THIRD DIVISION

BISIG MANGGAGAWA SA TRYCO and/or

FRANCISCO SIQUIG, as Union President,
JOSELITO LARIO, VIVENCIO B. BARTE,
SATURNINO EGERA and SIMPLICIO AYA-AY,
Petitioners,
- versus NATIONAL
COMMISSION,
CORPORATION,
RIVERA,

G.R. No. 151309

Present:

PUNO, C.J.,*
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
LABOR
RELATIONS NACHURA, and
TRYCO
PHARMA REYES, JJ.
and/or
WILFREDO
C.
Promulgated:
Respondents.

October 15, 2008

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

DECISION
NACHURA, J.:

This petition seeks a review of the Decision [1] of the Court of Appeals (CA) dated
July 24, 2001 and Resolution dated December 20, 2001, which affirmed the finding of
the National Labor Relations Commission (NLRC) that the petitioners transfer to
another workplace did not amount to a constructive dismissal and an unfair labor
practice.

The pertinent factual antecedents are as follows:

Tryco Pharma Corporation (Tryco) is a manufacturer of veterinary medicines

and its principal office is located in Caloocan City. Petitioners Joselito Lario, Vivencio
Barte, Saturnino Egera and Simplicio Aya-ay are its regular employees, occupying the
positions of helper, shipment helper and factory workers, respectively, assigned to the
Production Department. They are members of Bisig Manggagawa sa Tryco (BMT), the
exclusive bargaining representative of the rank-and-file employees.

Tryco and the petitioners signed separate Memorand[a] of Agreement [2] (MOA),
providing for a compressed workweek schedule to be implemented in the company
effective May 20, 1996. The MOA was entered into pursuant to Department of Labor
and Employment Department Order (D.O.) No. 21, Series of 1990, Guidelines on the
Implementation of Compressed Workweek. As provided in the MOA, 8:00 a.m. to 6:12
p.m., from Monday to Friday, shall be considered as the regular working hours, and no
overtime pay shall be due and payable to the employee for work rendered during those
hours. The MOA specifically stated that the employee waives the right to claim
overtime pay for work rendered after 5:00 p.m. until 6:12 p.m. from Monday to Friday
considering that the compressed workweek schedule is adopted in lieu of the regular
workweek schedule which also consists of 46 hours. However, should an employee be
permitted or required to work beyond 6:12 p.m., such employee shall be entitled to
overtime pay.

Tryco informed the Bureau of Working Conditions of the Department of Labor

and Employment of the implementation of a compressed workweek in the company. [3]

In January 1997, BMT and Tryco negotiated for the renewal of their collective
bargaining agreement (CBA) but failed to arrive at a new agreement.

Meantime, Tryco received the Letter dated March 26, 1997 from the Bureau of
Animal Industry of the Department of Agriculture reminding it that its production
should be conducted in San Rafael, Bulacan, not in Caloocan City:
MR. WILFREDO C. RIVERA
President, Tryco Pharma Corporation
San Rafael, Bulacan
Subject: LTO as VDAP Manufacturer at San Rafael, Bulacan
Dear Mr. Rivera:
This is to remind you that your License to Operate as Veterinary Drug
and Product Manufacturer is addressed at San Rafael, Bulacan, and so,
therefore, your production should be done at the above mentioned
address only. Further, production of a drug includes propagation,
processing, compounding, finishing, filling, repacking, labeling,
advertising, storage, distribution or sale of the veterinary drug product.
In no instance, therefore, should any of the above be done at your
business office at 117 M. Ponce St., EDSA, Caloocan City.
Please be guided accordingly.
Thank you.
Very truly yours,
(sgd.)
EDNA ZENAIDA V. VILLACORTE, D.V.M.
Chief, Animal Feeds Standard Division[4]

Accordingly, Tryco issued a Memorandum[5] dated April 7, 1997 which directed

petitioner Aya-ay to report to the companys plant site in Bulacan. When petitioner Ayaay refused to obey, Tryco reiterated the order on April 18, 1997.[6] Subsequently,
through a Memorandum[7] dated May 9, 1997, Tryco also directed petitioners Egera,
Lario and Barte to report to the companys plant site in Bulacan.

BMT opposed the transfer of its members to San Rafael, Bulacan, contending
that it constitutes unfair labor practice. In protest, BMT declared a strike on May 26,
1997.

In August 1997, petitioners filed their separate complaints[8] for illegal dismissal,
underpayment of wages, nonpayment of overtime pay and service incentive leave, and
refusal to bargain against Tryco and its President, Wilfredo C. Rivera. In their Position
Paper,[9] petitioners alleged that the company acted in bad faith during the CBA
negotiations because it sent representatives without authority to bind the company,
and this was the reason why the negotiations failed. They added that the management
transferred petitioners Lario, Barte, Egera and Aya-ay from Caloocan to San Rafael,
Bulacan to paralyze the union. They prayed for the company to pay them their salaries
fromMay 26 to 31, 1997, service incentive leave, and overtime pay, and to implement
Wage Order No. 4.

In their defense, respondents averred that the petitioners were not dismissed
but they refused to comply with the managements directive for them to report to the
companys plant in San Rafael, Bulacan. They denied the allegation that they
negotiated in bad faith, stating that, in fact, they sent the Executive Vice-President

and Legal Counsel as the companys representatives to the CBA negotiations. They
claim that the failure to arrive at an agreement was due to the stubbornness of the
union panel.

Respondents further averred that, long before the start of the negotiations, the
company had already been planning to decongest the Caloocan office to comply with
the government policy to shift the concentration of manufacturing activities from the
metropolis to the countryside. The decision to transfer the companys production
activities to San Rafael, Bulacan was precipitated by the letter-reminder of the Bureau
of Animal Industry.

On February 27, 1998, the Labor Arbiter dismissed the case for lack of merit.
[10]

The Labor Arbiter held that the transfer of the petitioners would not paralyze or

render the union ineffective for the following reasons: (1) complainants are not
members of the negotiating panel; and (2) the transfer was made pursuant to the
directive of the Department of Agriculture.

The Labor Arbiter also denied the money claims, ratiocinating that the
nonpayment of wages was justified because the petitioners did not render work from
May 26 to 31, 1997; overtime pay is not due because of the compressed workweek
agreement between the union and management; and service incentive leave pay cannot
be claimed by the complainants because they are already enjoying vacation leave with
pay for at least five days. As for the claim of noncompliance with Wage Order No. 4, the
Labor Arbiter held that the issue should be left to the grievance machinery or
voluntary arbitrator.

On October 29, 1999, the NLRC affirmed the Labor Arbiters Decision,
dismissing the case, thus:
PREMISES CONSIDERED, the Decision of February 27, 1998 is
hereby AFFIRMED and complainants appeal therefrom DISMISSED for
lack of merit. Complainants Joselito Lario, Vivencio Barte, Saturnino
Egera and Simplicio Aya-ay are directed to report to work at respondents
San Rafael Plant, Bulacan but without backwages. Respondents are
directed to accept the complainants back to work.
SO ORDERED.[11]

On December

22,

1999,

the

NLRC

denied

the

petitioners

motion

for

reconsideration for lack of merit.[12]

Left with no recourse, petitioners filed a petition for certiorari with the CA.

On July 24, 2001, the CA dismissed the petition for certiorari and ruled that the
transfer order was a management prerogative not amounting to a constructive
dismissal or an unfair labor practice. The CA further sustained the enforceability of
the MOA, particularly the waiver of overtime pay in light of this Courts rulings
upholding a waiver of benefits in exchange of other valuable privileges. The dispositive
portion of the said CA decision reads:
WHEREFORE, the instant petition is DISMISSED. The Decision of
the Labor Arbiter dated February 27, 1998 and the Decision and
Resolution of the NLRC promulgated on October 29, 1999 and December
22, 1999, respectively, in NLRC-NCR Case Nos. 08-05715-97, 08-0611597 and 08-05920-97, are AFFIRMED.
SO ORDERED.[13]

The CA denied the petitioners motion for reconsideration on December 20, 2001.[14]

Dissatisfied, petitioners filed this petition for review raising the following issues:
-ATHE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE
PATENTLY ERRONEOUS RULING OF THE LABOR ARBITER AND THE
COMMISSION THAT THERE WAS NO DISMISSAL, MUCH LESS ILLEGAL
DISMISSAL, OF THE INDIVIDUAL PETITIONERS.
-BTHE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AND
CONCLUDING THAT PRIVATE RESPONDENTS COMMITTED ACTS OF
UNFAIR LABOR PRACTICE.
-CTHE COURT OF APPEALS ERRED IN NOT FINDING AND CONCLUDING
THAT PETITIONERS ARE ENTITLED TO THEIR MONEY CLAIMS AND TO
DAMAGES, AS WELL AS LITIGATION COSTS AND ATTORNEYS FEES.[15]

The petition has no merit.

We have no reason to deviate from the well-entrenched rule that findings of

fact of labor officials, who are deemed to have acquired expertise in matters within
their respective jurisdiction, are generally accorded not only respect but even finality,
and bind us when supported by substantial evidence. [16] This is particularly true when
the findings of the Labor Arbiter, the NLRC and the CA are in absolute agreement. [17] In
this case, the Labor Arbiter, the NLRC, and the CA uniformly agreed that the
petitioners were not constructively dismissed and that the transfer orders did not

amount to an unfair labor practice. But if only to disabuse the minds of the petitioners
who have persistently pursued this case on the mistaken belief that the labor
tribunals and the appellate court committed grievous errors, this Court will go over
the issues raised in this petition.

Petitioners mainly contend that the transfer orders amount to a constructive

dismissal. They maintain that the letter of the Bureau of Animal Industry is not
credible because it is not authenticated; it is only a ploy, solicited by respondents to
give them an excuse to effect a massive transfer of employees. They point out that
the Caloocan City office is still engaged in production activities until now and
respondents even hired new employees to replace them.

We do not agree.

We refuse to accept the petitioners wild and reckless imputation that the
Bureau of Animal Industry conspired with the respondents just to effect the transfer
of the petitioners. There is not an iota of proof to support this outlandish
claim. Absent any evidence, the allegation is not only highly irresponsible but is
grossly unfair to the government agency concerned. Even as this Court has given
litigants and counsel a relatively wide latitude to present arguments in support of their
cause, we will not tolerate outright misrepresentation or baseless accusation. Let this
be fair warning to counsel for the petitioners.

Furthermore, Trycos decision to transfer its production activities to San Rafael,

Bulacan, regardless of whether it was made pursuant to the letter of the Bureau of

Animal Industry, was within the scope of its inherent right to control and manage its
enterprise effectively. While the law is solicitous of the welfare of employees, it must
also protect the right of an employer to exercise what are clearly management
prerogatives. The free will of management to conduct its own business affairs to
achieve its purpose cannot be denied.[18]

This prerogative extends to the managements right to regulate, according to its

own discretion and judgment, all aspects of employment, including the freedom to
transferand reassign employees according to the requirements of its business.
[19]

Managements prerogative of transferring and reassigning employees from one area

of operation to another in order to meet the requirements of the business is, therefore,
generally not constitutive of constructive dismissal. [20] Thus, the consequent transfer of
Trycos personnel, assigned to the Production Department was well within the scope of
its management prerogative.

When the transfer is not unreasonable, or inconvenient, or prejudicial to the

employee, and it does not involve a demotion in rank or diminution of salaries,
benefits, and other privileges, the employee may not complain that it amounts to a
constructive dismissal.[21] However, the employer has the burden of proving that the
transfer of an employee is for valid and legitimate grounds. The employer must show
that the transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor
does it involve a demotion in rank or a diminution of his salaries, privileges and other
benefits.[22]

Indisputably, in the instant case, the transfer orders do not entail a demotion in
rank or diminution of salaries, benefits and other privileges of the petitioners.
Petitioners, therefore, anchor their objection solely on the ground that it would cause
them great inconvenience since they are all residents of Metro Manila and they would
incur additional expenses to travel daily from Manila to Bulacan.

The Court has previously declared that mere incidental inconvenience is not
sufficient to warrant a claim of constructive dismissal. [23] Objection to a transfer that is
grounded solely upon the personal inconvenience or hardship that will be caused to
the employee by reason of the transfer is not a valid reason to disobey an order of
transfer.[24]

Incidentally, petitioners cite Escobin v. NLRC[25] where the Court held that the transfer
of the employees therein was unreasonable. However, the distance of the workplace to
which the employees were being transferred can hardly compare to that of the present
case. In that case, the employees were being transferred from Basilan to Manila;
hence, the Court noted that the transfer would have entailed the separation of the
employees from their families who were residing in Basilan and accrual of additional
expenses

for

living

accommodations

in Manila.

In

contrast,

the

distance

from Caloocan to San Rafael, Bulacan is not considerably great so as to compel

petitioners to seek living accommodations in the area and prevent them from
commuting to Metro Manila daily to be with their families.

Petitioners, however, went further and argued that the transfer orders
amounted to unfair labor practice because it would paralyze and render the union
ineffective.

To begin with, we cannot see how the mere transfer of its members can paralyze
the union. The union was not deprived of the membership of the petitioners whose
work assignments were only transferred to another location.

More importantly, there was no showing or any indication that the transfer
orders were motivated by an intention to interfere with the petitioners right to
organize. Unfair labor practice refers to acts that violate the workers right to organize.
With the exception of Article 248(f) of the Labor Code of the Philippines, the prohibited
acts are related to the workers right to self-organization and to the observance of a
CBA. Without that element, the acts, no matter how unfair, are not unfair labor
practices.[26]

Finally, we do not agree with the petitioners assertion that the MOA is not
enforceable as it is contrary to law. The MOA is enforceable and binding against the
petitioners. Where it is shown that the person making 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.[27]

D.O. No. 21 sanctions the waiver of overtime pay in consideration of the benefits
that the employees will derive from the adoption of a compressed workweek scheme,
thus:
The compressed workweek scheme was originally conceived for
establishments wishing to save on energy costs, promote greater work
efficiency and lower the rate of employee absenteeism, among others.
Workers favor the scheme considering that it would mean savings on the
increasing cost of transportation fares for at least one (1) day a week;
savings on meal and snack expenses; longer weekends, or an additional
52 off-days a year, that can be devoted to rest, leisure, family
responsibilities, studies and other personal matters, and that it will
spare them for at least another day in a week from certain
inconveniences that are the normal incidents of employment, such as
commuting to and from the workplace, travel time spent, exposure to
dust and motor vehicle fumes, dressing up for work, etc. Thus, under
this scheme, the generally observed workweek of six (6) days is shortened
to five (5) days but prolonging the working hours from Monday to Friday
without the employer being obliged for pay overtime premium
compensation for work performed in excess of eight (8) hours on
weekdays, in exchange for the benefits abovecited that will accrue to the
employees.

Moreover, the adoption of a compressed workweek scheme in the company will

help temper any inconvenience that will be caused the petitioners by their transfer to a
farther workplace.

Notably, the MOA complied with the following conditions set by the DOLE,
under D.O. No. 21, to protect the interest of the employees in the implementation of a
compressed workweek scheme:
1.

The employees voluntarily agree to work more than eight (8)

hours a day the total in a week of which shall not exceed their

normal weekly hours of work prior to adoption of the compressed

workweek arrangement;
2.

There will not be any diminution whatsoever in the weekly

or monthly take-home pay and fringe benefits of the employees;

3.

If an employee is permitted or required to work in excess of

his normal weekly hours of work prior to the adoption of the
compressed workweek scheme, all such excess hours shall be
considered overtime work and shall be compensated in accordance
with the provisions of the Labor Code or applicable Collective
Bargaining Agreement (CBA);

4.

Appropriate waivers with respect to overtime premium pay

for work performed in excess of eight (8) hours a day may be
devised by the parties to the agreement.

5.

The effectivity and implementation of the new working time

arrangement shall be by agreement of the parties.

PESALA v. NLRC,[28] cited by the petitioners, is not applicable to the present

case. In that case, an employment contract provided that the workday consists of 12
hours and the employee will be paid a fixed monthly salary rate that was above the
legal minimum wage. However, unlike the present MOA which specifically states that
the employee waives his right to claim overtime pay for work rendered beyond eight
hours, the employment contract in that case was silent on whether overtime pay was
included in the payment of the fixed monthly salary. This necessitated the
interpretation by the Court as to whether the fixed monthly rate provided under the
employment contract included overtime pay. The Court noted that if the employee is
paid only the minimum wage but with overtime pay, the amount is still greater than
the fixed monthly rate as provided in the employment contract. It, therefore, held that
overtime pay was not included in the agreed fixed monthly rate.

Considering that the MOA clearly states that the employee waives the payment
of overtime pay in exchange of a five-day workweek, there is no room for interpretation
and its terms should be implemented as they are written.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision

dated July 24, 2001 and Resolution dated December 20, 2001 are AFFIRMED.

SO ORDERED.
MANILA JOCKEY CLUB G.R. No. 167760
EMPLOYEES LABOR UNIONPTGWO,
Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- versus - CORONA,
AZCUNA, and
GARCIA, JJ.

MANILA JOCKEY CLUB, INC., Promulgated:

Respondent. March 7, 2007
x------------------------------------------------x
DECISION
GARCIA, J.:

Challenged in this petition for review under Rule 45 of the Rules of Court is the
decision[1] dated December 17, 2004 of the Court of Appeals (CA), as reiterated in its
resolution[2] of April 4, 2005, dismissing the petition for review of herein petitioner
in CA-G.R. SP No. 69240, entitled Manila Jockey Club Employees Labor Union- PTGWO
v. Manila Jockey Club, Inc.

The facts:
Petitioner Manila Jockey Club Employees Labor Union-PTGWO and respondent Manila
Jockey Club, Inc., a corporation with a legislative franchise to conduct, operate and
maintain horse races, entered into a Collective Bargaining Agreement (CBA)
effective January 1, 1996 to December 31, 2000. The CBA governed the economic
rights and obligations of respondents regular monthly paid rank-and-file employees.
[3]

In

the

CBA,

the

parties

agreed

to

7-hour

work

schedule

from 9:00

a.m. to 12:00 noon and from1:00 p.m. to 5:00 p.m. on a work week of Monday to
Saturday, as contained under Section 1, Article IV,[4] of the same CBA, to wit:
Section 1. Both parties to this Agreement agree to observe the sevenhour
work
schedule
herewith
scheduled
to
be
from 9:00
a.m. to 12:00 noon and 1:00 p.m. to 5 p.m. on work week of Monday to
Saturday. All work performed in excess of seven (7) hours work schedule
and on days not included within the work week shall be considered
overtime and paid as such. Except those monthly compensation which
includes work performed during Saturday, Sunday, and Holiday when
races are held at the Club.
xxx xxx xxx
Accordingly, overtime on an ordinary working day shall be remunerated
in an amount equivalent to the worker's regular basic wage plus twenty
five percent (25%) thereof. Where the employee is permitted or suffered
to work on legally mandated holidays or on his designated rest day
which is not a legally mandated holiday, thirty percent (30%) shall be
added to his basic wage for a seven hour work; while work rendered in
excess of seven hours on legally mandated holidays and rest days not
falling within the aforestated categories day shall be additionally
compensated for the overtime work equivalent to his rate for the first
seven hours on a legally mandated holiday or rest day plus thirty
percent (30%) thereof.

The CBA likewise reserved in respondent certain management prerogatives, including

the determination of the work schedule, as provided under Section 2, Article XI:

Section 2. The COMPANY shall have exclusive control in the

management of the offices and direction of the employees. This shall
include, but shall not be limited to, the right to plan, direct and control
office operations, to hire, assign and transfer employees from one job to
another or from one department to another; to promote, demote,
discipline, suspend, discharge or terminate employees for proper cause
and/or in accordance with law, to relieve employees from duty because
of lack of work or for other legitimate reasons; or to introduce new or
improved methods or facilities; or to change existing methods or facilities
to change the schedules of work; and to make and enforce rules and
regulations to carry out the functions of management, provided,
however, that the COMPANY will not use these rights for the purpose of
discrimination against any employee because of his membership in the
UNION. Provided, further, that the prerogatives provided for under this
Section shall be subject to, and in accordance with pertinent directives,
proclamations and their implementing rules and regulations.

On April 3, 1999, respondent issued an inter-office memorandum declaring

that, effective April 20, 1999, the hours of work of regular monthly-paid employees
shall be from 1:00 p.m. to 8:00 p.m. when horse races are held, that is, every Tuesday
and Thursday. The memorandum, however, maintained the 9:00 a.m. to 5:00
p.m. schedule for non-race days.
On October 12, 1999, petitioner and respondent entered into an Amended and
Supplemental CBA retaining Section 1 of Article IV and Section 2 of Article
XI, supra, and clarified that any conflict arising therefrom shall be referred to a
voluntary arbitrator for resolution.
Subsequently, before a panel of voluntary arbitrators of the National
Conciliation and Mediation Board (NCMB), petitioner questioned the above office
memorandum as violative of the prohibition against non-diminution of wages and
benefits guaranteed under Section 1, Article IV, of the CBA which specified the work
schedule of respondent's employees to be from 9:00 a.m. to 5:00 p.m. Petitioner
claimed that as a result of the memorandum, the employees are precluded from
rendering their usual overtime work from 5:00 p.m. to 9:00 p.m.

The NCMBs panel of voluntary arbitrators, in a decision dated October 18,

2001, upheld respondent's prerogative to change the work schedule of regular
monthly-paid employees under Section 2, Article XI, of the CBA. Petitioner moved for
reconsideration but the panel denied the motion.
Dissatisfied, petitioner then appealed the panels decision to the CA in CA-G.R.
SP No. 69240. In the herein assailed decision of December 17, 2004, the CA upheld
that of the panel and denied petitioners subsequent motion for reconsideration via its
equally challenged resolution of April 4, 2005.
Hence, petitioners present recourse, raising the following issues:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENT MJCI DID NOT RELINQUISH PART OF
ITS MANAGEMENT PREROGATIVE WHEN IT STIPULATED A WORK
SCHEDULE IN THE CBA.
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENT MJCI DID NOT VIOLATE THE NONDIMINUTION PROVISION CONTAINED IN ARTICLE 100 OF THE LABOR
CODE.

We DENY.
Respondent, as employer, cites the change in the program of horse races as
reason for the adjustment of the employees work schedule. It rationalizes that when
the CBA was signed, the horse races started at 10:00 a.m. When the races were
moved to 2:00 p.m., there was no other choice for management but to change the
employees' work schedule as there was no work to be done in the morning. Evidently,
the adjustment in the work schedule of the employees is justified.

We are not unmindful that every business enterprise endeavors to increase

profits. As it is, the Court will not interfere with the business judgment of an employer
in the exercise of its prerogative to devise means to improve its operation, provided
that it does not violate the law, CBAs, and the general principles of justice and fair
play. We have thus held that management is free to regulate, according to its own
discretion and judgment, all aspects of employment, including hiring, work
assignments, working methods,time, place and manner of work, processes to be
followed, supervision of workers, working regulations, transfer of employees, work
supervision, layoff of workers and discipline, dismissal, and recall of workers.[5]
While it is true that Section 1, Article IV of the CBA provides for a 7-hour work
schedule

from 9:00

a.m. to 12:00 noon and

from 1:00

p.m. to 5:00

p.m. from

Mondays to Saturdays, Section 2, Article XI, however, expressly reserves on

respondent the prerogative to change existing methods or facilities to change the
schedules of work. As aptly ruled by the CA:
x x x. Such exact language lends no other meaning but that while
respondent may have allowed the initial determination of the work
schedule to be done through collective bargaining, it expressly retained
the prerogative to change it.
Moreover, it cannot be said that in agreeing to Section 1 of Article
IV, respondent already waived that customary prerogative of
management to set the work schedule. Had that been the intention,
Section 2 of Article XI would not have made any reference at all to the
retention by respondent of that prerogative. The CBA would have instead
expressly prohibited respondent from exercising it. x x x As it were,
however, the CBA expressly recognized in respondent the prerogative to
change the work schedule. This effectively rules out any notion of waiver
on the part of respondent of its prerogative to change the work schedule.

The same provision of the CBA also grants respondent the prerogative to relieve
employees from duty because of lack of work. Petitioners argument, therefore, that the
change in work schedule violates Article 100 of the Labor Code because it resulted in
the diminution of the benefit enjoyed by regular monthly-paid employees of rendering

overtime work with pay, is untenable. Section 1, Article IV, of the CBA does not
guarantee overtime work for all the employees but merely provides that "all work
performed in excess of seven (7) hours work schedule and on days not included within
the work week shall be considered overtime and paid as such."

Respondent

was

not

obliged

to

allow

all

its

employees

to

render

overtime work everyday for the whole year, but only those employees
whose services were needed after theirregular working hours and only
upon the instructions of management. The overtime pay was not
given to each employee consistently,
but as acompensation

for

deliberately

additional

services

and

unconditionally,

rendered. Thus,

overtime

pay does not fall within the definition of benefits under Article 100 of the Labor Code
on prohibition against elimination or diminution of benefits.
While the Constitution is committed to the policy of social justice and the protection
of the working class, it should not be presumed that every labor dispute will be
automatically decided in favor of labor. The partiality for labor has not in any way
diminished our belief that justice in every case is for the deserving, to be dispensed in
the light of the established facts and the applicable law and doctrine.[6]
WHEREFORE, the instant petition is DENIED and the assailed decision and
resolution of the CA are AFFIRMED.

Costs against petitioner.

SO ORDERED.
CAPITOL MEDICAL CENTER, INC.
and DR. THELMA
NAVARETTE-CLEMENTE,
Petitioners,

G.R. No. 155098

Present:

PANGANIBAN,Chairman,
SANDOVAL- GUTIERREZ,
CORONA,
- versus -

CARPIO MORALES, and

GARCIA, JJ.

Promulgated:
DR. CESAR E. MERIS,

September 16, 2005

Respondent.

xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx

DECISION

CARPIO MORALES, J.:

Subject of the present appeal is the Court of Appeals Decision [1] dated February 15,
2002 reversing the NLRC Resolution[2] dated January 19, 1999 and Labor Arbiter
Decision[3] dated April 28, 1998 which both held that the closure of the Industrial
Service Unit of the

Capitol Medical Center, Inc., resulting to the termination of the services of herein
respondent Dr. Cesar Meris as Chief thereof, was valid.

On January 16, 1974, petitioner Capitol Medical Center, Inc. (Capitol) hired Dr. Cesar
Meris (Dr. Meris),[4] one of its stockholders,[5] as in charge of its Industrial Service Unit
(ISU) at a monthly salary of P10,270.00.

Until the closure of the ISU on April 30, 1992,[6] Dr. Meris performed dual functions of
providing medical services to Capitols more than 500 employees and health workers as
well as to employees and workers of companies having retainer contracts with it.[7]

On March 31, 1992, Dr. Meris received from Capitols president and chairman of the
board, Dr. Thelma Navarette-Clemente (Dr. Clemente), a notice advising him of the
managements decision to close or abolish the ISU and the consequent termination of
his services as Chief thereof, effective April 30, 1992.[8] The notice reads as follows:

March 31, 1992

Dr. Cesar E. Meris

Chief, Industrial Service Unit
Capitol Medical Center

Dear Dr. Meris:

Greetings!

Please be formally advised that the hospital management has decided

to abolish CMCs Industrial Service Unit as of April 30, 1992 in view
of the almost extinct demand for direct medical services by the
private and semi-government corporations in providing health care
for their employees. Such a decision was arrived at, after
considering the existing trend of industrial companies allocating
their health care requirements to Health Maintenance Organizations
(HMOs) or thru a tripartite arrangement with medical insurance
carriers and designated hospitals.

As a consequence thereof, all positions in the unit will be

decommissioned at the same time industrial services [are] deactivated. In
that event, you shall be entitled to return to your private practice as
a consultant staff of the institution and will become eligible to
receive your retirement benefits as a former hospital employee. Miss
Jane Telan on the other hand will be transferred back to Nursing Service
for reassignment at the CSR.

We wish to thank you for your long and faithful service to the institution
and hope that our partnership in health care delivery to our people will
continue throughout the future. Best regards.

Very truly yours,

(SGD.)
DR.
THELMA
underscoring supplied)

NAVARETTE-CLEMENTE[9] (Emphasis

and

Dr. Meris, doubting the reason behind the managements decision to close the ISU and
believing that the ISU was not in fact abolished as it continued to operate and offer
services to the client companies with Dr. Clemente as its head and the notice of
closure was a mere ploy for his ouster in view of his refusal to retire despite Dr.
Clementes previous prodding for him to do so,[10] sought his reinstatement but it was
unheeded.

Dr. Meris thus filed on September 7, 1992 a complaint against Capitol and Dr.
Clemente for illegal dismissal and reinstatement with claims for backwages, moral and
exemplary damages, plus attorneys fees.[11]

Finding for Capitol and Dr. Clemente, the Labor Arbiter held that the abolition of the
ISU was a valid and lawful exercise of management prerogatives and there was

convincing evidence to show that ISU was being operated at a loss. [12] The decretal text
of the decision reads:

WHEREFORE, judgment is hereby rendered dismissing the complaint.

Respondents are however ordered to pay complainant all sums due him
under the hospital retirement plan.

SO ORDERED.[13] (Emphasis supplied)

On appeal by Dr. Meris, the National Labor Relations Commission (NLRC) modified the
Labor Arbiters decision. It held that in the exercise of Capitols management
prerogatives, it had the right to close the ISU even if it was not suffering business
losses in light of Article 283 of the Labor Code and jurisprudence. [14]

And the NLRC set aside the Labor Arbiters directive for the payment of retirement
benefits to Dr. Meris because he did not retire. Instead, it ordered the payment of
separation pay as provided under Article 283 as he was discharged due to closure of
ISU, to be charged against the retirement fund.[15]

Undaunted, Dr. Meris elevated the case to the Court of Appeals via petition for
review[16] which, in the interest of substantial justice, was treated as one for certiorari.
[17]

Discrediting Capitols assertion that the ISU was operating at a loss as the evidence
showed a continuous trend of increase in its revenue for three years immediately
preceding Dr. Meriss dismissal on April 30, 1992, [18] and finding that the ISUs Analysis
of Income and Expenses which was prepared long after Dr. Meriss dismissal, hence,
not yet available, on or before April 1992, was tainted with irregular entries, the
appellate court held that Capitols evidence failed to meet the standard of a sufficient
and adequate proof of loss necessary to justify the abolition of the ISU. [19]

The appellate court went on to hold that the ISU was not in fact abolished, its
operation and management having merely changed hands from Dr. Meris to Dr.
Clemente; and that there was a procedural lapse in terminating the services of Dr.
Meris, no written notice to the Department of Labor and Employment (DOLE) of the
ISU abolition having been made, thereby violating the requirement embodied in Article
283.[20]

The appellate court, concluding that Capitol failed to strictly comply with both
procedural and substantive due process, a condition sine qua non for the validity of a
case of termination,[21] held that Dr. Meris was illegally dismissed. It accordingly
reversed the NLRC Resolution and disposed as follows:

IN VIEW OF ALL THE FOREGOING, the assailed resolutions of the NLRC

are hereby set aside, and another one entered

1 declaring illegal the dismissal of petitioner as Chief of the Industrial

Service Unit of respondent Medical Center;

2 ordering respondents to pay petitioner

a) backwages from the date of his separation in April 1992 until this
decision has attained finality;
b) separation pay in lieu of reinstatement computed at the rate of one (1)
month salary for every year of service with a fraction of at least six (6)
months being considered as one year;

c) other benefits due him or their money equivalent;

d) moral damages in the sum of P50,000.00;

e) exemplary damages in the sum of P50,000.00; and

f) attorneys fees of 10% of the total monetary award payable to petitioner.

SO ORDERED.[22]

Hence, the present petition for review assigning to the appellate court the following
errors:

. . . IN OVERTURNING THE FACTUAL FINDINGS AND CONCLUSIONS OF

BOTH THE NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND
THE LABOR ARBITER.

II

. . . IN HOLDING, CONTRARY TO THE FINDINGS OF BOTH THE LABOR

ARBITER AND THE NATIONAL LABOR RELATIONS COMMISSION, THAT
THE INDUSTRIAL UNIT (ISU) WAS NOT INCURRING LOSSES AND THAT
IT WAS NOT IN FACT ABOLISHED.

III

. . . IN NOT UPHOLDING PETITIONERS MANAGEMENT PREROGATIVE

TO ABOLISH THE INDUSTRIAL SERVICE UNIT (ISU).

IV

. . . IN REQUIRING PETITIONERS TO PAY RESPONDENT BACKWAGES

AS WELL AS DAMAGES AND ATTORNEYS FEES.[23]

Capitol questions the appellate courts deciding of the petition of Dr. Meris on the
merits, instead of merely determining whether the administrative bodies acted with
grave abuse of discretion amounting to lack or excess of jurisdiction.

The province of a special civil action for certiorari under Rule 65, no doubt the
appropriate mode of review by the Court of Appeals of the NLRC decision, [24] is limited
only to correct errors of jurisdiction or grave abuse of discretion amounting to lack or
excess of jurisdiction.[25] In light of the merits of Dr. Meris claim, however, the
relaxation by the appellate court of procedural technicality to give way to a substantive
determination of a case, as this Court has held in several cases, [26] to subserve the
interest of justice, is in order.

Capitol argues that the factual findings of the NLRC, particularly when they coincide
with those of the Labor Arbiter, as in the present case, should be accorded respect,
even finality.[27]

For factual findings of the NLRC which affirm those of the Labor Arbiter to be accorded
respect, if not finality, however, the same must be sufficiently supported by evidence
on record.[28] Where there is a showing that such findings are devoid of support, or that
the judgment is based on a misapprehension of facts, [29] the lower tribunals factual
findings will not be upheld.

As will be reflected in the following discussions, this Court finds that the Labor Arbiter
and the NLRC overlooked some material facts decisive of the instant controversy.

Capitol further argues that the appellate courts conclusion that the ISU was not
incurring losses is arbitrary as it was based solely on the supposed increase in
revenues of the unit from 1989-1991, without taking into account the Analysis of
Income and Expenses of ISU from July 1, 1990 to July 1, 1991 which shows that the
unit operated at a loss; [30] and that the demand for the services of ISU became almost
extinct in view of the affiliation of industrial establishments with HMOs such as
Fortunecare, Maxicare, Health Maintenance, Inc. and Philamcare and of tripartite
arrangements with medical insurance carriers and designated hospitals, [31] and the
trend resulted in losses in the operation of the ISU.

Besides, Capitol stresses, the health care needs of the hospital employees had been
taken over by other units without added expense to it; [32] the appellate courts decision
is at best an undue interference with, and curtailment of, the exercise by an employer
of its management prerogatives; [33] at the time of the closure of the ISU, Dr. Meris was
already eligible for retirement under the Capitols retirement plan; and the appellate
court adverted to the alleged lack of notice to the DOLE regarding Dr. Meriss dismissal
but the latter never raised such issue in his appeal to the NLRC or even in his petition
for review before the Court of Appeals, hence, the latter did not have authority to pass
on the matter.[34]

Work is a necessity that has economic significance deserving legal protection. The
social justice and protection to labor provisions in the Constitution dictate so.

Employers are also accorded rights and privileges to assure their self-determination
and independence and reasonable return of capital. This mass of privileges comprises
the so-called management prerogatives. Although they may be broad and unlimited in
scope, the State has the right to determine whether an employers privilege is exercised
in a manner that complies with the legal requirements and does not offend the
protected rights of labor. One of the rights accorded an employer is the right to close
an establishment or undertaking.

The right to close the operation of an establishment or undertaking is explicitly

recognized under the Labor Code as one of the authorized causes in terminating
employment of workers, the only limitation being that the closure must not be for the
purpose of circumventing the provisions on termination of employment embodied in 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 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 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 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. (Emphasis
and underscoring supplied)
The phrase closures or cessation of operations of establishment or undertaking
includes a partial or total closure or cessation.[35]

x x x Ordinarily, the closing of a warehouse facility and the termination

of the services of employees there assigned is a matter that is left to the
determination of the employer in the good faith exercise of its
management prerogatives. The applicable law in such a case is Article
283 of the Labor Code which permits closure or cessation of operation of
an establishment or undertaking not due to serious business losses or
financial reverses, which, in our reading includes both the complete
cessation of operations and the cessation of only part of a companys
business.(Emphasis supplied)

And the phrase closures or cessation x x x not due to serious business losses or
financial reverses recognizes the right of the employer to close or cease his business

operations or undertaking even if he is not suffering from serious business losses or

financial reverses, as long as he pays his employees their termination pay in the
amount corresponding to their length of service.[36]

It would indeed be stretching the intent and spirit of the law if a court were to unjustly
interfere in managements prerogative to close or cease its business operations just
because said business operation or undertaking is not suffering from any loss. [37] As
long as the companys exercise of the same is in good faith to advance its interest
and not for the purpose of defeating or circumventing the rights of employees
under the law or a valid agreement, such exercise will be upheld.[38]

Clearly then, the right to close an establishment or undertaking may be justified on

grounds other than business losses but it cannot be an unbridled prerogative to suit
the whims of the employer.

The ultimate test of the validity of closure or cessation of establishment or

undertaking is that it must be bona fide in character.[39] And the burden of proving
such falls upon the employer.[40]

In the case at bar, Capitol failed to sufficiently prove its good faith in closing the ISU.

From the letter of Dr. Clemente to Dr. Meris, it is gathered that the abolition of the ISU
was due to the almost extinct demand for direct medical service by the private and
semi-government corporations in providing health care for their employees; and that
such extinct demand was brought about by the existing trend of industrial companies
allocating their health care requirements to Health Maintenance Organizations (HMOs)
or thru a tripartite arrangement with medical insurance carriers and designated
hospitals.

The records of the case, however, fail to impress that there was indeed extinct demand
for the medical services rendered by the ISU. The ISUs Annual Report for the fiscal
years 1986 to 1991, submitted by Dr. Meris to Dr. Clemente, and uncontroverted by
Capitol, shows the following:

Fiscal Year No. of Industrial No of No. of Capitol

Patients Companies Employees
1986-1987 466 11 1445
1987-1988 580 17 1707
1988-1989 676 14 1888
1989-1990 571 16 2731
1990-1991 759 18 2320[41]

If there was extinct demand for the ISU medical services as what Capitol and Dr.
Clemente purport to convey, why the number of client companies of the ISU increased

from 11 to 18 from 1986 to 1991, as well as the number of patients from both
industrial corporations and Capitol employees, they did not explain.

The Analysis of Income and Expenses adduced by Capitol showing that the ISU
incurred losses from July 1990 to February 1992, to wit:

July 1, 1990 to July 1, 1991 to

June 30, 1991 February 29, 1992

INCOME P16, 772.00 P35, 236.00

TOTAL EXPENSES P225, 583.70 P169,244.34

NET LOSS P(208,811.70) P(134,008.34),[42]

was prepared by its internal auditor Vicenta Fernandez, [43] a relative of Dr. Clemente,
and not by an independent external auditor, hence, not beyond doubt. It is the
financial statements audited by independent external auditors which constitute the
normal method of proof of the profit and loss performance of a company.[44]

At all events, the claimed losses are contradicted by the accounting records of Capitol
itself which show that ISU had increasing revenue from 1989 to 1991.

Year In-Patient Out-Patient Total Income

1989 P230,316.38 P 79,477.50 P309,793.88

1990 P278,438.10 P124,256.65 P402,694.75

1991 P305,126.35 P152,920.15 P458,046.50[45]

The foregoing disquisition notwithstanding, as reflected above, the existence of
business losses is not required to justify the closure or cessation of establishment or
undertaking as a ground to terminate employment of employees. Even if the ISU were
not incurring losses, its abolition or closure could be justified on other grounds like
that proffered by Capitol extinct demand. Capitol failed, however, to present sufficient
and convincing evidence to support such claim of extinct demand. In fact, the
employees of Capitol submitted a petition [46] dated April 21, 1992 addressed to Dr.
Clemente opposing the abolition of the ISU.

The closure of ISU then surfaces to be contrary to the provisions of the Labor Code on
termination of employment.

The termination of the services of Dr. Meris not having been premised on a just or
authorized cause, he is entitled to either reinstatement or separation pay if
reinstatement is no longer viable, and to backwages.

Reinstatement, however, is not feasible in case of a strained employer-employee

relationship or when the work or position formerly held by the dismissed employee no
longer exists, as in the instant case. [47] Dr. Meris is thus entitled to payment of
separation pay at the rate of one (1) month salary for every year of his employment,
with a fraction of at least six (6) months being considered as one(1) year, [48] and full

backwages from the time of his dismissal from April 30, 1992 until the expiration of
his term as Chief of ISU or his mandatory retirement, whichever comes first.

The award by the appellate court of moral damages,[49] however, cannot be sustained,
solely upon the premise that the employer fired his employee without just cause or due
process. Additional facts must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, such as that the act of dismissal was attended by bad
faith or fraud, or was oppressive to labor, or done in a manner contrary to morals,
good customs, or public policy; and of course, that social humiliation, wounded
feelings, grave anxiety, etc., resulted therefrom. [50] Such circumstances, however, do not
obtain in the instant case. More specifically on bad faith, lack of it is mirrored in Dr.
Clementes offer to Dr. Meris to be a consultant of Capitol, despite the abolition of the
ISU.

There being no moral damages, the award of exemplary damages does not lie. [51]

The award for attorneys fees, however, remains.[52]

WHEREFORE, the decision of the Court of Appeals dated February 15, 2002 is
hereby AFFIRMED with MODIFICATION. As modified, judgment is hereby rendered
ordering Capitol Medical Center, Inc. to pay Dr. Cesar Meris separation pay at the rate
of One (1) Month salary for every year of his employment, with a fraction of at least Six
(6) Months being considered as One (1) Year, full backwages from the time of his
dismissal from April 30, 1992 until the expiration of his term as Chief of the ISU or his

mandatory retirement, whichever comes first; other benefits due him or their money
equivalent; and attorneys fees.
Costs against petitioners.
SO ORDERED.
ELEMENTS FOR A VALID EXERCISE
SAN MIGUEL CORPORATION, ANDRES
SORIANO III,
FRANCISCO C. EIZMENDI, JR., and
FAUSTINO F. GALANG,
Petitioners,

- versus -

NUMERIANO LAYOC, JR., CARLOS

APONESTO,
PAULINO
BALDUGO,
QUEZON BARIT, BONIFACIO BOTOR,
HERMINIO CALINA, DANILO CAMINGAL,
JUAN
DE
MESA,
REYNOLD
DESEMBRANA, BERNARDITO DEUS,
EDUARDO
FILLARTA,
MAXIMIANO
FRANCISCO,
MARIO
MARILIM,
DEMETRIO
MATEO,
FILOMENO
MENDOZA,
CONRADO
NIEVA,
FRANCISCO
PALINES,
FELIPE
POLINTAN, MALCOLM SATORRE, and
ALEJANDRO TORRES,
Respondents.

G.R. No. 149640

Present:
QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

Promulgated:
October 19, 2007

X--------------------------------------------------x

DECISION

CARPIO, J.:
The Case

This is a petition for review[1] of the decision[2] promulgated on

29 August 2001 by the Court of Appeals (appellate court) in CA-G.R. SP No.

55838. The appellate courts decision set aside the decision [3] in NLRC NCR Case No.
00-12-08656-94 dated 23 March 1998, the decision[4] dated 27 November 1998, and
the resolution[5] dated 31 August 1999 in NLRC CA No. 015710-98. The appellate court
ordered San Miguel Corporation (SMC), Andres Soriano III, Francisco C. Eizmendi, Jr.,
and Faustino F. Galang (collectively, petitioners) to pay respondent Numeriano Layoc,
Jr. (Layoc) P125,000, representing overtime pay for services that he could have
rendered from January 1993 up to his retirement on 30 June 1997, and respondents
Carlos Aponesto,Paulino Baldugo, Quezon Barit, Bonifacio Botor, Herminio Calina, Da
nilo Camingal,

Juan

de

Mesa, Reynold Desembrana, Bernardito Deus,

Eduardo Fillarta, MaximianoFrancisco,

Mario Marilim, Demetrio Mateo, Filomeno Mendoza, Conrado Nieva, Francisco Palines,
Felipe Polintan,

Malcolm Satorre,

and

respondents) P10,000 each as nominal damages.

The Facts

Alejandro

Torres

(collectively,

The appellate court stated the facts as follows:

[Respondents] were among the Supervisory Security Guards of the Beer
Division of the San Miguel Corporation (p. 10, Rollo), a domestic
corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines with offices at No. 40 San Miguel
Avenue, Mandaluyong City. They started working as guards with
the petitioner San Miguel Corporationassigned to the Beer Division on

different dates until such time that they were promoted as supervising
security guards. The dates of their employment commenced as follows
(Ibid., pp. 87-89):

a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.

Aponesto, Carlos
Baldugo, Paulino
Barit, Quezon
Botor, Bonifacio
De Mesa, Juan
Calina, Herminio
Desembrana, Reynol
d
Camingal, Danilo
Deus, Bernardito
Fillarta, Eduardo
Francisco, Maximian
o
Layoc, Numeriano
Marilim, Mario
Mateo, Demetrio
Mendoza, Filomena
Palines, Francisco
Nieva, Conrado
Polintan, Felipe
Satorre, Malcolm
Torres, Alejandro

As guards

As
supervising
guards

June 1970
November 1978
January 1969
April 1980
November 1977
February 1976
November 1976

February 1983
May 1984
May 1984
January 1987
May 1984
May 1984
April 1983

December 1975
July 1976
January 1979
October 1977

December 1985
May 1983
May 1989
May 1984

June 1974
December 1977
November 1976
March 1980
May 1979
January 1977
June 1972
September 1970
January 1974

January 1982
June 1984
March 1984
May 1983
May 1985
June 1987
May 1983
May 1984
May 1984

As supervising security guards, the private respondents were performing the

following functions (Ibid., pp. 202-204):
1.

Supervises the facility security force under his shift;

2.

Inspects all company-owned firearms and ammunition and

promptly submits report as regards to discrepancy and/or state of
doubtful/suspected serviceability;

3.

Receives and transfers from outgoing to incoming supervising

security guard all company property, all official papers,
documents and/or cases investigated including pieces of evidence
properly labeled and secured;

4.

Physically checks and accounts for all company property within

his area of responsibility immediately upon assumption of duty;

5.

Updates compilation of local security rules, policies and

regulations and ensures that all his guards are posted thereon;

6.

Conducts regular and irregular inspection to determine his

guards compliance with all guard force instructions, corporate
security standards and procedures;

7.

Passes on all official communications, requests, applications of

leaves, etc. and makes his comments and/or recommendations to
his superior;

8.

Systematically and continuously screens the good performers

from the marginal or poor among his guards; concentrates on
teaching and guiding the latter; determines further what training
and/or skills that should be learned and submits appropriate
report to superior;

9.

Corrects, on the spot, all deficiencies noted and institutes

corrective
measures
within
his
authority;
recommends
commendations for those guards who deserves [sic] recognition for
good work;

10. Conducts an investigation of all cases coming to his attention

and promptly submits appropriate report to his superiors;
11. Evaluates individual guard performance and renders efficiency
reports in accordance with standing instructions;

12. Ensures that all his guards are courteous, respectful and
accommodating at all times;
13. Ensures that even those who have been found violating the
facilitys policies, rules and procedures are professionally treated
with courtesy and understanding to preclude embarrassment and
humiliation;
14. Ensures the maintenance of [a] logbook of all incidents,
communications, personnel and materials movements;
15. Responds to all calls for assistance;
16. Conducts continuing physical checks of the facilitys critical and
vulnerable areas;
17. Obtains critical security information and passes it on to his
superiors;
18. Assesses the need for extra guard service requirements;
19. Continuously monitors the personal needs and problems of his
men to his superiors;
20. Acts as Detachment Commander in the latters absence;

21. Responds to emergencies and activates the Corporate Security

Alerting System as appropriate; and
22. Performs such other duties as may be required by his
Detachment Commander/Plant Security Officer.
From the commencement of their employment, the private respondents
were required to punch their time cards for purposes of determining the
time they would come in and out of the companys work place. Corollary
[sic], the private respondents were availing the benefits for overtime,
holiday and night premium duty through time card punching (Rollo, p.
89). However, in the early 1990s, the San Miguel Corporation embarked
on a Decentralization Program aimed at enabling the separate divisions

of the San Miguel Corporation to pursue a more efficient and effective

management of their respective operations (Ibid., p. 99).
As a result of the Decentralization Program, the Beer Division of the San
Miguel Corporation implemented on January 1, 1993 a no time card
policy whereby the Supervisory I and II composing of the supervising
security guards of the Beer Division were no longer required to punch
their time cards (Ibid., p. 100). Consequently, on January 16, 1993,
without prior consultation with the private respondents, the time cards
were ordered confiscated and the latter were no longer allowed to render
overtime work (Ibid., p. 117).
However, in lieu of the overtime pay and the premium pay, the personnel
of the Beer Division of the petitioner San Miguel Corporation affected by
the No Time Card Policy were given a 10% across-the-board increase on
their basic pay while the supervisors who were assigned in the night shift
(6:00 p.m. to 6:00 a.m.) were given night shift allowance ranging
from P2,000.00 toP2,500.00 a month (Rollo, p. 12).[6]

On 1 December 1994, respondents filed a complaint for unfair labor practice, violation
of Article 100 of the Labor Code of the Philippines, and violation of the equal
protection clause and due process of law in relation to paragraphs 6 and 8 of Article
32 of the New Civil Code of the Philippines. Respondents prayed for actual damages for
two years (1993-1994), moral damages, exemplary damages, and overtime, holiday,
and night premium pay.

In their position paper dated 28 February 1995, respondents stated that the Beer
Division of SMC maliciously and fraudulently refused payment of their overtime,
holiday, and night premium pay from 1 to 15 January 1993 because of the no time
card policy. Moreover, petitioners had no written authority to stop respondents from
punching their time cards because the alleged memorandum authorizing such

stoppage did not include supervisory security guards. Thus, the respondents suffered
a diminution of benefits, making petitioners liable for non-payment of overtime,
holiday, and night premium pay.

In their position paper dated 23 February 1995, petitioners maintained that

respondents were supervisory security guards who were exempt from the provisions of
the Labor Code on hours of work, weekly rest periods, and rest days. The no time card
policy did not just prevent respondents from punching their time cards, but it also
granted respondents an across-the-board increase of 10% of basic salary and either
a P2,000

or P2,500

night

shift

allowance

on

top

of

their

yearly

merit

increase. Petitioners further asserted that the no time card policy was a valid exercise
of management prerogative and that all supervisors in the Beer Division were covered
by the no time card policy, which classification was distinct and separate from the
other divisions within SMC.

Respondents

filed

their

reply

dated 15

March

1995 to

petitioners

position

paper. Petitioners, on the other hand, filed their rejoinder dated 27 March 1995 to
respondents reply.Respondents filed a request for admission dated 2 May 1995 to
which petitioners filed their reply dated 15 May 1995.

The Ruling of the Labor Arbiter

In his decision dated 23 March 1998, Labor Arbiter Potenciano S. Canizares, Jr.
(Arbiter Canizares) stated that the principal issue is whether petitioners can, in their

no time card policy, remove the benefits that respondents have obtained through
overtime services. Arbiter Canizares then stated that the facts and the evidence are in
respondents favor.Arbiter Canizares ruled that rendering services beyond the regular
eight-hour work day has become company practice. Moreover, petitioners failed to
show good faith in the exercise of their management prerogative in altering company
practice because petitioners changed the terms and conditions of employment from
hours of work rendered to result only with respect to respondents and not with other
supervisors in other departments. The dispositive portion of Arbiter Canizares decision
reads:
WHEREFORE, the [petitioners] are hereby ordered to restore to the
[respondents] their right to earn for overtime services rendered as
enjoyed by the other employees.
The [petitioners] are further ordered to indemnify the [respondents] for
lost earnings after their terms and conditions of employment have been
unilaterally altered by the [petitioners], namely in the amount
of P500,000.00 each as computed by the [respondents], and the
[petitioners] failed to refute.
[Petitioners]
are
furthermore
ordered
to
pay
[respondents] P100,000.00 each as moral and exemplary damages.

the

All other claims are hereby dismissed for lack of evidence.

SO ORDERED.[7]

On 26 May 1998, petitioners filed their notice of appeal and memorandum of appeal
with the National Labor Relations Commission (NLRC).

The Ruling of the NLRC

On 27 November 1998, the NLRC affirmed with modification the ruling of

Arbiter Canizares that respondents suffered a diminution of benefits as a result of the
adoption of the no time card policy. The NLRC cited a well-established rule that
employees have a vested right over existing benefits voluntarily granted to them by
their employer, who may not unilaterally withdraw, eliminate, or diminish such
benefits. In the present case, there was a company practice which allowed the
enjoyment of substantial additional remuneration.Furthermore, there is no rule
excluding managerial employees from the coverage of the principle of non-diminution
of benefits.

The NLRC ruled thus:

WHEREFORE, the decision appealed from is hereby AFFIRMED, with
slight modification deleting the award of moral and exemplary damages.
SO ORDERED.[8]

Both

petitioners

and

respondents

filed

their

respective

motions

for

reconsideration. Petitioners stated that the NLRC erred in sustaining the award of
overtime

pay

despite

its

finding

that

respondents

were

managerial

personnel. Furthermore, there was no evidence that respondents rendered overtime

work and respondents admitted that they never or seldom rendered overtime
work. The award of overtime pay was thus contrary to the principle of no work, no
pay. For their part, respondents stated that the NLRC erred in deleting the award of
moral and exemplary damages. The implementation of the no time card policy, the
discrimination against them vis-a-vis the supervising security officers in other

divisions of SMC, and the execution of quitclaims and releases during the pendency of
the case were all attended with bad faith, thus warranting the award of moral and
exemplary damages.

On 31 August 1999, the NLRC further modified Arbiter Canizares decision. The NLRC
ruled thus:
WHEREFORE, the November 27, 1998 Decision of this Commission is
hereby REITERATED with a slight modification to the effect that the
computation of the [respondents] withdrawn benefits at P125,000.00
yearly from 1993 should terminate in 1996 or the date of each
complainants retirement, whichever came first.
SO ORDERED.[9]

Petitioners then filed their petition for certiorari before the appellate court on 16
November 1999.

The Ruling of the Appellate Court

On 29 August 2001, the appellate court set aside the ruling of the NLRC and entered a
new judgment in favor of respondents. The appellate court stated that there is no legal
issue that respondents, being the supervisory security guards of the Beer Division of
SMC, were performing duties and responsibilities being performed by those who were
considered as officers or members of the managerial staff as defined under Section 2,
paragraph (c), Rule 1, Book III of the Implementing Rules of the Labor Code. [10] The

appellate court ruled that while the implementation of the no time card policy was a
valid exercise of management prerogative, the rendering of overtime work by
respondents was a long-accepted practice in SMC which could not be peremptorily
withdrawn without running afoul with the principles of justice and equity. The
appellate court affirmed the deletion of the award of actual, moral, and exemplary
damages. With the exception of Layoc, respondents did not present proof of previous
earnings from overtime work and were not awarded with actual damages. Moreover,
the appellate court did not find that the implementation of the no time card policy
caused

any

physical

suffering,

moral

shock,

social

humiliation,

besmirched

reputation, and similar injury to respondents to justify the award of moral and
exemplary damages. Nonetheless, in the absence of competent proof on the specific
amounts of actual damages suffered by respondents, the appellate court awarded
them nominal damages.

The dispositive portion of the appellate courts decision reads thus:

WHEREFORE, foregoing considered, the instant petition is hereby GIVEN
DUE COURSE and is GRANTED. The Decision issued in NLRC NCR
CASE No. 00-12-08656-94 dated March 23, 1998, the Decision issued in
NLRC CA No. 015710-98 dated November 27, 1998 and the Resolution
dated August 31, 1999, are hereby ANNULLED and SET ASIDE, and a
new judgment is hereby entered ordering the petitioners to pay as
follows:
1) the private respondent Numeriano Layoc, Jr., the amount of One
Hundred Twenty-Five Thousand (P125,000.00) Pesos per year,
representing overtime pay for overtime services that he could have
rendered computed from the date of the implementation of the no time
card policy or on January 1993 and up to the date of his retirement on
June 30, 1997; and

2) the other private respondents, the amount

(P10,000.00) Pesos each as nominal damages.

of

Ten

Thousand

SO ORDERED.[11]

Dissatisfied with the appellate courts ruling, petitioners filed a petition before this
Court.

The Issues

Petitioners ask whether the circumstances in the present case constitute an exception
to the rule that supervisory employees are not entitled to overtime pay.

Respondents, on the other hand, question petitioners procedure. Respondents submit

that the Court should dismiss the present petition because petitioners did not file a
motion for reconsideration before the appellate court.
The Ruling of the Court

The petition has merit.

Requirement of Prior Filing of a

Motion for Reconsideration

It appears that respondents confuse certiorari as a mode of appeal under Rule 45 of

the 1997 Rules of Civil Procedure with certiorari as an original special civil action
under Rule 65 of the same Rules. In Paa v. Court of Appeals,[12] we stated that:
There are, of course, settled distinctions between a petition for review as
a mode of appeal and a special civil action for certiorari, thus:
a. In appeal by certiorari, the petition is based on questions of law which
the appellant desires the appellate court to resolve. In certiorari as an
original action, the petition raises the issue as to whether the lower court
acted without or in excess of jurisdiction or with grave abuse of
discretion.
b. Certiorari, as a mode of appeal, involves the review of the judgment,
award or final order on the merits. The original action for certiorari may
be directed against an interlocutory order of the court prior to appeal
from the judgment or where there is no appeal or any other plain, speedy
or adequate remedy.
c. Appeal by certiorari must be made within the reglementary period for
appeal. An original action for certiorari may be filed not later than sixty
(60) days from notice of the judgment, order or resolution sought to be
assailed.
d. Appeal by certiorari stays the judgment, award or order appealed from.
An original action for certiorari, unless a writ of preliminary injunction or
a temporary restraining order shall have been issued, does not stay the
challenged proceeding.
e. In appeal by certiorari, the petitioner and respondent are the original
parties to the action, and the lower court or quasi-judicial agency is not
to be impleaded. In certiorari as an original action, the parties are the
aggrieved party against the lower court or quasi-judicial agency and the
prevailing parties, who thereby respectively become the petitioner and
respondents.
f. In certiorari for purposes of appeal, the prior filing of a motion for
reconsideration
is
not
required (Sec.
1,
Rule
45); while
in certiorari as an original action, a motion for reconsideration is a

condition precedent (Villa-Rey Transit vs. Bello, L-18957, April 23,

1963), subject to certain exceptions.
g. In appeal by certiorari, the appellate court is in the exercise of its
appellate jurisdiction and power of review for, while in certiorari as an
original action, the higher court exercises original jurisdiction under its
power of control and supervision over the proceedings of lower courts.
(Emphasis added)

Respondents contention that the present petition should be denied for failure to file a
motion for reconsideration before the appellate court is, therefore, incorrect.
Overtime Work and Overtime Pay
for Supervisory Employees

Both petitioners and respondents agree that respondents are supervising security
guards and, thus, managerial employees. The dispute lies on whether respondents are
entitled to render overtime work and receive overtime pay despite the institution of the
no time card policy because (1) SMC previously allowed them to render overtime work
and paid them accordingly, and (2) supervising security guards in other SMC divisions
are allowed to render overtime work and receive the corresponding overtime pay.

Article 82[13] of the Labor Code states that the provisions of the Labor Code on working
conditions and rest periods shall not apply to managerial employees. The other
provisions in the Title include normal hours of work (Article 83), hours worked (Article
84), meal periods (Article 85), night shift differential (Article 86), overtime work (Article
87), undertime not offset by overtime (Article 88), emergency overtime work (Article
89), and computation of additional compensation (Article 90). It is thus clear that,

generally, managerial employees such as respondents are not entitled to overtime pay
for services rendered in excess of eight hours a day. Respondents failed to show that
the circumstances of the present case constitute an exception to this general rule.

First, respondents assert that Article 100 [14] of the Labor Code prohibits the
elimination or diminution of benefits. However, contrary to the nature of benefits,
petitioners

did

not

freely

give

the

payment

for

overtime

work

to

respondents. Petitioners paid respondents overtime pay as compensation for services

rendered in addition to the regular work hours.Respondents rendered overtime work
only when their services were needed after their regular working hours and only upon
the instructions of their superiors. Respondents even differ as to the amount of
overtime pay received on account of the difference in the additional hours of services
rendered. To illustrate, Layocs records[15] show the varying number of hours of overtime
work he rendered and the varying amounts of overtime pay he received from the years
1978 to 1981 and from 1983 to 1994:

Number of Hours Overtime

Pay
Worked Overtime
Received (in Pesos)
1974 Appointment
as guard

No record

No record

1975

No record

No record

1976

No record

No record

1977

No record

No record

1978

1,424.00

5,214.88

1979

1,312.56

5,189.30

1980

1,357.50

5,155.71

1981

474.00

1,781.81

No record
1982 Appointment as
supervising
security

No record

guard
1983

947.50

6,304.33

1984

889.00

8,937.00

1985

898.00

12,337.47

1986

1,086.60

18,085.34

1987

1,039.50

32,109.85

1988

633.00

29,126.10

1989

723.50

39,594.55

1990

376.50

21,873.33

1991

149.50

12,694.97

1992

144.00

17,403.38

1993

0.50

47.69

1994

0.00

0.00

1995

0.00

0.00

Aside from their allegations, respondents were not able to present anything to prove
that petitioners were obliged to permit respondents to render overtime work and give
them the corresponding overtime pay. Even if petitioners did not institute a no time
card policy, respondents could not demand overtime pay from petitioners if
respondents did not render overtime work. The requirement of rendering additional
service differentiates overtime pay from benefits such as thirteenth month pay or
yearly merit increase. These benefits do not require any additional service from their
beneficiaries. Thus, overtime pay does not fall within the definition of benefits under
Article 100 of the Labor Code.[16]

Second, respondents allege that petitioners discriminated against them vis-avis supervising security guards in other SMC divisions. Respondents state that they
should be treated in the same manner as supervising security guards in the Packaging
Products Division, who are allowed to render overtime work and thus receive overtime

pay. Petitioners counter by saying that the no time card policy was applied to all
supervisory personnel in the Beer Division. Petitioners further assert that there would
be discrimination if respondents were treated differently from other supervising
security guards within the Beer Division or if other supervisors in the Beer Division
are allowed to render overtime work and receive overtime pay. The Beer Division merely
exercised its management prerogative of treating its supervisors differently from its
rank-and-file employees, both as to responsibilities and compensation, as they are not
similarly situated.

We agree with petitioners position that given the discretion granted to the various
divisions of SMC in the management and operation of their respective businesses and
in the formulation and implementation of policies affecting their operations and their
personnel, the no time card policy affecting all of the supervisory employees of the
Beer Division is a valid exercise of management prerogative. The no time card policy
undoubtedly caused pecuniary loss to respondents.[17] However, petitioners granted to
respondents and other supervisory employees a 10% across-the-board increase in pay
and night shift allowance, in addition to their yearly merit increase in basic salary, to
cushion the impact of the loss. So long as a companys management prerogatives are
exercised in good faith for the advancement of the employers interest and not for the
purpose of defeating or circumventing the rights of the employees under special laws
or under valid agreements, this Court will uphold them.[18]
WHEREFORE, the petition is GRANTED. The Decision dated 29 August 2001 of the
Court of Appeals in CA-G.R. SP No. 55838 ordering petitioners San Miguel
Corporation, Andres Soriano III, Francisco C. Eizmendi, Jr., and Faustino F. Galang to

pay Numeriano Layoc,

Jr.

overtime

pay

and

the

other

respondents

nominal

damages isSET ASIDE. The complaint of respondents is DISMISSED.

SO ORDERED.

LIMITATIONS:
G.R. No. 85985 August 13, 1993
PHILIPPINE
AIRLINES,
INC.
(PAL), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P.
ORTIGUERRA
and
PHILIPPINE
AIRLINES
EMPLOYEES
ASSOCIATION
(PALEA), respondents.
Solon Garcia for petitioner.
Adolpho M. Guerzon for respondent PALEA.

MELO, J.:
In the instant petition for certiorari, the Court is presented the issue of whether or not
the formulation of a Code of Discipline among employees is a shared responsibility of
the employer and the employees.
On March 15, 1985, the Philippine Airlines, Inc. (PAL) completely revised its 1966
Code of Discipline. The Code was circulated among the employees and was
immediately implemented, and some employees were forthwith subjected to the
disciplinary measures embodied therein.
Thus, on August 20, 1985, the Philippine Airlines Employees Association (PALEA) filed
a complaint before the National Labor Relations Commission (NLRC) for unfair labor
practice (Case No. NCR-7-2051-85) with the following remarks: "ULP with arbitrary
implementation of PAL's Code of Discipline without notice and prior discussion with
Union by Management" (Rollo, p. 41). In its position paper, PALEA contended that PAL,
by its unilateral implementation of the Code, was guilty of unfair labor practice,
specifically Paragraphs E and G of Article 249 and Article 253 of the Labor Code.

PALEA alleged that copies of the Code had been circulated in limited numbers; that
being penal in nature the Code must conform with the requirements of sufficient
publication, and that the Code was arbitrary, oppressive, and prejudicial to the rights
of the employees. It prayed that implementation of the Code be held in abeyance; that
PAL should discuss the substance of the Code with PALEA; that employees dismissed
under the Code be reinstated and their cases subjected to further hearing; and that
PAL be declared guilty of unfair labor practice and be ordered to pay damages (pp. 714, Record.)
PAL filed a motion to dismiss the complaint, asserting its prerogative as an employer to
prescibe rules and regulations regarding employess' conduct in carrying out their
duties and functions, and alleging that by implementing the Code, it had not violated
the collective bargaining agreement (CBA) or any provision of the Labor Code. Assailing
the complaint as unsupported by evidence, PAL maintained that Article 253 of the
Labor Code cited by PALEA reffered to the requirements for negotiating a CBA which
was inapplicable as indeed the current CBA had been negotiated.
In its reply to PAL's position paper, PALEA maintained that Article 249 (E) of the Labor
Code was violated when PAL unilaterally implemented the Code, and cited provisions
of Articles IV and I of Chapter II of the Code as defective for, respectively, running
counter to the construction of penal laws and making punishable any offense within
PAL's contemplation. These provisions are the following:
Sec. 2. Non-exclusivity. This Code does not contain the entirety of the
rules and regulations of the company. Every employee is bound to comply
with all applicable rules, regulations, policies, procedures and standards,
including standards of quality, productivity and behaviour, as issued and
promulgated by the company through its duly authorized officials. Any
violations thereof shall be punishable with a penalty to be determined by
the gravity and/or frequency of the offense.
Sec. 7. Cumulative Record. An employee's record of offenses shall be
cumulative. The penalty for an offense shall be determined on the basis
of his past record of offenses of any nature or the absence thereof. The
more habitual an offender has been, the greater shall be the penalty for
the latest offense. Thus, an employee may be dismissed if the number of
his past offenses warrants such penalty in the judgment of management
even if each offense considered separately may not warrant dismissal.
Habitual offenders or recidivists have no place in PAL. On the other
hand, due regard shall be given to the length of time between
commission of individual offenses to determine whether the employee's
conduct may indicate occasional lapses (which may nevertheless require
sterner disciplinary action) or a pattern of incorrigibility.

Labor Arbiter Isabel P. Ortiguerra handling the case called the parties to a conference
but they failed to appear at the scheduled date. Interpreting such failure as a waiver of
the parties' right to present evidence, the labor arbiter considered the case submitted
for decision. On November 7, 1986, a decision was rendered finding no bad faith on
the part of PAL in adopting the Code and ruling that no unfair labor practice had been
committed. However, the arbiter held that PAL was "not totally fault free" considering
that while the issuance of rules and regulations governing the conduct of employees is
a "legitimate management prerogative" such rules and regulations must meet the test
of "reasonableness, propriety and fairness." She found Section 1 of the Code
aforequoted as "an all embracing and all encompassing provision that makes
punishable any offense one can think of in the company"; while Section 7, likewise
quoted above, is "objectionable for it violates the rule against double jeopardy thereby
ushering in two or more punishment for the same misdemeanor." (pp. 38-39, Rollo.)
The labor arbiter also found that PAL "failed to prove that the new Code was amply
circulated." Noting that PAL's assertion that it had furnished all its employees copies of
the Code is unsupported by documentary evidence, she stated that such "failure" on
the part of PAL resulted in the imposition of penalties on employees who thought all
the while that the 1966 Code was still being followed. Thus, the arbiter concluded that
"(t)he phrase ignorance of the law excuses no one from compliance . . . finds
application only after it has been conclusively shown that the law was circulated to all
the parties concerned and efforts to disseminate information regarding the new law
have been exerted. (p. 39, Rollo.) She thereupon disposed:
WHEREFORE, premises considered, respondent PAL is hereby ordered as
follows:
1. Furnish all employees with the new Code of Discipline;
2. Reconsider the cases of employees meted with penalties under the New
Code of Discipline and remand the same for further hearing; and
3. Discuss with PALEA the objectionable provisions specifically tackled in
the body of the decision.
All other claims of the complainant union (is) [are] hereby, dismissed for
lack of merit.
SO ORDERED. (p. 40, Rollo.)
PAL appealed to the NLRC. On August 19, 1988, the NLRC through Commissioner
Encarnacion, with Presiding Commissioner Bonto-Perez and Commissioner Maglaya
concurring, found no evidence of unfair labor practice committed by PAL and affirmed

the dismissal of PALEA's charge. Nonetheless, the NLRC made the following
observations:
Indeed, failure of management to discuss the provisions of a
contemplated code of discipline which shall govern the conduct of its
employees would result in the erosion and deterioration of an otherwise
harmonious and smooth relationship between them as did happen in the
instant case. There is no dispute that adoption of rules of conduct or
discipline is a prerogative of management and is imperative and essential
if an industry, has to survive in a competitive world. But labor climate
has progressed, too. In the Philippine scene, at no time in our
contemporary history is the need for a cooperative, supportive and
smooth relationship between labor and management more keenly felt if
we are to survive economically. Management can no longer exclude labor
in the deliberation and adoption of rules and regulations that will affect
them.
The complainant union in this case has the right to feel isolated in the
adoption of the New Code of Discipline. The Code of Discipline involves
security of tenure and loss of employment a property right! It is time
that management realizes that to attain effectiveness in its conduct
rules, there should be candidness and openness by Management and
participation by the union, representing its members. In fact, our
Constitution has recognized the principle of "shared responsibility"
between employers and workers and has likewise recognized the right of
workers to participate in "policy and decision-making process affecting
their rights . . ." The latter provision was interpreted by the
Constitutional Commissioners to mean participation in "management"'
(Record of the Constitutional Commission, Vol. II).
In a sense, participation by the union in the adoption of the code if
conduct could have accelerated and enhanced their feelings of belonging
and would have resulted in cooperation rather than resistance to the
Code. In fact, labor-management cooperation is now "the thing." (pp. 3-4,
NLRC Decision ff. p. 149, Original Record.)
Respondent Commission thereupon disposed:
WHEREFORE, premises considered, we modify the appealed decision in
the sense that the New Code of Discipline should be reviewed and
discussed with complainant union, particularly the disputed provisions
[.] (T)hereafter, respondent is directed to furnish each employee with a
copy of the appealed Code of Discipline. The pending cases adverted to in
the appealed decision if still in the arbitral level, should be reconsidered

by the respondent Philippine Air Lines. Other dispositions of the Labor

Arbiter are sustained.
SO ORDERED. (p. 5, NLRC Decision.)
PAL then filed the instant petition for certiorari charging public respondents with grave
abuse of discretion in: (a) directing PAL "to share its management prerogative of
formulating a Code of Discipline"; (b) engaging in quasi-judicial legislation in ordering
PAL to share said prerogative with the union; (c) deciding beyond the issue of unfair
labor practice, and (d) requiring PAL to reconsider pending cases still in the arbitral
level (p. 7, Petition; p. 8,Rollo.)
As stated above, the Principal issue submitted for resolution in the instant petition is
whether management may be compelled to share with the union or its employees its
prerogative of formulating a code of discipline.
PAL asserts that when it revised its Code on March 15, 1985, there was no law which
mandated the sharing of responsibility therefor between employer and employee.
Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715,
amending Article 211 of the Labor Code, that the law explicitly considered it a State
policy "(t)o ensure the participation of workers in decision and policy-making
processes affecting the rights, duties and welfare." However, even in the absence of
said clear provision of law, the exercise of management prerogatives was never
considered boundless. Thus, in Cruz vs. Medina (177 SCRA 565 [1989]) it was held
that management's prerogatives must be without abuse of discretion.
In San Miguel Brewery Sales Force Union (PTGWO) vs. Ople (170 SCRA 25 [1989]), we
upheld the company's right to implement a new system of distributing its products,
but gave the following caveat:
So long as a company's management prerogatives are exercised in good
faith for the advancement of the employer's interest and not for the
purpose of defeating or circumventing the rights of the employees under
special laws or under valid agreements, this Court will uphold them.
(at p. 28.)
All this points to the conclusion that the exercise of managerial prerogatives
is not unlimited. It is circumscribed by limitations found in law, a collective bargaining
agreement, or the general principles of fair play and justice (University of Sto. Tomas
vs. NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott Laboratories
(Phil.), vs. NLRC (154 713 [1987]), it must be duly established that the prerogative
being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not
purely business-oriented nor do they concern the management aspect of the business
of the company as in the San Miguel case. The provisions of the Code clearly have
repercusions on the employee's right to security of tenure. The implementation of the
provisions may result in the deprivation of an employee's means of livelihood which, as
correctly pointed out by the NLRC, is a property right (Callanta, vs Carnation
Philippines, Inc., 145 SCRA 268 [1986]). In view of these aspects of the case which
border on infringement of constitutional rights, we must uphold the constitutional
requirements for the protection of labor and the promotion of social justice, for these
factors, according to Justice Isagani Cruz, tilt "the scales of justice when there is
doubt, in favor of the worker" (Employees Association of the Philippine American Life
Insurance Company vs. NLRC, 199 SCRA 628 [1991] 635).
Verily, a line must be drawn between management prerogatives regarding business
operations per se and those which affect the rights of the employees. In treating the
latter, management should see to it that its employees are at least properly informed of
its decisions or modes action. PAL asserts that all its employees have been furnished
copies of the Code. Public respondents found to the contrary, which finding, to say the
least is entitled to great respect.
PAL posits the view that by signing the 1989-1991 collective bargaining agreement, on
June 27, 1990, PALEA in effect, recognized PAL's "exclusive right to make and enforce
company
rules
and
regulations
to
carry
out
the
functions
of
management without having to discuss the same with PALEA and much less, obtain
the latter'sconformity thereto" (pp. 11-12, Petitioner's Memorandum; pp 180181, Rollo.) Petitioner's view is based on the following provision of the agreement:
The Association recognizes the right of the Company to determine
matters of management it policy and Company operations and to direct
its manpower. Management of the Company includes the right to
organize, plan, direct and control operations, to hire, assign employees to
work, transfer employees from one department, to another, to promote,
demote, discipline, suspend or discharge employees for just cause; to layoff employees for valid and legal causes, to introduce new or improved
methods or facilities or to change existing methods or facilities and the
right to make and enforce Company rules and regulations to carry out
the functions of management.
The exercise by management of its prerogative shall be done in a just
reasonable, humane and/or lawful manner.
Such provision in the collective bargaining agreement may not be interpreted as
cession of employees' rights to participate in the deliberation of matters which may

affect their rights and the formulation of policies relative thereto. And one such mater
is the formulation of a code of discipline.
Indeed, industrial peace cannot be achieved if the employees are denied their just
participation in the discussion of matters affecting their rights. Thus, even before
Article 211 of the labor Code (P.D. 442) was amended by Republic Act No. 6715, it was
already declared a policy of the State, "(d) To promote the enlightenment of workers
concerning their rights and obligations . . . as employees." This was, of course,
amplified by Republic Act No 6715 when it decreed the "participation of workers in
decision and policy making processes affecting their rights, duties and welfare." PAL's
position that it cannot be saddled with the "obligation" of sharing management
prerogatives as during the formulation of the Code, Republic Act No. 6715 had not yet
been enacted (Petitioner's Memorandum, p. 44; Rollo, p. 212), cannot thus be
sustained. While such "obligation" was not yet founded in law when the Code was
formulated, the attainment of a harmonious labor-management relationship and the
then already existing state policy of enlightening workers concerning their rights as
employees demand no less than the observance of transparency in managerial moves
affecting employees' rights.
Petitioner's assertion that it needed the implementation of a new Code of Discipline
considering the nature of its business cannot be overemphasized. In fact, its being a
local monopoly in the business demands the most stringent of measures to attain safe
travel for its patrons. Nonetheless, whatever disciplinary measures are adopted cannot
be properly implemented in the absence of full cooperation of the employees. Such
cooperation cannot be attained if the employees are restive on account, of their being
left out in the determination of cardinal and fundamental matters affecting their
employment.
WHEREFORE, the petition is DISMISSED and the questioned decision AFFIRMED. No
special pronouncement is made as to costs.
SO ORDERED.
G.R. No. 82249

February 7, 1991

WILTSHIRE FILE CO., INC., petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and VICENTE T.
ONG, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Jose R. Millares & Associates for private respondent.

FELICIANO, J.:
Private respondent Vicente T. Ong was the Sales Manager of petitioner Wiltshire File
Co., Inc. ("Wiltshire") from 16 March 1981 up to 18 June 1985. As such, he received a
monthly salary of P14,375.00 excluding commissions from sales which averaged
P5,000.00 a month. He also enjoyed vacation leave with pay equivalent to P7,187,50
per year, as well as hospitalization privileges to the extent of P10,000.00 per year.
On 13 June 1985, upon private respondent's return from a business and pleasure trip
abroad, he was informed by the President of petitioner Wiltshire that his services were
being terminated. Private respondent maintains that he tried to get an explanation
from management of his dismissal but to no avail. On 18 June 1985, when private
respondent again tried to speak with the President of Wiltshire, the company's security
guard handed him a letter which formally informed him that his services were being
terminated upon the ground of redundancy.
Private respondent filed, on 21 October 1985, a complaint before the Labor Arbiter for
illegal dismissal alleging that his position could not possibly be redundant because
nobody (save himself) in the company was then performing the same duties. Private
respondent further contended that retrenching him could not prevent further losses
because it was in fact through his remarkable performance as Sales Manager that the
Company had an unprecedented increase in domestic market share the preceding year.
For that accomplishment, he continued, he was promoted to Marketing Manager and
was authorized by the President to hire four (4) Sales Executives five (5) months prior
to his termination.
In its answer, petitioner company alleged that the termination of respondent's services
was a cost-cutting measure: that in December 1984, the company had experienced an
unusually low volume of orders: and that it was in fact forced to rotate its employees in
order to save the company. Despite the rotation of employees, petitioner alleged; it
continued to experience financial losses and private respondent's position, Sales
Manager of the company, became redundant.
On 2 December 1986, during the proceedings before the Labor Arbiter, petitioner, in a
letter1 addressed to the Regional Director of the then Ministry of Labor and
Employment, notified that official that effective 2 January 1987, petitioner would close
its doors permanently due to substantial business losses.
In a decision dated 11 March 1987, the Labor Arbiter declared the termination of
private respondent's services illegal and ordered petitioner to pay private respondent
backwages in the amount of P299,000.00, unpaid salaries in the amount of

P22,352.11, accumulated sick and vacation leaves in the amount of P12,543.91,

hospitalization benefit package in the amount of P10,000.00, unpaid commission in
the amount of P57,500,00, moral damages in the amount of P100,000.00 and
attorney's fees in the amount of P51,639.60.
On appeal by petitioner Wiltshire, the National Labor Relations Commission ("NLRC")
affirmed in toto on 9 February 1988 the decision of the Labor Arbiter. The NLRC held
that:
The termination letter clearly spelled out that the main reason in terminating
the services of complainant isREDUNDANT and not retrenchment.
The supposed duplication of work of herein complainant and Mr. Deliva, the
Vice-President is absent that would justify redundancy. . . .
On the claim for moral damages, the NLRC pointed out that the effective date of
private respondent's termination was 18 July 1985, although it was only 18 June
1985 that he received the letter of termination, and concluded that he was not given
any opportunity to explain his position on the matter. The NLRC held that the
termination was attended by malice and bad faith on the part of petitioner,
considering the manner of private respondent was ordered by the President to pack up
and remove his personal belongings from the office. Private respondent was said to
have been embarrassed before his immediate family and other acquaintance due to his
inability to explain the reasons behind the termination of his services.
In this Petition for Certiorari, it is submitted that private respondent's dismissal was
justified and not illegal. Petitioner maintains that it had been incurring business
losses beginning 1984 and that it was compelled to reduce the size of its personnel
force. Petitioner also contends that redundancy as a cause for termination does not
necessarily mean duplication of work but a "situation where the services of an
employee are in excess of what is demanded by the needs of an undertaking . . ."
Having reviewed the record of this case, the Court has satisfied itself that indeed
petitioner had serious financial difficulties before, during and after the termination of
the services of private respondent. For one thing, the audited financial statements of
the petitioner for its fiscal year ending on 31 July 1985 prepared by a firm of
independent auditors, showed a net loss in the amount of P4,431,321.00 and a total
deficit or capital impairment at the end of year of P6,776,493.00. 2
In the preceding fiscal year (1983-1984), while the company showed a net after tax
income of P843,506.00, it actually suffered a deficit or capital impairment of
P2,345,172.00. Most importantly, petitioner Wiltshire finally closed its doors and
terminated all operations in the Philippines on January 1987, barely two (2) years
after the termination of private respondent's employment. We consider that finally

shutting down business operations constitutes strong confirmatory evidence of

petitioner's previous financial distress. The Court finds it very difficult to suppose that
petitioner Wiltshire would take the final and irrevocable step of closing down its
operations in the Philippines simply for the sole purpose of easing out a particular
officer or employee, such as the private respondent.
Turning to the legality of the termination of private respondent's employment, we find
merit in petitioner's basic argument. We are unable to sustain public respondent
NLRC's holding that private respondent's dismissal was not justified by redundancy
and hence illegal. In the first place, we note that while the letter informing private
respondent of the termination of his services used the word "redundant", that letter
also referred to the company having "incur[red] financial losses which [in] fact has
compelled [it] to resort to retrenchment to prevent further losses". 3
Thus, what the letter was in effect saying was that because of financial losses,
retrenchment was necessary, which retrenchment in turn resulted in the redundancy
of private respondent's position.
In the second place, we do not believe that redundancy in an employer's personnel
force necessarily or even ordinarily refers to duplication of work. That no other person
was holding the same position that private respondent held prior to the termination of
his services, does not show that his position had not become redundant. Indeed, in
any well-organized business enterprise, it would be surprising to find duplication of
work and two (2) or more people doing the work of one person. We believe that
redundancy, for purposes of our Labor Code, exists where the services of an employee
are in excess of what is reasonably demanded by the actual requirements of the
enterprise. Succinctly put, a position is redundant where it is superfluous, and
superfluity of a position or positions may be the outcome of a number of factors, such
as overhiring of workers, decreased volume of business, or dropping of a particular
product line or service activity previously manufactured or undertaken by the
enterprise.4
The employer has no legal obligation to keep in its payroll more employees than are
necessarily for the operation of its business.
In the third place, in the case at bar, petitioner Wiltshire, in view of the contraction of
its volume of sales and in order to cut down its operating expenses, effected some
changes in its organization by abolishing some positions and thereby effecting a
reduction of its personnel. Thus, the position of Sales Manager was abolished and the
duties previously discharged by the Sales Manager simply added to the duties of the
General Manager, to whom the Sales Manager used to report.
It is of no legal moment that the financial troubles of the company were not of private
respondent's making. Private respondent cannot insist on the retention of his position

upon the ground that he had not contributed to the financial problems of Wiltshire.
The characterization of private respondent's services as no longer necessary or
sustainable, and therefore properly terminable, was an exercise of business judgment
on the part of petitioner company. The wisdom or soundness of such characterization
or decision was not subject to discretionary review on the part of the Labor Arbiter nor
of the NLRC so long, of course, as violation of law or merely arbitrary and malicious
action is not shown. It should also be noted that the position held by private
respondent, Sales Manager, was clearly managerial in character. In D.M. Consunji, Inc.
v. National Labor Relations Commission,5the Court held:
An employer has a much wider discretion in terminating the employment
relationship of managerial personnel as compared to rank and file employees.
However, such prerogative of management to dismiss or lay off an employee
must be made without abuse of discretion, for what is at stake is not only the
private respondent's position but also his means of livelihood . . . .6
The determination of the continuing necessity of a particular officer or position in a
business corporation is management's prerogative, and the courts will not interfere
with the exercise of such so long as no abuse of discretion or merely arbitrary or
malicious action on the part of management is shown.7
On the issue of moral damages, petitioner assails the finding of the NLRC that the
dismissal was done in bad faith. Petitioner argues that it had complied with the onemonth notice required by law; that there was no need for private respondent to be
heard in his own defense considering that the termination of his services was for a
statutory or authorized cause; and that whatever humiliation might have been
suffered by private respondent arose from a lawful cause and hence could not be the
basis of an award of moral damages.
Termination of an employee's services because of retrenchment to prevent further
losses or redundancy, is governed by Article 283 of the Labor Code which provides 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 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 (1/2) month pay for every of service,
whichever is higher. A fraction of at least six (6) months shall be considered one
(1) whole year.
Termination of services for any of the above described causes should be distinguished
from termination of employment by reason of some blameworthy act or omission on
the part of the employee, in which case the applicable provision is Article 282 of the
Labor Code which provides as follows:
Art. 282. Termination by employer. An employer may terminate an
employment for any of the following causes:
(a) Serious misconduct or willful disobedience by the employee of the
lawful orders of his employer or representative in connection with his
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 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.
Sections 2 and 5 of Rule XIV entitled "Termination of Employment:" of the "Rules to
Implement the Labor Code" read as follows:
Sec. 2. Notice of dismissal. Any employer who seeks to dismiss a worker shall
furnish him a written notice stating the particular acts or omission constituting
the grounds for his dismissal. In cases of abandonment of work, the notice shall
be served at the worker's last known address.
xxx

xxx

xxx

Sec. 5. Answer and hearing. The worker may answer the allegations stated
against him in the notice of dismissal within a reasonable period from receipt of
such notice. The employer shall afford the worker ample opportunity to be
heard and to defend himself with the assistance of his representative if he so
desires. (emphasis supplied)

We note that Section 2 of Rule XIV quoted above requires the notice to specify "the
particular acts or omissions constituting the ground for his dismissal", a requirement
which is obviously applicable where the ground for dismissal is the commission of
some act or omission falling within Article 282 of the Labor Code. Again, Section 5
gives the employee the right to answer and to defend himself against "the allegations
stated against him in the notice of dismissal". It is such allegations by the employer
and any counter-allegations that the employee may wish to make that need to be heard
before dismissal is effected. Thus, Section 5 may be seen to envisage charges against
an employee constituting one or more of the just causes for dismissal listed in Article
282 of the Labor Code. Where, as in the instant case, the ground for dismissal or
termination of services does not relate to a blameworthy act or omission on the part of
the employee, there appears to us no need for an investigation and hearing to be
conducted by the employer who does not, to begin with, allege any malfeasance or
non-feasance on the part of the employee. In such case, there are no allegations which
the employee should refute and defend himself from. Thus, to require petitioner
Wiltshire to hold a hearing, at which private respondent would have had the right to
be present, on the business and financial circumstances compelling retrenchment and
resulting in redundancy, would be to impose upon the employer an unnecessary and
inutile hearing as a condition for legality of termination.
This is not to say that the employee may not contest the reality or good faith character
of the retrenchment or redundancy asserted as grounds for termination of services.
The appropriate forum for such controversion would, however, be the Department of
Labor and Employment and not an investigation or hearing to be held by the employer
itself. It is precisely for this reason that an employer seeking to terminate services of
an employee or employees because of "closure of establishment and reduction of
personnel", is legally required to give a written notice not only to the employee but also
to the Department of Labor and Employment at least one month before effectivity date
of the termination. In the instant case, private respondent did controvert before the
appropriate labor authorities the grounds for termination of services set out in
petitioner's letter to him dated 17 June 1985.
We hold, therefore, that the NLRC's finding that private respondent had not been
accorded due process, is bereft of factual and legal bases. The award of moral damages
that rests on such ground must accordingly fall.
While private respondent may well have suffered personal embarrassment by reason of
termination of his services, such fact alone cannot justify the award of moral damages.
Moral damages are simply a species of damages awarded to compensate one for
injuries brought about by a wrongful act.8 As discussed above, the termination of
private respondent's services was not a wrongful act. There is in this case no clear and
convincing evidence of record showing that the termination of private respondent's
services, while due to an authorized or statutory cause, had been carried out in an
arbitrary, capricious and malicious manner, with evident personal ill-will.

Embarrassment, even humiliation, that is not proximately caused by a wrongful act

does not constitute a basis for an award of moral damages.
Private respondent is, of course, entitled to separation pay and other benefits under
Act 283 of the Labor Code and petitioner's letter dated 17 June 1985.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Certiorari.
The Resolutions of the National Labor Relations Commission dated 9 February 1988
and 7 March 1988 are hereby SET ASIDE and NULLIFIED. The Temporary Restraining
Order issued by this Court on 21 March 1988 is hereby made PERMANENT. No
pronouncement as to costs.
SO ORDERED.
Promotion:
G.R. No. 100641 June 14, 1993
FARLE P. ALMODIEL, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), RAYTHEON
PHILS., INC., respondents.
Apolinario Lomabao, Jr. for petitioner.
Vicente A. Cruz, Jr., for private respondent.

NOCON, J.:
Subject of this petition for certiorari is the decision dated March 21, 1991 of the
National Labor Relations Commission in NLRC Case No.
00-00645-89 which reversed and set aside the Labor Arbiter's decision dated
September 27, 1989 and ordered instead the payment of separation pay and financial
assistance of P100,000.00. Petitioner imputes grave abuse of discretion on the part of
the Commission and prays for the reinstatement of the Labor Arbiter's decision which
declared his termination on the ground of redundancy illegal.
Petitioner Farle P. Almodiel is a certified public accountant who was hired in October,
1987 as Cost Accounting Manager of respondent Raytheon Philippines, Inc. through a
reputable placement firm, John Clements Consultants, Inc. with a starting monthly
salary of P18,000.00. Before said employment, he was the accounts executive of
Integrated Microelectronics, Inc. for several years. He left his lucrative job therein in

view of the promising career offered by Raytheon. He started as a probationary or

temporary employee. As Cost Accounting Manager, his major duties were: (1) plan,
coordinate and carry out year and physical inventory; (2) formulate and issue out hard
copies of Standard Product costing and other cost/pricing analysis if needed and
required and (3) set up the written Cost Accounting System for the whole company.
After a few months, he was given a regularization increase of P1,600.00 a month. Not
long thereafter, his salary was increased to P21,600.00 a month.
On August 17, 1988, he recommended and submitted a Cost Accounting/Finance
Reorganization, affecting the whole finance group but the same was disapproved by
the Controller. However, he was assured by the Controller that should his position or
department which was apparently a one-man department with no staff becomes
untenable or unable to deliver the needed service due to manpower constraint, he
would be given a three (3) year advance notice.
In the meantime, the standard cost accounting system was installed and used at the
Raytheon plants and subsidiaries worldwide. It was likewise adopted and installed in
the Philippine operations. As a consequence, the services of a Cost Accounting
Manager allegedly entailed only the submission of periodic reports that would use
computerized forms prescribed and designed by the international head office of the
Raytheon Company in California, USA.
On January 27, 1989, petitioner was summoned by his immediate boss and in the
presence of IRD Manager, Mr. Rolando Estrada, he was told of the abolition of his
position on the ground of redundancy. He pleaded with management to defer its action
or transfer him to another department, but he was told that the decision of
management was final and that the same has been conveyed to the Department of
Labor and Employment. Thus, he was constrained to file the complaint for illegal
dismissal before the Arbitration Branch of the National Capital Region, NLRC,
Department of Labor and Employment.
On September 27, 1989, Labor Arbiter Daisy Cauton-Barcelona rendered a decision,
the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered declaring that complainant's
termination on the ground of redundancy is highly irregular and without
legal and factual basis, thus ordering the respondents to reinstate
complainant to his former position with full backwages without lost of
seniority rights and other benefits. Respondents are further ordered to
pay complainant P200,000.00 as moral damages and P20,000.00 as
exemplary damages, plus ten percent (10%) of the total award as
attorney's fees.1

Raytheon appealed therefrom on the grounds that the Labor Arbiter committed grave
abuse of discretion in denying its rights to dismiss petitioner on the ground of
redundancy, in relying on baseless surmises and self-serving assertions of the
petitioner that its act was tainted with malice and bad faith and in awarding moral
and exemplary damages and attorney's fees.
On March 21, 1991, the NLRC reversed the decision and directed Raytheon to pay
petitioner the total sum of P100,000.00 as separation pay/financial assistance. The
dispositive portion of which is hereby quoted as follows:
WHEREFORE, the appealed decision is hereby set aside. In its stead,
Order is hereby issued directing respondent to pay complainant the total
separation pay/financial assistance of One Hundred Thousand Pesos
(P100,000.00).
SO ORDERED. 2
From this decision, petitioner filed the instant petition averring that:
The public respondent committed grave abuse of discretion amounting to
(lack of) or in excess of jurisdiction in declaring as valid and justified the
termination of petitioner on the ground of redundancy in the face of
clearly established finding that petitioner's termination was tainted with
malice, bad faith and irregularity. 3
Termination of an employee's services because of redundancy is governed by Article
283 of the Labor Code which provides as follows:
Art. 283. Closure of establishment and reduction of personnel. The
employer may also terminate the employment of any employee due to
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 installation of laborsaving 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 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 at least 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.
There is no dispute that petitioner was duly advised, one (1) month before, of the
termination of his employment on the ground of redundancy in a written notice by his
immediate superior, Mrs. Magdalena B.D. Lopez sometime in the afternoon of January
27, 1989. He was issued a check for P54,863.00 representing separation pay but in
view of his refusal to acknowledge the notice and the check, they were sent to him
thru registered mail on January 30, 1989. The Department of Labor and Employment
was served a copy of the notice of termination of petitioner in accordance with the
pertinent provisions of the Labor Code and the implementing rules.
The crux of the controversy lies on whether bad faith, malice and irregularity crept in
the abolition of petitioner's position of Cost Accounting Manager on the ground of
redundancy. Petitioner claims that the functions of his position were absorbed by the
Payroll/Mis/Finance Department under the management of Danny Ang Tan Chai, a
resident alien without any working permit from the Department of Labor and
Employment as required by law. Petitioner relies on the testimony of Raytheon's
witness to the effect that corollary functions appertaining to cost accounting were
dispersed to other units in the Finance Department. And granting that his department
has to be declared redundant, he claims that he should have been the Manager of the
Payroll/Mis/Finance Department which handled general accounting, payroll and
encoding. As a B. S. Accounting graduate, a CPA with M.B.A. units, 21 years of work
experience, and a natural born Filipino, he claims that he is better qualified than Ang
Tan Chai, a B.S. Industrial Engineer, hired merely as a Systems Analyst Programmer
or its equivalent in early 1987, promoted as MIS Manager only during the middle part
of 1988 and a resident alien.
On the other hand, Raytheon insists that petitioner's functions as Cost Accounting
Manager had not been absorbed by Ang Tan Chai, a permanent resident born in this
country. It claims to have established below that Ang Tan Chai did not displace
petitioner or absorb his functions and duties as they were occupying entirely different
and distinct positions requiring different sets of expertise or qualifications and
discharging functions altogether different and foreign from that of petitioner's
abolished position. Raytheon debunks petitioner's reliance on the testimony of Mr.
Estrada saying that the same witness testified under oath that the functions of the
Cost Accounting Manager had been completely dispensed with and the position itself
had been totally abolished.
Whether petitioner's functions as Cost Accounting Manager have been dispensed with
or merely absorbed by another is however immaterial. Thus, notwithstanding the
dearth of evidence on the said question, a resolution of this case can be arrived at
without delving into this matter. For even conceding that the functions of petitioner's
position were merely transferred, no malice or bad faith can be imputed from said act.

A survey of existing case law will disclose that in Wiltshire File Co., Inc. v. NLRC, 4 the
position of Sales Manager was abolished on the ground of redundancy as the duties
previously discharged by the Sales Manager simply added to the duties of the General
Manager to whom the Sales Manager used to report. In adjudging said termination as
legal, this Court said that redundancy, for purposes of our Labor Code, exists where
the services of an employee are in excess of what is reasonably demanded by the
actual requirements of the enterprise. The characterization of an employee's services
as no longer necessary or sustainable, and therefore, properly terminable, was an
exercise of business judgment on the part of the employer. The wisdom or soundness
of such characterization or decision was not subject to discretionary review on the part
of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely
arbitrary and malicious action is not shown.
In the case of International Macleod, Inc. v. Intermediate Appellate Court, 5 this Court
also considered the position of Government Relations Officer to have become
redundant in view of the appointment of the International Heavy Equipment
Corporation as the company's dealer with the government. It held therein that the
determination of the need for the phasing out of a department as a labor and cost
saving device because it was no longer economical to retain said services is a
management prerogative and the courts will not interfere with the exercise thereof as
long as no abuse of discretion or merely arbitrary or malicious action on the part of
management is shown.
In the same vein, this Court ruled in Bondoc v. People's Bank and Trust Co., 6 that the
bank's board of directors possessed the power to remove a department manager whose
position depended on the retention of the trust and confidence of management and
whether there was need for his services. Although some vindictive motivation might
have impelled the abolition of his position, this Court expounded that it is undeniable
that the bank's board of directors possessed the power to remove him and to
determine whether the interest of the bank justified the existence of his department.
Indeed, an employer has no legal obligation to keep more employees than are
necessary for the operation of its business. Petitioner does not dispute the fact that a
cost accounting system was installed and used at Raytheon subsidiaries and plants
worldwide; and that the functions of his position involve the submission of periodic
reports utilizing computerized forms designed and prescribed by the head office with
the installation of said accounting system. Petitioner attempts to controvert these
realities by alleging that some of the functions of his position were still indispensable
and were actually dispersed to another department. What these indispensable
functions that were dispersed, he failed however, to specify and point out. Besides, the
fact that the functions of a position were simply added to the duties of another does
not affect the legitimacy of the employer's right to abolish a position when done in the

normal exercise of its prerogative to adopt sound business practices in the

management of its affairs.
Considering further that petitioner herein held a position which was definitely
managerial in character, Raytheon had a broad latitude of discretion in abolishing his
position. An employer has a much wider discretion in terminating employment
relationship of managerial personnel compared to rank and file employees. 7 The
reason obviously is that officers in such key positions perform not only functions
which by nature require the employer's full trust and confidence but also functions
that spell the success or failure of an enterprise.
Likewise destitute of merit is petitioner's imputation of unlawful discrimination when
Raytheon caused corollary functions appertaining to cost accounting to be absorbed
by Danny Ang Tan Chai, a resident alien without a working permit. Article 40 of the
Labor Code which requires employment permit refers to non-resident aliens. The
employment permit is required for entry into the country for employment purposes
and is issued after determination of the non-availability of a person in the Philippines
who is competent, able and willing at the time of application to perform the services
for which the alien is desired. Since Ang Tan Chai is a resident alien, he does not fall
within the ambit of the provision.
Petitioner also assails Raytheon's choice of Ang Tan Chai to head the
Payroll/Mis/Finance Department, claiming that he is better qualified for the position.
It should be noted, however, that Ang Tan Chai was promoted to the position during
the middle part of 1988 or before the abolition of petitioner's position in early 1989.
Besides the fact that Ang Tan Chai's promotion thereto is a settled matter, it has been
consistently held that an objection founded on the ground that one has better
credentials over the appointee is frowned upon so long as the latter possesses the
minimum qualifications for the position. In the case at bar, since petitioner does not
allege that Ang Tan Chai does not qualify for the position, the Court cannot substitute
its discretion and judgment for that which is clearly and exclusively management
prerogative. To do so would take away from the employer what rightly belongs to him
as aptly explained in National Federation of Labor Unions v. NLRC: 8
It is a well-settled rule that labor laws do not authorize interference with
the employer's judgment in the conduct of his business. The
determination of the qualification and fitness of workers for hiring and
firing, promotion or reassignment are exclusive prerogatives of
management. The Labor Code and its implementing Rules do not vest in
the Labor Arbiters nor in the different Divisions of the NLRC (nor in the
courts) managerial authority. The employer is free to determine, using his
own discretion and business judgment, all elements of employment,
"from hiring to firing" except in cases of unlawful discrimination or those
which may be provided by law. There is none in the instant case.

Finding no grave abuse of discretion on the part of the National Labor Relations
Commission in reversing and annulling the decision of the Labor Arbiter and that on
the contrary, the termination of petitioner's employment was anchored on a valid and
authorized cause under Article 283 of the Labor Code, the instant petition
forcertiorari must fail.
SO ORDERED.
DEMOTION/SUSPENSION:
PRIMO E. CAONG, JR., ALEXANDER J.
TRESQUIO, and LORIANO D. DALUYON,
Petitioners,

- versus -

AVELINO REGUALOS,
Respondent.

G.R. No. 179428

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:
January 26, 2011

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Is the policy of suspending drivers pending payment of arrears in their

boundary obligations reasonable? The Court of Appeals (CA) answered the question in
the affirmative in its Decision[1] dated December 14, 2006 and Resolution dated July
16, 2007. In this petition for review on certiorari, we take a second look at the issue

and determine whether the situation at bar merits the relaxation of the application of
the said policy.

Petitioners Primo E. Caong, Jr. (Caong), Alexander J. Tresquio (Tresquio), and

Loriano D. Daluyon (Daluyon) were employed by respondent Avelino Regualos under a
boundary agreement, as drivers of his jeepneys. In November 2001, they filed separate
complaints[2] for illegal dismissal against respondent who barred them from driving the
vehicles due to deficiencies in their boundary payments.

Caong was hired by respondent in September 1998 and became a permanent

driver sometime in 2000. In July 2001, he was assigned a brand- new jeepney for a
boundary fee of P550.00 per day. He was suspended on October 9-15, 2001 for failure
to remit the full amount of the boundary. Consequently, he filed a complaint for illegal
suspension. Upon expiration of the suspension period, he was readmitted by
respondent, but he was reassigned to an older jeepney for a boundary fee of P500.00
per day. He claimed that, on November 9, 2001, due to the scarcity of passengers, he
was only able to remit P400.00 to respondent. On November 11, 2001, he returned to
work after his rest day, but respondent barred him from driving because of the
deficiency in the boundary payment. He pleaded with respondent but to no avail. [3]

Tresquio was employed by respondent as driver in August 1996. He became a

permanent driver in 1997. In 1998, he was assigned to drive a new jeepney for a
boundary fee of P500.00 per day. On November 6, 2001, due to the scarcity of
passengers, he was only able to remit P450.00. When he returned to work on
November 8, 2001 after his rest day, he was barred by respondent because of the
deficiency of P50.00. He pleaded with respondent but the latter was adamant.[4]

On the other hand, Daluyon started working for respondent in March 1998. He
became a permanent driver in July 1998. He was assigned to a relatively
new jeepney for a boundary fee of P500.00 per day. On November 7, 2001, due to the
scarcity of passengers, he was only able to pay P470.00 to respondent. The following
day, respondent barred him from driving his jeepney. He pleaded but to no avail.[5]

During the mandatory conference, respondent manifested that petitioners were

not dismissed and that they could drive his jeepneys once they paid their arrears.
Petitioners, however, refused to do so.

Petitioners averred that they were illegally dismissed by respondent without just
cause. They maintained that respondent did not comply with due process
requirements before terminating their employment, as they were not furnished notice
apprising them of their infractions and another informing them of their dismissal.
Petitioners claimed that respondents offer during the mandatory conference to
reinstate them was an insincere afterthought as shown by the warning given by
respondent that, if they fail to remit the full amount of the boundary yet again, they
will be barred from driving the jeepneys. Petitioners questioned respondents policy of
automatically dismissing the drivers who fail to remit the full amount of the boundary
as it allegedly (a) violates their right to due process; (b) does not constitute a just cause
for dismissal; (c) disregards the reality that there are days when they could not raise
the full amount of the boundary because of the scarcity of passengers.

In his Position Paper, respondent alleged that petitioners were lessees of his
vehicles and not his employees; hence, the Labor Arbiter had no jurisdiction. He

claimed that he noticed that some of his lessees, including petitioners, were not fully
paying the daily rental of his jeepneys. In a list which he attached to the Position
Paper, it was shown that petitioners had actually incurred arrears since they started
working. The list showed that Caongs total arrears amounted to P10,315.00, that of
Tresquio was P10,760.00, while that of Daluyon was P6,890.00. He made inquiries
and discovered that his lessees contracted loans with third parties and used the
income of the jeepneys in paying the loans. Thus, on November 4, 2001, he gathered
all the lessees in a meeting and informed them that, effective November 5, 2001, those
who would fail to fully pay the daily rental would not be allowed to rent a jeepney on
the following day. He explained to them that the jeepneys were acquired on installment
basis, and that he was paying the monthly amortizations through the lease income.
Most of the lessees allegedly accepted the condition and paid their arrears. Petitioners,
however, did not settle their arrears. Worse, their remittances were again short of the
required boundary fee. Petitioner Daluyons rent payment was short of P20.00 on
November 5, 2001 and P80.00 on November 7, 2001. On November 6, 2001, it was
Tresquio who incurred an arrear of P100.00. On November 7 and 9, 2001, petitioner
Caong was in arrear of P50.00 and P100.00, respectively. Respondent stressed that,
during the mandatory conference, he manifested that he would renew his lease with
petitioners if they would pay the arrears they incurred during the said dates. [6]

On March 31, 2003, the Labor Arbiter decided the case in favor of respondent, thus:
WHEREFORE, judgment is hereby rendered, DISMISSING the aboveentitled cases for lack of merit. However, respondent Regualos is directed
to accept back complainants Caong, Tresquio and Daluyon, as regular
drivers of his passenger jeepneys, after complainants have paid their
respective arrearages they have incurred in the remittance of their
respective boundary payments, in the amount of P150.00, P100.00

and P100.00. Complainants, if still interested to work as drivers, are

hereby ordered to report to respondent Regualos within fifteen (15) days
from the finality of this decision. Otherwise, failure to do so means
forfeiture of their respective employments.
Other claims of complainants are dismissed for lack of merit.
SO ORDERED.[7]
According to the Labor Arbiter, an employer-employee relationship existed between
respondent and petitioners. The latter were not dismissed considering that they could
go back to work once they have paid their arrears. The Labor Arbiter opined that, as a
disciplinary measure, it is proper to impose a reasonable sanction on drivers who
cannot pay their boundary payments. He emphasized that respondent acquired the
jeepneys on loan or installment basis and relied on the boundary payments to comply
with his monthly amortizations.[8]

Petitioners appealed the decision to the National Labor Relations Commission

(NLRC). In its resolution[9] dated March 31, 2004, the NLRC agreed with the Labor
Arbiter and dismissed the appeal. It also denied petitioners motion for reconsideration.
[10]

Forthwith, petitioners filed a petition for certiorari with the CA.

In its Decision[11] dated December 14, 2006, the CA found no grave abuse of
discretion on the part of the NLRC. According to the CA, the employer-employee
relationship of the parties has not been severed, but merely suspended when
respondent refused to allow petitioners to drive the jeepneys while there were unpaid
boundary obligations. The CA pointed out that the fact that it was within the power of
petitioners to return to work is proof that there was no termination of employment.
The condition that petitioners should first pay their arrears only for the period of
November 5-9, 2001 before they can be readmitted to work is neither impossible nor
unreasonable if their total unpaid boundary obligations and the need to sustain the
financial viability of the employers enterprisewhich would ultimately redound to the
benefit of the employeesare taken into consideration.[12]

The CA went on to rule that petitioners were not denied their right to due process. It
pointed out that the case does not involve a termination of employment; hence, the
strict application of the twin-notice rule is not warranted. According to the CA, what is
important is that petitioners were given the opportunity to be heard. The meeting
conducted by respondent on November 4, 2001 served as sufficient notice to
petitioners. During the said meeting, respondent informed his employees, including
petitioners, to strictly comply with the policy regarding remittances and warned them
that they would not be allowed to take out the jeepneys if they did not remit the full
amount of the boundary.[13]
Dissatisfied, petitioners filed a motion for reconsideration, but the CA denied the
motion in its Resolution dated July 16, 2007.[14]

Petitioners are now before this Court resolutely arguing that they were illegally
dismissed by respondent, and that such dismissal was made in violation of the due
process requirements of the law.

The petition is without merit.

In an action for certiorari, petitioner must prove not merely reversible error, but
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
respondent. Mere abuse of discretion is not enough. It must be shown that public
respondent exercised its power in an arbitrary or despotic manner by reason of
passion or personal hostility, and this must be so patent and so gross as to amount to
an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to
act at all in contemplation of law.[15]

As correctly held by the CA, petitioners failed to establish that the NLRC
committed grave abuse of discretion in affirming the Labor Arbiters ruling, which is
supported by the facts on record.

It is already settled that the relationship between jeepney owners/operators

and jeepney drivers under the boundary system is that of employer-employee and not
of lessor-lessee. The fact that the drivers do not receive fixed wages but only get the
amount in excess of the so-called boundary that they pay to the owner/operator is not
sufficient to negate the relationship between them as employer and employee.[16]

The Labor Arbiter, the NLRC, and the CA uniformly declared that petitioners
were not dismissed from employment but merely suspended pending payment of their
arrears. Findings of fact of the CA, particularly where they are in absolute agreement
with those of the NLRC and the Labor Arbiter, are accorded not only respect but even
finality, and are deemed binding upon this Court so long as they are supported by
substantial evidence.[17]

We have no reason to deviate from such findings. Indeed, petitioners suspension

cannot be categorized as dismissal, considering that there was no intent on the part of
respondent to sever the employer-employee relationship between him and petitioners.
In fact, it was made clear that petitioners could put an end to the suspension if they
only pay their recent arrears. As it was, the suspension dragged on for years because
of petitioners stubborn refusal to pay. It would have been different if petitioners
complied with the condition and respondent still refused to readmit them to work.
Then there would have been a clear act of dismissal. But such was not the case.
Instead of paying, petitioners even filed a complaint for illegal dismissal against
respondent.

Respondents policy of suspending drivers who fail to remit the full amount of
the boundary was fair and reasonable under the circumstances. Respondent explained
that he noticed that his drivers were getting lax in remitting their boundary payments
and, in fact, herein petitioners had already incurred a considerable amount of arrears.
He had to put a stop to it as he also relied on these boundary payments to raise the
full amount of his monthly amortizations on the jeepneys. Demonstrating their

obstinacy, petitioners, on the days immediately following the implementation of the

policy, incurred deficiencies in their boundary remittances.

It is acknowledged that an employer has free rein and enjoys a wide latitude of
discretion to regulate all aspects of employment, including the prerogative to
instilldiscipline on his employees and to impose penalties, including dismissal, if
warranted, upon erring employees. This is a management prerogative. Indeed, the
manner in which management conducts its own affairs to achieve its purpose is within
the managements discretion. The only limitation on the exercise of management
prerogative is that the policies, rules, and regulations on work-related activities of the
employees must always be fair and reasonable, and the corresponding penalties, when
prescribed, commensurate to the offense involved and to the degree of the infraction.
[18]

Petitioners argue that the policy is unsound as it does not consider the times
when passengers are scarce and the drivers are not able to raise the amount of the
boundary.

Petitioners concern relates to the implementation of the policy, which is another

matter. A company policy must be implemented in such manner as will accord social
justice and compassion to the employee. In case of noncompliance with the company
policy, the employer must consider the surrounding circumstances and the reasons
why the employee failed to comply. When the circumstances merit the relaxation of the
application of the policy, then its noncompliance must be excused.

In the present case, petitioners merely alleged that there were only few
passengers during the dates in question. Such excuse is not acceptable without any
proof or, at least, an explanation as to why passengers were scarce at that time. It is
simply a bare allegation, not worthy of belief. We also find the excuse unbelievable
considering that petitioners incurred the shortages on separate days, and it appears
that only petitioners failed to remit the full boundary payment on said dates.

Under a boundary scheme, the driver remits the boundary, which is a fixed
amount, to the owner/operator and gets to earn the amount in excess thereof. Thus,
on a day when there are many passengers along the route, it is the driver who actually
benefits from it. It would be unfair then if, during the times when passengers are
scarce, the owner/operator will be made to suffer by not getting the full amount of the
boundary. Unless clearly shown or explained by an event that irregularly and
negatively affected the usual number of passengers within the route, the scarcity of
passengers should not excuse the driver from paying the full amount of the boundary.

Finally, we sustain the CAs finding that petitioners were not denied the right to
due process. We thus quote with approval its discussion on this matter:
Having established that the case at bench does not involve
termination of employment, We find that the strict, even rigid,
application of the twin-notice rule is not warranted.
But the due process safeguards are nonetheless still available to
petitioners.
Due process is not a matter of strict or rigid or formulaic process.
The essence of due process is simply the opportunity to be heard, or as
applied to administrative proceedings, an opportunity to explain ones
side or an opportunity to seek a reconsideration of the action or ruling

complained of. A formal or trial-type hearing is not at all times and in all
instances essential, as the due process requirements are satisfied where
the parties are afforded fair and reasonable opportunity to explain their
side of the controversy at hand. x x x.
xxxx
In the case at bench, private respondent, upon finding that
petitioners had consistently failed to remit the full amount of the
boundary, conducted a meeting on November 4, 2001 informing them to
strictly comply with the policy regarding their remittances and warned
them to discontinue driving if they still failed to remit the full amount of
the boundary.[19]

WHEREFORE, premises considered, the petition is DENIED. The Court of

Appeals Decision dated December 14, 2006 and Resolution dated July 16, 2007
areAFFIRMED.
SO ORDERED.