BLUE EAGLE MANAGEMENT v NAVAL
G.R. No. 192488| April 19, 2016
TOPIC: Authorized Causes; Proof Required
DOCTRINE: Clear and convincing evidence is the quantum of proof required for
a valid retrenchment. While financial statements for previous years may be
material in establishing the financial trend for an employer, these are not
indispensable in all cases of retrenchment
RECIT READY: BEMI announced to its employees that retrenchment will be
made. As a result, Naval was one of the employees to be retrenched. To prove
retrenchment, the company submitted its financial statement for year 2005. The
SC ruled that such document is sufficient to prove retrenchment since the
company was just newly-operated
PARTIES INVOLVED:
 EMPLOYER: Blue Eagle Management (BEMI)
 EMPLOYEE: Naval as maintenance staff
HOW THE CASE STARTED
 Blue Eagle Management suffered financial losses during its first year of
operation. With this, the Management decided to downsize its
workforce.
 Pursuant to such decision, the Management evaluated and identified
several employees who could be the subject of retrenchment.
 Naval was one of the employees to be retrenched because she is one of
those who have shortest tenures.
 Even before the actual retrenchment proceedings, all employees who
will be retrenched voluntarily resigned from their work and refused to
accept the financial package offered by their employer
- With this, BEMI decided that there was no more need for the
company to initiate retrenchment proceedings.
 Later on, Naval had a difficulty finding new employment so she asked
the management if it was possible for her to return to work
- However, BEMI replied that Naval’s resignation had long been
approved and BEMI would not be able to rehire her
 As a recourse, Naval instituted a complaint for illegal dismissal against
BEMI
RULING OF LA: Naval was illegally dismissed
 BEMI was not able to prove that it was suffering from serious business
losses that would justify retrenchment
 Financial Statement of BEMI for 2005 was not sufficient and convincing
proof of substantial losses for it did not show whether the losses of the
company increased or decreased compared to previous years
RULING OF NLRC: Dismissal was legally made
 Tax Return for 2005 and financial statements are sufficient to show
that BEMI was suffering financial loss
RULING OF CA: There was illegal dismissal
ISSUE: WON BEMI was able to sufficiently prove retrenchment.
YES. FINANCIAL STATEMENT FOR 2005 WAS A SUFFICIENT TO PROVE
RETRENCHMENT
 RULE: In Asian Alcohol Corporation v NLRC, the requirements for valid
retrenchment which must be proved by clear and convincing evidence
are:
1. Retrenchment is reasonably necessary and likely to prevent
business losses which, if already incurred, are not merely de
minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in
good faith by the employer;
2. that the employer served written notice both to the employees and
to the Department of Labor and Employment at least one month
prior to the intended date of retrenchment;
3. that the employer pays the retrenched employees separation pay
equivalent to one-month pay or at least 1/2-month pay for every
year of service, whichever is higher;
4. that the employer exercises its prerogative to retrench employees
in good faith for the advancement of its interest and not to defeat
or circumvent the employees’ right to security of tenure;
5. that the employer used fair and reasonable criteria in ascertaining
who would be dismissed and who would be retained among the
employees, such as status
 RULE ON PROOF REQUIRED: Proof of financial losses becomes the
determining factor in proving the legitimacy of retrenchment.
- 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.
- 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
 IN THIS CASE: BEMI submitted Annual Income Tax Return and
Financial Statements for 2005 which were audited by Armando Jimenez
- However, BEMI not able to present financial statements for years
prior to 2005 should not be automatically taken against them
because it was only incorporated in 2004 and started business
operations in 2005
- While financial statements for previous years may be material in
establishing the financial trend for an employer, these are not
indispensable in all cases of retrenchment. The evidence required
for each case of retrenchment will still depend on its particular
circumstances.
- Based on the submitted financial report, BEMI incurred actual and
substantial loss for a newly-established corporation and there is no
showing that such loss would abate in the near future
- With this, retrenchment of employees appears to be a practical
course of action for BEMI to prevent more losses considering that:
1. among the direct costs of the company in 2005, the salaries of
its coffee shop and gym employees was the highest item,
totaling P3,791,671.81; and
2. the gross profit of the company amounting to P2,319,832.39
was not even sufficient to cover its administrative employees’
salaries and wages in the amount of P2,969,986.15, not to
mention other administrative expenses.