You are on page 1of 2


DOCTRINE: Redundancy exists where the services of an employee are in excess of what is reasonably demanded
by the actual requirements of the enterprise but the employer must clearly show that it used fair and reasonable
criteria in ascertaining what positions are to be declared redundant.
Petitioners were former regular employees of respondent Jardine Pacific Finance, Inc. (formerly MB Finance)
(Jardine). The petitioners were also officers and members of MB Finance Employees Association-FFW Chapter (the
Union), a legitimate labor union and the sole exclusive bargaining agent of the employees of Jardine.
On the claim of financial losses, Jardine decided to reorganize and implement a redundancy program among its
employees. The petitioners were among those affected by the redundancy program. Jardine thereafter hired
contractual employees to undertake the functions these employees used to perform.
The petitioners and the Union filed a complaint against Jardine with the NLRC for illegal dismissal and unfair labor
Whether or not the retrenchment was valid.
Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual
requirements of the enterprise. A position is redundant where it is superfluous, and superfluity of a position or
positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business,
or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise.
Primarily, employers resort to redundancy when the functions of an employee have already become superfluous or in
excess of what the business requires. Thus, even if a business is doing well, an employer can still validly dismiss an
employee from the service due to redundancy if that employees position has already become in excess of what the
employers enterprise requires.
From this perspective, it is illogical for Jardine to terminate the petitioners employment and replace them with
contractual employees. The replacement effectively belies Jardines claim that the petitioners positions were
abolished due to superfluity. Redundancy could have been justified if the functions of the petitioners were transferred
to other existing employees of the company.
To dismiss the petitioners and hire new contractual employees as replacements necessarily give rise to the sound
conclusion that the petitioners services have not really become in excess of what Jardines business requires. To
replace the petitioners who were all regular employees with contractual ones would amount to a violation of their right
to security of tenure.
The employer must clearly show that it used fair and reasonable criteria in ascertaining what positions are to be
declared redundant. Jardine was never able to explain in any of its pleadings why the petitioners positions were
redundant. It never even attempted to discuss the attendant facts and circumstances that led to the conclusion that
the petitioners positions had become superfluous and unnecessary to Jardines business requirements

DOCTRINE: Closure should be done in good faith, and it rests upon the employer to prove that it had done
Sanoh is a domestic corporation engaged in the manufacture of automotive parts and wire condensers for home
appliances. Emmanuel Bernardo and Samuel Taghoy, the respondents, belonged to the Wire Condenser
department. In view of job order cancellations relating to the manufacture of wire condensers by Matsushita, Sanyo
and National Panasonic, Sanoh decided to phase out the Wire Condenser Department. On January 2004, 17
employees were retrenched, informing them of the following grounds for such: lack of local market, competition from
imported products, and phasing out of Wire Condenser department.
Complaints for illegal dismissal were filed, however, ultimately, 15 employees executed quitclaims leaving only
the two respondents to continue with the complaint. Labor Arbiter dismissed the complaint. NLRC affirmed the
decision of Labor Arbiter, stating that retrenchment was a valid exercise of management prerogative. CA overturned
findings of LA and NLRC, and ruled that Sanoh failed to prove existence of substantial losses that would justify a
valid retrenchment.
Issue: Whether or not the retrenchment was valid.
Using Art. 283, SC stated that retrenchment to prevent losses and closure not due to serious business losses
are two separate authorized causes for terminating the services of an employee.
For retrenchment, the three (3) basic requirements are: (a) proof that the retrenchment is necessary to prevent
losses or impending losses; (b) service of written notices to the employees and to the Department of Labor and
Employment at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation pay
equivalent to one (1) month pay, or at least one-half (1/2) month pay for every year of service, whichever is higher. In
addition, jurisprudence has set the standards for losses which may justify retrenchment, thus: (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 (4) the alleged losses, if
already incurred, or the expected imminent losses sought to be forestalled, are proven by sufficient and convincing
In this case, there was no valid retrenchment. Nor was there a closure of business. The losses must be
supported by sufficient and convincing evidence and the normal method of discharging this is by the submission of
financial statements duly audited by independent external auditors. Petitioner failed to present proof of the extent of
the reduced order and its contribution to the sustainability of its business.
As the Wire Condenser Department is still in operation and no business losses were proven by Sanoh, the
dismissal of respondents was unlawful.
There was a separate concurring opinion by J. Carpio, where he disagreed that the losses must have been
supported by financial statements in this case. He stated that impending, expected or future losses which employers
seek to prevent through retrenchment could not yet be reflected in the financial statements because they have not yet
occurred. In fact, if the retrenchment does indeed prevent the impending losses as it is supposed to do, then such
losses would never be reflected in the financial statements. It would be unreasonable and unfair to require employers
conducting retrenchment to prevent impending, expected or future losses to submit as proof of such losses financial
statements. However, with all the other facts presented, he agrees that there was illegal retrenchment.