to the fact that the employee
simply does not want to work anymore.



G.R. No. L-55249-50 October 19, 1982
PHILIPPINE GEOTHERMAL, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and VICENTE ERNESTO, respondents.

AQUINO, J.:
This is a review of the decision of Commissioners Diego P. Atienza and Geronimo Q. Quadra of the
National Labor Relations Commission, ordering the reinstatement of Vicente Emesto as warehouseman
of Philippine Geothermal, Inc. with backwages equivalent to one year, six months and twenty-six days
computed at the hourly rate at the tune of his dismissal.
From that decision, Commissioner Cleto T. Villatuya dissented. He opined that Ernesto's participation in
the theft of the company's property was proven by substantial evidence and, therefore, the dismissal was
justified.
At about four o'clock in the afternoon of August 15, 1978 a Petrophil tanker driven by Juan Reyes with
Marcos Geralde as helper arrived at the company's project site located at Barrio Bitin, Bay, Laguna to
deliver ten thousand liters of Petron diesel oil which were purchased by the company from Petrophil for
P11,737.
Warehouseman Vicente Ernesto acknowledged the receipt of the shipment by signing the corresponding
delivery invoice. The oil was supposed to be unloaded at Wen No. 26 in the project site at Sitio Bulalo.
However, the tanker, instead of proceeding to Bulalo, went out of the gate, still loaded. It was
accompanied by Ernesto who informed the security guard, Roberto Solis, that there was a misdelivery
because what was brought by the tanker was diesel oil instead of gasoline. That misrepresentation was
entered by Solis in his logbook (pp. 4-5, 41, Rollo).
Thus, the oil was not delivered at the drilling area although according to the delivery invoice signed by
Emesto it was received by the company. The oil was diverted and sold to another person.
Reyes in his extrajudicial confession revealed that the oil was sold for P9,000 in Caloocan City and that
he gave Emesto P4,500 and Geralde P1,000 as their shares in the proceeds of the sale (p. 5, Rollo).
Reyes said that Ernesto connived (nakipagsabuatan) with him in the diversion and sale of the oil.
The fiscal charged Ernesto, Reyes and Geralde with qualified theft in the Court of First Instance of
Laguna. However, after a reinvestigation, wherein Reyes and Solis did not testify, the fiscal exonerated
Ernesto and filed a motion for the dismissal of the case against him. The court granted the motion.
The company's appeal from the fiscal's finding, which was based on the technicality that Reyes'
confession was not admissible against Emesto, was dismissed by the Minister of Justice in his resolution
dated January 14, 1981.
Nevertheless, despite that exoneration, Philippine Geothermal, Inc. dismissed Emesto and on August
31, 1978 filed with the Ministry of Labor an application for clearance to dismiss him for his involvement in
the theft of the oil.
About seven months later, or on March 28, 1979, Ernesto filed a complaint against the company for
reinstatement with backwages. The two cases were tried jointly in the NLRC's San Pablo City branch.
The Labor Arbiter ordered the reinstatement of Ernesto with backwages. The NLRC affirmed that
decision with some modification.
We hold that the Labor Arbiter and the NLRC committed a grave abuse of discretion amounting to lack of
jurisdiction in disregarding the testimonies of Solis, the security guard, and Reyes, the driver, in these
two cases, proving that Ernesto was implicated in the theft of the diesel oil. Ernesto did not rebut those
testimonies.
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Hence, the fiscal's exoneration of Ernesto does not justify his reinstatement. Petitioner's evidence shows
that Ernesto committed a fraud or breach of trust which is a statutory ground for his dismissal (Art.
283[c]), Labor Code).
"The conviction of an employee in a criminal case is not indispensable to warrant his dismissal by his
employer." If there is sufficient evidence to show that the employee has been guilty of a breach of trust,
or that his employer has ample reason to distrust him, the labor tribunal "cannot justly deny to the
employer the authority to dismiss such an employee." The fact that a criminal complaint for theft against
an employee was dropped by the fiscal is not binding and conclusive on the labor tribunal (National
Labor Union, Inc. vs. Standard Vacuum Oil Company, 73 Phil. 279).<re||an1w>
In the National Labor Union case, supra, the foreman and the checker of the lubricating oil department of
an oil company, who were involved in the shortage of the oil stock in the company warehouse, were
dismissed although the fiscal had dismissed the charge of theft filed against them. See similar holding in
National Organization of Laborers and Employees vs. Roldan, 95 Phil. 727, 733 and Phil. Education Co.,
Inc. vs. Union of Phil. Education Employees and CIR, 107 Phil. 1003.
WHEREFORE, the decision of the National Labor Relations Commission is reversed and set aside and
the dismissal of Vicente Emesto as petitioner's warehouseman is hereby decreed. No costs.
SO ORDERED.

SAN MIGUEL CORPORATION VS. NLRC

G.R. No. 70177 June 25, 1986

this Court upheld the dismissal of an employee on the ground of loss of trust and confidence, for having
been caught stealing several cases of beer and committing irregularities in his collections, it being "well
established in our jurisprudence . . . (that) an employer . . . (may) dismiss an employee whose
continuance in the service is inimical to the employer's interest. . . . ."
3


PHIL. REFINING CO., INC. V. GARCIA, 18 SCRA 107 (1966)

DISMISSAL OF EMPLOYEES HIRED WITHOUT DEFINITE PERIOD; RIGHT TO TERMINATION PAY.
Republic Act 1052, as amended by Republic Act 1787, impliedly recognizes the right of the employer
to dismiss his employees (hired without definite period), whether for just cause, as therein defined or
enumerated, or without it. If there be just cause, the employer is not required to serve any notice of
discharge nor to disburse termination pay to the employee. If the dismissal be without just cause, the
employer must serve timely notice to the employee. It is only when the employer fails to serve such
notice that he becomes obliged to give termination pay. Except where other applicable statutes provide
differently, it is not the cause for the dismissal but the employers failure to serve notice upon the
employee that renders the employer answerable for terminal pay.


MARIO Z. REYES v. RONALDO B. ZAMORA, ET AL.
Is petitioner's dismissal on the ground of loss of confidence justified?
Loss of confidence is a valid ground for dismissing an employee, and proof beyond reasonable doubt of
the employee's misconduct - apparently demanded by the Minister of Labor - is not required to dismiss
him on this charge. It is sufficient if there is "some basis" for such loss of confidence; or if the employer
has reasonable grounds to believe, if not to entertain the moral conviction that the employee concerned
is responsible for the misconduct and that the nature of his participation therein rendered him absolutely
unworthy of the trust and confidence demanded by his position.

In the case at bar, it is an admitted fact that petitioner is a managerial employee, one in whom
respondent Company has given its complete trust and confidence. 35 He was, at the time of the
anomaly, per his own claim, "concurrent Acting Manager of Leo Pharmaceutical (a division of
respondent Company) and Credit and Collection Manager 36 The Company, therefore, was justified in
expecting that his actuations should be above suspicion. Because of petitioner's involvement in the raffle
anomaly, i.e., having withheld from the winner Miss Tagulao, P4,000 of the P24,000 prize money, which
withholding he was not able to explain convincingly much less disprove, 'it is not in the words of the
decision of the Office of the President, "wise to tolerate the latter (petitioner) to remain in his position . . .
because the breach of trust has already been committed.

LADISLAO P. VERGARA vs. NLRC
G.R. No. 117196. December 5, 1997

Is an employee, who was acquitted from a criminal charge of qualified theft due to the prosecutions
failure to prove his guilt beyond reasonable doubt, entitled to automatic reinstatement and backwages
considering that his dismissal was based on the same act that gave rise to the criminal complaint? Does
the failure to post an appeal bond render a decision of the labor arbiter final and executory even where
such decision did not include a computation of the monetary award?
HELD:
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Second Issue: Acquittal Does Not Ipso Facto Mean Reinstatement
Petitioner assails public respondents finding that petitioner has been found guilty of violating
company rules and regulations, more particularly, involving acts of dishonesty. He insists that his
dismissal violated the basic principle and essence of due process.
[15]
Private respondents
memorandum on the theft charge against him and the request for his explanation was sent only on
January 14, 1988, more than two (2) months after the commission of the alleged theft, but he points out
that he was no longer permitted to report for work right after the date of the theft.
[16]

Petitioners contentions are not tenable.
Article 282 (c) of the Labor Code provides that an employment may be terminated because of
[f]raud or willful breach by the employee of the trust reposed in him by his employer or his duly
authorized representative. Loss of trust and confidence as a just cause for dismissing an employee
does not require proof beyond reasonable doubt.
[17]
An employer needs only to establish sufficient basis
for the dismissal of the employee.
[18]

The Court finds adequate basis for private respondents loss of trust and confidence in
petitioner. It is admitted that petitioners bag contained only his jacket when it was left at private
respondents storage area. When petitioner was about to leave the company premises, the guards
found that his bag contained pieces of stripping leather, which had a cumulative total size of 47.25
square feet and weighed more than a blanket and, hence, much heavier than his jacket. He would have
immediately noticed the difference in weight between his jacket and the pieces of leather found in his
bag. Thus, petitioners claimed ignorance of the presence of stripping leather inside his bag is at best
dubious. Under the circumstances, we apply against petitioner the disputable presumption [t]hat a
person found in possession of a thing taken in a recent wrongful act is the taker and the doer of the
whole act.
[19]
Besides, the evidence supporting the criminal charge, found after preliminary investigation
as sufficient to show prima facie guilt, constitutes just cause for his termination based on loss of trust and
confidence. To constitute just cause, petitioners malfeasance did not require criminal
conviction.
[20]
Verily, petitioner was dismissed not because he was convicted of theft, but because his
dishonest acts were substantially proven.
An employees acquittal in a criminal case does not automatically preclude a determination that he
has been guilty of acts inimical to the employers interest resulting in loss of trust and
confidence. Corollarily, the ground for the dismissal of an employee does not require proof beyond
reasonable doubt; as noted earlier, the quantum of proof required is merely substantial
evidence.
[21]
More importantly, the trial court acquitted petitioner not because he did not commit the
offense, but merely because of the failure of the prosecution to prove his guilt beyond reasonable
doubt. In other words, while the evidence presented against petitioner did not satisfy the quantum of
proof required for conviction in a criminal case, it substantially proved his culpability which warranted his
dismissal from employment.
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.
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA)-MANILA vs. NLRC
G.R. No. 114143. August 28, 1996


The next question to be resolved is whether private respondents were legally dismissed from their
employment.
Respondents Cunanan and Ramos had been employed for seven (7) years as carpenter and
plumber, respectively, of petitioner. They had already attained the status of regular and permanent
employees having performed during that long period activities necessary and desirable in the usual
business of petitioner. As regular employees, they have the right to security of tenure, i.e., to be
removed from employment only for just and authorized causes. The reason stated by GAYREN for the
dismissal of Cunanan and Ramos was the absence of a project where the services of the latter would be
needed. This is not one of the just or authorized causes for termination of employment provided under
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Art. 282 of the Labor Code, as amended. Hence, the dismissal of private respondents could not have
been legal and the finding of illegal dismissal warrants not only reinstatement of the dismissed
employees but also payment to them of three-years backwages conformably to the fundamental policy of
the State to give primordial and paramount consideration to the welfare of the workingman in carrying
out and interpreting the provisions of the Labor Code.

CONSTRUCTION & DEVELOPMENT CORPORATION OF THE PHILIPPINES vs.
HON. VICENTE LEOGARDO, JR.,
G.R. No. L-64207-08 November 25, 1983
The issue for resolution is whether or not, under the environmental circumstances, the 175 employees
whose services were terminated by petitioner are entitled to separation pay. Petitioner upholds the
negative view on the ground that the facts of the case do not show that there was a retrenchment in
operations but a total closure of the operations of the cement plant, for which reason, separation pay is
not a requirement. The Solicitor General supports petitioner's position contrary to that of the Minister of
Labor.
We sustain the challenged Order of MOLE.
In the case of Wenceslao vs. Zaragoza, Inc.
3
applying the Termination Pay Law,
4
it was held "What the
law considers as a just cause for terminating an employment without a definite period is the closing or
cessation of operation of the establishment or enterprise of the employer and not merely the closing or
cessation of operation of any particular division or department of the employer's business." In that case,
separation pay was given because there was no closing or cessation of the entire business. but only the
closing of a particular division of the employer's business.
It is true that in the later case of Phil. American Embroideries, Inc. vs. Embroidery & Garment Workers
Union,
5
it was held that "the closure of its department where the members of respondent union were
employed was not an act of discrimination or a means of dismissal but rather the result of continued
losses in operations a ground that is entirely justified by law." We cannot look to that case for the
necessary precedent, however, because the controversy therein revolved only around the question of
whether or not the employer was guilty of unfair labor practice and did not touch on the question of
separation pay, besides the fact that it was decided before the enactment of the present Labor Code
which now distinguishes between closure of an establishment and retrenchment.
At bar, what is involved is the closure of a particular division or department under the CDCP umbrella of
organizations due to the termination of a lease contract brought about by serious business reverses.
This constitutes retrenchment by, and not closure of, the enterprise or the company itself as CDCP has
not totally ceased operations but is still an on-going concern. Section 2, Article XI of the Collective
Bargaining Agreement clearly provides that in case of retrenchment initiated by the employer to prevent
losses, employees are entitled to termination pay. t.hqw
Section 2. Where the termination of employment is due to retrenchment initiated
by the employer to prevent losses or other similar causes, or where the employee
suffers from a disease and his continued employment is prohibited by law or is
prejudicial to his health or to the health of his co- employees, the employee shall
be entitled to termination pay equivalent at least to his one month or to one-half
month pay for every year of service, whichever is higher, a fraction of at least six
(6) months being considered as one whole year.
Article 284 of the Labor Code, as amended by BP Blg. 130, likewise provides for separation pay in cases
of retrenchment to prevent losses. t.hqw
Art. 284. 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 or 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 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.
The financial setbacks reportedly suffered by CDCP have to be considered in the light of its agreements
and the applicable law and jurisprudence and balanced with the interests of labor that stand to suffer
more because of their meager resources and limited wherewithal to cushion themselves against the
deleterious effects of unemployment.
ARIOLA vs. PHILEX MINING
G.R. No. 147756. August 9, 2005

Petitioners Retrenchment was Illegal
Article 283 of the Labor Code governs retrenchment to prevent losses, to wit:
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13

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 to 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 supplied)
Thus, the requirements for retrenchment are:
(1) it is undertaken to prevent losses, which 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;
[27]


(2) the employer serves written notice both to the employees and the DOLE at least one month prior to
the intended date of retrenchment; and

(3) 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.


The Court later added the requirements that the employer must use fair and reasonable criteria in
ascertaining who would be dismissed and who would be retained among the employees
[28]
and that the
retrenchment must be undertaken in good faith.
[29]
Except for the written notice to the affected
employees and the DOLE,
[30]
non-compliance with any of these requirements renders the retrenchment
illegal.



G.R. No. L-41615 June 29, 1985
CENTRAL AZUCARERA DEL DANAO VS CA

The issue that arises then is, whether or not a change of ownership or management of an establishment
or corporation by virtue of the sale or disposition of all or substantially all of properties and assets
operates to insulate the selling corporation (Central Danao) from its obligation to its employees ilder the
Termination Pay Law.
10

Under the Termination Pay Lawthen enforced prior to the activity of the New labor Code on
November 1, 1974an employee may be terminated with or without lust cause. If 'here is just cause, the
employer is not requires to serve any notice nor pay termination pay to employees concerned. If the
termination -is without just cause, the employer must serve rliyriely notice to the employee, otherwise the
employer is obto pay termination pay, except where other applicable statutes provide a different remedy
as in unfair labor practice.
11
The purpose of the Termination Pay Law, as a regulatory measure,
12
is to
give the employer the opportunity o find replacement or substitute; and other place of employment or
source of livelihood in the case of an employee.
13
The law should be interpreted with the aim in view of
advancing the beneficient purpose thereof to give protection to the laborers so dismissed and their
families.
14

There can be no controversy for it is a principle well-recognized, that it is within the employer's legitimate
sphere f management control of the business to adopt economic policies or make some changes or
adjustments in their organization or operations that would insure profit to itself or protect the investment
of its stockholders. As in the exercise of such management prerogative, the employer may merge or
consolidate its business with another, or sell or dispose all or substantially all of its assets and properties
which may bring about the dismissal or termination of its employees in the process. Such dismissal or
termination should not however be interpreted in such a manner as to 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.
15

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