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The employer has the burden of proving that the dismissal of its employees is with
a valid and authorized cause. For there to be a valid retrenchment, the employer
must exercise its management prerogative "in good faith for the advancement of its
interest and not to defeat or circumvent the employees' right to security of tenure.
FACTS: On September 1, 2000, PAL severed the employment of Isagani Dawal
(Dawal), Lorna Concepcion (Concepcion), and Bonifacio Sinobago (Sinobago). Dawal
served as Chief Storekeeper, Concepcion as Master Avionics Mechanic A, and
Sinobago as Aircraft Master "A" Mechanic. Until their dismissal from work, they were
regular rank-and-file employees of PAL and "bona fide members" of the Philippine
Airlines Employees' Association (PALEA).
When PAL was privatized in 1993, the new owners acquired PAL's alleged aging fleet
and overly manned workforce. PAL sought to expand its business through a fiveyear re-fleeting program. It began implementing the re-fleeting program in July
1993. In 1997, the Asian Financial Crisis devalued the peso against the dollar. PAL
claims that this strained its financial resources. It counts its losses to P750 million in
December 1997 alone.
PAL implemented a massive retrenchment program on June 15, 1998. PAL President
and Chief Operating Officer Avelino L. Zapanta allegedly wrote to PALEA, informing
the latter of the "new management's plan to sell" the Maintenance and Engineering
On June 15, 1999, PAL allegedly met with PALEA, during which PAL President and
Chief Operating Officer Avelino L. Zapanta promised that "all employees [would] be
taken cared [sic] of." He also agreed to ensure that there would be no economic
dislocation and diminution of benefits for the employees. He added that "job
security [was] well[-]protected [and] that there [would] be a process of consultation
between labor and management in the divestment of non-core business groups."
Meanwhile, Lufthansa Technik Philippines, Inc. (Lufthansa) expressed its desire to
purchase PAL's Maintenance and Engineering Department. The Securities and
Exchange Commission approved the sale to Lufthansa on March 24, 2000.
No consultation meeting was held within 45 days prior to September 1, 2000. To
make up for this, PAL issued primers to "address questions regarding the spin-off."
The primers stated that the spin-off aimed to reduce PAL's costs, improve its
performance and efficiency, and pre-pay its creditors, among others. PAL also
allegedly conducted ugnayan sessions with its employees to inform them of the
According to Dawal, et al., PAL announced the planned spin-off informally and
belatedly, reaching them sometime in April 2000.
Under the spin-off program, the following PAL employees were to be
"retrenched"from work: those from the Maintenance and Engineering Department,
and those from Logistics and Purchasing, Financial Services, and Information

Services Departments doing purely maintenance and engineering-related tasks,

whose work would be absorbed by Lufthansa.
After signing a Release, Waiver, and Quitclaim, Dawal, Concepcion, Sinobago, and
other affected employees were given generous separation packages less their
outstanding obligations or accountabilities9 Dawal received P590,511.90,
Concepcion received P588,575.75, and Sinobago received P411,539.98.70 PAL also
offered work for the employees who were not absorbed by Lufthansa.
On July 20, 2000, PAL issued a Notice of Separation to all the affected employees,
containing either of the following letters: (1) offer of new employment from
Lufthansa, should it choose to hire the affected employees; or (2) PAL's offer of
employment for a lower rank or job grade and for a lesser salary,should Lufthansa
not choose to hire the affected employees.
On September 1, 2000, in light of the spin-off of PAL's Maintenance and Engineering
Department and the scheduled start of operations of Lufthansa, all affected
employees were relieved from their positions.
When PAL spun off the engineering and maintenance facilities, it also created a new
engineering department, called the Technical Services Department, allegedly "in
compliance with aviation regulations requiring airline companies to maintain an
engineering department."
PALEA and Dawal, et al. filed before the Labor Arbiter a Complaint for unfair labor
practices and illegal dismissal. Their labor suit was consolidated with a similar
complaint filed against PAL.
Labor Arbiter Francisco A. Robles found PAL guilty of illegal dismissal. PAL was
ordered to reinstate Dawal, et al. to their "former positions without loss of seniority
rights and privileges and to pay them full backwages.
However, the National Labor Relations Commission reversed and set aside the Labor
Arbiter's Decision in toto. The National Labor Relations Commission stated that PAL
validly exercised its management prerogative and that PAL held the required
consultations with PALEA much earlier than 45 days.
Dawal et al. filed an appeal before the Court of Appeals which reversed the
judgment of the National Labor Relations Commission and reinstating the Decision
of the Labor Arbiter. The Court of Appeals ruled that PAL's dismissal of Dawal, et
al.'s services was illegal, and that PAL actually invoked redundancy, not
Following this, Dawal et al. moved for partial reconsideration. PAL also moved for
reconsideration.The CA denied both Motions.
ISSUES: 1. Whether or not the termination of the employment of Isagani Dawal,
Lorna Concepcion, and Bonifacio Sinobago was due to an authorized cause, and
could be justified as redundancy or retrenchment.

2. Whether or not PAL with the procedural and substantial due process in
terminating the Respondents.
HELD: We rule in the negative.
PAL invokes retrenchment to justify its acts. Redundancy exists where the services
of an employee are in excess of what is reasonably demanded by the actual
requirements of the enterprise. A position is redundant where it is superfluous, and
superfluity of a position or positions may be the outcome of a number of factors,
such as overhiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or undertaken by
the enterprise.
Redundancy requires good faith in abolishing the redundant position. To establish
good faith, the company must provide substantial proof that it is overmanned. This
is absent here.
When PAL spun off the engineering and maintenance facilities, it also created a new
engineering department called the Technical Services Department. Moreover, after
it fired the affected employees, PAL offered to rehire the same retrenched personnel
as new employees. The Court of Appeals found that there was "availability of work
in PAL [and this] beliefs] its claim that [PAL] has become over manned.
There are several guidelines that PAL should observe to validly dismiss Dawal, et al.
due to retrenchment. Among others, the following are the four (4) criteria that the
employer must meet:
Firstly, the losses expected should be substantial and not merely de minimis in
extent. If the loss purportedly sought to be forestalled by retrenchment is clearly
shown to be insubstantial and inconsequential in character, the bonafide nature of
the retrenchment would appear to be seriously in question. Secondly, the
substantial loss apprehended must be reasonably imminent, as such imminence can
be perceived objectively and in good faith by the employer. There should, in other
words, be a certain degree of urgency for the retrenchment, which is after all a
drastic recourse with serious consequences for the livelihood of the employees
retired or otherwise laid-off. Because of the consequential nature of retrenchment, it
must, thirdly, be reasonably necessary and likely to effectively prevent the expected
losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses, i.e., cut other costs other than labor costs. An
employer who, for instance, lays off substantial numbers of workers while
continuing to dispense fat executive bonuses and perquisites or so-called "golden
parachutes," [severance packages] can scarcely claim to be retrenching in good
faith to avoid losses. To impart operational meaning to the constitutional policy of
providing "full protection" to labor, the employer's prerogative to bring down labor
costs by retrenching must be exercised essentially as a measure of last resort, after
less drastic means e.g., reduction of both management and rank-and-file bonuses
and salaries, going on reduced time, improving manufacturing efficiencies, trimming
of marketing and advertising costs, etc. have been tried and found wanting.
Here, there is no showing that PAL "resorted to less drastic and less permanent costcutting measures" prior to the so-called retrenchment. In 1998, PAL already

retrenched about 5,000 employees. Two years later, it again turned to cutting off its
employees' livelihood. Likewise, PAL has "failed to explain how the rehiring of the
affected employees in the spin-off could possibly alleviate PAL's financial difficulty."
For there to be a valid retrenchment, the employer must exercise its management
prerogative "in good faith for the advancement of its interest and not to defeat or
circumvent the employees' right to security of tenure.
Moreso, the employer must also serve a written notice on both the employees and
the Department of Labor and Employment at least one (1) month before the
intended date of redundancy or retrenchment.
The records in the herein case show that Dawal received the Notice of Separation
only on August 31, 2000,29 days short of what the law requires.
PAL failed to prove all the requisites for a valid dismissal due to retrenchment. PAL
illegally terminated the services of Dawal, et al.