FIRST DIVISION

[G.R. No. 165381, February 09 : 2011]

NELSON A. CULILI, PETITIONER, VS. EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.,

SALVADOR HIZON (PRESIDENT AND CHIEF EXECUTIVE OFFICER), EMILIANO JURADO
(CHAIRMAN OF THE BOARD), VIRGILIO GARCIA (VICE PRESIDENT) AND STELLA GARCIA
(ASSISTANT VICE PRESIDENT), RESPONDENTS.

DECISION

LEONARDO-DE CASTRO, J.:

Before Us is a petition for review on certiorari[1] of the February 5, 2004 Decision[2] and September 13, 2004
Resolution[3] of the Court of Appeals in CA-G.R. SP No. 75001, wherein the Court of Appeals set aside the
March 1, 2002 Decision[4] and September 24, 2002 Resolution[5] of the National Labor Relations Commission
(NLRC), which affirmed the Labor Arbiter's Decision[6] dated April 30, 2001.

Respondent Eastern Telecommunications Philippines, Inc. (ETPI) is a telecommunications company engaged

mainly in the business of establishing commercial telecommunications systems and leasing of international
datalines or circuits that pass through the international gateway facility (IGF).[7] The other respondents are
ETPI's officers: Salvador Hizon, President and Chief Executive Officer; Emiliano Jurado, Chairman of the
Board; Virgilio Garcia, Vice President; and Stella Garcia, Assistant Vice President.

Petitioner Nelson A. Culili (Culili) was employed by ETPI as a Technician in its Field Operations Department
on January 27, 1981. On December 12, 1996, Culili was promoted to Senior Technician in the Customer
Premises Equipment Management Unit of the Service Quality Department and his basic salary was
increased.[8]

As a telecommunications company and an authorized IGF operator, ETPI was required, under Republic Act.
No. 7925 and Executive Order No. 109, to establish landlines in Metro Manila and certain
provinces.[9] However, due to interconnection problems with the Philippine Long Distance Telephone
Company (PLDT), poor subscription and cancellation of subscriptions, and other business difficulties, ETPI
was forced to halt its roll out of one hundred twenty-nine thousand (129,000) landlines already allocated to
a number of its employees.[10]

In 1998, due to business troubles and losses, ETPI was compelled to implement a Right-Sizing Program
which consisted of two phases: the first phase involved the reduction of ETPI's workforce to only those
employees that were necessary and which ETPI could sustain; the second phase entailed a company-wide
reorganization which would result in the transfer, merger, absorption or abolition of certain departments of
ETPI.[11]

As part of the first phase, ETPI, on December 10, 1998, offered to its employees who had rendered at least
fifteen years of service, the Special Retirement Program, which consisted of the option to voluntarily retire
at an earlier age and a retirement package equivalent to two and a half (2½) months' salary for every year
of service.[12] This offer was initially rejected by the Eastern Telecommunications Employees' Union (ETEU),
ETPI's duly recognized bargaining agent, which threatened to stage a strike. ETPI explained to ETEU the
exact details of the Right-Sizing Program and the Special Retirement Program and after consultations with
ETEU's members, ETEU agreed to the implementation of both programs.[13] Thus, on February 8, 1999,
ETPI re-offered the Special Retirement Program and the corresponding retirement package to the one
hundred two (102) employees who qualified for the program.[14] Of all the employees who qualified to avail
of the program, only Culili rejected the offer.[15]

After the successful implementation of the first phase of the Right-Sizing Program, ETPI, on March 1, 1999
proceeded with the second phase which necessitated the abolition, transfer and merger of a number of
ETPI's departments.[16]

Among the departments abolished was the Service Quality Department. The functions of the Customer
Premises Equipment Management Unit, Culili's unit, were absorbed by the Business and Consumer Accounts
Department. The abolition of the Service Quality Department rendered the specialized functions of a Senior
Technician unnecessary. As a result, Culili's position was abolished due to redundancy and his functions
were absorbed by Andre Andrada, another employee already with the Business and Consumer Accounts
Department.[17]

On March 5, 1999, Culili discovered that his name was omitted in ETPI's New Table of Organization. Culili,
along with three of his co-employees who were similarly situated, wrote their union president to protest
such omission.[18]

In a letter dated March 8, 1999, ETPI, through its Assistant Vice President Stella Garcia, informed Culili of
his termination from employment effective April 8, 1999. The letter reads:

March 8, 1999

To: N. Culili
Thru: S. Dobbin/G. Ebue

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From: AVP-HRD
------------------------------------------------------------------------------------------

As you are aware, the current economic crisis has adversely affected our operations and undermined our
earlier plans to put in place major work programs and activities. Because of this, we have to implement a
Rightsizing Program in order to cut administrative/operating costs and to avoid losses. In line with this
program, your employment with the company shall terminate effective at the close of business hours on
April 08, 1999. However, to give you ample time to look for other employment, provided you have amply
turned over your pending work and settled your accountabilities, you are no longer required to report to
work starting tomorrow. You will be considered on paid leave until April 08, 1999.

You will likewise be paid separation pay in compliance with legal requirements (see attached), as well as
other benefits accruing to you under the law, and the CBA. We take this opportunity to thank you for your
services and wish you well in your future endeavors.

(Signed)
Stella J. Garcia[19]

This letter was similar to the memo shown to Culili by the union president weeks before Culili was
dismissed. The memo was dated December 7, 1998, and was advising him of his dismissal effective January
4, 1999 due to the Right-Sizing Program ETPI was going to implement to cut costs and avoid losses.[20]

Culili alleged that neither he nor the Department of Labor and Employment (DOLE) were formally notified of
his termination. Culili claimed that he only found out about it sometime in March 1999 when Vice President
Virgilio Garcia handed him a copy of the March 8, 1999 letter, after he was barred from entering ETPI's
premises by its armed security personnel when he tried to report for work.[21] Culili believed that ETPI had
already decided to dismiss him even prior to the March 8, 1999 letter as evidenced by the December 7,
1998 version of that letter. Moreover, Culili asserted that ETPI had contracted out the services he used to
perform to a labor-only contractor which not only proved that his functions had not become unnecessary,
but which also violated their Collective Bargaining Agreement (CBA) and the Labor Code. Aside from these,
Culili also alleged that he was discriminated against when ETPI offered some of his co-employees an
additional benefit in the form of motorcycles to induce them to avail of the Special Retirement Program,
while he was not.[22]

ETPI denied singling Culili out for termination. ETPI claimed that while it is true that they offered the Special
Retirement Package to reduce their workforce to a sustainable level, this was only the first phase of the
Right-Sizing Program to which ETEU agreed. The second phase intended to simplify and streamline the
functions of the departments and employees of ETPI. The abolition of Culili's department - the Service
Quality Department - and the absorption of its functions by the Business and Consumer Accounts
Department were in line with the program's goals as the Business and Consumer Accounts Department was
more economical and versatile and it was flexible enough to handle the limited functions of the Service
Quality Department. ETPI averred that since Culili did not avail of the Special Retirement Program and his
position was subsequently declared redundant, it had no choice but to terminate Culili.[23] Culili, however,
continued to report for work. ETPI said that because there was no more work for Culili, it was constrained
to serve a final notice of termination[24] to Culili, which Culili ignored. ETPI alleged that Culili informed his
superiors that he would agree to his termination if ETPI would give him certain special work tools in addition
to the benefits he was already offered. ETPI claimed that Culili's counter-offer was unacceptable as the work
tools Culili wanted were worth almost a million pesos. Thus, on March 26, 1999, ETPI tendered to Culili his
final pay check of Eight Hundred Fifty-Nine Thousand Thirty-Three and 99/100 Pesos (P859,033.99)
consisting of his basic salary, leaves, 13th month pay and separation pay.[25] ETPI claimed that Culili refused
to accept his termination and continued to report for work.[26] ETPI denied hiring outside contractors to
perform Culili's work and denied offering added incentives to its employees to induce them to retire
early. ETPI also explained that the December 7, 1998 letter was never given to Culili in an official
capacity. ETPI claimed that it really needed to reduce its workforce at that time and that it had to prepare
several letters in advance in the event that none of the employees avail of the Special Retirement
Program. However, ETPI decided to wait for a favorable response from its employees regarding the Special
Retirement Program instead of terminating them.[27]

On February 8, 2000, Culili filed a complaint against ETPI and its officers for illegal dismissal, unfair labor
practice, and money claims before the Labor Arbiter.

On April 30, 2001, the Labor Arbiter rendered a decision finding ETPI guilty of illegal dismissal and unfair
labor practice, to wit:

WHEREFORE, decision is hereby rendered declaring the dismissal of complainant Nelson A. Culili illegal for
having been made through an arbitrary and malicious declaration of redundancy of his position and for
having been done without due process for failure of the respondent to give complainant and the DOLE
written notice of such termination prior to the effectivity thereof.

In view of the foregoing, respondents Eastern Telecommunications Philippines and the individual
respondents are hereby found guilty of unfair labor practice/discrimination and illegal dismissal and ordered
to pay complainant backwages and such other benefits due him if he were not illegally dismissed, including
moral and exemplary damages and 10% attorney's fees. Complainant likewise is to be reinstated to his
former position or to a substantially equivalent position in accordance with the pertinent provisions of the
Labor Code as interpreted in the case of Pioneer texturing [Pioneer Texturizing Corp. v. National Labor
Relations Commission], G.R. No. 11865[1], 16 October 1997. Hence, Complainant must be paid the total

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amount of TWO MILLION SEVEN HUNDRED FORTY[-]FOUR THOUSAND THREE [HUNDRED] SEVENTY[-] NINE
and 41/100 (P2,744,379.41), computed as follows:

I. Backwages (from 16 March 1999 to 16 March 2001)

a. Basic Salary (P29,030 x 24 mos.) P696,720.96

b. 13th Month Pay (P692,720.96/12) 58,060.88
c. Leave Benefits

1. Vacation Leave (30 days/annum)

P1,116.54 x 60 days 66,992.40

2. Sick Leave (30 days/annum)

P1,116.54 x 60 days 66,992.40

3. Birthday Leave (1 day/annum)

P1,116.54 x 2 days 2,233.08

d. Rice and Meal Subsidy

16 March - 31 July 1999
(P1,750 x 4.5 mos. = P7,875.00)

01 August 1991 - 31 July 2000

(P1,850 x 12 mos. = P22,200.00)

01 August 2000 - 16 March 2001

(P1,950 x 7.5 mos. = P14,625.00) 44,700.00

e. Uniform Allowance
P7,000/annum x 2 years 14,000.00
P949,699.72

II. Damages

a. Moral............P500,000.00
b. Exemplary......P250,000.00

III. Attorney's Fees (10% of award) __94,969.97

GRAND TOTAL: P2,744,379.41[28]

The Labor Arbiter believed Culili's claim that ETPI intended to dismiss him even before his position was
declared redundant. He found the December 7, 1998 letter to be a telling sign of this intention. The Labor
Arbiter held that a reading of the termination letter shows that the ground ETPI was actually invoking was
retrenchment and not redundancy, but ETPI stuck to redundancy because it was easier to prove than
retrenchment. He also did not believe that Culili's functions were as limited as ETPI made it appear to be,
and held that ETPI failed to present any reasonable criteria to justify the declaration of Culili's position as
redundant. On the issue of unfair labor practice, the Labor Arbiter agreed that the contracting out of Culili's
functions to non-union members violated Culili's rights as a union member. Moreover, the Labor Arbiter said
that ETPI was not able to dispute Culili's claims of discrimination and subcontracting, hence, ETPI was guilty
of unfair labor practice.

On appeal, the NLRC affirmed the Labor Arbiter's decision but modified the amount of moral and exemplary
damages awarded, viz:

WHEREFORE, the Decision appealed from is AFFIRMED granting complainant the money claims prayed for
including full backwages, allowances and other benefits or their monetary equivalent computed from the
time of his illegal dismissal on 16 March 1999 up to his actual reinstatement except the award of moral and
exemplary damages which is modified to P200,000.00 for moral and P100,000.00 for exemplary
damages. For this purpose, this case is REMANDED to the Labor Arbiter for computation of backwages and
other monetary awards to complainant.[29]

ETPI filed a Petition for Certiorari under Rule 65 of the Rules of Civil Procedure before the Court of Appeals
on the ground of grave abuse of discretion. ETPI prayed that a Temporary Restraining Order be issued
against the NLRC from implementing its decision and that the NLRC decision and resolution be set aside.

The Court of Appeals, on February 5, 2004, partially granted ETPI's petition. The dispositive portion of the
decision reads as follows:

WHEREFORE, all the foregoing considered, the petition is PARTIALLY GRANTED. The assailed Decision of
public respondent National Labor Relations Commission is MODIFIEDin that petitioner Eastern
Telecommunications Philippines Inc. (ETPI) is hereby ORDEREDto pay respondent Nelson Culili full
backwages from the time his salaries were not paid until the finality of this Decision plus separation pay in
an amount equivalent to one (1) month salary for every year of service. The awards for moral and

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exemplary damages are DELETED. The Writ of Execution issued by the Labor Arbiter dated September 8,
2003 is DISSOLVED.[30]

The Court of Appeals found that Culili's position was validly abolished due to redundancy. The Court of
Appeals said that ETPI had been very candid with its employees in implementing its Right-Sizing Program,
and that it was highly unlikely that ETPI would effect a company-wide reorganization simply for the purpose
of getting rid of Culili. The Court of Appeals also held that ETPI cannot be held guilty of unfair labor practice
as mere contracting out of services being performed by union members does not per se amount to unfair
labor practice unless it interferes with the employees' right to self-organization. The Court of Appeals
further held that ETPI's officers cannot be held liable absent a showing of bad faith or malice. However, the
Court of Appeals found that ETPI failed to observe the standards of due process as required by our laws
when it failed to properly notify both Culili and the DOLE of Culili's termination. The Court of Appeals
maintained its position in its September 13, 2004 Resolution when it denied Culili's Motion for
Reconsideration and Urgent Motion to Reinstate the Writ of Execution issued by the Labor Arbiter, and ETPI's
Motion for Partial Reconsideration.

Culili is now before this Court praying for the reversal of the Court of Appeals' decision and the
reinstatement of the NLRC's decision based on the following grounds:

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH THE APPLICABLE
LAW AND JURISPRUDENCE WHEN IT REVERSED THE DECISIONS OF THE NLRC AND THE LABOR ARBITER
HOLDING THE DISMISSAL OF PETITIONER ILLEGAL IN THAT:

A. CONTRARY TO THE FINDINGS OF THE COURT OF APPEALS, RESPONDENTS'

CHARACTERIZATION OF PETITIONER'S POSITION AS REDUNDANT WAS TAINTED BY BAD
FAITH.

B. THERE WAS NO ADEQUATE JUSTIFICATION TO DECLARE PETITIONER'S POSITION AS

REDUNDANT.

II

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN FINDING THAT NO UNFAIR LABOR PRACTICE ACTS WERE COMMITTED AGAINST THE
PETITIONER.

III

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN DELETING THE AWARD OF MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
IN FAVOR OF PETITIONER AND IN DISSOLVING THE WRIT OF EXECUTION DATED 8 SEPTEMBER 2003
ISSUED BY THE LABOR ARBITER.

IV

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN ABSOLVING THE INDIVIDUAL RESPONDENTS OF PERSONAL LIABILITY.

CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE, THE COURT OF APPEALS, IN A CERTIORARI

PROCEEDING, REVIEWED THE FACTUAL FINDINGS OF THE NLRC WHICH AFFIRMED THAT OF THE LABOR
ARBITER AND, THEREAFTER, ISSUED A WRIT OF CERTIORARI REVERSING THE DECISIONS OF THE NLRC
AND THE LABOR ARBITER EVEN IN THE ABSENCE OF GRAVE ABUSE OF DISCRETION.[31]

Procedural Issue: Court of Appeals'

Power to Review Facts in a Petition
For Certiorari under Rule 65

Culili argued that the Court of Appeals acted in contravention of applicable law and jurisprudence when it
reexamined the facts in this case and reversed the factual findings of the Labor Arbiter and the NLRC in a
special civil action for certiorari.

This Court has already confirmed the power of the Court of Appeals, even on a Petition for Certiorariunder
Rule 65,[32] to review the evidence on record, when necessary, to resolve factual issues:

The power of the Court of Appeals to review NLRC decisions via Rule 65 or Petition for Certiorari has been
settled as early as in our decision in St. Martin Funeral Home v. National Labor Relations Commission. This
Court held that the proper vehicle for such review was a Special Civil Action for Certiorari under Rule 65 of
the Rules of Court, and that this action should be filed in the Court of Appeals in strict observance of the
doctrine of the hierarchy of courts. Moreover, it is already settled that under Section 9 of Batas Pambansa

4
Blg. 129, as amended by Republic Act No. 7902[10] (An Act Expanding the Jurisdiction of the Court of
Appeals, amending for the purpose of Section Nine of Batas Pambansa Blg. 129 as amended, known as
the Judiciary Reorganization Act of 1980), the Court of Appeals -- pursuant to the exercise of its original
jurisdiction over Petitions for Certiorari -- is specifically given the power to pass upon the evidence, if and
when necessary, to resolve factual issues.[33]

While it is true that factual findings made by quasi-judicial and administrative tribunals, if supported by
substantial evidence, are accorded great respect and even finality by the courts, this general rule admits of
exceptions. When there is a showing that a palpable and demonstrable mistake that needs rectification has
been committed[34] or when the factual findings were arrived at arbitrarily or in disregard of the evidence on
record, these findings may be examined by the courts.[35]

In the case at bench, the Court of Appeals found itself unable to completely sustain the findings of the NLRC
thus, it was compelled to review the facts and evidence and not limit itself to the issue of grave abuse of
discretion.

With the conflicting findings of facts by the tribunals below now before us, it behooves this Court to make an
independent evaluation of the facts in this case.

Main Issue: Legality of Dismissal

Culili asserted that he was illegally dismissed because there was no valid cause to terminate his
employment. He claimed that ETPI failed to prove that his position had become redundant and that ETPI
was indeed incurring losses. Culili further alleged that his functions as a Senior Technician could not be
considered a superfluity because his tasks were crucial and critical to ETPI's business.

Under our laws, an employee may be terminated for reasons involving measures taken by the employer due
to business necessities. 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 Department 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 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.

There is redundancy when the service capability of the workforce is greater than what is reasonably required
to meet the demands of the business enterprise. A position becomes redundant when it is rendered
superfluous by any number of factors such as over-hiring of workers, decrease in volume of business, or
dropping a particular product line or service activity previously manufactured or undertaken by the
enterprise.[36]

This Court has been consistent in holding that the determination of whether or not an employee's services
are still needed or sustainable properly belongs to the employer. Provided there is no violation of law or a
showing that the employer was prompted by an arbitrary or malicious act, the soundness or wisdom of this
exercise of business judgment is not subject to the discretionary review of the Labor Arbiter and the
NLRC.[37]

However, an employer cannot simply declare that it has become overmanned and dismiss its employees
without producing adequate proof to sustain its claim of redundancy.[38] Among the requisites of a valid
redundancy program are: (1) the good faith of the employer in abolishing the redundant position; and (2)
fair and reasonable criteria in ascertaining what positions are to be declared redundant,[39] such as but not
limited to: preferred status, efficiency, and seniority.[40]

This Court also held that the following evidence may be proffered to substantiate redundancy: the new
staffing pattern, feasibility studies/ proposal on the viability of the newly created positions, job description
and the approval by the management of the restructuring.[41]

In the case at bar, ETPI was upfront with its employees about its plan to implement a Right-Sizing
Program. Even in the face of initial opposition from and rejection of the said program by ETEU, ETPI
patiently negotiated with ETEU's officers to make them understand ETPI's business dilemma and its need to
reduce its workforce and streamline its organization. This evidently rules out bad faith on the part of ETPI.

In deciding which positions to retain and which to abolish, ETPI chose on the basis of efficiency, economy,
versatility and flexibility. It needed to reduce its workforce to a sustainable level while maintaining functions
necessary to keep it operating. The records show that ETPI had sufficiently established not only its need to
reduce its workforce and streamline its organization, but also the existence of redundancy in the position of
a Senior Technician. ETPI explained how it failed to meet its business targets and the factors that caused
this, and how this necessitated it to reduce its workforce and streamline its organization. ETPI also

5
submitted its old and new tables of organization and sufficiently described how limited the functions of the
abolished position of a Senior Technician were and how it decided on whom to absorb these functions.

In his affidavit dated April 10, 2000,[42] Mr. Arnel D. Reyel, the Head of both the Business Services
Department and the Finance Department of ETPI, described how ETPI went about in reorganizing its
departments. Mr. Reyel said that in the course of ETPI's reorganization, new departments were created,
some were transferred, and two were abolished. Among the departments abolished was the Service Quality
Department. Mr. Reyel said that ETPI felt that the functions of the Service Quality Department, which
catered to both corporate and small and medium-sized clients, overlapped and were too large for a single
department, thus, the functions of this department were split and simplified into two smaller but more
focused and efficient departments. In arriving at the decision to abolish the position of Senior Technician,
Mr. Reyel explained:

11.3. Thus, in accordance with the reorganization of the different departments of ETPI, the Service Quality
Department was abolished and its functions were absorbed by the Business and Consumer Accounts
Department and the Corporate and Major Accounts Department.

11.4. With the abolition and resulting simplification of the Service Quality Department, one of the units
thereunder, the Customer Premises Equipment Maintenance ("CPEM") unit was transferred to the Business
and Consumer Accounts Department. Since the Business and Consumer Accounts Department had to remain
economical and focused yet versatile enough to meet all the needs of its small and medium sized clients, it
was decided that, in the judgment of ETPI management, the specialized functions of a Senior Technician in
the CPEM unit whose sole function was essentially the repair and servicing of ETPI's telecommunications
equipment was no longer needed since the Business and Consumer [Accounts] Department had to remain
economical and focused yet versatile enough to meet all the multifarious needs of its small and medium
sized clients.

11.5. The business reason for the abolition of the position of Senior Technician was because in ETPI's
judgment, what was needed in the Business and Consumer Accounts Department was a versatile, yet
economical position with functions which were not limited to the mere repair and servicing of
telecommunications equipment. It was determined that what was called for was a position that could also
perform varying functions such as the actual installation of telecommunications products for medium and
small scale clients, handle telecommunications equipment inventory monitoring, evaluation of
telecommunications equipment purchased and the preparation of reports on the daily and monthly activation
of telecommunications equipment by these small and medium scale clients.

11.6. Thus, for the foregoing reasons, ETPI decided that the position of Senior Technician was to be
abolished due to redundancy. The functions of a Senior Technician was to be abolished due to
redundancy. The functions of a Senior Technician would then be absorbed by an employee assigned to the
Business and Consumer Accounts Department who was already performing the functions of actual
installation of telecommunications products in the field and handling telecommunications equipment
inventory monitoring, evaluation of telecommunications equipment purchased and the preparation of reports
on the daily and monthly activation of telecommunications equipment. This employee would then simply
add to his many other functions the duty of repairing and servicing telecommunications equipment which
had been previously performed by a Senior Technician.[43]

In the new table of organization that the management approved, one hundred twelve (112) employees were
redeployed and nine (9) positions were declared redundant.[44] It is inconceivable that ETPI would effect a
company-wide reorganization of this scale for the mere purpose of singling out Culili and terminating him. If
Culili's position were indeed indispensable to ETPI, then it would be absurd for ETPI, which was then trying
to save its operations, to abolish that one position which it needed the most. Contrary to Culili's assertions
that ETPI could not do away with his functions as long as it is in the telecommunications industry, ETPI did
not abolish the functions performed by Culili as a Senior Technician. What ETPI did was to abolish the
position itself for being too specialized and limited. The functions of that position were then added to
another employee whose functions were broad enough to absorb the tasks of a Senior Technician.

Culili maintains that ETPI had already decided to dismiss him even before the second phase of the Right-
Sizing Program was implemented as evidenced by the December 7, 1998 letter.

The December 7, 1998 termination letter signed by ETPI's AVP Stella Garcia hardly suffices to prove bad
faith on the part of the company. The fact remains that the said letter was never officially transmitted and
Culili was not terminated at the end of the first phase of ETPI's Right-Sizing Program. ETPI had given an
adequate explanation for the existence of the letter and considering that it had been transparent with its
employees, through their union ETEU, so much so that ETPI even gave ETEU this unofficial letter, there is no
reason to speculate and attach malice to such act. That Culili would be subsequently terminated during the
second phase of the Right-Sizing Program is not evidence of undue discrimination or "singling out" since not
only Culili's position, but his entire unit was abolished and absorbed by another department.

Unfair Labor Practice

Culili also alleged that ETPI is guilty of unfair labor practice for violating Article 248(c) and (e) of the Labor
Code, to wit:

Art. 248. Unfair labor practices of employers. - It shall be unlawful for an employer to commit any of
the following unfair labor practice:

6
xxxx

c. To contract out services or functions being performed by union members when such will interfere with,
restrain or coerce employees in the exercise of their rights to self-organization;

xxxx

e. To discriminate in regard to wages, hours of work, and other terms and conditions of employment in
order to encourage or discourage membership in any labor organization. Nothing in this Code or in any other
law shall stop the parties from requiring membership in a recognized collective bargaining agent as a
condition for employment, except those employees who are already members of another union at the time
of the signing of the collective bargaining agreement. Employees of an appropriate collective bargaining unit
who are not members of the recognized collective bargaining agent may be assessed a reasonable fee
equivalent to the dues and other fees paid by members of the recognized collective bargaining agent, if such
non-union members accept the benefits under the collective agreement: Provided, that the individual
authorization required under Article 242, paragraph (o) of this Code shall not apply to the non-members of
the recognized collective bargaining agent.

Culili asserted that ETPI is guilty of unfair labor practice because his functions were sourced out to labor-
only contractors and he was discriminated against when his co-employees were treated differently when
they were each offered an additional motorcycle to induce them to avail of the Special Retirement
Program. ETPI denied hiring outside contractors and averred that the motorcycles were not given to his co-
employees but were purchased by them pursuant to their Collective Bargaining Agreement, which allowed a
retiring employee to purchase the motorcycle he was assigned during his employment.

The concept of unfair labor practice is provided in Article 247 of the Labor Code which states:

Article 247.Concept of unfair labor practice and procedure for prosecution thereof. ÂÂÂÂ-- Unfair
labor practices violate the constitutional right of workers and employees to self-organization, are inimical to
the legitimate interest of both labor and management, including their right to bargain collectively and
otherwise deal with each other in an atmosphere of freedom and mutual respect, disrupt industrial peace
and hinder the promotion of healthy and stable labor-management relations.

In the past, we have ruled that "unfair labor practice refers to `acts that violate the workers' right to
organize.' The prohibited acts are related to the workers' right to self-organization and to the observance of
a CBA."[45] We have likewise declared that "there should be no dispute that all the prohibited acts
constituting unfair labor practice in essence relate to the workers' right to self-organization."[46] Thus, an
employer may only be held liable for unfair labor practice if it can be shown that his acts affect in whatever
manner the right of his employees to self-organize.[47]

There is no showing that ETPI, in implementing its Right-Sizing Program, was motivated by ill will, bad faith
or malice, or that it was aimed at interfering with its employees' right to self-organize. In fact, ETPI
negotiated and consulted with ETEU before implementing its Right-Sizing Program.

Both the Labor Arbiter and the NLRC found ETPI guilty of unfair labor practice because of its failure to
dispute Culili's allegations.

According to jurisprudence, "basic is the principle that good faith is presumed and he who alleges bad faith
has the duty to prove the same."[48] By imputing bad faith to the actuations of ETPI, Culili has the burden of
proof to present substantial evidence to support the allegation of unfair labor practice. Culili failed to
discharge this burden and his bare allegations deserve no credit.

Observance of Procedural Due Process

Although the Court finds Culili's dismissal was for a lawful cause and not an act of unfair labor practice,
ETPI, however, was remiss in its duty to observe procedural due process in effecting the termination of
Culili.

We have previously held that "there are two aspects which characterize the concept of due process under
the Labor Code: one is substantive -- whether the termination of employment was based on the provision of
the Labor Code or in accordance with the prevailing jurisprudence; the other is procedural -- the manner in
which the dismissal was effected."[49]

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:

(d) In all cases of termination of employment, the following standards of due process shall be substantially
observed:

xxxx

For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process
shall be deemed complied with upon service of a written notice to the employee and the appropriate
Regional Office of the Department of Labor and Employment at least thirty days before effectivity of the
termination, specifying the ground or grounds for termination.

7
In Mayon Hotel & Restaurant v.Adana,[50] we observed:

The requirement of law mandating the giving of notices was intended not only to enable the employees to
look for another employment and therefore ease the impact of the loss of their jobs and the corresponding
income, but more importantly, to give the Department of Labor and Employment (DOLE) the opportunity to
ascertain the verity of the alleged authorized cause of termination.[51]

ETPI does not deny its failure to provide DOLE with a written notice regarding Culili's termination. It,
however, insists that it has complied with the requirement to serve a written notice to Culili as evidenced by
his admission of having received it and forwarding it to his union president.

In Serrano v. National Labor Relations Commission,[52] we noted that "a job is more than the salary that it
carries." There is a psychological effect or a stigma in immediately finding one's self laid off from
work.[53] This is exactly why our labor laws have provided for mandating procedural due process
clauses. Our laws, while recognizing the right of employers to terminate employees it cannot sustain, also
recognize the employee's right to be properly informed of the impending severance of his ties with the
company he is working for. In the case at bar, ETPI, in effecting Culili's termination, simply asked one of its
guards to serve the required written notice on Culili. Culili, on one hand, claims in his petition that this was
handed to him by ETPI's vice president, but previously testified before the Labor Arbiter that this was left on
his table.[54] Regardless of how this notice was served on Culili, this Court believes that ETPI failed to
properly notify Culili about his termination. Aside from the manner the written notice was served, a reading
of that notice shows that ETPI failed to properly inform Culili of the grounds for his termination.

The Court of Appeals, in finding that Culili was not afforded procedural due process, held that Culili's
dismissal was ineffectual, and required ETPI to pay Culili full backwages in accordance with our decision
in Serrano v. National Labor Relations Commission.[55] Over the years, this Court has had the opportunity to
reexamine the sanctions imposed upon employers who fail to comply with the procedural due process
requirements in terminating its employees. In Agabon v. National Labor Relations Commission,[56] this Court
reverted back to the doctrine in Wenphil Corporation v. National Labor Relations Commission[57] and held
that where the dismissal is due to a just or authorized cause, but without observance of the due process
requirements, the dismissal may be upheld but the employer must pay an indemnity to the employee. The
sanctions to be imposed however, must be stiffer than those imposed in Wenphil to achieve a result fair to
both the employers and the employees.[58]

In Jaka Food Processing Corporation v. Pacot,[59] this Court, taking a cue from Agabon, held that since there
is a clear-cut distinction between a dismissal due to a just cause and a dismissal due to an authorized cause,
the legal implications for employers who fail to comply with the notice requirements must also be treated
differently:

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but the
employer failed to comply with the notice requirement, the sanction to be imposed upon him should be
tempered because the dismissal process was, in effect, initiated by an act imputable to the employee; and
(2) if the dismissal is based on an authorized cause under Article 283 but the employer failed to comply with
the notice requirement, the sanction should be stiffer because the dismissal process was initiated by the
employer's exercise of his management prerogative.[60]

Hence, since it has been established that Culili's termination was due to an authorized cause and cannot be
considered unfair labor practice on the part of ETPI, his dismissal is valid. However, in view of ETPI's failure
to comply with the notice requirements under the Labor Code, Culili is entitled to nominal damages in
addition to his separation pay.

Personal Liability of ETPI's Officers

And Award of Damages

Culili asserts that the individual respondents, Salvador Hizon, Emiliano Jurado, Virgilio Garcia, and Stella
Garcia, as ETPI's officers, should be held personally liable for the acts of ETPI which were tainted with bad
faith and arbitrariness. Furthermore, Culili insists that he is entitled to damages because of the sufferings
he had to endure and the malicious manner he was terminated.

As a general rule, a corporate officer cannot be held liable for acts done in his official capacity because a
corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and
members. To pierce this fictional veil, it must be shown that the corporate personality was used to
perpetuate fraud or an illegal act, or to evade an existing obligation, or to confuse a legitimate issue. In
illegal dismissal cases, corporate officers may be held solidarily liable with the corporation if the termination
was done with malice or bad faith. [61]

In illegal dismissal cases, moral damages are awarded only where the dismissal was attended by bad faith
or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good
customs or public policy.[62] Exemplary damages may avail if the dismissal was effected in a wanton,
oppressive or malevolent manner to warrant an award for exemplary damages.[63]

It is our considered view that Culili has failed to prove that his dismissal was orchestrated by the individual
respondents herein for the mere purpose of getting rid of him. In fact, most of them have not even dealt
with Culili personally. Moreover, it has been established that his termination was for an authorized cause,

8
and that there was no bad faith on the part of ETPI in implementing its Right-Sizing Program, which involved
abolishing certain positions and departments for redundancy. It is not enough that ETPI failed to comply
with the due process requirements to warrant an award of damages, there being no showing that the
company's and its officers' acts were attended with bad faith or were done oppressively.

WHEREFORE, the instant petition is DENIED and the assailed February 5, 2004 Decision and September
13, 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 75001 are AFFIRMED with
the MODIFICATION that petitioner Nelson A. Culili's dismissal is declared valid but respondent Eastern
Telecommunications Philippines, Inc. is ordered to pay petitioner Nelson A. Culili the amount of Fifty
Thousand Pesos (P50,000.00) representing nominal damages for non-compliance with statutory due
process, in addition to the mandatory separation pay required under Article 283 of the Labor Code.

SO ORDERED.

Corona, C.J., (Chairperson), Velasco, Jr., Del Castillo, and Perez, JJ., concur.

Endnotes:

[1]
Under Rule 45 of the 1997 Rules of Civil Procedure.

[2]
Rollo, pp. 59-76; penned by Associate Justice Portia Aliño-Hormachuelos with Associate Justices Perlita
J. Tria Tirona and Rosalinda Asuncion-Vicente, concurring.

[3]
Id. at 78-81.

[4]
Id. at 611-624; penned by Commissioner Alberto R. Quimpo with Presiding Commissioner Roy V.
Seneres and Commissioner Vicente S.E. Veloso, concurring.

[5]
Id. at 656.

[6]
Id. at 472-487; penned by Labor Arbiter Luis D. Flores.

[7]
Id. at 976.

[8]
Id. at 255.

[9]
Id. at 976.

[10]
Id. at 165-166.

[11]
Id. at 979.

[12]
Id. at 102.

[13]
Id. at 104.

[14]
Id. at 169.

[15]
Id. at 980.

[16]
Id. at 980-981.

[17]
Id. at 981-982.

[18]
Id. at 16.

[19]
Id. at 260.

[20]
Id. at 259.

[21]
Id. at 16-17.

[22]
Id. at 21-40.

[23]
Id. at 105-115.

[24]
Id. at 175.

[25]
CA rollo, Vol. I, pp. 185-186.

[26]
Rollo, pp. 114-115.

[27]
Id. at 101-105.

[28]
Id. at 485-488.

9
[29]
Id. at 623-624.

[30]
Id. at 75.

[31]
Id. at 19-20.

[32]
1997 Rules of Civil Procedure.

[33]
PICOP Resources, Inc. v. Tañeca, G.R. No. 160828, August 9, 2010.

Alcazaren v. Univet Agricultural Products, Inc., G.R. No. 149628, November 22, 2005, 475 SCRA 626,
[34]

650.

[35]
R & E Transport, Inc. v. Latag, 467 Phil. 355, 364-365 (2004).

Soriano, Jr. v. National Labor Relations Commission, G.R. No. 165594, April 23, 2007, 521 SCRA 526,
[36]

543.

[37]
Asufrin, Jr. v. San Miguel Corporation, 469 Phil. 237, 244 (2004).

[38]
Id. at 244-245.

[39]
AMA Computer College, Inc. v. Garcia, G.R. No. 166703, April 14, 2008, 551 SCRA 254, 264.

[40]
Panlilio v. National Labor Relations Commission, 346 Phil. 30, 35 (1997).

[41]
AMA Computer College, Inc. v. Garcia, supra note 39 at 264-265.

[42]
Rollo, pp. 145-162.

[43]
Id. at 159-161.

[44]
Id. at 171.

Tunay na Pagkakaisa ng Manggagawa sa Asia Brewery v. Asia Brewery, Inc., G.R. No. 162025, August 3,
[45]

2010.

[46]
Great Pacific Life Employees Union v. Great Pacific Life Assurance Corporation, 362 Phil. 452, 464
(1999).

[47]
Id.

Central Azucarera De Bais Employees Union-NFL [CABEU-NFL] v. Central Azucarera De Bais, Inc.
[48]

[CAB], G.R. No. 186605, November 17, 2010.

[49]
General Milling Corporation v. Casio, G.R. No. 149552, March 10, 2010.

[50]
497 Phil. 892 (2005).

[51]
Id. at 921.

[52]
387 Phil. 345 (2000).

[53]
Id. at 354.

[54]
CA rollo, Vol. II, p. 867.

[55]
Supra note 52.

[56]
G.R. No. 158693, November 17, 2004, 442 SCRA 573.

[57]
252 Phil. 73 (1989).

[58]
Agabon v. National Labor Relations Commission, supra note 56.

[59]
494 Phil. 114 (2005).

[60]
Id. at 121.

Bogo Medellin Sugarcane Planters Association, Inc. v. National Labor Relations Commission, 357 Phil.
[61]

110, 127 (1998).

[62]
Ford Philippines, Inc. v. Court of Appeals, 335 Phil. 1, 10-11 (1997).

[63]
Maquiling v. Philippine Tuberculosis Society, Inc., 491 Phil. 43, 61 (2005).

10
11
 Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

LAMBERT PAWNBROKERS G.R. No. 170464

and JEWELRY CORPORATION
and LAMBERT LIM,
Petitioners, Present:

CORONA, C. J., Chairperson,

BRION,
- versus - DEL CASTILLO,
ABAD,  and
PEREZ, JJ.

HELEN BINAMIRA, Promulgated:

Respondent. July 12, 2010
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

It is fundamental that an employer is liable for illegal dismissal when it terminates the
services of the employee without just or authorized cause and without due process of law.

This Petition for Review on Certiorari[1] assails the Decision[2] dated August 4, 2005 of the
Court of Appeals (CA) in CA-G.R. CEB SP No. 00010, which reversed and set aside the
Resolutions dated July 30, 2003[3] and May 31, 2004[4] issued by the National Labor
Relations Commission (NLRC) in NLRC Case No. V-000454-00 (RAB VII-01-0003-99-
B).

Factual Antecedents

Petitioner Lambert Lim (Lim) is a Malaysian national operating various businesses in Cebu
and Bohol one of which is Lambert Pawnbrokers and Jewelry Corporation. Lim is married
to Rhodora Binamira, daughter of Atty. Boler Binamira, Sr., (Atty. Binamira), who is also
the counsel and father-in-law of respondent Helen Binamira (Helen). Lambert
Pawnbrokers and Jewelry Corporation Tagbilaran Branch hired Helen as an appraiser in
July 1995 and designated her as Vault Custodian in 1996.

12
 On September 14, 1998, Helen received a letter[5] from Lim terminating her
employment effective that same day. Lim cited business losses necessitating retrenchment
as the reason for the termination.

Helen thus filed a case for illegal dismissal against petitioners docketed as NLRC
RAB-VII CASE NO. 01-0003-99-B.[6] In her Position Paper[7] Helen alleged that she was
dismissed without cause and the benefit of due process. She claimed that she was a mere
casualty of the war of attrition between Lim and the Binamira family. Moreover, she
claimed that there was no proof that the company was suffering from business losses.

In their Position Paper,[8] petitioners asserted that they had no choice but to retrench
respondent due to economic reverses. The corporation suffered a marked decline in profits
as well as substantial and persistent increase in losses. In its Statement of Income and
Expenses, its gross income for 1998 dropped from P1million to P665,000.00.

Ruling of the Labor Arbiter

On November 26, 1999, Labor Arbiter Geoffrey P. Villahermosa rendered a

Decision[9] which held that Helen was not illegally dismissed but was validly retrenched.
The dispositive portion of the Labor Arbiters Decision reads:

WHEREFORE, all the foregoing premises being considered judgment is hereby

rendered declaring the respondent not guilty of illegally terminating the complainant but is
however directed to pay the complainant her retrenchment benefit in the amount of Seven
Thousand Five Hundred Pesos (P7,500.00), considering that she was receiving a monthly
salary of P5,000.00 and rendered service for three (3) years.

SO ORDERED.[10]

Ruling of the NLRC

On appeal, the NLRC reversed and set aside the Decision of the Labor Arbiter. It
observed that for retrenchment to be valid, a written notice shall be given to the employee
and to the Department of Labor and Employment (DOLE) at least one month prior to the
intended date thereof. Since none was given in this case, then the retrenchment of Helen
was not valid. The dispositive portion of the Decision[11] reads:

WHEREFORE, premises duly considered, the decision of the Labor Arbiter

dated 26 November 1999 is hereby REVERSED and SET ASIDE and respondents are
ordered to reinstate complainant Helen Binamira to her former position without loss of
seniority rights and with full backwages from the time of her dismissal up to the
promulgation of this decision.

Other claims are denied for lack of merit.

13
 SO ORDERED.[12]
Petitioners filed a Motion for Reconsideration.[13] On July 30, 2003, the NLRC set
aside its Decision dated September 27, 2002 and entered a new one, the dispositive portion
of which reads:

WHEREFORE, the Decision of November [sic] 27, 2002 is hereby SET ASIDE
and a New One Entered declaring as valid the redundancy of the position of the
complainant. Accordingly respondent is hereby ordered to pay the complainant her
redundancy pay of one month for every year of service and in lieu of notice, she should
also be paid one (1) month salary as indemnity.

SO ORDERED.[14]

In arriving at this conclusion, the NLRC opined that what was actually implemented
by the petitioners was not retrenchment due to serious business losses but termination due
to redundancy. The NLRC observed that the Tagbilaran operations was overstaffed thus
necessitating the termination of some employees. Moreover, the redundancy program was
not properly implemented because no written notices were furnished the employee and the
DOLE one month before the intended date of termination.

The Motion for Reconsideration filed by Helen was denied by the NLRC through
its Resolution[15] dated May 31, 2004.

Ruling of the Court of Appeals

On petition for certiorari,[16] the CA found that both the Labor Arbiter and the
NLRC failed to consider substantial evidence showing that the exercise of management
prerogative, in this instance, was done in bad faith and in violation of the employees right
to due process. The CA ruled that there was no redundancy because the position of vault
custodian is a requisite, necessary and desirable position in the pawnshop business. There
was likewise no retrenchment because none of the conditions for retrenchment is present
in this case.

On August 4, 2005, the CA issued its Decision which provides:

WHEREFORE, the Resolution dated July 30, 2003 and May 31, 2004 issued by
the National Labor Relations Commission in NLRC Case No. V-000454-00 (RAB VII-
01-0003-99-B), is hereby REVERSED and SET ASIDE.

A new Decision is hereby entered declaring the dismissal of petitioner, Helen B.

Binamira, as illegal and directing the private respondents, Lamberts Pawnbroker and
Jewelry Corporation and Lambert Lim, jointly and solidarily, to pay to the petitioner, the
following monetary awards:

1. Backwages from the date of her illegal suspension and dismissal until she is
reinstated;

14
 2. Considering that reinstatement is not feasible in view of the strained relations
between the employer and the employee, separation pay is hereby decreed at the rate of
one (1) months pay for every year of service;

3. Moral damages in the amount of Twenty Five Thousand Pesos

(P25,000.00);

4. Exemplary damages in the amount of Twenty Five Thousand Pesos

(P25,000.00);

5. Attorneys fees in the amount equivalent to Ten Percent (10%) of the

monetary awards herein above enumerated; and

6. Costs.

SO ORDERED.[17]

The Motion for Reconsideration filed by petitioners was denied by the CA through its
Resolution[18] dated November 7, 2005.

Issues

Hence, this petition raising the following issues:

I.
Whether the CA gravely erred in reversing, through the extra-ordinary remedy of certiorari,
the findings of facts of both the Labor Arbiter and the NLRC that the dismissal of
respondent was with valid and legal basis.

II.
Whether the CA gravely erred in reversing, through the extra-ordinary remedy of certiorari,
the unanimous findings of fact of both the Labor Arbiter and the NLRC that the dismissal
of respondent was not attended by bad faith or fraud.

III.
Whether the CA erred in reversing, through the extra-ordinary remedy of certiorari, the
findings of facts of both the Labor Arbiter and the NLRC based merely on the allegations
and evidences made and submitted by the former counsel, adviser and business partner of
petitioners.[19]

Petitioners Arguments

Petitioners assail the propriety of the reversal by the CA of the factual findings of both the
Labor Arbiter and the NLRC on a Petition for Certiorari under Rule 65. Petitioners posit
that a writ of certiorari is proper only to correct errors of jurisdiction or when there is grave
abuse of discretion tantamount to lack or excess of jurisdiction committed by the labor
tribunals. They asserted that where the issue or question involved affects the wisdom or

15
legal soundness of a decision, the same is beyond the province of a special civil action
for certiorari.

Petitioners further contend that the CA erred in ruling that the dismissal was not valid and
that it was done in bad faith.

Respondents Arguments

On the other hand, Helen avers that the contradictory findings of fact of the Labor
Arbiter and the NLRC justifies the CA to review the findings of fact of the labor tribunals.
She further submits that both labor tribunals failed to consider substantial evidence
showing that petitioners exercise of management prerogative was done in utter bad faith
and in violation of her right to due process.
Our Ruling

The petition is without merit.

The CA correctly reviewed the factual findings of

the labor tribunals.

As a rule, a petition for certiorari under Rule 65 is valid only when the question involved
is an error of jurisdiction, or when there is grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the court or tribunals exercising quasi-judicial
functions. Hence, courts exercising certiorari jurisdiction should refrain from reviewing
factual assessments of the respondent court or agency. Occasionally, however, they are
constrained to wade into factual matters when the evidence on record does not support
those factual findings; or when too much is concluded, inferred or deduced from the bare
or incomplete facts appearing on record,[20] as in the present case.

We find that the CA rightfully reviewed the correctness of the labor tribunals factual
findings not only because of the foregoing inadequacies, but also because the NLRC and
the Labor Arbiter came up with conflicting findings. The Labor Arbiter found that Helens
dismissal was valid on account of retrenchment due to economic reverses. On the other
hand, the NLRC originally ruled that Helens dismissal was illegal as none of the requisites
of a valid retrenchment was present. However, upon motion for reconsideration, the NLRC
changed its posture and ruled that the dismissal was valid on the ground of redundancy due
to over-hiring. Considering the diverse findings of the Labor Arbiter and the NLRC, it
behooved upon the CA in the exercise of its certiorari jurisdiction to determine which
findings are more in conformity with the evidentiary facts.

There was no valid dismissal based on

retrenchment.

16
 Retrenchment is the termination of employment initiated by the employer through
no fault of and without prejudice to the employees. It is resorted to during periods of
business recession, industrial depression, seasonal fluctuations, or during lulls occasioned
by lack of orders, shortage of materials, conversion of the plant to a new production
program, or automation.[21] It is a management prerogative resorted to avoid or minimize
business losses, and is recognized by Article 283 of the Labor Code, which reads:

Art. 283. Closure of establishment and reduction of personnel.- The employer

may also terminate the employment of any employee due to x x x retrenchment to prevent
losses or the closing or cessation of operations of the establishment x x x by serving a
written notice on the worker and the DOLE at least one month before the intended date
thereof. x x x In case of retrenchment to prevent losses, the separation pay shall be
equivalent to one (1) month pay or at least one-half month for every year of service
whichever is higher. x x x (Emphasis ours)

To effect a valid retrenchment, the following elements must be present: (1) the
retrenchment is reasonably necessary and likely to prevent business losses which, if already
incurred, are not merely de minimis, but substantial, serious and real, or only if expected,
are reasonably imminent as perceived objectively and in good faith by the employer; (2)
the employer serves written notice both to the employee/s concerned and the DOLE at least
one month before the intended date of retrenchment; (3) the employer pays the retrenched
employee separation pay in an amount prescribed by the Code; (4) the employer exercises
its prerogative to retrench in good faith; and (5) the employer uses fair and reasonable
criteria in ascertaining who would be retrenched or retained.[22]

The losses must be supported by sufficient and convincing evidence. The normal method
of discharging this is by the submission of financial statements duly audited by independent
external auditors. In this case, however, the Statement of Income and Expenses[23] for the
year 1997-1998 submitted by the petitioners was prepared only on January 12, 1999. Thus,
it is highly improbable that the management already knew on September 14, 1998, the date
of Helens retrenchment, that they would be incurring substantial losses.

At any rate, we perused over the financial statements submitted by petitioners and we find
no evidence at all that the company was suffering from business losses. In fact, in their
Position Paper, petitioners merely alleged a sharp drop in its income in 1998
from P1million to only P665,000.00. This is not the business losses contemplated by the
Labor Code that would justify a valid retrenchment. A mere decline in gross income cannot
in any manner be considered as serious business losses. It should be substantial, sustained
and real.

To make matters worse, there was also no showing that petitioners adopted other cost-
saving measures before resorting to retrenchment. They also did not use any fair and
reasonable criteria in ascertaining who would be retrenched. Finally, no written notices

17
were served on the employee and the DOLE prior to the implementation of the
retrenchment. Helen received her notice only on September 14, 1998, the day when her
termination would supposedly take effect. This is in clear violation of the Labor Code
provision which requires notice at least one month prior to the intended date of termination.

There was no valid dismissal based on

redundancy.

Redundancy, on the other hand, exists when the service capability of the workforce is in
excess of what is reasonably needed to meet the demands of the enterprise. A redundant
position is one rendered superfluous by any number of factors, such as over hiring of
workers, decreased volume of business, dropping of a particular product line previously
manufactured by the company, or phasing out of a service activity previously undertaken
by the business. Under these conditions, the employer has no legal obligation to keep in its
payroll more employees than are necessary for the operation of its business.[24]

For the implementation of a redundancy program to be valid, the employer must comply
with the following requisites: (1) written notice served on both the employees and the
DOLE at least one month prior to the intended date of termination of employment; (2)
payment of separation pay equivalent to at least one month pay for every year of service;
(3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in
ascertaining what positions are to be declared redundant and accordingly abolished.[25]

In this case, there is no proof that the essential requisites for a valid redundancy program
as a ground for the termination of the employment of respondent are present. There was no
showing that the function of respondent is superfluous or that the business was suffering
from a serious downturn that would warrant redundancy considering that such serious
business downturn was the ground cited by petitioners in the termination letter sent to
respondent.[26]

In fine, Helens dismissal is illegal for lack of just or authorized cause and failure to observe
due process of law.

Lambert Pawnbrokers and Jewelry Corporation

is solely liable for the illegal dismissal of
respondent.

As a general rule, only the employer-corporation, partnership or association or any other

entity, and not its officers, which may be held liable for illegal dismissal of employees or
for other wrongful acts. This is as it should be because a corporation is a juridical entity
with legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it.[27] A corporation, as a juridical entity, may act only

18
through its directors, officers and employees. Obligations incurred as a result of the
directors and officers acts as corporate agents, are not their personal liability but the direct
responsibility of the corporation they represent.[28] It is settled that in the absence of malice
and bad faith, a stockholder or an officer of a corporation cannot be made personally liable
for corporate liabilities. [29] They are only solidarily liable with the corporation for the illegal
termination of services of employees if they acted with malice or bad faith. In Philippine
American Life and General Insurance v. Gramaje,[30] bad faith is defined as a state of mind
affirmatively operating with furtive design or with some motive of self-interest or ill will
or for ulterior purpose. It implies a conscious and intentional design to do a wrongful act
for a dishonest purpose or moral obliquity.

In the present case, malice or bad faith on the part of Lim as a corporate officer was not
sufficiently proven to justify a ruling holding him solidarily liable with the corporation. The
lack of authorized or just cause to terminate ones employment and the failure to observe
due process do not ipso facto mean that the corporate officer acted with malice or bad
faith. There must be independent proof of malice or bad faith which is lacking in the present
case.

There is no violation of attorney-client

relationship.

We find no merit in petitioners assertion that Atty. Binamira gravely breached and abused
the rule on privileged communication under the Rules of Court and the Code of
Professional Responsibility of Lawyers when he represented Helen in the present
case. Notably, this issue was never raised before the labor tribunals and was raised for the
first time only on appeal.Moreover, records show that although petitioners previously
employed Atty. Binamira to manage several businesses, there is no showing that they
likewise engaged his professional services as a lawyer. Likewise, at the time the instant
complaint was filed, Atty. Binamira was no longer under the employ of petitioners.

Respondent is entitled to the following relief

under the law.

An illegally dismissed employee is entitled to reinstatement without loss of seniority rights

and other privileges and to this full backwages, inclusive of allowances, and to her other
benefits or their monetary equivalent, computed from the time the compensation was
withheld up to the time of actual reinstatement. Where reinstatement is no longer feasible,
separation pay equivalent to at least one month salary or one month salary for every year
of service, whichever is higher, a fraction of at least six months being considered as one
whole year, should be awarded to respondent.

In this case, Helen is entitled to her full backwages from the time she was illegally
dismissed on September 14, 1998. Considering the strained relations between the parties,

19
reinstatement is no longer feasible. Consequently, Helen is also entitled to receive
separation pay equivalent to one month salary for every year of service.

A dismissal may be contrary to law but by itself alone, it does not establish bad faith to
entitle the dismissed employee to moral damages. The award of moral and exemplary
damages cannot be justified solely upon the premise that the employer dismissed his
employee without authorized cause and due process.[31]
Considering that there is no clear and convincing evidence showing that the termination of
Helens services had been carried out in an arbitrary, capricious and malicious manner, the
award of moral and exemplary damages is not warranted.

Consequently, the moral and exemplary damages awarded by the CA are hereby deleted.

However, the award of attorneys fee is warranted pursuant to Article 111 of the
Labor Code. Ten (10%) percent of the total award is usually the reasonable amount of
attorneys fees awarded. It is settled that where an employee was forced to litigate and, thus,
incur expenses to protect his rights and interest, the award of attorneys fees is legally and
morally justifiable.[32]

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision
of the Court of Appeals in CA-G.R. CEB SP No. 00010 dated August 4, 2005 finding the
dismissal of respondent Helen B. Binamira as illegal is AFFIRMED WITH
MODIFICATIONS that respondent is entitled to receive full backwages from the time
she was illegally dismissed on September 14, 1998 as well as to separation pay in lieu of
reinstatement equivalent to one month salary for every year of service. The amounts
awarded as moral damages and exemplary damages are deleted for lack of basis. Finally,
only petitioner Lambert Pawnbrokers and Jewelry Corporation is found liable for the
illegal dismissal of respondent.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

20
 ARTURO D. BRION ROBERTO A. ABAD
Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice


Per Special Order No. 856 dated July 1, 2010.

Per Special Order No. 869 dated July 5, 2010.
[1]
Rollo, pp. 21-42.
[2]
CA rollo, pp. 323-331; penned by Associate Justice Vicente L. Yap and concurred in by Associate Justices Isaias
P. Dicdican and Enrico A. Lanzanas.
[3]
Id. at 164-168.
[4]
Id. at 185-187.
[5]
CA rollo, p. 46.
[6]
Id. at 21-32.
[7]
Id. at 21-26.
[8]
Id. at 33-46.
[9]
Id. at 98-104.
[10]
Id. at 103.
[11]
Id. at 135-138; penned by Commissioner Edgardo M. Enarlan and concurred in by Presiding Commissioner Irenea
E. Ceniza and Commissioner Oscar S. Uy.
[12]
Id. at 137.
[13]
Id. at 139-154.
[14]
Id. at 164-168.
[15]
Id. at 185-187.
[16]
Id. at 3-204, inclusive of attachments.
[17]
Id. at 330-331.
[18]
Id. at 452-456.
[19]
Rollo, 27.

21
[20]
Pascua v. National Labor Relations Commission, 351 Phil 48, 61 (1998).
[21]
Anabe v. Asian Construction, G.R. No. 183233, December 23, 2009.
[22]
Id.
[23]
CA rollo, p.45.
[24]
Asian Alcohol Corporation v. National Labor Relations Commission, 364 Phil 912, 930 (1999).
[25]
Philippine Carpet Employees Association (PHILCEA) v. Sto. Tomas, G.R. No. 168719, February 22, 2006, 483
SCRA 128, 145-146.
[26]
CA rollo, p. 46.
[27]
Equitable Banking Corporation v. National Labor Relations Commission, 339 Phil. 541, 566 (1977).
[28]
Santos v. National Labor Relations Commission, 325 Phil. 145, 156 (1996).
[29]
Tan v. Timbal, 478 Phil. 497, 505 (2004).
[30]
484 Phil 880, 891 (2004).
[31]
Manila Water Company, Inc. v. Pea, 478 Phil. 68, 84 (2004).
[32]
Quijano v. Mercury Drug Corporation and National Labor Relations Commission, 354 Phil. 112, 127 (1998).

22
 THIRD DIVISION

[G.R. NO. 157611 : August 9, 2005]

ALABANG COUNTRY CLUB INC., ROBERTO ANONAS, CATALINO SANTOS, ERNESTO CAYETANO and
ROGELIO MANALO, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION, ALABANG
COUNTRY CLUB INDEPENDENT EMPLOYEES UNION, MARILOU ABADIANO, ERNESTO BANAL,
BENEDICTO CATALAN, ABNER CAVESTANY, ROMULO DALAYGON, ELENA DELA CRUZ, RONALDO
IBARRA, MA. ISABELITA PIZARRO, FELIX ARISME, EDILBERTO BANTILLES, BERNARDO DE
CHAVEZ, MEDARDO ENRIQUEZ, ERNESTO DEREZA, DOMINGO IBALLAR, GINA DUMALAON, JOSE
MASAGCA, MARIO FRANCHE, SHARON DANTES-PLATERO, ANNALISSA GARCIA, JULIET TENORIO,
ROLANDO GANNABAN, EMERSON ARGOSO, ANICETO GLEAN, FELIPE CADENA, PERLITA HENARES,
JOSEPH TAYONG, JAIME HIDALGO, ROSANNA ROSARIAL, LEODEGARIO HUMIRANG, EFREN
ABIADA, FILIPINO DIZON, ELPIDIO IBUOS, JR., ROBERTO LANON, ARNOLD LAYUG, JOEL
LINAOGO, EDUARDO LLENAS, JOSELITO LORINO, FERDINAND MABITASAN, GEORGE MARASIGAN,
PERLA MARGES, CYNTHIA MATHAY, WERLITO NAVARRO, CRISTINA OLEGARIO, CRISTINA
OMAYAO, NENEN ORTIGOZA, ELEONOR PALIMA, MARIA PANTALITA, EDUARDO PERALTA,
RICHARD PEREZ, JOVITO PIDLAOAN, PACITA PILONGO, BENJAMIN PINTOR, NARCISO QUIZANA,
AGRIFINO REYES, DENNIS REYES, EDUARDO RUBINA, ARISTEO SANTOS, ROBERTO SOLANTE,
ARMANDO SUAREZ, DOLORES VALIENTE, REMEDIOS UMALI, INGERSOL POMIDA, and FLORO
MACABIT, Respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner Alabang Country Club Inc. (ACCI), a stock, non-profit corporation that operates and maintains a
country club and various sports and recreational facilities for the exclusive use of its members, seeks to set
aside the appellate court's Decision1 of August 14, 2002 as well as its Resolution2 of March 6, 2003 denying
petitioner's motion for reconsideration. The appellate court reversed and set aside the National Labor
Relation Commission's (NLRC) Decision3 of March 15, 2002, and ordered the reinstatement of herein sixty-
three (63) respondents-members of a duly registered labor organization - Alabang Country Club
Independent Employees Union (the Union), without loss of seniority rights and other privileges, and the
payment of their full backwages including attorney's fees.

Sometime in 1993, Francisco Ferrer, then President of ACCI, requested its Internal Auditor, Irene Campos-
Ugalde, to conduct a study on the profitability of ACCI's Food and Beverage Department (F & B
Department).4 Ugalde made use of the audited figures in the financial statements5 prepared by Sycip Gorres
Velayo & Co. (SGV&Co.) for the years 1989-1993 in reflecting the total revenue and costs and expenses of
the F & B Department. However, while SGV&Co. deducted the entire "undistributed operating costs and
expenses" consisting of "general and maintenance costs" from the total income of ACCI,6Ugalde allocated a
percentage of these expenses and charged the same against the total revenue of the F & B
Department.7 Consequently, her report showed that from1989 to 1993, F & B Department had been
incurring substantial losses in the aggregate amount of Eight Million Seven Hundred Twenty-Seven
Thousand One Hundred Thirty-Five Pesos (P8,727,135.00).8 Her report further showed that:

1. It was only in 1993 when the losses dropped as compared to the 1992 figures. This was the result of an
effective joint management employee undertaking in 1993 towards cost-cutting and efficient resource
administration; and cralawlib ra ry

2. The endeavor succeeded only in reducing losses but not totally raising the figures upward to at least a
break-even level;

3. ACCI can generate income from F & B Department if its operation will be transferred to a concessionaire;

4. Actual breakages alone w[ere] approximately P298,000 [from] January 1, 1994 to May 15, 1994 or an
average of P60,000 a month.9

Realizing that it was no longer profitable for ACCI to maintain its own F & B Department, the management
decided to cease from operating the department and to open the same to a contractor, such as a
concessionaire, which would be willing to operate its own food and beverage business within the club.10

ACCI's Labor Committee Chairman Catalino Santos thus met on November 11, 1994 with the Union officers
and members and discussed the financial standing of the F & B Department.11

23
ACCI subsequently entered on December 1, 1994 into an agreement with La Tasca Restaurant Inc. (La
Tasca), for it to operate the F & B Department.12 Under the agreement, La Tasca would pay ACCI fifteen
(15%) percent of its gross sales net of sales tax plus the expenses for light and water in the amount of five
(5%) percent of monthly gross sales net of sales tax.13

Also on December 1, 1994, ACCI sent its F & B Department employees individual letters informing them that
their services were being terminated effective January 1, 1995;14 and that they would be paid separation
pay equivalent to one hundred twenty five (125%) percent of their monthly salary for every year of
service.15 ACCI also informed them that La Tasca agreed to absorb all affected employees immediately with
the status of regular employees without need of undergoing a probationary period, and that all affected
employees would receive the same salary they were receiving from ACCI at the time of their termination.16

On December 11, 1994, the Union, with the authority of individual respondents, filed before the NLRC a
complaint for illegal dismissal, unfair labor practice, regularization and damages with prayer for the issuance
of a writ of preliminary injunction against ACCI.17

The Union then filed a notice of strike.18 ACCI, finding that the requirements under the Labor Code had not
been complied with, suspended on December 28, 1994 those who participated in the strike.19

The Union averred, however, that no strike was actually held and that it was caught by surprise when, upon
reporting for work on December 28, 1994, employees of La Tasca "brought their equipment and took over
the posts held by most of [the individual respondents]."20

As scheduled, ACCI ceased operating its F & B Department by January 1, 1995 as La Tasca began operating
its own F & B business at the Alabang Country Club.

Meanwhile, in the proceedings before the Labor Arbiter, respondent union and individual respondents
informed that the F & B Division had been reporting gaining profits as shown by the Statement of Income
and Deficit prepared by SGV&Co.21 They thus argued that compliance with the standards for losses in Lopez
Sugar Corporation v. Federation of Free Workers22 to justify their retrenchment were not met by ACCI.

ACCI averred, however, that it may exercise management prerogatives to adopt a cost-saving and cost-
consciousness program to improve efficiency in its operations,23 prevent losses, and concentrate on core
businesses,24 and to lay-off workers and contract out their jobs.25

During the pendency of the complaint for illegal dismissal before the Labor Arbiter, forty-seven (47) of the
individual respondents accepted separation benefits from ACCI at 125% of their monthly salary for every
year of service, on account of which they executed Waivers and Quitclaims in favor of ACCI: Marilou
Abadiano, Ernesto Banal, Benedicto Catalan, Abner Cavestany, Romulo Dalaygon, Elena dela Cruz, Ernesto
Dereza, Gina Dumalaon, Mario Franche, Annalissa Garcia, Rolando Gannaban, Aniceto Glean, Perlita
Henares, Jaime Hidalgo, Leodegario Humirang, Elpidio Ibuos, Jr., Roberto Lanon, Arnold Layug, Joel
Linaogo, Eduardo Llenas, Joselito Lorino, Ferdinand Mabitasan, George Marasigan, Perla Marges, Cynthis
Mathay, Werlito Navarro, Cristina Olegario, Cristina Omayao, Nenen Ortigoza, Eleonor Palima, Maria
Pantalita, Eduardo Peralta, Richard Perez, Jovito Pidlaoan, Pacita Pilongo, Benjamin Pintor, Narciso Quizana,
Agrifino Reyes, Dennis Reyes, Eduardo Rubina, Aristeo Santos, Roberto Solante, Armando Suarez, Dolores
Valiente, Remedios Umali, Ingersol Pomida and Floro Macabit.26

By decision of April 30, 1999, the Labor Arbiter dismissed the complaint for illegal dismissal on the ground
that a business entity has the right to reduce its work force if necessitated by compelling economic factors
which endanger its existence or stability.27 The Labor Arbiter in fact found that the study made by Ugalde
which was a more detailed version of the financial statements prepared by SGV&Co. clearly established that
the F & B Department was incurring losses, thus justifying ACCI to exercise its inherent prerogative to
retrench its workers to prevent further losses.28

On appeal, the NLRC acknowledged the right of ACCI to regulate, according to its own discretion and
judgment, all aspects of employment including the lay-off of workers because of losses in the operation of
its business, lack of work and considerable reduction in the volume of business.29 It thus dismissed the
appeal.

Private respondents' motion for reconsideration of the NLRC's dismissal of the appeal was denied by
Resolution30 of April 28, 2000.

Private respondents thereupon brought their case, via Petition for Certiorari,31 before the Court of Appeals,
alleging that the Labor Arbiter and the NLRC committed grave abuse of discretion and utter ignorance of the
law in completely disregarding the audited financial statements prepared by SGV&Co. showing that ACCI's F
& B Department had been consistently earning profits.32

During the pendency of the petition before the appellate court, fifteen (15) of the individual respondents
received their separation package equivalent to 125% of their monthly salary for every year of service, on
account of which they executed Waivers and Quitclaims in favor of ACCI: Ronaldo Ibarra, Ma. Isabelita
Pizarro, Felix Arisme, Edilberto Bantilles, Bernardo de Chavez, Medardo Enriquez, Domingo Iballar, Jose

24
Masagca, Sharon Dantes-Platero, Juliet Tenorio, Emerson Argoso, Felipe Cadena, Joseph Tayong, Rosanna
Rosarial, and Efren Abadia.33

By decision of August 14, 2002, the Court of Appeals reversed those of the NLRC and the Labor Arbiter. It
held that due to ACCI's failure to prove by sufficient and competent evidence that its alleged losses were
substantial, continuing and without any immediate prospect of abating them, the bona fide nature of
the retrenchment appeared doubtful.34 Passing on ACCI's financial status, the appellate court, citing Bogo-
Medellin Sugarcane Planters Association, Inc. v. NLRC35 and Dela Salle University v. Dela Salle University
Employees Association,36 held that financial statements audited by independent external auditors, and not a
mere study report of an internal auditor of a company, constitute the normal method of proof of the profit
and loss of the company.37

ACCI's motion for reconsideration38 having been denied by the appellate court by Resolution39 of March 6,
2003, it comes before this Court via Petition for Review on Certiorari, advancing the following arguments:

A.

CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS GRAVELY DISREGARDED
THE CLUB'S RIGHT TO TERMINATE ITS EMPLOYEES FOR AN AUTHORIZED CAUSE, PARTICULARLY TO
SECURE ITS CONTINUED VIABILITY AND EXISTENCE.

B.

CONSISTENT WITH ESTABLISHED LAW AND JURISPRUDENCE, INASMUCH AS BOTH FINDINGS OF PUBLIC
RESPONDENT NLRC AND THE LABOR ARBITER A QUO THAT THE CLUB'S F & B EMPLOYEES WERE VALIDLY
TERMINATED, ARE SUPPORTED BY AUDITED FINANCIAL STATEMENTS AND OTHER SUBSTANTIAL
EVIDENCE, THE PETITION BELOW SHOULD HAVE BEEN DISMISSED.

C.

THE ORDER FOR REINSTATEMENT, PAYMENT OF BACKWAGES, AND THE AWARD OF ATTORNEY'S FEES ARE
NOT PROPER SINCE RESPONDENTS WERE TERMINATED FOR AN AUTHORIZED CAUSE AND AFTER
COMPLIANCE WITH DUE PROCESS.

D.

THE COURT OF APPEALS SHOULD HAVE RECOGNIZED THAT SIXTY-TWO OUT OF THE SIXTY THREE
PETITIONERS INDICATED IN THE PETITION BELOW HAVE ALREADY ACKNOWLEDGED RECEIPT OF THE
MONETARY AWARD AFFIRMED IN THE COMISSION'S DECISION DATED 15 MARCH 2000 IN FULL
SATISFACTION THEREOF.40

The petition is impressed with merit.

ACCI, hereinafter referred to as petitioner, justifies the closure of its F & B Department based on business
losses incurred for the past years as reflected in its letter to its employees dated December 1, 1994, to wit:

As you probably have known, our Food and Beverage Division has been losing for the past several years.
Your management tried to remedy the situation through changes and innovations but to no avail. This being
so and to prevent further losses, management has deemed it necessary to concessionize (sic) our Food and
Beverage operations. Since La Tasca won in the bidding and pursuant to our agreement with the same, La
Tasca shall, effective January 1, 1995, be operating all our Food and Beverage outlets. As a consequence
thereof, please be informed that effective January 1, 1995, your services shall be terminated as effective
said date ACCI shall cease to operate all Food and Beverage outlets. x x x41(Underscoring supplied).

In Lopez Sugar Corporation v. Federation of Free Workers42 cited by respondents, this Court held that
retrenchment on the ground of serious business losses is allowed subject to the conditions that (1) the
losses expected should be substantial and not merely de minimis in extent; (2) the substantial losses
apprehended must be reasonably imminent as such imminence can be perceived objectively in good faith by
the employer; (3) retrenchment must be reasonably necessary and likely to effectively prevent the expected
losses; and (4) the alleged losses, if already realized and the expected imminent losses sought to be
forestalled, must be proven by sufficient and convincing evidence.43

This Court, however, views the case as one involving closure of a business undertaking, not retrenchment.
While retrenchment and closure of a business establishment or undertaking are often used interchangeably
and are interrelated, they are actually two separate and independent authorized causes for termination of
employment.44

Retrenchment is the reduction of personnel for the purpose of cutting down on costs of operations in terms
of salaries and wages45 resorted to by an employer because of losses in operation of a business occasioned
by lack of work and considerable reduction in the volume of business.46

25
Closure of a business or undertaking due to business losses is the reversal of fortune of the employer
whereby there is a complete cessation of business operations to prevent further financial drain upon an
employer who cannot pay anymore his employees since business has already stopped.47

One of the prerogatives of management is the decision to close the entire establishment or to close or
abolish a department or section thereof for economic reasons, such as to minimize expenses and reduce
capitalization.48

While the Labor Code provides for the payment of separation package in case of retrenchment to prevent
losses, it does not obligate the employer for the payment thereof if there is closure of business due to
serious losses.49

In the present case, when petitioner decided to cease operating its F & B Department and open the same to
a concessionaire, it did not reduce the number of personnel assigned thereat. It terminated the employment
of all personnel assigned at the department.

As in the case of retrenchment, however, for the closure of a business or a department due to serious
business losses to be regarded as an authorized cause for terminating employees, it must be proven that
the losses incurred are substantial and actual or reasonably imminent; that the same increased through a
period of time; and that the condition of the company is not likely to improve in the near future.50

As did the appellate court, this Court finds that the study report submitted by the internal auditor of
petitioner, the only evidence submitted to prove its alleged losses, is self-serving51 and falls short of the
stringent requirement of the law that the employer prove sufficiently and convincingly its allegation of
substantial losses.

In contrast, part of the evidence presented by respondents are audited financial statements prepared by
SGV&Co. for 1989 to 1993 which show a positive net income for the F & B Department ranging
from P959,533 - P2,911,810 and, except for the year 1992, marked increases in annual net income per
year.52Moreover, for the year 1994, its last year of operation, the F & B Department posted an annual net
income of P1,562,385.53

In claiming that the F & B Department had been losing, petitioner's internal auditor deducted from the
department's annual income the undistributed operating costs and expenses. However, the study report
failed to provide the necessary details on how the undistributed operating costs and expenses charged to
the F & B Department was arrived at, including the basis, for example, of allocating association dues and
real estate tax directly to the F & B Department as expenses.

Petitioner's failure to prove that the closure of its F & B Department was due to substantial losses
notwithstanding, this Court finds that individual respondents were dismissed on the ground of closure or
cessation of an undertaking not due to serious business losses or financial reverses, which is allowed
under Article 283 of the Labor Code:

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 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 worker and the
Ministry of Labor and Employment at least one (1) month before its 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 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
the 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 (') month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year.
(Emphasis in the original)

The closure of operation of an establishment or undertaking not due to serious business losses or financial
reverses includes both the complete cessation of operations and the cessation of only part of a company's
activities.54

For any bona fide reason, an employer can lawfully close shop anytime. Just as no law forces anyone to go
into business, no law can compel anybody to continue the same.55 It would be stretching the intent and
spirit of the law if a court interferes with management's prerogative to close or cease its business operations
just because the business is not suffering from any loss or because of the desire to provide the workers
continued employment.56

While petitioner did not sufficiently establish substantial losses to justify closure of its F & B Department on
this ground, there is basis for its claim that the continued maintenance of said department had become
more expensive through the years. An evaluation of the financial figures appearing in the audited financial
statements prepared by the SGV&Co. shows that ninety one to ninety six (91% - 96%) percent of the actual
revenues earned by the F & B Department comprised the costs and expenses in maintaining the

26
department.57 Petitioner's decision to place its F & B operations under a concessionaire must then be
respected, absent a showing of bad faith on its part.

In fine, management's exercise of its prerogative to close a section, branch, department, plant or shop58will
be upheld as long as it is done in good faith to advance the employer's interest and not for the purpose of
defeating or circumventing the rights of employees under the law or a valid agreement.59

While the closure of F & B Department is found to be justified, petitioner is, under the above-quoted
provision of Art. 283 of the Labor Code, mandated to pay separation pay computed from the time individual
respondents commenced their employment until the time the department ceased operations, in an amount
equivalent to one (1) month pay or at least one-half (') month pay for every year of service, whichever is
higher. In petitioner's case, it in fact voluntarily doled out to some of individual respondents separation pay
equivalent to one month and a quarter (1') for every year of service, a fraction of a year being considered as
one year.60

Respondents not having been illegally dismissed, they are not entitled to backwages.

By petitioner's information, it had paid, during the pendency of the case, the separation package of sixty-
two (62) of the sixty-three (63) individual respondents on account of which they executed Releases, Waivers
and Quitclaims in its favor.61

A waiver or quitclaim is a valid and binding agreement between the parties, provided that it constitutes a
credible and reasonable settlement and the one accomplishing it has done so voluntarily and with a full
understanding of its import.62 As the waivers and quitclaims executed by individual respondents who had
been given their separation pay were duly notarized, the certificate of acknowledgement in each of them
serves as prima facie evidence of their due execution.63 Not one of individual respondents who executed the
waivers or quitclaims has come forward to challenge the reasonableness of the settlement and/or
voluntariness of the execution of the documents.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision of August 14, 2002 and the
Resolution of March 6, 2003 of the Court of Appeals are hereby REVERSED and SET ASIDE.

Petitioner, Alabang Country Club, Inc., is hereby ORDERED to pay the remaining individual respondent,
Filipino Dizon, who does not appear to have received separation package equivalent to one month and a
quarter (1') for every year of service, as agreed upon by petitioner.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.

Corona, J., on leave.

Endnotes:

1
Rollo at 58-70.

2
Id. at 73.

3
Id. at 74-89.

4
Id. at 19.

5
Id. at 142-155.

6
Ibid.

7
Id. at 97. In her affidavit, Irene Campos-Ugalde explained her reasons for apportioning the Undistributed
Costs and Expenses directly to the F & B Department, to wit:

xxx

3. The study showed that from 1989 to 1993, the Club incurred losses.

3.1. It may be gleaned from the Club's audited Statements of Income and Deficit from 1989 to 1993 (copies
of which are hereto attached as Annexes "A", and "B", and "C") that the following items appear therein: (i)
Departmental Costs and Expenses: Food and Beverage; (ii) Revenues, Excluding Membership Dues and

27
Other Fees: Food and Beverage; and (iii) Undistributed Operating Costs and Expenses. The actual/profit loss
of the F & B may not be accurately determined by simply deducting the figure termed as "Departmental Cost
and Expenses: Food and Beverage" from the figure termed as "Revenues, Excluding Membership Dues and
Other Fees: Food and Beverage" appearing on the Club's audited Statement of Income and deficit. This is so
because some of the costs and expenses incurred in the operation of the F & B are not included in the item
"Departmental Costs and Expenses: Food and Beverage" but were included in the "Undistributed Operating
Costs and Expenses". These costs and expenses include, among others:

(i) depreciation of appliances and equipment used in the operation of the F & B (which operation occupied
practically 50% of total clubhouse area), such as air conditioning units and freezers;

(ii) expenses for utilities such as water and electricity used in the operation of function rooms, and
telephone used in the F & B office and function rooms;

(iii) expenses for supplies for members and guests, such as face towels used in the Golfer's Veranda;

(iv) Association dues, such as for garbage collection;

(v) Fees paid to the government, such as for permits;

(vi) Fees for professional services, such as for auditors, etc.

To repeat, these and similar costs and expenses were incurred in the operation of the F & B but were
reflected in the Statements of Income and Deficit as "Undistributed Operating Costs and Expenses".

8
Rollo at 20.

9
Id. at 387.

10
Id. at 21.

11
Ibid.

12
Id. at 134-138.

13
Id. at 134.

14
Id. at 22.

15
Rollo at 22. Vide Rollo at 162. Article V, Section 3 of the Collective Bargaining Agreement entered into by
and between the ACCI and the Union provides to wit:

SECTION 3. RIGHTS IN CASE OF RETRENCHMENT - In case the CLUB shall deem it necessary to retrench
UNION members, the more senior shall be the last to be laid off while those last to be hired shall be the first
to be lad off, unless the more senior UNION member voluntarily offers himself to be laid off. UNION
members who have been laid off for any cause shall receive a separation pay equivalent to one month and a
quarter (1.25%) for every year of service; a fraction of a year shall be considered one year.

16
Rollo at 113. The agreement by and between La Tasca and ACCI dated December 1, 1994 provides to wit:

2. OBLIGATIONS OF PROPONENT

2.1 PROPONENT agrees to absorb all regular employees of ACC[I] whose term of employment may be or are
affected by this agreement at their present monthly salary rates and as regular employees of the
PROPONENT.

xxx

17
Rollo at 22-23.

18
Id. at 401.

19
Rollo at 23. Vide Rollo at 169. Article XIII of the Collective Bargaining Agreement entered into by and
between ACCI and the Union effective for the period April 9, 1993-April 9, 1996 provides:

Article XIII - NO STRIKE, NO LOCK-OUT. The CLUB agrees that there shall be no lock-out during the term of
this Agreement or any extension thereof. The UNION agrees that there shall be no strike or work stoppage

28
or other forms of interference with any of the operations of the CLUB during the term of this Agreement or
any extension thereof.

20
Rollo at 402.

21
Id. at 386.

22
189 SCRA 179 (1990).

23
Rollo at 594.

24
Id. at 597.

25
Id. at 594.

26
Id. at 24-25.

27
Id. at 389.

28
Id. at 391.

29
CA Rollo 129-130.

30
Rollo at 88.

31
Id. at 394-443.

32
Id. at 413.

33
Id. at 27.

34
Id. at 70.

35
296 SCRA 108 (1998).

36
330 SCRA 363 (2000).

37
Rollo at 68-69.

38
Id. at 495-517.

39
Id. at 73.

40
Id. at 29.

41
Id. at 400.

42
See note 22, supra.

43
Lopez Sugar Corporation v. Federation of Free Workers, 189 SCRA 179, 186-187 (1990).

44
J.A.T. General Services v. National Labor Relations Commission, 421 SCRA 78, 86 (2004).

45
Ibid.

46
Anino v. National Labor Relations Commission, 290 SCRA 489, 501 (1998).

47
See note 44, supra.

48
Danzas Intercontinental Inc. v. Daguman, G.R. No. 154368 (April 15, 2005).

49
Cama v. Joni's Food Services, Inc. 425 SCRA 259, 269 (2004).

50
See note 48, supra.

29
51
Ibid.

52
Rollo at 140-155.

53
Id. at 140.

54
Coca-Cola Bottlers (Phils.), Inc. v. NLRC, 194 SCRA 592, 599 (1991).

55
Mac Adams Metal Engineering Workers Union-Independent v. Mac Adams Metal Engineering, supra at 416.

56
Mac Adams Metal Engineering Workers Union-Independent v. Mac Adams Metal Engineering, supra at 417.

57
Rollo at 32.

58
Caffco International Limited v. Office of the Minister-Ministry of Labor & Employment, 212 SCRA 351, 356
(1992). Vide Chua v. National Labor Relations Commission, 267 SCRA 196, 201 (1997); Special Events &
Central Shipping Office Workers Union v. San Miguel Corp., 122 SCRA 557, 574 (1983).

59
J.A.T. General Services v. National Labor Relations Commission, supra at 89; Industrial Timber
Corporation v. NLRC (5th Division), 273 SCRA 200, 211 (1997).

60
Rollo at 47.

61
Id. at 289-381.

62
Wack Wack Golf and Country Club v. National Labor Relations Commission, G.R. No. 149793, April 15,
2005.

63
Rule 132, Section 30 of the Rules of Court provides to wit:

SEC. 30. Proof of notarial documents. - Every instrument duly acknowledged or proved and certified as
provided by law, may be presented without further proof, the certificate of acknowledgment being prima
facieevidence of the execution of the instrument or document involved.

30
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 174300 December 5, 2012

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. and/or FORTUNATO V. DE

CASTRO, Petitioners,
vs.
NAGKAHIUSANG MAMUMUO SA MINTERBRO–SOUTHERN PHILIPPINES FEDERATION OF
LABOR and/or MANUEL ABELLANA, GILBERT ABELLO, SIXTO ABELLO, JR., IRENEO
ABONITA, ALIEZER ADALIM, CONSTANCIO ALBISO, NELSON ANCAJAS, ROGELIO
ANOUEVO, REYNALDO ANTOQUE, DEORIDO ARIOLA, BERNARDINO AROJADO, JAIME
ATILANO, ALBERTO BAHALA, RODRISITO BAHALA, JR., JOVITO BASTASA, TEODORO
BASTASA, PACIANO BATICAN, BENJAMIN BAYNOSA, APOLINARIO BERNALDEZ,
GODOFREDO BIOCO, ERLINDO BRIGOLI, TEODRICO CABATO, ANARITO CABUDLAN,
DARIO CALIBJO, ERDIE CALIBJO, JAIME CAMINERO, BENNY CASI, EDWIN CORTEZ,
ARTURO CRISMAS, ALEJANDRO DIO, CATALINO DIONGZON, JR., MANUEL DORADO,
ZACARIAS DUMAYAC, ORLANDO EBERO, LEONARDO ENRIQUEZ, GABRIEL ESPERA,
ROBERTO ESTRERA, JOEL FERNANDEZ, EDGARDO FLORES, RUSTICO GALAN, ELIEZER
GELECANA, PRIMO GELECANA, DANIEL GIDUCOS, FELIPE GUANZON, GORDONIO
HURANO, FLORENTINO IBAÑEZ, ALFRED IBORI, NICANOR INTO, ROBERT JAMILA, JESUS
JANDAYAN, EWAN JUGAN, DIEGO JULATON, JOVENCIO JULATON, ANGELITO JULIANE,
WILFREDO LACNO, LAGRAMA DOMINGO, CERILO MAGDASAL, FERNANDO MANGARON,
JOSEPH MANGARON, EDGARDO MANGILAYA, EDGARDO MANSARON, VIRGILIO
MATALANG, JEREMIAS MOLATO, CARLOS MONARES, RAMON NECESARIO, DANILO
OTADAY, ROGELIO PAL, EBELIO PALMA, GAVINO PAMAN, JR., DANILO PANDAPATAN,
NOLI PATRICIO, MODESTO PIOQUINIO, NEMENSIO PLASABAS, JULIUS QUIBOY, RUEL
QUINILATAN, SANTOS RASONABE, ROBERTO REBUCAS, ALEJANDRO REDOBLADO, SR.,
DARIO REYES, RODOLFO ROCA, ROGER MAGAN, NECITO ROSOS, PANTALEON SAGAYNO,
VENANCIO SAGAYNO, VICENTE SALARDE, REYNALDO SALCEDO, JOSE SALINAS, DANIEL
SAPIO, ROMY SEGOVIA, JENELITO SIOCON, RENATO SODE, EDUARDO SOLIZA, PABLITO
TAC-AN, PEPITO TAGALAWAN, ARIEL TIBUS, ARTURO TOLIBAS, ROMEO TUBOG,
ALFREDO VIDAD and ARNOLD TIBlJS, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari 1 of the Decision2 and Resolution3 dated April 21, 2006 and
August 7, 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 51656, which dismissed the
petition for certiorari of petitioners Mindanao Terminal and Brokerage Service, Inc. (Minterbro) and
Fortunato V. De Castro.1

Minterbro is a domestic corporation managed by De Castro and engaged in the business of

providing arrastre and stevedoring services to its clientele at Port Area, Sasa, Davao City.4 It has a
Contract for Use of Pier5 with Del Monte Philippines, Inc. (Del Monte), which provides for the
exclusive use by Del Monte of the Minterbro pier.6 Thus, at the time relevant to this controversy, Del
Monte ~as Minterbro's only client.

The docking of vessels at the piers in Davao City, including that of Minterbro, is being carried out by
the Davao Pilots' Association, Inc. (DPAI).7 In a letter8 dated January 6, 1996, DPAI requested
Minterbro to waive any claim of liability against it for any damage to the pier or vessel. DPAI alleged
that Minterbro’s pier vibrates everytime a ship docks due to weak posts at the underwater portion.

In a letter9 dated January 15, 1997, Minterbro denied the request explaining that DPAI’s observation
had no basis as any damage to the pier was actually caused by a vessel under the control of DPAI
which bumped the pier on December 28, 1996. DPAI replied in a letter10 dated January 23, 1997
informing Minterbro of its intention to refrain from docking vessels at Minterbro’s pier for security and
safety reasons, until such time as Minterbro shall have caused the restoration of the original
independent fenders of the said pier.

31
This prompted Minterbro to bring up the matter to the Philippine Ports Authority (PPA). The PPA
promptly dispatched a team to conduct ocular inspection on Minterbro’s pier.11 In a
communication12 dated February 3, 1997, on the basis of its ocular inspection, the PPA advised
Minterbro "to conduct a thorough investigation of the underdeck and underwater structures of the
pier and initiate corrective measures if necessary." Thereafter, Minterbro, DPAI, and the PPA had a
meeting and agreed that Minterbro would seek the assistance of experts for an ocular inspection and
survey of the pier. Minterbro engaged the Davao Engineering Works and Marine Services (Davao
Engineering) to carry out the work.13

In its Survey Report No. 390/9714 dated May 6, 1997, Davao Engineering stated:

OBSERVATIONS:

The Pier facilities of Minterbro at Ilang, Davao City can still be used for loading and unloading of
cargoes provided, however, that docking procedures were properly carried out.

The cracks and spalled concrete on the joints of the RC Piles and Pile caps [do] not affect the
strength and capabilities of the Pier. However, immediate attention should be given to the Pier
damages in order to prevent further deterioration of its structural members which will lead to a costly
[repair] later on.15

Meanwhile, from January 1 until April 13, 1997, a total of sixteen (16) vessels were serviced at the
Minterbro pier:

January 1997 – 7 vessels

February 1997 – 3 vessels

March 1997 – 4 vessels

April 1997 – 2 vessels16

Subsequently, Minterbro decided to rehabilitate the pier on August 1, 1997 and, on the same day,
sent a letter to the Department of Labor and Employment (DOLE) to inform DOLE of Minterbro’s
intention to temporarily suspend arrastre and stevedoring operations. Minterbro alleged that, despite
the condition of the pier, it was able to service 16 vessels from January 1997 to April 13, 1997 and it
was ready and awaiting vessels to dock at the pier from April 14, 1997 to July 31, 1997 during which
Minterbro’s office, motor pool, and field personnel continued operations.17

On November 4, 1997, respondent Nagkahiusang Mamumuo sa Minterbro-Southern Philippines

Federation of Labor composed of respondents Manuel Abellana, et al., employees of Minterbro
working on a rotation basis and employed for arrastre and stevedoring work depending on the actual
requirements of the vessels serviced by Minterbro, filed a complaint for payment of separation pay
against Minterbro and De Castro in the Regional Arbitration Branch No. XI at Davao City of the
National Labor Relations Commission (NLRC).18

Meanwhile, on December 8, 1997, Minterbro sent a letter19 to the PPA the pertinent portion of which
reads:

This is to advise you that we have completed the repair of our pier which we did inspite of the earlier
certification issued by the Davao Engineering Works & Services, that after the latter carried out the
underwater/above water ocular inspection and survey of the pier facilities, said pier can still be used
for loading and unloading of cargoes provided that the docking procedures should be properly
carried out.

In view of the foregoing, may we request your office to render your own ocular inspection and survey
for the issuance of the corresponding certification on its readiness to accept vessels for loading and
unloading operations.

At the initial hearing before the Labor Arbiter on December 10, 1997, Minterbro and De Castro
informed the union and its members that the rehabilitation of the pier had been completed and that
they were just awaiting clearance to operate from the PPA. In a manifestation dated December 12,
1997, the union and its members stated, among others, that "they x x x are not anymore amenable

32
to going back to work with [the] company, for the reason that the latter has not been operating for
more than six (6) months, even if it resumes operation at a later date and would just demand that
they be given Retirement or Separation Pay, as the case may be."20

On December 17, 1997, the PPA issued the following Certification21 declaring Minterbro’s pier as safe
and ready for operation:

CERTIFICATION

This is to certify that the repair and rehabilitation of Minterbro Wharf owned by Mindanao Terminal &
Brokerage Services, Inc. located at Tibungco, Ilang, Davao City was inspected by our Engineering
Services Division office on Dec. 10, 1997 and was found to be totally completed. The structural
design and the supervision of work was undertaken by Bow C. Moreno, Civil Structural Design
Engineering Office of San Andres St., Manila.

Further, as certified by the Structural Consultants of the Contractor, copy attached, the Port
[M]anagement Office of Davao, Philippine Ports Authority has now declared Minterbro Wharf as safe
and ready for operationalization.

This certification is issued for whatever purpose the Mindanao Terminal & Brokerage Services, Inc.
will deem necessary.

Done in the City of Davao, Philippines, this 17th day of December 1997.

(Sgd.)
MANUEL C. ALBARRACIN
Port Manager

Thereafter, MV Uranus was serviced at the Minterbro pier on December 22 to 28, 1997.22

On June 15, 1998, the Labor Arbiter rendered a Decision23 with the following decretal portion:

WHEREFORE, judgment is hereby rendered dismissing the complaint for separation pay for lack of
merit and declaring the ninety-five (95) complainants named in the final list filed on February 3, 1998
to have lost their employment status for abandonment of work; and

Declaring complainants Roberto D. Estrera, Sr., Gorgonio Huraño, Jeremias Molato and Constancio
Albiso, who have formally withdrawn their complaint, not to have lost their employment status and
ordering respondents to accept them back to their former positions without loss of seniority rights
and other privileges.24

Aggrieved, the union members appealed the Labor Arbiter’s Decision to the NLRC. In a
Decision25 dated September 30, 1998, the NLRC modified the Decision of the Labor Arbiter in this
wise:

In denying complainants their separation benefits, the Executive Labor Arbiter considered the period
embraced within August 1, 1997, when respondent formally informed [the] DOLE of the temporary
cessation of operation up to December 16, 1997, when respondent was issued a certificate declaring
the wharf safe and ready for operations and December 22-28, 1997, when the respondent company
serviced a vessel MV Uranus which obviously did not exceed six (6) months, thus denying
complainants their monetary benefits. Incidentally, the period reckoned is incorrect.

It is admitted by respondent that the last vessel that was serviced was on April 11-13, 1997 (MV
Bosco Polar), and after the rehabilitation of the wharf, on December 22-28, 1997 (MV Uranus) was
served, thereby covering a period of more or less eight months.

Respondent cannot conceal or make the August 1, 1997 formal notice to DOLE or the alleged
continued operations of its office personnel until July 31, 1997, an excuse to evade the mandated six
(6) months period (Article 286 of the Labor Code, as amended), since the issue at bar concerns the
complainants who became jobless and penniless because of the December 28, 1996 accident.

With the unrefuted peculiar circumstances, complainants are therefore entitled to their claims for
separation benefits.

33
Moreover, complainants cannot be considered to have abandoned their jobs for the reason that it
took respondent a long period [of] time to rehabilitate the wharf causing uncertainties in their minds
which culminated in the filing of the case.

WHEREFORE, the assailed Decision is Modified. Respondents are ordered to pay complainants
their separation benefits to be assessed and computed during the post arbitral stage of the
proceedings below upon finality of the herein Decision.26

In a Resolution27 dated January 25, 1999, the NLRC maintained its Decision and denied the motion
for reconsideration of Minterbro and De Castro.

Thereafter, Minterbro and De Castro took the NLRC and the members of the union to task by filing a
Petition for Certiorari28 in the Court of Appeals asserting that the NLRC acted with grave abuse of
discretion in ordering Minterbro and De Castro to pay the union members separation pay under
Article 286 of the Labor Code. This was docketed as CA-G.R. SP No. 51656.

In a Decision dated April 21, 2006, the Court of Appeals dismissed the petition. It ruled that the
seasonal nature of the services rendered by the members of the union did not negate their status as
regular employees and that the temporary suspension of Minterbro’s operations should be reckoned
from April 14, 1997, the day no more vessel was serviced at Minterbro’s pier after MV Bosco Polar
was serviced at the said pier on April 11 to 13, 1997. Thus, pursuant to Article 286 of the Labor
Code and its application in Sebuguero v. National Labor Relations Commission,29 the NLRC correctly
ordered Minterbro and De Castro to pay the union members their separation benefits as their
temporary lay-off exceeded six months.

In a Resolution dated August 7, 2006, reconsideration was denied as the Court of Appeals found no
reason to reverse its decision. Hence, this petition.

Petitioners Minterbro and De Castro insist that the Court of Appeals erred when it ruled that the
union members are entitled to separation pay under Article 286 of the Labor Code. Petitioners
concede that, as enunciated in Sebuguero, where a temporary lay-off lasts longer than six months,
the employees should either be recalled to work or permanently retrenched following the
requirements of the law.30 However, according to petitioners, the lack of arrastre and stevedoring
services in the pier after the servicing of MV Bosco Polar on April 11 to 13, 1997 was a result of Del
Monte’s decision, for reasons unknown to Minterbro, to suddenly stop docking its vessels at
Minterbro’s pier. And while there were no arrastre and stevedoring services for lack of any vessel to
service, Minterbro’s office, motorpool and field personnel continued their work until July 31, 1997, or
a day before Minterbro filed the required notices with the DOLE on August 1, 1997. The decision to
rehabilitate the pier is a business decision and had nothing to do with the unfounded complaint of
DPAI in January 1997 about the condition of the pier.31

For their part, the union members contend that the petition is flawed as it presents a question of fact,
not of law. In particular, the determination of the correct reckoning date of the temporary suspension
of Minterbro’s business, whether April 14, 1997 or August 1, 1997, involves a review of facts and the
respective evidence of the parties, which is prohibited under the Rules of Court. Moreover, the
NLRC and the Court of Appeals have already fully discussed the matter and both came to the same
conclusion, that Minterbro and De Castro are liable to the union members for separation pay. The
factual findings of the NLRC and the Court of Appeals should therefore be accorded respect and
conclusiveness.32

The issue thus presented in this petition is whether the union members/employees were deprived of
gainful employment on April 14, 1997 after the last vessel was serviced prior to the repair of the pier
or on August 1, 1997 when repair works on the pier were commenced. Resolution of this issue will
determine whether petitioners are liable for separation pay for effectively dismissing the union
members through their prolonged lay-off of more than six months.

Petitioners insist on August 1, 1997 as the reckoning date and rely on Article 286 of the Labor Code.
On the other hand, the union members assert that the reckoning date is April 14, 1997 and
invoke Sebuguero.

At the outset, the Court notes that the petition is fatally defective. The issue it presents is factual, not
legal.

34
There is a question of fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts. There is a question of fact if the issue invites a review of the evidence presented.33

In this case, this Court is effectively being called upon to determine who among the parties is
asserting the truth regarding the date the union members were laid-off. Such venture requires the
evaluation of the respective pieces of evidence presented by the parties as well as the consideration
of "the existence and relevancy of specific surrounding circumstances as well as their relation to
each other and to the whole, and the probability of the situation."34 However, the nature of petitioners’
action, a petition for review under Rule 45 of the Rules of Court, renders that very action
inappropriate for this Court to take. Only questions of law should be raised in a petition for review
under Rule 45.35 While there are recognized exceptions to that rule, this case is not among them.

Moreover, this Court finds neither compelling reason nor substantial argument that will warrant the
reversal of the NLRC Decision which has been affirmed by the Court of Appeals.

The NLRC and the Court of Appeals found that the union members/employees were not given work
starting April 14, 1997 and that more than six months have elapsed after the union members were
laid off when the next vessel was serviced at the Minterbro pier on December 22 to 28, 1997.

Minterbro claims that it had no hand whatsoever in the lack of work for the union members at the
pier from April 14, 1997. It stated that it did not even have any idea as to why Del Monte suddenly
stopped docking its vessels at Minterbro’s pier. Nonetheless, as between petitioners and the union
members, it is petitioners who had the right to demand from Del Monte to perform its obligations
under the Contract for Use of Pier. Petitioners’ right to compel Del Monte to comply with its
contractual obligations becomes stronger in view of the following undertaking of Del Monte:

October 7, 1988

Atty. Eliodoro C. Cruz

Vice-President
Mindanao Terminal and Brokerage Service, Inc.
Davao City

Dear Atty. Cruz:

With reference to our "Contract for Use of Pier", dated 3 October, 1988, (Doc. No. 348, No. 71, Book
XXVI of Notary Public D. A. Soriano of Makati, Metro Manila), we confirm our commitment to
maximize the use of the [Minterbro] Pier at Ilang, Davao City and not to dock any of the
vessels of our principal elsewhere for as long as they can be accommodated therein as per your
commitment in the contract and in the customary and usual manner and for the purpose which they
are intended to serve.

If this reflects our understanding, please sign below and return to us our copy of this letter. This will
serve as our supplemental agreement on the matter.

Very truly yours,

(Sgd.)
JUAN F. SIERRA
President

CONFORME:

Mindanao Terminal and

Brokerage Service, Inc.

By:

(Sgd.)
ELIODORO C. CRUZ
Vice-President36 (Emphasis supplied.)

35
Unfortunately, petitioners failed to show any effort on their part to hold Del Monte to its end of the
bargain even though the union members were being forced to be laid off. Effectively, when
petitioners allowed Del Monte to abandon its agreement with Minterbro for eight months covering the
middle of April 1997 until the latter part of December 1997 without holding Del Monte accountable for
such breach, petitioners consented to Del Monte’s unexplained action and the prejudice it caused to
the union members.

Moreover, the communications between Minterbro and the PPA during the relevant period are
telling. Among these is a letter dated February 3, 1997 from the PPA:

03 February 1997

MR. FORTUNATO V. DE CASTRO, SR.

General Manager
Mindanao Terminal & Brokerage Services, Inc.
Port Area, Sasa, Davao City

Dear Mr. de Castro,

We had been furnished copy of the communications of the Davao Pilot’s, Association dated January
6 and 23, 1997 with the same subject on weakened pier structure of your port facility.

On 22 January 1997, a PMO team was dispatched to conduct an ocular inspection. The related
report is herewith furnished for your perusal.

Any report or observation of this nature from port users is considered critical and this should
be investigated and verified for the safety of all parties concerned. We therefore advise your
company to conduct a thorough investigation of the underdeck and underwater structures of the pier
and initiate corrective measures if necessary.

Please advise this end of your action/s undertaken.

Very truly yours,

(Sgd.)
MANUEL C. ALBARRACIN37 (Emphasis supplied.)

Another material document is the letter dated December 8, 1997 from Minterbro to the PPA wherein
petitioners requested the PPA to confirm the repair and rehabilitation of the Minterbro pier and issue
a certification on the pier’s "readiness to accept vessels for loading and unloading operations." 38

Petitioners exert much effort to dissociate themselves from Del Monte’s act of stopping its vessels
from docking at Minterbro’s pier beginning April 14, 1997. They also went to great lengths not only to
refute the complaint of DPAI that Minterbro’s pier is damaged and defective but also to establish that
such allegedly baseless claims have no connection with the decision of the vessels not to dock at
the Minterbro pier. The above communications, however, negate petitioners’ contention. As early as
February 1997, the PPA had already advised petitioners that the observation of DPAI that the pier
had abnormal vibrations "is considered critical."39 And in the Petition for Certiorari40and
Memorandum41 which they filed in the Court of Appeals, petitioners alleged as follows:

12. MINTERBRO sent copies of the Survey Report No. 390/97 to the PPA, the [Davao Pilots]
Association and Del Monte Philippines, Inc. to inform them that the observation/complaint of the
[Davao Pilots] Association was clearly unfounded and without any factual basis. Despite receipt of
the Survey Report, Del Monte did not dock any of its vessels at MINTERBRO’s
pier.42 (Emphasis supplied.)

The above statement shows that petitioners were fully aware that Del Monte’s decision to stop
docking any of its vessels at the Minterbro pier was basically related to the issue of the condition of
the pier. Moreover, petitioners may not rightfully shift the blame to Del Monte in view of the following
provision of their Contract for Use of Pier:

3. MINTERBRO shall maintain the pier in good condition suitable for the loading and unloading
of [Del Monte] or [Del Monte]-related cargoes[.]43 (Emphasis supplied.)

36
If petitioners really believed their claim that the pier’s condition was still suitable for normal
operations even without having undertaken the repairs which it took starting August 1997, petitioners
could have simply submitted Survey Report No. 390/97 to the PPA and requested for a certification
similar to the PPA certification dated December 17, 1997. Yet, they did not. They had to rehabilitate
the pier first before they requested for the certification. Furthermore, the very Survey Report No.
390/97 that petitioners use to support their claim that the claim of DPAI as to the condition of the pier
is totally baseless is not completely true. As quoted by petitioners, the Survey Report states that the
Minterbro pier "can still be used for loading and unloading of cargoes provided, however, that
docking procedures were properly carried out."44 This can be reasonably taken to mean as saying
that the operations at the pier should now be carried out in a mistake free manner because one
wrong move may prove to be disastrous. That means that every time arrastre and stevedoring
services are conducted at the pier, a sword would be hanging over the heads of those working at the
pier. Moreover, the said Survey Report expressly directs that "immediate attention should be
given to the Pier damages in order to prevent further deterioration of its structural
members."45 This directive contradicts petitioners’ stance that the Minterbro pier was in good
condition even prior to its repair and rehabilitation in August 1997. Thus, the Court of Appeals did not
err when it made the following observations:

In view of the inspections and surveys conducted on the pier, it could not have failed to dawn upon
petitioners that no vessel would take the risk of docking in their pier because of its damaged
condition.46

To Our mind, both petitioners and the Labor Arbiter failed to realize that what had been indisputably
established thereby was that petitioners’ pier was in critical condition, i.e., no longer viable for
docking as early as May 1996 in spite of which petitioners decided to make the necessary repairs
only in August [1996] or four months thereafter.

x x x Petitioners had already been amply notified of the unstable condition of their pier which
required prompt corrective action for the safety of both the facilities and the lives of the laborers
therein, so that petitioners should not have insisted that their pier was still in good shape.

x x x.47

In sum, petitioners’ inaction on what they allege to be the unexplained abandonment by Del Monte of
its obligations under the Contract for the Use of Pier coupled with petitioners’ belated action on the
damaged condition of the pier caused the absence of available work for the union members. As
petitioners were responsible for the lack of work at the pier and, consequently, the layoff of the union
members, they are liable for the separation from employment of the union members on a ground
similar to retrenchment. In this connection, this Court has ruled:

A lay-off, used interchangeably with "retrenchment," is a recognized prerogative of management. It is

the termination of employment resorted to by the employer, through no fault of nor with prejudice to
the employees, during periods of business recession, industrial depression, seasonal fluctuations, or
during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new
production program, or the introduction of new methods or more efficient machinery, or of
automation. Simply put, it is an act of the employer of dismissing employees because of losses in
operation of a business, lack of work, and considerable reduction on the volume of his business, a
right consistently recognized and affirmed by this Court. The requisites of a valid retrenchment are
covered by Article 283 of the Labor Code.

When a lay-off is temporary, the employment status of the employee is not deemed terminated, but
merely suspended. Article 286 of the Labor Code provides, in part, that the bona fide suspension of
the operation of the business or undertaking for a period not exceeding six months does not
terminate employment.48 (Citation omitted.)

When petitioners failed to make work available to the union members for a period of more than six
months starting April 14, 1997 by failing to call the attention of Del Monte on the latter’s obligations
under the Contract of Use of Pier and to undertake a timely rehabilitation of the pier, they are
deemed to have constructively dismissed the union members. As this Court held in Valdez v.
National Labor Relations Commission49 :

Under Article 286 of the Labor Code, the bona fide suspension of the operation of a business or
undertaking for a period not exceeding six months shall not terminate employment. Consequently,
when the bona fide suspension of the operation of a business or undertaking exceeds six months,

37
then the employment of the employee shall be deemed terminated. By the same token and applying
said rule by analogy, if the employee was forced to remain without work or assignment for a
period exceeding six months, then he is in effect constructively dismissed. (Citation omitted.)

In Sebuguero,50 the Court ruled on a case regarding layoff or temporary retrenchment, which
subsequently resulted to the separation from employment of the concerned employee as it lasted for
more than six months, as follows:

Article 283 of the Labor Code which covers retrenchment, reads as follows:

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
servicing 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 closure 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 (I) 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 he considered
1âwphi1

one (I) whole year.

This provision, however, speaks of a permanent retrenchment as opposed to a temporary lay-off as

is the case here. There is no specific provision of law which treats of a temporary retrenchment or
lay-off and provides for the requisites in effecting it or a period or duration therefor. These
employees cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article
286 may be applied but only by analogy to set a specific period that employees may remain
temporarily laid-off or in floating status. u Six months is the period set by law that the operation of a
business or undertaking may he suspended thereby suspending the employment of the employees
concerned. The temporary lay-off wherein the employees likewise cease to work should also not last
longer than six months. After six months, the employees should either be recalled to work or
permanently retrenched following the requirements of the law, and that failing to comply with this
would be tantamount to dismissing the employees and the employer would thus he liable for such
dismissal. 51 (Citation omitted.)

As the Court of Appeals did not err in ruling that Sebuguero applies to this case, the consequences
arrived at in Sebuguero also apply. Lay-off is essentially retrenchment and under Article 283 of the
Labor Code a retrenched employee is entitled to separation pay equivalent to one (1) month salary
or one-half (12) month salary per year of service, whichever is higher.

WHEREFORE, the petition 1s hereby DENIED. The Executive Labor Arbiter of the Regional
Arbitration Branch No. XI at Davao City of the National Labor Relations Commission
is DIRECTED to ensure the prompt implementation of this Decision.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

LUCAS P. BERSAMIN
Associate Justice

MARTIN S. VILLARAMA, JR. JOSE P. PEREZ*

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

38
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article 1 VIII of the Constitution and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)

Footnotes

* Per Special Order No. 1385 dated December 1l, 2012

1
Under Rule 45 of the Rules of Court.

Rollo, pp. 23-38; penned by Associate Justice Rornulo V. Rorja with Associate .Justices
2

Myrna Dimaranan Vidal and Ramon R. Ci<lrcia, concurring.

3
ld. at 40-41.

4
ld. at 25.

5
CA rol/o, pp. 29-31.

6
Rollo, p. 26.

7
Id.

8
Id. at 42.

9
Id. at 44-45.

10
Id. at 46-47.

11
Id. at 27.

12
Id. at 48.

13
Id. at 27.

14
Id. at 50-55.

15
Id. at 53.

Id. at 83; Decision dated September 30, 1998 in NLRC CA No. M-004178-98 in Case No.
16

RAB-11-11-01057-97 of the Labor Arbiter.

17
Id. at 27-28.

39
18
Id. at 28.

19
Id. at 67.

20
Id. at 28-29.

21
Id. at 69.

Id. at 79; Decision dated June 15, 1998 in Case No. RAB-11-11-01057-97 of the Labor
22

Arbiter.

23
Id. at 73-80.

24
Id. at 79-80.

25
Id. at 81-85.

26
Id. at 84-85.

27
Id. at 86-87.

28
CA rollo, pp. 2-20.

29
G.R. No. 115394, September 27, 1995, 248 SCRA 532.

30
Rollo, p. 13.

31
Id. at 12-16.

32
Id. at 104-106.

33
Republic v. Malabanan, G.R. No. 169067, October 6, 2010, 632 SCRA 338, 345.

Cosmos Bottling Corporation v. Nagrama, Jr., G.R. No. 164403, March 4, 2008, 547 SCRA
34

571, 582-583, citing Republic v. Sandiganbayan, 426 Phil. 104, 110 (2002).

35
See Section 1, Rule 45.

36
CA rollo, p. 28.

37
Rollo, p. 48.

38
Id. at 67.

39
Id. at 48.

40
CA rollo, pp. 2-20.

41
Id. at 178-198.

42
Id. at 181.

43
Id. at 30.

44
Rollo, p. 53.

45
Id.

46
Id. at 34.

40
47
Id. at 41.

48
De la Cruz v. National Labor Relations Commission, 335 Phil. 932, 939-940 (1997).

349 Phil. 760, 765-766 (1998); De Guzman v. National Labor Relations Commission, G.R.
49

No. 167701, December 12, 2007, 540 SCRA 21, 32.

50
Sebuguero v. National Labor Relations Commission, supra note 29.

51
ld. at 542-544.

41
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

EVER ELECTRICAL G.R. No. 194795

MANUFACTURING, INC.,
(EEMI) and VICENTE GO,
Petitioners, Present:

- versus - PERALTA, J., Acting Chairperson,

ABAD,
SAMAHANG MANGGAGAWA
VILLARAMA, JR., 
NG EVER ELECTRICAL/
NAMAWU LOCAL MENDOZA, and
224 represented by FELIMON
PANGANIBAN, PERLAS-BERNABE, JJ.
Respondents.

Promulgated:

June 13, 2012

x -----------------------------------------------------------------------------------------------------x

DECISION

MENDOZA, J.:

42
 This petition for review on certiorari[1] under Rule 45 of the 1997 Rules of
Civil Procedure assails the August 31, 2010 Decision[2] and the December 16, 2010
Resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. 108978.

Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation

engaged in the business of manufacturing electrical parts and supplies. On the other
hand, the respondents are members of Samahang Manggagawa ng Ever
Electrical/NAMAWU Local 224 (respondents) headed by Felimon Panganiban.

The controversy started when EEMI closed its business operations on October
11, 2006 resulting in the termination of the services of its employees. Aggrieved,
respondents filed a complaint for illegal dismissal with prayer for payment of
13th month pay, separation pay, damages, and attorneys fees. Respondents alleged
that the closure was made without any warning, notice or memorandum and in full
disregard of the requirements of the Labor Code.

In its defense, EEMI explained that it had closed the business due to various
factors. In 1995, it invested in Orient Commercial Banking Corporation (Orient
Bank) the sum of P500,000,000.00 and during the Asian Currency crises, various
economies in the South East Asian Region were hurt badly. EEMI was one of those
who suffered huge losses.In November 1996, it obtained a loan in the amount
of P121,400,000.00 from United Coconut Planters Bank (UCPB). As security for
the loan, EEMIs land and its improvements, including the factory, were mortgaged
to UCPB.

EEMIs business suffered further losses due to the continued entry of cheaper
goods from China and other Asian countries. Adding to EEMIs financial woes was
the closure of Orient Bank where most of its resources were invested. As a result,
EEMI was not able to meet its loan obligations with UCPB.

In an attempt to save the company, EEMI entered into a dacion en

pago arrangement with UCPB which, in effect, transferred ownership of the
companys property to UCPB as reflected in TCT No. 429159. Originally, EEMI
wanted to lease the premises to continue its business operation but under UCPBs
policy, a previous debtor who failed to settle its loan obligation was not eligible to
lease its acquired assets. Thus, UCPB agreed to lease it to an affiliate corporation,
EGO Electrical Supply Co, Inc. (EGO), for and in behalf of EEMI. On February 2,
2002, a lease agreement was entered into between UCPB and EGO.[4] The said lease
came to a halt when UCPB instituted an unlawful detainer suit against EGO before
the Metropolitan Trial Court, Branch 5, Makati City (MeTC) docketed as Civil Case
No. 88602. On August 11, 2006, the MeTC ruled in favor of UCPB and ordered
43
EGO to vacate the leased premises and pay rentals to UCPB in the amount
of P21,473,843.65.[5] On September 19, 2006, a writ of execution was
issued.[6]Consequently, on October 11, 2006, the Sheriff implemented the writ by
closing the premises and, as a result, EEMIs employees were prevented from
entering the factory.

On April 25, 2007, the Labor Arbiter (LA) ruled that respondents were not
illegally dismissed. It, however, ordered EEMI and its President, Vicente Go (Go),
to pay their employees separation pay and 13 th month pay respectively.[7] The
decretal portion of the LA decision, reads:

CONFORMABLY WITH THE FOREGOING, Judgment is hereby

rendered ordering the respondent[s] in solidum to pay the complainants
their separation pay, 13thmonth pay of the three (3) workers and the balance
of their 13th month pay as computed which computation is made a part of
this disposition.

On September 15, 2008, the NLRC reversed and set aside the decision of the
LA. The NLRC dismissed the complaint for lack of merit and ruled that since EEMIs
cessation of business operation was due to serious business losses, the employees
were not entitled to separation pay.[8]

Respondents moved for reconsideration of the NLRC decision, but the NLRC
denied the motion in its March 23, 2009 Resolution.[9]

Unperturbed, respondents elevated the case before the CA via a petition for
certiorari under Rule 65.[10]

On August 31, 2010, the CA granted the petition.[11] It nullified the decision
of the NLRC and reinstated the LA decision. The dispositive portion of the CA
decision reads:

ACCORDINGLY, the petition is GRANTED. The Decision

dated September 15, 2008 and Resolution dated March 23, 2009 of the
National Labor Relations Commission are NULLIFIED and the Decision
dated April 25, 2007 of Labor Arbiter Melquiades Sol Del Rosario,
REINSTATED.

The CA held that respondents were entitled to separation pay and 13 th month
pay because the closure of EEMIs business operation was effected by the
enforcement of a writ of execution and not by reason of business losses. The CA,
citing Restaurante Las Conchas v. Lydia Llego,[12] upheld the solidary liability of
EEMI and Go, declaring that when the employer corporation is no longer existing
and unable to satisfy the judgment in favor of the employees, the officers should be
held liable for acting on behalf of the corporation.[13]

44
 EEMI and Go filed a motion for reconsideration but it was denied in the CA
Resolution dated December 16, 2010.[14]
Hence, this petition.[15]

Issues:

1. Whether the CA erred in finding that the closure of EEMIs operation was
not due to business losses; and

2. Whether the CA erred in finding Vicente Go solidarily liable with EEMI.

The petition is partly meritorious.

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.[16]

45
 In this case, EEMI failed to establish that the main reason for its closure was
business reverses. As aptly observed by the CA, the cessation of EEMIs business
was not directly brought about by serious business losses or financial reverses, but
by reason of the enforcement of a judgment against it. Thus, EEMI should be
required to pay separation pay to its affected employees.

As to whether or not Go should be held solidarily liable with EEMI, the Court
agrees with the petitioner.

As a general rule, corporate officers should not be held solidarily liable with
the corporation for separation pay for it is settled that a corporation is invested by
law with a personality separate and distinct from those of the persons composing it
as well as from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personality.[17]

The LA was of the view that Go, as President of the corporation, actively
participated in the management of EEMIs corporate obligations, and, accordingly,
rendered judgment ordering EEMI and Go in solidum to pay the
complainants[18] their due. He explained that [r]espondent Gos negligence in not
paying the lease rental of the plant in behalf of the lessee EGO Electrical Supply,
Inc., where EEMI was operating and reimburse expenses of UCPB for real estate
taxes and the like, prompted the bank to file an unlawful detainer case against the
lessee, EGO Electrical Supply Co. This evasion of an existing obligation, made
respondent Go as liable as respondent EEMI, for complainants money
awards.[19] Added the LA, being the President and the one actively representing
respondent EEMI, in major contracts i.e. Real Estate Mortgage, loans, dacion en
pago, respondent Go has to be liable in the case.[20] As earlier stated, the CA affirmed
the LA decision citing the case of Restaurante Las Conchas v. Llego,[21] where it was
held that when the employer corporation is no longer existing and unable to satisfy
the judgment in favor of the employees, the officers should be held liable for acting
on behalf of the corporation.[22]

A study of Restaurante Las Conchas case, however, bares that it was an

application of the exception rather than the general rule. As stated in the said case, as
a rule, the officers and members of a corporation are not personally liable for acts
done in the performance of their duties.[23] The Court therein explained that it applied
the exception because of the peculiar circumstances of the case. If the rule would be
applied, the employees would end up in an empty victory because as the restaurant
had been closed for lack of venue, there would be no one to pay its liability as the
respondents therein claimed that the restaurant was owned by a different entity, not
a party in the case.[24]

46
 In two subsequent cases, the Courts ruling in Restaurante Las Conchas was
invoked but the Court refused to consider it reasoning out that it was the exception
rather than the rule. The two cases were Mandaue Dinghow Dimsum House, Co.,
Inc. and/or Henry Uytengsu v. National Labor Relations
[25]
Commission and Pantranco Employees Association (PEA-PTGWO) v. National
Labor Relations Commission.[26]

In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to apply
the ruling in Restaurante Las Conchas because there was no evidence that the
respondent therein, Henry Uytrengsu, acted in bad faith or in excess of his authority.
It stressed that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal
entity to which it may be related. For said reason, the doctrine of piercing the veil of
corporate fiction must be exercised with caution.[27] Citing Malayang Samahan ng
mga Manggagawa sa M. Greenfield v. Ramos,[28] the Court explained that corporate
directors and officers are solidarily liable with the corporation for the termination of
employees done with malice or bad faith. It stressed that bad faith does not connote
bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud.

In Pantranco Employees Association, the Court also rejected the invocation

of Restaurante Las Conchas and refused to pierce the veil of corporate fiction. It
explained:
As between PNB and PNEI, petitioners want us to disregard their
separate personalities, and insist that because the company, PNEI, has
already ceased operations and there is no other way by which the judgment
in favor of the employees can be satisfied, corporate officers can be held
jointly and severally liable with the company. Petitioners rely on the
pronouncement of this Court in A.C. Ransom Labor Union-CCLU v.
NLRC and subsequent cases.
This reliance fails to persuade. We find the aforesaid decisions
inapplicable to the instant case.
For one, in the said cases, the persons made liable after the companys
cessation of operations were the officers and agents of the corporation. The
rationale is that, since the corporation is an artificial person, it must have
an officer who can be presumed to be the employer, being the person acting
in the interest of the employer. The corporation, only in the technical sense,
is the employer. In the instant case, what is being made liable is another
corporation (PNB) which acquired the debtor corporation (PNEI).
Moreover, in the recent cases Carag v. National Labor Relations
Commission and McLeod v. National Labor Relations Commission, the
Court explained the doctrine laid down in AC Ransom relative to the
personal liability of the officers and agents of the employer for the debts of
the latter. In AC Ransom, the Court imputed liability to the officers of the
corporation on the strength of the definition of an employer in Article 212(c)
(now Article 212[e]) of the Labor Code. Under the said provision, employer
includes any person acting in the interest of an employer, directly or
indirectly, but does not include any labor organization or any of its officers
or agents except when acting as employer. It was clarified

47
 in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does
not make a corporate officer personally liable for the debts of the
corporation. It added that the governing law on personal liability of
directors or officers for debts of the corporation is still Section 31 of the
Corporation Code.
More importantly, as aptly observed by this Court in AC Ransom, it
appears that Ransom, foreseeing the possibility or probability of payment
of backwages to its employees, organized Rosario to replace Ransom, with
the latter to be eventually phased out if the strikers win their case. The
execution could not be implemented against Ransom because of the
disposition posthaste of its leviable assets evidently in order to evade its just
and due obligations. Hence, the Court sustained the piercing of the
corporate veil and made the officers of Ransom personally liable for the
debts of the latter.
Clearly, what can be inferred from the earlier cases is that the
doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation. In the absence of malice, bad faith, or a specific provision of law
making a corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities.[29] [Emphasis supplied]

Similarly, in the case at bench, the records do not warrant an application of

the exception. The rule, which requires the presence of malice or bad faith, must still
prevail. In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung,[30] the
Court absolved the corporations president from liability in the absence of bad faith
or malice. In the said case, the Court stated:

In labor cases, corporate directors and officers may be held solidarily

liable with the corporation for the termination of employment only if done
with malice or in bad faith.[31] Bad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud.[32]

In the present case, Go may have acted in behalf of EEMI but the companys
failure to operate cannot be equated to bad faith. Cessation of business operation is
brought about by various causes like mismanagement, lack of demand, negligence,
or lack of business foresight. Unless it can be shown that the closure was deliberate,
malicious and in bad faith, the Court must apply the general rule that a corporation
has, by law, a personality separate and distinct from that of its owners. As there is
no evidence that Go, as EEMIs President, acted maliciously or in bad faith in

48
handling their business affairs and in eventually implementing the closure of its
business, he cannot be held jointly and solidarily liable with EEMI.

WHEREFORE, the petition is PARTIALLY GRANTED. The August 31,

2010 Decision of the Court of Appeals
is AFFIRMED with MODIFICATION that Vicente Go is not solidarily liable
with Ever Electrical Manufacturing, Inc.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA

Associate Justice

Acting Chairperson

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

49
 ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

DIOSDADO M. PERALTA

Associate Justice

Acting Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. No. 296,
The Judiciary Act of 1948, as amended)


Per Special Order No. 1228 dated June 6, 2012.

Designated Acting Member in lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 1229
dated June 6, 2012.
[1]
Rollo, pp. 9-40.
[2]
Id. at 356-366.
[3]
Id. at 368.
[4]
Id. at 158-191.
[5]
Id. at 195-200.
[6]
Id. at 202-203.
[7]
Id. at 242-261.

50
[8]
Id. at 291-300.
[9]
Id. at 303-304.
[10]
Id. at 305-328.
[11]
Id. at 356-366. Penned by Justice Amy C. Lazaro-Javier and concurred in by Associate Justice Rebecca De Guia-
Salvador and Associate Justice Sesinando E. Villon.
[12]
372 Phil. 697, 707 (1999).
[13]
Rollo, p. 365. Citing Restaurante Las Conchas v. Lydia Llego, 372 Phil. 697, 707 (1999), Gudez v. NLRC, 262
Phil. 703, 710 (1990).
[14]
Rollo, p. 368.
[15]
Id. at 9-40.
[16]
J.A.T. General Services v. National Labor Relations Commission, 465 Phil. 785, 795 (2004).
[17]
Sunio v. National Labor Relations Commission, 212 Phil. 355, 362-363 (1984).
[18]
Rollo, pp. 242-261.
[19]
Id. at 288.
[20]
Id. at 259.
[21]
Supra note 12.
[22]
Supra note 13.
[23]
Supra note 12.
[24]
Records reveal that the Restaurant Services Corporation was not a party respondent in the complaint filed before
the Labor Arbiter. The complaint was filed only against the Restaurante Las Conchas and the spouses David Gonzales
and Elizabeth Anne Gonzales as owner, manager and president. The Restaurant Services Corporation was mentioned
for the first time in the Motion to Dismiss filed by petitioners David Gonzales and Elizabeth Anne Gonzales who did
not even bother to adduce any evidence to show that the Restaurant Services Corporation was really the owner of the
Restaurante Las Conchas. On the other hand, if indeed, the Restaurant Services Corporation was the owner of the
Restaurante Las Conchas and the employer of private respondents, it should have filed a motion to intervene 15 in the
case. The records, however, show that no such motion to intervene was ever filed by the said corporation. The only
conclusion that can be derived is that the Restaurant Services Corporation, if it still exists, has no legal interest in the
controversy. Notably, the corporation was only included in the decision of the Labor Arbiter and the NLRC as
respondent because of the mere allegation of petitioners David Gonzales and Elizabeth Gonzales, albeit without proof,
that it is the owner of the Restaurante Las Conchas. Thus, petitioners David Gonzales and Elizabeth Anne Gonzales
cannot rightfully claim that it is the corporation which should be made liable for the claims of private respondents.
Assuming that indeed, the Restaurant Services Corporation was the owner of the Restaurante Las Conchas and the
employer of private respondents, this will not absolve petitioners David Gonzales and Elizabeth Anne Gonzales from
their liability as corporate officers. Although as a rule, the officers and members of a corporation are not personally
liable for acts done in the performance of their duties, this rule admits of exceptions, one of which is when the employer
corporation is no longer existing and is unable to satisfy the judgment in favor of the employee, the officers should be
held liable for acting on behalf of the corporation. Here, the corporation does not appear to exist anymore.
[25]
G.R. No. 161134, March 3, 2008, 547 SCRA 402.
[26]
G.R. Nos. 170689 and 170705, March 17, 2009, 581 SCRA 598.
[27]
Mandaue Dinghow Dimsum House, Inc. v. NLRC, 4 th Division, G.R. No. 161134, March 3, 2008, 547 SCRA
402, 414.
[28]
409 Phil. 75, 83 (2001).
[29]
Pantranco Employees Association (PEA-PTGWO) v. NLRC, G.R. Nos. 170689 & 170705, March 17, 2009, 581
SCRA 598, 614, 616.
[30]
G.R. No. 185122, August 16, 2010, 628 SCRA 311, 326.
[31]
Petron Corporation v. NLRC, G. R. No. 154532, October 27, 2006, 505 SCRA 596, 614.
[32]
Elcee Farms v. NLRC, G.R. No. 126428, January 25, 2007, 512 SCRA 602, 616-617.

51
 THIRD DIVISION

HOTEL ENTERPRISES OF THE PHILIPPINES, G.R. No. 165756

INC. (HEPI), owner of Hyatt Regency
Manila,
Petitioner, Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
CARPIO,*
SAMAHAN NG MGA MANGGAGAWA SA CORONA,**
HYATT-NATIONAL UNION OF WORKERS IN
NACHURA, and
THE HOTEL AND RESTAURANT AND ALLIED
INDUSTRIES (SAMASAH-NUWHRAIN), PERALTA, JJ.
Respondent.
Promulgated:

June 5, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

The Constitution affords full protection to labor, but the policy is not to be blindly
followed at the expense of capital. Always, the interests of both sides must be
balanced in light of the evidence adduced and the peculiar circumstances
surrounding each case.

52
 This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision[1] dated July 20, 2004 and the
Resolution[2]dated October 20, 2004 in CA-G.R. SP No. 81153. The appellate court,
in its decision and resolution, reversed the April 3, 2003 Resolution[3] of the
National Labor Relations Commission (NLRC) and reinstated the October 30, 2002
Decision[4] issued by Labor Arbiter Aliman Mangandog upholding the legality of the
strike staged by the officers and members of respondent Samahan ng mga
Manggagawa sa Hyatt-National Union of Workers in the Hotel Restaurant and
Allied Industries (Union).

We trace the antecedent facts below.

Respondent Union is the certified collective bargaining agent of the rank-

and-file employees of Hyatt Regency Manila, a hotel owned by petitioner Hotel
Enterprises of the Philippines, Inc. (HEPI).
In 2001, HEPIs hotel business suffered a slump due to the local and
international economic slowdown, aggravated by the events of September 11,
2001 in the United States. An audited financial report made by Sycip Gorres Velayo
(SGV) & Co. on January 28, 2002 indicated that the hotel suffered a gross operating
loss amounting to P16,137,217.00 in 2001,[5] a staggering decline compared to
its P48,608,612.00 gross operating profit[6] in year 2000.[7]

2000 2001
Income from Hotel Operations P 78,434,103 P 12,230,248

--------------------------------------------------------------------------------------

Other Deductions

Provision for hotel rehabilitation 20,000,000 20,000,000

Provision for replacements of and

additions to furnishings and

53
 equipment 9,825,491 8,367,465

29,825,491 28,367,465

Gross Operating Profit (Loss) P 48,608,612 (P 16,137,217)

According to petitioner, the management initially decided to cost-cut by

implementing energy-saving schemes: prioritizing acquisitions/purchases;
reducing work weeks in some of the hotels departments; directing the employees
to avail of their vacation leaves; and imposing a moratorium on hiring employees
for the year 2001 whenever practicable.[8]

Meanwhile, on August 31, 2001, the Union filed a notice of strike due to a
bargaining deadlock before the National Conciliation Mediation Board (NCMB),
docketed as NCMB-NCR-NS 08-253-01.[9] In the course of the proceedings, HEPI
submitted its economic proposals for the rank-and-file employees covering the
years 2001, 2002, and 2003. The proposal included manning and staffing standards
for the 248 regular rank-and-file employees. The Union accepted the economic
proposals. Hence, a new collective bargaining agreement (CBA) was signed on
November 21, 2001, adopting the manning standards for the 248 rank-and-file
employees.[10]

Then, on December 21, 2001, HEPI issued a memorandum offering a Special Limited
Voluntary Resignation/Retirement Program (SLVRRP) to its regular employees.
Employees who were qualified to resign or retire were given separation packages
based on the number of years of service.[11] The vacant positions, as well as the
regular positions vacated, were later filled up with contractual personnel and
agency employees.[12]

Subsequently, on January 21, 2002, petitioner decided to implement a downsizing

scheme after studying the operating costs of its different divisions to determine the
areas where it could obtain significant savings. It found that the hotel could save
on costs if certain jobs, such as engineering services, messengerial/courier services,
janitorial and laundry services, and operation of the employees cafeteria, which by
their nature were contractable pursuant to existing laws and jurisprudence, were
abolished and contracted out to independent job contractors. After evaluating the
hotels manning guide, the following positions were identified as redundant or in
excess of what was required for the hotels actual operation given the prevailing
poor business condition, viz.: a) housekeeping attendant-linen; b) tailor; c) room
attendant; d) messenger/mail clerk; and e) telephone technician.[13] The effect was
to be a reduction of the hotels rank-and file employees from the agreed number of

54
248 down to just 150[14] but it would generate estimated savings of
around P9,981,267.00 per year.[15]

On January 24, 2002, petitioner met with respondent Union to formally

discuss the downsizing program.[16] The Union opposed the downsizing plan
because no substantial evidence was shown to prove that the hotel was incurring
heavy financial losses, and for being violative of the CBA, more specifically the
manning/staffing standards agreed upon by both parties in November 2001.[17] In
a financial analysis made by the Union based on Hyatts financial statements
submitted to the Securities and Exchange Commission (SEC), it noted that the hotel
posted a positive profit margin with respect to its gross operating and net incomes
for the years 1998, 1999, 2000, and even in 2001.[18] Moreover, figures comprising
the hotels unappropriated retained earnings showed a consistent increase from
1998 to 2001, an indication that the company was, in fact, earning, contrary to
petitioners assertion. The net income from hotel operations slightly dipped
from P78,434,103.00 in 2000 to P12,230,248.00 for the year 2001, but
nevertheless remained positive.[19] With this, the Union, through a letter, informed
the management of its opposition to the scheme and proposed instead several
cost-saving measures.[20]

Despite its opposition, a list of the positions declared redundant and to be

contracted out was given by the management to the Union on March 22,
2002.[21] Notices of termination were, likewise, sent to 48 employees whose
positions were to be retrenched or declared as redundant. The notices were sent
on April 5, 2002 and were to take effect on May 5, 2002.[22] A notice of termination
was also submitted by the management to the Department of Labor and
Employment (DOLE) indicating the names, positions, addresses, and salaries of the
employees to be terminated.[23] Thereafter, the hotel management engaged the
services of independent job contractors to perform the following services: (1)
janitorial (previously, stewarding and public area attendants); (2) laundry; (3)
sundry shop; (4) cafeteria;[24] and (5) engineering.[25] Some employees, including
one Union officer, who were affected by the downsizing plan were transferred to
other positions in order to save their employment.[26]

On April 12, 2002, the Union filed a notice of strike based on unfair labor
practice (ULP) against HEPI. The case was docketed as NCMB-NCR-NS-04-139-
02.[27] On April 25, 2002, a strike vote was conducted with majority in the
bargaining unit voting in favor of the strike.[28] The result of the strike vote was sent
to NCMB-NCR Director Leopoldo de Jesus also on April 25, 2002.[29]

55
 On April 29, 2002, HEPI filed a motion to dismiss notice of strike which was
opposed by the Union. On May 3, 2002, the Union filed a petition to suspend the
effects of termination before the Office of the Secretary of Labor. On May 5, 2002,
the hotel management began implementing its downsizing plan immediately
terminating seven (7) employees due to redundancy and 41 more due to
retrenchment or abolition of positions.[30] All were given separation pay equivalent
to one (1) months salary for every year of service.[31]

On May 8, 2002, conciliation proceedings were held between petitioner and

respondent, but to no avail. On May 10, 2002, respondent Union went on strike. A
petition to declare the strike illegal was filed by petitioner on May 22, 2002,
docketed as NLRC-NCR Case No. 05-03350-2002.

On June 14, 2002, Acting Labor Secretary Manuel Imson issued an order in
NCM-NCR-NS-04-139-02 (thence, NLRC Certified Case No. 000220-02), certifying
the labor dispute to the NLRC for compulsory arbitration and directing the striking
workers, except the 48 workers earlier terminated, to return to work within 24
hours. On June 16, 2002, after receiving a copy of the order, members of
respondent Union returned to work.[32] On August 1, 2002, HEPI filed a
manifestation informing the NLRC of the pending petition to declare the strike
illegal. Because of this, the NLRC, on November 15, 2002, issued an order directing
Labor Arbiter Aliman Mangandog to immediately suspend the proceedings in the
pending petition to declare the strike illegal and to elevate the records of the said
case for consolidation with the certified case.[33] However, the labor arbiter had
already issued a Decision[34] dated October 30, 2002 declaring the strike
legal.[35] Aggrieved, HEPI filed an appeal ad cautelam before the NLRC questioning
the October 30, 2002 decision.[36] The Union, on the other hand, filed a motion for
reconsideration of the November 15, 2002 Order on the ground that a decision was
already issued in one of the cases ordered to be consolidated.[37]

On appeal, the NLRC reversed the labor arbiters decision. In a

Resolution[38] dated April 3, 2003, it gave credence to the financial report of SGV &
Co. that the hotel had incurred huge financial losses necessitating the adoption of
a downsizing scheme. Thus, NLRC declared the strike illegal, suspended all Union
officers for a period of six (6) months without pay, and dismissed the ULP charge
against HEPI.[39]

Respondent Union moved for reconsideration, while petitioner HEPI filed its
partial motion for reconsideration. Both were denied in a Resolution[40] dated
September 24, 2003.

56
 The Union filed a petition for certiorari with the CA on December 19,
[41]
2003 questioning in the main the validity of the NLRCs reversal of the labor
arbiters decision.[42] But while the petition was pending, the hotel management, on
December 29, 2003, issued separate notices of suspension against each of the 12
Union officers involved in the strike in line with the April 3, 2003 resolution of the
NLRC.[43]

On July 20, 2004, the CA promulgated the assailed Decision,[44] reversing the
resolution of the NLRC and reinstating the October 30, 2002 decision of the Labor
Arbiter which declared the strike valid. The CA also ordered the reinstatement of
the 48 terminated employees on account of the hotel managements illegal
redundancy and retrenchment scheme and the payment of their backwages from
the time they were illegally dismissed until their actual reinstatement.[45] HEPI
moved for reconsideration but the same was denied for lack of merit.[46]

Hence, this petition.

The issue boils down to whether the CAs decision, reversing the NLRC ruling,
is in accordance with law and established facts.

We answer in the negative.

To resolve the correlative issues (i.e., the validity of the strike; the charges of
ULP against petitioner; the propriety of petitioners act of hiring contractual
employees from employment agencies; and the entitlement of Union officers and
terminated employees to reinstatement, backwages and strike duration pay), we
answer first the most basic question: Was petitioners downsizing scheme valid?

The pertinent provision of the Labor Code states:

ART. 283. x x x

57
 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 worker and the [Department] 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 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 as
one (1) whole year.

Retrenchment is the reduction of work personnel usually due to poor

financial returns, aimed to cut down costs for operation particularly on salaries and
wages.[47]Redundancy, on the other hand, exists where the number of employees
is in excess of what is reasonably demanded by the actual requirements of the
enterprise.[48] Both are forms of downsizing and are often resorted to by the
employer during periods of business recession, industrial depression, or seasonal
fluctuations, and during lulls in production occasioned by lack of orders, shortage
of materials, conversion of the plant for a new production program, or introduction
of new methods or more efficient machinery or automation.[49] Retrenchment and
redundancy are valid management prerogatives, provided they are done in good
faith and the employer faithfully complies with the substantive and procedural
requirements laid down by law and jurisprudence.[50]

For a valid retrenchment, the following requisites must be complied with: (1)
the retrenchment is necessary to prevent losses and such losses are proven; (2)
written notice to the employees and to the DOLE at least one month prior to the
intended date of retrenchment; and (3) payment of separation pay equivalent to
one-month pay or at least one-half month pay for every year of service, whichever
is higher.[51]

In case of redundancy, the employer must prove that: (1) a written notice
was served on both the employees and the DOLE at least one month prior to the
intended date of retrenchment; (2) separation pay equivalent to at least one month
pay or at least one month pay for every year of service, whichever is higher, has
been paid; (3) good faith in abolishing the redundant positions; and (4) adoption of
fair and reasonable criteria in ascertaining which positions are to be declared
redundant and accordingly abolished.[52]

58
 It is the employer who bears the onus of proving compliance with these
requirements, retrenchment and redundancy being in the nature of affirmative
defenses.[53]Otherwise, the dismissal is not justified.[54]

In the case at bar, petitioner justifies the downsizing scheme on the ground
of serious business losses it suffered in 2001. Some positions had to be declared
redundant to cut losses. In this context, what may technically be considered as
redundancy may verily be considered as a retrenchment measure.[55] To
substantiate its claim, petitioner presented a financial report covering the years
2000 and 2001 submitted by the SGV & Co., an independent external auditing
firm.[56] From an impressive gross operating profit of P48,608,612.00 in 2000, it
nose-dived to negative P16,137,217.00 the following year. This was the same
financial report submitted to the SEC and later on examined by respondent Unions
auditor. The only difference is that, in respondents analysis, Hyatt Regency Manila
was still earning because its net income from hotel operations in 2001
was P12,230,248.00. However, if provisions for hotel rehabilitation as well as
replacement of and additions to the hotels furnishings and equipments are
included, which respondent Union failed to consider, the result is indeed a
staggering deficit of more than P16 million. The hotel was already operating not
only on a slump in income, but on a huge deficit as well. In short, while the hotel
did earn, its earnings were not enough to cover its expenses and other liabilities;
hence, the deficit. With the local and international economic conditions equally
unstable, belt-tightening measures logically had to be implemented to forestall
eventual cessation of business.

Losses or gains of a business entity cannot be fully and satisfactorily assessed

by isolating or highlighting only a particular part of its financial report. There are
recognized accounting principles and methods by which a companys performance
can be objectively and thoroughly evaluated at the end of every fiscal or calendar
year. What is important is that the assessment is accurately reported, free from
any manipulation of figures to suit the companys needs, so that the companys
actual financial condition may be impartially and accurately gauged.

The audit of financial reports by independent external auditors is strictly

governed by national and international standards and regulations for the
accounting profession.[57] It bears emphasis that the financial statements
submitted by petitioner were audited by a reputable auditing firm and are clear
and substantial enough to prove that the company was in a precarious financial
condition.

59
 In the competitive and highly uncertain world of business, cash flow is as
important as and oftentimes, even more critical than profitability.[58] So long as the
hotel has enough funds to pay its workers and satisfy costs for operations,
maintenance and other expenses, it may survive and bridge better days for its
recovery. But to ensure a viable cash flow amidst the growing business and
economic uncertainty is the trick of the trade. Definitely, this cannot be achieved if
the cost-saving measures continuously fail to cap the losses. More drastic, albeit
painful, measures have to be taken.

This Court will not hesitate to strike down a companys redundancy program
structured to downsize its personnel, solely for the purpose of weakening the union
leadership.[59] Our labor laws only allow retrenchment or downsizing as a valid
exercise of management prerogative if all other else fail. But in this case, petitioner
did implement various cost-saving measures and even transferred some of its
employees to other viable positions just to avoid the premature termination of
employment of its affected workers. It was when the same proved insufficient and
the amount of loss became certain that petitioner had to resort to drastic measures
to stave off P9,981,267.00 in losses, and be able to survive.

If we see reason in allowing an employer not to keep all its employees until
after its losses shall have fully materialized,[60] with more reason should we allow
an employer to let go of some of its employees to prevent further financial slide.

This, in turn, gives rise to another question: Does the implementation of the
downsizing scheme preclude petitioner from availing the services of contractual
and agency-hired employees?

In Asian Alcohol Corporation v. National Labor Relations Commission, [61] we

answered in the negative. We said:

In any event, we have held that an employers good faith in implementing a

redundancy program is not necessarily destroyed by availment of the services of an
independent contractor to replace the services of the terminated employees. We have
previously ruled that the reduction of the number of workers in a company made
necessary by the introduction of the services of an independent contractor is justified
when the latter is undertaken in order to effectuate more economic and efficient
methods of production. In the case at bar, private respondent failed to proffer any proof
that the management acted in a malicious or arbitrary manner in engaging the services
of an independent contractor to operate the Laura wells. Absent such proof, the Court

60
 has no basis to interfere with the bona fide decision of management to effect more
economic and efficient methods of production.

With petitioners downsizing scheme being valid, and the availment of

contractual and agency-hired employees legal, the strike staged by officers and
members of respondent Union is, perforce, illegal.

Given the foregoing finding, the only remaining question that begs resolution
is whether the strike was staged in good faith. On this issue, we find for the
respondent.

Procedurally, a strike to be valid must comply with Article 263 of the Labor
Code, which pertinently reads:

Article 263. x x x

xxxx

(c) In cases of bargaining deadlocks, the duly certified or recognized bargaining

agent may file a notice of strike or the employer may file a notice of lockout with the
[Department] at least 30 days before the intended date thereof. In cases of unfair labor
practice, the period of notice shall be 15 days and in the absence of a duly certified or
recognized bargaining agent, the notice of strike may be filed by any legitimate labor
organization in behalf of its members. However, in case of dismissal from employment of
union officers duly elected in accordance with the union constitution and by-laws, which
may constitute union busting where the existence of the union is threatened, the 15-day
cooling-off period shall not apply and the union may take action immediately.

(d) The notice must be in accordance with such implementing rules and
regulations as the [Secretary] of Labor and Employment may promulgate.

(e) During the cooling-off period, it shall be the duty of the [Department] to exert
all efforts at mediation and conciliation to effect a voluntary settlement. Should the
dispute remain unsettled until the lapse of the requisite number of days from the
mandatory filing of the notice, the labor union may strike or the employer may declare a
lockout.

(f) A decision to declare a strike must be approved by a majority of the total union
membership in the bargaining unit concerned, obtained by secret ballot in meetings or
referenda called for that purpose. A decision to declare a lockout must be approved by a

61
 majority of the board of directors of the corporation or association or of the partners in a
partnership, obtained by secret ballot in a meeting called for the purpose. The decision
shall be valid for the duration of the dispute based on substantially the same grounds
considered when the strike or lockout vote was taken. The [Department] may at its own
initiative or upon the request of any affected party, supervise the conduct of the secret
balloting. In every case, the union or the employer shall furnish the [Department] the
results of the voting at least seven days before the intended strike or lockout, subject to
the cooling-off period herein provided.

Accordingly, the requisites for a valid strike are: (a) a notice of strike filed
with the DOLE 30 days before the intended date thereof or 15 days in case of ULP;
(b) a strike vote approved by a majority of the total union membership in the
bargaining unit concerned obtained by secret ballot in a meeting called for that
purpose; and (c) a notice to the DOLE of the results of the voting at least seven (7)
days before the intended strike.[62] The requirements are mandatory and failure of
a union to comply therewith renders the strike illegal.[63]

In this case, respondent fully satisfied the procedural requirements

prescribed by law: a strike notice filed on April 12, 2002; a strike vote reached on
April 25, 2002; notification of the strike vote filed also on April 25, 2002; conciliation
proceedings conducted on May 8, 20002; and the actual strike on May 10, 2002.

Substantively, however, there appears to be a problem. A valid and legal

strike must be based on strikeable grounds, because if it is based on a non-
strikeable ground, it is generally deemed an illegal strike. Corollarily, a strike
grounded on ULP is illegal if no acts constituting ULP actually exist. As an exception,
even if no such acts are committed by the employer, if the employees believe in
good faith that ULP actually exists, then the strike held pursuant to such belief may
be legal. As a general rule, therefore, where a union believes that an employer
committed ULP and the surrounding circumstances warranted such belief in good
faith, the resulting strike may be considered legal although, subsequently, such
allegations of unfair labor practices were found to be groundless.[64]

Here, respondent Union went on strike in the honest belief that petitioner
was committing ULP after the latter decided to downsize its workforce contrary to
the staffing/manning standards adopted by both parties under a CBA forged only
four (4) short months earlier. The belief was bolstered when the management hired
100 contractual workers to replace the 48 terminated regular rank-and-file
employees who were all Union members.[65] Indeed, those circumstances
showed prima facie that the hotel committed ULP. Thus, even if technically there

62
was no legal ground to stage a strike based on ULP, since the attendant
circumstances support the belief in good faith that petitioners retrenchment
scheme was structured to weaken the bargaining power of the Union, the strike,
by exception, may be considered legal.

Because of this, we view the NLRCs decision to suspend all the Union officers
for six (6) months without pay to be too harsh a punishment. A suspension of two
(2) months without pay should have been more reasonable and just. Be it noted
that the striking workers are not entitled to receive strike-duration pay, the ULP
allegation against the employer being unfounded. But since reinstatement is no
longer feasible, the hotel having permanently ceased operations on July 2,
2007,[66] we hereby order the Labor Arbiter to instead make the necessary
adjustments in the computation of the separation pay to be received by the Union
officers concerned.

Significantly, the Manifestations[67] filed by petitioner with respect to the

quitclaims executed by members of respondent Union state that 34 of the 48
employees terminated on account of the downsizing program have already
executed quitclaims on various dates.[68] We, however, take judicial notice that 33
of these quitclaims failed to indicate the amounts received by the terminated
employees.[69] Because of this, petitioner leaves us no choice but to invalidate and
set aside these quitclaims. However, the actual amount received by the employees
upon signing the said documents shall be deducted from whatever remaining
amount is due them to avoid double recovery of separation pay and other
monetary benefits. We hereby order the Labor Arbiter to effect the necessary
computation on this matter.

For this reason, this Court strongly admonishes petitioner and its counsel for
making its former employees sign quitclaim documents without indicating therein
the consideration for the release and waiver of their employees rights. Such
conduct on the part of petitioner and its counsel is reprehensible and puts in
serious doubt the candor and fairness required of them in their relations with their
hapless employees. They are reminded to observe common decency and good faith
in their dealings with their unsuspecting employees, particularly in undertakings
that ultimately lead to waiver of workers rights. This Court will not renege on its
duty to protect the weak against the strong, and the gullible against the wicked, be
it for labor or for capital.

However, with respect to the second batch of quitclaims signed by 85 of the

remaining 160 employees who were terminated following Hyatts permanent

63
closure,[70] we hold that these are valid and binding undertakings. The said
documents indicate that the amount received by each of the employees represents
a reasonable settlement of their monetary claims against petitioner and were even
signed in the presence of a DOLE representative. A quitclaim, with clear and
unambiguous contents and executed for a valid consideration received in full by
the employee who signed the same, cannot be later invalidated because its
signatory claims that he was pressured into signing it on account of his dire financial
need. When it is shown that the person executing the waiver did so voluntarily,
with full understanding of what he was doing, and the consideration for the
quitclaim is credible and reasonable, the transaction must be recognized as a valid
and binding undertaking.[71]

WHEREFORE, the petition is PARTLY GRANTED. The downsizing scheme

implemented by petitioner is hereby declared a valid exercise of management
prerogative. The penalty of six (6) months suspension without pay imposed in the
April 3, 2003 NLRC Resolution[72] is hereby reduced to two (2) months, to be
considered in the Labor Arbiters computation of the separation pay to be received
by the Union officers concerned. The first batch of quitclaims signed by 33 of the
48 terminated employees is hereby declared invalid and illegal for failure to state
the proper consideration therefor, but the amount received by the employees
concerned, if any, shall be deducted from their separation pay and other monetary
benefits, subject to the computation to be made by the Labor Arbiter. The second
batch of quitclaims signed by 85 of the 160 terminated employees, following Hyatt
Regency Manilas permanent closure, is declared valid and binding.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

64
 Chairperson

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

65
 REYNATO S. PUNO
Chief Justice

*
Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No. 646 dated May 15,
2009.
**
Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631 dated April 29,
2009.
[1]
Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Cancio C. Garcia (a retired
member of this Court) and Hakim S. Abdulwahid, concurring; rollo, pp. 108-135.
[2]
Rollo, pp. 136-139.
[3]
Id. at 140-178.
[4]
CA rollo, pp. 102-110.
[5]
Rollo, p. 1768.
[6]
Id. at 1796.
[7]
Id. at 151.
[8]
Id. at 114-115.
[9]
Id. at 108.
[10]
Id. at 108, 285.
[11]
Id. at 115.
[12]
Id. at 108.
[13]
Id. at 115.
[14]
Id. at 109.
[15]
Id. at 1772.
[16]
Id. at 116.
[17]
Id. at 109.
[18]
Id. at 156-157.
[19]
Id. at 1503-1504.
[20]
Id. at 115.
[21]
Id.
[22]
Id. at 110, 116.
[23]
Id. at 115.
[24]
Id.
[25]
Id. at 156.
[26]
Id. at 162.
[27]
Id. at 109-110.
[28]
CA rollo, pp. 209-211.
[29]
Id. at 209.
[30]
Rollo, p. 156.
[31]
Id. at 163.
[32]
Id. at 112.
[33]
CA rollo, p. 1557-1561.
[34]
Supra note 4.
[35]
The dispositive portion of the October 30, 2002 Decision reads:
WHEREFORE, foregoing premises considered, the Petition is DISMISSED for lack of merit and the strike stagged
(sic) on May 10, 2002 by the respondents is hereby declared legal.
The petitioner is liable for unfair labor practice. Accordingly, the petitioner is ordered to pay the striking employees
strike duration pay and moral and exemplary damages in the amount of Php 100,000.00 to each of the Union officers
and members, and attorneys fees equivalent to ten percent (10%) of the total award due to them.
All other claims are dismissed for lack of merit.
SO ORDERED. (Id. at 110.)
[36]
Rollo, pp. 1433-1519.
[37]
Id. at 1562-1582.
[38]
Supra note 3.
[39]
The decretal portion of the NLRC Resolution dated April 3, 2003 reads:
WHEREFORE, considering the foregoing premises, judgment is hereby rendered as follows:

66
 1. The downsizing program of Hyatt Regency Manila effective May 5, 2002 is hereby declared valid
and lawful.
2. The charge of unfair labor practice consisting of Union busting and unlawful contracting out of
services or functions is hereby dismissed for lack of merit.
3. The strike conducted by SAMASAH-NUWHRAIN, its officers and members from May 10, 2002
is hereby declared illegal. All the Union Officers are hereby suspended for six (6) months without pay, namely:
EDWIN BUSTILLOS, FERNANDO TESSALONA, ANTONIO DE PEDRO, JOAQUIN BULAO, LAARNI
APOSTOL, BENIGNO ROMANO, REYNALDO TAYAG, JOSE WYN AGNER, DANILO DALUZ, PILAR
BERNAL, ALCANTAR VIZON, PAUL TEOTICO, ANTHONY ADVENTO, ROLANDO TENORIO and ALEX
BAYKER.
SO ORDERED. (Id. at 177.)
[40]
Rollo, pp. 179-181.
[41]
Docketed as CA-G.R. SP No. 81153.
[42]
Rollo, p. 120.
[43]
Id. at 2083-2094.
[44]
Id. at 108-135.
[45]
The dispositive portion of the July 20, 2004 CA decision reads:
WHEREFORE, premises considered, the assailed Resolutions dated April 3, 2003 and September 24, 2003 of public
respondent NLRC in NLRC-NCR NS 04-139-02/NLRC-NCR Certified Case No. 000220-02/NLRC 00-05-03350-02
CA No. 03380-02 are hereby REVERSED AND SET ASIDE.
The Labor Arbiters Decision dated October 30, 2002 is hereby REINSTATED.
The forty-eight (48) dismissed employees as a result of the illegal redundancy and retrenchment programs are hereby
REINSTATED to their former positions without loss of seniority rights with payment of backwages from the time
they were illegally dismissed up to their actual reinstatement.
SO ORDERED. (Id. at 135.)
[46]
Rollo, pp. 136-139.
[47]
J.A.T. Gen. Services v. NLRC, 465 Phil. 785, 794 (2004).
[48]
Wiltshire File Co., Inc. v. NLRC, G.R. No. 82249, February 7, 1991, 193 SCRA 665, 672.
[49]
F.F. Marine Corporation v. National Labor Relations Commission, Second Division, G.R. No. 152039, April 8,
2005, 455 SCRA 154, 164-165.
[50]
Id. at 165.
[51]
The following states the jurisprudential guidelines to justify retrenchment:

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 bona
fide 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 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, 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 employers 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.

Lastly, but certainly not the least important, 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 quantum of
proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for
termination of services of employees. (Id. at 165-166.)
[52]
Lopez Sugar Corporation v. Franco, G.R. No. 148195, May 16, 2005, 458 SCRA 515, 529.
[53]
Manatad v. Philippine Telegraph and Telephone Corporation, G.R. No. 172363, March 7, 2008, 548 SCRA 64,
74.
[54]
F.F. Marine Corporation v. National Labor Relations Commission, Second Division, supra note 49, at 167.
[55]
Asian Alcohol Corporation v. NLRC, G.R. No. 131108, March 25, 1999, 305 SCRA 416, 432.
[56]
Annex A of HEPIs position paper; rollo, pp. 1794-1796.
[57]
Manatad v. Philippine Telegraph and Telephone Corporation, supra note 53, at 79.
[58]
MGG Marine Services, Inc. v. NLRC, 328 Phil. 1046, 1066.
[59]
Lopez Sugar Corporation v. Franco, supra note 52, at 530.
[60]
Asian Alcohol Corporation v. NLRC, supra note 55, at 432.
[61]
Supra, at 435-436, citing De Ocampo v. NLRC, 213 SCRA 652, 662 (1992).
[62]
First City Interlink Transportation Co., Inc. v. Roldan-Confesor, G.R. No. 106316, May 5, 1997, 272 SCRA 124,
130-131.

67
[63]
CCBPI Postmix Workers Union v. NLRC, G.R. Nos. 114521, 123491, November 27, 1998, 299 SCRA
410; National Federation of Labor v. NLRC, G.R. No. 113466, December 15, 1997, 283 SCRA 275; First City
Interlink Transportation Co., Inc. v. Roldan Confesor, supra; Lapanday Workers Union v. National Labor Relations
Commission, G.R. Nos. 95494-97, September 7, 1995, 248 SCRA 95; Gold City Integrated Port Service, Inc. v.
National Labor Relations Commission, G.R. Nos. 103560, 103599, July 6, 1995, 245 SCRA 627.
[64]
NUWHRAIN Peninsula Manila Chapter v. NLRC, 350 Phil. 641, 649-650 (1998).
[65]
Rollo, p. 2236.
[66]
Id. at 2584-2603; notices of permanent closure.
[67]
Id. at 2427-2470, 2488-2629.
[68]
Id. at 2431-2470, 2492-2493, 2607, 2611.
[69]
Id. at 2431-2470.
[70]
Id. at 2496-2629.
[71]
Periquet v. National Labor Relations Commission, G.R. No. 91298, June 22, 1990, 186 SCRA 724, 731.
[72]
Supra note 3.

68
 FIRST DIVISION

[G.R. No. 97846. September 25, 1998]

BOGO-MEDELLIN SUGARCANE PLANTERS ASSOCIATION, INC and

HORACIO FRANCO, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, ASSOCIATED LABOR UNIONS,
BONIFACIO MONTILLA, JOSE YBAEZ JR., BERNARDO DELA
RAMA,, ILDEFONSO CARREDO, ROSETO CANALES,
FORTUNATO MIGABON JR. and HERACLEO
MEGABON, respondents.

DECISION
PANGANIBAN, J.:

To justify retrenchment, the employer must prove, among other things, serious business
losses, and not just any kind or amount of loss. Furthermore, if the requisites provided in Article
283 of the Labor Code are not fulfilled, a deed of quitclaim and release is unavailing to exculpate
an employer from liability for illegal retrenchment.

The Case

In this special civil action for certiorari filed before this Court, petitioners seek the reversal
of the November 12, 1990 Decision[1] and the March 4, 1991 Resolution of the National Labor
Relations Commission in NLRC NCR Case No. RAB VII-0801-85, both of which affirmed the
labor arbiters Decision finding them liable for illegal dismissal.
Acting on private respondents amended Complaint for illegal dismissal and unfair labor
practice, Executive Labor Arbiter Irenea E. Ceniza rendered a Decision dated May 5, 1989, which
disposed as follows:[2]

WHEREFORE, premises considered, judgment is hereby rendered declaring the

[Petitioners] Bogo Medellin Sugar Cane Planters Association and Horacio Franco
guilty of unfair labor practice for dismissing the [private respondents] for their union
activities; ordering the said [petitioners] to reinstate the [private respondents] to their
former position with backwages and other benefits and without loss of seniority
rights; ordering the [petitioners] jointly and severally to pay to the [private
respondents] their service incentive leave[s], backwages and 13th month from the date
of their dismissal until the date of this decision in the following amounts less the
amount paid to some [private respondents] as separation/gratuity benefits[:]

NAME 13th SERVICE BACK- SEPARATION NET

Month Pay INCENTIV WAGES PAY/GRATUIT
E PAY Y BENEFITS
1. BONIFACIO P4,915.24 P820.00 P61,440.00 P12,017.94 P55,157.30
MONTILLA
2. JOSE 4,915.24 820.00 61,440.00 4,745.48 62,429.76
YBAEZ, JR.

69
 3. BERNARDO 4,915.24 820.00 61,440.00 2,580.84 64,594.40
DELA RAMA
4. ILDEFONSO 4,915.24 820.00 61,440.00 12,991.00 51,184.24
CARREDO
5.FORTUNAT 4,915.24 820.00 61,440.00 --- 67,175.24
O
MIGABON3 JR
6. ROSETO 4,915.24 820.00 61,440.00 --- 67,175.24
CANALES
7. HERACLEO 4,915.24 820.00 61,440.00 --- 67,175.24
MEGABON
P34,406.6 P5,740.00 P430,080.0 P32,335.26 P437,891.4
8 0 2

and to pay the [private respondents] counsel 10% of the foregoing amount or the sum
of FORTY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE AND 14/100
(P43,789.14) as attorneys fees; ordering further the [petitioners] to deposit the
[aggregate] amount of FOUR HUNDRED EIGHTY ONE THOUSAND SIX
HUNDRED EIGHTY PESOS AND 56/100 (P481,680.56) with this Branch of the
Commission within ten (10) days from receipt of this decision.

All other claims are hereby dismissed for lack of merit.

On appeal, the National Labor Relations Commission (Cebu Branch), in its assailed Decision,
affirmed with modification the labor arbiters judgment:4

WHEREFORE, in view of all the foregoing, the decision appealed from is

MODIFIED by setting aside the award for the money claims of the [private
respondents] as contained in the decision and directing the recomputation thereof in
accordance with Section 3, Rule XI of the NLRC Rules to determine [the] correct
amount to be awarded to the [private respondents].

Except for the foregoing modification the rest of the decision stands AFFIRMED.

Respondent Commission denied reconsideration in its challenged Resolution.5

The Facts

As found by the labor arbiter, the facts of this case are as follows:6

x x x [T]he [private respondents] were former employees of the respondents with

services ranging as follows;

Bonifacio Montilla - 15 years

Roseto Canales - 17 years

Ildefonso Carredo - 16 years

Heracleo Megabon - 8 years

Jose Ybaez, Jr. - 6 years

70
Bernardo Dela Rama - 3 years

Fortunato Megabon, Jr. - 1 year

They performed the functions of computer, sampler and scalers. [O]n May 31,
1985, the [private respondents] joined and became members of [Private
Respondent] Associated Labor Unions, with [Private Respondent] Bonifacio
Montilla as its [l]ocal [p]resident. With 13 original members[,] Bonifacio Montilla
being the president actively campaigned and convinced the rest of their co-
employees to join with the union. While campaigning among his co-employees
for union membership, the [t]reasurer of respondent firm Mr. Jose Mari Miranda
called [Private Respondent] Montilla to his office and told him to withdraw his
membership from the Associated Labor Unions or else they will not be hired at
the start of the milling season and will be dismissed. That he and the [private
respondents] herein did not heed the warning of Mr. Miranda and stuck to their
membership with the private respondent union. As a consequence and as earlier
warned of being dismissed if they persist[ed] in their union activities, notices of
termination were sent to [Private Respondents] Bernardo Dela Rama, Ildefonso
Carredo, Bonifacio Montilla and Jose Ybaez, Jr. (Exhibits 4-7), informing them
that their services will be terminated due to financial difficulties. While the said
notices stated that their services will be terminated 30 days from date[,] they were
not allowed to work within that 30 day period and Montilla was immediately
replaced by Gavino Negapatan (TSN June 18, 1987, p. 31). The [private
respondents] alleged that their dismissal was sought due to their membership [in]
the private respondent union as they have not violated any company rules and
regulations. There is also no allegation to this effect by the respondents and the
latter strongly advocated retrenchment to prevent losses as their basis in
terminating the [private respondents]. Aggrieved of the respondents actuations
they filed the present complaint on December 20, 1985, or before the expiration
of the 30 days notice dated November 28, 1985. On December 28, 1985, or just
on the 30th day of the notice of termination[,] four of the [private respondents],
namely Bonifacio Montilla, [I]ldefonso Carredo, Bernardo Dela Rama and Jose
Ybaez, Jr., were paid their corresponding separation/gratuity pay and accordingly
signed their Quitclaim and Release (Exhibit 8-11).

The respondents on the other hand strongly maintained that the dismissal of the
[private respondents] was validly carried out in accordance with corporate powers
to prevent losses. To support this stand they submitted a comparative statement of
Revenue and Expenses for the crop years 1983-1984 and 1984-1985, to show they
suffered losses in the amount of P54,692.31 in the crop year ending August
1985. In addition they claimed that the [private respondents] [were] already
barred from filing this present case by virtue of their Quitclaim and Release.

The Ruling of Respondent Commission

While Respondent Commission agreed with petitioners that management had the prerogative
to terminate employment on account of business reversals, it held, however, that petitioners failed
to present adequate proof of such losses. First, the Comparative Statement of Revenue and
Expenses submitted by Petitioner Corporation was neither sufficient nor substantial to support the
claim that private respondents were retrenched pursuant to Article 283 of the Labor Code.

71
 Second, petitioners failed to show that, in undertaking the retrenchment, fair and reasonable
standards were used in determining who among its employees would be separated from the service.
Third, petitioners failed to show that they gave the required 30-day notice to the labor
department before effecting the retrenchment.
Fourth, petitioners hired additional personnel after the private respondents were
retrenched. Such actuation strengthened, rather than negated, private respondents contention that
their dismissal was an orchestrated move to ease them out of employment due to their union
activities.
Fifth, Respondent Commission gave credence to Private Respondent Montillas
testimony, thus upholding the ruling of the labor arbiter who was in a unique position [to observe]
the demeanor of the witness.
It also rejected the posturing of the petitioners that the execution of a deed of quitclaim and
release exculpated them from liability, as such undertaking did not bar the private respondents
from questioning the legality of their dismissal.
Hence, this petition.7

Assignment of Errors

Petitioners impute the following errors to Respondent Commission:8

[I]: Respondent xxx Commission erred in setting aside the deeds of quitclaim and
release signed and executed by individual [private respondents] as
without any legal effect to bar and preclude them from proceeding
against petitioners, the same being contrary to law and jurisprudence.

[II]: Respondent xxx Commission disregarded the fact that said deeds of quitclaim
and release were signed and executed by individual private respondents
after they filed their complaints in its regional arbitration branch.

[III]: Respondent xxx Commission erred in sustaining the findings and conclusion
of the executive labor arbiter as to the illegality of the dismissal of the
[private respondents] which is tantamount to grave abuse of discretion.

[IV]: Assuming arguendo there was illegal dismissal, it was error to find
Petitioner Horacio Franco personally liable, jointly and severally, with
petitioner association.

[V]: Respondent xxx Commission erred in giving due credence to the testimony
of Respondent Bonifacio Montilla and deciding the case in favor of
[private respondents] and finding [petitioners] liable for the alleged
claims and for unfair labor practice on the sole basis of his testimony.

[VI]: Respondent xxx Commission commit[ted] grave abuse of discretion in

rendering a decision in favor of [private respondents] who did not appear
at all in the case to prosecute their claims and support their charges
against herein petitioners, thus denying the latter due process of law
guaranteed by the Constitution.

Put differently, the issues raised by petitioners are as follows:

72
1. Whether private respondents retrenchment was valid and legal under Article 283 of
the Labor Code

2. Whether the Quitclaim and Release barred the private respondents from charging
petitioners with illegal dismissal

3. Whether a corporate officer could be held liable for illegal dismissal without a
showing that he acted maliciously and in bad faith in dismissing private respondents

4. Whether Respondent Commission gravely abused its discretion by denying due

process to petitioners

The Courts Ruling

The petition is devoid of merit.

First Issue: No Proof of Business Losses To Justify Retrenchment

Retrenchment is the termination of employment effected by management during periods of

business recession, industrial depression, seasonal fluctuations, lack of work or considerable
reduction in the volume of the employers business.9 Resorted to by an employer to avoid or
minimize business losses,10 it is a management prerogative consistently recognized by this
Court11 and allowed under Article 283 of the Labor Code as follows:

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 undue taking 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. x x x x In case of retrenchment to prevent losses xxx, the separation pay
shall be equivalent to one (1) month pay for every year of service, which ever is
higher. A fraction of at least six (6) months shall be considered one (1) whole year.

In a number of cases, the Court has laid down the following requisites of a valid retrenchment:
(1) the losses incurred are substantial and not de minimis; (2) the losses are actual or reasonably
imminent; (3) the retrenchment is reasonably necessary and is likely to be effective in preventing
the expected losses; and (d) the alleged losses, if already incurred, or the expected imminent losses
sought to be forestalled, are proven by sufficient and convincing evidence.12 In the present case,
petitioners miserably failed to prove (1) substantial losses and (2) the reasonable necessity of the
retrenchment.
No Sufficient and Substantial Evidence of Business Loss

To justify retrenchment, the employer must prove serious business losses.13 Indeed, not all
business losses suffered by the employer would
justify retrenchment under this article. The Court has held that the loss referred to in Article 283
14

cannot be just any kind or amount of loss; otherwise, a company could easily feign excuses to suit
its whims and prejudices or to rid itself of unwanted employees.15
In the case at bar, Petitioner Corporation claimed that the retrenchment of private respondents
was justified, because it suffered business losses, as evidenced by its Comparative Statement of
Revenue and Expenses for crop years 1983-1984 and 1984-1985.16

73
 On the other hand, Respondent Commission and the executive labor arbiter held that this
evidence was neither sufficient nor substantial, viz.:17

The only evidence adduced by the [petitioners] to prove that they suffered economic
losses and [had] therefore to cut down expenses and reduce personnel is [E]xhibit 3
which is a [C]omparative [S]tatement of Revenue and Expenses for two crop years,
1983-1984 and 1984-1985, which was allegedly submitted to the [B]ureau of Internal
Revenue on November 12, 1985. This piece of evidence was prepared by Ligaya R.
Arcenas, [o]ffice [m]anager, certified correct by Jose Mari M. Miranda, [t]reasurer,
Rosendo S. Hernaez, [a]uditor[,] and attested [to] by its president Mr. Horacio M.
Franco. xxxx.

In the present case no financial statement, or statement of profit and loss or books of
account have been presented to substantiate the alleged losses. It is also dubious why
the said [C]omparative [S]tatement of Revenue and Expenses was prepared by the
office manager instead of their accountant. Besides the said [C]omparative
[S]tatement of [R]evenue and [E]xpenses is inconsistent with the statement of Jose
Mari M. Miranda that the [petitioners had] to cut down expenses and do some
retrenchment to prevent further losses and that they [had] been incurring losses
of P54,692.21 for crop year 1984-1985, and P54,110.94 for the previous crop year
1983-1984 (TSN December 7, 1 988, [pp.] 12-13). A closer scrutiny of Exhibit 3
[C]omparative [S]tatement of Revenue and Expenses [would] readily reveal that for
the crop year 1983-1984, the [petitioners] had a net income of P54,110.94. The total
revenue indicated therein being P798,750.20 while the total expenses is
only P744,639.26. Another instance which would clearly negate that the [petitioners]
did cut down on expenses to prevent any further losses are the marked increase in the
amount of over P13,000.00 in the expenses for conferences, meetings and conventions
in 1984-1985 over the previous year, the increase in the printing of office supplies xxx
for over P13,000.00 and the National Federation dues [which] were [unpaid] in 1983-
1984[,] but in 1984-1985 the amount of P36,410.59 was paid. In this light the alleged
losses become unjustifiable to warrant the dismissal of the [private respondents]. As
earlier observed the [petitioners] should have come out with their books of accounts,
profit and loss statements and better still should have presented their accountant to
competently amplify their financial position.

In their rebuttal, petitioners allege the following: (1) the comparative financial statement of
the corporation duly reflects its income and expenses in a given taxable year and, despite its
different nomenclature, is substantially the same as a profit and loss statement or any other
financial statement; and (2) the National Internal Revenue Code (NIRC) requires the certification
of an independent certified public accountant only if the taxpayers gross receipts exceed P25,000
in any quarter of any taxable year.
The contentions of petitioners are untenable. A comparative statement of revenue and
expenses for two years, by itself, is not conclusive proof of serious business losses. The Court has
previously ruled that financial statements audited by independent external auditors constitute the
normal method of proof of the profit and loss performance of a company.18 While Petitioner
Corporation avers that it was not required to file audited financial statements under Section 232 of
the Tax Code, it failed to establish its exemption through any evidence showing that its quarterly
gross revenues did not exceed P25,000.Thus, its claim that it did not need to have its financial
statements certified by a certified public accountant is without basis in fact and in law and does
not excuse it from complying with the usual requirement. Besides, the requirement of the Tax
Code is one thing, and the requirement of the Labor Code is quite another.

74
 Moreover, the financial statement of Petitioner Corporation for two crop years is insufficient
proof of serious business losses that would justify the retrenchment of private respondents. Thus,
the Court held in Somerville Stainless Steel Corporation v. NLRC:19

xxx The failure of petitioner to show its income or loss for the immediately preceding
years or to prove that it expected no abatement of such losses in the coming years
bespeaks the weakness of its cause.The financial statement for 1992, by itself, does
not sufficiently prove petitioners allegation that it already suffered actual serious
losses,20 because it does not show whether its losses increased or decreased.Although
petitioner posted a loss for 1992, it is also possible that such loss was considerably
less than those previously incurred, thereby indicating the companys improving
condition.

No Reasonable Necessity of Retrenchment

Petitioner Corporation also failed to rebut the allegation that new employees were hired to
replace the private respondents after the latter had been retrenched. The executive labor arbiter
found that Gavino Negapatan replaced Private Respondent Montilla,21 while Reynaldo Parilla and
Godofredo Florita replaced the other private respondents who had worked as sugar checkers or
samplers. The employment of these replacements clearly belies petitioners contention that the
retrenchment was necessary to prevent or offset the expected losses effectively.
We also note the observation of the executive labor arbiter that petitioners did not consider
the long years of service rendered by the private respondents, ranging from one to sixteen
years. We agree with her conclusion that the real motive behind the retrenchment must have been
to discriminate against private respondents as a consequence of their membership in Respondent
Union.22

Assessment of Credibility by Respondent Commission

Petitioners further assail the labor arbiter and the NLRC for giving credence to Private
Respondent Montillas testimony, as the same was replete with substantial contradictions and
material inconsistencies. Petitioners maintain that Montilla failed to substantiate his claim that he
had been forced and intimidated to sign the quitclaim and release. They add that the new workers,
who allegedly replaced the private respondents, had been working for Petitioner Corporation
several months before the retrenchment.
Montillas testimony regarding the hiring of replacements after he and his co-private
respondents had been retrenched was given credence by Respondent Commission in this wise:23

xxx [C]ertain persons were hired or rehired after [private respondents] were
dismissed. Why would [petitioners] take in additional workers if it had to
retrench? It becomes immaterial whether the persons hired had previously worked
for [petitioners]. The fact that there was hiring of additional personnel right after
[private respondents] were retrenched is enough to destroy whatever pretense
[petitioners] ha[d] with respect to retrenchment. Whether those hired were
intended to replace [private respondents] or not is immaterial. The crucial point is
that immediately after the so-called retrenchment, [petitioners] hired other
workers. Such actuation is inconsistent with retrenchment and merely
strengthen[s] the observation that there was an orchestrated move to terminate the
[private respondents] on account of their union activities.

75
 The Court finds no sufficient reason to modify or reverse the assessments of the labor arbiter
and the Respondent Commission on the credibility of Montilla and his testimony. In fact, the
testimony of Parilla and Florita that they used to be extras, who substituted for absent workers,
corroborate Montillas claims. They were taken in, after the retrenchment of the private
respondents, and made to perform the tasks formerly assigned to the latter.
It is well-settled that factual findings of Respondent Commission affirming those of the labor
arbiter, when sufficiently supported by evidence on record, are accorded respect if not finality.24

Written Notice to DOLE a Mandatory Requirement

Petitioners brush aside the procedural notice which Article 283 of the Code requires to be sent
to the labor department before the retrenchment can be effected. The written notice to the labor
department has been previously declared to be a mandatory requirement.25 Although the absence
of this notice renders the dismissal merely defective, not illegal,26 the failure of petitioners to
comply with this requirement shows nonetheless the bankruptcy of their cause.

Second Issue: When Deed of Quitclaim and Release Is Not Bar

Petitioners pray that the present action should be barred, because private respondents have
voluntarily executed quitclaims and releases and received their separation pay. Petitioners claim
that the present suit is a grave derogation of the fundamental principle that obligations arising from
a valid contract have the force of law between the parties and must be complied with in good faith.
The Court disagrees. Jurisprudence holds that the constitutional guarantee of non-impairment
of contracts is subject to the police power of the state and to reasonable legislative regulations
promoting public health, morals, safety and welfare. Not all quitclaims are per se invalid or against
public policy, except (1) where there is clear proof that the waiver was wangled from an
unsuspecting or gullible person, or (2) where the terms of settlement are unconscionable on their
face. In these cases, the law will step in to annul the questionable transactions.27 Such quitclaim
and release agreements are regarded as ineffective to bar the workers from claiming the full
measure of their legal rights.28
In the case at bar, the private respondents agreed to the quitclaim and release in consideration
of their separation pay. Since they were dismissed allegedly for business losses, they are entitled
to separation pay under Article 283 of the Labor Code. And since there was thus no extra
consideration for the private respondents to give up their employment, such undertakings cannot
be allowed to bar the action for illegal dismissal.

Third Issue Liability of a Corporate Officer

Unless they have exceeded their authority, corporate officers are, as a general rule, not
personally liable for their official acts, because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and members.29 However, this fictional veil
may be pierced whenever the corporate personality is used as a means of perpetuating a fraud or
an illegal act, evading an existing obligation, or confusing a legitimate issue.30 In cases of illegal
dismissal, corporate directors and officers are solidarily liable with the corporation, where
terminations of employment are done with malice or in bad faith.31
Respondent Commission adopted the executive labor arbiters findings and held that it can be
reasonably inferred that private respondents dismissal was tainted with bad faith. However,
nowhere in the records is there such evidence to show malice or bad faith on Petitioner Francos
part. The executive labor arbiter found that it was Miranda, the corporate treasurer, who told
Private Respondent Montilla to withdraw membership from the union and threatened not to rehire

76
him and his companions if they refused. Petitioner Francos liability is based only on his being the
chief executive officer of Petitioner Corporation and the lone signatory to the Notice of
Termination received by the private respondents. These findings, however, do not in themselves
support the allegation of bad faith or malice and are, therefore, insufficient to hold him solidarily
liable with Petitioner Corporation for illegal dismissal.

Fourth Issue: No Violation of Due Process

Petitioners deny liability for the illegal dismissal of Private Respondents Fortunato Migabon
Jr. and Roseto Canales, since said employees neither appeared before the hearing officer nor
presented any evidence to support their claim. Therefore, to hold them liable will be a violation of
their right to due process.
The Court disagrees. The amendment of the complaint32 to include Private Respondents
Fortunato Migabon Jr. and Roseto Canales was filed on April 24, 1986 or twenty-five days before
May 19, 1986, when petitioners submitted their position paper.33Petitioners were not denied their
day in court, because they were given an opportunity to rebut and refute said private respondents
allegations in their position paper. The case was even further appealed to Respondent Commission,
where petitioners were undeniably accorded due process.34
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution are
hereby AFFIRMED, with the MODIFICATION that Petitioner Franco is exempted from liability
for the illegal dismissal of private respondents. Costs against Petitioner Corporation.
SO ORDERED.
Davide Jr., (Chairman), Bellosillo, Vitug and Quisumbing JJ., concur

3
In the records, the surname of Fortunato also appears as "Megabon."
4
NLRC Decision, p. 9; rollo, p. 50.
5
NLRC Resolution, p. 1; rollo, p. 62.
6
Executive labor arbiters Decision, pp. 3-5; rollo, pp. 97-99.
7
The case was submitted for resolution on November 8, 1996, upon the submission of the Memorandum for private
respondent.
8
Petitioners Memorandum, pp. 8-10; rollo, pp. 357-359.
9
Dela Cruz vs. National Labor Relations Commission, 268 SCRA 458, 467, February 17, 1997.
10
Somerville Stainless Steel Corporation vs. NLRC, GR No. 125887, March 11, 1998.
11
Ibid.
12
Lopez Sugar Corporation v. Federation of Free Workers, 189 SCRA 179, August 30, 1990; Somerville Stainless
Steel Corporation v. NLRC, supra; Revidad v National Labor Relations Commission, 245 SCRA 356, 368, June 27,
1995; Catatista v. National Labor Relations Commission, 247 SCRA 46, 55-56, August 3, 1995; and San Miguel
Jeepney Service v. National Labor Relations Commission, 265 SCRA 35, 44, November 28, 1996.
13
Balbalec v. National Labor Relations Commission, 251 SCRA 398, 403, December 19,
1995; Revidad v. NLRC, supra.
14
Guerrero v. National Labor Relations Commission, 261 SCRA 301, August 30, 1996.
15
Somerville Stainless Steel Corp v. NLRC, supra, per Panganiban, J.
16
The crop year of petitioner-corporation begins and ends August 31 of every year.
17
Executive labor arbiters Decision, pp. 5-7, rollo, pp. 99-101.
18
Saballa v. National Labor Relations Commission, 260 SCRA 697, 709, August 22, 1996; and Del Mar
Enterprises v. National Labor Relations Commission, GR No. 108731, December 10, 1997, p. 15.
19
Supra.
20
Petitioners Memorandum, p. 12; rollo, p. 240.
21
Executive Labor Arbiters Decision, p. 4; rollo, p. 98.
22
Ibid., pp. 7-8, 10; rollo, pp. 101-102, 104.
23
NLRC Decision, p. 6; rollo, p. 47.

77
24
Mary Johnston Hospital v. National Labor Relations Commission, 165 SCRA 110, 116, August 30, 1988; and
Gelmart Industries (Phils.), Inc. v. Leogardo, Jr., 155 SCRA 403, 409, November 5, 1987.
25
Fuentes v. National Labor Relations Commission, 266 SCRA 24, 32, January 2, 1997.
26
Sebuguero v. National Labor Relations Commission, 248 SCRA 532, 546, September 27, 1995.
27
Unicane Workers Union-CLUP v. National Labor Relations Commission, 261 SCRA 573, 585-586, September 9,
1996.
28
JGB and Associates, Inc. v. National Labor Relations Commission, 254 SCRA 457, 465, March 7, 1996.
29
Reahs Corporation v. National Labor Relations Commission, 271 SCRA 247, 254-255, April 15, 1997; and
Chua v. National Labor Relations Commission, 182 SCRA 353, 356, February 15, 1990.
30
Reahs Corporation v. NLRC, supra; Uichico v. National Labor Relations Commission, 273 SCRA 35, 45-46, June
2, 1997;
31
Aurora Land Projects Corp. v. National Labor Relations Corporation, 266 SCRA 48, 68, January 2, 1997;
Chua v. NLRC, supra; Reahs Corp. v. NLRC, supra.
32
NLRC records, pp. 45-47.
33
Ibid., pp. 54-62.
34
See Imperial Textile Mills v. NLRC, 217 SCRA 237, January 19, 1993; Rodriguez v. Project 6 Market Service
Coop., 247 SCRA 528, August 23, 1995.

[1]
Signed by Pres. Comm. Ernesto G. Ladrido III and Comm. Leon G. Gonzaga Jr. Comm. Bernabe S. Batuhan
dissented from the majority opinion, while Comm. Irenea E. Ceniza took no part.
[2]
Rollo, pp. 104-106.

78
 SECOND DIVISION

[G.R. No. 131108. March 25, 1999.]

ASIAN ALCOHOL CORPORATION, Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION,

FOURTH DIVISION, CEBU CITY and ERNESTO A. CARIAS, ROBERTO C. MARTINEZ, RAFAEL H.
SENDON, CARLOS A. AMACIO, LEANDRO O. VERAYO and ERENEO S. TORMO, Respondents.

DECISION

PUNO, J.:

Contending that the dismissal of private respondents Ernesto A. Carias, Roberto C. Martinez, Rafael H.
Sendon, Carlos A. Amacio, Leandro O. Verayo and Ereneo S. Tormo, was valid on the twin grounds of
redundancy and retrenchment to prevent business losses, petitioner Asian Alcohol Corporation (hereinafter
referred to as Asian Alcohol) filed this petition for certiorari. Asian Alcohol ascribes grave abuse of discretion
to public respondent National Labor Relations Commission 1 (hereinafter referred to as NLRC) when, on May
30, 1997, it set aside 2 the decision 3 of the Executive Labor Arbiter dismissing the illegal termination
complaints filed by private respondents. chanro blesvi rtua llawli bra ry

We first unfurl the facts.

In September, 1991, the Parsons family, who originally owned the controlling stocks in Asian Alcohol, were
driven by mounting business losses to sell their majority rights to Prior Holdings, Inc. (hereinafter referred
to as Prior Holdings). The next month, Prior Holdings took over its management and operation. 4

To thwart further losses, Prior Holdings implemented a reorganizational plan and other cost-saving
measures. Some one hundred seventeen (117) employees out of a total workforce of three hundred sixty
(360) were separated. Seventy two (72) of them occupied redundant positions that were abolished. Of these
positions, twenty one (21) were held by union members and fifty one (51) by non-union members.

The six (6) private respondents are among those union members 5 whose positions were abolished due to
redundancy. Private respondents Carias, Martinez, and Sendon were water pump tenders; Amacio was a
machine shop mechanic; Verayo was a briquetting plant operator while Tormo was a plant helper under him.
They were all assigned at the Repair and Maintenance Section of the Pulupandan plant. 6

In October, 1992, they received individual notices of termination effective November 30, 1992. 7 They were
paid the equivalent of one month salary for every year of service as separation pay, the money value of
their unused sick, vacation, emergency and seniority leave credits, thirteenth (13th) month pay for the year
1992, medicine allowance, tax refunds, and goodwill cash bonuses for those with at least ten (10) years of
service. 8 All of them executed sworn releases, waivers and quitclaims. 9 Except for Verayo and Tormo, they
all signed sworn statements of conformity to the company retrenchment program. 10 And except for
Martinez, they all tendered letters of resignation. 11

On December 18, 1992, the six (6) private respondents filed with the NLRC Regional Arbitration Branch VI,
Bacolod City, complaints for illegal dismissal with a prayer for reinstatement with backwages, moral
damages and attorney’s fees. They alleged that Asian Alcohol used the retrenchment program as a
subterfuge for union busting. They claimed that they were singled out for separation by reason of their
active participation in the union. They also asseverated that Asian Alcohol was not bankrupt as it has
engaged in an aggressive scheme of contractual hiring.

The Executive Labor Arbiter dismissed the complaints. He explained, thus: jgc:chan roble s.com. ph

"The fact that respondent AAC incurred losses in its business operations was not seriously challenged by the
complainants. The fact that it incurred substantial losses in its business operations prior to the
implementation of its retrenchment program is amply supported by the documents on records, (sic) namely:
(1) Balance Sheet of AAC as of December 31, 1991 . . ., (2) Statement of Income and Deficit for the year
ended December 31, 1991 . . ., (3) Income Tax Return for Fiscal Year ending September 30, 1989 . . ., (4)
Income Tax Return for Fiscal Year ending December 31, 1989 . . ., (5) Income Tax Return for Fiscal Year
ending December 31, 1990 . . ., and (6) Income Tax Return for the Fiscal Year ending December 31, 1991 .
. . indicating an accumulated deficit of P26,117,889.00.

It has to be emphasized that the law allows an employer to retrench some of its employees to prevent
losses. In the case of respondent AAC, it implemented its retrenchment program not only to prevent losses
but to prevent further losses as it was then incurring huge losses in its operations.

Complainants would want us to believe that their positions were abolished because they are union members,

79
and that they were replaced by casual employees. Complainants’ pretense is rather untenable. For one
thing, the retrenchment program of AAC affected not only union members but also the non-union members.
As earlier said, there were 117 employees of AAC who were affected by the reorganization. Of the 117
positions, 72 positions were abolished due to redundancy, 21 of which were occupied by union members,
while 51 were held by non-union members. Thus, the theory of complainants that they were terminated
from work on ground of their union membership is far from the truth.

On the contrary, we find that complainants Ernesto Carias, Roberto Martinez and Rafael Sendon who were
all Water Pump Tenders assigned to AAC’s water wells in Ubay, Pulupandan, Negros Occidental which were
drilled and operated before under the old management by virtue of a right-of-way with the landowner, were
retrenched as an offshoot to the termination of the lease agreement as the water thereunder had become
salty due to extensive prawn farming nearby, so that AAC could no longer use the water for its purpose. As
a consequence, the services of Ernesto Carias, Roberto Martinez and Rafael Sendon had become
unnecessary, redundant and superfluous. chanro blesvi rt ual|awlib rary

As regards complainants Leandro Verayo and Ereneo Tormo, the grounds cited by respondent AAC in
support of its decision to retrench them are too convincing to be ignored. According to respondent AAC, its
boiler before was 100% coal fired. The boiler was manned by a briquetting plant operator in the person of
Leandro Verayo and three (3) briquetting helpers, namely, Ereneo Tormo, Eriberto Songaling, Jr. and Rudy
Javier, Jr. Since AAC had shifted to the use of bunker fuel by about 70% to fire its boiler, its usage of coal
had been drastically reduced to only 30% of its total fuel usage in its production plant, thereby saving on
fuel cost. For this reason, there was no more need for the position of briquetting plant operator and the
services of only two briquetting helpers were determined to be adequate for the job of briquetting coal. Of
the three (3) briquetting helpers, Ereneo Tormo was the oldest, being already 41 years old, the other two,
Javier and Songaling, being only 28 and 35, respectively. Considering the manual nature of the work of coal
briquetting, younger workers are always preferred for reasons of effeciency [sic]. Hence the abolition of the
position of Ereneo Tormo. We have to stress that Eriberto Songaling, Jr. and Rudy Javier, Jr. are also union
members. . . .

With respect to Carlos Amacio, he was retrenched not because of his being a union member but because of
his poor health condition which greatly affect[ed] his work efficiency. Records show that Carlos Amacio was
among the ten machine shop mechanics employed by respondent AAC. Under AAC’s reorganization plan, it
needs only nine mechanics.

x x x

On the whole, therefore, the dismissal of complainants on ground of redundancy/retrenchment was perfectly
valid or legal. 12

Private respondents appealed to the NLRC.

On May 30, 1997, the NLRC rendered the challenged decision. It rejected the evidence proffered by Asian
Alcohol to prove its business reversals. It ruled that the positions of private respondents were not redundant
for the simple reason that they were replaced by casuals. The NLRC essayed this explanation: jgc:chanrobles. com.ph

"In this case, [that] the respondent terminated complainants to protect the company from future losses,’
does not create an impression of imminent loss. The company at the time of retrenchment was not then in
the state of business reverses. There is therefore no reason to retrench. . .

The alleged deficits of the corporation did not prove anything for the Respondent. The financial status as
shown in the Statement of Income and Deficits and Income Tax Returns from 1989 to 1991, submitted by
respondent was before the respondent, new management of Prior Holdings, Inc., took over the operation
and management of the corporation in October, 199[1]. This is no proof that on November 30, 1992 when
the termination of complainant[s] took effect the company was experiencing losses or at least imminent
losses. Possible future losses do not authorize retrenchment.

Secondly in the case of REDUNDANCY.

Redundancy exists where the service[s] of . . . employee[s] are in excess of what is reasonably demanded
by the actual requirements of the enterprise. The evidence, however, proved that, in truth and in fact, the
positions of the complainants were not redundant for the simple reason that they were replaced by casuals.

x x x

Admittedly, from the testimonies of Engr. Palmares, the wells of the respondent were operated by
contractors. Otherwise stated, complainant[s] who are regular workers of the respondent, performing jobs
necessary and desirable to the business of the company, were eased out in the guise of retrenchment or
redundancy [so that] their jobs [will] be performed by workers belonging to a contractor.

In summation, retrenchment and/or redundancy not having been proved, complainants, therefore, were
illegally dismissed." 13

The dispositive portion of the decision of the NLRC provides as follows: jgc:chan roble s.com. ph

80
"WHEREFORE, premises considered, the Decision appealed from is hereby ordered SET ASIDE and VACATED
and in lieu thereof, the respondent Asian Alcohol Corporation is hereby ordered to reinstate complainants
with full backwages from the time they were dismissed on November 30, 1992 and up to actual
reinstatement. Plus 10% attorney’s fees.

SO ORDERED." 14

On July 2, 1997, Asian Alcohol moved for reconsideration of the foregoing decision. On September 25, 1997,
the NLRC denied the motion. 15

On January 12, 1998, Asian Alcohol filed in this Court a petition for certiorari assailing both the decision of
the NLRC and the resolution denying its reconsideration. It invoked the following grounds: jgc:chan robles. com.ph

"6. GROUNDS FOR THE PETITION

6.1 Public respondent has committed, as hereinafter shown, a manifest grave abuse of discretion amounting
to lack or excess of jurisdiction in declaring in its assailed Decision . . . and Resolution . . . that the
termination of the employment of private respondents by the petitioner herein is illegal and ordering their
reinstatement with full backwages from the time they were dismissed on November 30, 1992 up to their
actual reinstatement, plus 10% attorney’s fees, said Decision and Resolution of the public respondent being
contrary to the established facts of the case, well-settled jurisprudence and the law on the matter.

6.2 Public respondent has likewise committed, as hereinafter shown, a manifest grave abuse of discretion
amounting to lack or excess of jurisdiction by totally disregarding and refusing to consider the factual
findings of the Executive Labor Arbiter with respect to the circumstances which rendered the positions of the
private respondents unnecessary, redundant and superfluous, thereby justifying the termination of their
employment.

6.3 Public respondent has furthermore committed, as hereinafter shown, a manifest grave abuse of
discretion amounting to lack or excess of jurisdiction in giving full credit to the oral testimonies quoted in its
assailed Decision . . . and taking them as conclusive proof of the alleged replacement of the private
respondents with casual workers despite the fact that said quoted testimonies clearly amount to nothing but
speculations, surmises and conjectures." 16

On March 25, 1998, we issued a Temporary Restraining Order 17 enjoining the NLRC from enforcing its
Decision and Resolution dated May 30, 1997 and September 25, 1997, respectively. chanrob lesvi rtua l|awlib rary

We find the petition meritorious.

Out of its concern for those with less privilege in life, this Court has inclined towards the worker and upheld
his cause in his conflicts with the employer. 18 This favored treatment is directed by the social justice policy
of the Constitution. 19 But while tilting the scales of justice in favor of workers, the fundamental law also
guarantees the right of the employer to reasonable returns from his investment. 20 Corollarily, the law
allows an employer to downsize his business to meet clear and continuing economic threats. 21 Thus, this
Court has upheld reductions in the work force to forestall business losses or stop the hemorrhaging of
capital. 22

The right of management to dismiss workers during periods of business recession and to install labor saving
devices to prevent losses is governed by Art. 283 of the Labor Code, as amended. It provides, viz.: jg c:chan roble s.com.p h

"ARTICLE 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
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
(½) 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 ours]

Under the foregoing provision, retrenchment and redundancy are just causes for the employer to terminate
the services of workers to preserve the viability of the business. In exercising its right, however,
management must faithfully comply with the substantive and procedural requirements laid down by law and
jurisprudence. 23

The requirements for valid retrenchment which must be proved by clear and convincing evidence are: (1)
that the 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; 24 (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; 25 (3) that the employer pays the retrenched employees
separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is
higher; 26 (4) that the employer exercises its prerogative to retrench employees in good faith for the

81
advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; 27
and (5) that the employer used fair and reasonable criteria 28 in ascertaining who would be dismissed and
who would be retained among the employees, such as status (i.e., whether they are temporary, casual,
regular or managerial employees), efficiency, seniority, 29 physical fitness, age, and financial hardship for
certain workers. 30

The condition of business losses is normally shown by audited financial documents like yearly balance sheets
and profit and loss statements as well as annual income tax returns. 31 It is our ruling that financial
statements must be prepared and signed by independent auditors. 32 Unless duly audited, they can be
assailed as self-serving documents. 33 But it is not enough that only the financial statements for the year
during which retrenchment was undertaken, are presented in evidence. For it may happen that while the
company has indeed been losing, its losses may be on a downward trend, indicating that business is picking
up and retrenchment, being a drastic move, should no longer be resorted to. 34 Thus, the failure of the
employer to show its income or loss for the immediately preceding year or to prove that it expected no
abatement of such losses in the coming years may bespeak the weakness of its cause. 35 It is necessary
that the employer also show that its losses increased through a period of time and that the condition of the
company is not likely to improve in the near future. 36

In the instant case, private respondents never contested the veracity of the audited financial documents
proffered by Asian Alcohol before the Executive Labor Arbiter. Neither did they object to their admissibility.
They show that petitioner has accumulated losses amounting to P306,764,349.00 and showing nary a sign
of abating in the near future. The allegation of union busting is bereft of proof. Union and non-union
members were treated alike. The records show that the positions of fifty one (51) other non-union members
were abolished due to business losses.

In rejecting petitioner’s claim of business losses, the NLRC stated that "the alleged deficits of the corporation
did not prove anything for the [petitioner]" 37 since they were incurred before the take over of Prior
Holdings. Theorizing that proof of losses before the take over is no proof of losses after the take over, it
faulted Asian Alcohol for retrenching private respondents on the ground of mere "possible future losses" 38 .

We do not agree. It should be observed that Article 283 of the Labor Code uses the phrase "retrenchment to
prevent losses." In its ordinary connotation, this phrase means that retrenchment must be undertaken by
the employer before losses are actually sustained. 39 We have, however, interpreted the law to mean that
the employer need not keep all his employees until after his losses shall have materialized. 40 Otherwise,
the law could be vulnerable to attack as undue taking of property for the benefit of another. 41

In the case at bar, Prior Holdings took over the operations of Asian Alcohol in October 1991. Plain to see, the
last quarter losses in 1991 were already incurred under the new management. There were no signs that
these losses would abate. Irrefutable was the fact that losses have bled Asian Alcohol incessantly over a
span of several years. They were incurred under the management of the Parsons family and continued to be
suffered under the new management of Prior Holdings. Ultimately, it is Prior Holdings that will absorb all the
losses, including those incurred under the former owners of the company. The law gives the new
management every right to undertake measures to save the company from bankruptcy. chanrob les vi rtual lawlib rary

We find that the reorganizational plan and comprehensive cost-saving program to turn the business around
were not designed to bust the union of the private respondents. Retrenched were one hundred seventeen
(117) employees. Seventy two (72) of them including private respondents were separated because their
positions had become redundant. In this context, what may technically be considered as redundancy may
verily be considered as retrenchment measures. 42 Their positions had to be declared redundant to cut
losses.

Redundancy exists when the service capability of the work force is in excess of what is reasonably needed to
meet the demands on the enterprise. A redundant position is one rendered superfluous by any number of
factors, such as overhiring of workers, decreased volume of business, dropping of a particular product line
previously manufactured by the company or phasing out of a service activity priorly undertaken by the
business. 43 Under these conditions, the employer has no legal obligation to keep in its payroll more
employees than are necessary for the operation of its business. 44

For the implementation of a redundancy program to be valid, the employer must comply with the following
requisites: (1) written notice served on both the employees and the Department of Labor and Employment
at least one month prior to the intended date of retrenchment; 45 (2) payment of separation pay equivalent
to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good
faith in abolishing the redundant positions; 46 and (4) fair and reasonable criteria in ascertaining what
positions are to be declared redundant and accordingly abolished. 47

In the case at bar, private respondents Carias, Martinez and Sendon were water pump tenders. They tended
the water wells of Asian Alcohol located in Ubay, Pulupandan, Negros Occidental. However, Asian Alcohol did
not own the land where the wells stood. It only leased them.

In 1992, the lease contract, which also provided for a right of way leading to the site of the wells, was
terminated. Also, the water from the wells had become salty due to extensive prawn farming nearby and
could no longer be used by Asian Alcohol for its purpose. The wells had to be closed and needless to say, the
services of Carias, Martinez and Sendon had to be terminated on the twin grounds of redundancy and
retrenchment.

Private respondent Verayo was the briquetting plant operator in charge of the coal-fired boiler. Private

82
respondent Tormo was one of the three briquetting helpers. To enhance production efficiency, the new
management team shifted to the use of bunker fuel by about seventy percent (70%) to fire its boiler. The
shift meant substantial fuel cost savings. In the process, however, the need for a briquetting plant operator
ceased as the services of only two (2) helpers were all that was necessary to attend to the much lesser
amount of coal required to run the boiler. Thus, the position of private respondent Verayo had to be
abolished. Of the three (3) briquetting helpers, Tormo was the oldest, being already 41 years old. The other
two, Rudy Javier, Jr. and Eriberto Songaling, Jr., were younger, being only 28 and 35, respectively. Age,
with the physical strength that comes with it, was particularly taken into consideration by the management
team in deciding whom to separate. Hence, it was private respondent Tormo who was separated from
service. The management choice rested on a rational basis.

Private respondent Amacio was among the ten (10) mechanics who manned the machine shop at the plant
site. At their current production level, the new management found that it was more cost efficient to maintain
only nine (9) mechanics. In choosing whom to separate among the ten (10) mechanics, the management
examined employment records and reports to determine the least efficient among them. It was private
respondent Amacio who appeared the least efficient because of his poor health condition.

Not one of the private respondents refuted the foregoing facts. They only contend that the new
management should have followed the policy of "first in, last out" in choosing which positions to declare as
redundant or whom to retrench to prevent further business losses. No law mandates such a policy. And the
reason is simple enough. A host of relevant factors come into play in determining cost efficient measures
and in choosing the employees who will be retained or separated to save the company from closing shop. In
determining these issues, management has to enjoy a pre-eminent role. The characterization of positions as
redundant is an exercise of business judgment on the part of the employer. 48 It will be upheld as long as it
passes the test of arbitrariness. 49

Private respondents call our attention to their allegation that casuals were hired to replace Carias, Martinez
and Sendon as water pump tenders at the Ubay wells. They rely on the testimony of Engr. Federico
Palmares, Jr., the head of the Mechanical Engineering Services Department who admitted the engagement
of independent contractors to operate the wells. A reading of the testimony of Engr. Palmares, however, will
reveal that he referred not to the Ubay wells which were tended by private respondents Carias, Martinez and
Sendon, but to the Laura wells. Thus, he declared in cross examination: jgc:chanrob les.co m.ph

"ATTY. YMBALLA: chanrob1e s virtual 1aw l ibra ry

(cross-examination of respondent witness, Federico Palmares)

Q But in the Laura well?

WITNESS: chanrob1e s virtual 1aw l ibra ry

A Mansteel was hired as contractor.

ATTY. YMBALLA: chanrob1es vi rtua l 1aw lib rary

Q In other words, the persons mentioned are all workers of independent contractors?

WITNESS: chanrob1e s virtual 1aw l ibra ry

A I am not sure, maybe." 50

In any event, we have held that an employer’s good faith in implementing a redundancy program is not
necessarily destroyed by availment of the services of an independent contractor to replace the services of
the terminated employees. We have previously ruled that the reduction of the number of workers in a
company made necessary by the introduction of the services of an independent contractor is justified when
the latter is undertaken in order to effectuate more economic and efficient methods of production. 51 In the
case at bar, private respondents failed to proffer any proof that the management acted in a malicious or
arbitrary manner in engaging the services of an independent contractor to operate the Laura wells. Absent
such proof, the Court has no basis to interfere with the bona fide decision of management to effect more
economic and efficient methods of production. chanro bles vi rtua l lawli bra ry

Finally, private respondents now claim that they signed the quitclaims, waivers and voluntary resignation
letters only to get their separation package. They maintain that in principle, they did not believe that their
dismissal was valid.

It is true that this Court has generally held that quitclaims and releases are contrary to public policy and
therefore, void. Nonetheless, voluntary agreements that represent a reasonable settlement are binding on
the parties and should not later be disowned. It is only where there is clear proof that the waiver was
wangled from an unsuspecting or gullible person, or the terms of the settlement are unconscionable, that
the law will step in to bail out the employee. While it is our duty to prevent the exploitation of employees, it
also behooves us to protect the sanctity of contracts that do not contravene our laws.

In the case at bar, there is no showing that the quitclaims, waivers and voluntary resignation letters were
executed by the private respondents under force or duress. In truth, the documents embodied separation
benefits that were well beyond what the company was legally required to give private respondents. We note
that out of the more than one hundred workers that were retrenched by Asian Alcohol, only these six (6)

83
private respondents were not impressed by the generosity of their employer. Their late complaints have no
basis and deserve our scant considerations.

IN VIEW WHEREOF, the petition is GRANTED. The Decision of the National Labor Relations Commission
dated May 30, 1997 and its Resolution dated September 25, 1997 are ANNULLED AND SET ASIDE. The
Decision of the Executive Labor Arbiter dated January 10, 1996 in RAB Case No. 06-12-10893-92 is
ORDERED REINSTATED. The complaints for illegal dismissal filed by private respondents against Asian
Alcohol Corporation are hereby ORDERED DISMISSED FOR LACK OF MERIT . No costs.

SO ORDERED. chanrobles. com : virt ual law l ibra ry

Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.

Endnotes:

1. Fourth Division, Cebu City.

2. Decision in NLRC Case No. V-0090-96 penned by Commissioner Amorito V. Canete and concurred in by
Commissioner Bernabe S. Batunan. Commissioner Irenea E. Ceniza was on leave; Rollo, pp. 49-70.

3. In RAB Case No. 06-12-10893-92, promulgated on January 10, 1996 and penned by Executive Labor
Arbiter Oscar S. Uy, Rollo, pp. 75-82.

4. Position Paper for the Respondents dated April 1, 1993, p. 3, Rollo, p. 117.

5. Position Paper for Complainants dated May 24, 1993, p. 1, Rollo, p. 107.

6. Ibid.

7. Comment dated August 27, 1998, p. 2, Rollo, p. 264.

8. Motion for Reconsideration of Respondent dated July 2, 1997, p. 2, Rollo, p. 91; Position Paper for
Complainants, supra, p. 2, Rollo, p. 108.

9. Motion for Reconsideration, supra, p. 3, Rollo, p. 92; Position Paper for Complainants, supra, p. 2, Rollo,
p. 108.

10. Ibid.

11. Ibid.

12 Decision of the Executive Labor Arbiter dated January 10, 1996, pp. 4-7, Rollo, pp. 78-81.

13. Decision of the NLRC dated May 30, 1997, pp. 4-6, 21, Rollo, pp. 52-54, 69.

14. Id., p. 21, Rollo, p. 69.

15. Resolution of the NLRC dated September 25, 1997, Rollo, pp. 72-73.

16. Petition for Certiorari dated December 10, 1997, pp. 9-10, Rollo, pp. 22-23.

17. Rollo, pp. 223-227.

18. Revidad v. NLRC, 245 SCRA 356, 373 (1995).

19. Article II of the 1987 Constitution is replete with state policies favoring labor. These include: jg c:chan roble s.com.p h

"Sec. 9. The State shall promote a just and dynamic social order that will ensure the prosperity and
independence of the nation and free people from poverty through policies that provide adequate social
services, promote full employment, a rising standard of living, and an improved quality of life for all." cralaw vi rtua 1aw lib rary

"Sec. 10. The State shall promote social justice in all phases of national development." cralaw virtua 1aw lib rary

"Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare." cralaw v irtua 1aw lib rary

Article XIII, Sec. 3 provides, viz.: jgc:cha nrob les.com. ph

"The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote
full employment and equality of opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and
peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to

84
security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and
decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the
preferential use of voluntary modes of settling disputes, including conciliation, and shall enforce their mutual
compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its
just share in the fruits of production and the right of enterprises to reasonable returns on investments, and
to expansion and growth." [Emphasis ours]

20. Uichico v. NLRC 273 SCRA 35, 41 (1997).

21. Ibid.

22. Ibid.

23. Banana Growers Collective at Puyod Farms v. NLRC, 276 SCRA 544, 552-556 (1997).

24. Banana Growers Collective at Puyod Farms v. NLRC, supra; Trendline Employees Association-Southern
Philippines Federation of Labor v. NLRC, 272 SCRA 172, 179 (1997); Uichico v. NLRC, supra at 43; Lopez
Sugar Corporation v. Federation of Free Workers, 189 SCRA 179, 186 (1990); Anino, Et. Al. v. NLRC, Et Al.,
G.R. No. 123226, May 21, 1998.

25. Sebuguero v. NLRC, supra; Union of Filipino Workers (UFW) v. NLRC, 221 SCRA 267, 279 (1993);
Fuentes v. NLRC, supra; Trendline Employees Association-Southern Philippines Federation of Labor v. NLRC,
supra; Caffco International Limited v. Office of the Minister-Ministry of Labor & Employment, 212 SCRA 351,
357 (1992); Radio Communications of the Philippines, Inc. v. NLRC, 210 SCRA 222, 225 (1992).

26. Sebuguero v. NLRC, supra; Union of Filipino Workers (UFW) v. NLRC, supra; Fuentes v. NLRC, supra;
Trendline Employees Association-Southern Philippines Federation of Labor v. NLRC, supra; Caffco
International Limited v. Office of the Minister-Ministry of Labor & Employment, supra.

27. Dela Cruz v. NLRC, 268 SCRA 458, 467-468 (1997); Caffco International Limited v. Office of the
Minister-Ministry of Labor & Employment, supra.

28. Radio Communications of the Philippines, Inc. v. NLRC, supra; Rubberworld (Phils.), Inc. v. NLRC, 175
SCRA 450, 457 (1989); Somerville Stainless Steel Corporation v. NLRC, et al, G.R. No. 125887, March 11,
1998.

29. Asiaworld Publishing House, Inc. v. Ople, 152 SCRA 219, 225 (1987).

30. Duay v. Court of Industrial Relations, 122 SCRA 834, 839-840 (1983).

31. Ibid.; Catatista v. NLRC, 247 SCRA 46, 52 (1995); Precision Electronics Corporation v. NLRC, 178 SCRA
667, 669 (1989).

32. Wiltshire File Co., Inc. v. NLRC, 193 SCRA 665, 670 (1991); Banana Growers Collective at Puyod Farms
v. NLRC, 276 NLRC 544, 552-556 (1997); Lopez Sugar Corporation v. Federation of Free Workers, 189
SCRA 179, 190 (1990); AG & P United Rank and File Association v. NLRC (First Division), 265 SCRA 159,
164-166 (1996); Caffco International Limited v. Office of the Minister-Ministry of Labor & Employment,
supra.

33. Uichico v. NLRC, supra at 45.

34. Philippine School of Business Administration (PSBA Manila) v. NLRC, 223 SCRA 305, 308 (1993).

35. Somerville Stainless Steel Corporation v. NLRC, supra.

36. Ibid.

37. Decision of the NLRC dated May 30, 1997, p. 5, Rollo, p. 53.

38. Ibid.

39. Revidad v. NLRC, supra.

40. Lopez Sugar Corporation v. Federation of Free Workers, supra.

41. Banana Growers Collective at Puyod Farms v. NLRC, supra.

42. Edge Apparel, Inc. v. NLRC, Et Al., G.R. No. 121314, February 12, 1998; AG & P United Rank and File
Association v. NLRC (First Division), 265 SCRA 159, pp. 164-166 (1996).

43. Wiltshire File Co., Inc. v. NLRC, 193 SCRA 665, 672 (1991); Tierra International Construction Corp. v.
NLRC, 211 SCRA 73, 77 (1992).

85
44. Wiltshire File Co., Inc. v. NLRC, supra.

45. Almodiel v. NLRC, 223 SCRA 341, 345 (1993).

46. Id., p. 346.

47. Capitol Wireless, Inc. v. Confesor, 264 SCRA 68, 72 (1996).

48. Wiltshire File Co., Inc. v. NLRC, 193 SCRA 665, 673 (1991).

49. Ibid.

50. TSN, pp. 334-337, as quoted in the NLRC Decision, pp. 18-21, Rollo, 66-69.

51. De Ocampo v. NLRC 213 SCRA 652, 662 (1992).

86
 SECOND DIVISION

[G.R. No. 127718. March 2, 2000]

NATIONAL FEDERATION OF LABOR, ABELARDO SANGADAN,

LUCIANO RAMOS, NESTOR TILASAN, GREGORIO TILASAN, JOAQUIN
GARCIA, ROGELIO SABAITAN, CASTRO LEONARDO, PILARDO
POTENCIANO, RONILLO POTENCIANO, SANTIAGO SABAITAN,
JOVENCIO BARTOLOME, JUANITO CONCERMAN, GEORGE TUMILAS,
PATROCINIO DOMINGO, AVELINO FRANCISCO, MELITON SANGADAN,
ALEXANDER GERONIMO, JOAQUIN GERONIMO, RAMIL MACASO,
LAMBERTO JOVEN, CRISTINO GARINA, SAMMY GANTAAN, NACIAL
USTALAN, EDWIN USTALAN, ROLAND POTENCIANO, RODY
CONCERMAN, ELMER DOMINGO, ARNAGUEZ SANGADAN, UNDING
BOLENG, EDUARDO BOLENG, ROBERTO PANEO and HENRY
SANGADAN, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION (5th Division), PATALON COCONUT ESTATE and/or
CHARLIE REITH as General Manager and SUSIE GALLE REITH, as
owner, respondents.

DECISION

DE LEON, JR., J.:

Before us is a special civil action for certiorari to set aside and annul two (2) resolutions
of the National Labor Relations Commission[1] promulgated on April 24, 1996[2] and
August 29, 1996[3] denying the award of separation pay to petitioners.

The pertinent facts are as follows:

Petitioners are bona fide members of the National Federation of Labor (NFL), a
legitimate labor organization duly registered with the Department of Labor and
Employment. They were employed by private respondents Charlie Reith and Susie
Galle Reith, general manager and owner, respectively, of the 354-hectare Patalon
Coconut Estate located at Patalon, Zamboanga City. Patalon Coconut Estate was
engaged in growing agricultural products and in raising livestock.

In 1988, Congress enacted into law Republic Act (R.A.) No. 6657, otherwise known as
the Comprehensive Agrarian Reform Law (CARL), which mandated the compulsory
acquisition of all covered agricultural lands for distribution to qualified farmer
beneficiaries under the so-called Comprehensive Agrarian Reform Programme (CARP).

Pursuant to R.A. No. 6657, the Patalon Coconut Estate was awarded to the Patalon
Estate Agrarian Reform Association (PEARA), a cooperative accredited by the
Department of Agrarian Reform (DAR), of which petitioners are members and co-
owners.

As a result of this acquisition, private respondents shut down the operation of the
Patalon Coconut Estate and the employment of the petitioners was severed on July 31,
1994. Petitioners did not receive any separation pay.

On August 1, 1994, the cooperative took over the estate. A certain Abelardo Sangadan
informed respondents of such takeover via a letter which was received by the
respondents on July 26, 1994. Being beneficiaries of the Patalon Coconut Estate
pursuant to the CARP, the petitioners became part-owners of the land.[4]

87
On April 25, 1995, petitioners filed individual complaints before the Regional Arbitration
Branch (RAB) of the National Labor Relations Commission (NLRC) in Zamboanga City,
praying for their reinstatement with full backwages on the ground that they were illegally
dismissed. The petitioners were represented by their labor organization, the NFL.

On December 12, 1995, the RAB rendered a decision, the dispositive portion of which
provides:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered

dismissing complainants charge for illegal dismissal for lack of merit, but
ordering respondents thru [sic] its owner-manager or its duly authorized
representative to pay complainants separation pay in view of the latters
cessation of operations or forced sale, and for 13th month differential pay
in the amount, as follows, for:

Names Separation Pay 13th Mo. Pay Diff. Total

Abelardo Sangadan P23,879.06 N o n e P23,879.06

Luciano Ramos 43,605.24 P711.25 44,316.49

Nestor Tilasan 19,726.18 401.46 20,127.64

Gregorio Tilasan 25,955.50 N o n e 25,955.50

Joaquin Garcia 7,267.54 1,211.25 8,478.79

Rogelio Sabaitan 21,798.00 1,211.25 23,009.25

Castro Leonardo, Jr. 25,955.50 63.10 26,018.60

Pilardo Potenciano 5,191.10 911.25 6,102.35

Ronillo Potenciano 7,267.54 N o n e 7,267.54

Jovencio Bartolome 8,305.76 477.25 8,783.01

Santiago Sabaitan 4,152.88 1,011.25 5,164.13

Juanito Concerman 7,267.54 611.25 7,928.79

George Tumilas 16,611.52 1,011.25 17,622.77

Patrocinio Domingo 2,076.44 1,011.25 3,087.69

Avelino Francisco 3,114.66 1,211.25 4,325.91

Meliton Sangadan 15,573.30 392.50 15,965.80

Alexander Geronimo 15,573.00 N o n e 15,573.30

Joaquin Geronimo 24,917.28 1,211.25 26,128.53

Ramil Macaso 6,229.32 861.25 7,090.57

Lamberto Joven 16,611.62 1,011.25 17,622.77

Cristino Garina 35,299.48 849.65 36,149.13

88
 Sammy Gantaan 14,535.08 961.25 15,496.33

Nacial Ustalan 38,414.14 79.95 38,494.09

Edwin Ustalan 7,267.54 1,011.25 8,278.79

Roland Potenciano 5,191.10 911.25 6,102.35

Rody Concerman 7,267.54 691.25 7,958.79

Elmer Domingo 3,114.66 1,211.25 4,325.91

Aranquez Sangada 45,681.68 711.25 46,392.93

Unding Boleng 31,146.60 N o n e 31,146.60

Eduardo Boleng 35,299.48 759.30 36,058.78

Roberto Paneo 23,876.06 911.25 24,787.31

Henry Sangadan 16,611.52 1,011.25 17,622.77

Total Benefits P586,774.22

"FURTHER, complainants claim for Muslim Holiday, overtime pay and rest day
pay should be dismissed for lack of merit, too."[5]

Appeal was taken by private respondents to public respondent NLRC.[6]

On April 24, 1996, the NLRC issued a resolution, the dispositive portion of which
provides:

"WHEREFORE, the decision appealed from is hereby modified in favor of

the following findings:

1) Respondents are not guilty of illegally dismissing complainants.

Respondents cessation of operation was not due to a unilateral action on
their part resulting in the cutting off of the employment relationship
between the parties. The severance of employer-employee relationship
between the parties came about INVOLUNTARILY, as a result of an act of
the State. Consequently, complainants are not entitled to any separation
pay.

2) The award of 13th month pay differential is, however, Set Aside. Any
award of 13th month pay differentials to complainants should be computed
strictly based on their reduced pay, equivalent to six (6) hours work,
Monday to Friday, pursuant to what the parties agreed in the November
18, 1991 Compromise Agreement."

SO ORDERED.[7]

Petitioners filed a motion for reconsideration which was denied by the NLRC in its
resolution[8] dated August 29, 1996.

Hence, this petition.

89
The issue is whether or not an employer that was compelled to cease its operation
because of the compulsory acquisition by the government of its land for purposes of
agrarian reform, is liable to pay separation pay to its affected employees.

The petition is bereft of merit.

Petitioners contend that they are entitled to separation pay citing Article 283 of the
Labor Code which reads:

"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 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 () month pay for every
year of service, whichever is higher. A fraction of at least six (6) months
shall be considered as one (1) whole year."

It is clear that Article 283 of the Labor Code applies in cases of closures of
establishment and reduction of personnel. The peculiar circumstances in the case at
bar, however, involves neither the closure of an establishment nor a reduction of
personnel as contemplated under the aforesaid article. When the Patalon Coconut
Estate was closed because a large portion of the estate was acquired by DAR pursuant
to CARP, the ownership of that large portion of the estate was precisely transferred to
PEARA and ultimately to the petitioners as members thereof and as agrarian lot
beneficiaries. Hence, Article 283 of the Labor Code is not applicable to the case at
bench.

Even assuming, arguendo, that the situation in this case were a closure of the business
establishment called Patalon Coconut Estate of private respondents, still the
petitioners/employees are not entitled to separation pay. The closure contemplated
under Article 283 of the Labor Code is a unilateral and voluntary act on the part of the
employer to close the business establishment as may be gleaned from the wording of
the said legal provision that "The employer may also terminate the employment of any
employee due to...".[9] The use of the word "may," in a statute, denotes that it is directory
in nature and generally permissive only.[10] The "plain meaning rule" or verba legis in
statutory construction is thus applicable in this case. Where the words of a statute are
clear, plain and free from ambiguity, it must be given its literal meaning and applied
without attempted interpretation.[11]

In other words, Article 283 of the Labor Code does not contemplate a situation where
the closure of the business establishment is forced upon the employer and ultimately for
the benefit of the employees.

As earlier stated, the Patalon Coconut Estate was closed down because a large portion
of the said estate was acquired by the DAR pursuant to the CARP. Hence, the closure
of the Patalon Coconut Estate was not effected voluntarily by private respondents who
even filed a petition to have said estate exempted from the coverage of RA 6657.

90
Unfortunately, their petition was denied by the Department of Agrarain Reform. Since
the closure was due to the act of the government to benefit the petitioners, as members
of the Patalon Estate Agrarian Reform Association, by making them agrarian lot
beneficiaries of said estate, the petitioners are not entitled to separation pay. The
termination of their employment was not caused by the private respondents. The blame,
if any, for the termination of petitioners employment can even be laid upon the
petitioner-employees themselves inasmuch as they formed themselves into a
cooperative, PEARA, ultimately to take over, as agrarian lot beneficiaries, of private
respondents landed estate pursuant to RA 6657. The resulting closure of the business
establishment, Patalon Coconut Estate, when it was placed under CARP, occurred
through no fault of the private respondents.

While the Constitution provides that "the State x x x shall protect the rights of workers
and promote their welfare", that constitutional policy of providing full protection to labor
is not intended to oppress or destroy capital and management. Thus, the capital and
management sectors must also be protected under a regime of justice and the rule of
law.

WHEREFORE, the petition is DISMISSED. The Resolutions of the National Labor

Relations Commission dated April 24, 1996 and August 29, 1996 are hereby
AFFIRMED. No costs.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena JJ., concur.

[1]
5th Division.
[2]
In NLRC Case No. RAB-09-04-00096-95, Rollo, pp. 23-39.
[3]
In NLRC CA No. M-002823-96, Rollo, pp. 41-51.
[4]
Rollo, pp. 43-44.
[5]
Id, pp. 38-39.
[6]
5th Division, Cagayan de Oro City.
[7]
Rollo, pp. 50-51.
[8]
Id, pp. 61-62.
[9]
Emphasis ours.
[10]
Agpalo, Ruben E., Statutory Construction, 1995 ed., p. 263.
[11]
Fianza vs. Peoples Law Enforcement Board, 243 SCRA 165, 178 (1995).

91
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 78350 September 11, 1991

SAN FELIPE NERI SCHOOL OF MANDALUYONG, INC., ROSA A. SALAZAR, FAUSTINO F.

BONIFACIO, JR., DOMINGO ANGELES, FR. ANASTACIO GAPAC, MARIANO DE LEON, AND
MAGDALENA ANGELES,petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ROMAN CATHOLIC ARCHBISHOP OF
MANILA, GORGONIA MARAMAG, LILY LIM, ALICIA YANGCO, DELIA CRUZ, JOSEFINA
SAGER, ERLINDA MURIEL, MARILYN O. VILLORENTE, LOURDES SANTOS, ELENITA
DALMAN, PACHO AQUINO, RUDENCIA ANGOCO, GLORIA GREGORIO, NARCISO ALFONSO,
LEONILA BANAG, VIRGILIO BANAG, EMY LARINGAY, ERLINDA SEBASTIAN, JULIETA
MABOLO, ANABELLE ARCEGA, c/o ATTY. PEDRO T. MOLO, respondents.

Delos Reyes, Bonifacio, De los Reyes for petitioners.

Pedro T. Molo for private respondents.

Padilla Law Office for private RCAM.

PARAS, J.:p

This is a petition for certiorari to review and set aside the resolutions of the National Labor Relations
Commission (NLRC), Second Division, * dated February 12, 1987 and April 7, 1987, both affirming
the decision of Labor Arbiter Reynaldo M. Maroan in NLRC Case No. AB-9-676-81, entitled
"Gorgonia Maramag, et al. vs. San Felipe Neri School of Mandaluyong, Inc. and/or Faustino F.
Bonifacio, et al"., adjudging herein petitioners solidarily liable for the payment of separation pay in
favor of herein private respondents.

The antecedent facts of the case as gathered from the records are as follows:

Petitioners were the incorporators, stockholders and/or trustees of a corporation known as the San
Felipe Neri School of Mandaluyong, Inc., which owned and operated petitioner school. Private
respondents were formerly teacher employees of the aforesaid institution.

Sometime on April 18, 1981, petitioner-school and the Roman Catholic Archbishop of Manila (RCAM
for brevity) executed a Deed of Absolute Sale of Real and Personal Properties, the pertinent portions
of which provide that:

(1) The SELLER is the owner of a two (2) storey reinforced concrete building and other
buildings, structures or improvements erected on land belonging to the BUYER, situated in
the grounds of San Felipe Neri Parish Church and presently used by the SELLER in the
operation of the San Felipe School.

(2) The SELLER is also the owner of library books, school equipment, tables, desks, chairs,
blackboards and other personal properties found therein and itemized in the inventory hereto
attached as ANNEX 'A' and made an integral part of this Deed of Absolute Sale of Real and
Personal Properties.

(3) For and in consideration of the sum of FOUR HUNDRED THOUSAND PESOS
(P400,000.00), Philippine Currency, payable at the office of the BUYER on April 30, 1981,
the SELLER has sold, transferred and conveyed, as it, by these presents, does SELL,
TRANSFER, AND CONVEY, absolutely and in perpetuity unto the BUYER, its successors or
assigns, the real and personal properties described in paragraphs 1 and 2 above. (Rollo, p. 5
and p. 60).

92
Private respondents (former teachers of petitioner school) upon reporting for work sometime in May
of the same year for the opening of the school year 1981-82, were surprised to learn from school
authorities that the school was already under new ownership and management. They (private
respondents) had never been previously notified nor informed of the sale or transfer of the school to
the RCAM (Rollo, p. 34 and pp. 145-146).

The new owner and administrator (RCAM), in turn, required said respondent teachers to apply as
new employees subject to the usual probation (Rollo, p. 34). Demoted to probationary status and
their past services not recognized by the new employer, said teachers inquired about their rights
from the former school owners (herein petitioners), but to no avail. Instead, they were referred to the
new owners of the school, supposedly as the proper party who should answer for and adjust private
respondents' demand and grievances (Rollo, p. 146).

Respondent teachers then filed a complaint before the Labor Arbiter against all the petitioners,
including the RCAM the vendee or transferee, as alternative defendant for separation pay,
differential pay and other claims (Rollo, pp. 22-25). After submitting their respective position papers
and there being no amicable settlement reached between the parties despite sufficient time allowed
for such purpose, hearing ensued at which both complainants (herein private respondents) and
respondents (herein petitioners, including RCAM presented testimonial and documentary evidence
(Rollo, p. 35).

On March 26, 1984, the Labor Arbiter rendered judgment in favor of private respondents, ordering
petitioners to pay the latter their separation pay. The decretal portion of the contested order of the
Labor Arbiter reads:

WHEREFORE, judgment is hereby rendered ordering the respondent San Felipe Neri
School of Mandaluyong, Inc., Faustino F. Bonifacio, Jr., Domingo P. Angeles, Rosa A.
Salazar, Father Anastacio B. Gapac, Mariano de Leon, and Magdalena I. Angeles, jointly
and severally to pay the complainants separation pay equivalent to one (1) months pay or at
least one-half (½) month pay for every year of service whichever is higher, plus 12% interest
thereon from the filing of the amended complaint until full satisfaction thereof. The complaint
against the Roman Catholic Archbishop of Manila is hereby dismissed. Likewise, the claims
for separation pay of complainants N. Parada and R. Aviles who are admittedly part time
employees of the school are hereby dismissed. Further, the claim for underpayment of
salaries and allowances and non- payment of summer vacation pay is hereby dismissed for
lack of merit. (Rollo, p. 39)

Petitioners, on April 23, 1984, appealed to the National Labor Relations Commission (NLRC)
contesting the aforequoted order as having been issued contrary to law and jurisprudence, and that
the Commission has no jurisdiction over them, alleging that no employer-employee relationship
exists between said individual petitioners and private respondents, the latter being considered the
employees of the school corporation and not by said petitioners themselves in conformance with the
principle or doctrine that a corporation has a personality separate and distinct from those persons
composing it (Rollo, pp. 41-46).

On February 12, 1987, the Second Division of the NLRC in its Resolution, affirmed the findings and
decision of the Labor Arbiter and dismissed the appeal for lack of merit ruling that there was in fact a
closure of the establishment when the same was sold to the transferee, the RCAM and that the
award of separation pay to herein private respondents was in accordance with the law (Rollo, pp. 62-
63).

Petitioners filed their Motion for Reconsideration on March 13, 1987 (Rollo, pp. 64-69), but the same
was denied by the Commission in its Resolution dated April 7, 1987 (Rollo, p. 70).

Hence, this petition.

The main issue in this case is whether or not respondent teachers' employment was terminated by
the sale and transfer of San Felipe Neri School of Mandaluyong, Inc. to the Archbishop of Manila
that would entitle them to separation pay.

Petitioner argue that they cannot be held accountable to private respondents's claim for separation
pay since there was no cessation of employment insofar as individual respondents are concerned.
The Roman Catholic Archbishop of Manila (RCAM) which assumed the ownership and control of the
school continued with its business operations and hired the said private respond respondents. Only

93
the ownership of the school has changed. There was no interpretation in the employment of private
respondents who were school teachers, hence there is no basis for payment to them of separation
pay (Rollo, p. 18). Relying on two (2) NLRC cases (the GENBANK and TARELCO cases),
petitioners assume that the security of tenure of employees of the transferor is not affected by the
change of ownership of the establishment and since there was no termination to speak of, it was
error for the NLRC to award separation pay to private respondents (Rollo, pp. 14-19).

Moreover, petitioners maintain that the Commission had no jurisdiction over them since they are not
the employers of the private respondents but the petitioner school as a corporation (Rollo, p. 19).

The petition is devoid of merit.

It is not disputed that San Felipe Neri School of Mandaluyong, Inc. sold its properties and assets to
RCAM on April 18, 1981; but RCAM did not buy the school nor assumed its liabilities. Immediately
thereafter, RCAM as the transferee-purchaser, continued the operation of the school, but applied for
a new permit to operate the same (Rollo, pp. 91-93). In short, there was a change of ownership or
management of the school properties and assets.

Change of ownership or management of an establishment or company, however, is not one of the

just causes provided by law for the termination of employment (Junio, et al. vs. NLRC, et al., 127
SCRA 390 [1984]). There can be no controversy, however, for it is a principle well-recognized, that it
is within the employer's legitimate sphere of 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 insulate the employer or selling corporation (petitioner school) from its
obligation to its employees, particularly the payment of separation pay. Such situation is not
envisioned in the law. It strikes at the very concept of social justice (Insular Lumber Co. vs. CA, 29
SCRA 371 [1969]) (Emphasis supplied).

A close scrutiny of the pertinent Deed of Sale dated April 18, 1981 reveals no express stipulation
whatsoever relative to the continued employment by the transferee, RCAM of the employees (herein
private respondents) of the erstwhile employer (petitioner). On the contrary, records show that
RCAM expressly manifested its unwillingness to absorb the petitioner school's employees or to
recognize their prior service. As correctly found by the Labor Arbiter and the NLRC, respondent
teachers' employment has been effectively terminated and there was in effect a closure (Rollo, pp.
37 and 62). Obviously, therefore, the fate of private respondents under the new owner (RCAM)
appeared unprovided for. And there is no law which requires the purchaser to absorb the employees
of the selling corporation (MDII Supervisors and Confidential Employees Association (FFW) vs.
Presidential Assistant on Legal Affairs, 79 SCRA 40 [1977]).

As there is no such law, the most that the purchasing company may do, for purposes of public policy
and social justice, is to give preference to the qualified separated employees of the selling company,
who in their judgment are necessary in the continued operation of the business establishment (Ibid.).
This, RCAM did. It required private respondents to re-apply as new employees as a condition for
rehiring, subject to the usual probationary status, the latter's past services with the petitioners-
transferors not recognized (Rollo, pp. 60 and 99).

Records further reveal that the negotiations for the sale of the assets and properties of petitioner
school were held behind the back of the private respondents who were taken by surprise when they
reported for work finding a new owner of the school. As mentioned at the outset they were not
formally notified of the sale or transfer to RCAM and its attendant consequences with respect to their
continued employment status under the new owners. As such, the recognition of their past services
as teachers remains uncertain. Worse, they were not at all given the required notice of their
termination.

On all fours with the instant case is the ruling in Central Azucarera del Danao vs. Court of
Appeals, 137 SCRA 295, 306 [1985], pertinent portions of which read:

The records further reveal that the negotiations for the sale of the assets and properties of
Central Danao to Dadeco were held behind the back of the employees who were taken by
surprise upon the consummation of the sale. They were not formally notified of the

94
 impending sell-out to Dadeco and its attendant consequences with respect to their continued
employment status under the purchasing company. As such, they were uncertain of being
retained, hired, or absorbed by the new owner and its management. Technically then, the
employees were actually terminated and/or separated from the service on the date of the
sale, or on July 7, 1961. Worse, they were not at all given the required notice of their
termination. Inasmuch as there was no notice of termination whatsoever given to the
employees of Central Danao coupled with the fact that no efforts were exerted by Central
Danao to apprise its employees of the consequences of the sale or disposition of its assets
to Dadeco, justice and equity dictate that private respondents be entitled to their termination
or separation pay corresponding to the number of years of service with Central Danao until
June 7, 1961.

In the earlier case of Philippine Refining Company vs. Garcia, 18 SCRA 107 [1966], this Court,
speaking thru Justice J.B.L. Reyes, stated:

Except where other applicable statutes provide differently, it is not the cause for the
dismissal but the employer's failure to serve notice upon the employee that renders the
employer answerable to the employee for termination pay.

Hence, petitioners' contention that private respondents are not entitled to separation pay on the
ground that there was no termination of the latter's employment but a mere change of ownership in
the assets and properties of the school is untenable. Neither can the flimsy excuse that at the time of
their alleged termination, there was no employer-employee relationship between them (private
respondents) and petitioners, be sustained.

Finally, this Honorable Court took the occasion to remind employers to exercise caution and care in
dealing with their employees to prevent suspicion that the adoption of certain corporate
combinations such as merger or consolidation, or outright sale or disposition of assets is but a
scheme to evade payment of termination pay to their employees (Central Azucarera del
Danao, supra).

With the resolution of the main issue, there appears to be no necessity to go into the other issues,
except to say that only petitioner San Felipe Neri School of Mandaluyong is liable to the private
respondents, the other petitioners not being the employers of the teachers.

WHEREFORE, as hereinabove MODIFIED, the appealed decision and resolution are hereby
AFFIRMED, the school having a separate and distinct personality from the other petitioners.

SO ORDERED.

Melencio-Herrera (Chairperson) and Regalado, JJ., concur.

Padilla, J., took no part.

Sarmiento, J., is on leave.

Footnotes

* Penned by Commissioner Domingo Zapanta and concurred in by Presiding Commissioner

Daniel M. Lucas, Jr. and Commissioner Oscar N. Abella.

95
EN BANC

FELIX B. PEREZ and G.R. No. 152048

AMANTE G. DORIA,
Petitioners,
Present:
PUNO, C.J.,

QUISUMBING,

YNARES-SANTIAGO,

CARPIO,

AUSTRIA-MARTINEZ,

- v e r s u s - CORONA,

CARPIO MORALES,

TINGA,

CHICO-NAZARIO,

VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION and
PERALTA, JJ.
PHILIPPINE TELEGRAPH AND
TELEPHONE COMPANY and
JOSE LUIS SANTIAGO,
Respondents. Promulgated:

April 7, 2009
x--------------------------------------------------x

96
 DECISION
CORONA, J.:

Petitioners Felix B. Perez and Amante G. Doria were employed by respondent

Philippine Telegraph and Telephone Company (PT&T) as shipping clerk and
supervisor, respectively, in PT&Ts Shipping Section, Materials Management Group.

Acting on an alleged unsigned letter regarding anomalous transactions at the

Shipping Section, respondents formed a special audit team to investigate the
matter. It was discovered that the Shipping Section jacked up the value of the
freight costs for goods shipped and that the duplicates of the shipping documents
allegedly showed traces of tampering, alteration and superimposition.

On September 3, 1993, petitioners were placed on preventive suspension for

30 days for their alleged involvement in the anomaly.[1] Their suspension was
extended for 15 days twice: first on October 3, 1993[2] and second on October 18,
1993.[3]

On October 29, 1993, a memorandum with the following tenor was issued
by respondents:

In line with the recommendation of the AVP-Audit as presented in his report of October
15, 1993 (copy attached) and the subsequent filing of criminal charges against the parties
mentioned therein, [Mr. Felix Perez and Mr. Amante Doria are] hereby dismissed from the
service for having falsified company documents.[4] (emphasis supplied)

On November 9, 1993, petitioners filed a complaint for illegal suspension and

illegal dismissal.[5] They alleged that they were dismissed on November 8, 1993, the
date they received the above-mentioned memorandum.

97
 The labor arbiter found that the 30-day extension of petitioners suspension
and their subsequent dismissal were both illegal. He ordered respondents to pay
petitioners their salaries during their 30-day illegal suspension, as well as to
reinstate them with backwages and 13th month pay.

The National Labor Relations Commission (NLRC) reversed the decision of

the labor arbiter. It ruled that petitioners were dismissed for just cause, that they
were accorded due process and that they were illegally suspended for only 15 days
(without stating the reason for the reduction of the period of petitioners illegal
suspension).[6]

Petitioners appealed to the Court of Appeals (CA). In its January 29, 2002
decision,[7] the CA affirmed the NLRC decision insofar as petitioners illegal
suspension for 15 days and dismissal for just cause were concerned. However, it
found that petitioners were dismissed without due process.

Petitioners now seek a reversal of the CA decision. They contend that there
was no just cause for their dismissal, that they were not accorded due process and
that they were illegally suspended for 30 days.

We rule in favor of petitioners.

RESPONDENTS FAILED TO PROVE JUST

CAUSE AND TO OBSERVE DUE PROCESS

The CA, in upholding the NLRCs decision, reasoned that there was sufficient
basis for respondents to lose their confidence in petitioners[8] for allegedly
tampering with the shipping documents. Respondents emphasized the importance

98
of a shipping order or request, as it was the basis of their liability to a cargo
forwarder.[9]

We disagree.

Without undermining the importance of a shipping order or request, we find

respondents evidence insufficient to clearly and convincingly establish the facts
from which the loss of confidence resulted.[10] Other than their bare allegations and
the fact that such documents came into petitioners hands at some point,
respondents should have provided evidence of petitioners functions, the extent of
their duties, the procedure in the handling and approval of shipping requests and
the fact that no personnel other than petitioners were involved. There was,
therefore, a patent paucity of proof connecting petitioners to the alleged
tampering of shipping documents.

The alterations on the shipping documents could not reasonably be

attributed to petitioners because it was never proven that petitioners alone had
control of or access to these documents. Unless duly proved or sufficiently
substantiated otherwise, impartial tribunals should not rely only on the statement
of the employer that it has lost confidence in its employee.[11]

Willful breach by the employee of the trust reposed in him by his employer
or duly authorized representative is a just cause for termination.[12] However,
in General Bank and Trust Co. v. CA,[13] we said:

[L]oss of confidence should not be simulated. It should not be used as a subterfuge for
causes which are improper, illegal or unjustified. Loss of confidence may not be arbitrarily
asserted in the face of overwhelming evidence to the contrary. It must be genuine, not a
mere afterthought to justify an earlier action taken in bad faith.

The burden of proof rests on the employer to establish that the dismissal is
for cause in view of the security of tenure that employees enjoy under the
Constitution and the Labor Code. The employers evidence must clearly and

99
convincingly show the facts on which the loss of confidence in the employee may
be fairly made to rest.[14] It must be adequately proven by substantial
evidence.[15] Respondents failed to discharge this burden.

Respondents illegal act of dismissing petitioners was aggravated by their

failure to observe due process. To meet the requirements of due process in the
dismissal of an employee, an employer must furnish the worker with two written
notices: (1) a written notice specifying the grounds for termination and giving to
said employee a reasonable opportunity to explain his side and (2) another written
notice indicating that, upon due consideration of all circumstances, grounds have
been established to justify the employer's decision to dismiss the employee.[16]

Petitioners were neither apprised of the charges against them nor given a
chance to defend themselves. They were simply and arbitrarily separated from
work and served notices of termination in total disregard of their rights to due
process and security of tenure. The labor arbiter and the CA correctly found that
respondents failed to comply with the two-notice requirement for terminating
employees.

Petitioners likewise contended that due process was not observed in the
absence of a hearing in which they could have explained their side and refuted the
evidence against them.

There is no need for a hearing or conference. We note a marked difference

in the standards of due process to be followed as prescribed in the Labor Code and
its implementing rules. The Labor Code, on one hand, provides that an employer
must provide the employee ample opportunity to be heard and to defend
himself with the assistance of his representative if he so desires:

ART. 277. Miscellaneous provisions. x x x

100
 (b) Subject to the constitutional right of workers to security of tenure and their right to
be protected against dismissal except for a just and authorized cause and without
prejudice to the requirement of notice under Article 283 of this Code, the employer shall
furnish the worker whose employment is sought to be terminated a written notice
containing a statement of the causes for termination and shall afford the latter ample
opportunity to be heard and to defend himself with the assistance of his representative
if he so desires in accordance with company rules and regulations promulgated pursuant
to guidelines set by the Department of Labor and Employment. Any decision taken by the
employer shall be without prejudice to the right of the worker to contest the validity or
legality of his dismissal by filing a complaint with the regional branch of the National Labor
Relations Commission. The burden of proving that the termination was for a valid or
authorized cause shall rest on the employer. (emphasis supplied)

The omnibus rules implementing the Labor Code, on the other hand, require
a hearing and conference during which the employee concerned is given the
opportunity to respond to the charge, present his evidence or rebut the evidence
presented against him:[17]

Section 2. Security of Tenure. x x x

(d) In all cases of termination of employment, the following standards of due

process shall be substantially observed:

For termination of employment based on just causes as defined in Article 282 of

the Labor Code:

(i) A written notice served on the employee specifying the ground or grounds for
termination, and giving said employee reasonable opportunity within which to explain his
side.

(ii) A hearing or conference during which the employee concerned, with the
assistance of counsel if he so desires, is given opportunity to respond to the charge,
present his evidence or rebut the evidence presented against him.

(iii) A written notice of termination served on the employee, indicating that upon
due consideration of all the circumstances, grounds have been established to justify his
termination. (emphasis supplied)

101
 Which one should be followed? Is a hearing (or conference) mandatory in
cases involving the dismissal of an employee? Can the apparent conflict between
the law and its IRR be reconciled?

At the outset, we reaffirm the time-honored doctrine that, in case of conflict,

the law prevails over the administrative regulations implementing it.[18] The
authority to promulgate implementing rules proceeds from the law itself. To be
valid, a rule or regulation must conform to and be consistent with the provisions of
the enabling statute.[19] As such, it cannot amend the law either by abridging or
expanding its scope.[20]

Article 277(b) of the Labor Code provides that, in cases of termination for a
just cause, an employee must be given ample opportunity to be heard and to
defend himself.Thus, the opportunity to be heard afforded by law to the employee
is qualified by the word ample which ordinarily means considerably more than
adequate or sufficient.[21] In this regard, the phrase ample opportunity to be heard
can be reasonably interpreted as extensive enough to cover actual hearing or
conference. To this extent, Section 2(d), Rule I of the Implementing Rules of Book
VI of the Labor Code is in conformity with Article 277(b).

Nonetheless, Section 2(d), Rule I of the Implementing Rules of Book VI of the

Labor Code should not be taken to mean that holding an actual hearing or
conference is a condition sine qua non for compliance with the due process
requirement in termination of employment. The test for the fair procedure
guaranteed under Article 277(b) cannot be whether there has been a formal
pretermination confrontation between the employer and the employee. The ample
opportunity to be heard standard is neither synonymous nor similar to a formal
hearing. To confine the employees right to be heard to a solitary form narrows
down that right. It deprives him of other equally effective forms of adducing
evidence in his defense. Certainly, such an exclusivist and absolutist interpretation

102
is overly restrictive. The very nature of due process negates any concept of inflexible
procedures universally applicable to every imaginable situation.[22]

The standard for the hearing requirement, ample opportunity, is couched in

general language revealing the legislative intent to give some degree of flexibility
or adaptability to meet the peculiarities of a given situation. To confine it to a single
rigid proceeding such as a formal hearing will defeat its spirit.

Significantly, Section 2(d), Rule I of the Implementing Rules of Book VI of the

Labor Code itself provides that the so-called standards of due process outlined
therein shall be observed substantially, not strictly. This is a recognition that while
a formal hearing or conference is ideal, it is not an absolute, mandatory or exclusive
avenue of due process.

An employees right to be heard in termination cases under Article 277(b) as

implemented by Section 2(d), Rule I of the Implementing Rules of Book VI of the
Labor Code should be interpreted in broad strokes. It is satisfied not only by a
formal face to face confrontation but by any meaningful opportunity to controvert
the charges against him and to submit evidence in support thereof.

A hearing means that a party should be given a chance to adduce his

evidence to support his side of the case and that the evidence should be taken into
account in the adjudication of the controversy.[23] To be heard does not mean verbal
argumentation alone inasmuch as one may be heard just as effectively through
written explanations, submissions or pleadings.[24] Therefore, while the phrase
ample opportunity to be heard may in fact include an actual hearing, it is not limited
to a formal hearing only. In other words, the existence of an actual, formal trial-
type hearing, although preferred, is not absolutely necessary to satisfy the
employees right to be heard.

103
 This Court has consistently ruled that the due process requirement in cases
of termination of employment does not require an actual or formal hearing. Thus,
we categorically declared in Skippers United Pacific, Inc. v. Maguad:[25]

The Labor Code does not, of course, require a formal or trial type proceeding before an
erring employee may be dismissed. (emphasis supplied)

In Autobus Workers Union v. NLRC,[26] we ruled:

The twin requirements of notice and hearing constitute the essential elements of
due process. Due process of law simply means giving opportunity to be heard before
judgment is rendered. In fact, there is no violation of due process even if no hearing was
conducted, where the party was given a chance to explain his side of the controversy.
What is frowned upon is the denial of the opportunity to be heard.

xxxxxxxxx

A formal trial-type hearing is not even essential to due process. It is enough that
the parties are given a fair and reasonable opportunity to explain their respective sides
of the controversy and to present supporting evidence on which a fair decision can be
based. This type of hearing is not even mandatory in cases of complaints lodged before
the Labor Arbiter. (emphasis supplied)

In Solid Development Corporation Workers Association v. Solid Development

Corporation,[27] we had the occasion to state:

[W]ell-settled is the dictum that the twin requirements of notice and hearing constitute
the essential elements of due process in the dismissal of employees. It is a cardinal rule
in our jurisdiction that the employer must furnish the employee with two written notices
before the termination of employment can be effected: (1) the first apprises the
employee of the particular acts or omissions for which his dismissal is sought; and (2) the
second informs the employee of the employers decision to dismiss him. The requirement
of a hearing, on the other hand, is complied with as long as there was an opportunity
to be heard, and not necessarily that an actual hearing was conducted.

In separate infraction reports, petitioners were both apprised of the particular

acts or omissions constituting the charges against them. They were also required to
submit their written explanation within 12 hours from receipt of the reports. Yet, neither
of them complied. Had they found the 12-hour period too short, they should have
requested for an extension of time. Further, notices of termination were also sent to them

104
 informing them of the basis of their dismissal. In fine, petitioners were given due process
before they were dismissed. Even if no hearing was conducted, the requirement of due
process had been met since they were accorded a chance to explain their side of the
controversy. (emphasis supplied)

Our holding in National Semiconductor HK Distribution, Ltd. v. NLRC[28] is of

similar import:

That the investigations conducted by petitioner may not be

considered formal or recorded hearings or investigations is immaterial. A formal or trial
type hearing is not at all times and in all instances essential to due process, the
requirements of which are satisfied where the parties are afforded fair and reasonable
opportunity to explain their side of the controversy. It is deemed sufficient for the
employer to follow the natural sequence of notice, hearing and judgment.

The above rulings are a clear recognition that the employer may provide an
employee with ample opportunity to be heard and defend himself with the
assistance of a representative or counsel in ways other than a formal hearing. The
employee can be fully afforded a chance to respond to the charges against him,
adduce his evidence or rebut the evidence against him through a wide array of
methods, verbal or written.

After receiving the first notice apprising him of the charges against him, the
employee may submit a written explanation (which may be in the form of a letter,
memorandum, affidavit or position paper) and offer evidence in support thereof,
like relevant company records (such as his 201 file and daily time records) and the
sworn statements of his witnesses. For this purpose, he may prepare his
explanation personally or with the assistance of a representative or counsel. He
may also ask the employer to provide him copy of records material to his defense.
His written explanation may also include a request that a formal hearing or
conference be held. In such a case, the conduct of a formal hearing or conference
becomes mandatory, just as it is where there exist substantial evidentiary
disputes[29] or where company rules or practice requires an actual hearing as part

105
of employment pretermination procedure. To this extent, we refine the decisions
we have rendered so far on this point of law.

This interpretation of Section 2(d), Rule I of the Implementing Rules of Book

VI of the Labor Code reasonably implements the ample opportunity to be heard
standard under Article 277(b) of the Labor Code without unduly restricting the
language of the law or excessively burdening the employer. This not only respects
the power vested in the Secretary of Labor and Employment to promulgate rules
and regulations that will lay down the guidelines for the implementation of Article
277(b). More importantly, this is faithful to the mandate of Article 4 of the Labor
Code that [a]ll doubts in the implementation and interpretation of the provisions
of [the Labor Code], including its implementing rules and regulations shall be
resolved in favor of labor.

In sum, the following are the guiding principles in connection with the
hearing requirement in dismissal cases:

(a) ample opportunity to be heard means any meaningful opportunity (verbal

or written) given to the employee to answer the charges against him
and submit evidence in support of his defense, whether in a hearing,
conference or some other fair, just and reasonable way.

(b) a formal hearing or conference becomes mandatory only when requested

by the employee in writing or substantial evidentiary disputes exist or
a company rule or practice requires it, or when similar circumstances
justify it.

(c) the ample opportunity to be heard standard in the Labor Code prevails
over the hearing or conference requirement in the implementing rules
and regulations.
PETITIONERS WERE ILLEGALLY

SUSPENDED FOR 30 DAYS

106
 An employee may be validly suspended by the employer for just cause
provided by law. Such suspension shall only be for a period of 30 days, after which
the employee shall either be reinstated or paid his wages during the extended
period.[30]

In this case, petitioners contended that they were not paid during the two
15-day extensions, or a total of 30 days, of their preventive suspension.
Respondents failed to adduce evidence to the contrary. Thus, we uphold the ruling
of the labor arbiter on this point.

Where the dismissal was without just or authorized cause and there was no
due process, Article 279 of the Labor Code, as amended, mandates that the
employee is entitled to reinstatement without loss of seniority rights and other
privileges and full backwages, inclusive of allowances, and other benefits or their
monetary equivalent computed from the time the compensation was not paid up
to the time of actual reinstatement.[31] In this case, however, reinstatement is no
longer possible because of the length of time that has passed from the date of the
incident to final resolution.[32] Fourteen years have transpired from the time
petitioners were wrongfully dismissed. To order reinstatement at this juncture will
no longer serve any prudent or practical purpose.[33]

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of

Appeals dated January 29, 2002 in CA-G.R. SP No. 50536 finding that petitioners
Felix B. Perez and Amante G. Doria were not illegally dismissed but were not
accorded due process and were illegally suspended for 15 days, is SET ASIDE. The
decision of the labor arbiter dated December 27, 1995 in NLRC NCR CN. 11-06930-
93 is hereby AFFIRMED with the MODIFICATION that petitioners should be paid
their separation pay in lieu of reinstatement.

SO ORDERED.

107
 RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING
Associate Justice CONSUELO YNARES-SANTIAGO
Associate Justice

(On Official Leave)

ANTONIO T. CARPIO MA. ALICIA M. AUSTRIA-MARTINEZ
Associate Justice Associate Justice

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice

108
 Associate Justice

TERESITA J. LEONARDO-DE CASTRO

ANTONIO EDUARDO B. NACHURA
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice


On official leave.
[1]
Records, pp. 70-71.
[2]
Id., pp. 72-73.
[3]
Id., pp. 74-75.
[4]
Id., p. 76.
[5]
Id., p. 39.
[6]
Decision penned by Commissioner Ireneo B. Bernardo, and concurred in by Presiding Commissioner Lourdes C.
Javier and Commissioner Joaquin A. Tanodra.
[7]
Decision of the Court of Appeals, penned by Associate Justice (now retired Associate Justice of the Supreme Court)
Ruben T. Reyes, and concurred in by Associate Justices Renato C. Dacudao and Mariano C. del Castillo of
the Ninth Division of the Court of Appeals.
[8]
Rollo, p. 34.
[9]
Records, p. 107.
[10]
Commercial Motors Corporation v. Commissioners, et al., G.R. No. 14762, 10 December 1990, 192 SCRA 191,
197.
[11]
Santos v. NLRC, G.R. No. L-76991, October 28, 1988, 166 SCRA 759, 765. De Leon v. NLRC, G.R. No. 52056,
October 30, 1980, 100 SCRA 691, 700.

109
[12]
LABOR CODE, Book VI, Title 1, Art. 282 (c).
[13]
G.R. No. L-42724, 9 April 1985, 135 SCRA 569, 578.
[14]
Imperial Textile Mills, Inc. v. NLRC, G.R. No. 101527, 19 January 1993, 217 SCRA 237, 244-245.
[15]
Starlite Plastic Industrial Corp. v. NLRC, G.R. No. 78491, 16 March 1989, 171 SCRA 315, 324.
[16]
Omnibus Rules Implementing the Labor Code, Book VI, Rule 1, Sec. 2 (a) and (c).
[17]
Section 2(d), Rule I, Implementing Rules of Book VI of the Labor Code.
[18]
See Conte v. Palma, 332 Phil. 20 (1996) citing Kilusang Mayo Uno Labor Center v. Garcia, Jr., G.R. No. 115381,
23 December 1994, 239 SCRA 386.
[19]
Id. citing Lina Jr. v. Cario, G.R. No. 100127, 23 April 1993, 221 SCRA 515.
[20]
Implementing rules and regulations may not enlarge, alter or restrict the provisions of the law they seek to
implement; they cannot engraft additional requirements not contemplated by the legislature (Pilipinas Kao,
Inc. v. Court of Appeals, 423 Phil. 834 [2001]).
[21]
WEBSTERS THIRD NEW COLLEGIATE INTERNATIONAL DICTIONARY OF THE ENGLISH
LANGUAGE UNABRIDGED, p. 74, 1993 edition.
[22]
Cafeteria Workers v. McElroy, 367 U.S. 886 (1961).
[23]
Gonzales v. Commission on Elections, G.R. No. 52789, 19 December 1980, 101 SCRA 752.
In the landmark case on administrative due process, Ang Tibay v. Court of Industrial Relations (69 Phil. 635 [1940]),
this Court laid down seven cardinal primary rights:
(1) The first of these rights is the right to a hearing, which includes the right
of the party interested or affected to present his own case and submit evidence in
support thereof. x x x (2) Not only must the party be given an opportunity to present his
case and to adduce evidence tending to establish the rights which he asserts but the
tribunal must consider the evidence presented. x x x
[24]
Rizal CommercialBanking Corporation v. Commissioner of Internal Revenue, G.R. No. 168498, 16 June 2006,
491 SCRA 213.
[25]
G.R. No. 166363, 15 August 2006, 498 SCRA 639.
[26]
353 Phil. 419 (1998).
[27]
G.R. No. 165995, 14 August 2007, 530 SCRA 132.
[28]
353 Phil. 551 (1998).
[29]
See Cleveland Board of Education v. Loudermill, 470 U.S. 532 (1985) (Brennan J., concurring in part and
dissenting in part) citing Arnett v. Kennedy, 416 U.S. 134 (1974) (Marshall J., dissenting).
[30]
Omnibus Rules Implementing the Labor Code, Book V, Rule XXIII, Sec. 9, as amended by Department of Labor
and Employment Order No. 9 (1997).
[31]
Agabon v. NLRC, G.R. No. 158693, 17 November 2004, 442 SCRA 573, 610.
[32]
Panday v. NLRC, G.R. No. 67664, 20 May 1992, 209 SCRA 122, 126-127.
[33]
Sealand Service, Inc. v. NLRC, G.R. No. 90500, 5 October 1990, 190 SCRA 347, 355.

110
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

CULVER B. SUICO, G.R. No. 146762

TERESA D. CENIZA and
RONALD R. DACUT,
Petitioners,

- versus -

NATIONAL LABOR
RELATIONS COMMISSION,
PHILIPPINE LONG
DISTANCE TELEPHONE
COMPANY (PLDT)/
AUGUSTO G. COTELO,
Respondents.
x-------------------x

BENIGNO MARIANO, JR., G.R. No. 153584

Petitioner,

- versus -
NATIONAL LABOR
RELATIONS COMMISSION,

111
PHILIPPINE LONG
DISTANCE TELEPHONE
COMPANY (PLDT),
Respondents.
x-------------------x

PHILIPPINE LONG G.R. No. 163793

DISTANCE TELEPHONE
COMPANY (PLDT), Present:
Petitioner,
YNARES-SANTIAGO, J.,
- versus - (Chairperson),
AUSTRIA-MARTINEZ,
ERNESTO BORJE, CALLEJO, SR., and
Respondent. CHICO-NAZARIO, JJ.

Promulgated:
January 30, 2007
x------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

112
 By Resolution dated January 17, 2005,[1] the Court ordered the consolidation
of the Petitions for Review on Certiorari under Rule 45 of the Rules of Court
docketed as G.R. No. 146762,[2] G.R. No. 153584,[3] and G.R. No. 163793.[4]

They involve parallel facts and issues:

G.R. No. 146762

Culver B. Suico, Teresa D. Ceniza, and Ronald R. Dacut (complainants) were

regular employees of Philippine Long Distance Telephone Company (PLDT) Cebu
Jones Exchange and members of Manggagawa ng Komunikasyon ng
Pilipinas (MKP). In September 1997, MKP launched a strike against
PLDT. Complainants participated in the strike by picketing the PLDT.[5]

Acting Department of Labor and Employment (DOLE) Secretary Crescencio

Trajano assumed jurisdiction over the labor dispute and issued a Return-to-Work
Order on September 20, 1997.[6] MKP did not heed said order but merely filed an
Opposition[7] thereto. In an Order[8] dated September 29, 1997, DOLE Secretary
Leonardo A. Quisumbing[9] denied MKPs Opposition.

Meanwhile, at the PLDT, complainants continued with their

strike. On September 29, 1997, Ann Detelou Fernando (Fernando), a PLDT
managerial employee, sustained injuries when strikers blocked her way to the
premises of PLDT. Complainants were implicated in said incident. Hence, Emiliano
Tanchico (Tanchico), PLDT Vice-President for Personnel Management
and Development Center, sent to complainants separate notices dated October 8,
1997, which uniformly read:

Please explain in writing why you should not be terminated for committing the following
act:

On September 30, 1997, while participating in an obviously illegal strike, you physically
assaulted Ms. A Fernando, a Traffic Supervisor. Attached as Annex A is the statement of
Ms. Fernando.

xxxx

113
 Your illegal act has seriously prejudiced the companys operations, is a violation of the
Code of Conduct and is considered, among others, serious misconduct, which is a ground
for termination under Article 282 of the Labor Code.

Kindly submit your notarized explanation to your Division Head within 48 hours from
receipt of this Notice. Failure on your part to submit a written explanation within the
given period shall constitute a waiver of your right to be heard. [10]

Annex A to said notices is an unsworn statement in which Fernando gave a detailed

account of the illegal act imputed to complainants.[11]
Complainants did not file any explanation. Tanchico sent them two other
sets of notices dated October 14, 1997[12] and October 24, 1997.[13]

On October 27, 1997, complainants sent Tanchico separate but uniformly-

worded letters which read:

This concerns your memo dated October 8, 1997 xxx.

In this regard, I hereby elect to exercise my right to be heard and defend myself in a formal
hearing, to be set within five (5) days from my receipt of the documents hereinafter
requested, pursuant to my right to due process and par. 2.5 of PLDT Systems Practice re
the Handling of Administrative Cases. Moreover, kindly furnish me with the copies of
formal (written) complaint filed against me as well as statements of witness(es) and
preliminary investigation report(s) regarding the complaint, if any.

My election to exercise my right to be heard and defend myself in a formal hearing is

without prejudice to my right to submit a written explanation at a later time, which I
hereby expressly reserve.[14]

PLDT Division Head Augusto Cotelo (Cotelo) replied on November 3,

1997 that PLDT was deferring action on the request for formal hearing until
complainants shall have filed their answers to the charges. Cotelo wrote:

Please submit the notarized explanation that we required in our letters of

October 8 & 14, 1997 within forty-eight (48) hours upon receipt of this letter, before we
can consider any formal hearing. Please be reminded that we shall consider your failure
to comply as a waiver of your right to be heard, and accordingly decide on the charges
against you on the basis of the evidence on hand. [15] (Emphasis ours)

Complainants merely reiterated their request for formal hearing. Thus, Cotelo sent
them termination notices dated November 19, 1997 which read:

114
 In light of the repeated demands and your consistent failure to provide the required
written explanation for the following acts:

On September 30, 1997, while participating in an obviously illegal strike, you physically
assaulted Ms. A. Fernando, a Traffic Supervisor. PLDT has proceeded to consider the
charges against you for violation of Article 264 of the Labor Code and for serious
misconduct.

Based on the available evidence, the written copy of which were duly sent to you, the
Company finds you guilty as charged. The Company cannot see any reason why the
evidence that the statements we considered were motivated by any purpose other than
to bear witness to the truth. We find these evidence direct and positive identification of
your participation in and commission of the illegal act charged.

Your act constitutes a just cause for termination under the Labor Code which authorizes
an employer to terminate an employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or intimidation, or the obstruction of free
ingress and egress, during a strike (see Art. 282-A & 264, Labor Code). There is also the
additional attendant circumstances that you committed these acts during a strike that
was illegally declared and conducted. Your services with Philippine Long Distance
Telephone Company are consequently terminated effective upon receipt of this letter.[16]

Complainants filed a Complaint for illegal dismissal and damages with the Labor
Arbiter (LA). In a Decision dated July 15, 1998, the LA declared the dismissal of
complainants illegal and ordered their reinstatement.[17]
PLDT appealed to the National Labor Relations Commission (NLRC) which, in
its January 3, 2000 Decision, reversed and set aside the July 15, 1998 LA Decision,
thus:

WHEREFORE, premises considered, the decision of the Labor Arbiter is hereby SET ASIDE
and VACATED and a new one entered DISMISSING the instant complaint.

SO ORDERED.[18]

Complainants filed a Motion for Reconsideration which the NLRC denied in

its Resolution dated March 27, 2000.[19]

115
 Thereafter, complainants filed a Petition for Certiorari under Rule 65 with
the Court of Appeals (CA) but the latter dismissed it in a Decision[20] dated
September 22, 2000, the dispositive portion of which states:

WHEREFORE, premises considered, the petition is DISMISSED and the assailed decision
and resolution are affirmed.

SO ORDERED. [21]

The Motion for Reconsideration filed by complainants was denied by the CA

in its January 11, 2001 Resolution.[22]
And so, the present Petition for Review where complainants question the CA
for its September 22, 2000 Decision and January 11, 2001 Resolution on the sole
ground that:

THE COURT OF APPEALS HAS DECIDED THE INSTANT DISPUTE IN A WAY NOT IN ACCORD
WITH LAW AND JURISPRUDENCE WHEN IT REFUSED TO CONSIDER THAT THE DISMISSAL
OF HEREIN PETITIONNERS WAS MADE IN VIOLATION OF THEIR RIGHT TO PROCEDURAL
DUE PROCESS.[23]

G.R. No. 153584

Benigno Mariano, Jr. (Mariano) was an employee of PLDT Laoag City Sub-Exchange
and an officer of MKP. During the September 1997 strike which MKP launched
against PLDT, Mariano led a picket of the premises of the PLDT.[24] In said picket,
Melvyn T. Guillermo (Guillermo), a PLDT subscriber, suffered injury and humiliation
at the hands of a striker. In his letter to PLDT, Guillermo identified Mariano as the
culprit and demanded that the latter be dismissed.[25]

Acting on the complaint of Guillermo, Tanchico sent Mariano the following notice
dated October 13, 1997:

Please explain in writing why you should not be terminated for committing the following
act:

On 19 September 1997, at around 11:50 a.m., you verbally and physically assaulted
MELVYN T. GUILLERMO, a PLDT subscriber xxx. Attached for your reference as Annex A is
the letter-complaint of Mr. Guillermo.

116
 This act is illegal and violates express provisions of the Labor Code which among others
provide:

ART. 264.

xxxx

(e) No person engaged in picketing shall commit any act of violence,

coercion or intimidation or obstruct the free ingress to or egress from the
employers premises for lawful purposes or obstruct public
thoroughfares.

Additionally, as provided in the law, any worker who knowingly participates in the
commission of illegal acts during a strike may be declared to have lost his employment
status.

Your illegal act has seriously prejudiced the companys operations, is a violation of the
Code of Conduct and is considered, among others, serious misconduct, which is a ground
for termination under Article 282 of the Labor Code.

Kindly submit your notarized explanation to your Division Head within 48 hours from
receipt of this Notice. Failure on your part to submit a written explanation within the
given period shall constitute a waiver of your right to be heard.[26]

When Mariano did not reply, Tanchico sent him another notice[27] dated October
24, 1997, instructing him to submit his notarized explanation otherwise the charges
against him will be resolved based on the available evidence.

On November 6, 1997, Mariano wrote Tanchico:

Sir, your memorandum dated 13 October 1997 xxx is a gross violation of my constitutional
right as worker and employee to self organization xxx.

Hence, I hereby elect to exercise my right to due process, i.e., to be heard and defend
myself in a formal hearing to be set within 5 (FIVE) days from receipt of documents
hereinafter requested.

Pursuant to PLDT System Practice #94-016 dated August 10, 1994 (Handling of
Administrative Cases), please furnish me a copy of formal (written) complaint filed against
me, statement of witness/es and preliminary investigations and/or report/s conducted
on the aforesaid incident, if any.

117
 My option to be heard and defend myself in a formal hearing is without prejudice
to my right of recourse at a later time which I hereby expressly reserve.[28]

Hence, Reynaldo Puzon, PLDT Assistant Vice-President for North Luzon, sent
Mariano a notice dated November 18, 1997, informing him of the termination of
his employment, thus:

xxx You asked in your letter that you be allowed to defend yourself in a formal
hearing but you failed to provide a written explanation.

In light of the demands and your failure to provide the required written explanation for
the following acts:

On September 19, 1997, at around 11:50 a.m., you verbally and physically
assaulted Mr. Melvyn Guillermo, a PLDT subscriber who had just paid his PLDT bill at the
companys Laoag Business Office. After verbally abusing Mr. Guillermo by shouting
invectives in his face, you boxed and slapped him, striking his face, left shoulder and
arm. PLDT has proceeded to consider the charges against you for violation of Art. 264 of
the Labor Code and for serious misconduct.

Based on the available evidence, the written copy of which were duly sent to you, the
Company finds you guilty as charged. The Company cannot see any reason why the
evidence that the statements we considered were motivated by any purpose other than
to bear witness to the truth. We find these evidence direct and positive identification of
your participation in and commission of the illegal act charged.

Your act constitutes a just cause for termination under the Labor Code which authorizes
an employer to terminate an employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or intimidation, or the obstruction of free
ingress and egress, during a strike (see Art. 282-A & 264, Labor Code). There is also the
additional attendant circumstances that you committed these acts during a strike that
was illegally declared and conducted. Your services with Philippine Long Distance
Telephone Company are consequently terminated effective upon receipt of this letter.[29]

Mariano filed a Complaint[30] for illegal dismissal and damages with the LA
but the latter dismissed it in a Decision[31] dated December 15, 1998. Mariano
appealed to the NLRC but to no avail as the latter, in its December 27,
1999 Resolution,[32] affirmed the December 15, 1998 LA Decision. In its
Resolution[33] of March 3, 2000, the NLRC denied Marianos Motion for
Reconsideration.

Mariano filed a Petition for Certiorari[34] with the CA which rendered the
following Decision[35] on February 7, 2002:

118
 WHEREFORE, premises considered, the petition is DISMISSED and the assailed decision
and resolution are AFFIRMED.

SO ORDERED.[36]

Mariano sought reconsideration of the foregoing decision but the CA denied the
same in its Resolution[37] of May 9, 2002.

Mariano is now before the Court in the present petition assailing the CA Decision
and Resolution claiming that:

THE COURT OF APPEALS HAD DECIDED THE INSTANT DISPUTE IN A WAY NOT IN ACCORD
WITH LAW AND JURISPRUDENCE WHEN IT REFUSED TO CONSIDER THAT THE DISMISSAL
OF HEREIN PETITIONER WAS MADE IN VIOLATION OF [HIS] RIGHT TO PROCEDURAL DUE
PROCESS.[38]

G.R. No. 163793

Ernesto Borje (Borje) was an employee of PLDT SFU Mother Exchange and a
member of MKP. During the September 1997 strike which MKP staged against
PLDT, Borje took part by picketing the premises of PLDT.[39]

In a notice dated October 23, 1997 sent by Tanchico to Borje, the latter was
accused of engaging in violent activities during the strike. The notice read:

Please explain in writing why you should not be terminated for committing the
following acts:

1. October 15, 1997, at around 8:35 a.m., you hurled a stone hitting the leg (below the
knee) of Mr. Danny N. Garcia, OPM Supervisor xxx as a result of which Mr. Garcia suffered
a contusion. Attached as Annex A is the incident report of Mr. Garcia; and

2. October 15, 1997, at around 8:20 p.m, you threw stones at Mr. Amelito Visico, an
employee of Southland Security Corporation of the Philippines assigned at the PLDT
Exchange, San Fernando, La Union. Minutes later or at around 8:35 p.m., you again threw
stones inside PLDT premises hitting and damaging the right side window of PLDTs service

119
 vehicle with body no. 96-495 and plate no. UJW-359. Attached as Annex B is the Affidavit
of Mr. Visico.

This act is illegal and violates express provisions of the Labor Code xxx.

Additionally, as provided in the law, any worker who knowingly participates in the
commission of illegal acts during a strike may be declared to have lost his employment
status.

Your illegal act has seriously prejudiced the companys operations, is a violation of the
Code of Conduct and is considered, among others, serious misconduct, which is ground
for termination under Article 282 of the Labor Code.

Kindly submit your notarized explanation to your Division Head within 48 hours
from receipt of this Notice. Failure on your part to submit a written explanation within
the given period shall constitute a waiver of your right to be heard.[40]

Borje replied on November 7, 1997, to wit:

Sir, your memorandum dated 13 October 1997 xxx is a gross violation of my

constitutional right as worker and employee to self organization xxx.

Hence, I hereby elect to exercise my right to due process, i.e., to be heard and defend
myself in a formal hearing to be set within 5 (FIVE) days from receipt of documents
hereinafter requested.

Pursuant to PLDT System Practice #94-016 dated August 10, 1994 (Handling of
Administrative Cases), please furnish me a copy of formal (written) complaint filed against
me, statement of witness/es and preliminary investigations and/or report/s conducted
on the aforesaid incident, if any.

My election to exercise my right to be heard and defend myself in a formal

hearing is without prejudice to my right to submit a written explanation at a later time,
which I hereby expressly reserve. [41]

Puzon sent Borje a notice dated November 18, 1997 informing him of the
termination of his employment, thus:
xxx You asked in your letter that you be allowed to defend yourself in a formal hearing
but you failed to provide a written explanation.

In light of the demands and your failure to provide the required written explanation for
the following acts:

120
 On October 15, 1997, at aroun 8:35 a.m., you hurled a stone hitting the leg (below the
knee) of Mr. Danny Garcia, OPM Supervisor. As a result of which Mr. Garcia suffered a
contusion. On the same day, at around 8:20 p.m., you threw stones at Mr. Amelito Visico,
an employee of Southland Security Corporation of the Philippines assigned at the PLDT
Exchange, San Fernando, La Union. Minutes later or at around 8:35 p.m., you again threw
stones inside PLDT premises hitting and damaging the right side window of PLDTs service
vehicle with body no. 94-495 and plate no. UJW-359. PLDT has proceeded to consider the
charges against you for violation of Article 264 of the Labor Code and for serious
misconduct.

Based on the available evidence, the written copy of which were duly sent to you, the
Company finds you guilty as charged. The Company cannot see any reason why the
evidence that the statements we considered were motivated by any purpose other than
to bear witness to the truth. We find these evidence direct and positive identification of
your participation in and commission of the illegal act charged.

Your act constitutes a just cause for termination under the Labor Code which authorizes
an employer to terminate an employee for serious misconduct and which prohibits the
commission of any act of violence, coercion or intimidation, or the obstruction of free
ingress and egress, during a strike (see Art. 282-A & 264, Labor Code). There is also the
additional attendant circumstances that you committed these acts during a strike that
was illegally declared and conducted. Your services with Philippine Long Distance
Telephone Company are consequently terminated effective upon receipt of this letter.[42]

Borje filed a Complaint[43] for illegal dismissal and damages with the LA but the
latter dismissed it in a Decision dated January 26, 2001.[44] Borje appealed to the
NLRC which, in a Resolution dated September 28, 2001, held:

WHEREFORE, premises considered, the decision under review is AFFIRMED and

complainants appeal, DISMISSED for lack of merit.

SO ORDERED. [45]

Borjes Motion for Reconsideration was denied by the NLRC in its January 7,
2002 Resolution.[46]

However, upon Petition for Certiorari[47] filed by Borje, the CA rendered on April 12,
2002 a Decision[48] the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition is GRANTED. The decision

of the Labor Arbiter and the NLRC is REVERSED and new one entered ordering the
REINSTATEMENT of the Petitioner without loss of seniority rights and other privileges and

121
 to grant him full backwages, to be computed from the time of his illegal dismissal without
qualification or deduction. Let the records of this case be REMANDED to the Labor Arbiter
for appropriate computation of backwages.

SO ORDERED.[49]

PLDT filed a Motion for Reconsideration but the CA denied the same in a
Resolution[50] dated June 1, 2004.

Petitioner PLDT is now before the Court questioning the foregoing CA

Decision and Resolution on this sole ground:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT THE NLRC
COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
AFFIRMING IN TOTO THE LABOR ARBITERS DECISION UPHOLDING THE VALIDITY OF
RESPONDENTS DISMISSAL ON THE ISSUE OF ALLEGED LACK OF DUE PROCESS, THE SAME
BEING CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE THAT FOR CERTIORARI TO
SUCCEED ABUSE OF DISCRETION MUST SATISFACTORILY BE SHOWN TO BE GRAVE, WHICH
IS NOT SO IN THE CASE AT BAR.[51][sic]

The petitions in G.R. No. 146762 and G.R. No. 153584 are partly meritorious in that
the CA did not err in upholding the validity of the dismissal of Suico, Ceniza, Dacut,
and Mariano but the PLDT should be ordered to pay said employees nominal
damages pursuant to Agabon v. National Labor Relations Commission.[52]

The petition in G.R. No. 163793 is meritorious in that the CA erroneously

reversed the NLRC by holding the dismissal of Borje illegal; but PLDT should also be
ordered to pay Borje nominal damages.

In the three petitions, the substantive bases of the dismissal of Suico, Ceniza,
Dacut, Mariano and Borje (hereinafter collectively referred to as Suico, et al.) is not
in issue. Only the procedural aspect is in issue, specifically, whether PLDT violated
the requirements of due process under the Labor Code when it dismissed said
employees without heeding their request for the conduct of a formal hearing as
provided for under PLDT Systems Practice No. 94-016 and prior to submission of
their respective answers to the charges against them.

The minimum standards of due process in all cases of termination of

employment are prescribed under Article 277(b) of the Labor Code, to wit:
122
 Art. 277. Miscellaneous Provisions.

xxxx

(b) Subject to the constitutional right of workers to security of tenure and their right
to be protected against dismissal except for a just and authorized cause and without
prejudice to the requirement of notice under Article 283 of this Code, the employer
shall furnish the worker whose employment is sought to be terminated a written
notice containing a statement of the cause for termination and shall afford the latter
ample opportunity to be heard and to defend himself with the assistance of his
representative, if he so desires, in accordance with company rules and
regulations promulgated pursuant to guidelines set by the Department of Labor
and Employment. (Emphasis supplied).

It is implemented by Rule XXIII of the Implementing Rules of Book V of the Labor

Code,[53] which provides:

Section 2. Standards of due process; requirements of notice.-

I. For termination of employment based on just causes as defined in Article 282

of the Code:

(a) A written notice served on the employee specifying the ground or grounds for
termination, and giving to said employee reasonable opportunity within which to explain
his side;

(b) A hearing or conference during which the employee concerned, with the
assistance of counsel if the employee so desires, is given opportunity to respond to the
charge, present his evidence or rebut the evidence presented against him; and

(c) A written notice of termination served on the employee indicating that upon
due consideration of all the circumstances, grounds have been established to justify his
termination xxx.

It is the view of PLDT that in the dismissal of employees for strike-related violence,
it is sufficient to merely declare the latter to have lost their employment without
having to comply with any procedure for their termination.[54]

PLDT is mistaken. Art. 277 (b) in relation to Art. 264 (a)[55] and
(e)[56] recognizes the right to due process of all workers, without distinction as to
the cause of their termination.[57] Where no distinction is given, none is
construed.[58] Hence, the foregoing standards of due process apply to the
termination of employment of Suico, et al. even if the cause therefor was their

123
supposed involvement in strike-related violence prohibited under Art. 264 (a) and
(e).

Moreover, the procedure for termination prescribed under Art. 277(b) and Rule
XXII of the Implementing Rules of Book V is supplemented by existing company
policy. Art. 277(b) provides that the procedure for termination prescribed therein
is without prejudice to the adoption by the employer of company policy on the
matter, provided this conforms with the guidelines set by the DOLE such as Rule
XXII of the Implementing Rules of Book V. This is consistent with the established
principle that employers are allowed, under the broad concept of management
prerogative, to adopt company policies that regulate all aspects of personnel
administration including the dismissal and recall of workers.[59]

Company policies or practices are binding on the parties.[60] Some can ripen
into an obligation on the part of the employer,[61] such as those which confer
benefits on employees [62] or regulate the procedures and requirements for their
termination.[63] Thus, in Batangas Laguna Tayabas Bus Company (BLTB) v. Court of
Appeals,[64] the Court held that the employer BLTB is obliged under the Service
Manual it issued to grant an erring employee the right to be heard and defend
himself, and to apply the table of penalties fixed therein.

In its Comment to the Petition in G.R. No. 146762, PLDT objected to the
application to this case of the ruling in BLTB, arguing that xxx the more appropriate
case is Mendoza v. National Labor Relations Commission, 194[65] SCRA 606 [1991],
where the Supreme Court ruled that company procedures for discipline do not
require strict observance as long as the essential requirements of due process had
been observed xxx. But even Mendoza favors the view that company procedure for
termination should be implemented, even if not to the letter. In fact, in said case,
the employer San Miguel Corporation implemented company procedure for
termination by conducting a formal investigation, in question and answer form,
against the employee Mendoza.
In the present case, PLDT does not deny the existence of a company
procedure in termination cases known as Systems Practice No. 94-016, which
provides:

Effective Date

August 10, 1994

HANDLING OF ADMINISTRATIVE CASES

124
 xxxx

1. PURPOSE

This practice describes the procedural guidelines for handling administrative

cases.

2. GENERAL

2.1 Investigation of offenses or infractions of Company regulations committed

by employees shall be handled by various investigating units xxx;

xxxx

2.5 An employee under investigation for the commission of an offense or

infraction shall be informed in writing of the particular act constituting the
offense or infraction imputed to him. He may answer the charges against him in
writing within a reasonable period of time (at least 48 hours but not more than
72 hours) or be afforded the opportunity to be heard and defend himself with
the assistance of his counsel or union representative, if he so desires. (Emphasis
supplied)

PLDT, however, refused to implement said policy, contending that it applies to

administrative cases only and not to strike-related cases such as the ones involving
Suico, et al..[66]

We are unable to see the difference. As pointed out by the CA in G.R. No.
163793, while it is true that Systems Practice No. 94-016 relates to administrative
cases, PLDT failed to prove that a termination proceeding arising from strike-
related violence is not an administrative case. If by administrative case, PLDT refers
to cases arising from violation of company rules and regulations, then the
proceedings against Suico, et al. were of that nature for the notices sent to said
employees accused them not just of breach of Art. 264 of the Labor Code but also
of behavior prejudicial to company operations and violative of the company code
of conduct.[67] The termination proceedings against Suico, et al. were therefore
administrative in nature, subject to the requirements of Systems Practice No. 94-
016.

125
 To repeat, the requirements of due process by which to test the validity of
the procedure adopted by PLDT in dismissing Suico, et al. are those embodied in
Art. 277 (b) of the Labor Code, Rule XXII of the Implementing Rules of Book V
and Systems Practice No. 94-016.

Apparently, PLDT complied with the two-notice requirement of due

process. The first notices sent to Suico, et al. set out in detail the nature and
circumstances of the violations imputed to them, required them to explain their
side and expressly warned them of the possibility of their dismissal should their
explanation be found wanting. The last notices informed Suico, et al. of the decision
to terminate their employment and cited the evidence upon which the decision
was based.[68] These two notices would have sufficed had it not been for the
existence of Systems Practice No. 94-016. Under Systems Practice No. 94-016, PLDT
granted its employee the alternative of either filing a written answer to the charges
or requesting for opportunity to be heard and defend himself with the assistance
of his counsel or union representative, if he so desires.

Suico, et al. exercised their option under Systems Practice No. 94-016 by
requesting that a formal hearing be conducted and that they be given copies of
sworn statements and other pertinent documents to enable them to prepare for
the hearing.[69] This option is part of their right to due process. PLDT is bound to
comply with the Systems Practice.

Yet, instead of respecting the option exercised by Suico, et al., PLDT in G.R.
No. 146762 arbitrarily disregarded the same and insisted that Suico, et al. submit
their written answers first before their request for formal hearing can be
entertained.[70] In G.R. No. 153584 and G.R. No. 163793, PLDT straightaway
declared Mariano and Borje to have waived the right to be heard and, based on the
available evidence, decided the cases against them.[71] Clearly, such refusal by PLDT
to conduct a hearing was unreasonable and arbitrary as it defeated the exercise by
Suico, et al. of an option which, by virtue of Systems Practice No. 94-016, was a
component of their right to due process. The impairment of their option
constituted an impairment of their right to due process.

All told, the procedure adopted by PLDT in dismissing Suico, et al. fell short of the
requirements of due process.

It should be emphasized, however, that, consistent with our ruling

in Agabon,[72] the procedural deficiency in the dismissal of Suico, et al. did not affect

126
the validity or effectivity of the dismissal as the substantive bases thereof were
never put in issue.[73] Thus, the April 12, 2002 CA Decision in G.R. No. 163793 was
erroneous as it declared the dismissal of Borje illegal merely for failure of PLDT to
observe due process. The CA should have affirmed the validity of the dismissal of
Borje and awarded him nominal damages for the impairment of his statutory right
to due process.

WHEREFORE, the petitions in G.R. Nos. 146762 and 153584

are PARTLY GRANTED. The assailed Decisions of the Court of Appeals dated
September 22, 2000 and February 7, 2002, respectively,
are AFFIRMED with MODIFICATION to the effect that Culver B. Suico, Teresa D.
Ceniza, Ronald R. Dacut and Benigno Mariano, Jr. are each awarded nominal
damages in the amount of P30,000.00.

The petition in G.R. No. 163793 is GRANTED. The Decision dated April 12,
2002 of the Court of Appeals is REVERSED and SET ASIDE. The Decision of the Labor
Arbiter dated January 26, 2001 and the Resolution of the National Labor Relations
Commission dated September 28, 2001 are REINSTATED with MODIFICATION that
Ernesto Borje is awarded nominal damages in the amount of P30,000.00.

Costs against PLDT.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

127
 ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice

128
[1]
Rollo II (G.R. No. 153584), p. 315.
[2]
Entitled, Culver B. Suico, Teresa D. Ceniza and Ronald R. Dacut, Petitioners, versus National Labor Relations
Commission, Philippine Long Distance Telephone Company (PLDT)/Augusto G. Cotelo, Respondents.
[3]
Entitled, Benigno Mariano, Jr., Petitioner versus National Labor Relations Commission and Philippine Long
Distance Telephone Company, Respondents.
[4]
Entitled, Philippine Long Distance Telephone Company, Petitioner versus Ernesto Borje, Respondent.
[5]
Rollo I (G.R. No. 146762), pp. 52-53.
[6]
Id. at 113.
[7]
Id. at 116.
[8]
Id. at 119.
[9]
Now an Associate Justice of the Supreme Court.
[10]
Rollo I (G.R. No. 146762), pp. 129, 131, and 133.
[11]
Id. at 130, 132 and 134.
[12]
Id. at 135.
[13]
Id. at 136-138.
[14]
Id. at 139-141.
[15]
Id. at 142-143.
[16]
Id. at 144-146.
[17]
Petitioners failed to attach to their Petition copies of the Complaint, July 15, 1998 LA Decision, and March 27,
2000 NLRC Resolution. To check the contents of said documents, the Court resorted to the certified true
copies of the January 3, 2000 NLRC Decision and September 22, 2000 CA Decision which contain a
summary of the contents of the documents omitted (Floren Hotel and/or Ligaya Chu v. National Labor
Relations Commission, G.R. No. 155264, May 6, 2005, 458 SCRA 128).
[18]
Rollo I (G.R. No. 146762), p. 68.
[19]
Id. at 39.
[20]
Penned by Associate Justice Wenceslao L. Agnir, Jr. and concurred in by Associate Justices Oswaldo D. Agcaoili
and Elvi John S. Asuncion.
[21]
Rollo I (G.R. No. 146762), p. 44.
[22]
Id. at 49.
[23]
Id. at 11.
[24]
Rollo II (G.R. No. 153584), pp. 142-143.
[25]
Id. at 42-43.
[26]
Id. at 44.
[27]
Id. at 45.
[28]
Id. at 46.
[29]
Id. at 47.
[30]
Id. at 48.
[31]
Id. at 113.
[32]
Id. at 142.
[33]
Id. at 172.
[34]
Id. at 173.
[35]
Penned by Associate Justice Wenceslao I. Agnir, Jr. and concurred in by Associate Justices B.A. Adefuin-dela
Cruz and Josefina Guevara-Salonga.
[36]
Rollo II (G.R. No. 153584), p. 28.
[37]
Id. at 39.
[38]
Id. at 17.
[39]
CA rollo (CA-G.R. No. SP-70075), pp. 43-44.
[40]
Rollo III (G.R. No. 163793), pp. 46-47.
[41]
Id. at 48.
[42]
Id. at 49.
[43]
Id. at 50.
[44]
Id. at 52.
[45]
Id. at 114-115.
[46]
Id. at 116.
[47]
Id. at 117.
[48]
Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Mercedez Gozo-Dadole
and Rosmari D. Carandang.
[49]
Rollo III (G.R. No. 163793), pp. 14-15.
[50]
Id. at 184.
[51]
Id. at 26-27.
[52]
G.R. No. 158693, November 17, 2004, 442 SCRA 573, 620.
[53]
Wah Yuen Restaurant v. Jayona, G.R. No. 159448, December 16, 2005, 478 SCRA 315, 322-323.
[54]
Petition, rollo III (G.R. No. 163793), p. 35.
[55]
Art. 264. Prohibited activities. (a) xxx Any union officer who knowingly participates in an illegal strike and any
worker or union officer who knowingly participates in the commission of illegal acts during a strike may be
declared to have lost his employment status xxx.

129
[56]
Art. 264. Prohibited Activities.
(e) No person engaged in picketing shall commit any act of violence, coercion or intimidation or obstruct the free
ingress or egress from the employers premises for lawful purposes, or obstruct public thoroughfares.
[57]
Stamford Marketing Corp. v. Julian, G.R. No. 145496, February 24, 2004, 423 SCRA 633, 649.
[58]
Philippine Long Distance Telephone Company v. Manggagawa ng Komunikasyon ng Pilipinas, G.R. No. 162783,
July 14, 2005, 463 SCRA 418, 429.
[59]
Norkis Trading Co., Inc. v. National Labor Relations Commission, G.R. No. 168159, August 19, 2005, 467 SCRA
461, 470-471; Philcom Employees Union v. Philippine Communications and Philcom Corporation, G.R. No.
144315, July 17, 2006.
[60]
Coca-Cola Bottlers, Phils., Inc. v. Kapisanan ng Malayang Manggagawa sa Coca-Cola-FFW, G.R. No. 148205,
February 28, 2005, 452 SCRA 480, 496; Lagatic v. National Labor Relations Commission, 349 Phil. 172,
180 (1998).
[61]
This should not, of course, be taken to mean that company policy can hamstring the employer. The latter may
always revoke a company policy that has become oppressive to capital (North Davao Mining Corporation v.
National Labor Relations Commission, 325 Phil. 202, 212 (1996). However, without proof that such
company policy has become onerous, the same shall have to be enforced against the employer (Businessday
Information Systems and Services, Inc. v. National Labor Relations Commission, G.R. No. 103575, April 5,
1993, 221 SCRA 9, 13).
[62]
Hinatuan Mining Corporation v. National Labor Relations Commission, 335 Phil. 1090, 1094 (1997); American
Home Assurance Co. v. National Labor Relations Commission, 328 Phil. 606, 619 (1996).
[63]
Mitsubishi Motors Philippines Corporation v. Chrysler Philippines Labor Union, G.R. No. 148738, June 29, 2004,
433 SCRA 206, 219.
[64]
Batangas Laguna Tayabas Bus Co. v. Court of Appeals, 163 Phil. 494 (1976).
[65]
The citation should read 195 SCRA 606 (1991).
[66]
Rollo I (G.R. No. 146762), p. 327; Rollo II (G.R. No. 153584), p. 212; Rollo III (G.R. No. 163793), p. 36.
[67]
Supra notes 10, 27, and 41.
[68]
Malabago v. National Labor Relations Commission, G.R. No. 165465, September 13, 2006.
[69]
See notes 14, 28 and 41.
[70]
See note 15.
[71]
See notes 29 and 42.
[72]
Supra. See note 52.
[73]
Durban Apartments Corporation v. Catacutan, G.R. No. 167136, December 14, 2005, 477 SCRA 801, 809.

130
 FIRST DIVISION

[G.R. No. 187200 : May 05, 2010]

GOLDEN ACE BUILDERS AND ARNOLD U. AZUL, PETITIONERS,VS. JOSE A. TALDE,

RESPONDENT.

DECISION

CARPIO MORALES, J.:

Jose A. Talde (respondent) was hired in 1990 as a carpenter by petitioner Golden Ace Builders of
which its co-petitioner Arnold Azul (Azul) is the owner-manager. In February 1999, Azul, alleging
the unavailability of construction projects, stopped giving work assignments to respondent,
prompting the latter to file a complaint[1] for illegal dismissal.

By Decision[2] of January 10, 2001, the Labor Arbiter ruled in favor of respondent and ordered his
immediate reinstatement without loss of seniority rights and other privileges, and with payment of
full backwages, which at that time was computed at P144,382.23, and the amount of P3,236.37
representing premium pay for rest days, service incentive leave pay and 13th month pay.

Pending their appeal to the National Labor Relations Commission (NLRC) and in compliance with
the Labor Arbiter's Decision, petitioners, through counsel, advised respondent to report for work in
the construction site within 10 days from receipt thereof. Respondent submitted, however, on May
16, 2001 a manifestation[3] to the Labor Arbiter that actual animosities existed between him and
petitioners and there had been threats to his life and his family's safety, hence, he opted for the
payment of separation pay. Petitioners denied the existence of any such animosity.

Meanwhile, the NLRC dismissed petitioners' appeal by Resolution[4] of April 22, 2002, holding that
respondent was a regular employee and not a project employee, and that there was no valid
ground for the termination of his services. Petitioners' motion for reconsideration was denied by
Resolution[5] of August 6, 2002.

Petitioners' appeal to the Court of Appeals was dismissed by Decision[6] of August 12, 2004 which
attained finality on September 15, 2004.

As an agreement could not be forged by the parties on the satisfaction of the judgment, the
matter was referred to the Fiscal Examiner of the NLRC who recomputed at P562,804.69 the
amount due respondent, which was approved by the Labor Arbiter by Order[7] of July 5, 2005. A
writ of execution[8]dated July 8, 2005 was thereupon issued.

Finding the amount exorbitant, petitioners filed a motion for reconsideration with the NLRC,
contending that since respondent refused to report back to work, he should be considered to have
abandoned the same, hence, the recomputation of the wages and benefits due him should not be
beyond May 15, 2001, the date when he manifested his refusal to be reinstated.

By Resolution[9] of March 9, 2006, the NLRC granted petitioners' motion and accordingly vacated
the computation. It held that since respondent did not appeal the Decision of the Labor Arbiter
granting him only reinstatement and backwages, not separation pay in lieu thereof, he may not be
afforded affirmative relief; and since he refused to go back to work, he may recover backwages
only up to May 20, 2001, the day he was supposed to return to the job site. Respondent's motion
for reconsideration was denied by the NLRC by Resolution[10] of June 30, 2006, hence, he filed a
petition for certiorari with the Court of Appeals.

By Decision[11] of September 10, 2008, the appellate court set aside the NLRC Resolutions, holding
that respondent is entitled to both backwages and separation pay, even if separation pay was not
granted by the Labor Arbiter, the latter in view of the strained relations between the parties. The
appellate court disposed:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered by

us GRANTING the petition filed in this case. The assailed RESOLUTIONS dated 30, 2006 and
March 9, 2006 of the NLRC are hereby SET ASIDE.

Thus, the full backwages and separation pay to be awarded to the petitioner shall be computed as
follows:

Full Backwages as of June 30,

= P562,804.69
2005
Separation Pay:
P220.00 x 26 days = P5,720,00
P5,720/month x 8 years = 45,760.00
P608,564.69

131
We also award an additional 10% of the total monetary award by way of attorney's fees for the
expenses incurred by the petitioner to protect his rights and interests. Furthermore, when the
decision of this Court as to the monetary award becomes final and executory, the rate of legal
interest shall be imposed at 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

SO ORDERED. (emphasis in the original)

Petitioners' motion for reconsideration was denied by Resolution[12] of March 12, 2009, hence, the
present petition for review on certiorari.

Petitioners assail the appellate court's award of separation pay. They assailed too as contrary to
prevailing jurisprudence the computation of backwages from the time of dismissal up to actual
reinstatement. They contend that, in effect, the appellate court modified an already final and
executory decision.

The petition fails.

The basis for the payment of backwages is different from that for the award of separation pay.
Separation pay is granted where reinstatement is no longer advisable because of strained relations
between the employee and the employer. Backwages represent compensation that should have
been earned but were not collected because of the unjust dismissal. The basis for computing
backwages is usually the length of the employee's service while that for separation pay is the
actual period when the employee was unlawfully prevented from working.[13]

As to how both awards should be computed, Macasero v. Southern Industrial Gases

Philippines[14]instructs:

[T]he award of separation pay is inconsistent with a finding that there was no illegal dismissal, for
under Article 279 of the Labor Code and as held in a catena of cases, an employee who is
dismissed without just cause and without due process is entitled to backwages and reinstatement
or payment of separation pay in lieu thereof:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement. The two reliefs provided are separate and distinct.In instances where
reinstatement is no longer feasible because of strained relations between the employee and the
employer, separation pay is granted. In effect, an illegally dismissed employee is entitled to either
reinstatement, if viable, or separation pay if reinstatement is no longer viable, and backwages.

The normal consequences of respondents' illegal dismissal, then, are reinstatement

without loss of seniority rights, and payment of backwages computed from the time
compensation was withheld up to the date of actual reinstatement. Where reinstatement
is no longer viable as an option, separation pay equivalent to one (1) month salary for
every year of service should be awarded as an alternative. The payment of separation
pay is in addition to payment of backwages. (emphasis, italics and underscoring supplied)

Velasco v. National Labor Relations Commission emphasizes:

The accepted doctrine is that separation pay may avail in lieu of reinstatement if
reinstatement is no longer practical or in the best interest of the parties.Separation pay in
lieu of reinstatement may likewise be awarded if the employee decides not to be reinstated.
(emphasis in the original; italics supplied)

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.[15]

Strained relations must be demonstrated as a fact, however, to be adequately supported by

evidence[16]— substantial evidence to show that the relationship between the employer and the
employee is indeed strained as a necessary consequence of the judicial controversy.[17]

In the present case, the Labor Arbiter found that actual animosity existed between petitioner Azul
and respondent as a result of the filing of the illegal dismissal case. Such finding, especially when
affirmed by the appellate court as in the case at bar, is binding upon the Court, consistent with the
prevailing rules that this Court will not try facts anew and that findings of facts of quasi-judicial
bodies are accorded great respect, even finality.

Clearly then, respondent is entitled to backwages and separation pay as his reinstatement has
been rendered impossible due to strained relations. As correctly held by the appellate court, the
backwages due respondent must be computed from the time he was unjustly dismissed until his

132
actual reinstatement, or from February 1999 until June 30, 2005 when his reinstatement was
rendered impossible without fault on his part.

The Court, however, does not find the appellate court's computation of separation pay in order.
The appellate court considered respondent to have served petitioner company for only eight years.
Petitioner was hired in 1990, however, and he must be considered to have been in the
service not only until 1999, when he was unjustly dismissed, but until June 30, 2005,
the day he is deemed to have been actually separated (his reinstatement having been
rendered impossible) from petitioner company or for a total of 15 years.

WHEREFORE, the Court of Appeals Decision dated September 10, 2008 and its Resolution dated
March 12, 2009 in C.A. G.R. SP No. 961082 are AFFIRMED with the MODIFICATION that the
amount of separation pay due respondent is, in light of the discussion in the
immediately foregoing paragraph, computed at P85,800.00.

SO ORDERED.

Puno, (Chairperson), Leonardo-De Castro, Bersamin, and Villarama, Jr., JJ., concur.

Endnotes:

[1]
Annex "C" of Petition; rollo, p. 87.

[2]
Annex "D" of Petition, id. at 88-100. Penned by Labor Arbiter Joselito Villarosa.

[3]
Annex "G" of Petition, id. at 109.

Annex "I" of Petition, id. at 115-120. Penned by Commissioner (now Associate Justice of the
[4]

Court of Appeals) Angelita A. Gacutan and concurred in by Presiding Commissioner Raul T. Aquino
and Commissioner Victoriano R. Calaycay.

Annex "K" of Petition, id. at 139-1140. Penned by Commissioner (now Associate Justice of the
[5]

Court of Appeals) Angelita A. Gacutan and concurred in by Presiding Commissioner Raul T. Aquino
and Commissioner Victoriano R. Calaycay.

Annex "L" of Petition, id. at 142-149. Penned by Associate Justice Fernanda Lampas-Peralta and
[6]

concurred in by Associate Justices Conrado M. Vasquez and Josefina Guevara-Salonga.

[7]
Annex "M" of Petition, id. at. 150-151. Penned by Labor Arbiter Cresencio G. Ramos.

[8]
Annex "N" of Petition, id. at 152-154. Penned by Labor Arbiter Cresencio G. Ramos.

Annex "P" of Petition, id. at 163-170. Penned by Commissioner (now Associate Justice of the
[9]

Court of Appeals) Angelita A. Gacutan and concurred in by Presiding Commissioner Raul T. Aquino
and Commissioner Victoriano R. Calaycay.

Annex "R" of Petition, id. at 182-183. Penned by Commissioner (now Associate Justice of the
[10]

Court of Appeals) Angelita A. Gacutan and concurred in by Presiding Commissioner Raul T. Aquino
and Commissioner Victoriano R. Calaycay.

Id. at 70-81. Penned by Associate Justice Isaias P. Dicdican and concurred in by Associate
[11]

Justices Juan Q. Enriquez, Jr. and Marlene Gonzales-Sison.

Id. at. 82-86. Penned by Associate Justice Pampio A. Abarintos and concurred in by Associate
[12]

Justices Amelita T. Tolentino and Myrna Dimaranan-Vidal.

[13]
Equitable v. Sadac, G.R. No. 164772, June 8, 2006, 490 SCRA 380.

[14]
G.R. No. 178524, January 30, 2009.

[15]
Coca Cola v. Daniel, G.R. No. 156893, June 21, 2005, 460 SCRA 494.

Paguio Transport Corporation v. National Labor Relations Commission, 356 Phil. 158, 171
[16]

(1998).

[17]
Coca-Cola v. Daniel, supra.

133
 THIRD DIVISION

[G.R. NO. 167706 : November 5, 2009]

REYNALDO G. CABIGTING, Petitioner, v. SAN MIGUEL FOODS, INC., Respondent.

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court assailing the
August 31, 2004 Decision2 and April 5, 2005 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
82810. The CA declared the dismissal of petitioner as illegal and ordered the payment of his full backwages,
but did not decree his reinstatement.

The facts of the case:

Petitioner Reynaldo G. Cabigting was hired as a receiver/ issuer at the San Miguel Corporation, Feeds and
Livestock Division (B-Meg) on February 16, 1984 and after years of service, he was promoted as inventory
controller.4

On June 26, 2000, respondent San Miguel Foods, Inc., through its President, Mr. Arnaldo Africa, sent
petitioner a letter informing him that his position as sales office coordinator under its logistic department has
been declared redundant. Simultaneously, respondent terminated the services of petitioner effective July 31,
2000, and offered him an early retirement package. Thereafter, petitioner was included in the list of
retrenched employees (for reason of redundancy) submitted by respondent to the Department of Labor and
Employment.5

Petitioner was surprised upon receipt of the letter because he was not a sales office coordinator, and yet he
was being terminated as such. Accordingly, petitioner refused to avail of the early retirement package.6

Prior to petitioner's termination on July 31, 2000, he was an inventory controller, performing at the same
time the function of a warehouseman. Furthermore, petitioner was an active union officer of respondent's
union but upon his termination, was only a member thereof.7

With the support of his union,8 petitioner filed a Complaint questioning his termination primarily because he
was not a sales office coordinator, but an inventory controller, performing the functions of both an inventory
controller and a warehouseman.9

In reply, respondent reiterated its declaration that petitioner's position as sales office coordinator was
redundant as a result of respondent's effort to streamline its operations.10

According to respondent, petitioner was supposed to be separated from employment (effective July 1, 1997)
due to the cessation of business of the B-Meg Plant. However, upon petitioner's request for redeployment to
another position, he was accommodated and was designated as sales coordinator from December 1997 to
November 1998, even without rendering actual work as sales coordinator. Respondent claimed that the
same was done on the assumption that petitioner would replace Mr. Luis del Rosario, Sales Coordinator of
respondent's Luzon Operations Center, upon the latter's impending retirement and for the sole purpose of
justifying his inclusion in the payroll. Respondent averred, however, that the position of Mr. Luis del Rosario
as sales coordinator was abolished due to redundancy as a result of its streamlining efforts.11

On October 14, 2002, the Labor Arbiter (LA) rendered a Decision,12 where it ruled that petitioner was
illegally dismissed. Accordingly, the LA ordered respondent to pay petitioner backwages, separation pay in
lieu of reinstatement and attorney's fees. The dispositive portion of said Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent SAN MIGUEL
FOODS, INC. to pay complainant REYNALDO CABIGTING the amount of P1,521,588.99, representing his
separation pay under the CBA, backwages and attorney's fees.

All other claims are dismissed for lack of merit.

SO ORDERED.13

134
Respondent appealed the LA's Decision to the National Labor Relations Commission (NLRC). Likewise,
petitioner partly appealed the LA's Decision as to his non-reinstatement to his previous post and for not
awarding him moral and exemplary damages.14

On June 30, 2003, the NLRC rendered a Decision15 affirming the LA's finding that petitioner was illegally
dismissed by respondent. More importantly, the NLRC modified the LA's Decision by ordering the
reinstatement of petitioner to his previous post, without loss of seniority rights. The dispositive portion of
said Decision reads:

WHEREFORE, premises considered, the decision under review is hereby MODIFIED by decreeing the
REINSTATEMENT of the complainant to his former position without loss of seniority rights, in lieu of an
earlier award of separation pay.

Accordingly, backwages shall be computed from the time of the dismissal up to actual reinstatement.

All other claims are dismissed for lack of merit.

SO ORDERED.16

Respondent appealed the NLRC Decision to the CA via a Petition for Certiorari17 under Rule 65 of the Rules
of Court.

On August 31, 2004, the CA rendered a Decision partially granting respondent's petition. In said Decision,
the CA affirmed the judgment of the LA and the NLRC finding that petitioner was illegally dismissed by
respondent. However, the CA, on the ground that there were strained relations between employee and
employer, reversed the portion of the NLRC Decision which decreed petitioner's reinstatement. The
dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the judgment of public respondent NLRC, affirming the judgment of the
Labor Arbiter that private respondent Cabigting was illegally dismissed by petitioner, is hereby AFFIRMED.
However, public respondent NLRC's judgment ordering the reinstatement of private respondent Cabigting is
hereby REVERSED and SET ASIDE.

The awards of backwages, separation pay and attorney's fees by the Labor Arbiter in his Decision dated
October 14, 2002 REMAIN.

SO ORDERED.18

Respondent filed a Motion for Reconsideration19 of the said Decision. Likewise, petitioner filed a Partial
Motion for Reconsideration20 assailing the CA Decision insofar as it ruled against his reinstatement.

On April 5, 2005, the CA issued a Resolution21 denying both motions.

Hence, herein petition, with petitioner raising the lone assignment of error, to wit:

THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN MODIFYING THE DECISION OF
THE NATIONAL LABOR RELATIONS COMMISSION, SECOND DIVISION.22

The petition is meritorious.

The crux of the controversy is whether or not "strained relations" bar petitioner's reinstatement.

At the outset, this Court shall address respondent's plea to re-open the issue of illegal dismissal. Respondent
argues that it is axiomatic that an appeal, once accepted by the Supreme Court, throws the entire case open
to review.23 Accordingly, respondent posits that petitioner was not illegally dismissed, but was separated due
to a valid redundancy/retrenchment program.24

The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by this Court in
a Petition for Review on Certiorari . This rule, however, is not ironclad and admits certain exceptions, such
as when (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based
on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific
evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by the
presence of evidence on record; (8) the findings of the Court of Appeals are contrary to those of the trial
court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the Court of Appeals are beyond the
issues of the case; and (11) such findings are contrary to the admissions of both parties.25

135
After a painstaking review of the records, this Court finds no justification to warrant the application of any
exception to the general rule.

It bears to stress that the LA, the NLRC and the CA all ruled that petitioner was illegally dismissed. Such
being the case, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide with
those of the Labor Arbiter and, if supported by substantial evidence, are accorded respect and even finality
by this Court.26 Moreover, it is not the function of this Court to assess and evaluate the evidence all over
again, particularly where the findings of the LA, the NLRC and the CA coincide. Thus, absent a showing of an
error of law committed by the court below, or of whimsical or capricious exercise of judgment, or a
demonstrable lack of basis for its conclusions, this Court may not disturb its factual findings.27

Having settled the foregoing, this Court shall now address the lone issue of strained relations.

Article 279 of the Labor Code of the Philippines provides the law on reinstatement, viz.:

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.28

Corollarily, Sections 2 and 3, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code state, viz.:

Sec. 2. Security of Tenure. - In cases of regular employment, the employer shall not terminate the services
of an employee, except for a just cause as provided in the Labor Code or when authorized by existing laws.

Sec. 3. Reinstatement. - An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and to backwages.29

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.30

In Globe-Mackay Cable and Radio Corporation v. National Labor Relations Commission,31 this Court
discussed the limitations and qualifications for the application of the "strained relations" principle, in this
wise:

x x x If, in the wisdom of the Court, there may be a ground or grounds for non-application of the above-
cited provision, this should be by way of exception, such as when the reinstatement may be inadmissible
due to ensuing strained relations between the employer and the employee.

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.

A few examples will suffice to illustrate the Court's application of the above principle: where the employee is
a Vice-President for Marketing and, as such, enjoys the full trust and confidence of top management; or is
the Officer-In-Charge of the extension office of the bank where he works; or is an organizer of a union who
was in a position to sabotage the union's efforts to organize the workers in commercial and industrial
establishments; or is a warehouseman of a non-profit organization whose primary purpose is to facilitate
and maximize voluntary gifts by foreign individuals and organizations to the Philippines; or is a manager of
its Energy Equipment Sales.

Obviously, the principle of "strained relations" cannot be applied indiscriminately. Otherwise, reinstatement
can never be possible simply because some hostility is invariably engendered between the parties as a result
of litigation. That is human nature.

Besides, no strained relations should arise from a valid and legal act of asserting one's right; otherwise, an
employee who shall assert his right could be easily separated from the service, by merely paying his
separation pay on the pretext that his relationship with his employer had already become strained.32

Moreover, Chief Justice Reynato S. Puno, in his dissenting opinion in MGG Marine Services, Inc. v. National
Labor Relations Commission,33 gives the following suggestion in the application of the doctrine of strained
relations:

136
x x x At the very least, I suggest that, henceforth, we should require that the alleged "strained relationship"
must be pleaded and proved if either the employer or the employee does not want the employment tie to
remain. By making "strained relationship" a triable issue of fact before the Arbiter or the NLRC we will
eliminate rulings on "strained relationship" based on mere impression alone.34

Based on the foregoing, in order for the doctrine of strained relations to apply, 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.

Although the determination of the applicability of the doctrine of strained relations is essentially a question
of fact, which should not be the proper subject of herein petition, this Court shall address said issue in light
of the conflicting findings of the LA and the NLRC.

The LA ruled that strained relations barred petitioner's reinstatement, to wit:

Anent the aspect of reinstatement, this Office opines that to reinstate complainant to his former position at
this point in time, is no longer practical and would not promote peace considering the animosity and strained
relations that exist between the parties. x x x35

After a perusal of the LA Decision, this Court finds that the LA had no hard facts upon which to base the
application of the doctrine of strained relations, as the same was not squarely discussed nor elaborated on.
Also, it is of notice that said issue was addressed by the LA in just one sentence without indicating factual
circumstances why strained relations exist.

The same is also true for the CA Decision which disposed of the issue in just one sentence without any
elaboration, to wit:

On the matter of reinstatement, We believe that under the circumstances in this case, there has been, and
there will be, animosity and strained relationships between the parties, hence, private respondent Cabigting
shall be entitled to separation pay.36

Accordingly, this Court is of the opinion that both the LA and the CA based their conclusions on impression
alone. It bears to stress that reinstatement is the rule and, for the exception of strained relations to apply, it
should be proved that it is likely that if reinstated, an atmosphere of antipathy and antagonism would be
generated as to adversely affect the efficiency and productivity of the employee concerned. However, both
the LA and the CA failed to state the basis for their finding that a strained relationship exists.

Based on the foregoing, this Court upholds the ruling of the NLRC finding the doctrine of strained relations
inapplicable to the factual circumstances of the case at bar, to wit:

Finally, it is noted that the position of warehouseman and inventory controller is still existing up to date. The
nature of the controversy where the parties to this case were engaged is not of such nature that would
spawn a situation where the relations are severely strained between them as would bar the complainant to
his continued employment. Neither may it be said that his position entails a constant communion with the
respondent such that hostilities may bar smooth interactions between them. Accordingly, We find no basis
for an award of separation pay in lieu of reinstatement.37

In its pleadings, however, respondent repeatedly argued against the reinstatement of petitioner, in the wise:

5.5 Strained relations may result, among others, from the imputations made by the employer and the
employee as against each other or, by the filing of a complaint by the employee against the employer. ςη αñ rοbl ε š νιr†υ αl lα ω lιbrαrÿ

5.6 As will be discussed below, the strained relationship between the petitioner and the respondent, aside
from the fact that the former was not illegally dismissed, further militates against the reinstatement of the
petitioner.

5.7 The petitioner, in his pleadings submitted before the Honorable Labor Arbiter below, resorted to
imputations and accusations which are totally uncalled for, hitting the respondent "below the belt," so to
speak.

5.8 For instance, in his reply position paper, petitioner declared as a "blatant display of arrogance" the
alleged refusal of respondent to observe certain provisions of the collective bargaining agreement; that it
was "highly ridiculous" on the part of the respondent to assert that his continued employment was due
merely to an act of accommodation on the part of the respondent.

5.9 In fact, in his comment with the Court of Appeals, petitioner intimated that respondent fabricated
evidence when it presented a document which showed that petitioner was a Sales Office Coordinator,
claiming that he was assigned by the respondent to a "new and unknown position and thereafter declared

137
[the position] redundant." Throughout his allegations, petitioner imputes "malice" and "bad faith" on the
part of respondent.

5.10 These imputations effectively placed a strain on the relationship between the respondent and the
petitioner, notwithstanding the fact that the former did everything within its resources to accommodate the
petitioner so as to provide him employment even when there was no more work for him to do.

xxx

5.18 The antagonism and antipathy shown by petitioner towards the respondent is more real than
imaginary. It bears to note that after the respondent extended him accommodation by instituting him in the
payroll, the petitioner "turned the tables" on the respondent by declaring that his continued employment
was not due to an accommodation, even alleging that it was "highly ridiculous" for the respondent to
consider him as an accommodated employee.38

The claim of respondent is not meritorious. This Court shares petitioner's view that the words allegedly
imputing malice and bad faith towards the respondent cannot be made a basis for denying his
reinstatement. Respondent's perceived antipathy and antagonism is not of such degree as would preclude
reinstatement of petitioner to his former position.39 In addition, by themselves alone, the words used by
petitioner in his pleadings are insufficient to prove the presence of strained relations. Thus, this Court finds
that one should not fault petitioner for his choice of words, especially in light of overwhelming evidence
showing he was illegally dismissed.

Moreover, the filing of the complaint by petitioner cannot be used as a basis for strained relations. As a rule,
no strained relations should arise from a valid and legal act asserting one's right.40 Likewise, respondent's
claim that it was betrayed by petitioner, after several accommodations it had extended to him,41 deserves
scant consideration. On this note, the NLRC was categorical that no such accommodation existed, to wit:

On the argument that Cabigting was merely accommodated by the respondent after the closure of the
Tacoma Warehouse, it, however, appears that no such accommodation existed. x x x42

The doctrine of strained relations has been made applicable to cases43 where the employee decides not to be
reinstated and demands for separation pay. The same, however, does not apply to herein petition, as
petitioner is asking for his reinstatement despite his illegal dismissal.

Lastly, this Court takes note of the findings of fact of the NLRC that the position of inventory controller and
warehouseman is still existing up to date.44 Petitioner has been an inventory controller for so many years,
and there should be no problem in ordering the reinstatement with facility of a laborer, clerk, or other rank-
and-file employee.45

In conclusion, it bears to stress that it is human nature that some hostility will inevitably arise between
parties as a result of litigation, but the same does not always constitute strained relations in the absence of
proof or explanation that such indeed exists.

WHEREFORE, premises considered, the petition is GRANTED. The August 31, 2004 Decision and April 5,
2005 Resolution of the Court of Appeals in CA-G.R. SP No. 82810 are hereby AFFIRMED with the
MODIFICATION that petitioner Reynaldo G. Cabigting is entitled to REINSTATEMENT. Respondent is
ORDERED to IMMEDIATELY REINSTATE petitioner to his previous position without loss of seniority rights. In
case the former position of petitioner is no longer available, respondent is directed to create an equivalent
position and immediately reinstate petitioner without loss of seniority rights. Accordingly, backwages shall
be computed from the time of dismissal up to the time of actual reinstatement.

SO ORDERED.

Endnotes:

*
Designated to sit as an additional member in lieu of Associate Justice Antonio Eduardo B. Nachura per
Special Order No. 755 dated October 12. 2009.

**
Designated to sit as an additional member in lieu of Associate Justice Presbitero J. Velasco, Jr. per Special
Order No. 753 dated October 12, 2009.

1
Rollo, pp. 8-27.

2
Penned by Associate Justice Edgardo F. Sundiam, with Associate Justices Martin S. Villarama, Jr. and Japar
B. Dimaampao, concurring; id. at 383-394.

138
3
Id. at 29-31.

4
Rollo, p. 384.

5
Id.

6
Id.

7
Id.

8
San Miguel Foods, Inc. Employees Union-Philippine Transport and General Workers Organization.

9
Rollo, pp. 384-385.

10
Id. at 385.

11
Id.

12
Id. at 51-64.

13
Id. at 64.

14
Id. at 386.

15
Id. at 32-50.

16
Id. at. 49.

17
Id. at 92-168.

18
Id. at 393-394.

19
Id. at 343-356.

20
Id. at 65-71.

21
Id. at 29-31.

22
Id. at 11.

23
Id. at 587.

24
Id. at 590.

25
The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA
79, 86.

26
Tres Reyes v. Maxim's Tea House, 446 Phil. 388, 401 (2003).

27
See Abalos v. Philex Mining Corporation, 441 Phil. 386, 396 (2002).

28
Emphasis supplied.

29
Emphasis supplied.

30
Quijano v. Mercury Drug Corporation, 354 Phil. 112, 121-122 (1998).

31
G.R. No. 82511, March 3, 1992, 206 SCRA 701.

32
Id. at 711-712. (Emphasis and underscoring supplied.)

33
328 Phil. 1046, 1093 (1966).

34
MGG Marine Services, Inc. v. NLRC, supra, at 698.

139
35
Rollo, pp. 63-64.

36
Id. at 393.

37
Id. at 48.

38
Id. 579-584.

39
Id. at 516.

40
Sagum v. Court of Appeals, G.R. No. 158759, May 26, 2005, 459 SCRA 223, 233.

41
Rollo, p. 584.

42
Id. at 47.

43
See FRF Enterprise v. NLRC and R. Soriano, 313 Phil. 493 (1995); Starlite Plastic Industrial Corporation v.
National Labor Relations Commission, 253 Phil. 307 (1989).

44
Rollo, p. 48

45
See Asiaworld Publishing House, Inc. v. Ople, 236 Phil. 236, 245 (1987).

140
 SECOND DIVISION

[G.R. No. 185280 : January 18, 2012]

TIMOTEO H. SARONA, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION,

ROYALE SECURITY AGENCY (FORMERLY SCEPTRE SECURITY AGENCY) AND CESAR S. TAN,
RESPONDENTS.

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May 29, 2008 Decision 1 of the
Twentieth Division of the Court of Appeals (CA) in CA-G.R. SP No. 02127 entitled “Timoteo H. Sarona
v. National Labor Relations Commission, Royale Security Agency (formerly Sceptre Security Agency)
and Cesar S. Tan” (Assailed Decision), which affirmed the National Labor Relations Commission’s
(NLRC) November 30, 2005 Decision and January 31, 2006 Resolution, finding the petitioner illegally
dismissed but limiting the amount of his backwages to three (3) monthly salaries. The CA likewise
affirmed the NLRC’s finding that the petitioner’s separation pay should be computed only on the basis
of his length of service with respondent Royale Security Agency (Royale). The CA held that absent any
showing that Royale is a mere alter ego of Sceptre Security Agency (Sceptre), Royale cannot be
compelled to recognize the petitioner’s tenure with Sceptre. The dispositive portion of the CA’s
Assailed Decision states:

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED, though piercing of
the corporate veil is hereby denied for lack of merit. Accordingly, the assailed Decision and Resolution
of the NLRC respectively dated November 30, 2005 and January 31, 2006 are hereby AFFIRMED as
to the monetary awards.

SO ORDERED.2

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in April
1976, was asked by Karen Therese Tan (Karen), Sceptre’s Operation Manager, to submit a resignation
letter as the same was supposedly required for applying for a position at Royale. The petitioner was
also asked to fill up Royale’s employment application form, which was handed to him by Royale’s
General Manager, respondent Cesar Antonio Tan II (Cesar).3

After several weeks of being in floating status, Royale’s Security Officer, Martin Gono (Martin),
assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8,
2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World Express, Inc.
(WWWE, Inc.). During his assignment at Highlight Metal, the petitioner used the patches and agency
cloths of Sceptre and it was only when he was posted at WWWE, Inc. that he started using those of
Royale.4

On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been
withdrawn because Royale had allegedly been replaced by another security agency. The petitioner,
however, shortly discovered thereafter that Royale was never replaced as WWWE, Inc.’s security
agency. When he placed a call at WWWE, Inc., he learned that his fellow security guard was not
relieved from his post.5

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short
period from September 22, 2003 to September 30, 2003. Subsequently, when the petitioner reported
at Royale’s office on October 1, 2003, Martin informed him that he would no longer be given any
assignment per the instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This
prompted him to file a complaint for illegal dismissal on October 4, 2003.6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez) ruled in the petitioner’s
favor and found him illegally dismissed. For being unsubstantiated, LA Gutierrez denied credence to
the respondents’ claim that the termination of the petitioner’s employment relationship with Royale
was on his accord following his alleged employment in another company. That the petitioner was no
longer interested in being an employee of Royale cannot be presumed from his request for a
certificate of employment, a claim which, to begin with, he vehemently denies. Allegation of the

141
petitioner’s abandonment is negated by his filing of a complaint for illegal dismissal three (3) days
after he was informed that he would no longer be given any assignments. LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant abandoned his employment. We
are not however, convinced.

There is abandonment when there is a clear proof showing that one has no more interest to return to
work. In this instant case, the record has no proof to such effect. In a long line of decisions, the
Supreme Court ruled:

“Abandonment of position is a matter of intention expressed in clearly certain and

unequivocal acts, however, an interim employment does not mean abandonment.” (Jardine
Davis, Inc. vs. NLRC, 225 SCRA 757).

“In abandonment, there must be a concurrence of the intention to abandon and some overt
acts from which an employee may be declared as having no more interest to work.” (C.
Alcontin & Sons, Inc. vs. NLRC, 229 SCRA 109).

“It is clear, deliberate and unjustified refusal to severe employment and not mere absence
that is required to constitute abandonment.” x x x” (De Ysasi III vs. NLRC, 231 SCRA 173).

Aside from lack of proof showing that complainant has abandoned his employment, the record would
show that immediate action was taken in order to protest his dismissal from employment. He filed a
complaint [for] illegal dismissal on October 4, 2004 or three (3) days after he was dismissed. This act,
as declared by the Supreme Court is inconsistent with abandonment, as held in the case of Pampanga
Sugar Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme Court ruled:

“The immediate filing of a complaint for [i]llegal [d]ismissal by an employee is inconsistent

with abandonment.”7

The respondents were ordered to pay the petitioner backwages, which LA Gutierrez computed from
the day he was dismissed, or on October 1, 2003, up to the promulgation of his Decision on May 11,
2005. In lieu of reinstatement, the respondents were ordered to pay the petitioner separation pay
equivalent to his one (1) month salary in consideration of his tenure with Royale, which lasted for only
one (1) month and three (3) days. In this regard, LA Gutierrez refused to pierce Royale’s corporate
veil for purposes of factoring the petitioner’s length of service with Sceptre in the computation of his
separation pay. LA Gutierrez ruled that Royale’s corporate personality, which is separate and distinct
from that of Sceptre, a sole proprietorship owned by the late Roso Sabalones (Roso) and later, Aida,
cannot be pierced absent clear and convincing evidence that Sceptre and Royale share the same
stockholders and incorporators and that Sceptre has complete control and dominion over the finances
and business affairs of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of respondent Royale, complainant avers
that respondent Royal (sic) was using the very same office of SCEPTRE in C. Padilla St., Cebu City. In
addition, all officers and staff of SCEPTRE are now the same officers and staff of ROYALE, that all [the]
properties of SCEPTRE are now being owned by ROYALE and that ROYALE is now occupying the
property of SCEPTRE. We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single proprietorship. Being so, it has no
distinct and separate personality. It is owned by the late Roso T. Sabalones. After the death of the
owner, the property is supposed to be divided by the heirs and any claim against the sole
proprietorship is a claim against Roso T. Sabalones. After his death, the claims should be instituted
against the estate of Roso T. Sabalones. In short, the estate of the late Roso T. Sabalones should have
been impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into another entity now called
Royale Security Agency. There is however, no proof to this assertion. Likewise, there is no proof that
Roso T. Sabalones, organized his single proprietorship business into a corporation, Royale Security
Agency. On the contrary, the name of Roso T. Sabalones does not appear in the Articles of
Incorporation. The names therein as incorporators are:

Bruno M. Kuizon - [P]150,000.00

Wilfredo K. Tan - 100,000.00
Karen Therese S. 100,000.00
Tan -
Cesar Antonio S. 100,000.00
Tan -

142
 Gabeth Maria K. Tan 50,000.00
-

Complainant claims that two (2) of the incorporators are the granddaughters of Roso T. Sabalones.
This fact even give (sic) us further reason to conclude that respondent Royal (sic) Security Agency is
not an alter ego or conduit of SCEPTRE. It is obvious that respondent Royal (sic) Security Agency is
not owned by the owner of “SCEPTRE”.

It may be true that the place where respondent Royale hold (sic) office is the same office formerly
used by “SCEPTRE.” Likewise, it may be true that the same officers and staff now employed by
respondent Royale Security Agency were the same officers and staff employed by “SCEPTRE.” We find,
however, that these facts are not sufficient to justify to require respondent Royale to answer for the
liability of Sceptre, which was owned solely by the late Roso T. Sabalones. As we have stated above,
the remedy is to address the claim on the estate of Roso T. Sabalones.8

The respondents appealed LA Gutierrez’s May 11, 2005 Decision to the NLRC, claiming that the finding
of illegal dismissal was attended with grave abuse of discretion. This appeal was, however, dismissed
by the NLRC in its November 30, 2005 Decision,9 the dispositive portion of which states:

WHEREFORE, premises considered, the Decision of the Labor Arbiter declaring the illegal dismissal of
complainant is hereby AFFIRMED.

However[,] We modify the monetary award by limiting the grant of backwages to only three (3)
months in view of complainant’s very limited service which lasted only for one month and three days.

1. Backwages- [P]15,600.00
2. Separation - 5,200.00
Pay
3. 13 Month -
th
583.34
Pay
[P]21,383.34
Attorney’s 2,138.33
Fees-
Total [P]23,521.67
The appeal of respondent Royal (sic) Security Agency is hereby DISMISSED for lack of merit.

SO ORDERED.10
The NLRC partially affirmed LA Gutierrez’s May 11, 2005 Decision. It concurred with the latter’s finding
that the petitioner was illegally dismissed and the manner by which his separation pay was computed,
but modified the monetary award in the petitioner’s favor by reducing the amount of his backwages
from P95,600.00 to P15,600.00. The NLRC determined the petitioner’s backwages as limited to three
(3) months of his last monthly salary, considering that his employment with Royale was only for a
period for one (1) month and three (3) days, thus:11

On the other hand, while complainant is entitled to backwages, We are aware that his stint with
respondent Royal (sic) lasted only for one (1) month and three (3) days such that it is Our considered
view that his backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.0012

The petitioner, on the other hand, did not appeal LA Gutierrez’s May 11, 2005 Decision but opted to
raise the validity of LA Gutierrez’s adverse findings with respect to piercing Royale’s corporate
personality and computation of his separation pay in his Reply to the respondents’ Memorandum of
Appeal. As the filing of an appeal is the prescribed remedy and no aspect of the decision can be
overturned by a mere reply, the NLRC dismissed the petitioner’s efforts to reverse LA Gutierrez’s
disposition of these issues. Effectively, the petitioner had already waived his right to question LA
Gutierrez’s Decision when he failed to file an appeal within the reglementary period. The NLRC held:

On the other hand, in complainant’s Reply to Respondent’s Appeal Memorandum he prayed that the
doctrine of piercing the veil of corporate fiction of respondent be applied so that his services with
Sceptre since 1976 [will not] be deleted. If complainant assails this particular finding in the Labor
Arbiter’s Decision, complainant should have filed an appeal and not seek a relief by merely filing a
Reply to Respondent’s Appeal Memorandum.13

143
Consequently, the petitioner elevated the NLRC’s November 30, 2005 Decision to the CA by way of a
Petition for Certiorari under Rule 65 of the Rules of Court. On the other hand, the respondents filed no
appeal from the NLRC’s finding that the petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum that an appealed case is
thrown open for the appellate court’s review, disagreed with the NLRC and proceeded to review the
evidence on record to determine if Royale is Sceptre’s alter ego that would warrant the piercing of its
corporate veil.14 According to the CA, errors not assigned on appeal may be reviewed as technicalities
should not serve as bar to the full adjudication of cases. Thus:

In Cuyco v. Cuyco, which We find application in the instant case, the Supreme Court held:

“In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the
interest due, thus, by not filing their own petition for review, respondents waived their privilege to
bring matters for the Court’s review that [does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however,
it is equally settled that the Court is clothed with ample authority to review matters not assigned as
errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the
case.”

Therefore, for full adjudication of the case, We have to primarily resolve the issue of whether the
doctrine of piercing the corporate veil be justly applied in order to determine petitioner’s length of
service with private respondents.15 (citations omitted)

Nonetheless, the CA ruled against the petitioner and found the evidence he submitted to support his
allegation that Royale and Sceptre are one and the same juridical entity to be wanting. The CA refused
to pierce Royale’s corporate mask as one of the “probative factors that would justify the application of
the doctrine of piercing the corporate veil is stock ownership by one or common ownership of both
corporations” and the petitioner failed to present clear and convincing proof that Royale and Sceptre
are commonly owned or controlled. The relevant portions of the CA’s Decision state:

In the instant case, We find no evidence to show that Royale Security Agency, Inc. (hereinafter
“Royale”), a corporation duly registered with the Securities and Exchange Commission (SEC) and
Sceptre Security Agency (hereinafter “Sceptre”), a single proprietorship, are one and the same entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by both the Labor Arbiter and the
NLRC, was illegally dismissed by Royale on October 1, 2003, alleged that in order to circumvent labor
laws, especially to avoid payment of money claims and the consideration on the length of service of its
employees, Royale was established as an alter ego or business conduit of Sceptre. To prove his claim,
petitioner declared that Royale is conducting business in the same office of Sceptre, the latter being
owned by the late retired Gen. Roso Sabalones, and was managed by the latter’s daughter, Dr. Aida
Sabalones-Tan; that two of Royale’s incorporators are grandchildren [of] the late Gen. Roso
Sabalones; that all the properties of Sceptre are now owned by Royale, and that the officers and staff
of both business establishments are the same; that the heirs of Gen. Sabalones should have applied
for dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was incorporated only on March 10, 2003
as evidenced by the Certificate of Incorporation issued by the SEC on the same date; that Royale’s
incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar Antonio S.
Tan II and [Gabeth] Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly proven by competent evidence and
the burden of proof is on the party making the allegation. Further, Section 1 of Rule 131 of the
Revised Rules of Court provides:

“SECTION 1. Burden of proof. - Burden of proof is the duty of a party to present evidence on the
facts in issue necessary to establish his claim or defense by the amount of evidence required by law.”

We believe that petitioner did not discharge the required burden of proof to establish his allegations.
As We see it, petitioner’s claim that Royale is an alter ego or business conduit of Sceptre is without
basis because aside from the fact that there is no common ownership of both Royale and Sceptre, no
evidence on record would prove that Sceptre, much less the late retired Gen. Roso Sabalones or his
heirs, has control or complete domination of Royale’s finances and business transactions. Absence of
this first element, coupled by petitioner’s failure to present clear and convincing evidence to
substantiate his allegations, would prevent piercing of the corporate veil. Allegations must be proven
by sufficient evidence. Simply stated, he who alleges a fact has the burden of proving it; mere
allegation is not evidence.16 (citations omitted)

144
By way of this Petition, the petitioner would like this Court to revisit the computation of his
backwages, claiming that the same should be computed from the time he was illegally dismissed until
the finality of this decision.17 The petitioner would likewise have this Court review and examine anew
the factual allegations and the supporting evidence to determine if the CA erred in its refusal to pierce
Royale’s corporate mask and rule that it is but a mere continuation or successor of Sceptre. According
to the petitioner, the erroneous computation of his separation pay was due to the CA’s failure, as well
as the NLRC and LA Gutierrez, to consider evidence conclusively demonstrating that Royale and
Sceptre are one and the same juridical entity. The petitioner claims that since Royale is no more than
Sceptre’s alter ego, it should recognize and credit his length of service with Sceptre.18

The petitioner claimed that Royale and Sceptre are not separate legal persons for purposes of
computing the amount of his separation pay and other benefits under the Labor Code. The piercing of
Royale’s corporate personality is justified by several indicators that Royale was incorporated for the
sole purpose of defeating his right to security of tenure and circumvent payment of his benefits to
which he is entitled under the law: (i) Royale was holding office in the same property used by Sceptre
as its principal place of business;19 (ii) Sceptre and Royal have the same officers and employees;20 (iii)
on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to Aida, and her husband, Wilfredo
Gracia K. Tan (Wilfredo),21 the property used by Sceptre as its principal place of business;22 (iv)
Wilfredo is one of the incorporators of Royale;23 (v) on May 3, 1999, Roso ceded the license to operate
Sceptre issued by the Philippine National Police to Aida;24 (vi) on July 28, 1999, the business name
“Sceptre Security & Detective Agency” was registered with the Department of Trade and Industry
(DTI) under the name of Aida;25 (vii) Aida exercised control over the affairs of Sceptre and Royale, as
she was, in fact, the one who dismissed the petitioner from employment;26 (viii) Karen, the daughter
of Aida, was Sceptre’s Operation Manager and is one of the incorporators of Royale; 27 and (ix) Cesar
Tan II, the son of Aida was one of Sceptre’s officers and is one of the incorporators of Royale. 28

In their Comment, the respondents claim that the petitioner is barred from questioning the manner by
which his backwages and separation pay were computed. Earlier, the petitioner moved for the
execution of the NLRC’s November 30, 2005 Decision29 and the respondents paid him the full amount
of the monetary award thereunder shortly after the writ of execution was issued.30The respondents
likewise maintain that Royale’s separate and distinct corporate personality should be respected
considering that the evidence presented by the petitioner fell short of establishing that Royale is a
mere alter ego of Sceptre.

The petitioner does not deny that he has received the full amount of backwages and separation pay as
provided under the NLRC’s November 30, 2005 Decision.31 However, he claims that this does not
preclude this Court from modifying a decision that is tainted with grave abuse of discretion or issued
without jurisdiction.32

ISSUES

Considering the conflicting submissions of the parties, a judicious determination of their respective
rights and obligations requires this Court to resolve the following substantive issues:

a. Whether Royale’s corporate fiction should be pierced for the purpose of compelling it to recognize
the petitioner’s length of service with Sceptre and for holding it liable for the benefits that have
accrued to him arising from his employment with Sceptre; and

b. Whether the petitioner’s backwages should be limited to his salary for three (3) months.

OUR RULING

Because his receipt of

the proceeds of the
award under
the NLRC’s November
30, 2005 Decision is
qualified and without
prejudice to the CA’s
resolution of his
petition
for certiorari/b>, the
petitioner is not barred
from exercising
his right to elevate the

145
 decision of the CA to
this Court.

Before this Court proceeds to decide this Petition on its merits, it is imperative to resolve the
respondents’ contention that the full satisfaction of the award under the NLRC’s November 30, 2005
Decision bars the petitioner from questioning the validity thereof. The respondents submit that they
had paid the petitioner the amount of P21,521.67 as directed by the NLRC and this constitutes a
waiver of his right to file an appeal to this Court.

The respondents fail to convince.

The petitioner’s receipt of the monetary award adjudicated by the NLRC is not absolute, unconditional
and unqualified. The petitioner’s May 3, 2007 Motion for Release contains a reservation, stating in his
prayer that: “it is respectfully prayed that the respondents and/or Great Domestic Insurance Co. be
ordered to RELEASE/GIVE the amount of P23,521.67 in favor of the complainant TIMOTEO H. SARONA
without prejudice to the outcome of the petition with the CA.”33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,34 this Court ruled that the prevailing party’s
receipt of the full amount of the judgment award pursuant to a writ of execution issued by the labor
arbiter does not close or terminate the case if such receipt is qualified as without prejudice to the
outcome of the petition for certiorari pending with the CA.

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed
despite the pendency of a petition for certiorari, unless it is restrained by the proper court. In the
present case, petitioners already paid Villamater’s widow, Sonia, the amount of P3,649,800.00,
representing the total and permanent disability award plus attorney’s fees, pursuant to the Writ of
Execution issued by the Labor Arbiter. Thereafter, an Order was issued declaring the case as "closed
and terminated". However, although there was no motion for reconsideration of this last Order, Sonia
was, nonetheless, estopped from claiming that the controversy had already reached its end with the
issuance of the Order closing and terminating the case. This is because the Acknowledgment Receipt
she signed when she received petitioners’ payment was without prejudice to the final outcome of the
petition for certiorari pending before the CA.35

The finality of the NLRC’s decision does not preclude the filing of a petition for certiorari under Rule 65
of the Rules of Court. That the NLRC issues an entry of judgment after the lapse of ten (10) days from
the parties’ receipt of its decision36 will only give rise to the prevailing party’s right to move for the
execution thereof but will not prevent the CA from taking cognizance of a petition for certiorari on
jurisdictional and due process considerations.37 In turn, the decision rendered by the CA on a petition
for certiorari may be appealed to this Court by way of a petition for review on certiorari under Rule 45
of the Rules of Court. Under Section 5, Article VIII of the Constitution, this Court has the power to
“review, revise, reverse, modify, or affirm on appeal orcertiorari as the law or the Rules of Court may
provide, final judgments and orders of lower courts in x x x all cases in which only an error or question
of law is involved.” Consistent with this constitutional mandate, Rule 45 of the Rules of Court provides
the remedy of an appeal by certiorari from decisions, final orders or resolutions of the CA in any
case, i.e., regardless of the nature of the action or proceedings involved, which would be but a
continuation of the appellate process over the original case.38 Since an appeal to this Court is not an
original and independent action but a continuation of the proceedings before the CA, the filing of a
petition for review under Rule 45 cannot be barred by the finality of the NLRC’s decision in the same
way that a petition for certiorari under Rule 65 with the CA cannot.

Furthermore, if the NLRC’s decision or resolution was reversed and set aside for being issued with
grave abuse of discretion by way of a petition for certiorari to the CA or to this Court by way of an
appeal from the decision of the CA, it is considered void ab initio and, thus, had never become final
and executory.39

A Rule 45 Petition
should be confined
to questions of
law. Nevertheless,
this Court has the
power to resolve a
question of fact,
such as whether a
corporation is a
mere alter ego of
another entity or

146
 whether the
corporate fiction
was invoked for
fraudulent or
malevolent ends, if
the findings in
assailed decision is
not supported by
the evidence on
record or based on
a misapprehension
of facts.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is
the question of whether a corporation is a paper company, a sham or subterfuge or whether the
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of the
respondent’s corporate personality.40

As a general rule, this Court is not a trier of facts and a petition for review on certiorari under Rule 45
of the Rules of Court must exclusively raise questions of law. Moreover, if factual findings of the NLRC
and the LA have been affirmed by the CA, this Court accords them the respect and finality they
deserve. It is well-settled and oft-repeated that findings of fact of administrative agencies and quasi-
judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters,
are generally accorded not only respect, but finality when affirmed by the CA.41

Nevertheless, this Court will not hesitate to deviate from what are clearly procedural guidelines and
disturb and strike down the findings of the CA and those of the labor tribunals if there is a showing
that they are unsupported by the evidence on record or there was a patent misappreciation of facts.
Indeed, that the impugned decision of the CA is consistent with the findings of the labor tribunals does
not per se conclusively demonstrate the correctness thereof. By way of exception to the general rule,
this Court will scrutinize the facts if only to rectify the prejudice and injustice resulting from an
incorrect assessment of the evidence presented.

A resolution of an issue that has supposedly become final

and executory as the petitioner only raised it in his reply
to the respondents’ appeal may be revisited by the appellate
court if such is necessary for a just disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrez’s denial of the petitioner’s plea to pierce
Royale’s corporate veil as the petitioner did not appeal any portion of LA Gutierrez’s May 11, 2005
Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under Section 4(c), Rule VI
of the NLRC Rules,42 the NLRC shall limit itself to reviewing and deciding only the issues that were
elevated on appeal. The NLRC, while not totally bound by technical rules of procedure, is not licensed
to disregard and violate the implementing rules it implemented.43

Nonetheless, technicalities should not be allowed to stand in the way of equitably and completely
resolving the rights and obligations of the parties. Technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the working man. 44 This Court may
choose not to encumber itself with technicalities and limitations consequent to procedural rules if such
will only serve as a hindrance to its duty to decide cases judiciously and in a manner that would put an
end with finality to all existing conflicts between the parties.

Royale is a continuation or successor of Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or incident to its existence. It has
a personality separate and distinct from the persons composing it, as well as from any other legal
entity to which it may be related. This is basic.45

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons.46

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate

147
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.47

Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives.48

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.49

In this regard, this Court finds cogent reason to reverse the CA’s findings. Evidence abound showing
that Royale is a mere continuation or successor of Sceptre and fraudulent objectives are behind
Royale’s incorporation and the petitioner’s subsequent employment therein. These are plainly
suggested by events that the respondents do not dispute and which the CA, the NLRC and LA
Gutierrez accept as fully substantiated but misappreciated as insufficient to warrant the use of the
equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control and supervision over the
affairs of both Sceptre and Royale. Contrary to the submissions of the respondents that Roso had
been the only one in sole control of Sceptre’s finances and business affairs, Aida took over as early as
1999 when Roso assigned his license to operate Sceptre on May 3, 1999.50 As further proof of Aida’s
acquisition of the rights as Sceptre’s sole proprietor, she caused the registration of the business name
“Sceptre Security & Detective Agency” under her name with the DTI a few months after Roso
abdicated his rights to Sceptre in her favor.51 As far as Royale is concerned, the respondents do not
deny that she has a hand in its management and operation and possesses control and supervision of
its employees, including the petitioner. As the petitioner correctly pointed out, that Aida was the one
who decided to stop giving any assignments to the petitioner and summarily dismiss him is an
eloquent testament of the power she wields insofar as Royale’s affairs are concerned. The presence of
actual common control coupled with the misuse of the corporate form to perpetrate oppressive or
manipulative conduct or evade performance of legal obligations is patent; Royale cannot hide behind
its corporate fiction.

Aida’s control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction.
There must be a showing that a fraudulent intent or illegal purpose is behind the exercise of such
control to warrant the piercing of the corporate veil.52 However, the manner by which the petitioner
was made to resign from Sceptre and how he became an employee of Royale suggest the perverted
use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner
tendered his resignation and that he applied at Royale at the instance of Karen and Cesar and on the
impression they created that these were necessary for his continued employment. They orchestrated
the petitioner’s resignation from Sceptre and subsequent employment at Royale, taking advantage of
their ascendancy over the petitioner and the latter’s lack of knowledge of his rights and the
consequences of his actions. Furthermore, that the petitioner was made to resign from Sceptre and
apply with Royale only to be unceremoniously terminated shortly thereafter leads to the ineluctable
conclusion that there was intent to violate the petitioner’s rights as an employee, particularly his right
to security of tenure. The respondents’ scheme reeks of bad faith and fraud and compassionate justice
dictates that Royale and Sceptre be merged as a single entity, compelling Royale to credit and
recognize the petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction
of a separate corporate personality for ends subversive of the policy and purpose behind its
creation53 or which could not have been intended by law to which it owed its being.54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole proprietorship. As ruled
in Prince Transport, Inc., et al. v. Garcia, et al.,55 it is the act of hiding behind the separate and distinct
personalities of juridical entities to perpetuate fraud, commit illegal acts, evade one’s obligations that
the equitable piercing doctrine was formulated to address and prevent:

A settled formulation of the doctrine of piercing the corporate veil is that when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that these two entities are
distinct and treat them as identical or as one and the same. In the present case, it may be true that
Lubas is a single proprietorship and not a corporation. However, petitioners’ attempt to isolate
themselves from and hide behind the supposed separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity
seeks to prevent and remedy.56

148
Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994,
Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of
business by virtue of a Deed of Absolute Sale they executed with Roso.57 Royale, shortly after its
incorporation, started to hold office in the same property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share the same officers and employees.
Karen assumed the dual role of Sceptre’s Operation Manager and incorporator of Royale. With respect
to the petitioner, even if he has already resigned from Sceptre and has been employed by Royale, he
was still using the patches and agency cloths of Sceptre during his assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when he was still with
Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have released the
petitioner’s cash bond when he resigned and Royale would have required the petitioner to post a new
cash bond in its favor.

Taking the foregoing in conjunction with Aida’s control over Sceptre’s and Royale’s business affairs, it
is patent that Royale was a mere subterfuge for Aida. Since a sole proprietorship does not have a
separate and distinct personality from that of the owner of the enterprise, the latter is personally
liable. This is what she sought to avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as Royale and Sceptre are
one and the same. His separation pay should, thus, be computed from the date he was hired by
Sceptre in April 1976 until the finality of this decision. Based on this Court’s ruling in Masagana
Concrete Products, et al. v. NLRC, et al.,58 the intervening period between the day an employee was
illegally dismissed and the day the decision finding him illegally dismissed becomes final and executory
shall be considered in the computation of his separation pay as a period of “imputed” or “putative”
service:
Separation pay, equivalent to one month's salary for every year of service, is awarded as an
alternative to reinstatement when the latter is no longer an option. Separation pay is computed from
the commencement of employment up to the time of termination, including the imputed service for
which the employee is entitled to backwages, with the salary rate prevailing at the end of the period of
putative service being the basis for computation.59

It is well-settled, even axiomatic, that if reinstatement

is not possible, the period covered in the computation
of backwages is from the time the employee was unlawfully
terminated until the finality of the decision finding illegal
dismissal.

With respect to the petitioner’s backwages, this Court cannot subscribe to the view that it should be
limited to an amount equivalent to three (3) months of his salary. Backwages is a remedy affording
the employee a way to recover what he has lost by reason of the unlawful dismissal.60 In awarding
backwages, the primordial consideration is the income that should have accrued to the employee from
the time that he was dismissed up to his reinstatement61 and the length of service prior to his
dismissal is definitely inconsequential.

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al.,62 clarified in no uncertain terms that
if reinstatement is no longer possible, backwages should be computed from the time the employee
was terminated until the finality of the decision, finding the dismissal unlawful.

Therefore, in accordance with R.A. No. 6715, petitioners are entitled on their full backwages, inclusive
of allowances and other benefits or their monetary equivalent, from the time their actual
compensation was withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that reinstatement is no longer
feasible, because the company would be adjustly prejudiced by the continued employment of
petitioners who at present are overage, a separation pay equal to one-month salary granted to them
in the Labor Arbiter's decision was in order and, therefore, affirmed on the Court's decision of 15
March 1996. Furthermore, since reinstatement on this case is no longer feasible, the amount
of backwages shall be computed from the time of their illegal termination on 25 June 1990
up to the time of finality of this decision.63 (emphasis supplied)

A further clarification was made in Javellana, Jr. v. Belen:64

Article 279 of the Labor Code, as amended by Section 34 of Republic Act 6715 instructs:

Art. 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

149
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.

Clearly, the law intends the award of backwages and similar benefits to accumulate past the date of
the Labor Arbiter's decision until the dismissed employee is actually reinstated. But if, as in this case,
reinstatement is no longer possible, this Court has consistently ruled that backwages shall be
computed from the time of illegal dismissal until the date the decision becomes final. 65 (citation
omitted)

In case separation pay is awarded and reinstatement is no longer feasible, backwages shall be
computed from the time of illegal dismissal up to the finality of the decision should separation pay not
be paid in the meantime. It is the employee’s actual receipt of the full amount of his separation pay
that will effectively terminate the employment of an illegally dismissed employee. 66Otherwise, the
employer-employee relationship subsists and the illegally dismissed employee is entitled to
backwages, taking into account the increases and other benefits, including the 13 thmonth pay, that
were received by his co-employees who are not dismissed.67 It is the obligation of the employer to pay
an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other
benefits and bonuses and general increases, to which he would have been normally entitled had he
not been dismissed and had not stopped working.68

In fine, this Court holds Royale liable to pay the petitioner backwages to be computed from his
dismissal on October 1, 2003 until the finality of this decision. Nonetheless, the amount received by
the petitioner from the respondents in satisfaction of the November 30, 2005 Decision shall be
deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as indemnity for the petitioner’s
dismissal, which was tainted by bad faith and fraud, are in order. Moral damages may be recovered
where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act
oppressive to labor, and done in a manner contrary to morals, good customs or public policy while
exemplary damages are recoverable only if the dismissal was done in a wanton, oppressive, or
malevolent manner.69

WHEREFORE, premises considered, the Petition is hereby GRANTED. We REVERSE and SET
ASIDE the CA’s May 29, 2008 Decision in C.A.-G.R. SP No. 02127 and order the respondents to pay
the petitioner the following minus the amount of (P23,521.67) paid to the petitioner in satisfaction of
the NLRC’s November 30, 2005 Decision in NLRC Case No. V-000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date Royale illegally

dismissed the petitioner) until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the rate of one

month pay per year of service;

c) ten percent (10%) attorney’s fees based on the total amount of the awards under (a) and (b)

above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and

e) exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay, backwages, and
other monetary awards due the petitioner.

SO ORDERED.

Carpio, (Chairperson), Perez, Sereno, and Bernabe, JJ.*, concur.

Endnotes:

150
*
Additional Member in lieu of Associate Justice Arturo D. Brion per Special Order No. 1174 dated
January 9, 2012.

1
Penned by Associate Justice Francisco P. Acosta, with Associate Justices Amy C. Lazaro-Javier and
Florito S. Macalino, concurring; rollo, pp. 19-30.

2
Id. at 29.

3
Id. at 3, 4 and 21.

4
Id. at 4-5, 21.

5
Id. at 5-6.

6
Id. at 5-6, 21.

7
Id. at 55.

8
Id. at 53-54.

9
Id. at 58-65.

10
Id. at 64-65.

11
Id. at 64.

12
Id.

13
Id.

14
Id. at 24-25.

15
Id.

16
Id. at 26-27.

17
Id. at 13-15.

18
Id. at 7-13.

19
Id. at 5, 6 and 9.

20
Id. at 8-9.

21
Id. at 74-80.

22
Id. at 82.

23
Id. at 44.

24
Id. at 73-79.

25
Id. at 73-80.

26
Id. at 12.

27
Id. at 8, 44, 73-74.

28
Id.

29
Id. at 58-65.

30
Id. at 49.

31
Id. at 77.

32
Id.

33
Id. at 67.

34
G.R. No. 179169, March 3, 2010, 614 SCRA 182.

151
35
Id. at 193-194.

36
2011 NLRC Rules of Procedure, Rule VII, Section 14.

37
Id.

38
Cua, Jr. v. Tan, G.R. No. 181455-56, December 4, 2009, 607 SCRA , 686-687.

39
Leonis Navigation Co., Inc. v. Villamater, supra note 34 at 192.

40
China Banking Corporation v. Dyne-Sem Electronics Corporation, 527 Phil 80 (2006).

41
Reyes v. National Labor Relations Commission, G.R. No. 160233, August 8, 2007, 529 SCRA 499.

42
New Rules of Procedure of the National Labor Relations Commission (as amended by NLRC
Resolution No. 01-02, Series of 2002).

43
Del Monte Philippines, Inc. v. NLRC, G.R. No. 87371, August 6, 1990, 188 SCRA 370.

44
Government Service Insurance System v. NLRC, G.R. No. 180045, November 17, 2010, 635 SCRA
258.

45
General Credit Corporation v. Alsons Development and Investment Corporation, G.R. No. 154975,
January 29, 2007, 513 SCRA 237-238.

46
Philippine National Bank v. Andrada Electric Engineering Company, 430 Phil 894 (2002).

47
Id. at 894-895; citations omitted.

48
Supra note 45 at 238.

49
Id. at 238-239.

50
Rollo, p. 79.

51
Id. at 80.

52
NASECO Guards Association-PEMA (NAGA-PEMA) v. National Service Corporation, G.R. No.
165442, August 25, 2010, 629 SCRA 101.

53
Cf. Emiliano Cano Enterprises, Inc. v. CIR, et al., 121 Phil 276 (1965).

54
Land Bank of the Philippines v. Court of Appeals, 416 Phil 774, 783 (2001).

55
G.R. No. 167291, January 12, 2011, 639 SCRA 312.

56
Id. at 328.

57
Rollo, pp. 5, 54, 74 and 82.

58
372 Phil 459 (1999).

59
Id. at 481.

60
De Guzman v. National Labor Relations Commission, 371 Phil 202 (1999).

61
Velasco v. NLRC, et al., 525 Phil 749, 761-762, (2006).

62
332 Phil 833 (1996).

63
Id. at 843.

64
G.R. No. 181913, March 5, 2010, 614 SCRA 342.

65
Id. at 350-351.

66
Rasonable v. NLRC, 324 Phil 191, 200 (1996).

67
Id.

68
St. Louis College of Tuguegarao v. NLRC, 257 Phil 1008 (1989), citing East Asiatic Co., Ltd. v. Court
of Industrial Relations, 148-B Phil 401, 429 (1971).

152
69
Norkis Trading Co., Inc. v. NLRC, 504 Phil 709, 719-720 (2005).

153
 SECOND DIVISION

[G.R. No. 172149 : February 08, 2010]

SESSION DELIGHTS ICE CREAM AND FAST FOODS, PETITIONER, VS. THE HON. COURT OF
APPEALS (SIXTH DIVISION), HON. NATIONAL LABOR RELATIONS COMMISSION (SECOND
DIVISION) AND ADONIS ARMENIO M. FLORA, RESPONDENTS.

DECISION

BRION, J.:

We rule on the petition for review on certiorari assailing the decision[1] and resolution[2] of the Court of
Appeals[3] (CA) in CA-G.R. SP No. 89326. These CA rulings dismissed the petition for certiorari the petitioner
- Session Delights Ice Cream and Fast Foods (petitioner) - filed to challenge the resolutions[4]of the Second
Division of the National Labor Relations Commission[5] (NLRC) that in turn affirmed the order[6] of the Labor
Arbiter[7] granting a re-computation of the monetary awards in favor of the private respondent Adonis
Armenio M. Flora (private respondent).

The Facts

The private respondent filed against the petitioner a complaint for illegal dismissal, entitled "Adonis Armenio
M. Flora, Complainant versus Session Delights Ice Cream & Fast Foods, et. al, Private respondents,"
docketed as NLRC Case No. RAB-CAR 09-0507-00.

The labor arbiter decided the complaint on February 8, 2001, finding that the petitioner illegally dismissed
the private respondent. The decision awarded the private respondent backwages, separation pay in lieu of
reinstatement, indemnity, and attorney's fees, under a computation that the decision itself outlined in its
dispositive portion. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered declaring private respondent guilty of illegal dismissal.
Accordingly, private respondent SESSION DELIGHTS is ordered to pay complainant the following:

a) Backwages:

P170.00 x 154 days P 26,180.00

Proportional 13th month pay
P 26,180/12 2,181.65 28,361.65

b) Separation Pay:

P 170.00 x 314/12 x 1 4,448.35

c) Indemnity of P5,000.00 for failure to observe due process

d) Attorney's fees which is 10% of the total award in the amount of P3,781.00.

SO ORDERED.[8]

On the petitioner's appeal, the NLRC affirmed the labor arbiter's decision in its resolutions dated May 31,
2002 and September 30, 2002.[9] The dispositive portion of the NLRC's resolution of May 31, 2002 states:

WHEREFORE, premises considered, the decision under review is hereby AFFIRMED, and the appeal,
DISMISSED, for lack of merit.[10]

The petitioner continued to seek relief, this time by filing a petition for certiorari before the CA, which
petition was docketed as CA-G.R. SP No. 74653.

On July 4, 2003, the CA dismissed the petition and affirmed with modification the NLRC decision by deleting
the awards for a proportionate 13th month pay and for indemnity.[11] The CA decision became final per Entry
of Judgment dated July 29, 2003.[12] The dispositive portion of this CA decision states:

WHEREFORE, premises considered, the instant petition is hereby DISMISSED. The decision of the National
Labor Relations Commission is AFFIRMED with modification that the award of proportional 13th month pay as
well as the award of indemnity of P 5,000.00 for failure to observe due process are DELETED.

In January 2004, and in the course of the execution of the above final judgment pursuant to Section 3, Rule
VIII[13] of the then NLRC Rules of Procedure, the Finance Analyst of the Labor Arbiter's Office held a pre-
execution conference with the contending parties in attendance. The Finance Analyst submitted
an updated computation of the monetary awards due the private respondent in the total amount of
P235,986.00.[14] This updated computation included additional backwages and separation pay due the
private respondent computed from March 1, 2001 to September 17, 2003. The computation also included

154
the proportionate amount of the private respondent's 13th month pay. On March 25, 2004, the labor arbiter
approved the updated computation which ran, as follows:

COMPUTATION

Total computation as per NLRC

CAR
decision dated February 8, 2001 41,591.00
(sic)

1. Additional backwages: (March

1, 2001-Sept. 17, 2003)

March 1, 2001-April
30, 2002:
P178.00 x 52 days 9,256.00
=
May 1, 2001-June
30, 2002:
P185.00 x 365 67,525.00
days =
July 1, 2002- Sept.
17, 2003:
P190.00 x 382 72,580.00 149,361.00
days =
Proportional
13thmonth pay:
P149,361.00/12 = 12,446.75
161,807.75

2. Additional
separation pay:
P190.00 x 314/12 14,915.00
x 3 years =

3. Additional
attorney's fee:
P176,722.75 x 17,672.25 194,395.00
10% =
TOTAL 253,986.00
The petitioner objected to the re-computation and appealed the labor arbiter's order to the NLRC. The
petitioner claimed that the updated computation was inconsistent with the dispositive portion of the labor
arbiter's February 8, 2001 decision, as modified by the CA in CA-G.R. SP No. 74653. The NLRC disagreed
with the petitioner and affirmed the labor arbiter's decision in a resolution dated October 25, 2004. The
NLRC also denied the petitioner's motion for reconsideration in its resolution dated January 31, 2005.

The petitioner sought recourse with the CA through a petition for certiorari on the ground that the NLRC
acted with grave abuse of discretion amounting to lack or excess of jurisdiction.

The CA Rulings

The CA partially granted the petition in its decision of December 19, 2005 (now challenged before us) by
deleting the awarded proportionate 13th month pay. The CA ruled:

WHEREFORE, the petition is PARTIALLY GRANTED. The Labor Arbiter is DIRECTED to compute only the
following (a) private respondent's backwages from the time his salary was withheld up to July 29, 2003, the
finality of the Decision in CA-G.R. SP No. 74653; (b) private respondent's separation pay from July 31, 2000
up to July 29, 2003; and (c) attorney's fees equivalent to 10% of the total monetary claims from (a) and
(b). The total monetary award shall earn legal interest from July 29, 2003 until fully paid. No

155
pronouncement as to cost.

SO ORDERED.[15]

The CA explained in this ruling that employees illegally dismissed are entitled to reinstatement, full
backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time
actual compensation was withheld from them, up to the time of actual reinstatement. If reinstatement is no
longer feasible, the backwages shall be computed from the time of their illegal dismissal up to the finality of
the decision. The CA reasoned that a re-computation of the monetary awards was necessary to determine
the correct amount due the private respondent from the time his salary was withheld from him until July 29,
2003 (the date of finality of the July 4, 2003 decision in CA-G.R. SP No. 74653) since the separation pay,
which was awarded in lieu of reinstatement, had not been paid by the petitioner. The attorney's fees
likewise have to be re-computed in light of the deletion of the proportionate 13th month pay and indemnity
awards.

The petitioner timely filed a motion for reconsideration which the CA denied in its resolution of March 30,
2006, now similarly assailed before us.

The Issue

The lone issue the petitioner raised is whether a final and executory decision (the labor arbiter's
decision of February 8, 2001, as affirmed with modification by the CA decision in CA-G.R. SP No.
74653) may be enforced beyond the terms decreed in its dispositive portion.

In the pleadings submitted to the Court, the petitioner insists on a literal reading and application of the labor
arbiter's February 8, 2001 decision, as modified by the CA in CA-G.R. SP No. 74653. The petitioner argues
that since the modified labor arbiter's February 8, 2001 decision did not provide in its dispositive portion for
a computation of the monetary award up to the finality of the judgment in the case, the CA should have
enforced the decision according to its express and literal terms. In other words, the CA cannot now allow the
execution of the labor arbiter's original decision (which the CA affirmed with finality but with modification)
beyond the express terms of its dispositive portion; thus, the amounts that accrued during the pendency of
the petitioner's recourses with the NLRC and the CA cannot be read into and implemented as part of the
final and executory judgment.

The petitioner, as an alternative argument, argues that even assuming that the body of the CA decision in
CA-G.R. SP No. 74653 intended a computation of the monetary award up to the finality of the decision, the
dispositive portion remains to be the directive that should be enforced, as it is the part of the decision that
governs, settles, and declares the rights and obligations of the parties.

The private respondent, for his part, counters that the computation of the monetary award until the finality
of the CA decision in CA-G.R. SP No. 74653 is in accord with Article 279 of the Labor Code, as amended.

The Court's Ruling

We resolve to dismiss the petition and, accordingly, affirm the CA decision.

We state at the outset that, as a rule, we frown upon any delay in the execution of final and executory
decisions, as the immediate enforcement of the parties' rights, confirmed by a final decision, is a major
component of the ideal administration of justice. We admit, however, that circumstances may transpire
rendering delay unavoidable. One such occasion is when the execution of the final judgment is not in accord
with what the final judgment decrees in its dispositive portion. Just as the execution of a final judgment is a
matter of right for the winning litigant who should not be denied the fruits of his or her victory, the right of
the losing party to give, perform, pay, and deliver only what has been decreed in the final judgment should
also be respected.

That a judgment should be implemented according to the terms of its dispositive portion is a long and well-
established rule.[16] Otherwise stated, it is the dispositive portion that categorically states the rights and
obligations of the parties to the dispute as against each other.[17] Thus, it is the dispositive portion which the
entities charged with the execution of a final judgment that must be enforced to ensure the validity of the
execution.[18]

A companion to the above rule on the execution of a final judgment is the principle of its immutability. Save
for recognized exceptions,[19] a final judgment may no longer be altered, amended or modified, even if the
alteration, amendment or modification is meant to correct what is perceived to be an erroneous conclusion
of fact or law and regardless of what court, be it the highest Court of the land, renders it.[20] Any attempt on
the part of the responsible entities charged with the execution of a final judgment to insert, change or add
matters not clearly contemplated in the dispositive portion violates the rule on immutability of judgments.

In the present case, with the CA's deletion of the proportionate 13th month pay and indemnity awards in the
labor arbiter's February 8, 2001 decision, only the awards of backwages, separation pay, and attorney's fees
remain. These are the awards subject to execution.

Award of backwages and separation pay

A distinct feature of the judgment under execution is that the February 8, 2001 labor arbiter decision

156
already provided for the computation of the payable separation pay and backwages due, and did
not literally order the computation of the monetary awards up to the time of the finality of the judgment.
The private respondent, too, did not contest the decision through an appeal. The petitioner's argument to
confine the awards to what the labor arbiter stated in the dispositive part of his decision is largely based on
these established features of the judgment.

We reject the petitioner's view as a narrow and misplaced interpretation of an illegal dismissal decision,
particularly of the terms of the labor arbiter's decision.

While the private respondent failed to appeal the February 8, 2001 decision of the labor arbiter, the failure,
at the most, had the effect of making the awards granted to him final so that he could no longer seek any
other affirmative relief, or pray for any award additional to what the labor arbiter had given.Other than
these, the illegal dismissal case remained open for adjudication based on the appeal made for the higher
tribunals' consideration. In other words, the higher tribunals, on appropriate recourses made, may reverse
the judgment and declare that no illegal dismissal took place, or affirm the illegal dismissal already decreed
with or without modifying the monetary consequences flowing from the dismissal.

As the case developed and is presented to us, the issue before us is not the correctness of the awards, nor
the finality of the CA's judgment, nor the petitioner's failure to appeal. The issue before us is the
propriety of the computation of the awards made, and, whether this violated the principle of
immutability of final judgments.

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's
original computation of the awards made, pegged as of the time the decision was rendered and confirmed
with modification by a final CA decision, is legally proper. The question is posed, given that the petitioner did
not immediately pay the awards stated in the original labor arbiter's decision; it delayed payment because it
continued with the litigation until final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the
original labor arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality.
This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made
shows that it was time-bound as can be seen from the figures used in the computation. This part, being
merely a computation of what the first part of the decision established and declared, can, by its nature, be
re-computed. This is the part, too, that the petitioner now posits should no longer be re-computed because
the computation is already in the labor arbiter's decision that the CA had affirmed. The public and private
respondents, on the other hand, posit that a re-computation is necessary because the relief in an illegal
dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place,
also made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC
Rules of Procedure which requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable,
shall embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision.
As we noted above, this implication is apparent from the terms of the computation itself, and no question
would have arisen had the parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC
which, in turn, affirmed the labor arbiter's decision. By law,[21] the NLRC decision is final, reviewable only by
the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely
filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned to the labor
arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original
labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read
the figures originally ordered to be paid to be the computation due had the case been terminated and
implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the award to include the
separation pay and the backwages due up to the finality of the CA decision that fully terminated the case on
the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA
decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted -
specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision
now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered

157
the labor arbiter's original decision in accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary consequences; the second part is
the computation of the awards or monetary consequences of the illegal dismissal, computed as of the time
of the labor arbiter's original decision.

To illustrate these points, had the case involved a pure money claim for a specific sum (e.g. salary for a
specific period) or a specific benefit (e.g. 13th month pay for a specific year) made by a formeremployee, the
labor arbiter's computation would admittedly have continuing currency because the sum is specific and any
variation may only be on the interests that may run from the finality of the decision ordering the payment of
the specific sum.

In contrast with a ruling on a specific pure money claim, is a claim that relates to status (as in this case,
where the claim is the legality of the termination of the employment relationship). In this type of cases, the
decision or ruling is essentially declaratory of the status and of the rights, obligations and monetary
consequences that flow from the declared status (in this case, the payment of separation pay and
backwages and attorney's fees when illegal dismissal is found). When this type of decision is executed, what
is primarily implemented is the declaratory finding on the status and the rights and obligations of the parties
therein; the arising monetary consequences from the declaration only follow as component of the parties'
rights and obligations.

In the present case, the CA confirmed that indeed an illegal dismissal had taken place, so that separation
pay in lieu of reinstatement and backwages should be paid. How much that separation pay would be, would
ideally be stated in the final CA decision; if not, the matter is for handling and computation by the labor
arbiter of origin as the labor official charged with the implementation of decisions before the NLRC.[22]

As the CA correctly pointed out, the basis for the computation of separation pay and backwages is Article
279 of the Labor Code, as amended, which reads:

x x x 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.

By jurisprudence derived from this provision, separation pay may be awarded to an illegally dismissed
employee in lieu of reinstatement.[23] Recourse to the payment of separation pay is made when continued
employment is no longer possible, in cases where the dismissed employee's position is no longer available,
or the continued relationship between the employer and the employee is no longer viable due to the strained
relations between them, or when the dismissed employee opted not to be reinstated, or payment of
separation benefits will be for the best interest of the parties involved.[24]

This reading of Article 279, of course, does not appear to be disputed in the present case as the petitioner
admits that separation pay in lieu of reinstatement shall be paid, computed up to the finality of the
judgment finding that illegal dismissal had taken place. What the petitioner simply disputes is the re-
computation of the award when the final CA decision did not order any re-computation while the NLRC
decision that the CA affirmed and the labor arbiter decision the NLRC in turn affirmed, already made a
computation that - on the basis of immutability of judgment and the rule on execution of the dispositive
portion of the decision - should not now be disturbed.

Consistent with what we discussed above, we hold that under the terms of the decision under execution, no
essential change is made by a re-computation as this step is a necessary consequence that flows from the
nature of the illegality of dismissal declared in that decision. A re-computation (or an original computation, if
no previous computation has been made) is a part of the law - specifically, Article 279 of the Labor Code
and the established jurisprudence on this provision - that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add on until full satisfaction, as expressed under Article 279 of the
Labor Code. The re-computation of the consequences of illegal dismissal upon execution of the decision does
not constitute an alteration or amendment of the final decision being implemented. The illegal dismissal
ruling stands; only the computation of monetary consequences of this dismissal is affected and this is not a
violation of the principle of immutability of final judgments.

We fully appreciate the petitioner's efforts in trying to clarify how the standing jurisprudence on the
payment of separation pay in lieu of reinstatement and the accompanying payment of backwages ought to
be read and reconciled. Its attempt, however, is out of place and, rather than clarify, may only confuse the
implementation of Article 279; the core issue in this case is not the payment of separation pay and
backwages but their re-computation in light of an original labor arbiter ruling that already contained a dated
computation of the monetary consequences of illegal dismissal.

That the amount the petitioner shall now pay has greatly increased is a consequence that it cannot avoid as
it is the risk that it ran when it continued to seek recourses against the labor arbiter's decision. Article 279
provides for the consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the finality of
the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law decrees.
In allowing separation pay, the final decision effectively declares that the employment relationship ended so
that separation pay and backwages are to be computed up to that point. The decision also becomes a
judgment for money from which another consequence flows - the payment of interest in case of delay. This
was what the CA correctly decreed when it provided for the payment of the legal interest of 12% from the
finality of the judgment, in accordance with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.[25]

158
WHEREFORE, premises considered, we hereby AFFIRM the decision of the Court of Appeals dated
December 19, 2005 and its resolution dated March 30, 2006 in CA-G.R. SP No. 89326.

For greater certainty, the petitioner is ORDERED to PAY the private respondent:

(a) backwages computed from August 28, 2000 (the date the employer illegally dismissed the private
respondent) up to July 29, 2003, the date of finality of the decision of the Court of Appeals in CA-G.R. SP
No. 74653;

(b) separation pay computed from July 31, 2000 (the private respondent's first day of employment) up to
July 29, 2003 at the rate of one month pay per year of service;

(c) ten percent (10%) attorney's fees based on the total amount of the awards under (a) and (b) above;
and

(d) legal interest of twelve percent (12%) per annum of the total monetary awards computed from July 29,
2003, until their full satisfaction.

The labor arbiter is hereby ORDERED to make another re-computation according to the above directives.

Costs against the petitioner.

SO ORDERED.

Carpio (Chairperson), Bersamin*, Abad, and Perez, JJ., concur.

Endnotes:

*
Designated additional Member of the Second Division vice Associate Justice Mariano C. Del Castillo, per
raffle dated January 18, 2010.

[1]
Dated December 19, 2005; rollo, pp. 23-32.

[2]
Dated March 30, 2006; id. at 33.

Penned by Associate Justice Mariano C. Del Castillo (now a member of this Court), and concurred in by
[3]

Associate Justice Portia Aliño Hormachuelos and Associate Justice Magdangal M. de Leon.

[4]
Dated October 25, 2004 and January 31, 2005; rollo, pp. 62-69 and 80-81.

Docketed as NLRC Case No. RAB-CAR 09-0507-00/NLRC CA No. 028029-0199, and penned by Presiding
[5]

Commissioner Raul T. Aquino, and concurred in by Commissioner Victoriano R. Calaycay and Commissioner
Angelita A. Gacutan.

[6]
Dated March 25, 2004; rollo, pp. 70-79.

[7]
Docketed as NLRC Case No. RAB-CAR 09-0507-00 and penned by Labor Arbiter Monroe C. Tabingan.

[8]
Rollo, p. 89.

[9]
Docketed as NLRC CA No. 028029-0199; id. at 90-103.

[10]
Annex "E-10", id. at 100.

[11]
Id. at 105-113.

[12]
Id. at 114.

SEC. 3. Computation. - The Labor Arbiter of origin, in cases involving monetary awards and at all
[13]

events, as far as practicable, shall embody in any such decision or order the detailed and full amount
awarded.

In case of an employee who is unjustly dismissed, his full backwages, shall include allowances and other
benefits or their monetary equivalent computed from the time his compensation was withheld from him up
to the time of his actual reinstatement.

In situations not covered by Section 16, Rule V, but where further computation of the judgment amount is
necessary, no execution shall issue until after the computation shall have been approved by the Labor
Arbiter the parties shall have been duly notified and heard thereon.

[14]
Rollo, p. 115.

[15]
Id. at 31.

159
[16]
Suyat v. Gonzales-Tesoro, G.R. No. 162277, December 7, 2005, 476 SCRA 615, 624.

[17]
Equitable Bank Corp. v. Sadac, G.R. No. 164772, June 8, 2006, 490 SCRA 380, 417.

[18]
Fulgencio v. NLRC, 457 Phil. 868, 883 (2003).

They are: (1) the correction of clerical errors; (2) the making of so-called nun pro tunc entries which
[19]

cause no prejudice to any party; and (3) where the judgment is void. Equitable Banking Corp. v.
Sadac, supra note 15, pp. 416-417.

[20]
Id.

[21]
Artilc 223, Labor Code, as amended.

Section 3, Rule VIII of the old NLRC Rules of Procedure now Sections 2 and 4, Rule XI of the 2005 NLRC
[22]

Rules of Procedure.

[23]
Mt. Carmel College v. Resuena, G.R. No. 173076, October 10, 2007, 533 SCRA 518, 541.

[24]
Velasco v. NLRC, G.R. No. 161694, June 26, 2006, 492 SCRA 686, 699.

[25]
Supra note 34.

160
 FIRST DIVISION

[G.R. NO. 164772 : June 8, 2006]

EQUITABLE BANKING CORPORATION (now known as EQUITABLE-PCI

BANK), Petitioner, v.RICARDO SADAC, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari with Motion to Refer the Petition to the Court En Banc filed by
Equitable Banking Corporation (now known as Equitable-PCI Bank), seeking to reverse the Decision1and
Resolution2 of the Court of Appeals, dated 6 April 2004 and 28 July 2004, respectively, as amended by the
Supplemental Decision3 dated 26 October 2004 in CA-G.R. SP No. 75013, which reversed and set aside the
Resolutions of the National Labor Relations Commission (NLRC), dated 28 March 2001 and 24 September
2002 in NLRC-NCR Case No. 00-11-05252-89.

The Antecedents

As culled from the records, respondent Sadac was appointed Vice President of the Legal Department of
petitioner Bank effective 1 August 1981, and subsequently General Counsel thereof on 8 December 1981.
On 26 June 1989, nine lawyers of petitioner Bank's Legal Department, in a letter-petition to the Chairman of
the Board of Directors, accused respondent Sadac of abusive conduct, inter alia, and ultimately, petitioned
for a change in leadership of the department. On the ground of lack of confidence in respondent Sadac,
under the rules of client and lawyer relationship, petitioner Bank instructed respondent Sadac to deliver all
materials in his custody in all cases in which the latter was appearing as its counsel of record. In reaction
thereto, respondent Sadac requested for a full hearing and formal investigation but the same remained
unheeded. On 9 November 1989, respondent Sadac filed a complaint for illegal dismissal with damages
against petitioner Bank and individual members of the Board of Directors thereof. After learning of the filing
of the complaint, petitioner Bank terminated the services of respondent Sadac. Finally, on 10 August 1989,
respondent Sadac was removed from his office and ordered disentitled to any compensation and other
benefits.4

In a Decision5 dated 2 October 1990, Labor Arbiter Jovencio Ll. Mayor, Jr., dismissed the complaint for lack
of merit. On appeal, the NLRC in its Resolution6 of 24 September 1991 reversed the Labor Arbiter and
declared respondent Sadac's dismissal as illegal. The decretal portion thereof reads, thus:

WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is
hereby, SET ASIDE, and a new one ENTERED declaring the dismissal of the complainant as illegal, and
consequently ordering the respondents jointly and severally to reinstate him to his former position as bank
Vice-President and General Counsel without loss of seniority rights and other privileges, and to pay him full
backwages and other benefits from the time his compensation was withheld to his actual reinstatement, as
well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney's fees equivalent
to Ten Percent (10%) of the monetary award. Should reinstatement be no longer possible due to strained
relations, the respondents are ordered likewise jointly and severally to grant separation pay at one (1)
month per year of service in the total sum of P293,650.00 with backwages and other benefits from
November 16, 1989 to September 15, 1991 (cut off date, subject to adjustment) computed at
P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and
attorney's fees equal to Ten Percent (10%) of all the monetary award, or a grand total of P1,649,329.53.7

Petitioner Bank came to us for the first time via a Special Civil Action for Certiorari assailing the NLRC
Resolution of 24 September 1991 in Equitable Banking Corporation v. National Labor Relations Commission,
docketed as G.R. No. 102467.8

In our Decision9 of 13 June 1997, we held respondent Sadac's dismissal illegal. We said that the existence of
the employer-employee relationship between petitioner Bank and respondent Sadac had been duly
established bringing the case within the coverage of the Labor Code, hence, we did not permit petitioner
Bank to rely on Sec. 26, Rule 13810 of the Rules of Court, claiming that the association between the parties
was one of a client-lawyer relationship, and, thus, it could terminate at any time the services of respondent
Sadac. Moreover, we did not find that respondent Sadac's dismissal was grounded on any of the causes
stated in Article 282 of the Labor Code. We similarly found that petitioner Bank disregarded the procedural
requirements in terminating respondent Sadac's employment as so required by Section 2 and Section 5,
Rule XIV, Book V of the Implementing Rules of the Labor Code. We decreed:

161
WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following
MODIFICATIONS: That private respondent shall be entitled to backwages from termination of employment
until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with
law; that private respondent shall be paid an additional amount of P5,000.00; that the award of moral and
exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank
alone, the other petitioners being absolved from solidary liability. No costs.11

On 28 July 1997, our Decision in G.R. No. 102467 dated 13 June 1997 became final and executory.12

Pursuant thereto, respondent Sadac filed with the Labor Arbiter a Motion for Execution13 thereof. Likewise,
petitioner Bank filed a Manifestation and Motion14 praying that the award in favor of respondent Sadac be
computed and that after payment is made, petitioner Bank be ordered forever released from liability under
said judgment.

Per respondent Sadac's computation, the total amount of the monetary award is P6,030,456.59,
representing his backwages and other benefits, including the general increases which he should have earned
during the period of his illegal termination. Respondent Sadac theorized that he started with a monthly
compensation of P12,500.00 in August 1981, when he was appointed as Vice President of petitioner Bank's
Legal Department and later as its General Counsel in December 1981. As of November 1989, when he was
dismissed illegally, his monthly compensation amounted to P29,365.00 or more than twice his original
compensation. The difference, he posited, can be attributed to the annual salary increases which he received
equivalent to 15 percent (15%) of his monthly salary.

Respondent Sadac anchored his claim on Article 279 of the Labor Code of the Philippines, and cited as
authority the cases of East Asiatic Company, Ltd. v. Court of Industrial Relations,15 St. Louis College of
Tuguegarao v. National Labor Relations Commission,16 and Sigma Personnel Services v. National Labor
Relations Commission.17 According to respondent Sadac, the catena of cases uniformly holds that it is the
obligation of the employer to pay an illegally dismissed employee the whole amount of the salaries or
wages, plus all other benefits and bonuses and general increases to which he would have been normally
entitled had he not been dismissed; and therefore, salary increases should be deemed a component in the
computation of backwages. Moreover, respondent Sadac contended that his check-up benefit, clothing
allowance, and cash conversion of vacation leaves must be included in the computation of his backwages.

Petitioner Bank disputed respondent Sadac's computation. Per its computation, the amount of monetary
award due respondent Sadac is P2,981,442.98 only, to the exclusion of the latter's general salary increases
and other claimed benefits which, it maintained, were unsubstantiated. The jurisprudential precedent relied
upon by petitioner Bank in assailing respondent Sadac's computation is Evangelista v. National Labor
Relations Commission,18 citing Paramount Vinyl Products Corp. v. National Labor Relations
Commission,19 holding that an unqualified award of backwages means that the employee is paid at the wage
rate at the time of his dismissal. Furthermore, petitioner Bank argued before the Labor Arbiter that the
award of salary differentials is not allowed, the established rule being that upon reinstatement, illegally
dismissed employees are to be paid their backwages without deduction and qualification as to any wage
increases or other benefits that may have been received by their co-workers who were not dismissed or did
not go on strike.

On 2 August 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. rendered an Order20 adopting respondent Sadac's
computation. In the main, the Labor Arbiter relying on Millares v. National Labor Relations
Commission21concluded that respondent Sadac is entitled to the general increases as a component in the
computation of his backwages. Accordingly, he awarded respondent Sadac the amount of P6,030,456.59
representing his backwages inclusive of allowances and other claimed benefits, namely check-up benefit,
clothing allowance, and cash conversion of vacation leave plus 12 percent (12%) interest per annum
equivalent to P1,367,590.89 as of 30 June 1999, or a total of P7,398,047.48. However, considering that
respondent Sadac had already received the amount of P1,055,740.48 by virtue of a Writ of
Execution22 earlier issued on 18 January 1999, the Labor Arbiter directed petitioner Bank to pay respondent
Sadac the amount of P6,342,307.00. The Labor Arbiter also granted an award of attorney's fees equivalent
to ten percent (10%) of all monetary awards, and imposed a 12 percent (12%) interest per annum
reckoned from the finality of the judgment until the satisfaction thereof.

The Labor Arbiter decreed, thus:

WHEREFORE, in view of al (sic) the foregoing, let an "ALIAS" Writ of Execution be issued commanding the
Sheriff, this Branch, to collect from respondent Bank the amount of Ph6,342,307.00 representing the
backwages with 12% interest per annum due complainant.23

Petitioner Bank interposed an appeal with the NLRC, which reversed the Labor Arbiter in a
Resolution,24promulgated on 28 March 2001. It ratiocinated that the doctrine on general increases as
component in computing backwages in Sigma Personnel Services and St. Louis was merely obiter dictum.
The NLRC found East Asiatic Co., Ltd. inapplicable on the ground that the original circumstances therein are
not only peculiar to the said case but also completely strange to the case of respondent Sadac. Further, the
NLRC disallowed respondent Sadac's claim to check-up benefit ratiocinating that there was no clear and
substantial proof that the same was being granted and enjoyed by other employees of petitioner Bank. The
award of attorney's fees was similarly deleted.

162
The dispositive portion of the Resolution states:

WHEREFORE, the instant appeal is considered meritorious and accordingly, the computation prepared by
respondent Equitable Banking Corporation on the award of backwages in favor of complainant Ricardo Sadac
under the decision promulgated by the Supreme Court on June 13, 1997 in G.R. No. 102476 in the
aggregate amount of P2,981,442.98 is hereby ordered.25

Respondent Sadac's Motion for Reconsideration thereon was denied by the NLRC in its
Resolution,26promulgated on 24 September 2002.

Aggrieved, respondent Sadac filed before the Court of Appeals a Petition for Certiorari seeking nullification of
the twin resolutions of the NLRC, dated 28 March 2001 and 24 September 2002, as well as praying for the
reinstatement of the 2 August 1999 Order of the Labor Arbiter.

For the resolution of the Court of Appeals were the following issues, viz.:

(1) Whether periodic general increases in basic salary, check-up benefit, clothing allowance, and cash
conversion of vacation leave are included in the computation of full backwages for illegally dismissed
employees;

(2) Whether respondent is entitled to attorney's fees; and cralawl ibra ry

(3) Whether respondent is entitled to twelve percent (12%) per annum as interest on all accounts
outstanding until full payment thereof.

Finding for respondent Sadac (therein petitioner), the Court of Appeals rendered a Decision on 6 April 2004,
the dispositive portion of which is quoted hereunder:

WHEREFORE, premises considered, the March 28, 2001 and the September 24, 2002 Resolutions of the
National Labor Relations Commissions (sic) are REVERSED and SET ASIDE and the August 2, 1999 Order of
the Labor Arbiter is REVIVED to the effect that private respondent is DIRECTED TO PAY petitioner the sum of
PhP6,342,307.00, representing full back wages (sic) which sum includes annual general increases in basic
salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other sundry benefits
plus 12% per annum interest on outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.27

The Court of Appeals, citing East Asiatic held that respondent Sadac's general increases should be added as
part of his backwages. According to the appellate court, respondent Sadac's entitlement to the annual
general increases has been duly proven by substantial evidence that the latter, in fact, enjoyed an annual
increase of more or less 15 percent (15%). Respondent Sadac's check-up benefit, clothing allowance, and
cash conversion of vacation leave were similarly ordered added in the computation of respondent Sadac's
basic wage.

Anent the matter of attorney's fees, the Court of Appeals sustained the NLRC. It ruled that our Decision28of
13 June 1997 did not award attorney's fees in respondent Sadac's favor as there was nothing in the
aforesaid Decision, either in the dispositive portion or the body thereof that supported the grant of
attorney's fees. Resolving the final issue, the Court of Appeals imposed a 12 percent (12%) interest per
annum on the total monetary award to be computed from 28 July 1997 or the date our judgment in G.R. No.
102467 became final and executory until fully paid at which time the quantification of the amount may be
deemed to have been reasonably ascertained.

On 7 May 2004, respondent Sadac filed a Partial Motion for Reconsideration29 of the 6 April 2004 Court of
Appeals Decision insofar as the appellate court did not award him attorney's fees. Similarly, petitioner Bank
filed a Motion for Partial Reconsideration thereon. Following an exchange of pleadings between the parties,
the Court of Appeals rendered a Resolution,30 dated 28 July 2004, denying petitioner Bank's Motion for
Partial Reconsideration for lack of merit.

Assignment of Errors

Hence, the instant Petition for Review by petitioner Bank on the following assignment of errors, to wit:

(a) The Hon. Court of Appeals erred in ruling that general salary increases should be included in the
computation of full backwages.

(b) The Hon. Court of Appeals erred in ruling that the applicable authorities in this case are: (i) East Asiatic,
Ltd. v. CIR, 40 SCRA 521 (1971); (ii) St. Louis College of Tuguegarao v. NLRC, 177 SCRA 151 (1989); (iii)
Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993); and (iv) Millares v. NLRC, 305 SCRA 500 (1999)
and not (i) Art. 279 of the Labor Code; (ii) Paramount Vinyl Corp. v. NLRC, 190 SCRA 525 (1990); (iii)
Evangelista v. NLRC, 249 SCRA 194 (1995); and (iv) Espejo v. NLRC, 255 SCRA 430 (1996).

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(c) The Hon. Court of Appeals erred in ruling that respondent is entitled to check-up benefit, clothing
allowance and cash conversion of vacation leaves notwithstanding that respondent did not present any
evidence to prove entitlement to these claims.

(d) The Hon. Court of Appeals erred in ruling that respondent is entitled to be paid legal interest even if the
principal amount due him has not yet been correctly and finally determined.31

Meanwhile, on 26 October 2004, the Court of Appeals rendered a Supplemental Decision granting
respondent Sadac's Partial Motion for Reconsideration and amending the dispositive portion of the 6 April
2004 Decision in this wise, viz.:

WHEREFORE, premises considered, the March 24 (sic), 2001 and the September 24, 2002 Resolutions of the
National Labor Relations Commission are hereby REVERSED and SET ASIDE and the August 2, 1999 Order
of the Labor Arbiter is hereby REVIVED to the effect that private respondent is hereby DIRECTED TO PAY
petitioner the sum of P6,342,307.00, representing full backwages which sum includes annual general
increases in basic salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other
sundry benefits "and attorney's fees equal to TEN PERCENT (10%) of all the monetary award" plus 12% per
annum interest on all outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.32

On 22 November 2004, petitioner Bank filed a Supplement to Petition for Review33 contending in the main
that the Court of Appeals erred in issuing the Supplemental Decision by directing petitioner Bank to pay an
additional amount to respondent Sadac representing attorney's fees equal to ten percent (10%) of all the
monetary award.

The Court's Ruling

I.

We are called to write finis to a controversy that comes to us for the second time. At the core of the instant
case are the divergent contentions of the parties on the manner of computation of backwages.

Petitioner Bank asseverates that Article 279 of the Labor Code of the Philippines does not contemplate the
inclusion of salary increases in the definition of "full backwages." It controverts the reliance by the appellate
court on the cases of (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares. While it is in
accord with the pronouncement of the Court of Appeals that Republic Act No. 6715, in amending Article 279,
intends to give more benefits to workers, petitioner Bank submits that the Court of Appeals was in error in
relying on East Asiatic to support its finding that salary increases should be included in the computation of
backwages as nowhere in Article 279, as amended, are salary increases spoken of. The prevailing rule in the
milieu of the East Asiatic doctrine was to deduct earnings earned elsewhere from the amount of backwages
payable to an illegally dismissed employee.

Petitioner Bank posits that even granting that East Asiatic allowed general salary increases in the
computation of backwages, it was because the inclusion was purposely to cushion the blow of the deduction
of earnings derived elsewhere; with the amendment of Article 279 and the consequent elimination of the
rule on the deduction of earnings derived elsewhere, the rationale for including salary increases in the
computation of backwages no longer exists. On the references of salary increases in the aforementioned
cases of (i) St. Louis; (ii) Sigma Personnel; and (iii) Millares, petitioner Bank contends that the same were
merely obiter dicta. In fine, petitioner Bank anchors its claim on the cases of (i) Paramount Vinyl Products
Corp. v. National Labor Relations Commission;34 (ii) Evangelista v. National Labor Relations
Commission;35 and (iii) Espejo v. National Labor Relations Commission,36 which ruled that an unqualified
award of backwages is exclusive of general salary increases and the employee is paid at the wage rate at
the time of the dismissal.

For his part, respondent Sadac submits that the Court of Appeals was correct when it ruled that his
backwages should include the general increases on the basis of the following cases, to wit: (i) East Asiatic;
(ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares.

Resolving the protracted litigation between the parties necessitates us to revisit our pronouncements on the
interpretation of the term backwages. We said that backwages in general are granted on grounds of equity
for earnings which a worker or employee has lost due to his illegal dismissal.37 It is not private
compensation or damages but is awarded in furtherance and effectuation of the public objective of the Labor
Code. Nor is it a redress of a private right but rather in the nature of a command to the employer to make
public reparation for dismissing an employee either due to the former's unlawful act or bad faith.38 The
Court, in the landmark case of Bustamante v. National Labor Relations Commission,39 had the occasion to
explicate on the meaning of full backwages as contemplated by Article 27940 of the Labor Code of the
Philippines, as amended by Section 34 of Rep. Act No. 6715. The Court in Bustamante said, thus:

The Court deems it appropriate, however, to reconsider such earlier ruling on the computation of backwages
as enunciated in said Pines City Educational Center case, by now holding that conformably with the evident
legislative intent as expressed in Rep. Act No. 6715, above-quoted, backwages to be awarded to an illegally

164
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 Rep. Act No. 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. Thus, a closer adherence to the legislative policy behind Rep. Act
No. 6715 points to "full backwages" as meaning exactly 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. Index animi sermo
est.41

Verily, jurisprudence has shown that the definition of full backwages has forcefully evolved. In Mercury Drug
Co., Inc. v. Court of Industrial Relations,42 the rule was that backwages were granted for a period of three
years without qualification and without deduction, meaning, the award of backwages was not reduced by
earnings actually earned by the dismissed employee during the interim period of the separation. This came
to be known as the Mercury Drug rule.43 Prior to the Mercury Drug ruling in 1974, the total amount of
backwages was reduced by earnings obtained by the employee elsewhere from the time of the dismissal to
his reinstatement. The Mercury Drug rule was subsequently modified in Ferrer v. National Labor Relations
Commission44 and Pines City Educational Center v. National Labor Relations Commission,45 where we
allowed the recovery of backwages for the duration of the illegal dismissal minus the total amount of
earnings which the employee derived elsewhere from the date of dismissal up to the date of reinstatement,
if any. In Ferrer and in Pines, the three-year period was deleted, and instead, the dismissed employee was
paid backwages for the entire period that he was without work subject to the deductions, as mentioned.
Finally came our ruling in Bustamante which superseded Pines City Educational Center and allowed full
recovery of backwages without deduction and without qualification pursuant to the express provisions of
Article 279 of the Labor Code, as amended by Rep. Act No. 6715, i.e., without any deduction of income the
employee may have derived from employment elsewhere from the date of his dismissal up to his
reinstatement, that is, covering the entirety of the period of the dismissal.

The first issue for our resolution involves another aspect in the computation of full backwages, mainly, the
basis of the computation thereof. Otherwise stated, whether general salary increases should be included in
the base figure to be used in the computation of backwages.

In so concluding that general salary increases should be made a component in the computation of
backwages, the Court of Appeals ratiocinated, thus:

The Supreme Court held in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971) that
"general increases" should be added as a part of full backwages, to wit:

In other words, the just and equitable rule regarding the point under discussion is this: It is the obligation of
the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages,
plus all other benefits and bonuses and general increases, to which he would have been normally entitled
had he not been dismissed and had not stopped working, but it is the right, on the other hand of the
employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or
worker would have earned in his old employment on the corresponding days he was actually gainfully
employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other
employment was less, the employer may deduct only what has been actually earned.

The doctrine in East Asiatic was subsequently reiterated, in the cases of St. Louis College of Tugueg[a]rao v.
NLRC, 177 SCRA 151 (1989); Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993) and Millares v.
National Labor Relations Commission, 305 SCRA 500 (1999).

Private respondent, in opposing the petitioner's contention, alleged in his Memorandum that only the wage
rate at the time of the employee's illegal dismissal should be considered - private respondent citing the
following decisions of the Supreme Court: Paramount Vinyl Corp. v. NLRC 190 SCRA 525 (1990);
Evangelista v. NLRC, 249 SCRA 194 (1995); Espejo v. NLRC, 255 SCRA 430 (1996) which rendered obsolete
the ruling in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971).

We are not convinced.

The Supreme Court had consistently held that payment of full backwages is the price or penalty that the
employer must pay for having illegally dismissed an employee.

In Ala Mode Garments, Inc. v. NLRC 268 SCRA 497 (1997) and Bustamante v. NLRC and Evergreen Farms,
Inc. 265 SCRA 61 (1996) the Supreme Court held that the clear legislative intent in the amendment in
Republic Act 6715 was to give more benefits to workers than was previously given them under the Mercury
Drug rule or the "deductions of earnings elsewhere" rule.

The Paramount Vinyl, Evangelista, and Espejo cases cited by private respondent are inapplicable to the case
at bar. The doctrines therein came about as a result of the old Mercury Drug rule, which was repealed with

165
the passage of Republic Act 6715 into law. It was in Alex Ferrer v. NLRC 255 SCRA 430 (1993) when the
Supreme Court returned to the doctrine in East Asiatic, which was soon supplanted by the case of
Bustamante v. NLRC and Evergreen Farms, Inc., which held that the backwages to be awarded to an
illegally dismissed employee, should not, as a general rule, be diminished or reduced by the earnings
derived from him during the period of his illegal dismissal. Furthermore, the Mercury Drug rule was never
meant to prejudice the workers, but merely to speed the recovery of their backwages.

Ever since Mercury Drug Co. Inc. v. CIR 56 SCRA 694 (1974), it had been the intent of the Supreme Court
to increase the backwages due an illegally dismissed employee. In the Mercury Drug case, full backwages
was to be recovered even though a three-year limitation on recovery of full backwages was imposed in the
name of equity. Then in Bustamante, full backwages was interpreted to mean absolutely no deductions
regardless of the duration of the illegal dismissal. In Bustamante, the Supreme Court no longer regarded
equity as a basis when dealing with illegal dismissal cases because it is not equity at play in illegal dismissals
but rather, it is employer's obligation to pay full back wages (sic). It is an obligation of the employer
because it is "the price or penalty the employer has to pay for illegally dismissing his employee."

The applicable modern definition of full backwages is now found in Millares v. National Labor Relations
Commission 305 SCRA 500 (1999), where although the issue in Millares concerned separation pay -
separation pay and backwages both have employee's wage rate at their foundation.

x x x The rationale is not difficult to discern. It is the obligation of the employer to pay an illegally dismissed
employee the whole amount of his salaries plus all other benefits, bonuses and general increases to which
he would have been normally entitled had he not been dismissed and had not stopped working. The same
holds true in case of retrenched employees. x x x

xxxx

x x x Annual general increases are akin to "allowances" or "other benefits." 46

(Italics ours.)

We do not agree.

Attention must be called to Article 279 of the Labor Code of the Philippines, as amended by Section 34 of
Rep. Act No. 6715. The law provides as follows:

ART. 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.)

Article 279 mandates that an employee's full backwages shall be inclusive of allowances and other benefits
or their monetary equivalent. Contrary to the ruling of the Court of Appeals, we do not see that a salary
increase can be interpreted as either an allowance or a benefit. Salary increases are not akin to allowances
or benefits, and cannot be confused with either. The term "allowances" is sometimes used synonymously
with "emoluments," as indirect or contingent remuneration, which may or may not be earned, but which is
sometimes in the nature of compensation, and sometimes in the nature of reimbursement.47 Allowances and
benefits are granted to the employee apart or separate from, and in addition to the wage or salary. In
contrast, salary increases are amounts which are added to the employee's salary as an increment thereto for
varied reasons deemed appropriate by the employer. Salary increases are not separate grants by
themselves but once granted, they are deemed part of the employee's salary. To extend the coverage of an
allowance or a benefit to include salary increases would be to strain both the imagination of the Court and
the language of law. As aptly observed by the NLRC, "to otherwise give the meaning other than what the
law speaks for by itself, will open the floodgates to various interpretations."48 Indeed, if the intent were to
include salary increases as basis in the computation of backwages, the same should have been explicitly
stated in the same manner that the law used clear and unambiguous terms in expressly providing for the
inclusion of allowances and other benefits.

Moreover, we find East Asiatic inapplicable to the case at bar. In East Asiatic, therein petitioner East Asiatic
Company, Ltd. was found guilty of unfair labor practices against therein respondent, Soledad A. Dizon, and
the Court ordered her reinstatement with back pay. On the question of the amount of backwages, the Court
granted the dismissed employee the whole amount of the salaries plus all general increases and bonuses
she would have received during the period of her lay-off with the corresponding right of the employer to
deduct from the total amounts, all the earnings earned by the employee during her lay-off. The emphasis in
East Asiatic is the duty of both the employer and the employee to disclose the material facts and competent
evidence within their peculiar knowledge relative to the proper determination of backwages, especially as
the earnings derived by the employee elsewhere are deductions to which the employer are entitled.
However, East Asiatic does not find relevance in the resolution of the issue before us. First, the material
date to consider is 21 March 1989, when the law amending Article 279 of the Labor Code, Rep. Act No.
6715, otherwise known as the Herrera-Veloso Law, took effect. It is obvious that the backdrop of East
Asiatic, decided by this Court on 31 August 1971 was prior to the current state of the law on the definition of
full backwages. Second, it bears stressing that East Asiatic was decided at a time when even as an illegally
dismissed employee is entitled to the whole amount of the salaries or wages, it was the recognized right of

166
the employer to deduct from the total of these, the amount equivalent to the salaries or wages the
employee or worker would have earned in his old employment on the corresponding days that he was
actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage
in his other employment was less, the employer may deduct only what has been actually earned.49 It is for
this reason the Court centered its discussion on the duty of both parties to be candid and open about facts
within their knowledge to establish the amount of the deductions, and not leave the burden on the employee
alone to establish his claim, as well as on the duty of the court to compel the parties to cooperate in
disclosing such material facts. The inapplicability of East Asiatic to respondent Sadac was sufficiently
elucidated upon by the NLRC, viz.:

A full discernment of the pertinent portion of the judgment sought to be executed in East Asiatic Co., Ltd.
would reveal as follows:

"x x x to reinstate Soledad A. Dizon immediately to her former position with backwages from September 1,
1958 until actually reinstated with all the rights and privileges acquired and due her, including seniority and
such other terms and conditions of employment AT THE TIME OF HER LAY-OFF"

The basis on which this doctrine was laid out was summed up by the Supreme Court which ratiocinated in
this light. To quote:

"x x x on the other hand, of the employer to deduct from the total of these, the amount equivalent to these
salaries or wages the employee or worker would have earned in his old employment on the corresponding
days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if
his salary or wage in his other employment was less, the employer may deduct only what has been actually
earned x x x" (Ibid, pp. 547-548).

But the Supreme Court, in the instant case, pronounced a clear but different judgment from that of East
Asiatic Co. decretal portion, in this wise:

"WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following
MODIFICATIONS: that private respondent shall be entitled to backwages from termination of employment
until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with
law; xxx"

Undisputably (sic), it was decreed in plain and unambiguous language that complainant Sadac "shall be
entitled to backwages." No more, no less.

Thus, this decree for Sadac cannot be considered in any way, substantially in essence, with the award of
backwages as pronounced for Ms. Dizon in the case of East Asiatic Co. Ltd.50

In the same vein, we cannot accept the Court of Appeals' reliance on the doctrine as espoused in Millares. It
is evident that Millares concerns itself with the computation of the salary base used in computing the
separation pay of petitioners therein. The distinction between backwages and separation pay is elementary.
Separation pay is granted where reinstatement is no longer advisable because of strained relations between
the employee and the employer. Backwages represent compensation that should have been earned but were
not collected because of the unjust dismissal. The bases for computing the two are different, the first being
usually the length of the employee's service and the second the actual period when he was unlawfully
prevented from working.51

The issue that confronted the Court in Millares was whether petitioners' housing and transportation
allowances therein which they allegedly received on a monthly basis during their employment should have
been included in the computation of their separation pay. It is plain to see that the reference to general
increases in Millares citing East Asiatic was a mere obiter. The crux in Millares was our pronouncement that
the receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming
part of salary because the nature of the grant is a factor worth considering. Whether salary increases are
deemed part of the salary base in the computation of backwages was not the issue in Millares.

Neither can we look at St. Louis of Tuguegarao to resolve the instant controversy. What was mainly
contentious therein was the inclusion of fringe benefits in the computation of the award of backwages, in
particular additional vacation and sick leaves granted to therein concerned employees, it evidently appearing
that the reference to East Asiatic in a footnote was a mere obiter dictum. Salary increases are not akin to
fringe benefits52 and neither is it logical to conceive of both as belonging to the same taxonomy.

We must also resolve against the applicability of Sigma Personnel Services to the case at bar. The basic
issue before the Court therein was whether the employee, Susan Sumatre, a domestic helper in Abu Dhabi,
United Arab Emirates, had been illegally dismissed, in light of the contention of Sigma Personnel Services, a
duly licensed recruitment agency, that the former was a mere probationary employee who was, on top of
this status, mentally unsound.53 Even a cursory reading of Sigma Personnel Services citing St. Louis College
of Tuguegarao would readily show that inclusion of salary increases in the computation of backwages was
not at issue. The same was not on all fours with the instant petition.

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What, then, is the basis of computation of backwages? Are annual general increases in basic salary deemed
component in the computation of full backwages? The weight of authority leans in petitioner Bank's favor
and against respondent Sadac's claim for the inclusion of general increases in the computation of his
backwages.

We stressed in Paramount that an unqualified award of backwages means that the employee is paid at the
wage rate at the time of his dismissal, thus:

The determination of the salary base for the computation of backwages requires simply an application of
judicial precedents defining the term "backwages". Unfortunately, the Labor Arbiter erred in this regard. An
unqualified award of backwages means that the employee is paid at the wage rate at the time of his
dismissal [Davao Free Worker Front v. Court of Industrial Relations, G.R. No. L-29356, October 27, 1975, 67
SCRA 418; Capital Garments Corporation v. Ople, G.R. No. 53627, September 30, 1982, 117 SCRA 473;
Durabilt Recapping Plant & Company v. NLRC, G.R. No. 76746, July 27, 1987, 152 SCRA 328]. And the
Court has declared that the base figure to be used in the computation of backwages due to the employee
should include not just the basic salary, but also the regular allowances that he had been receiving, such as
the emergency living allowances and the 13th month pay mandated under the law [See Pan-Philippine Life
Insurance Corporation v. NLRC, G.R. No. 53721, June 29, 1982, 144 SCRA 866; Santos v. NLRC, G.R. No.
76721, September 21, 1987, 154 SCRA 166; Soriano v. NLRC, G.R. No. 75510, October 27, 1987, 155
SCRA 124; Insular Life Assurance Co., Ltd. v. NLRC, supra.]54 (Emphasis supplied.)

There is no ambivalence in Paramount, that the base figure to be used in the computation of backwages is
pegged at the wage rate at the time of the employee's dismissal, inclusive of regular allowances that the
employee had been receiving such as the emergency living allowances and the 13th month pay mandated
under the law.

In Evangelista v. National Labor Relations Commission,55 we addressed the sole issue of whether the
computation of the award of backwages should be based on current wage level or the wage levels at the
time of the dismissal. We resolved that an unqualified award of backwages means that the employee is paid
at the wage rate at the time of his dismissal, thus:

As explicitly declared in Paramount Vinyl Products Corp. v. NLRC, the determination of the salary base for
the computation of backwages requires simply an application of judicial precedents defining the term
"backwages." An unqualified award of backwages means that the employee is paid at the wage rate at the
time of his dismissal. Furthermore, the award of salary differentials is not allowed, the established rule being
that upon reinstatement, illegally dismissed employees are to be paid their backwages without deduction
and qualification as to any wage increases or other benefits that may have been received by their co-
workers who were not dismissed or did not go on strike.56

The case of Paramount was relied upon by the Court in the latter case of Espejo v. National Labor Relations
Commission,57 where we reiterated that the computation of backwages should be based on the basic salary
at the time of the employee's dismissal plus the regular allowances that he had been receiving. Further, the
clarification made by the Court in General Baptist Bible College v. National Labor Relations
Commission,58 settles the issue, thus:

We also want to clarify that when there is an award of backwages this actually refers to backwages without
qualifications and deductions. Thus, We held that:

"The term 'backwages without qualification and deduction' means that the workers are to be paid their
backwages fixed as of the time of the dismissal or strike without deduction for their earnings elsewhere
during their layoff and without qualification of their wages as thus fixed; i.e., unqualified by any wage
increases or other benefits that may have been received by their co-workers who are not dismissed or did
not go on strike. Awards including salary differentials are not allowed. The salary base properly used should,
however, include not only the basic salary but also the emergency cost of living allowances and also
transportation allowances if the workers are entitled thereto."59 (Italics supplied.)

Indeed, even a cursory reading of the dispositive portion of the Court's Decision of 13 June 1997 in G.R. No.
102467, awarding backwages to respondent Sadac, readily shows that the award of backwages therein is
unqualified, ergo, without qualification of the wage as thus fixed at the time of the dismissal and without
deduction.

A demarcation line between salary increases and backwages was drawn by the Court in Paguio v. Philippine
Long Distance Telephone Co., Inc.,60 where therein petitioner Paguio, on account of his illegal transfer
sought backwages, including an amount equal to 16 percent (16%) of his monthly salary representing his
salary increases during the period of his demotion, contending that he had been consistently granted salary
increases because of his above average or outstanding performance. We said:

In several cases, the Court had the opportunity to elucidate on the reason for the grant of backwages.
Backwages are granted on grounds of equity to workers for earnings lost due to their illegal dismissal from
work. They are a reparation for the illegal dismissal of an employee based on earnings which the employee
would have obtained, either by virtue of a lawful decree or order, as in the case of a wage increase under a
wage order, or by rightful expectation, as in the case of one's salary or wage. The outstanding feature of

168
backwages is thus the degree of assuredness to an employee that he would have had them as earnings had
he not been illegally terminated from his employment.

Petitioner's claim, however, is based simply on expectancy or his assumption that, because in the past he
had been consistently rated for his outstanding performance and his salary correspondingly increased, it is
probable that he would similarly have been given high ratings and salary increases but for his transfer to
another position in the company.

In contrast to a grant of backwages or an award of lucrum cessans in the civil law, this contention is based
merely on speculation. Furthermore, it assumes that in the other position to which he had been transferred
petitioner had not been given any performance evaluation. As held by the Court of Appeals, however, the
mere fact that petitioner had been previously granted salary increases by reason of his excellent
performance does not necessarily guarantee that he would have performed in the same manner and,
therefore, qualify for the said increase later. What is more, his claim is tantamount to saying that he had a
vested right to remain as Head of the Garnet Exchange and given salary increases simply because he had
performed well in such position, and thus he should not be moved to any other position where management
would require his services.61

Applying Paguio to the case at bar, we are not prepared to accept that this degree of assuredness applies to
respondent Sadac's salary increases. There was no lawful decree or order supporting his claim, such that his
salary increases can be made a component in the computation of backwages. What is evident is that salary
increases are a mere expectancy. They are, by its nature volatile and are dependent on numerous variables,
including the company's fiscal situation and even the employee's future performance on the job, or the
employee's continued stay in a position subject to management prerogative to transfer him to another
position where his services are needed. In short, there is no vested right to salary increases. That
respondent Sadac may have received salary increases in the past only proves fact of receipt but does not
establish a degree of assuredness that is inherent in backwages. From the foregoing, the plain conclusion is
that respondent Sadac's computation of his full backwages which includes his prospective salary increases
cannot be permitted.

Respondent Sadac cannot take exception by arguing that jurisprudence speaks only of wage and not salary,
and therefore, the rule is inapplicable to him. It is respondent Sadac's stance that he was not paid at the
wage rate nor was he engaged in some form of manual or physical labor as he was hired as Vice President
of petitioner Bank. He cites Gaa v. Court of Appeals62 where the Court distinguished between wage and
salary.

The reliance is misplaced. The distinction between salary and wage in Gaa was for the purpose of Article
1708 of the Civil Code which mandates that, "[t]he laborer's wage shall not be subject to execution or
attachment, except for debts incurred for food, shelter, clothing and medical attendance." In labor law,
however, the distinction appears to be merely semantics. Paramount and Evangelista may have involved
wage earners, but the petitioner in Espejo was a General Manager with a monthly salary of P9,000.00 plus
privileges. That wage and salary are synonymous has been settled in Songco v. National Labor Relations
Commission.63 We said:

Broadly, the word "salary" means a recompense or consideration made to a person for his pains or industry
in another man's business. Whether it be derived from "salarium," or more fancifully from "sal," the pay of
the Roman soldier, it carries with it the fundamental idea of compensation for services rendered. Indeed,
there is eminent authority for holding that the words "wages" and "salary" are in essence synonymous
(Words and Phrases, Vol. 38 Permanent Edition, p. 44 citing Hopkins v. Cromwell, 85 N.Y.S.839, 841, 89
App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of which is the Latin word "salarium," is often
used interchangeably with "wage", the etymology of which is the Middle English word "wagen". Both words
generally refer to one and the same meaning, that is, a reward or recompense for services performed.
Likewise, "pay" is the synonym of "wages" and "salary" (Black's Law Dictionary, 5th Ed). x x x64 (Italics
supplied.)

II.

Petitioner Bank ascribes as its second assignment of error the Court of Appeals' ruling that respondent
Sadac is entitled to check-up benefit, clothing allowance and cash conversion of vacation leaves
notwithstanding that respondent Sadac did not present any evidence to prove entitlement to these claims.65

The determination of respondent Sadac's entitlement to check-up benefit, clothing allowance, and cash
conversion of vacation leaves involves a question of fact. The well-entrenched rule is that only errors of law
not of facts are reviewable by this Court in a Petition for Review .66 The jurisdiction of this Court in a Petition
for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to
reviewing only errors of law, not of fact, unless the factual findings being assailed are not supported by
evidence on record or the impugned judgment is based on a misapprehension of facts.67This Court is also
not precluded from delving into and resolving issues of facts, particularly if the findings of the Labor Arbiter
are inconsistent with those of the NLRC and the Court of Appeals.68 Such is the case in the instant petition.
The Labor Arbiter and the Court of Appeals are in agreement anent the entitlement of respondent Sadac to
check-up benefit, clothing allowance, and cash conversion of vacation leaves, but the findings of the NLRC
were to the contrary. The Labor Arbiter sustained respondent Sadac's entitlement to check-up benefit,
clothing allowance and cash conversion of vacation leaves. He gave weight to petitioner Bank's

169
acknowledgment in its computation that respondent Sadac is entitled to certain benefits, namely, rice
subsidy, tuition fee allowance, and medicine allowance, thus, there exists no reason to deprive respondent
Sadac of his other benefits. The Labor Arbiter also reasoned that the petitioner Bank did not adduce
evidence to support its claim that the benefits sought by respondent Sadac are not granted to its employees
and officers. Similarly, the Court of Appeals ratiocinated that if ordinary employees are entitled to receive
these benefits, so it is with more reason for a Vice President, like herein respondent Sadac to receive the
same.

We find in the records that, per petitioner Bank's computation, the benefits to be received by respondent are
monthly rice subsidy, tuition fee allowance per year, and medicine allowance per year.69 Contained nowhere
is an acknowledgment of herein claimed benefits, namely, check-up benefit, clothing allowance, and cash
conversion of vacation leaves. We cannot sustain the rationalization that the acknowledgment by petitioner
Bank in its computation of certain benefits granted to respondent Sadac means that the latter is also entitled
to the other benefits as claimed by him but not acknowledged by petitioner Bank. The rule is, he who
alleges, not he who denies, must prove. Mere allegations by respondent Sadac does not suffice in the
absence of proof supporting the same.

III.

We come to the third assignment of error raised by petitioner Bank in its Supplement to Petition for Review,
assailing the 26 October 2004 Supplemental Decision of the Court of Appeals which amended the fallo of its
6 April 2004 Decision to include "attorney's fees equal to TEN PERCENT (10%) of all the monetary award"
granted to respondent Sadac. Petitioner Bank posits that neither the dispositive portion of our 13 June 1997
Decision in G.R. No. 102467 nor the body thereof awards attorney's fees to respondent Sadac. It is
postulated that the body of the 13 June 1997 Decision does not contain any findings of facts or conclusions
of law relating to attorney's fees, thus, this Court did not intend to grant to respondent Sadac the same,
especially in the light of its finding that the petitioner Bank was not motivated by malice or bad faith and
that it did not act in a wanton, oppressive, or malevolent manner in terminating the services of respondent
Sadac.70

We do not agree.

At the outset it must be emphasized that when a final judgment becomes executory, it thereby becomes
immutable and unalterable. The judgment may no longer be modified in any respect, even if the
modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be made by the Court rendering it or by the highest
Court of the land. The only recognized exceptions are the correction of clerical errors or the making of so-
called nunc pro tunc entries which cause no prejudice to any party, and, of course, where the judgment is
void.71 The Court's 13 June 1997 Decision in G.R. No. 102467 became final and executory on 28 July 1997.
This renders moot whatever argument petitioner Bank raised against the grant of attorney's fees to
respondent Sadac. Of even greater import is the settled rule that it is the dispositive part of the judgment
that actually settles and declares the rights and obligations of the parties, finally, definitively, and
authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend to
confuse.72

Proceeding therefrom, we make a determination of whether the Court in Equitable Banking Corporation v.
National Labor Relations Commission,73 G.R. No. 102467, dated 13 June 1997, awarded attorney's fees to
respondent Sadac. In recapitulation, the dispositive portion of the aforesaid Decision is hereunder quoted:

WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following
MODIFICATIONS: That private respondent shall be entitled to backwages from termination of employment
until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with
law; that private respondent shall be paid an additional amount of P5,000.00; that the award of moral and
exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank
alone, the other petitioners being absolved from solidary liability. No costs.74

The dispositive portion of the 24 September 1991 Decision of the NLRC awards respondent Sadac attorney's
fees equivalent to ten percent (10%) of the monetary award, viz:

WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is
hereby, SET ASIDE and a new one ENTERED declaring the dismissal of the complainant as illegal, and
consequently ordering the respondents jointly and severally to reinstate him to his former position as bank
Vice-President and General Counsel without loss of seniority rights and other privileges, and to pay him full
backwages and other benefits from the time his compensation was withheld to his actual reinstatement, as
well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney's fees equivalent
to Ten Percent (10%) of the monetary award. Should reinstatement be no longer possible due to strained
relations, the respondents are ordered likewise jointly and severally to grant separation pay at one (1)
month per year of service in the total sum of P293,650.00 with backwages and other benefits from
November 16, 1989 to September 15, 1991 (cut off date, subject to adjustment) computed at
P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and
attorney's fees equal to Ten Percent (10%) of all the monetary award, or a grand total of
P1,649,329.53.75 (Italics Ours.)

170
As can be gleaned from the foregoing, the Court's Decision of 13 June 1997 AFFIRMED with MODIFICATION
the NLRC Decision of 24 September 1991, which modification did not touch upon the award of attorney's
fees as granted, hence, the award stands. Juxtaposing the decretal portions of the NLRC Decision of 24
September 1991 with that of the Court's Decision of 13 June 1997, we find that what was deleted by the
Court was "the award of moral and exemplary damages," but not the award of "attorney's fees equivalent to
Ten Percent (10%) of the monetary award." The issue on the grant of attorney's fees to respondent Sadac
has been adequately and definitively threshed out and settled with finality when petitioner Bank came to us
for the first time on a Petition for Certiorari in Equitable Banking Corporation v. National Labor Relations
Commission, docketed as G.R. No. 102467. The Court had spoken in its Decision of 13 June 1997 in the said
case which attained finality on 28 July 1997. It is now immutable.

IV.

We proceed with the penultimate issue on the entitlement of respondent Sadac to twelve percent (12%)
interest per annum on the outstanding balance as of 28 July 1997, the date when our Decision in G.R. No.
102467 became final and executory.

In Eastern Shipping Lines, Inc. v. Court of Appeals,76 the Court, speaking through the Honorable Justice Jose
C. Vitug, laid down the following rules of thumb:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual or compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Article
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2 above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.77

It is obvious that the legal interest of twelve percent (12%) per annum shall be imposed from the time
judgment becomes final and executory, until full satisfaction thereof. Therefore, petitioner Bank is liable to
pay interest from 28 July 1997, the finality of our Decision in G.R. No. 102467.78 The Court of Appeals was
not in error in imposing the same notwithstanding that the parties were at variance in the computation of
respondent Sadac's backwages. What is significant is that the Decision of 13 June 1997 which awarded
backwages to respondent Sadac became final and executory on 28 July 1997.

V.

Finally, petitioner Bank's Motion to Refer the Petition En Banc must necessarily be denied as established in
our foregoing discussion. We are not herein modifying or reversing a doctrine or principle laid down by the
Court en banc or in a division. The instant case is not one that should be heard by the Court en
banc.79 ςηα ñrοb lε š ν ιr†υ αl l αω lιbrαrÿ

Fallo

WHEREFORE, the petition is PARTIALLY GRANTED in the sense that in the computation of the backwages,
respondent Sadac's claimed prospective salary increases, check-up benefit, clothing allowance, and cash
conversion of vacation leaves are excluded. The petition is PARTIALLY DENIED insofar as we AFFIRMED the
grant of attorney's fees equal to ten percent (10%) of all the monetary award and the imposition of twelve
percent (12%) interest per annum on the outstanding balance as of 28 July 1997. Hence, the Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 75013, dated 6 April 2004 and 28 July 2004,
respectively, and the Supplemental Decision dated 26 October 2004 are MODIFIED in the following manner,
to wit:

171
Petitioner Bank is DIRECTED TO PAY respondent Sadac the following:

(1) BACKWAGES in accordance with Our Decision dated 13 June 1997 in G.R. No. 102467 with a clarification
that the award of backwages EXCLUDES respondent Sadac's claimed prospective salary increases, check-up
benefit, clothing allowance, and cash conversion of vacation leaves;

(2) ATTORNEY'S FEES equal to TEN PERCENT (10%) of the total sum of all monetary award; and cralawlibra ry

(3) INTEREST of TWELVE PERCENT (12%) per annum is hereby imposed on the total sum of all monetary
award from 28 July 1997, the date of finality of Our Decision in G.R. No. 102467 until full payment of the
said monetary award.

The Motion to Refer the Petition to the Court En Banc is DENIED.

No costs.

SO ORDERED.

Endnotes:

1
Rollo, pp. 30-40; Penned by Associate Justice Vicente Q. Roxas with Associate Justices Rodrigo V. Cosico
and Mariano C. Del Castillo, concurring.

2
Id. at 55-56.

3
Id. at 90-94.

4
Equitable Banking Corporation v. National Labor Relations Commission, 339 Phil. 541, 550-551 (1997).

5
CA rollo, pp. 49-68.

6
Id. at 69-104.

7
Id. at 102-103.

8
Supra note 4; See also CA rollo, pp. 106-136.

9
Penned by Associate Justice Jose C. Vitug.

10
Sec. 26, Rule 138, Rules of Court, now reads:

Sec. 26. Change of Attorneys. - x x x

A client may at any time dismiss his attorney or substitute another in his place, but if the contract between
client and attorney has been reduced to writing and the dismissal of the attorney was without justifiable
cause, he shall be entitled to recover from the client the full compensation stipulated in the contract.
However, the attorney may, in the discretion of the court, intervene in the case to protect his rights. For the
payment of his compensation the attorney shall have a lien upon all judgments for the payment of money,
and executions issued in pursuance of such judgment, rendered in the case wherein his services had been
retained by the client.

11
Equitable Banking Corporation v. National Labor Relations Commission, supra note 4 at 569-570.

12
See CA rollo, p. 137.

13
Id. at 167-169.

14
Id. at 164-166.

15
148-B Phil. 401, 414-415 (1971).

172
16
G.R. No. 74214, 31 August 1989, 177 SCRA 151, 156.

17
G.R. No. 108284, 30 June 1998, 224 SCRA 181, 188.

18
319 Phil. 299, 301 (1995).

19
G.R. No. 81200, 17 October 1990, 190 SCRA 525, 537.

20
Rollo, pp. 113-123.

21
365 Phil. 42, 54 (1999).

22
CA rollo, pp. 180-183.

23
Rollo, pp. 122-123.

24
Id. at 57-71.

25
Id. at 71.

26
Id. at 72-79.

27
Id. at 39-40.

28
CA rollo, pp. 102-103.

29
Id. at 330-337.

30
Rollo, pp. 55-56.

31
Id. at 6.

32
Id. at 93-94.

33
Id. at 81-87.

34
Supra note 19.

35
Supra note 18.

36
325 Phil. 753, 760 (1996).

37
Torillo v. Leogardo, Jr., 274 Phil. 758, 765 (1991), citing Philippine Airlines, Inc. v. National Labor
Relations Commission, G.R. No. 55159, 22 December 1989, 180 SCRA 555, 565.

38
Tomas Claudio Memorial College, Inc. v. Court of Appeals, G.R. No. 152568, 16 February 2004, 423 SCRA
122, 134, citing Imperial Textile Mills, Inc. v. National Labor Relations Commission, G.R. No. 101527, 19
January 1993, 217 SCRA 237, 247; St. Theresa's School of Novaliches Foundation v. National Labor
Relations Commission, 351 Phil. 1038, 1044-1045 (1998).

39
332 Phil. 833 (1996).

40
ART. 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.

41
Bustamante v. National Labor Relations Commission, supra note 39 at 842-843.

42
155 Phil. 636 (1974).

43
See Mercury Drug Co. Inc. v. Court of Industrial Relations, Id.; Lepanto Consolidated Mining Co. v.
Olegario, G.R. No. L-77437, 23 June 1988, 162 SCRA 512, 516; Hernandez v. National Labor Relations
Commission, G.R. No. 84302, 10 August 1989, 176 SCRA 269, 276; St. Louis College of Tuguegarao v.
National Labor Relations Commission, supra note 16 at 157; Torillo v. Leogardo, Jr., supra note 37 at 479;

173
Arms Taxi v. National Labor Relations Commission, G.R. No. 104523, 8 March 1993, 219 SCRA 706, 713;
JAM Transportation Co. Inc. v. Flores, G.R. No. 82829, 19 March 1993, 220 SCRA 114, 123; Philippine
Airlines Inc. v. National Labor Relations Commission, G.R. No. 106374, 17 June 1993, 223 SCRA 463, 468.

44
G.R. No. 100898, 5 July 1993, 224 SCRA 410, 423.

45
G.R. No. 96779, 10 November 1993, 227 SCRA 655, 664.

46
Rollo, pp. 33-36.

47
Words and Phrases, Vol. 3, Permanent Edition, p. 360, citing Sherburne's Adm r v. United States, 16
Ct.Cl. 491, 496, 500.

48
Rollo, p. 66.

49
East Asiatic Company, Ltd. v. Court of Industrial Relations, supra note 15 at 429.

50
Rollo, pp. 64-65.

51
Lim v. National Labor Relations Commission, G.R. NOS. 79907 and 79975, 16 March 1989, 171 SCRA 328,
336.

52
Fringe benefits are defined by Section 33(B) of the Tax Code of 1997, viz.:

Section 33. Special Treatment of Fringe Benefit. - x x x

(B) Fringe Benefit Defined. - For purposes of this Section, the term 'fringe benefit' means any good, service
or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except
rank and file employees as defined herein) such as, but not limited to, the following:

(1) Housing;

(2) Expense account;

(3) Vehicle of any kind;

(4) Household personnel, such as maid, driver and others;

(5) Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted;

(6) Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations;

(7) Expenses for foreign travel;

(8) Holiday and vacation expenses;

(9) Educational assistance to the employee or his dependents; and cralawlib rary

(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.

53
Sigma Personnel Services v. National Labor Relations Commission, supra note 17 at 184.

54
Paramount Vinyl Products Corporation v. National Labor Relations Commission, supra note 19 at 537.

55
Supra note 18.

56
Id. at 301, citing Insular Life Assurance Co., Ltd. v. National Labor Relations Commission, G.R. No. L-
74191, 21 December 1987, 156 SCRA 740, 749, citing Durabuilt Recapping Plant & Co. v. National Labor
Relations Commission, G.R. No. L-76746, 27 July 1987, 152 SCRA 328, 332; Insular Life Assurance Co.,
Ltd., Employees Association-NATU v. Insular Life Assurance Co., Ltd., G.R. No. L-25291, 5 May 1977, 77
SCRA 3, 4.

57
Supra note 36 at 436 (1996).

174
58
G.R. No. 85534, 5 March 1993, 219 SCRA 549.

59
Id. at 559-560, citing Samahang Manggagawa ng Rizal Park v. National Labor Relations Commission, G.R.
No. 94372, 9 October 1991, First Division, Minute Resolution, citing Resolution in Central Azucarera de
Tarlac v. Sampang, G.R. No. 84598, promulgated on 19 May 1989.

60
441 Phil. 679 (2002).

61
Id. at 690-691, citing cases.

62
G.R. No. L-44169, 3 December 1985, 140 SCRA 304, 309.

63
G.R. NOS. 50999-51000, 23 March 1990, 183 SCRA 610.

64
Id. at 617-618.

65
Rollo, p. 16.

66
Blanco v. Quasha, 376 Phil. 480, 491 (1999), citing Boneng v. People, 363 Phil. 594, 600 (1999).

67
Manila Bankers Life Insurance Corporation v. Ng Kok Wei, G.R. No. 139791, 12 December 2003, 418
SCRA 454, 459, citing Cosmos Bottling Corporation v. National Labor Relations Commission, G.R. No.
146397, 1 July 2003, 405 SCRA 258, 263.

68
Nasipit Lumber Company v. National Organization of Workingmen (NOWM), G.R. No. 146225, 25
November 2004, 444 SCRA 158, 170.

69
CA rollo, p. 179.

70
Rollo, pp. 81-87.

71
Nuñal v. Court of Appeals, G.R. No. 94005, 6 April 1993, 221 SCRA 26, 32, citing Manning International
Corporation v. National Labor Relations Commission, G.R. No. 83018, 13 March 1991, 195 SCRA 155, 161;
See also Ramos v. Ramos, 447 Phil. 114, 116 (2003); Argel v. Pascua, 415 Phil. 608, 612 (2001); Sacdalan
v. Court of Appeals, G.R. No. 128967, 20 May 2004, 428 SCRA 586, 599.

72
Light Rail Transit Authority v. Court of Appeals, G.R. NOS. 139275-76 and 140949, 25 November 2004,
444 SCRA 125, 136, citing Espiritu v. Court of First Instance of Cavite, G.R. No. L-44696, 18 October 1988,
166 SCRA 394, 399.

73
Supra note 4.

74
Id. at 569-570.

75
CA Rollo, pp. 102-103.

76
G.R. No. 97412, 12 July 1994, 234 SCRA 78.

77
Id. at 95-97.

78
Equitable Banking Corporation v. National Labor Relations Commission, supra note 4.

79
Sec. 4(2), Article VIII, 1987 Constitution reads:

(2) All cases involving the constitutionality of a treaty, international or executive agreement, or law, which
shall be heard by the Supreme Court en banc, and all other cases which under the Rules of Court are
required to be heard en banc, including those involving the constitutionality, application, or operation of
presidential decrees, proclamations, orders, instructions, ordinances, and other regulations, shall be decided
with the concurrence of a majority of the Members who actually took part in the deliberations on the issues
in the case and voted thereon. See also Firestone Ceramics, Inc. v. Court of Appeals, 389 Phil. 810, 816-817
(2000), citing Supreme Court Circular No. 2-89, dated February 7, 1989, as amended by the Resolution of
November 18, 1993, holding, viz.:

x x x the following are considered en banc cases:

1. Cases in which the constitutionality or validity of any treaty, international or executive agreement, law,
executive order, or presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question;

175
2. Criminal cases in which the appealed decision imposes the death penalty;

3. Cases raising novel questions of law;

4. Cases affecting ambassadors, other public ministers and consuls;

5. Cases involving decisions, resolutions or orders of the Civil Service Commission, Commission on Elections,
and Commission on Audit;

6. Cases where the penalty to be imposed is the dismissal of a judge, officer or employee of the judiciary,
disbarment of a lawyer, or either the suspension of any of them for a period of more than one (1) year or a
fine exceeding P10,000.00 or both;

7. Cases where a doctrine or principle laid down by the court en banc or in division may be modified or
reversed;

8. Cases assigned to a division which in the opinion of at least three (3) members thereof merit the
attention of the court en banc and are acceptable to a majority of the actual membership of the court en
banc; and cralawlibra ry

9. All other cases as the court en banc by a majority of its actual membership may deem of sufficient
importance to merit its attention.

176
 THIRD DIVISION

[G.R. No. 197353, April 01, 2013]

ALEXANDER B. BAÑARES, Petitioner, v. TABACO WOMEN’S TRANSPORT SERVICE1 COOPERATIVE

(TAWTRASCO), REPRESENTED BY DIR. RENOL BARCEBAL, ET AL., Respondents.

DECISION

VELASCO JR., J.:

In this Petition for Review on Certiorari under Rule 45, Alexander B. Bañares assails and seeks the reversal
of the Decision2 dated October 14, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 112542 and its
Resolution3 of June 15, 2011 denying petitioner’s motion for reconsideration. The CA Decision set aside the
July 7, 2009 Decision4 and November 18, 2009 Resolution5 of the National Labor Relations Commission
(NLRC) as well as the April 14, 2008 Order6 of the Labor Arbiter.

The facts are undisputed.

Petitioner was for some time the general manager of Tabaco Women’s Transport Service Cooperative
(TAWTRASCO) until its management, on March 6, 2006, terminated his services. On March 7, 2006, before
the Labor Arbiter (LA) in RAB V of the NLRC in Legaspi City, petitioner filed a complaint for illegal dismissal
and payment of monetary claims which was docketed as NLRC RAB V Case No. 03-00092-06.

On August 22, 2006, the LA rendered a Decision7 finding for petitioner, as complainant, with
the falloreading:cha nro blesvi rtua llawli bra ry

WHEREFORE, premises considered, judgment is hereby rendered declaring complainant to have been
illegally dismissed from his employment. Consequently, respondent Tabaco Women’s Transport Service
Cooperative (TAWTRASCO) is hereby ordered to immediately reinstate complainant to his former position,
without loss of seniority right and to pay complainant the total amount of ONE HUNDRED NINETEEN
THOUSAND SIX HUNDRED PESOS (P119,600.00), representing the latter’s backwages and damages, as
computed above.

All other claims and/or charges are hereby dismissed for lack of factual and legal basis.

SO ORDERED.

Since TAWTRASCO opted not to appeal, the LA Decision soon became final and executory. In fact,
TAWTRASCO in no time paid petitioner the amount of PhP 119, 600 by way of damages and backwages
corresponding to the period March 6, 2006 to August 22, 2006. But petitioner was not immediately
reinstated. Owing to the strained employer-employee relationship perceived to exist between them,
TAWTRASCO offered to pay petitioner separation pay of PhP 172, 296, but petitioner rejected the
offer. Eventually, the two entered into a Compromise Agreement, in which petitioner waived a portion of his
monetary claim, specifically his backwages for the period from August 23, 2006 to February 5, 2007, and
agreed that the amount due shall be payable in three (3) installments. In turn, TAWTRASCO undertook to
reinstate the petitioner effective February 6, 2007. Accordingly, the LA issued, on February 5, 2007, an
Order8 based on the compromise agreement thus executed, and declared the instant case closed and
terminated.

On February 24, 2007, petitioner received a copy of Memorandum Order No. 04,9 Series of 2007, with a
copy of a resolution passed by the Board of Directors (BOD) of TAWTRASCO, requiring him to report at the
company’s Virac, Catanduanes terminal. The memorandum order contained an enumeration of petitioner’s
duties and responsibilities.

A day after, petitioner went to see Oliva Barcebal (Oliva), the BOD Chairman, to decry that the adverted
return-to-work memorandum and board resolution contravene the NLRC-approved compromise agreement
which called for his reinstatement as general manager without loss of seniority rights. Petitioner would later
reiterate his concerns in a letter10 dated March 12, 2007.

On March 20, 2007, TAWTRASCO served petitioner a copy of Memorandum No. 10,11 Series of 2007 which
set forth his location assignment, as follows: temporarily assigned at the Virac, Catanduanes terminal/office
for two months, after which he is to divide his time between the Virac Terminal and the Araneta Center Bus
Terminal (ACBT), three days (Monday to Wednesday) in Virac and two days (Friday and Saturday) in Cubao,
utilizing Thursday as his travel day in between offices. As ordered, petitioner reported to the Virac terminal
which purportedly needed his attention due to its flagging operations and management problems.

177
Barely a week into his new assignment, petitioner, thru a memorandum report, proposed the
construction/rehabilitation of the passenger lounge in the Virac terminal, among other improvements. The
proposal came with a request for a monthly lodging accommodation allowance of PhP 1,700 for the duration
of his stay in Virac.

While the management eventually approved the desired construction projects, it denied petitioner’s plea for
cash lodging allowance. Instead of a straight cash allowance, the company urged petitioner to use the Virac
office for lodging purposes.

Subsequent events saw petitioner requesting and receiving an allocation of PhP 3,000 for his travel,
accommodation, representation and communication allowance subject to liquidation. No replenishment,
however, came after.

On April 12, 2007, Oliva, while conducting, in the company of another director, an ocular inspection of the
Virac terminal, discovered that petitioner had not reported for work since March 31, 2007. Thus, the
issuance of a company memorandum12 asking petitioner to explain his absence.

In response, petitioner addressed a letter-reply13 to management stating the underlying reason for not
reporting and continue reporting for work in his new place of assignment and expressing in detail his
grievances against management. Some excerpts of petitioner’s letter: chan roble svi rtual lawlib rary

x x x [T]he very reason why I don’t go back to Virac Catanduanes x x x is because I realized that in truth
my reinstatement effected by your office which is supposed to be in pursuance to the NLRC
decision is nothing but an artificial, fake, fictitious and a sham kind of return to work order.

I regret to say it so on the following grounds:

1. Our garage/terminal in Virac Catanduanes wherein you would want me to stay is in total
disarray and dirty as it looks until the time that I stayed there and despite having reported
that matter to you and despite having requested by me that the necessary funding for the
reconstruction or rebuilding of the necessary facilities we at least used to have before
should be immediately allocated and released and yet you were too slow in granting it; cra lawlib rary

2. Despite x x x my request for the allocation of the indispensable travel, representation and
accommodation allowances I need to have while staying in Virac because the
garage/terminal facilities remains in a messy condition but still you fail until now to provide
it to me x x x;cralawli bra ry

3. The manner and nature of work you would want me to do while in Virac is utterly a
deviation from my original work and in effect a demotion in rank; cralawlib rary

4. The place of work x x x was completely devoid of any office materials and equipments
needed in the nature of my work. To put in details there was no office table and
chairs, no filing cabinets for safekeeping of important documents, no ball-pens, no
bond papers etc. x x x [T]here is nothing at all in said place of work for me to say that
there was really an office of the General Manager. As a matter of fact, you know that all
my reports being submitted x x x are made possible by using my own personal
computer, my computer printer, my computer inks and even my own bond papers.

5. Just recently, I found out that there are employees in our company who are under my
jurisdiction and x x x that are being instructed not to follow my lawful orders. This matter
needs no further explanation because I have already reported it and yet you did nothing to
correct it.

6. The free place of accommodation I used to have before when staying in Cubao, Quezon City
remains non-existent x x x despite the fact that x x x I need to be [back] also in Cubao to
facilitate the restoration of our transport operation x x x.

In essence, there is an ongoing mockery of the mandate of the NLRC decision that I should be
reinstated to my former position as General Manager without loss of seniority rights. What is truly
happening now is the obvious evidence that you don’t want me to work the way I was doing it before and
the way as mandated by the by-laws of our transport cooperative.

In sum, you cannot charge me for abandonment of work because you are in fact causing me an
inhumane and degrading treatment as General Manager and giving an embarrassing kind of
work.

Therefore, in view of the foregoing circumstances, may I hereby demand that my salary should be paid
immediately as soon as you receive this letter of mine that explains in full details the logical reasons
why I really cannot go back to my new place of assigned but temporary work x x x.

xxxx

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Finally, let me just frankly tell you that I can only go back to Virac Catanduanes when everything I
need in my work as General Manager is sufficiently given to me and when all employees of
TAWTRASCO are duly advised that in effect I’m truly [back] to work and all the employees need
to follow my orders. Meantime, as General Manager I will utilize my time to do some other works x x x.

On April 27, 2007, petitioner filed a complaint against TAWTRASCO for nonpayment of salaries and
withholding of privileges before the LA. Via a Manifestation with application for the issuance of an alias writ
of execution, petitioner prayed that his complaint be deemed withdrawn “for the purpose of not confusing
the essence of consolidation and in order to give way to the smooth proceedings and fast adjudication on
the merits.”14 cralawvl lred

By Order of April 14, 2008, the LA effectively issued the desired alias writ of execution, as follows: chanrob lesvi rtua llawlib ra ry

Consequently, there being no compliance of the reinstatement aspect of the Decision, [petitioner] is
therefore, entitled to his reinstatement salaries less the amount he already received, reckoned from date of
receipt by respondent [TAWTRASCO] of the decision on October 11, 2006 to date of this order, subject to
further computation until reinstatement is actually carried out religiously plus monthly allowance of
P1,000.00 without prejudice on the part of the respondent to avail of the remedy available to it under the
rules. Hence, the same is computed as follows: cralaw

October 11, 2006 to April 18, 2008 = 18 mos.

Basic + Allowance – P19,000.00 x 18 mos. = P342,00[0].00

LESS: cralaw

BPI – P18,000.00
Check: 2/11/07
BPI – 18,000.00
Check: 2/12/07
BPI – 18,000.00
Check: 3/6/07
BPI – 18,000.00
Check: 4/6/07
CY 2/13/08 – 7,500.00
2/27/08 – 87,000.00 7,500.00
P255,000.00
xxxx

Responsive to all the foregoing, respondent [TAWTRASCO] is hereby ordered to reinstate complainant to his
former position as General Manager, without loss of seniority right and pay [petitioner] the amount of
P255,000.00, representing the latter’s reinstatement salaries (after deducting the amount he already
received) and monthly allowance, as computed above.

Respondent is also ordered to show proof of compliance of complainant’s reinstatement immediately upon
receipt hereof.

SO ORDERED.15

TAWTRASCO appealed to the NLRC which dismissed the appeal per its Decision dated July 7, 2009, the
dispositive portion of which reads: chan roblesv irtuallaw lib rary

WHEREFORE, judgment is hereby rendered DISMISSING respondents’ appeal for lack of merit. The assailed
Order of the Labor Arbiter dated 14 April 2008, is hereby AFFIRMED.

SO ORDERED.

In so ruling, the NLRC held that TAWTRASCO only partially complied with the final and executory August 22,
2006 Decision of the LA, i.e., by paying the PhP 119,000 backwages of petitioner as ordered. The
reinstatement aspect of the LA Decision, however, has yet to be wholly complied with. To the NLRC, the LA
acted within his sound discretion in ordering the authentic and full reinstatement of petitioner and the
payment of PhP 255,000 as reinstatement salaries as computed from October 11, 2006 to April 18, 2008.

The NLRC denied, through its November 18, 2009 Resolution, TAWTRASCO’s motion for reconsideration.

TAWTRASCO went to the CA on certiorari. On October 14, 2010, the appellate court rendered the assailed
Decision, the fallo of which reads: chanro blesvi rt uallawl ibra ry

179
WHEREFORE, the instant petition for certiorari is GRANTED. The assailed Decision and Resolution of the
public respondent National Labor Relations Commission, in NLRC LAC No. 08-002800-08 [NLRC RAB V Case
No. 03-000092-06], as well as the Order dated 14 April 2008 of the Labor Arbiter are SET ASIDE.

SO ORDERED.

Contrary to the LA’s holding, as affirmed by the NLRC, the CA found TAWTRASCO to have fully reinstated
petitioner to his former post. And without expressly declaring so, the unmistakable thrust of the CA
disposition was that petitioner veritably abandoned his work when he stopped reporting to his Virac terminal
assignment.

His motion for reconsideration having been denied per the CA’s assailed Resolution of June 15, 2011,
petitioner went to this Court. His petition is predicated on the following assignment of errors: cha nrob lesvi rtua llawli bra ry

(A)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN FAILING TO OBSERVE AND
UPHOLD THE FORMAL AND PROCEDURAL REQUIREMENTS IN THE FILING OF THE PETITION FOR
CERTIORARI UNDER RULE 65.

(B)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN IGNORING THE STRICT RULE ON
NON-FORUM SHOPPING AND WHEN DESPITE KNOWLEDGE OF A PRIOR FINAL JUDGMENT INVOLVING THE
SAME AND IDENTICAL ISSUES AND THE SAME AND IDENTICAL PARTIES, THE COURT A QUO FAILED TO
DISMISS OUTRIGHT THE PETITION FOR CERTIORARI IN VIOLATION OF THE DOCTRINE ON “RES JUDICATA”
AND THE PRINCIPLE OF “LITIS PENDENCIA”.

(C)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION WHEN THE COURT A QUO HAS
DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISIONS OF THIS SUPREME
COURT WITH RESPECT TO THE FORMAL APPEARANCES OF COUNSEL.

(D)

THE [CA] SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION WHEN THE COURT A QUO HAS SO
FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN DELVING INTO
THE FACTS OF THE CASE.16

The petition is meritorious.

Essentially, the issues raised boil down to: was there a proper and genuine reinstatement of petitioner to his
former position of General Manager of TAWTRASCO without loss of seniority rights and privileges?
Subsumed in this core issue is the question of whether petitioner’s refusal to report in the Virac terminal in
early April 2007 constitutes abandonment, not constructive dismissal.

The parallel finding and conclusion of the LA and the NLRC contradict that of the CA which, as earlier
indicated, categorically resolved the first factual poser in the negative. In light of the divergence between
the findings of facts of the LA and the NLRC, on one hand, and the appellate court, on the other, a review of
the records and the clashing arguments of the parties is in order.17 c ralawvl lred

Reinstatement, as a labor law concept, means the admission of an employee back to work prevailing prior to
his dismissal;18 restoration to a state or position from which one had been removed or separated, which
presupposes that there shall be no demotion in rank and/or diminution of salary, benefits and other
privileges; if the position previously occupied no longer exists, the restoration shall be to a substantially
equivalent position in terms of salary, benefits and other privileges.19 Management’s prerogative to transfer
an employee from one office or station to another within the business establishment, however, generally
remains unaffected by a reinstatement order, as long as there is no resulting demotion or diminution of
salary and other benefits and/or the action is not motivated by consideration less than fair or effected as a
punishment or to get back at the reinstated employee.20 c ral awvllred

Guided by the foregoing reasonable albeit exaction norm, the “reinstatement” of petitioner as general
manager of TAWTRASCO, effected by TAWTRASCO pursuant to the February 5, 2007 compromise
agreement, was not a real, bona fide reinstatement in the context of the Labor Code and pertinent
decisional law. Consider:c ralaw

First, TAWTRASCO at the outset, i.e., after the compromise agreement signing, directed petitioner to report
to the Virac terminal with duties and responsibilities not befitting a general manager of a transport
company. In fine, the assignment partook of the nature of a demotion. The aforementioned Memorandum
Order No. 04, Series of 2007, in its pertinently part, states and directs: chan roble svirtuallaw lib rary

DUTIES AND RESPONSIBILITIES

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1) To supervise all TAWTRASCO bus employees, personnels and including
authorized callers for the success of the terminal operation;
2) To have a record of the in and out of freight loaded on all TAWTRASCO
buses, regulate freight charge/s and minimize problems and complaints
regarding the freight/cargoes loaded at these buses;
3) As General Manager to sign on the manifesto or trip records of the buses
going out daily at Virac Terminal attesting his approval except on day-off
schedule;
4) To unite, settle differences or disputes between TAWTRASCO key
personnels at TAWTRASCO Virac terminal affecting its management
operation particularly x x x;
5) To explore all possibilities and restore the said terminal to its former
successful operation;
6) To find solution to all other problems relative to its management
operation and to report complaints affecting transport operations; and
7) To give a written report to the Board of Directors on your
accomplishments.

ADDENDUM: On Day-off Schedule

1) Authorized Day-Off – Once a week

2) To give Notice three (3) days before regarding

vacation leave except on emergency cases.

APPROVED: TAWTRASCO BOARD OF DIRECTORS21

A cursory reading of items (2) and (3) above would readily reveal that petitioner was tasked to discharge
menial duties, such as maintaining a record of the “in” and “out” of freight loaded on all TAWTRASCO buses
and signing the trip records of the buses going out daily. To be sure, these tasks cannot be classified as
pertaining to the office of a general manager, but that of a checker. As may reasonably be expected,
petitioner promptly reacted to this assignment. A day after he received the memorandum in question, or on
February 25, 2007, he repaired to the office of Oliva to personally voice out his misgivings about the set up
and why he believed that the above memorandum contravened their compromise agreement and the
February 5, 2007 Order of the LA specifically providing for his reinstatement as general manager without
loss of seniority rights and privileges.

Nevertheless, 15 days after the uneventful personal meeting with Oliva, petitioner addressed a letter to top
management inquiring about his reinstatement and assignment. The BOD Secretary of TAWTRASCO
received this letter on March 13, 2007.

TAWTRASCO’s action on petitioner’s aforementioned letter came, as narrated earlier, in the form of
Memorandum No. 10, Series of 2007, which temporarily assigned him to the Virac terminal for two months.
And after the two-month period, he shall divide his time between the Virac and the ACBT terminals, with
Thursday as his travel day in between offices. Notably, this time, TAWTRASCO explained that its Virac
terminal needs petitioner’s attention due to its flagging operations and management problems. Thus,
petitioner acquiesced and reported to the Virac terminal of TAWTRASCO.

In a rather unusual turn of events, however, the assailed CA decision made no mention of the foregoing
critical facts despite their being pleaded by petitioner and duly supported by the records, although that court
made a perfunctory reference to the adverted Memorandum Order No. 04.

And second, while Memorandum No. 10 was couched as if TAWTRASCO had in mind the reinstatement of
petitioner to his former position, there cannot be any quibble that TAWTRASCO withheld petitioner’s
customary boarding house privilege. What is more, TAWTRASCO did not provide him with a formal office
space.

As evidence on record abundantly shows, TAWTRASCO was made aware of its shortcomings as employer,
but it opted not to lift a finger to address petitioner’s reasonable requests for office space and free lodging
while assigned at the Virac terminal. Thus, the stand-off between employer and employee led to petitioner
writing on April 24, 2007 to TAWTRASCO, an explanatory letter explaining his failure to report back to work
at the Virac terminal. We reproduce anew highlights of that letter: chan roble svirtuallaw lib rary

I regret to say it so on the following grounds:

1. Our garage/terminal in Virac Catanduanes wherein you would want me to stay is in total
disarray and dirty as it looks until the time that I stayed there and despite having reported

181
 that matter to you and despite having requested by me that the necessary funding for the
reconstruction or rebuilding of the necessary facilities we at least used to have before
should be immediately allocated and released and yet you were too slow in granting it; cra lawlib rary

2. Despite x x x my request for the allocation of the indispensable travel, representation and
accommodation allowances I need to have while staying in Virac because the
garage/terminal facilities remains in a messy condition but still you fail until now to provide
it to me because probably you want me to sleep at night along the sidewalks x x x; cralawlib rary

3. The manner and nature of work you would want me to do while in Virac is utterly a
deviation from my original work and in effect a demotion in rank; cralawlib rary

4. The place of work x x x was completely devoid of any office materials and equipments
needed in the nature of my work. To put in details there was no office table and
chairs, no filing cabinets for safekeeping of important documents, no ball-pens, no
bond papers etc. x x x [T]here is nothing at all in said place of work for me to say that
there was really an office of the General Manager. As a matter of fact, you know that
all my reports being submitted x x x are made possible by using my own personal
computer, my computer printer, my computer inks and even my own bond papers.

xxxx

6. The free place of accommodation I used to have before when staying in Cubao, Quezon City
remains non-existent x x x despite the fact that x x x I need to be [back] also in Cubao to
facilitate the restoration of our transport operation x x x.

Apropos to what petitioner viewed as a demeaning treatment dealt him by TAWTRASCO, the LA had stated
the ensuing observations in his April 14, 2008 Order: chan roblesv irtuallawl ib rary

In this case, however, this Branch finds that respondent [TAWTRASCO] indeed, complied with the
reinstatement of the complainant [petitioner Bañares], however, the office where he was assigned in Virac,
Catanduanes is not in good and tenantable condition. As shown in complainant’s Annex “F” which is the
photograph of the place, it is unsafe, dilapidated and in a messy situation. Confronted with this problem,
complainant requested fund from respondent for the rehabilitation of the office. However, this was not
favorably acted upon. To further rub salt in an open wound, respondent appointed a new General Manager
effective November 12, 2007 (Annexes “H” and “I”, complainant’s Memorandum). This conduct on the part
of respondent gave complainant the correct impression that the respondent did not intend to be bound by
the compromise agreement, and its non-materialization negated the very purpose for which it was
executed.22

Annex “F,” the photograph23 adverted to by the LA, tells it all. Indeed, petitioner could not reasonably be
expected to work in such a messy condition without any office space, office furniture, equipment and
supplies. And much less can petitioner lodge there. TAWTRASCO pointedly told petitioner through the
March 26, 2007 letter of Oliva denying his request for a PhP 1,700 lodging allowance that petitioner could
instead use the Virac office for his accommodation. It must be borne in mind––and TAWTRASCO has not
controverted the fact––that, prior to his illegal dismissal, petitioner was enjoying PhP 5,000-a-month free
lodging privilege while stationed in the Cubao terminal. Accordingly, this lodging privilege was supposed to
continue under the reinstatement package. But as it turned out, TAWTRASCO discontinued the
accommodation when it posted petitioner in Virac.

Under Article 223 of the Labor Code, an employee entitled to reinstatement “shall either be admitted back to
work under the same terms and conditions prevailing prior to his dismissal or separation x x
x.”24 Verily, an illegally dismissed employee is entitled to reinstatement without loss of seniority rights and
to other established employment privileges, and to his full backwages.25 The boarding house privilege being
an established perk accorded to petitioner ought to have been granted him if a real and authentic
reinstatement to his former position as general manager is to be posited.

It cannot be stressed enough that TAWTRASCO withheld petitioner’s salaries for and after his purported
refusal to report for work at the Virac terminal. The reality, however, is that TAWTRASCO veritably directed
petitioner to work under terms and conditions prejudicial to him, the most hurtful cut being that he was
required to work without a decent office partly performing a checker’s job. And this embarrassing work
arrangement is what doubtless triggered the refusal to work, which under the premises appears very much
justified.

Generally, employees have a demandable right over existing benefits voluntarily granted to them by their
employers. And if the grant or benefit is founded on an express policy or has, for a considerable period of
time, been given regularly and deliberately, then the grant ripens into a vested right26 which the employer
cannot unilaterally diminish, discontinue or eliminate27 without offending the declared constitutional policy
on full protection to labor.28 So it must be here with respect, at the minimum, to the lodging
accommodation which TAWTRASCO, as found by the NLRC, appears to have regularly extended for free for
some time to petitioner.

Contrary to TAWTRASCO’s posture and what the CA Decision implied, petitioner’s refusal, during the period

182
material, to report for work at the Virac terminal does not, without more, translate to abandonment. For
abandonment to exist, it is essential (1) that the employee must have failed to report for work or must have
been absent without valid or justifiable reason; and (2) that there must have been a clear intention to sever
the employer-employee relationship manifested by some overt acts.29 These concurring elements of
abandonment are not present in the instant case.

As reflected above, the reinstatement order has not been faithfully complied with. And varied but justifiable
reasons obtain which made petitioner’s work at the Virac terminal untenable. To reiterate, there was a lack
of a viable office: no proper office space, no office furniture and equipment, no office supplies. Petitioner’s
request for immediate remediation of the above unfortunate employment conditions fell on deaf ears. This
is not to mention petitioner’s board and lodging privilege which he was deprived of without so much as an
explanation. Thus, it could not be said that petitioner’s absence is without valid or justifiable cause.

But more to the point, petitioner has not manifested, by overt acts, a clear intention to sever his
employment with TAWTRASCO. In fact, after submitting his April 24, 2007 letter-explanation to, but not
receiving a reaction one way or another from, TAWTRASCO, petitioner lost no time in filing a complaint
against the former for, inter alia, nonpayment of salaries and forfeiture of boarding house
privilege. Thereafter, via a Manifestation, he sought the early issuance of an alias writ of execution
purposely for the full implementation of the final and executory LA August 22, 2006 Decision, i.e., for the
payment of his salaries and full reinstatement. These twin actions clearly argue against a finding of
abandonment on petitioner’s part. It is a settled doctrine that the filing of an illegal dismissal suit is
inconsistent with the charge of abandonment, for an employee who takes steps to protest his dismissal
cannot by logic be said to have abandoned his work.30 cralawvllred

Given the convergence of events and circumstances above described, the Court can readily declare that
TAWTRASCO admitted petitioner back to work under terms and conditions adversely dissimilar to those
prevailing before his illegal dismissal. Put a bit differently, petitioner was admitted back, but required to
work under conditions crafted to cause unnecessary hardship to or meant to be rejected by him. And to
reiterate, these conditions entailed a demotion in rank and diminution of perks and standard privileges. The
shabby and unfair treatment accorded him or her by the management of TAWTRASCO is definitely not
genuine reinstatement to his former position.

The Court finds, as did the NLRC and the LA, that petitioner was not truly reinstated by TAWTRASCO
consistent with the final and executory August 22, 2006 Decision of the LA and the February 5, 2007
Compromise Agreement inked by the parties in the presence of the hearing LA. Perforce, the assailed
decision and resolution of the CA must be set aside, and the April 14, 2008 Order of the LA, as effectively
affirmed in the July 7, 2009 Decision and November 18, 2009 Resolution of the NLRC, accordingly
reinstated.

Supervening events, however, had transpired which inexorably makes the reinstatement infeasible. For one,
on November 12, 2007, TAWTRASCO already appointed a new general manager. Petitioner no less has
raised this fact of appointment. As a matter of settled law, reinstatement and payment of backwages, as
the normal consequences of illegal dismissal, presuppose that the previous position from which the
employee has been removed is still in existence or there is an unfilled position of a nature, more or less,
similar to the one previously occupied by said employee.31 cralawv llre d

For another, a considerable period of time has elapsed since petitioner last reported to work in early 2007 or
practically a six-year period. And this protracted labor suit have likely engendered animosity and
exacerbated already strained relations between petitioner and his employer.

Reinstatement is no longer viable where, among other things, the relations between the employer and
employee have been so severely strained, that it is not in the best interest of the parties, nor is it advisable
or practical to order reinstatement.32 Under the doctrine of strained relations, payment of separation pay is
considered an acceptable alternative to reinstatement when the latter option is no longer desirable or
viable.33 Indeed, separation pay is made an alternative relief in lieu of reinstatement in certain
circumstances, such as: (1) when reinstatement can no longer be effected in view of the passage of a long
period of time or because of the realities of the situation; (2) reinstatement is inimical to the employer’s
interest; (3) reinstatement is no longer feasible; (4) reinstatement does not serve the best interests of the
parties involved; (5) the employer is prejudiced by the workers’ continued employment; (6) facts that make
execution unjust or inequitable have supervened; or (7) strained relations between the employer and the
employee.34 c ralawvl lred

Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month salary for
every year of service should be awarded as an alternative.35 In lieu of reinstatement, petitioner is entitled
to separation pay equivalent to one (1) month salary for every year of service reckoned from the time he
commenced his employment with TAWTRASCO until finality of this Decision.

In addition, petitioner is entitled to backwages and other emoluments due him from the time he did not
report for work on March 31, 2007 until the finality of this Decision. Said backwages and emoluments shall
earn 12% interest from finality of this Decision until fully paid. The payment of legal interest becomes a
necessary consequence of the finality of the Court’s Decision, because, reckoned from that time, the said
decision becomes a judgment for money which shall earn interest at the rate of 12% per annum.36 cralawvll red

In accordance with Art. 11137 of the Labor Code and in line with current jurisprudence,38 petitioner shall be
paid attorney’s fees in the amount equivalent to 10% of the monetary award.

183
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed Decision and Resolution dated
October 14, 2010 and June 15, 2011, respectively, of the CA in CA-G.R. SP No. 112542 are SET
ASIDE. The NLRC July 7, 2009 Decision and November 18, 2009 Resolution as well as the April 14, 2008
Order of the Labor Arbiter are hereby REINSTATED with MODIFICATION in that the Tabaco Women’s
Transport Service Cooperative is ORDERED to pay petitioner Alexander B. Bañares the following: cralaw

(1) Backwages and other emoluments due to petitioner from March 31, 2007 when petitioner did not report
for work until finality of this Decision with interest thereon at 12% per annum from finality of this Decision
until paid; c ralawli bra ry

(2) Separation pay equivalent to one (1) month salary for every year of service reckoned from the time he
started his employment with TAWTRASCO until the finality of this Decision; and

(3) 10% attorney’s fees computed from the total monetary benefits.

The case is REMANDED to the RAB V of the NLRC in Legaspi City for the computation, as expeditiously as
possible, of the monetary awards.

No pronouncement as to costs. ???ñ r?bl ?š ??r†??l l ?? l?b r?rÿ

SO ORDERED.

Peralta, Abad, Mendoza, and Leonen, JJ., concur.

Endnotes:

1
“Services” in some parts of the records.

2
Rollo, pp. 67-87. Penned by Associate Justice Mariflor P. Punzalan Castillo and concurred in by Associate
Justices Josefina Guevara-Salonga and Franchito N. Diamante.

3
Id. at 126-127.

4
Id. at 145-151. Penned by Commissioner Isabel G. Panganiban-Ortiguerra and concurred in by Presiding
Commissioner Benedicto R. Palacol and Commissioner Nieves Vivar-De Castro.

5
Id. at 153-156.

6
Id. at 140-143. Penned by Executive Labor Arbiter Jose C. Del Valle, Jr.

7
Id. at 224-235.

8
Id. at 238. The Order reads:
Considering that the decision rendered hereat, including the reinstatement salaries due [petitioner] have
already been fully satisfied, wherein complainant shall be reinstated back to his former position effective
February 6, 2007 and paid his three (3) months reinstatement salaries in three (3) monthly installments, let
this case be, as it is hereby ordered CLOSED, TERMINATED and ARCHIVED.

SO ORDERED.
9
Id. at 103-104.

10
Id. at 105, erroneously dated as March 12, 2006.

11
Id. at 106.

12
CA rollo, p. 92.

13
Rollo, pp. 111-112.

14
CA rollo, p. 152.

15
Rollo, pp. 142-143.

16
Id. at 35-36.

17
Union Motor Corporation v. NLRC, G.R. No. 159738, December 9, 2004, 445 SCRA 683, 689-690.

18
Labor Code, Art. 223.

19
Pfizer, Inc. v. Velasco, G.R. No. 177467, March 9, 2011, 645 SCRA 135, 146-147.

20
Norkis Trading Co., Inc. v. Gnilo, G.R. No. 159730, February 11, 2008, 544 SCRA 279, 289.

21
Rollo, p. 103.

184
22
Id. at 142.

23
Id. at 110.

24
Pfizer, Inc. v. Velasco, supra note 19, at 146.

25
Genuino Ice Company, Inc. v. Lava, G.R. No. 190001, March 23, 2011, 646 SCRA 385, 389; citing FF
Marine Corporation v. National Labor Relations Commission, G.R. No. 152039, April 8, 2005, 455 SCRA 155.

26
Barroga v. Data Center College of the Philippines, G.R. No. 174158, June 27, 2011, 652 SCRA 676, 688;
citing TSPIC Corporation v. TSPIC Employees Union (FFW), G.R. No. 163419, February 13, 2008, 545 SCRA
215, 232.

University of the East v. University of the East Employees’ Association, G.R. No. 179593, September 14,
27

2011, 657 SCRA 637, 650; citing Labor Code, Art. 100.

Arco Metal Products Co., Inc. v Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU),
28

G.R. No. 170734, May 14, 2008, 554 SCRA 110, 118.

29
E.G. & I. Construction Corporation v. Sato, G.R. No. 182070, February 16, 2011, 643 SCRA 492, 499-
500; citing Padilla Machine Shop v. Javilgas, G.R. No. 175960, February 19, 2008, 546 SCRA 351, 357.

30
Automotive Engine Rebuilders, Inc. (AER) v. Progresibong Unyon ng mag Manggagawa sa AER, G.R. No.
160138, July 13, 2011, 653 SCRA 738, 758.

31
San Miguel Properties Philippines, Inc. v. Gucaban, G.R. No. 153982, July 18, 2011, 654 SCRA 18, 34
(citations omitted).

32
DUP Sound Phils. v. Court of Appeals, G.R. No. 168317, November 21, 2011, 660 SCRA 461, 473;
citing Golden Ace Builders v. Talde, G.R. No. 187200, May 5, 2010, 620 SCRA 283, 289; AFI International
Trading Corp. (Zamboanga Buying Station) v. Lorenzo, G.R. No. 173256, October 9, 2007, 535 SCRA 347,
355; City Trucking, Inc. v. Balajadia, G.R. No. 160769, August 9, 2006, 498 SCRA 309, 317; Cabatulan v.
Buat, G.R. No. 147142, February 14, 2005, 451 SCRA 234, 247.

33
Uy v. Centro Ceramica Corporation, G.R. No. 174631, October 19, 2011, 659 SCRA 604, 618;
citing Century Canning Corporation v. Ramil, G.R. No. 171630, August 9, 2010, 627 SCRA 192, 206.

34
Abaria v. NLRC, G.R. No. 154113, December 7, 2011, 661 SCRA 686, 715; citing Escario v. NLRC (Third
Division), G.R. No. 160302, September 27, 2010, 631 SCRA 261, 275.

35
DUP Sound Phils. v. Court of Appeals, supra note 32, at 474; citing Diversified Security, Inc. v. Bautista,
G.R. No. 152234, April 15, 2010, 618 SCRA 289, 296 and Macasero v. Southern Industrial Gases Philippines,
Inc., G.R. No. 178524, January 30, 2009, 577 SCRA 500, 507.

36
Molina v. Pacific Plans, Inc., G.R. No. 165476, August 15, 2011, 655 SCRA 356, 362.

37
ART. 111. Attorney’s Fees. — (a) In cases of unlawful withholding of wages, the culpable party may be
assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.

38
Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union v. Manila Water
Company, Inc., G.R. No. 174179, November 16, 2011, 660 SCRA 263, 273-274; RTG Construction, Inc. v.
Facto, G.R. No. 163872, December 21, 2009, 608 SCRA 615; Ortiz v. San Miguel Corporation, G.R. Nos.
151983-84, July 31, 2008, 560 SCRA 654.

185
 THIRD DIVISION

[G.R. No. 153982 : July 18, 2011]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., PETITIONER, VS. GWENDELLYN ROSE S.

GUCABAN, RESPONDENT.

DECISION

PERALTA, J.:

This is a Petition for Review under Rule 45 of the Rules of Court assailing the April 11, 2002 Decision [1]of
the Court of Appeals in CA-G.R. SP No. 60135, as well as the June 14, 2002 Resolution [2] therein which
denied reconsideration. The assailed decision affirmed the November 29, 1999 decision [3] of the National
Labor Relations Commission (NLRC) in NLRC NCR-CA No. 019439-99, but modified the award of damages in
the case. In turn, the decision of the NLRC had reversed and set aside the finding of illegal dismissal in the
March 26, 1999 ruling [4] of the Labor Arbiter in NLRC NCR Case No. 00-06-05215-98.

The facts follow.

Respondent Gwendellyn Rose Gucaban (Gucaban) was well into the tenth year of her career as a licensed
civil engineer when she joined the workforce of petitioner San Miguel Properties Philippines, Inc. (SMPI) in
1991. Initially engaged as a construction management specialist, she, by her satisfactory performance on
the job, was promoted in 1994 and 1995, respectively, to the position of technical services manager, and
then of project development manager. As project development manager, she also sat as a member of the
company's management committee. She had been in continuous service in the latter capacity until her
severance from the company in February 1998. [5]

In her complaint [6] for illegal dismissal filed on June 26, 1998, Gucaban alleged that her separation from
service was practically forced upon her by management. She claimed that on January 27, 1998, she was
informed by SMPI's President and Chief Executive Officer, Federico Gonzalez (Gonzalez), that the company
was planning to reorganize its manpower in order to cut on costs, and that she must file for resignation or
otherwise face termination. Three days later, the Human Resource Department allegedly furnished her a
blank resignation form which she refused to sign. From then on, she had been hounded by Gonzalez to sign
and submit her resignation letter. [7]

Gucaban complained of the ugly treatment which she had since received from Gonzalez and the
management supposedly on account of her refusal to sign the resignation letter. She claimed she had been
kept off from all the meetings of the management committee, [8] and that on February 12, 1998, she
received an evaluation report signed by Gonzalez showing that for the covered period she had been
negligent and unsatisfactory in the performance of her duties. [9] She found said report to be unfounded
and unfair, because no less than the company's Vice-President for Property Management, Manuel Torres
(Torres), in a subsequent memorandum, had actually vouched for her competence and efficiency on the
job. [10] She herself professed having been consistently satisfactory in her job performance as shown by her
successive promotions in the company. [11] It was supposedly the extreme humiliation and alienation that
impelled her to submit a signed resignation letter on February 18, 1998. [12]

Gucaban surmised that she had merely been tricked by SMPI into filing her resignation letter because it
never actualized its reorganization and streamlining plan; on the contrary, SMPI allegedly expanded its
employee population and also made new appointments and promotions to various other positions. She felt
that she had been dismissed without cause and, hence, prayed for reinstatement and payment of backwages
and damages. [13]

SMPI argued that it truly encountered a steep market decline in 1997 that necessitated cost-cutting
measures and streamlining of its employee structure which, in turn, would require the abolition of certain
job positions; Gucaban's post as project development manager was one of such positions. As a measure of
generosity, it allegedly proposed to Gucaban that she voluntarily resign from office in consideration of a
financial package [14] - an offer for which Gucaban was supposedly given the first week of February 1998 to
evaluate. Gucaban, however, did not communicate her acceptance of the offer and, instead, she allegedly
conferred with the Human Resource Department and negotiated to augment her benefits package. [15]

SMPI claimed that Gucaban was able to grasp the favorable end of the bargain and, expectant of an even
more generous benefits package, she voluntarily tendered her resignation effective February 27, 1998. On
the day before her effective date of resignation, she signed a document denominated as Receipt and
Release whereby she acknowledged receipt of P1,131,865.67 cash representing her monetary benefits and
waived her right to demand satisfaction of any employment-related claims which she might have against
management. [16] SMPI admitted having made several other appointments in June 1998, but the same,
however, were supposedly part of the full implementation of its reorganization scheme. [17]

In its March 26, 1999 Decision, [18]

the Labor Arbiter dismissed the complaint for lack of merit, thus:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for lack of merit.

SO ORDERED. [19]

186
Addressing in the affirmative the issue of whether the subject resignation was voluntary, the Labor Arbiter
found no proven force, coercion, intimidation or any other circumstance which could otherwise invalidate
Gucaban's resignation. He found incredible Gucaban's claim of humiliation and alienation, because the mere
fact that she was excluded from the meetings of the management committee would not be so humiliating
and alienating as to compel her to decide to leave the company. [20] He likewise dismissed her claim that
SMPI merely feigned the necessity of reorganization in that while the company indeed made new other
appointments following Gucaban's resignation, still, this measure was an implementation of its
reorganization plan. [21]

Gucaban appealed to the NLRC [22] which, in its November 29, 1999 Decision, [23] reversed the ruling of the
Labor Arbiter. Finding that Gucaban has been illegally dismissed, it ordered her reinstatement without loss
of seniority rights and with full backwages, as well as ordered the award of damages and attorney's fees. It
disposed of the appeal as follows:

WHEREFORE, the appealed decision is SET ASIDE. On the basis of our finding that the complainant was
illegally dismissed, judgment is hereby rendered directing the respondent to reinstate complainant to her
position last held, and to pay her full backwages computed from the time of her dismissal until she is
actually reinstated. As alleged and prayed for in the complaint, the respondent is likewise directed to pay
complainant moral damages limited however to P200,000.00, exemplary damages of P100,000.00, and ten
percent (10%) of the total award as attorney's fees.

SO ORDERED. [24]

SMPI sought reconsideration, [25]

but it was denied. [26]
It elevated the matter to the Court of Appeals via a
petition for certiorari. [27]

On April 11, 2002, the Court of Appeals issued the assailed Decision [28] finding partial merit in the petition.
It affirmed the NLRC's finding of illegal/constructive dismissal, but modified the monetary award as follows:

WHEREFORE, we grant the petition for certiorari insofar only in the granting of the exorbitant amount of
P200,000.00 moral damages and P100,000.00 exemplary damages.

The damages awarded are reduced to P50,000.00 moral damages and P25,000.00 exemplary damages as
discussed in the text of the decision. The ten percent (10%) awarded for attorneys fees shall be based on
the total amount awarded.

SO ORDERED. [29]

SMPI's motion for reconsideration was denied; [30]

hence, this recourse to the Court.

SMPI posits that the Court of Appeals' finding of illegal dismissal was at best conjectural, based as it is on a
misapprehension of facts and on Gucaban's self-serving allegations of alienation and humiliation which,
nevertheless, could not have given sufficient motivation for her to resign. It insists that Gucaban, in
exchange for a benefits package, has voluntarily tendered her resignation following the presentation to her
of the possibility of company reorganization and of the resulting abolition of her office as necessitated by the
company's business losses at the time. It adds that Gucaban has, in fact, been able to negotiate with the
company for a better separation package which she voluntarily accepted as shown by her unconditional
resignation letter and the accompanying Receipt and Release form. [31] It cites Samaniego v.
NLRC, [32] Sicangco v. NLRC, [33] Domondon v. NLRC [34] and Guerzon v. Pasig Industries, Inc. [35] to support
its cause. [36]

Gucaban stands by the uniform findings of the NLRC and the Court of Appeals. In her Comment on the
Petition, she points out that indeed SMPI was unable to conclusively refute the allegations in her complaint,
particularly those which negate the voluntariness of her resignation. [37] She insists that SMPI had no
intention to reorganize at the time the option to resign was presented to her. She discloses that while
actual reorganization took place more than a year after she was fraudulently eased out of the company, the
said measure was supposedly brought about by the change in management and not by a need to cut on
expenditures. In connection with this, she surmises why would SMPI actually implement its reorganization
plan belatedly if there were, at the time of her resignation, an existing need to cut on costs, and why would
those affected employees be given financial benefits far better than hers. [38] She concludes that given the
foregoing, the cases relied on by petitioner do not apply to the case at bar. [39]

Replying, SMPI counters that the fact that the company had undertaken an albeit belated reorganization
would mean that there was such a plan in existence at the time of Gucaban's resignation. It professes that
in June 1998, the company designated several of its personnel to different positions which, therefore,
indicates a reorganization following respondent's resignation. Moreover, it points out that Gucaban's claim
of trickery does not sit well with the fact that she is a well-educated person who naturally cannot be
inveigled into resigning from employment against her will. [40]

Prefatorily, we note in this case the inconsistency in the factual findings and conclusions of the Labor Arbiter
and the NLRC, yet the incongruence has already been addressed and settled by the Court of Appeals which
affirmed the NLRC. Not being a trier of facts, this Court then ought to accord respect if not finality to the
findings of the Court of Appeals, especially since, as will be shown, they are substantiated by the availing
records. [41] Hence, we deny the petition.

187
Resignation - the formal pronouncement or relinquishment of a position or office - is the voluntary act of an
employee who is in a situation where he believes that personal reasons cannot be sacrificed in favor of the
exigency of the service, and he has then no other choice but to disassociate himself from
employment. [42] The intent to relinquish must concur with the overt act of relinquishment; [43] hence, the
acts of the employee before and after the alleged resignation must be considered in determining whether he
in fact intended to terminate his employment. [44] In illegal dismissal cases, fundamental is the rule that
when an employer interposes the defense of resignation, on him necessarily rests the burden to prove that
the employee indeed voluntarily resigned. [45] Guided by these principles, we agree with the Court of
Appeals that with the availing evidence, SMPI was unable to discharge this burden.

While indeed the abolition of Gucaban's position as a consequence of petitioner's supposed reorganization
plan is not the ground invoked in this case of termination, still, the question of whether or not there was
such reorganization plan in place at the time of Gucaban's separation from the company, is material to the
determination of whether her resignation was of her own volition as claimed by SMPI, inasmuch as the facts
of this case tell that Gucaban could not have filed for resignation had Gonzalez not communicated to her the
alleged reorganization plan for the company.

In all stages of the proceedings, SMPI has been persistent that there was an existing reorganization plan in
1998 and that it was implemented shortly after the effective date of Gucaban's resignation. As proof, it
submitted a copy of its June 9, 1998 Memorandum which shows that new appointments had been made to
various positions in the company. A fleeting glance at the said document, however, tells that there were
four high-ranking personnel who received their respective promotions, yet interestingly it tells nothing of a
reorganization scheme being implemented within the larger corporate structure. [46]

Equally interesting is that SMPI, in its Supplemental Argument to the Motion for Reconsideration filed with
the NLRC, attached copies of the notices it sent to the Department of Labor and Employment on July 13,
1999 and December 29, 1998 to the effect that effective February 15, August 15 and September 15, 1999 it
would have to terminate the services of its 76 employees due to business losses and financial
reverses. [47] True, while a reorganization of SMPI's corporate structure might have indeed taken place as
shown by these notices, nevertheless, it happened only in the latter part of 1999 - or more than a year after
Gucaban's separation from the company and incidentally, after she filed the instant complaint. [48] SMPI's
claim in this respect all the more loses its bearing, considering that said corporate restructuring was brought
about rather by the sudden change in management than the need to cope with business losses. And this
fact has been explained by Gucaban in her Comment and in her Memorandum filed with the Court of
Appeals. [49]

It is not difficult to see that, shortly prior to and at the time of Gucaban's alleged resignation, there was
actually no genuine corporate restructuring plan in place as yet. In other words, although the company
might have been suffering from losses due to market decline as alleged, there was still no concrete plan for
a corporate reorganization at the time Gonzalez presented to Gucaban the seemingly last available
alternative options of voluntary resignation and termination by abolition of her office. Certainly, inasmuch
as the necessity of corporate reorganization generally lies within the exclusive prerogative of management,
Gucaban at that point had no facility to ascertain the truth behind it, and neither was she in a position to
question it right then and there. Indeed, she could not have chosen to file for resignation had SMPI not
broached to her the possibility of her being terminated from service on account of the supposed
reorganization.

It is then understandable for Gucaban, considering the attractive financial package which SMPI admittedly
offered to her, to opt for resignation instead of suffer termination - a consequence the certainty of which she
was made to believe. As rightly noted by the Court of Appeals, that there was no actual reorganization plan
in place when Gucaban was induced to resign, and that she had been excluded from the meetings of the
management committee since she refused to sign her resignation letter followed by the soured treatment
that caused her humiliation and alienation, are matters which SMPI has not directly addressed and
successfully refuted. [50]

Another argument advanced by SMPI to support its claim that the resignation of Gucaban was voluntary is
that the latter has actually been given ample time to weigh her options and was, in fact, able to negotiate
with management for improved benefits. Again, this contention is specious as the same is not supported by
the availing records. [51] Indeed, as clarified by Gucaban, the increased benefits was the result of practice
sanctioned and even encouraged by the mother company in favor of those availing of early retirement and
that the increased basic monthly rate in the computation of the benefits is applied to April and retroacts to
January. [52]

Besides, whether there have been negotiations or not, the irreducible fact remains that Gucaban's
separation from the company was the confluence of the fraudulent representation to her that her office
would be declared redundant, coupled with the subsequent alienation which she suffered from the company
by reason of her refusal to tender resignation. The element of voluntariness in her resignation is, therefore,
missing. She had been constructively and, hence, illegally dismissed as indeed her continued employment is
rendered impossible, unreasonable or unlikely under the circumstances. [53] The observation made by the
Court of Appeals is instructive:

x x x As correctly noted by public respondent NLRC, respondent Gucaban did not voluntarily resign but was
forced to do so because of petitioner's representation regarding its planned reorganization. Mr. Gonzale[z]
informed respondent that if she does not resign from her employment, she shall be terminated which would
mean less financial benefits than that offered to her. When respondent initially refused, petitioner's

188
subsequent actions as alleged by respondent which were not rebutted by petitioner, show that she is being
eased out from the company. Said actions rendered respondent's continuous employment with petitioner
impossible, unreasonable and unlikely. x x x

x x x [R]esignation must be voluntary and made with the intention of relinquishing the office, accompanied
with an act of relinquishment. Indeed, it would have been illogical for private respondent herein to resign
and then file a complaint for illegal dismissal. Resignation is inconsistent with the filing of the said complaint.
xxx

x x x Since respondent could not have resigned absent petitioner's broaching to her the idea of voluntary
resignation instead of retrenchment, coupled with petitioner's acts of discrimination, petitioner in effect
forced respondent to resign. The same is constructive dismissal and is a dismissal without cause. x x x

As respondent was dismissed without cause, the NLRC ruling is correct that she is entitled to reinstatement
and backwages, the latter to be computed from her dismissal up to the time of her actual reinstatement
pursuant to Art. 279 of the Labor Code. [54]

At this juncture, we find that the cases invoked by SMPI are hardly supportive of its
case. In Samaniego, one of the issues addressed by the Court is whether the resignation of petitioners
therein was voluntary; but while the matter of reorganization was indeed raised as a peripheral issue,
nevertheless, the same has dealt merely with the validity thereof. As in the cases
of Domondon and Guerzon, the Court, in Samaniego, did not tackle the matter of the existence or non-
existence of a genuine and bona fidereorganization at the time the option to resign was presented to the
employee as would affect his decision to voluntarily resign or not. And in Sicangco, the Court dismissed the
allegation of involuntary resignation by a well-educated employee because there was no proven fraud,
intimidation or undue influence that could support it. In the instant case, the pressing matter is whether
there was in place a genuine reorganization plan awaiting immediate implementation in good faith at or
about the time Gucaban resolved to hand in her resignation letter. This issue is primordial, because to
reiterate, Gucaban indeed would not have opted to resign without the company having laid out to her its
prospect of a corporate restructuring - which SMPI failed to establish as existing at the time - as well as the
certainty of a consequent termination should she not resign.

A final word. Moral damages are awarded in termination cases where the employee's dismissal was
attended by bad faith, malice or fraud, or where it constitutes an act oppressive to labor, or where it was
done in a manner contrary to morals, good customs or public policy [55] In Gucaban's case, the said bases
indeed obtain when she was fraudulently induced to resign and accede to a quitclaim upon the false
representation of an impending and genuine reorganization as well as on the pretext that such option would
be the most beneficial. This, coupled with the subsequent oppression that immediately preceded her
involuntary resignation, deserves an award of moral damages consistent with the Court of Appeals'
ruling. Accordingly, Gucaban is likewise entitled to exemplary damages as decreed by the Court of Appeals.

Lastly, reinstatement and payment of backwages, as the normal consequences of illegal dismissal,
presuppose that the previous position from which the employee has been removed is still in existence or
there is an unfilled position of a nature, more or less, similar to the one previously occupied by said
employee. [56] Yet, it has been more than a decade since the incident which led to Gucaban's involuntary
resignation took place and, hence, with the changes in SMPI's corporate structure through the years, the
former position occupied by Gucaban, or an equivalent thereof, may no longer be existing or is currently
occupied. Furthermore, there is the possibility that Gucaban's rejoining SMPI's workforce would only
exacerbate the tension and strained relations which in the first place had given rise to this incident. This,
considering that as project development manager she was holding a key position in the company founded on
trust and confidence and, hence, there is also the possibility of compromising her efficiency and productivity
on the job. [57] For these two reasons, the ruling of the Court of Appeals is modified in this respect. In lieu
of reinstatement, an award of separation pay is in order, equivalent to one (1) month salary for every year
of service.

WHEREFORE, the Petition is DENIED. The April 11, 2002 Decision of the Court of Appeals in CA-G.R. SP
No. 60135, as well as its June 14, 2002 Resolution, are hereby AFFIRMED with the MODIFICATIONthat
petitioner San Miguel Properties Philippines, Inc. is DIRECTED to pay respondent Gwendellyn Rose S.
Gucaban separation pay in lieu of reinstatement and backwages. The case is REMANDED to the Labor
Arbiter for execution and for the proper determination of respondent's separation pay, less any amount
which she may have received as financial assistance.

SO ORDERED.

Carpio,* Velasco, Jr., (Chairperson), Abad, and Mendoza, JJ., concur.

Endnotes:

*
Designated additional member per Special Order No. 1042 dated July 6, 2011.

Penned by Associate Justice Ma. Alicia Austria-Martinez (now retired Associate Justice of the Supreme
[1]

Court), with Associate Justices Hilarion L. Aquino and Mercedes Gozo-Dadole, concurring; rollo, pp. 60-68.

[2]
Id. at 70.

189
[3]
The decision was signed by Commissioner Vicente S.E. Veloso, with Presiding Commissioner Rogelio I.
Rayala (on leave) and Commissioner Alberto R. Quimpo, concurring; CA rollo, pp. 40-51.

[4]
The decision was signed by Labor Arbiter Pablo C. Espiritu, Jr.; id. at 136-150.

[5]
CA rollo, pp. 47, 137, 255, 387.

[6]
The complaint was docketed as NLRC case No. 00-06-05215-98, id. at 245-253.

[7]
CA rollo, pp. 245-249.

[8]
Id. at 249-253.

[9]
Annex "F" of the Complaint, id. at 278-280.

[10]
Annex "G" of the Complaint, id. at 281.

[11]
CA rollo, p. 250. See also Annexes "H," "I" and "J" of the Complaint, id. at 282-286.

[12]
Annex "K" of the Complaint, id. at 292.

[13]
CA rollo, p. 251.

[14]
Id. at 387.

[15]
Id. at 54-69, 412-417.

[16]
Id. at 88.

[17]
Annex "6" of Petitioner's Position Paper filed with the Labor Arbiter, id. at 89. See also CA rollo, pp. 60,
89.

[18]
The decision was signed by Labor Arbiter Pablo C. Espiritu, Jr.; id. at 136-150.

[19]
Id. at 150.

[20]
CA rollo, pp. 142-143.

[21]
Id. at 144.

[22]
Id. at 151-171.

[23]
The decision was signed by Commissioner Vicente S.E. Veloso; id. at 40-50.

[24]
Id. at 49-50.

[25]
Rollo, pp. 210-221.

[26]
Id. at 251-252.

[27]
CA rollo, pp. 2-30.

[28]
Id. at 386-393.

[29]
Id. at 393.

[30]
Id. at 420.

[31]
Rollo, pp. 379-385.

[32]
G.R. No. 93059, June 3, 1991, 198 SCRA 111.

[33]
G.R. No. 110261, August 4, 1994, 235 SCRA 96.

[34]
508 Phil. 541 (2005).

[35]
G.R. No. 170266, September 12, 2008, 565 SCRA 120.

Rollo, pp. 372-377, 898-900. See also Manifestation dated March 6, 2009 and Manifestation dated
[36]

November 14, 2005, rollo, pp. 860-862.

[37]
Id. at 709-711.

[38]
Id. at 712-715. See also Memorandum, id. at 877-881.

190
[39]
Id., at 712.

[40]
Petitioner's Memorandum, id. at 905-908.

Procter and Gamble Philippines v. Bondesto, 468 Phil. 932, 941 (2004); Hantex Trading Co., Inc. v.
[41]

Court of Appeals, 438 Phil. 737, 743 (2002); Permex, Inc. v. NLRC, 380 Phil. 79, 85 (2000).

Nationwide Security and Allied Services, Inc. v. Ronald P. Valderama, G.R. No. 186614, February 23,
[42]

2011; Alfaro v. Court of Appeals, 416 Phil. 310, 320 (2001), citing Philippine Wireless, Inc. (Pocketbell) v.
NLRC, 310 SCRA 363 (1999), Valdez v. NLRC, 286 SCRA 87 (1998) and Habana v. NLRC, 298 SCRA 537
(1998); Intertrod Maritime, Inc. v. NLRC, G.R. No. 81087, June 19, 1991, 198 SCRA 318, 323. See also
Batongbacal v. Associated Bank, 250 Phil. 602, 608 (1988).

Nationwide Security and Allied Services, Inc. v. Ronald P. Valderama, supra; Cheniver Deco Print
[43]

Technics, Corp. v. NLRC, 382 Phil. 651, 659 (2000), citing Pascua v. NLRC, 287 SCRA 554 (1998).

[44]
Nationwide Security and Allied Services, Inc. v. Ronald P. Valderama, supra note 42.

[45]
Id.

[46]
See CA rollo, p. 89.

[47]
Id. at 198-211.

[48]
See Notices of Termination submitted by SMPI to the Department of Labor and Employment involving 42
of its employees on the ground that its business was suffering reverses and losses. Id. at 206-211.

[49]
CA rollo, pp. 238-239, 318-319.

[50]
Id. at 391.

[51]
Id.

[52]
Id. at 320-321, 391.

See Philippine Japan Active Carbon Corporation v. NLRC, G.R. No. 83239, March 8, 1989, 253 SCRA 149,
[53]

153.

[54]
CA rollo, pp. 390-391.

Mayon Hotel and Restaurant v. Adana, 497 Phil. 892, 922 (2005); Litonjua Group of Companies v. Vigan,
[55]

412 Phil. 627, 643 (2001); Equitable Banking Corp. v. NLRC, 339 Phil. 541, 565 (1997); and Airline Pilots
Association of the Philippines v. NLRC, 328 Phil. 814, 830 (1996). See Maglutac v. NLRC, G.R. Nos. 78345
and 78637, September 21, 1990, 189 SCRA 767, citing Guita v. Court of Appeals, 139 SCRA 576 (1985).

See General Milling Corporation v. Casio, G.R. No. 149552, March 10, 2010, 615 SCRA 13; Escobin v.
[56]

NLRC, 351 Phil. 973, 1000 (1998).

See Cabigting v. San Miguel Foods, Inc., G.R. No. 167706, November 5, 2009, 605 SCRA 14 and Globe
[57]

Mackay Cable and Radio Corporation v. NLRC, G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711.

191
 EN BANC

JENNY M. AGABON and G.R. No. 158693

VIRGILIO C. AGABON,
Petitioners, Present:

Davide, Jr., C.J.,

Puno,
Panganiban,
Quisumbing,
Ynares-Santiago,
Sandoval-Gutierrez,
- versus - Carpio,
Austria-Martinez,
Corona,
Carpio-Morales,
Callejo, Sr.,
Azcuna,
Tinga,
Chico-Nazario, and
Garcia, JJ.
NATIONAL LABOR RELATIONS
COMMISSION (NLRC), RIVIERA
HOME IMPROVEMENTS, INC. Promulgated:
and VICENTE ANGELES,
Respondents. November 17, 2004
x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

192
This petition for review seeks to reverse the decision[1] of the Court of Appeals
dated January 23, 2003, in CA-G.R. SP No. 63017, modifying the decision of National
Labor Relations Commission (NLRC) in NLRC-NCR Case No. 023442-00.

Private respondent Riviera Home Improvements, Inc. is engaged in the business of

selling and installing ornamental and construction materials. It employed
petitioners Virgilio Agabon and Jenny Agabon as gypsum board and cornice
installers on January 2, 1992[2] until February 23, 1999 when they were dismissed
for abandonment of work.

Petitioners then filed a complaint for illegal dismissal and payment of money
[3]
claims and on December 28, 1999, the Labor Arbiter rendered a decision
declaring the dismissals illegal and ordered private respondent to pay the monetary
claims. The dispositive portion of the decision states:

WHEREFORE, premises considered, We find the termination of the complainants

illegal. Accordingly, respondent is hereby ordered to pay them their backwages up
to November 29, 1999 in the sum of:

1. Jenny M. Agabon - P56, 231.93

2. Virgilio C. Agabon - 56, 231.93

and, in lieu of reinstatement to pay them their separation pay of one (1) month for
every year of service from date of hiring up to November 29, 1999.

Respondent is further ordered to pay the complainants their holiday pay and service
incentive leave pay for the years 1996, 1997 and 1998 as well as their premium pay
for holidays and rest days and Virgilio Agabons 13th month pay differential
amounting to TWO THOUSAND ONE HUNDRED FIFTY (P2,150.00) Pesos, or
the aggregate amount of ONE HUNDRED TWENTY ONE THOUSAND SIX
HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for Jenny Agabon,
and ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED
TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per
attached computation of Julieta C. Nicolas, OIC, Research and Computation Unit,
NCR.

SO ORDERED.[4]

On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners
had abandoned their work, and were not entitled to backwages and separation pay.
The other money claims awarded by the Labor Arbiter were also denied for lack of
evidence.[5]
Upon denial of their motion for reconsideration, petitioners filed a petition for
certiorari with the Court of Appeals.

193
The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal
because they had abandoned their employment but ordered the payment of money
claims. The dispositive portion of the decision reads:
WHEREFORE, the decision of the National Labor Relations Commission is
REVERSED only insofar as it dismissed petitioners money claims. Private
respondents are ordered to pay petitioners holiday pay for four (4) regular holidays
in 1996, 1997, and 1998, as well as their service incentive leave pay for said years,
and to pay the balance of petitioner Virgilio Agabons 13th month pay for 1998 in
the amount of P2,150.00.

SO ORDERED.[6]

Hence, this petition for review on the sole issue of whether petitioners were illegally
dismissed.[7]

Petitioners assert that they were dismissed because the private respondent
refused to give them assignments unless they agreed to work on a pakyaw basis
when they reported for duty on February 23, 1999. They did not agree on this
arrangement because it would mean losing benefits as Social Security System (SSS)
members. Petitioners also claim that private respondent did not comply with the twin
requirements of notice and hearing.[8]

Private respondent, on the other hand, maintained that petitioners were not dismissed
but had abandoned their work.[9] In fact, private respondent sent two letters to the
last known addresses of the petitioners advising them to report for work. Private
respondents manager even talked to petitioner Virgilio Agabon by telephone
sometime in June 1999 to tell him about the new assignment at Pacific Plaza Towers
involving 40,000 square meters of cornice installation work. However, petitioners
did not report for work because they had subcontracted to perform installation work
for another company. Petitioners also demanded for an increase in their wage to
P280.00 per day. When this was not granted, petitioners stopped reporting for work
and filed the illegal dismissal case.[10]
It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are
accorded not only respect but even finality if the findings are supported by
substantial evidence. This is especially so when such findings were affirmed by the
Court of Appeals.[11] However, if the factual findings of the NLRC and the Labor
Arbiter are conflicting, as in this case, the reviewing court may delve into the records
and examine for itself the questioned findings.[12]

Accordingly, the Court of Appeals, after a careful review of the facts, ruled
that petitioners dismissal was for a just cause. They had abandoned their
employment and were already working for another employer.
To dismiss an employee, the law requires not only the existence of a just and valid
cause but also enjoins the employer to give the employee the opportunity to be heard
and to defend himself.[13] Article 282 of the Labor Code enumerates the just causes

194
for termination by the employer: (a) serious misconduct or willful disobedience by
the employee of the lawful orders of his employer or the latters representative in
connection with the employees work; (b) gross and habitual neglect by the employee
of his duties; (c) fraud or willful breach by the employee of the trust reposed in him
by his employer or his duly authorized representative; (d) commission of a crime or
offense by the employee against the person of his employer or any immediate
member of his family or his duly authorized representative; and (e) other causes
analogous to the foregoing.
Abandonment is the deliberate and unjustified refusal of an employee to resume his
employment.[14] It is a form of neglect of duty, hence, a just cause for termination of
employment by the employer.[15] For a valid finding of abandonment, these two
factors should be present: (1) the failure to report for work or absence without valid
or justifiable reason; and (2) a clear intention to sever employer-employee
relationship, with the second as the more determinative factor which is manifested
by overt acts from which it may be deduced that the employees has no more intention
to work. The intent to discontinue the employment must be shown by clear proof
that it was deliberate and unjustified.[16]
In February 1999, petitioners were frequently absent having subcontracted for an
installation work for another company. Subcontracting for another company clearly
showed the intention to sever the employer-employee relationship with private
respondent. This was not the first time they did this. In January 1996, they did not
report for work because they were working for another company. Private respondent
at that time warned petitioners that they would be dismissed if this happened again.
Petitioners disregarded the warning and exhibited a clear intention to sever their
employer-employee relationship. The record of an employee is a relevant
consideration in determining the penalty that should be meted out to him.[17]

In Sandoval Shipyard v. Clave,[18] we held that an employee who deliberately

absented from work without leave or permission from his employer, for the purpose
of looking for a job elsewhere, is considered to have abandoned his job. We should
apply that rule with more reason here where petitioners were absent because they
were already working in another company.
The law imposes many obligations on the employer such as providing just
compensation to workers, observance of the procedural requirements of notice and
hearing in the termination of employment. On the other hand, the law also recognizes
the right of the employer to expect from its workers not only good performance,
adequate work and diligence, but also good conduct[19] and loyalty. The employer
may not be compelled to continue to employ such persons whose continuance in the
service will patently be inimical to his interests.[20]

After establishing that the terminations were for a just and valid cause, we now
determine if the procedures for dismissal were observed.

195
 The procedure for terminating an employee is found in Book VI, Rule I,
Section 2(d) of the Omnibus Rules Implementing the Labor Code:

Standards of due process: requirements of notice. In all cases of termination

of employment, the following standards of due process shall be substantially
observed:

I. For termination of employment based on just causes as defined in Article

282 of the Code:

(a) A written notice served on the employee specifying the ground or

grounds for termination, and giving to said employee reasonable opportunity within
which to explain his side;

(b) A hearing or conference during which the employee concerned, with the
assistance of counsel if the employee so desires, is given opportunity to respond to
the charge, present his evidence or rebut the evidence presented against him; and

(c) A written notice of termination served on the employee indicating that

upon due consideration of all the circumstances, grounds have been established to
justify his termination.

In case of termination, the foregoing notices shall be served on the employees last
known address.

Dismissals based on just causes contemplate acts or omissions attributable to

the employee while dismissals based on authorized causes involve grounds under
the Labor Code which allow the employer to terminate employees. A termination
for an authorized cause requires payment of separation pay. When the termination
of employment is declared illegal, reinstatement and full backwages are mandated
under Article 279. If reinstatement is no longer possible where the dismissal was
unjust, separation pay may be granted.

Procedurally, (1) if the dismissal is based on a just cause under Article 282,
the employer must give the employee two written notices and a hearing or
opportunity to be heard if requested by the employee before terminating the
employment: a notice specifying the grounds for which dismissal is sought a hearing
or an opportunity to be heard and after hearing or opportunity to be heard, a notice
of the decision to dismiss; and (2) if the dismissal is based on authorized causes
under Articles 283 and 284, the employer must give the employee and the
Department of Labor and Employment written notices 30 days prior to the effectivity
of his separation.

From the foregoing rules four possible situations may be derived: (1) the dismissal
is for a just cause under Article 282 of the Labor Code, for an authorized cause under
Article 283, or for health reasons under Article 284, and due process was observed;
(2) the dismissal is without just or authorized cause but due process was observed;
(3) the dismissal is without just or authorized cause and there was no due process;
and (4) the dismissal is for just or authorized cause but due process was not observed.
196
In the first situation, the dismissal is undoubtedly valid and the employer will not
suffer any liability.

In the second and third situations where the dismissals are illegal, Article 279
mandates that the employee is entitled to reinstatement without loss of seniority
rights and other privileges and full backwages, inclusive of allowances, and other
benefits or their monetary equivalent computed from the time the compensation was
not paid up to the time of actual reinstatement.

In the fourth situation, the dismissal should be upheld. While the procedural
infirmity cannot be cured, it should not invalidate the dismissal. However, the
employer should be held liable for non-compliance with the procedural
requirements of due process.

The present case squarely falls under the fourth situation. The dismissal should be
upheld because it was established that the petitioners abandoned their jobs to work
for another company. Private respondent, however, did not follow the notice
requirements and instead argued that sending notices to the last known addresses
would have been useless because they did not reside there anymore. Unfortunately
for the private respondent, this is not a valid excuse because the law mandates the
twin notice requirements to the employees last known address.[21] Thus, it should be
held liable for non-compliance with the procedural requirements of due process.

A review and re-examination of the relevant legal principles is appropriate and

timely to clarify the various rulings on employment termination in the light
of Serrano v. National Labor Relations Commission.[22]

Prior to 1989, the rule was that a dismissal or termination is illegal if the employee
was not given any notice. In the 1989 case of Wenphil Corp. v. National Labor
Relations Commission,[23] we reversed this long-standing rule and held that the
dismissed employee, although not given any notice and hearing, was not entitled to
reinstatement and backwages because the dismissal was for grave misconduct and
insubordination, a just ground for termination under Article 282. The employee had
a violent temper and caused trouble during office hours, defying superiors who tried
to pacify him. We concluded that reinstating the employee and awarding backwages
may encourage him to do even worse and will render a mockery of the rules of
discipline that employees are required to observe.[24] We further held that:

Under the circumstances, the dismissal of the private respondent for just cause
should be maintained. He has no right to return to his former employment.

However, the petitioner must nevertheless be held to account for failure to

extend to private respondent his right to an investigation before causing his
dismissal. The rule is explicit as above discussed. The dismissal of an employee

197
 must be for just or authorized cause and after due process. Petitioner committed
an infraction of the second requirement. Thus, it must be imposed a sanction for its
failure to give a formal notice and conduct an investigation as required by law
before dismissing petitioner from employment. Considering the circumstances of
this case petitioner must indemnify the private respondent the amount of P1,000.00.
The measure of this award depends on the facts of each case and the gravity of the
omission committed by the employer.[25]

The rule thus evolved: where the employer had a valid reason to dismiss an
employee but did not follow the due process requirement, the dismissal may be
upheld but the employer will be penalized to pay an indemnity to the employee.
This became known as the Wenphil or Belated Due Process Rule.

On January 27, 2000, in Serrano, the rule on the extent of the sanction was
changed. We held that the violation by the employer of the notice requirement in
termination for just or authorized causes was not a denial of due process that will
nullify the termination. However, the dismissal is ineffectual and the employer
must pay full backwages from the time of termination until it is judicially declared
that the dismissal was for a just or authorized cause.

The rationale for the re-examination of the Wenphil doctrine in Serrano was
the significant number of cases involving dismissals without requisite notices. We
concluded that the imposition of penalty by way of damages for violation of the
notice requirement was not serving as a deterrent. Hence, we now required
payment of full backwages from the time of dismissal until the time the Court finds
the dismissal was for a just or authorized cause.

Serrano was confronting the practice of employers to dismiss now and pay
later by imposing full backwages.

We believe, however, that the ruling in Serrano did not consider the full
meaning of Article 279 of the Labor Code which states:

ART. 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.

This means that the termination is illegal only if it is not for any of the justified
or authorized causes provided by law. Payment of backwages and other benefits,
including reinstatement, is justified only if the employee was unjustly dismissed.
198
 The fact that the Serrano ruling can cause unfairness and injustice which
elicited strong dissent has prompted us to revisit the doctrine.

To be sure, the Due Process Clause in Article III, Section 1 of the Constitution
embodies a system of rights based on moral principles so deeply imbedded in the
traditions and feelings of our people as to be deemed fundamental to a civilized
society as conceived by our entire history. Due process is that which comports with
the deepest notions of what is fair and right and just.[26] It is a constitutional
restraint on the legislative as well as on the executive and judicial powers of the
government provided by the Bill of Rights.

Due process under the Labor Code, like Constitutional due process, has two
aspects: substantive, i.e., the valid and authorized causes of employment
termination under the Labor Code; and procedural, i.e., the manner of dismissal.
Procedural due process requirements for dismissal are found in the Implementing
Rules of P.D. 442, as amended, otherwise known as the Labor Code of the
Philippines in Book VI, Rule I, Sec. 2, as amended by Department Order Nos. 9 and
10.[27] Breaches of these due process requirements violate the Labor Code.
Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.

Constitutional due process protects the individual from the government and
assures him of his rights in criminal, civil or administrative proceedings;
while statutory due process found in the Labor Code and Implementing Rules
protects employees from being unjustly terminated without just cause after notice
and hearing.

In Sebuguero v. National Labor Relations Commission,[28] the dismissal was

for a just and valid cause but the employee was not accorded due process. The
dismissal was upheld by the Court but the employer was sanctioned. The sanction
should be in the nature of indemnification or penalty, and depends on the facts of
each case and the gravity of the omission committed by the employer.

In Nath v. National Labor Relations Commission,[29] it was ruled that even if

the employee was not given due process, the failure did not operate to eradicate
the just causes for dismissal. The dismissal being for just cause, albeit without due
process, did not entitle the employee to reinstatement, backwages, damages and
attorneys fees.

199
 Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc.
v. National Labor Relations Commission,[30] which opinion he reiterated in Serrano,
stated:

C. Where there is just cause for dismissal but due process has not been properly
observed by an employer, it would not be right to order either the reinstatement of the
dismissed employee or the payment of backwages to him. In failing, however, to comply
with the procedure prescribed by law in terminating the services of the employee, the
employer must be deemed to have opted or, in any case, should be made liable, for the
payment of separation pay. It might be pointed out that the notice to be given and the
hearing to be conducted generally constitute the two-part due process requirement of
law to be accorded to the employee by the employer. Nevertheless, peculiar
circumstances might obtain in certain situations where to undertake the above steps
would be no more than a useless formality and where, accordingly, it would not be
imprudent to apply the res ipsa loquitur rule and award, in lieu of separation pay, nominal
damages to the employee. x x x.[31]

After carefully analyzing the consequences of the divergent doctrines in the

law on employment termination, we believe that in cases involving dismissals for
cause but without observance of the twin requirements of notice and hearing, the
better rule is to abandon the Serrano doctrine and to follow Wenphil by holding
that the dismissal was for just cause but imposing sanctions on the employer. Such
sanctions, however, must be stiffer than that imposed in Wenphil. By doing so, this
Court would be able to achieve a fair result by dispensing justice not just to
employees, but to employers as well.

The unfairness of declaring illegal or ineffectual dismissals for valid or authorized

causes but not complying with statutory due process may have far-reaching
consequences.

This would encourage frivolous suits, where even the most notorious violators of
company policy are rewarded by invoking due process. This also creates absurd
situations where there is a just or authorized cause for dismissal but a procedural
infirmity invalidates the termination. Let us take for example a case where the
employee is caught stealing or threatens the lives of his co-employees or has
become a criminal, who has fled and cannot be found, or where serious business
losses demand that operations be ceased in less than a month. Invalidating the
dismissal would not serve public interest. It could also discourage investments that
can generate employment in the local economy.

The constitutional policy to provide full protection to labor is not meant to

be a sword to oppress employers. The commitment of this Court to the cause of

200
labor does not prevent us from sustaining the employer when it is in the right, as
in this case.[32] Certainly, an employer should not be compelled to pay employees
for work not actually performed and in fact abandoned.

The employer should not be compelled to continue employing a person who is

admittedly guilty of misfeasance or malfeasance and whose continued
employment is patently inimical to the employer. The law protecting the rights of
the laborer authorizes neither oppression nor self-destruction of the employer.[33]

It must be stressed that in the present case, the petitioners committed a grave
offense, i.e., abandonment, which, if the requirements of due process were
complied with, would undoubtedly result in a valid dismissal.

An employee who is clearly guilty of conduct violative of Article 282 should not be
protected by the Social Justice Clause of the Constitution. Social justice, as the term
suggests, should be used only to correct an injustice. As the eminent Justice Jose P.
Laurel observed, social justice must be founded on the recognition of the necessity
of interdependence among diverse units of a society and of the protection that
should be equally and evenly extended to all groups as a combined force in our
social and economic life, consistent with the fundamental and paramount
objective of the state of promoting the health, comfort, and quiet of all persons,
and of bringing about the greatest good to the greatest number.[34]

This is not to say that the Court was wrong when it ruled the way it did
in Wenphil, Serrano and related cases. Social justice is not based on rigid
formulas set in stone. It has to allow for changing times and circumstances.

Justice Isagani Cruz strongly asserts the need to apply a balanced approach to
labor-management relations and dispense justice with an even hand in every case:

We have repeatedly stressed that social justice or any justice for that matter is for
the deserving, whether he be a millionaire in his mansion or a pauper in his hovel.
It is true that, in case of reasonable doubt, we are to tilt the balance in favor of the
poor to whom the Constitution fittingly extends its sympathy and compassion. But
never is it justified to give preference to the poor simply because they are poor, or
reject the rich simply because they are rich, for justice must always be served for
the poor and the rich alike, according to the mandate of the law.[35]

Justice in every case should only be for the deserving party. It should not be
presumed that every case of illegal dismissal would automatically be decided in
favor of labor, as management has rights that should be fully respected and
enforced by this Court. As interdependent and indispensable partners in nation-
building, labor and management need each other to foster productivity and

201
economic growth; hence, the need to weigh and balance the rights and welfare of
both the employee and employer.

Where the dismissal is for a just cause, as in the instant case, the lack of
statutory due process should not nullify the dismissal, or render it illegal, or
ineffectual. However, the employer should indemnify the employee for the
violation of his statutory rights, as ruled in Reta v. National Labor Relations
Commission.[36] The indemnity to be imposed should be stiffer to discourage the
abhorrent practice of dismiss now, pay later, which we sought to deter in
the Serrano ruling. The sanction should be in the nature of indemnification or
penalty and should depend on the facts of each case, taking into special
consideration the gravity of the due process violation of the employer.

Under the Civil Code, nominal damages is adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated
or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.[37]

As enunciated by this Court in Viernes v. National Labor Relations

Commissions,[38] an employer is liable to pay indemnity in the form of nominal
damages to an employee who has been dismissed if, in effecting such dismissal, the
employer fails to comply with the requirements of due process. The Court, after
considering the circumstances therein, fixed the indemnity at P2,590.50, which was
equivalent to the employees one month salary. This indemnity is intended not to
penalize the employer but to vindicate or recognize the employees right to
statutory due process which was violated by the employer.[39]

The violation of the petitioners right to statutory due process by the private
respondent warrants the payment of indemnity in the form of nominal damages.
The amount of such damages is addressed to the sound discretion of the court,
taking into account the relevant circumstances.[40] Considering the prevailing
circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We
believe this form of damages would serve to deter employers from future violations
of the statutory due process rights of employees. At the very least, it provides a
vindication or recognition of this fundamental right granted to the latter under the
Labor Code and its Implementing Rules.

Private respondent claims that the Court of Appeals erred in holding that it failed
to pay petitioners holiday pay, service incentive leave pay and 13th month pay.

202
We are not persuaded.

We affirm the ruling of the appellate court on petitioners money claims.

Private respondent is liable for petitioners holiday pay, service incentive leave pay
and 13th month pay without deductions.

As a general rule, one who pleads payment has the burden of proving it. Even
where the employee must allege non-payment, the general rule is that the burden
rests on the employer to prove payment, rather than on the employee to prove
non-payment. The reason for the rule is that the pertinent personnel files, payrolls,
records, remittances and other similar documents which will show that overtime,
differentials, service incentive leave and other claims of workers have been paid
are not in the possession of the worker but in the custody and absolute control of
the employer.[41]

In the case at bar, if private respondent indeed paid petitioners holiday pay and
service incentive leave pay, it could have easily presented documentary proofs of
such monetary benefits to disprove the claims of the petitioners. But it did not,
except with respect to the 13th month pay wherein it presented cash vouchers
showing payments of the benefit in the years disputed.[42] Allegations by private
respondent that it does not operate during holidays and that it allows its employees
10 days leave with pay, other than being self-serving, do not constitute proof of
payment. Consequently, it failed to discharge the onus probandi thereby making it
liable for such claims to the petitioners.
Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio
Agabons 13th month pay, we find the same to be unauthorized. The evident
intention of Presidential Decree No. 851 is to grant an additional income in the
form of the 13th month pay to employees not already receiving the same[43] so as to
further protect the level of real wages from the ravages of world-wide
inflation.[44] Clearly, as additional income, the 13th month pay is included in the
definition of wage under Article 97(f) of the Labor Code, to wit:

(f) Wage paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money whether fixed or ascertained
on a time, task, piece , or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract
of employment for work done or to be done, or for services rendered or to be rendered
and includes the fair and reasonable value, as determined by the Secretary of Labor, of
board, lodging, or other facilities customarily furnished by the employer to the employee

203
from which an employer is prohibited under Article 113[45] of the same Code from
making any deductions without the employees knowledge and consent. In the
instant case, private respondent failed to show that the deduction of the SSS loan
and the value of the shoes from petitioner Virgilio Agabons 13th month pay was
authorized by the latter. The lack of authority to deduct is further bolstered by the
fact that petitioner Virgilio Agabon included the same as one of his money claims
against private respondent.

The Court of Appeals properly reinstated the monetary claims awarded by

the Labor Arbiter ordering the private respondent to pay each of the petitioners
holiday pay for four regular holidays from 1996 to 1998, in the amount of
P6,520.00, service incentive leave pay for the same period in the amount of
P3,255.00 and the balance of Virgilio Agabons thirteenth month pay for 1998 in the
amount of P2,150.00.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the
Court of Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that
petitioners Jenny and Virgilio Agabon abandoned their work, and ordering private
respondent to pay each of the petitioners holiday pay for four regular holidays from
1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same
period in the amount of P3,255.00 and the balance of Virgilio Agabons thirteenth
month pay for 1998 in the amount of P2,150.00 is AFFIRMED with
the MODIFICATION that private respondent Riviera Home Improvements, Inc. is
further ORDERED to pay each of the petitioners the amount of P30,000.00 as
nominal damages for non-compliance with statutory due process.

No costs.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

204
 HILARIO G. DAVIDE, JR.
Chief Justice

REYNATO S. PUNO ARTEMIO V. PANGANIBAN

Associate Justice Associate Justice

LEONARDO A. QUISUMBING ANGELINA SANDOVAL-GUTIERREZ

Associate Justice Associate Justice

ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Associate Justice

RENATO C. CORONA CONCHITA CARPIO-MORALES

Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

205
Associate Justice Associate Justice

DANTE O. TINGA MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified

that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

[1]
Penned by Associate Justice Marina L. Buzon and concurred in by Associate Justices Josefina
Guevara-Salonga and Danilo B. Pine.
[2]
Rollo, p. 41.
[3]
Id., pp. 13-14.
[4]
Id., p. 92.
[5]
Id., p. 131.
[6]
Id., p. 173.

206
[7]
Id., p. 20.
[8]
Id., pp. 21-23.
[9]
Id., p. 45.
[10]
Id., pp. 42-43.
[11]
Rosario v. Victory Ricemill, G.R. No. 147572, 19 February 2003, 397 SCRA 760, 767.
[12]
Reyes v. Maxims Tea House, G.R. No. 140853, 27 February 2003, 398 SCRA 288, 298.
[13]
Santos v. San Miguel Corporation, G.R. No. 149416, 14 March 2003, 399 SCRA 172, 182.
[14]
Columbus Philippine Bus Corporation v. NLRC, 417 Phil. 81, 100 (2001).
[15]
De Paul/King Philip Customs Tailor v. NLRC, 364 Phil. 91, 102 (1999).
[16]
Sta. Catalina College v. NLRC, G.R. No. 144483, 19 November 2003.
[17]
Cosmos Bottling Corporation v. NLRC, G.R. No. 111155, 23 October 1997, 281 SCRA 146,
153-154.
[18]
G.R. No. L-49875, 21 November 1979, 94 SCRA 472, 478.
[19]
Judy Philippines, Inc. v. NLRC, 352 Phil. 593, 606 (1998).
[20]
Philippine-Singapore Transport Services, Inc. v. NLRC, 343 Phil. 284, 291 (1997).
[21]
See Stolt-Nielsen Marine Services, Inc. v. NLRC, G.R. No. 128395, 29 December 1998, 300
SCRA 713, 720.
[22]
G.R. No. 117040, 27 January 2000, 323 SCRA 445.
[23]
G.R. No. 80587, 8 February 1989, 170 SCRA 69.
[24]
Id. at 76.
[25]
Id.
[26]
Solesbee v. Balkcom, 339 U.S. 9, 16 (1950) (Frankfurter, J., dissenting). Due process is violated if a

practice or rule offends some principle of justice so rooted in the traditions and conscience of our people

as to be ranked as fundamental; Snyder v. Massachusetts, 291 U.S. 97, 105 (1934).

[27]
Department Order No. 9 took effect on 21 June 1997. Department Order No. 10 took effect on
22 June 1997.
[28]
G.R. No. 115394, 27 September 1995, 248 SCRA 535.
[29]
G.R. No. 122666, 19 June 1997, 274 SCRA 386.
[30]
G.R. No. 114313, 29 July 1996, 259 SCRA 699, 700.
[31]
Serrano, supra, Vitug, J., Separate (Concurring and Dissenting) Opinion, 323 SCRA 524, 529-
530 (2000).
[32]
Capili v. NLRC, G.R. No. 117378, 26 March 1997, 270 SCRA 488, 495.
[33]
Filipro, Inc. v. NLRC, G.R. No. L-70546, 16 October 1986, 145 SCRA 123.
[34]
Calalang v. Williams, 70 Phil. 726, 735 (1940).
[35]
Gelos v. Court of Appeals, G.R. No. 86186, 8 May 1992, 208 SCRA 608, 616.
[36]
G.R. No. 112100, 27 May 1994, 232 SCRA 613, 618.
[37]
Art. 2221, Civil Code.
[38]
G.R. No. 108405. April 4, 2003 citing Kwikway Engineering Works v. NLRC, G.R. No. 85014, 22 March
1991, 195 SCRA 526, 532; Aurelio v. NLRC, G.R. No. 99034, 12 April 1993, 221 SCRA 432, 443; and
Sampaguita Garments Corporation v. NLRC, G.R. No. 102406, 17 June 1994, 233 SCRA 260, 265.
[39]
Id. citing Better Buildings, Inc. v. NLRC, G.R. No. 109714, 15 December 1997, 283 SCRA 242, 251; Iran
v. NLRC, G.R. No. 121927, 22 April 1998, 289 SCRA 433, 442.
[40]
Savellano v. Northwest Airlines, G.R. No. 151783, 8 July 2003.
[41]
Villar v. NLRC, G.R. No. 130935, 11 May 2000.
[42]
Rollo, pp. 60-71.
[43]
UST Faculty Union v. NLRC, G.R. No. 90445, 2 October 1990.
[44]
Whereas clauses, P.D. No. 851.
[45]
Art. 113. Wage deduction. - No employer, in his own behalf or in behalf of any person,
shall make any deduction from the wages of his employees except:
(a) In cases where the worker is insured with his consent by the employer, and the
deduction is to recompense the employer for the amount paid by him as premium
on the insurance;

207
(b) For union dues, in cases where the right of the worker or his union to check off
has been recognized by the employer or authorized in writing by the individual
worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the
Secretary of Labor and Employment.

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 EN BANC

[G.R. No. 151378. March 28, 2005]

JAKA FOOD PROCESSING CORPORATION, petitioner, vs. DARWIN

PACOT, ROBERT PAROHINOG, DAVID BISNAR, MARLON
DOMINGO, RHOEL LESCANO and JONATHAN
CAGABCAB, respondents.

DECISION
GARCIA, J.:

Assailed and sought to be set aside in this appeal by way of a petition for review on
certiorari under rule 45 of the Rules of Court are the following issuances of the Court of
Appeals in CA-G.R. SP. No. 59847, to wit:
1. Decision dated 16 November 2001,[1] reversing and setting aside an earlier decision
of the National Labor Relations Commission (NLRC); and
2. Resolution dated 8 January 2002,[2] denying petitioners motion for reconsideration.
The material facts may be briefly stated, as follows:
Respondents Darwin Pacot, Robert Parohinog, David Bisnar, Marlon Domingo, Rhoel
Lescano and Jonathan Cagabcab were earlier hired by petitioner JAKA Foods Processing
Corporation (JAKA, for short) until the latter terminated their employment on August 29,
1997 because the corporation was in dire financial straits. It is not disputed, however, that
the termination was effected without JAKA complying with the requirement under Article
283 of the Labor Code regarding the service of a written notice upon the employees and
the Department of Labor and Employment at least one (1) month before the intended date
of termination.
In time, respondents separately filed with the regional Arbitration Branch of the
National Labor Relations Commission (NLRC) complaints for illegal dismissal,
underpayment of wages and nonpayment of service incentive leave and 13 th month pay
against JAKA and its HRD Manager, Rosana Castelo.
After due proceedings, the Labor Arbiter rendered a decision[3] declaring the
termination illegal and ordering JAKA and its HRD Manager to reinstate respondents with
full backwages, and separation pay if reinstatement is not possible. More specifically the
decision dispositively reads:

WHEREFORE, judgment is hereby rendered declaring as illegal the termination of

complainants and ordering respondents to reinstate them to their positions with full
backwages which as of July 30, 1998 have already amounted to P339,768.00.
Respondents are also ordered to pay complainants the amount of P2,775.00
representing the unpaid service incentive leave pay of Parohinog, Lescano and
Cagabcab an the amount of P19,239.96 as payment for 1997 13th month pay as
alluded in the above computation.

If complainants could not be reinstated, respondents are ordered to pay them

separation pay equivalent to one month salary for very (sic) year of service.

SO ORDERED.

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 Therefrom, JAKA went on appeal to the NLRC, which, in a decision dated August 30,
1999,[4] affirmed in toto that of the Labor Arbiter.
JAKA filed a motion for reconsideration. Acting thereon, the NLRC came out with
another decision dated January 28, 2000,[5] this time modifying its earlier decision, thus:

WHEREFORE, premises considered, the instant motion for reconsideration is

hereby GRANTED and the challenged decision of this Commission [dated] 30 August
1999 and the decision of the Labor Arbiter xxx are hereby modified by reversing an
setting aside the awards of backwages, service incentive leave pay. Each of the
complainants-appellees shall be entitled to a separation pay equivalent to one month.
In addition, respondents-appellants is (sic) ordered to pay each of the complainants-
appellees the sum of P2,000.00 as indemnification for its failure to observe due
process in effecting the retrenchment.

SO ORDERED.

Their motion for reconsideration having been denied by the NLRC in its resolution of
April 28, 2000,[6] respondents went to the Court of Appeals via a petition for certiorari,
thereat docketed as CA-G.R. SP No. 59847.
As stated at the outset hereof, the Court of Appeals, in a decision dated November
16, 2000, applying the doctrine laid down by this Court in Serrano vs. NLRC,[7] reversed
and set aside the NLRCs decision of January 28, 2000, thus:

WHEREFORE, the decision dated January 28, 2000 of the National Labor Relations
Commission is REVERSED and SET ASIDE and another one entered ordering
respondent JAKA Foods Processing Corporation to pay petitioners separation pay
equivalent to one (1) month salary, the proportionate 13th month pay and, in addition,
full backwages from the time their employment was terminated on August 29, 1997
up to the time the Decision herein becomes final.

SO ORDERED.

This time, JAKA moved for a reconsideration but its motion was denied by the
appellate court in its resolution of January 8, 2002.
Hence, JAKAs present recourse, submitting, for our consideration, the following
issues:
I. WHETHER OR NOT THE COURT OF APPEALS CORRECTLY AWARDED FULL
BACKWAGES TO RESPONDENTS.
II. WHETHER OR NOT THE ASSAILED DECISION CORRECTLY AWARDED
SEPARATION PAY TO RESPONDENTS.
As we see it, there is only one question that requires resolution, i.e. what are the legal
implications of a situation where an employee is dismissed for cause but such dismissal
was effected without the employers compliance with the notice requirement under the
Labor Code.
This, certainly, is not a case of first impression. In the very recent case of Agabon vs.
NLRC,[8] we had the opportunity to resolve a similar question. Therein, we found that the
employees committed a grave offense, i.e., abandonment, which is a form of a neglect of
duty which, in turn, is one of the just causes enumerated under Article 282 of the Labor
Code. In said case, we upheld the validity of the dismissal despite non-compliance with
the notice requirement of the Labor Code. However, we required the employer to pay the

210
dismissed employees the amount of P30,000.00, representing nominal damages for non-
compliance with statutory due process, thus:

Where the dismissal is for a just cause, as in the instant case, the lack of statutory due
process should not nullify the dismissal, or render it illegal, or ineffectual. However,
the employer should indemnify the employee for the violation of his statutory rights,
as ruled in Reta vs. National Labor Relations Commission. The indemnity to be
imposed should be stiffer to discourage the abhorrent practice of dismiss now, pay
later, which we sought to deter in the Serrano ruling. The sanction should be in the
nature of indemnification or penalty and should depend on the facts of each case,
taking into special consideration the gravity of the due process violation of the
employer.

xxx xxx xxx

The violation of petitioners right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of
such damages is addressed to the sound discretion of the court, taking into account the
relevant circumstances. Considering the prevailing circumstances in the case at
bar, we deem it proper to fix it at P30,000.00. We believe this form of damages
would serve to deter employers from future violations of the statutory due process
rights of employees. At the very least, it provides a vindication or recognition of this
fundamental right granted to the latter under the Labor Code and its Implementing
Rules, (Emphasis supplied).

The difference between Agabon and the instant case is that in the former, the
dismissal was based on a just cause under Article 282 of the Labor Code while in the
present case, respondents were dismissed due to retrenchment, which is one of the
authorized causes under Article 283 of the same Code.
At this point, we note that there are divergent implications of a dismissal for just cause
under Article 282, on one hand, and a dismissal for authorized cause under Article 283,
on the other.
A dismissal for just cause under Article 282 implies that the employee concerned
has committed, or is guilty of, some violation against the employer, i.e. the employee has
committed some serious misconduct, is guilty of some fraud against the employer, or, as
in Agabon, he has neglected his duties. Thus, it can be said that the employee himself
initiated the dismissal process.
On another breath, a dismissal for an authorized cause under Article 283 does not
necessarily imply delinquency or culpability on the part of the employee. Instead, the
dismissal process is initiated by the employers exercise of his management
prerogative, i.e. when the employer opts to install labor saving devices, when he decides
to cease business operations or when, as in this case, he undertakes to implement a
retrenchment program.
The clear-cut distinction between a dismissal for just cause under Article 282 and a
dismissal for authorized cause under Article 283 is further reinforced by the fact that in
the first, payment of separation pay, as a rule, is not required, while in the second, the
law requires payment of separation pay.[9]
For these reasons, there ought to be a difference in treatment when the ground for
dismissal is one of the just causes under Article 282, and when based on one of the
authorized causes under Article 283.

211
 Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under
Article 282 but the employer failed to comply with the notice requirement, the sanction to
be imposed upon him should be tempered because the dismissal process was, in effect,
initiated by an act imputable to the employee; and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated
by the employers exercise of his management prerogative.
The records before us reveal that, indeed, JAKA was suffering from serious business
losses at the time it terminated respondents employment. As aptly found by the NLRC:

A careful study of the evidence presented by the respondent-appellant corporation

shows that the audited Financial Statement of the corporation for the periods 1996,
1997 and 1998 were submitted by the respondent-appellant corporation, The
Statement of Income and Deficit found in the Audited Financial Statement of the
respondent-appellant corporation clearly shows the following in 1996, the deficit of
the respondent-appellant corporation was P188,218,419.00 or 94.11% of the
stockholders [sic] equity which amounts to P200,000,000.00. In 1997 when the
retrenchment program of respondent-appellant corporation was undertaken, the deficit
ballooned to P247,222,569.00 or 123.61% of the stockholders equity, thus a capital
deficiency or impairment of equity ensued. In 1998, the deficit grew to
P355,794,897.00 or 177% of the stockholders equity. From 1996 to 1997, the deficit
grew by more that (sic) 31% while in 1998 the deficit grew by more than 47%.

The Statement of Income and Deficit of the respondent-appellant corporation to prove

its alleged losses was prepared by an independent auditor, SGV & Co. It convincingly
showed that the respondent-appellant corporation was in dire financial straits, which
the complainants-appellees failed to dispute. The losses incurred by the respondent-
appellant corporation are clearly substantial and sufficiently proven with clear and
satisfactory evidence. Losses incurred were adequately shown with respondent-
appellants audited financial statement. Having established the loss incurred by the
respondent-appellant corporation, it necessarily necessarily (sic) follows that the
ground in support of retrenchment existed at the time the complainants-appellees were
terminated. We cannot therefore sustain the findings of the Labor Arbiter that the
alleged losses of the respondent-appellant was [sic] not well substantiated by
substantial proofs. It is therefore logical for the corporation to implement a
retrenchment program to prevent further losses.[10]

Noteworthy it is, moreover, to state that herein respondents did not assail the
foregoing finding of the NLRC which, incidentally, was also affirmed by the Court of
Appeals.
It is, therefore, established that there was ground for respondents
dismissal, i.e., retrenchment, which is one of the authorized causes enumerated under
Article 283 of the Labor Code. Likewise, it is established that JAKA failed to comply with
the notice requirement under the same Article. Considering the factual circumstances in
the instant case and the above ratiocination, we, therefore, deem it proper to fix the
indemnity at P50,000.00.
We likewise find the Court of Appeals to have been in error when it ordered JAKA to
pay respondents separation pay equivalent to one (1) month salary for every year of
service. This is because in Reahs Corporation vs. NLRC,[11] we made the following
declaration:

212
The rule, therefore, is that in all cases of business closure or cessation of operation or
undertaking of the employer, the affected employee is entitled to separation pay. This
is consistent with the state policy of treating labor as a primary social economic force,
affording full protection to its rights as well as its welfare. The exception is when the
closure of business or cessation of operations is due to serious business losses or
financial reverses; duly proved, in which case, the right of affected employees to
separation pay is lost for obvious reasons. xxx. (Emphasis supplied)

WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed decision

and resolution of the Court of Appeals respectively dated November 16, 2001 and
January 8, 2002 are hereby SET ASIDE and a new one entered upholding the legality of
the dismissal but ordering petitioner to pay each of the respondents the amount of
P50,000.00, representing nominal damages for non-compliance with statutory due
process.
SO ORDERED.
Davide, Jr., C.J., Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-
Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, and Chico-Nazario, JJ., concur.
Puno, J., reiterate dissent in Agaban & Serrano.
Panganiban, J., reiterate dissent in Agaban v. NLRC, GR 158693, Nov. 17, 2004, and
Serrano v. NLRC, 380 Phil. 416, Jan. 27, 2000.
Tinga, J., only in the result. See separate opinion.

[1] Annex C, Petition; Rollo, pp. 53, et seq.; Penned by Associate Justice Marina L. Buzon and concurred in
by Associate Justices Buenaventura J. Guerrero and Alicia L. Santos of the Third Division.
[2] Annex E-1, Petition; Rollo, pp. 84, et seq.
[3] Annex 1, Respondents Comment; Rollo, pp. 117, et seq.
[4] Annex 2, Respondents Comment Rollo, pp. 123, et seq.
[5] Annex B, Petition; Rollo, pp. 39, et seq.
[6] Annex E, Petition; Rollo, pp. 80, et seq.
[7] 380 Phils. 416 [2000] and Resolution on the Motion for Reconsideration, 387 Phils. 345 [2000].
[8] G.R. No. 158693, promulgated 17 November 2004.
[9] ART. 283. x x x 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 of 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 as one (1) whole year.
[10] Rollo, pp. 48-49.
[11] 271 SCRA 247, 254 [1997].

213