YNARES-SANTIAGO, J.:
On June 15, 1998, PAL retrenched 5,000 of its employees, including more than 1,400
of its cabin crew personnel to cut costs and mitigate huge financial losses as a result of
a downturn in the airline industry brought about by the Asian financial crisis.
PAL determined the cabin crew personnel efficiency ratings through an evaluation of
the individual cabin crew members overall performance for the year 1997 alone
On June 22, 1998, FASAP filed a Complaint1[24] against PAL for unfair labor
practice, illegal retrenchment with claims for reinstatement and payment of salaries,
allowances and backwages of affected FASAP members, actual, moral and exemplary
damages with a prayer to enjoin the retrenchment program then being implemented
On July 15, 1998, however, PAL carried out the retrenchment of its more than 1,400
cabin crew personnel.
On September 23, 1998, PAL ceased its operations and sent notices of termination to
its employees.
Instead of a position paper, respondents filed a Motion to Dismiss
1[24] Docketed as FASAP v. Philippine Airlines & Chiong, NLRC-NCR Case No. 06-05100-98;
rollo, p. 87.
LA
Denied respondents motion to dismiss;
Granted a writ of preliminary injunction against PALs implementation of its
retrenchment program with respect to FASAP members;
set aside the respective notices of retrenchment addressed to the cabin crew;
directed respondents to restore the said retrenched cabin crew to their positions and
PALs payroll until final determination of the case;
NLRC
On July 21, 2000, Labor Arbiter Jovencio Ll. Mayor rendered a Decision, 3[33] the
dispositive portion of which reads, as follows:
WHEREFORE, premises considered, this Office renders judgment declaring that
Philippine Airlines, Inc., illegally retrenched One Thousand Four Hundred (1,400) cabin
attendants including flight pursers for effecting the retrenchment program in a despotic and
whimsical manner. Philippine Airlines, Inc. is likewise hereby ordered to:
1.Reinstate the cabin attendants retrenched and/or demoted to their previous positions;
2.
Pay the concerned cabin attendants their full backwages from the time they
were illegally dismissed/retrenched up to their actual reinstatements;
3.
Pay moral and exemplary damages in the amount of Five Hundred Thousand
Pesos (P500,000.00); and
4.
Ten (10%) per cent of the total monetary award as and by way of attorneys
fees.
SO ORDERED.4[34]
Meanwhile, FASAP moved for the implementation of the reinstatement aspect of the
Meanwhile, on May 31, 2004, the NLRC issued its Decision 5[35] in the appeal with
respect to the Labor Arbiters July 21, 2000 decision. The dispositive portion thereof reads:
WHEREFORE, premises considered, the Decision dated July 21, 2000 is hereby SET
ASIDE and a new one entered DISMISSING the consolidated cases for lack of merit.
With respect to complainant Ms. Begonia Blanco, her demotion is hereby declared
illegal and respondent PAL is ordered to pay her salary differential covering the period from
the time she was downgraded in July 1998 up to the time she resigned in October 1999.
Respondent PAL is likewise ordered to pay the separation benefits to those
complainants who have not received their separation pay and to pay the balance to those who
have received partial separation pay.
The Order of the Labor Arbiter dated April 6, 2000 is also SET ASIDE and the Writ of
Execution dated November 13, 2000 is hereby quashed.
Annexes A and B are considered part of this Decision.
SO ORDERED.6[36]
FASAP moved for reconsideration but it was denied; hence it filed an appeal to the
Court of Appeals which was denied in the herein assailed Decision.
FASAPs motion for reconsideration was likewise denied; hence, the instant petition
raising the following issues:
These issues boil down to the question of whether PALs retrenchment scheme was
justified.
It is a settled rule that in the exercise of the Supreme Courts power of review, the
Court is not a trier of facts and does not normally undertake the re-examination of the
evidence presented by the contending parties during trial. However, there are several
exceptions to this rule8[38] such as when the factual findings of the Labor Arbiter differ from
those of the NLRC, as in the instant case, which opens the door to a review by this Court. 9
[39]
7[37] Id. at 29-30.
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,
o 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.
The law recognizes the right of every business entity to reduce its work force if the
same is made necessary by compelling economic factors which would endanger its existence
or stability.10[40] Where appropriate and where conditions are in accord with law and
jurisprudence, the Court has authorized valid reductions in the work force to forestall
business losses, the hemorrhaging of capital, or even to recognize an obvious reduction in
the volume of business which has rendered certain employees redundant.11[41]
8[38] Mamsar Enterprises Agro-Industrial Corporation v. Varley Trading, Inc., G.R. No. 142729,
November 29, 2005, 476 SCRA 378, 382; The Insular Life Assurance Company, Ltd. v. Court of
Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 85-86.
9[39] Perez v. Medical City General Hospital, G.R. No. 150198, March 6, 2006, 484 SCRA 138,
142.
10[40] Uichico v. National Labor Relations Commission, G.R. No. 121434, June 2, 1997, 273
SCRA 35, 41.
11[41] Id.
substantial,
serious,
actual and real,
or if only expected, are reasonably
imminent as perceived objectively and
in good faith by the employer.
Sliding incomes or decreasing gross revenues are not necessarily losses, much less
serious business losses within the meaning of the law.
The fact that an employer may have sustained a net loss, such loss, per se, absent any
other evidence on its impact on the business, nor on expected losses that would have been
incurred had operations been continued, may not amount to serious business losses
mentioned in the law.
The employer must show that its losses increased through a period of time and that the
condition of the company will not likely improve in the near future,16[49] or that it expected
no abatement of its losses in the coming years.17[50] Put simply, not every loss incurred or
expected to be incurred by a company will justify retrenchment.18[51]
The employer must also exhaust all other means to avoid further losses without
losses is belied.22[55]
Alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proved by sufficient and convincing evidence. The reason for requiring
this is readily apparent: any less exacting standard of proof would render too easy the abuse
of this ground for termination of services of employees; scheming employers might be
merely feigning business losses or reverses in order to ease out employees.23[56]
In establishing a unilateral claim of actual or potential losses, financial statements
audited by independent external auditors constitute the normal method of proof of profit and
loss performance of a company.24[57]
The condition of business losses justifying retrenchment is normally shown by audited
financial documents like yearly balance sheets and profit and loss statements as well as
annual income tax returns.
Financial statements must be prepared and signed by independent auditors; otherwise,
they may be assailed as self-serving.25[58] A Statement of Profit and Loss submitted to
prove alleged losses, without the accompanying signature of a certified public accountant or
audited by an independent auditor, is nothing but a self-serving document which ought to be
treated as a mere scrap of paper devoid of any probative value.26[59]
The audited financial statements should be presented before the Labor Arbiter who is
in the position to evaluate evidence.
The requirement of evidentiary substantiation dictates that not even the affidavit of the
Assistant to the General Manager is admissible to prove losses, as the same is self-serving. 27
[62]
the mere citation by the employer of the economic setback suffered by the sugar
22[55] EMCO Plywood Corporation v. Abelgas, G.R.No. 148532, April 14, 2004, 427 SCRA 496,
511.
23[56] Id.; Guerrero v. National Labor Relations Commission, 329 Phil. 1069 (1996); Lopez
Sugar Corporation v. Federation of Free Workers, supra note 48 at 186-187.
24[57] TPI Philippines Cement Corporation v. Cajucom VII, G.R. No. 149138, February 28,
2006, 483 SCRA 494, 503.
25[58] Danzas Intercontinental, Inc. v. Daguman, supra note 45 at 393.
26[59] Uichico v. National Labor Relations Commission, supra note 40 at 45.
27[62] Polymart Paper Industries, Inc. v. National Labor Relations Commission, supra note 42
at 602.
10
industry as a whole cannot, in the absence of adequate, credible and persuasive evidence,
justify its retrenchment program,28[64] thus:
In Anino v. National Labor Relations Commission,29[66] the Court also held that the
employers claim that retrenchment was undertaken as a measure of self-preservation to
prevent losses brought about by the continuing decline of nickel prices and export volume in
the mining industry, as well as its allegation that the reduction of excise taxes on mining
from 5% to 1% on a graduated basis as provided under Republic Act No. 7729 was a clear
recognition by the government of the industrys worsening economic difficulties was a
bare claim in the absence of evidence of actual losses in its business operations.30[67]
In the instant case, PAL failed to substantiate its claim of actual and imminent
substantial losses which would justify the retrenchment of more than 1,400 of its cabin crew
personnel. Although the Philippine economy was gravely affected by the Asian financial
crisis, however, it cannot be assumed that it has likewise brought PAL to the brink of
bankruptcy. Likewise, the fact that PAL underwent corporate rehabilitation does not
automatically justify the retrenchment of its cabin crew personnel.
To prove that PAL was financially distressed, it could have submitted its audited
financial statements but it failed to present the same with the Labor Arbiter. Instead, it
narrated a litany of woes without offering any evidence to show that they translated into
specific and substantial losses that would necessitate retrenchment, thus:
The Labor Arbiters finding that PAL amply satisfied the rules imposed by law and
jurisprudence that sustain retrenchment, is without basis, absent the presentation of
documentary evidence to that effect.
PALs assertion that its finances were gravely compromised as a result of the 1997
Asian financial crisis and the pilots strike lacks basis due to the non-presentation of its
audited financial statements to prove actual or imminent losses. Law and jurisprudence
require that alleged losses or expected imminent losses must be proved by sufficient and
convincing evidence.
11
it was grave error for the Labor Arbiter, the NLRC and the Court of Appeals, to have
simply assumed that PAL was in grievous financial state, without requiring the latter to
substantiate such claim. It bears stressing that in retrenchment cases, the presentation of
proof of financial difficulties through the required documents, preferably audited financial
statements prepared by independent auditors, may not summarily be done away with.
The foregoing principle holds true with respect to PALs claim in its Comment that
the only issue is the manner by which its retrenchment scheme was carried out because the
validity of the scheme has been settled in its favor.31[83] Respondents might have confused
the right to retrench with its actual retrenchment program, treating them as one and the
same. The first, no doubt, is a valid prerogative of management; it is a right that exists for all
employers. As to the second, it is always subject to scrutiny in regard to faithful compliance
with substantive and procedural requirements which the law and jurisprudence have laid
down.
The right of an employer to dismiss an employee differs from and should not be
confused with the manner in which such right is exercised.32[84]
When PAL implemented Plan 22, instead of Plan 14, which was what it had originally
31[83] Rollo, pp. 1403-1404.
32[84] Remerco Garments Manufacturing v. Minister of Labor and Employment, G.R. Nos. L56176-77, February 28, 1985, 135 SCRA 167, 176.
33[85] AHS/Philippines Employees Union (FFW) v. National Labor Relations Commission, G.R.
No. L-73721, March 30, 1987, 149 SCRA 5, 14; Remerco Garments Manufacturing v. Minister
of Labor and Employment, supra note 84.
12
made known to its employees, it could not be said that it acted in a manner compatible with
good faith. It offered no satisfactory explanation why it abandoned Plan 14; instead, it
justified its actions of subsequently recalling to duty retrenched employees by making it
appear that it was a show of good faith; that it was due to its good corporate nature that the
decision to consider recalling employees was made. The truth, however, is that it was unfair
for PAL to have made such a move; it was capricious and arbitrary, considering that several
thousand employees who had long been working for PAL had lost their jobs, only to be
recalled but assigned to lower positions (i.e., demoted), and, worse, some as new hires,
without due regard for their long years of service with the airline.
In sum, we find that PAL had implemented its retrenchment program in an arbitrary
manner and with evident bad faith, which prejudiced the tenurial rights of the cabin crew
personnel.
In selecting employees to be dismissed, fair and reasonable criteria must be used, such
as but not limited to:
(a) less preferred status (e.g., temporary employee),
(b) efficiency and
(c) seniority.34[90]
34[90] Fernandez, P.V., The Law of Employee Dismissal, pp. 130-131, 1976 Ed.; Asiaworld
Publishing House, Inc. v. Ople, G.R. No. L-56398, July 23, 1987, 152 SCRA 219, 225; Asufrin, Jr.
v. San Miguel Corporation, G.R. No. 156658, March 10, 2004, 425 SCRA 270, 275.
13
the Court held that the implementation of a retrenchment scheme without taking
seniority into account rendered the retrenchment invalid
In the implementation of its retrenchment scheme, PAL evaluated the cabin crew
personnels performance during the year preceding the retrenchment (1997), based on the
following set of criteria or rating variables found in the Performance Evaluation Form of the
cabin crew personnels Grooming and Appearance Handbook:
A.INFLIGHT PROFICIENCY EVALUATION 30%
B.
ATTENDANCE 35%
Perfect Attendance +2
Missed Assignment -30
Sick Leaves in excess of allotment and other leaves in excess of allotment
-20
Tardiness -10 35[93]
PAL was not obligated to consult FASAP regarding the standards it would use in
evaluating the performance of the each cabin crew.
This Court has repeatedly enjoined employers to adopt and observe fair and
reasonable standards to effect retrenchment. This is of paramount importance because an
employers retrenchment program could be easily justified considering the subjective nature
of this requirement. The adoption and implementation of unfair and unreasonable criteria
could not easily be detected especially in the retrenchment of large numbers of employees,
and in this aspect, abuse is a very distinct and real possibility. This is where labor tribunals
should exercise more diligence; this aspect is where they should concentrate when placed in
a position of having to judge an employers retrenchment program.
In sum, PALs retrenchment program is illegal because it was based on wrongful
premise (Plan 14, which in reality turned out to be Plan 22, resulting in retrenchment of more
cabin attendants than was necessary) and in a set of criteria or rating variables that is unfair
and unreasonable when implemented. It failed to take into account each cabin attendants
respective service record, thereby disregarding seniority and loyalty in the evaluation of
overall employee performance.
With respect to moral damages, we have time and again held that as a general rule, a
corporation cannot suffer nor be entitled to moral damages. A corporation, being an artificial
person and having existence only in legal contemplation, has no feelings, no emotions, no
35[93] Rollo, p. 924.
14
senses; therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from real ills,
sorrows, and griefs of life all of which cannot be suffered by an artificial, juridical person.36
[98] The Labor Arbiters award of moral damages was therefore improper.
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:
3.
36[98] LBC Express, Inc. v. Court of Appeals, G.R. No. 108670, September 21, 1994, 236 SCRA
602, 607.