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1. Hotel Enterprises of the Philippines, Inc. v. Samahan ng mga Manggagawa

sa Hyatt-National Union of Workers in the Hotel and Restaurant and Allied
G.R. No. 165756, June 5, 2009
Facts :
The respondent union is a certified collective bargaining agent of the rank-and-file
employees of the Hyatt Regency Manila (HRM), a hotel owned by petitioner
(Company). In 2001, the company suffered a slump due to the local and international
economic slowdown aggravated by the 9/11 incident in the USA. The company decided
to cost-cut by implementing among others reducing work weeks in some hotel
departments. In August 2001, the union filed a notice of strike due to a bargaining
deadlock before the Natl Conciliation Mediation Board (NCMB). In the course of the
proceedings, the union accepted the economic proposal. Hence, a new CBA was
signed. Subsequently, the company decided to implement a downsizing scheme which
the union opposed. Despite the opposition, a list of the position declared redundant
and to be contracted out was given to the union. A notice of termination was also
committed by the company to the DOLE. Thereafter, the company engaged the
services of independent job contractors. The union filed a notice of strike. A conciliation
proceeding was again conducted but to no avail. The union went on strike. The
Secretary certified the labor dispute to the NLRC for compulsory arbitration. The NLRC
orders the suspension of the conciliation proceedings. However, the LA already issued
decision declaring the strike legal. On appeal by the company, the NLRC reversed the
LA decision and declared the strike to be illegal. On petition, the CA reversed the
decision of the NLRC and declared the strike legal. Hence, this petition.

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

Here, the union went on strike in the honest belief that petitioner was committing ULP
after the latter decided to downsize its workforce contrary to the staffing/manning
standards adopted by both parties under a CBA. Indeed, those circumstances showed
prima facie that the hotel committed ULP. Thus, even if technically there was no legal
ground to stage a strike based on ULP, since the attendant circumstances support the
belief in good faith that petitioners retrenchment scheme was structured to weaken the
bargaining power of the union, the strike, by exception, may be considered legal.

(G.R. No. 131108)
Facts: The Parsons family, who originally owned the controlling stocks in Asian Alcohol
Corporation (AAC), was driven by mounting business losses to sell their majority rights
to PriorHoldings which took over its management and operation the following month.
Prior Holding implemented organizational plan and other cost-saving measures. 117
employeesout of a total workforce of 360 were separated. 72 of them occupied
redundant positions that were abolished. Of these positions, 21 held by union
members and 51 by non-union members.

Private respondents are among those union members whose positions were abolished
due to redundancy. Carias, Martinez, and Sendon were water pump tenders; Amacio
was a machine shop mechanic; Verayo was a briquetting plant operator while Tormo
was a plant helper under him. They were all assigned at the Repair and Maintenance
Section of the Pulupandan plant. They received individual notices of termination; were
paid the equivalent of one month salary for every year of service as separation pay, the
money value of their unused sick, vacation, emergency and seniority leave credits,
13th month pay, medicine allowance, tax refunds, and goodwill cash bonuses for those
with at least 10 years of service. All of them executed sworn releases, waivers and
quitclaims. Except for Verayo and Tormo, they all signed sworn statements of
conformity to the company retrenchment program. And except for Martinez, they all
tendered letters of resignation.

Private respondents filed with the NLRC complaints for illegal dismissal with a prayer
for reinstatement with backwages, moral damages and attorney's fees. They alleged
that Asian Alcohol used the retrenchment program as a subterfuge for union busting.
They claimed that they were singled out for separation by reason of their active
participation in the union. They also asseverated that AAC was not bankrupt as it has
engaged in an aggressive scheme of contractual hiring.

LA dismissed the complainants and held that the fact that respondent AAC incurred
losses in its business operations was not seriously challenged by the complainants.
The fact that it incurred losses in its business operations prior to the implementation of
its retrenchment program is amply supported by the documents on records, indicating
an accumulated deficit of P26,117,889.00. The law allows an employer to retrench
some of its employees to prevent of its employees to prevent losses. In the case of
respondent AAC, it implemented its retrenchment program not only to prevent losses
but to prevent further losses as it was then incurring huge losses in its operations. The
dismissal of complainants on ground of redundancy / retrenchment was perfectly valid
or legal.
Private respondents appealed to the NLRC. NLRC ruled that the positions of private
respondents were not redundant for the simple reason that they were replaced by
casuals. The company at the time of retrenchment was not then in the state of
business reverses. There is therefore no reason to retrench. . . . The alleged deficits of
the corporation did not prove anything for the respondent. The financial status shown in
records submitted was before Prior Holdings took over the operation and management
of the corporation. This is no proof that when the termination of complainant[s] took
effect the company was experiencing losses or at least imminent losses. Possible
future losses do not authorize retrenchment. Retrenchment and/or redundancy not
having been proved, complainants, therefore, were illegally dismissed. AAC moved for
reconsideration of the foregoing decision. NLRC denied the motion. AAC filed in this
Court a petition for certiorari assailing both the decision of the NLRC and the resolution
denying its reconsideration.

Issues: W/N there was no valid retrenchment thus making the dismissal of private
respondents illegal.

Ruling: Negative.
The right of management to dismiss workers during periods of business recession and
to install labor saving devices to prevent losses is governed by Art. 283 of the labor
Code, as amended.

Retrenchment and redundancy are just causes for the employer to terminate the
services of workers to preserve the viability of the business. In exercising its right,
however, management
must faithfully comply with the substantive and procedural requirements laid down law
and jurisprudence.
The requirements for valid retrenchment which must be proved by clear and
convincing evidence are: (1) that the retrenchment is reasonably necessary and likely
to prevent business losses, which, if already incurred, are not merely de minimis, but
substantial, serious, actual and real, or if only expected, are reasonably imminent as
perceived objectively and in good faith by

the employer; (2) that the employer served written notice both to the employees and to
the DOLE at least one month prior to the intend date of retrenchment; (3) that the
employer pays the retrenched employees separation pay equivalent to one month pay
or at least 1/2 month pay for every year of service, whichever is higher; (4) that the
employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest of its interest and not to defeat or circumvent the
employees' right to security of tenure; and (5) that the employer used fair and
reasonable criteria in ascertaining who would be dismissed and who would be retained
among the employees, such as status, efficiency, seniority, physical fitness, age, and
financial hardship for certain workers.

The condition of business losses is normally shown by audited financial documents like
yearly balance sheets and profit and loss statements as well as annual income tax
returns. It is our ruling that financial statements must be prepared and signed by
independent auditors. Unless duly audited, they can be assailed as self-serving
documents. It is necessary that the employer also show that its losses increased
through a period of time and that the condition of the company is not likely to improve
in the near future. Private respondents never contested the veracity of the audited
financial documents proffered by Asian Alcohol before the LA. Neither did they object to
their admissibility. They show that petitioner has accumulated losses amounting to
P306,764,349.00 and showing nary a sign of abating in the near future. The allegation
of union busting is bereft of proof. Union and non-union members were treated alike.
The records show that the positions of 51 other non-union members were abolished
due to business losses.

Article 283 of the Labor Code uses the phrase "retrenchment to prevent losses". This
means that retrenchment must be undertaken by the employer before losses are
actually sustained. The employer need not keep all his employees until after his losses
shall have materialized. Otherwise, the law could be vulnerable of attack as undue
taking of property for the benefit of another. Irrefutable was the fact that losses have
bled Asian Alcohol incessantly over a span of several years. The law gives the new
management every right to undertake measures to save the company from bankruptcy.

We find that the reorganizational plan and comprehensive cost-saving program to turn
the business around were not designed to bust the union of the private respondents.
Retrenched were 117 employees. 72 of them including private respondents were
separated because their positions had become redundant. In this context, what may
technically be considered as redundancy may verily be considered as retrenchment
measure. Their positions had to be declared redundant to cut losses. Redundancy
exists when the service capability of the work force is in excess of what is reasonably
needed to meet the demands on the enterprise. A redundant position is one rendered
superfluous by any number of factors, such as overhiring of workers, decreased
volume of business, dropping of a particular product line previously manufactured by
the company or phasing out of a service activity priorly undertaken by the business.
Under these conditions, the employer has no legal obligation to keep in its payroll more
employees than are necessary for the operation of its business.

For the implementation of a redundancy program to be valid, the employer must

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

AAC did not own the land where the wells stood. It only leased them. The lease
contract, which also provided for a right of way leading to the site of the wells, was
terminated. Also, the water from the wells had become salty due to extensive prawn
farming nearby and could no longer be used by AAC for its purpose. The wells had to
be closed and needless to say, the services of Carias, Martinez and Sendon had to be
terminated on the twin grounds of redundancy and retrenchment. The need for a
briquetting plant operator ceased as the services of only two 2 helpers were all that
was necessary to attend to the much lesser amount of coal required to run the boiler.
Thus, the position of Verayo had to be abolished.

Of the 3 briquetting helpers, Tormo was the oldest. Age, with the physical strength that
comes with it, was particularly taken into consideration by the management team in
deciding whom to separate. Hence, it was Tormo who was separated from service. The
management choice rested on a rational basis. Amacio was among the 10 mechanics
who manned the machine shop at the plant site. It was more cost efficient to maintain
only 9 mechanics. In choosing whom to separate among the ten (10) mechanics, the
management examined employment records and reports to determine the least
efficient among them. Amacio appeared the least efficient because of his poor health
condition. Not one of the private respondents refuted the foregoing facts. The
characterization of positions as redundant is an exercise of business judgment on the
part of the employers. It will be upheld as long as it passes the test of arbitrariness.

Private respondents failed to proffer any proof that the management acted in a
malicious or
arbitrary manner in engaging the services of an independent contractor to operate the
Laura wells. Absent such proof, the Court has no basis to interfere with the bona fide
decision of management to effect more economic and efficient methods of production.
Private respondent now claim that they signed the quitclaims, waivers and voluntary
resignation letters only to get their separation package. They maintain that in principle,
they did not believe that their dismissal was valid. Generally, quit claims and releases
are contrary to public policy and therefore, void. Nonetheless, voluntary agreements
that represent a reasonable settlement are binding on the parties and should not later
be disowned. It is only where there is clear proof that the waiver was wangled from an
unsuspecting or gullible person, or the terms of the settlement are
unconscionable, that the law will step in to bail out the employee. While it is our duty to
prevent the exploitation of employees, it also behooves us to protect the sanctity of
contracts that do not contravene our laws.

There is no showing that the quitclaims, waivers and voluntary resignation letters were
executed by the private respondents under force or duress. In truth, the documents
embodied separation benefits that were well beyond what the company was legally
required to give

Private respondents. We note that out of the more than one hundred workers that were
retrenched by Asian Alcohol, only these private respondents were not impressed by the
generosity of their employer. Their late complaints have no basis and deserves our
scant consideration.

4. National Federation of Labor vs. NLRC 327 SCRA 158 (2000)

Facts: Private respondents Charlie Reith and Susie Galle Reith, general manager and
owner, Patalon Coconut Estate, was forced to sell their estate, when congress
passed, Republic Act (R.A.) No. 6657, otherwise known as the Comprehensive
Agrarian Reform Law (CARL), Operation was ceased and employees were laid off with
out separation pay.
Issue: The issue is whether or not an employer that was compelled to cease its
operation because of the compulsory acquisition by the government of its land for
purposes of agrarian reform, is liable to pay separation pay to its affected employees.
Held: The closure contemplated under Article 283 of the Labor Code is a unilateral
and voluntary act on the part of the employer to close the business establishment as
may be gleaned from the wording of the said legal provision that "The employer may
also terminate the employment of any employee due to.The use of the word "may,"
in a statute, denotes that it is directory in nature and generally permissive only. 10
The "plain meaning rule" or verba legis in statutory construction is thus applicable in
this case. Where the words of a statute are clear, plain and free from ambiguity, it
must be given its literal meaning and applied without attempted interpretation.
Note Bene:
Employees were claiming separation pay on the basis of Art. 283 Labor Code
which states that employer MAY also terminate the employment of an employee for
reasons therein by serving notice thereof and paying separation pay to affected
There was compulsory acquisition by the government of the employers land
(Patalon Coconut Estate) for purposes of agrarian reform which forced the employer
to cease his operation
Issue: whether or not employer is liable for separation pay?
Held: NO, employer is not liable for separation pay!
o It is a unilateral and voluntary act by the employer if he wants to give separation
o This is gleaned from the wording MAY in the statute
o MAY denotes that it is directory in nature and generally permissive only
o Plain-meaning rule is applicable
o To depart from the meaning expressed by the words is to alter the statute, to
legislate and not interpret
o Maledicta est exposition quae corrumpit textum dangerous construction which
is against the text
PHILIPPINES, INC., SALVADOR HIZON (President and Chief Executive
Officer), EMILIANO JURADO (Chairman of the Board), VIRGILIO GARCIA
(Vice President) and STELLA GARCIA (Assistant Vice President),


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

telecommunications company engaged mainly in the business of establishing
commercial telecommunications systems and leasing of international datalines or
circuits that pass through the international gateway facility (IGF). The other
respondents are ETPIs officers.

Petitioner Nelson A. Culili was employed by ETPI as a Technician in its Field

Operations Department in 1981. In 1996, Culili was promoted to Senior
Technician in the Customer Premises Equipment Management Unit of the
Service Quality Department.

As a telecommunications company and an authorized IGF operator, ETPI was

required, under RA No. 7925 and EO No. 109, to establish landlines in Metro
Manila and certain provinces. However, due to interconnection problems with the
PLDT, poor subscription and cancellation of subscriptions, and other business
difficulties, ETPI was forced to halt its roll out of 129,000 landlines already
allocated to a number of its employees.

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

As part of the first phase, ETPI offered to its employees who had rendered at
least fifteen years of service, the Special Retirement Program, which consisted of
the option to voluntarily retire at an earlier age and a retirement package
equivalent to two and a half (2) months salary for every year of service. This offer
was initially rejected by the Eastern Telecommunications Employees Union
(ETEU), ETPIs duly recognized bargaining agent, which threatened to stage a
strike. ETPI explained to ETEU the exact details of the Right-Sizing Program and
the Special Retirement Program and after consultations with ETEUs members,
ETEU agreed to the implementation of both programs. Thus, ETPI re-offered the
Special Retirement Program and the corresponding retirement package to the
one hundred two (102) employees who qualified for the program. Of all the
employees who qualified to avail of the program, only Culili rejected the offer.

Among the departments abolished was the Service Quality Department. The
functions of the Customer Premises Equipment Management Unit, Culilis unit,
were absorbed by the Business and Consumer Accounts Department. As a
result, Culilis position was abolished due to redundancy and his functions were
absorbed by the Business and Consumer Accounts Department.

ETPI, through its Assistant Vice President Stella Garcia, informed Culili of his
termination from employment effective April 8, 1999.

Culili alleged that neither he nor the DOLE were formally notified of his
termination. Culili believed that ETPI had already decided to dismiss him even
prior to the March 8, 1999 letter. Moreover, Culili asserted that ETPI had
contracted out the services he used to perform to a labor-only contractor which
not only proved that his functions had not become unnecessary, but which also
violated their Collective Bargaining Agreement (CBA) and the Labor Code. Aside
from these, Culili also alleged that he was discriminated against when ETPI
offered some of his co-employees an additional benefit in the form of motorcycles
to induce them to avail of the Special Retirement Program, while he was not.

ETPI denied singling Culili out for termination. ETPI claimed that because there
was no more work for Culili, it was constrained to serve a final notice of
termination to Culili, which Culili ignored. Thus, on March 26, 1999, ETPI
tendered to Culili his final pay check of P859,033.99 consisting of his basic
salary, leaves, 13th month pay and separation pay. ETPI claimed that Culili
refused to accept his termination and continued to report for work.

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

The Labor Arbiter found ETPI guilty of illegal dismissal and unfair labor practice.

On appeal, the NLRC affirmed the Labor Arbiters decision but modified the
amount of moral and exemplary damages awarded.

The Court of Appeals found that Culilis position was validly abolished due to
redundancy. It further held that ETPI cannot be held guilty of unfair labor practice
as mere contracting out of services being performed by union members does not
per se amount to unfair labor practice unless it interferes with the employees
right to self-organization. Hence, this petition.

ISSUE: Whether or not Culili is illegally dismissed.

HELD: The decision of the Court of Appeals is sustained.


There is redundancy when the service capability of the workforce is greater than
what is reasonably required to meet the demands of the business enterprise. A
position becomes redundant when it is rendered superfluous by any number of
factors such as over-hiring of workers, decrease in volume of business, or
dropping a particular product line or service activity previously manufactured or
undertaken by the enterprise. Soriano, Jr. v. NLRC, G.R. No. 165594, April 23,

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

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

The records show that ETPI had sufficiently established not only its need to
reduce its workforce and streamline its organization, but also the existence of
redundancy in the position of a Senior Technician. ETPI explained how it failed to
meet its business targets and the factors that caused this, and how this
necessitated it to reduce its workforce and streamline its organization. ETPI also
submitted its old and new tables of organization and sufficiently described how
limited the functions of the abolished position of a Senior Technician were and
how it decided on whom to absorb these functions.


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

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

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

The Court of Appeals, in finding that Culili was not afforded procedural due
process, held that Culilis dismissal was ineffectual, and required ETPI to pay
Culili full backwages in accordance with our decision in Serrano v. NLRC, 387
Phil. 345 (2000).

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



Petitioner FASAP is the duly certified collective bargaining representative of PAL

flight attendants and stewards, or collectively known as PAL cabin crew personnel.
Respondent PAL is a domestic corporation organized and existing under the laws of
the Republic of the Philippines, operating as a common carrier transporting passengers
and cargo through aircraft. On June 15, 1998, PAL retrenched 5,000 of its employees,
including more than 1,400 of its cabin crew personnel, to take effect on July 15, 1998.
PAL adopted the retrenchment scheme allegedly to cut costs and mitigate huge
financial losses as a result of a
downturn in the airline industry brought about by the Asian financial crisis.

During said period, PAL claims to have incurred P90 billion in liabilities, while its assets
stood at P85 billion. In implementing the retrenchment scheme, PAL adopted its so-
called Plan 14 whereby PALs fleet of aircraft would be reduced from 54 to 14, thus
requiring the services of only 654 cabin crew personnel. PAL admits that the
retrenchment is wholly premised
upon such reduction in fleet, and to the strike staged by PAL pilots since this action
also translated into a reduction of flights. PAL claims that the scheme resulted in
savings x x x amounting to approximately P24 million per month savings that would
greatly alleviate PALs financial crisis.

On June 22, 1998, FASAP filed a Complaint against PAL and Patria T. Chiong (Chiong)
for unfair labor practice, illegalretrenchment with claims for reinstatement and payment
of salaries, allowances and backwages of affected FASAP members, actual, moral and
exemplary damages with a prayer to enjoin the retrenchment program then being
implemented. Meanwhile, months after the June 15, 1998 mass dismissal of its cabin
crew personnel, PAL began recalling to service those it had previously retrenched.
Thus, in November 1998 and up to March 1999 several of those retrenched were
called back to
service. To date, PAL claims to have recalled 820 of the retrenched cabin crew
personnel. FASAP, however, claims that only 80 were recalled as of January 2001.

Whether PALs retrenchment scheme was justified.

No. Under the Labor Code, retrenchment or reduction of employees is authorized as
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 year of service, whichever is higher.
A fraction of at least six (6) months shall be considered one (1) whole year. The law
recognizes the right of every business entity to reduce its work force if the same is
made necessary by compelling economic factors which would endanger its existence
or stability. Where appropriate and where conditions are in accord with law and
jurisprudence, the Court has authorized valid reductions in the work force to forestall
business losses, the hemorrhaging of capital, or even to recognize an obvious
reduction in the volume of business which has rendered certain employees redundant.
Nevertheless, while it is true that the exercise of this right is a prerogative of
management, there must be faithful compliance with substantive and procedural
requirements of the law and jurisprudence, for retrenchment strikes at the very heart of
the workers
employment, the lifeblood upon which he and his family owe their survival.
Retrenchment is only a measure of last resort, when other less drastic means have
been tried and found to be inadequate.

The burden clearly falls upon the employer to prove economic or business losses with
sufficient supporting evidence. Its failure to prove these reverses or losses necessarily
means that the employees dismissal was not justified. Any claim of actual or potential
business losses must satisfy certain established standards, all of which must concur,
before any reduction of personnel becomes legal.
These are:
(1) That retrenchment is reasonably necessary and likely to prevent business losses
which, if already incurred, are not
merely de minimis, but substantial, serious, actual and real, or if only expected, are
reasonably imminent as perceived objectively
and in good faith by the employer;
(2) That the employer served written notice both to the employees and to the
Department of Labor and Employment at
least one month prior to the intended date of retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one
(1) month pay or at least one-half
(1/2) month pay for every year of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for
the advancement of its interest and
not to defeat or circumvent the employees right to security of tenure; and,
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would beretained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for certainworkers.
In view of the facts and the issues raised, the resolution of the instant petition hinges
on a determination of the existence of thefirst, fourth and the fifth elements set forth
above, as well as compliance therewith by PAL, taking to mind that the burden of proof
in retrenchment cases lies with the employer in showing valid cause for dismissal: that
legitimate business reasons exist to justify

The employers prerogative to layoff employees is subject to certain limitations.
The law speaks of serious business losses or financial reverses. Sliding incomes or
decreasing gross revenues are not necessarily losses, much less serious business
losses within the meaning of the law. The fact that an employer may have sustained a
net loss, such loss, per se, absent any other evidence on its impact on the business,
nor on expected losses that would have been incurred had operations been continued,
may not amount to serious business losses mentioned in the law. The employer must
show that its losses increased through a period of time and that the condition of the
company will not likely improve in the near future, or that it expected no abatement of
its losses in the coming years. Put simply, not every loss incurred or expected to be
incurred by a company will justify retrenchment. The employer must also exhaust all
other means to avoid further losses without retrenching its employees. Retrenchment is
a means of last resort; it is justified only when all other less drastic means have been
tried and found insufficient. Even assuming that the employer has actually incurred
losses by reason of the Asian economic crisis, the retrenchment is not completely
justified if there is no showing that the retrenchment was the last recourse resorted to.
Where the only less drastic measure that the employer undertook was the rotation
work scheme, or the three-day-work-per-employee-per-week schedule, and it did not
endeavor at other measures, such as cost reduction, lesser investment on raw
materials, adjustment of the work routine to avoid scheduled power failure, reduction of
the bonuses and salaries of both management and rank-and-file, improvement of
manufacturing efficiency, and trimming of marketing and advertising costs, the claim
that retrenchment was done in good faith to avoid losses is belied.

Alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proved by sufficient and convincing evidence. The reason for
requiring this is readily apparent: any less exacting standard of proof would render too
easy the abuse of this ground for termination of services of employees; scheming
employers might be merely feigning business losses or reverses in order to ease out
In establishing a unilateral claim of actual or potential losses, financial statements
audited by independent external auditors constitute the normal method of proof of profit
and loss performance of a company. A Statement of Profit and Loss submitted to
prove alleged losses, without the accompanying signature of a certified public
accountant or audited by an independent auditor, is nothing but a self-serving
document which ought to be treated as a mere scrap of paper devoid of any probative

In the instant case, PAL failed to substantiate its claim of actual and imminent
substantial losses which would justify the retrenchment of more than 1,400 of its cabin
crew personnel. Although the Philippine economy was gravely affected by the Asian
financial crisis, however, it cannot be assumed that it has likewise brought PAL to the
brink of bankruptcy.

Likewise, the fact that PAL underwent corporate rehabilitation does not automatically
justify the retrenchment of its cabin crew personnel. To prove that PAL was financially
distressed, it could have submitted its audited financial statements but it failed to
present the same with the Labor Arbiter. Instead, it narrated a litany of woes without
offering any evidence to show that they translated into specific and substantial losses
that would necessitate retrenchment. Interestingly, PAL submitted its audited financial
statements only when the case was the subject of certiorari proceedings in the Court of
Appeals by attaching in its Comment a copy of its consolidated audited financial
statements for the years 2002, 2003 and 2004. However, these are not the financial
statements that would have shown PALs alleged precarious position at the time it
implemented the massive retrenchment scheme in 1998. PAL should have submitted
its financial statements for the years 1997 up to 1999; and not for the years 2002 up to
2004 because these financial statements cover a period markedly distant to the years
in question, which make them irrelevant and unacceptable.

Concededly, retrenchment to prevent losses is an authorized cause for terminating
employment and the decision whether to resort to such move or not is a management
prerogative. However, the right of an employer to dismiss an employee differs from
and should not be confused with the manner in which such right is exercised. It must
not be oppressive and abusive since it affects one's person and property.

On the requirement that the prerogative to retrench must be exercised in good faith, we
have ruled that the hiring of new employees and subsequent rehiring of retrenched
employees constitute bad faith; that the failure of the employer to resort to other less
drastic measures than retrenchment seriously belies its claim that retrenchment was
done in good faith to avoid losses; and that the demonstrated arbitrariness in the
selection of which of its employees to retrench is further proof of the illegality of the
employers retrenchment program, not to mention its bad faith.

When PAL implemented Plan 22, instead of Plan 14, which was what it had originally
made known to its employees, it could not be said that it acted in a manner compatible
with good faith. It offered no satisfactory explanation why it abandoned Plan 14;
instead, it justified its actions of subsequently recalling to duty retrenched employees
by making it appear that it was a show of good faith; that it was due to its good
corporate nature that the decision to consider recalling employees was made. The
truth, however, is that it was unfair for PAL to have made such a move; it was
capricious and arbitrary, considering that several thousand employees who had long
been working for PAL had lost their jobs, only to be recalled but assigned to lower
positions (i.e., demoted), and, worse, some as new hires, without due regard for their
long years of service with the airline. The irregularity of PALs implementation of Plan
14 becomes more apparent when it rehired 140 probationary cabin attendants whose
services it had previously terminated, and yet proceeded to terminate the services of its
permanent cabin crew personnel.

In sum, we find that PAL had implemented its retrenchment program in an arbitrary
manner and with evident bad faith, which prejudiced the tenurial rights of the cabin
crew personnel.

In selecting employees to be dismissed, fair and reasonable criteria must be used,
such as but not limited to: (a) less preferred status (e.g., temporary employee), (b)
efficiency and (c) seniority.

In the implementation of its retrenchment scheme, PAL evaluated the cabin crew
personnels performance during the year preceding the retrenchment (1997), based on
the following set of criteria or rating variables found in the Performance Evaluation

Form of the cabin crew personnels Grooming and Appearance Handbook:

Special Award +5
Commendations +2
Appreciation +1
Disciplinary Actions Reminder (-3), Warning/Admonition & Reprimands (-5),
Suspension (-20), Passenger Complaints (-30),
Appearance (-10)
Perfect Attendance +2
Missed Assignment -30
Sick Leaves in excess of allotment and other leaves in excess of allotment -20
Tardiness -10 1[93]
The appellate court held that there was no need for PAL to consult with FASAP
regarding standards or criteria that the airline would utilize in the implementation of the
retrenchment program; and that the criteria actually used which was unilaterally
formulated by PAL using its Performance Evaluation Form in its Grooming and
Appearance Handbook was reasonable and fair.

Indeed, PAL was not obligated to consult FASAP regarding the standards it would use
in evaluating the performance of the each
cabin crew. However, the criteria utilized by PAL in the actual retrenchment were not
reasonable and fair.
Indeed, the NLRC made a detailed listing of the retrenchment scheme based on the
ICCD Masterank and Seniority 1997
Ratings. It found the following:
1. Number of employees retrenched due to inverse seniority rule and other reasons --
2. Number of employees retrenched due to excess sick leaves -- 299
3. Number of employees who were retrenched due to excess sick leave and other
reasons -- 61
4. Number of employees who were retrenched due to other reasons -- 107
5. Number of employees who were demoted -- 552
Total -- 1,473.4
Prominent from the above data is the retrenchment of cabin crew personnel due to
other reasons which, however, are not
specifically stated and shown to be for a valid cause. This is not allowed because it has
no basis in fact and in law.
Moreover, in assessing the overall performance of each cabin crew personnel, PAL
only considered the year 1997. This makes the evaluation of each cabin attendants
efficiency rating capricious and prejudicial to PAL employees covered by it. By
the cabin crew personnels previous years of service and taking into consideration only
one years worth of job performance for evaluation, PAL virtually did away with the
concept of seniority, loyalty and past efficiency, and treated all cabin attendants as if
they were on equal footing, with no one more senior than the other.

In sum, PALs retrenchment program is illegal because it was based on wrongful

premise (Plan 14, which in reality turned out to
be Plan 22, resulting in retrenchment of more cabin attendants than was necessary)
and in a set of criteria or rating variables
that is unfair and unreasonable when implemented. It failed to take into account each
cabin attendants respective service record,
thereby disregarding seniority and loyalty in the evaluation of overall employee

WHEREFORE, the instant petition is GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 87956 dated
August 23, 2006, which affirmed the Decision of the NLRC setting aside the Labor
Arbiters findings of illegal retrenchment and its
Resolution of May 29, 2007 denying the motion for reconsideration, are REVERSED
and SET ASIDE and a new one is rendered:
1. FINDING respondent Philippine Airlines, Inc. GUILTY of illegal dismissal;
2. ORDERING Philippine Air Lines, Inc. to reinstate the cabin crew personnel who were
covered by the retrenchment and
demotion scheme of June 15, 1998 made effective on July 15, 1998, without loss of
seniority rights and other privileges, and to pay them full backwages, inclusive of
allowances and other monetary benefits computed from the time of their separation up
to the time of their actual reinstatement, provided that with respect to those who had
received their respective separation pay,

the amounts of payments shall be deducted from their backwages. Where

reinstatement is no longer feasible because the positions previously held no longer
exist, respondent Corporation shall pay backwages plus, in lieu of reinstatement,
separation pay equal
to one (1) month pay for every year of service; ORDERING Philippine Airlines, Inc. to
pay attorneys fees equivalent to ten percent (10%) of the total monetary award.
Costs against respondent PAL.


Illegal dismissal; relief available to employee. An illegally dismissed employee is

entitled to reinstatement without loss of seniority rights and other privileges and
to full backwages, inclusive of allowances, and to her other benefits or their
monetary equivalent, computed from the time the compensation was withheld up
to the time of actual reinstatement. Where reinstatement is no longer feasible,
separation pay equivalent to at least one month salary or one month salary for
every year of service, whichever is higher, a fraction of at least six months being
considered as one whole year, should be awarded to respondent. An award for
moral and exemplary damages cannot be justified unless the employer had acted
in bad faith. The award of moral and exemplary damages cannot be justified
solely upon the premise that the employer dismissed his employee without
authorized cause and due process. Lambert Pawnbrokers and Jewelry
corporation and Lambert Lim vs. Helen Binamira, G.R. No. 170464. July 12,
v. MANILA POLO CLUB, INC., Respondent.



On December 13, 2001, the Board of Directors of respondent Manila Polo Club,
Inc., unanimously resolved to completely terminate the entire operations of its
Food and Beverage (F & B) outlets, except the Last Chukker, and award its
operations to a qualified restaurant operator or caterer.

Subsequently, on March 22, 2002, respondents Board approved the

implementation of the retrenchment program of employees who are directly and
indirectly involved with the operations of the F & B outlets and authorized then
General Manager Philippe D. Bartholomi to pay the employees separation pay.
On even date, respondent sent notices to the petitioner and the affected
employees (via registered mail) as well as submitted an Establishment
Termination Report to the DOLE.

On June 17, 2002, the parties agreed to submit before VA Diamonon the lone
issue of whether the retrenchment of the 117 union members is legal. On August
28, 2002, VA Diamonon dismissed petitioners complaint for lack of merit, but
without prejudice to the payment of separation pay to the affected employees.

Upon an exhaustive examination of the evidence presented by the parties, the

CA affirmed in toto the VAs Decision and denied the substantive aspects of
petitioners motion for reconsideration; hence, this petition.

ISSUE: Whether or not members of petitioner union were illegally dismissed

HELD: No. CA decision sustained.

Labor Law

It is apparent from the records that this case involves a closure of business
undertaking, not retrenchment. The legal requirements and consequences of
these two authorized causes in the termination of employment are discernible.

While retrenchment and closure of a business establishment or undertaking are

often used interchangeably and are interrelated, they are actually two separate
and independent authorized causes for termination of employment.
Retrenchment is the reduction of personnel for the purpose of cutting down on
costs of operations in terms of salaries and wages resorted to by an employer
because of losses in operation of business occasioned by lack of work and
considerable reduction in the volume of business.

Closure of a business or undertaking due to business losses is the reversal of

fortune of the employer whereby there is a complete cessation of business
operations to prevent further financial drain upon an employer who cannot pay
anymore his employees since business has already stopped.

One of the prerogatives of management is the decision to close the entire

establishment or to close or abolish a department or section thereof for economic
reasons, such as to minimize expenses and reduce capitalization.

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

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

While petitioner did not sufficiently establish substantial losses to justify closure
of its F & B Department on this ground, there is basis for its claim that the
continued maintenance of said department had become more expensive through
the years. An evaluation of the financial figures appearing in the audited financial
statements prepared by the SGV & Co. shows that ninety-one to ninety-six (91%-
96%) percent of the actual revenues earned by the F & B Department comprised
the costs and expenses in maintaining the department. Petitioner's decision to
place its F & B operations under a concessionaire must then be respected,
absent a showing of bad faith on its part.

In fine, management's exercise of its prerogative to close a section, branch,

department, plant or shop will be upheld as long as it is done in good faith to
advance the employer's interest and not for the purpose of defeating or
circumventing the rights of employees under the law or a valid agreement.

Guided by the foregoing, the Court shall refuse to dwell on the issue of whether
respondent was in sound financial condition when it resolved to stop the
operations of its F & B Department. As stated, an employer can lawfully close
shop anytime even if not due to serious business losses or financial reverses.
Furthermore, the issue would entail an inquiry into the factual veracity of the
evidence presented by the parties, the determination of which is not the SCs
statutory function. Indeed, petitioner is asking the SC to sift through the evidence
on record and pass upon whether respondent had, in truth and in fact, suffered
from serious business losses or financial reverses.

That task, however, would be contrary to the well-settled principle that this Court
is not a trier of facts, and cannot re-examine and re-evaluate the probative value
of the evidence presented to the VA and the CA, which formed the basis of the
questioned decision.

Further, there is nothing on record to indicate that the closure of respondents F &
B Department was made in bad faith. It was not motivated by any specific and
clearly determinable union activity of the employees; rather, it was truly dictated
by economic necessity. Despite petitioners allegations, no convincing and
credible proofs were presented to establish the claim that such closure qualifies
as an act of union-busting and ULP. No evidence was shown that the closure is
stirred not by a desire to avoid further losses but to discourage the workers from
organizing themselves into a union for more effective negotiations with the


9. Alabang Country Club, Inc., et al. vs. NLRC, et al. - GR No. 157611 Case


Petitioner Alabang Country Club Inc. (ACCI), is a stock, non-profit corporation that
operates and maintains a country club and various sports and recreational facilities for
the exclusive use of its members. Sometime in 1993, Francisco Ferrer, then President
of ACCI, requested its Internal Auditor, to conduct a study on the profitability of ACCIs
Food and Beverage Department (F & B Department). Consequently, report showed
that from 1989 to 1993, F & B Department had been incurring substantial losses.

Realizing that it was no longer profitable for ACCI to maintain its own F & B
Department, the management decided to cease from operating the department and to
open the same to a contractor, such as a concessionaire, which would be willing to
operate its own food and beverage business within the club. Thus, ACCI sent its F & B
Department employees individual letters informing them that their services were being
terminated and that they would be paid separation pay. The Union in turn, with the
authority of individual respondents, filed a complaint for illegal dismissal.


Whether or not the clubs right to terminate its employees for an authorized cause,
particularly to secure its continued viability and existence is valid.


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

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

The closure of operation of an establishment or undertaking not due to serious

business losses or financial reverses includes both the complete cessation of
operations and the cessation of only part of a companys activities.


(G.R. NO. 174300, 05 DEC 2012)

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

business of providing arrastre and stevedoring
services to its clientele at Port Area, Sasa, Davao City. It has a Contract for Use of Pier
with Del Monte Philippines, Inc. (Del
The docking of vessels at the piers in Davao City, including that of Minterbro, is being
carried out by the Davao Pilots' Association, Inc. (DPAI). In a letter dated January 6,
1996, DPAI requested Minterbro to waive any claim of liability against it for any
damage to the pier or vessel. DPAI alleged that Minterbros pier vibrates everytime a
ship docks due to weak posts at the underwater portion. Minterbro denied the request
explaining that DPAIs observation had no basis as any damage to the pier was
actually caused by a vessel under the control of DPAI which bumped the pier. DPAI
replied informing Minterbro of its
intention to refrain from docking vessels at Minterbros pier for security and safety
reasons, until it is restored.

This prompted Minterbro to bring up the matter to the Philippine Ports Authority (PPA).
Minterbro engaged the Davao Engineering Works and Marine Services (Davao
Engineering) to carry out the work of inspection and survey of the pier. In its Survey
Report, Davao Engineering stated that Minterbros pier can still be used for loading and
unloading ofcargoes provided, however, that docking procedures were properly carried
out. Subsequently, Minterbro decided to rehabilitate the pier on August 1, 1997 and, on
the same day, sent a letter to the Department of Labor and Employment (DOLE) to
inform DOLE of Minterbros intention to temporarily suspend arrastre and stevedoring
On November 4, 1997, Nagkahiusang Mamumuo sa Minterbro-Southern Philippines
Federation of Labor (Union), composed of employees of Minterbro working on a
rotation basis and employed for arrastre and stevedoring work depending
on the actual requirements of the vessels serviced by Minterbro, filed a complaint for
payment of separation pay against Minterbro.

At the initial hearing before the Labor Arbiter on December 10, 1997, Minterbro and De
Castro informed the union and its members that the rehabilitation of the pier had been
completed and that they were just awaiting clearance to operate
from the PPA. In a manifestation dated December 12, 1997, the union and its members
stated, among others, that "they x x x are not anymore amenable to going back to work
with [the] company, for the reason that the latter has not been operating for more than
six (6) months, even if it resumes operation at a later date and would just demand that
they be given Retirement or Separation Pay, as the case may be."
On December 17, 1997, the PPA issued a Certification declaring Minterbros pier as
safe and ready for operation.

The Labor Arbiter ruled in favor of Minterbro, dismissing the complaint for separation
pay for lack of merit and declaring the ninety-five (95) complainants named in the final
list filed on February 3, 1998 to have lost their employment status for abandonment of
work. Aggrieved, the union members appealed the Labor Arbiters Decision to the
NLRC. The NLRC modified said decision, and awarded separation benefits to the
Union. The CA affirmed the decision of NLRC, saying that separation benefits are
proper on the ground that the lay-off
exceeded 6 months. The motion for reconsideration was denied. Hence, this petition.

ISSUE: Whether the Union is entitled to separation benefits.

The Supreme Court ruled in favor of the Union, holding that they are entitled to
separation pay under Article 286 of the Labor
As enunciated in Sebuguero, where a temporary lay-off lasts longer than six
months, the employees should either be recalled to work or permanently retrenched
following the requirements of the law. The NLRC and the Court of Appeals found that
the union members/employees were not given work starting April 14, 1997, the date
when the last vessel was serviced, and that more than six months have elapsed after
the union members were laid off when the next vessel was serviced at the Minterbro
pier on December 22 to 28, 1997. Minterbro was aware that Del Montes decision to
stop docking any of its vessels at its pier was basically related to the issue of the
condition of the pier. Moreover, Minterbro may not rightfully shift the blame to Del
Monte in view of the provision in their Contract for Use of Pier that Minterbro is
responsible for maintaining the pier in good condition. Moreover, the said Survey
Report expressly directs that "immediate attention should be given to the Pier damages
in order to prevent further deterioration of its structural members."45 This directive
contradicts petitioners stance that the Minterbro pier was in good condition even prior
to its repair and rehabilitation in August 1997. Thus, the Court of Appeals did not err
when it made the observation that in view of the inspections and surveys conducted
on the pier, it could not have failed to dawn upon petitioners that no vessel would take
the risk of docking in their pier because of its damaged condition.

In sum, Minterbros inaction on what they allege to be the unexplained abandonment

by Del Monte of its obligations under the Contract for the Use of Pier coupled with its
belated action on the damaged condition of the pier caused the absence of available
work for the union members. As Minterbro was responsible for the lack of work at the
pier and, consequently, the layoff of the union members, it is liable for the separation
from employment of the union members on a ground similar to retrenchment. In this
connection, this Court has ruled:

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

management. It is an act of the employer of dismissing employees because of losses
in operation of a business, lack of work, and considerable reduction on the volume of
his business, a right consistently recognized and affirmed by this Court. However,
when a lay-off is temporary, the employment status of the employee is not deemed
terminated, but merely suspended. Article 286 of the Labor Code provides, in part, that
the bona fide suspension of the operation of the business or undertaking for a period
not exceeding six months does not terminate employment.

When petitioners failed to make work available to the union members for a period of
more than six months starting April 14, 1997 by failing to call the attention of Del Monte
on the latters obligations under the Contract of Use of Pier and to undertake a timely
rehabilitation of the pier, they are deemed to have constructively dismissed the union
members. Six months is the period set by law that the operation of a business or
undertaking may he suspended thereby suspending the employment of the employees
concerned. The temporary lay-off wherein the employees likewise cease to work
should also not last longer than six months.

After six months, the employees should either be recalled to work or permanently
following the requirements of the law, and that failing to comply with this would be
tantamount to dismissing the employees and the employer would thus he liable for
such dismissal.
Lay-off is essentially retrenchment and under Article 283 of the Labor Code a
retrenched employee is entitled to separation pay equivalent to one (1) month salary or
one-half (12) month salary per year of service, whichever is higher.


LOCAL 224 Represented by Felimon Panganiban,Respondents.



Ever Electrical Manufacturing, Inc. (EEMI) closed its business operations on October
11, 2006 resulting in the termination of the services of its employees. Aggrieved,
respondents, who are members of Samahang Manggagawa ng Ever
Electrical/NAMAWU Local 224, filed a complaint for illegal dismissal with prayer for
payment of 13th month pay, separation pay, damages, and attorney fees. Respondents
alleged that the closure was made without any warning, notice or memorandum and in
full disregard of the requirements of the Labor Code.

In its defense, EEMI explained that it had closed the business due to various factors,
most of which included huge financial loss all the way back from 1995. EEMI business
suffered further losses due to the continued entry of cheaper goods from China and
other Asian countries. Adding to EEMI financial woes was the closure of Orient Bank
where most of its resources were invested. As a result, EEMI was not able to meet its
loan obligations with UCPB.

In an attempt to save the company, EEMI entered into a dacion en pago arrangement
with UCPB which, in effect, transferred ownership of the company property to UCPB.
Originally, EEMI wanted to lease the premises to continue its business operation but
under UCPB policy, a previous debtor who failed to settle its loan obligation was not
eligible to lease its acquired assets. Thus, UCPB agreed to lease it to an affiliate
corporation, EGO Electrical Supply Co, Inc. (EGO), for and in behalf of EEMI. On
February 2, 2002, a lease agreement was entered into between UCPB and EGO. The
said lease came to a halt when UCPB instituted an unlawful detainer suit against EGO
before the MeTC of Makati, who ruled in favor of UCPB and ordered EGO to vacate
the leased premises and pay rentals to UCPB in the amount of P21,473,843.65. On
September 19, 2006, a writ of execution was issued.Consequently, on October 11,
2006, the Sheriff implemented the writ by closing the premises and, as a result, EEMI
employees were prevented from entering the factory.

The Labor Arbiter (LA) ruled that respondents were not illegally dismissed but ordered
EEMI and its President, Vicente Go to pay their employees separation pay and 13th
month pay respectively.

On September 15, 2008, the NLRC reversed and set aside the decision of the LA. The
NLRC dismissed the complaint for lack of merit and ruled that since EEMI cessation of
business operation was due to serious business losses, the employees were not
entitled to separation pay. Respondents moved for reconsideration of the NLRC
decision, but the NLRC denied the motion in its March 23, 2009 Resolution.

Unperturbed, respondents elevated the case before the CA via a petition for certiorari
under Rule 65. The appellate court granted the petition and nullified the decision of the
NLRC and reinstated the LA decision.


1. Whether the CA erred in finding that the closure of EEMI operation was not due to
business losses?

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

HELD: The petition is partly meritorious.


Article 283 of the Labor Code identifies closure or cessation of operation of the
establishment as an authorized cause for terminating an employee. Similarly, the said
provision mandates that employees who are laid off from work due to closures that are
not due to business insolvency should be paid separation pay equivalent to one-month
pay or to at least one-half month pay for every year of service, whichever is higher. A
fraction of at least six months shall be considered one whole year.

Although business reverses or losses are recognized by law as an authorized cause, it

is still essential that the alleged losses in the business operations be proven
convincingly; otherwise, this ground for termination of employment would be
susceptible to abuse by conniving employers, who might be merely feigning business
losses or reverses in their business ventures in order to ease out employees.

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


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

The LA was of the view that Go, as President of the corporation, actively participated in
the management of EEMI corporate obligations, and, accordingly, rendered judgment
ordering EEMI and Go "in solidum to pay the complainants" their due. He explained
that "[r]espondent Go negligence in not paying the lease rental of the plant in behalf of
the lessee EGO Electrical Supply, Inc., where EEMI was operating and reimburse
expenses of UCPB for real estate taxes and the like, prompted the bank to file an
unlawful detainer case against the lessee, EGO Electrical Supply Co. The CA affirmed
the LA decision citing the case of Restaurante Las Conchas v. Llego,where it was held
that "when the employer corporation is no longer existing and unable to satisfy the
judgment in favor of the employees, the officers should be held liable for acting on
behalf of the corporation."

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

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

In Pantranco Employees Association, the Court also rejected the invocation of

Restaurante Las Conchas and refused to pierce the veil of corporate fiction. It

As between PNB and PNEI, petitioners want us to disregard their separate

personalities, and insist that because the company, PNEI, has already ceased
operations and there is no other way by which the judgment in favor of the employees
can be satisfied, corporate officers can be held jointly and severally liable with the

This reliance fails to persuade. The aforesaid decisions are inapplicable to the instant

In the said cases, the persons made liable after the company cessation of operations
were the officers and agents of the corporation. The rationale is that, since the
corporation is an artificial person, it must have an officer who can be presumed to be
the employer, being the person acting in the interest of the employer. The corporation,
only in the technical sense, is the employer. In the instant case, what is being made
liable is another corporation (PNB) which acquired the debtor corporation (PNEI).

More importantly, as aptly observed by this Court in A.C. Ransom Labor Union-CCLU
v. NLRC, it appears that Ransom, foreseeing the possibility or probability of payment of
backwages to its employees, organized Rosario to replace Ransom, with the latter to
be eventually phased out if the strikers win their case. The execution could not be
implemented against Ransom because of the disposition posthaste of its leviable
assets evidently in order to evade its just and due obligations. Hence, the Court
sustained the piercing of the corporate veil and made the officers of Ransom
personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the
corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; 2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation. In the
absence of malice, bad faith, or a specific provision of law making a corporate officer
liable, such corporate officer cannot be made personally liable for corporate liabilities.

Similarly, in the case at bench, the records do not warrant an application of the
exception. The rule, which requires the presence of malice or bad faith, must still
prevail. In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung,the Court
absolved the corporation president from liability in the absence of bad faith or malice.
In the said case, the Court stated:

In labor cases, corporate directors and officers may be held solidarily liable with the
corporation for the termination of employment only if done with malice or in bad faith.
Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious doing of wrong; it means breach of a known
duty through some motive or interest or ill will; it partakes of the nature of fraud.

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




G.R. No. 78350 September 11, 1991


Petitioners were the incorporators, stockholders and/or trustees of a corporation

known as the San Felipe Neri School of Mandaluyong, Inc., which owned and operated
petitioner school. Private respondents were formerly teacher employees of the
aforesaid institution.

Sometime on April 18, 1981, petitioner-school and the Roman Catholic

Archbishop of Manila (RCAM for brevity) executed a Deed of Absolute Sale of Real
and Personal Properties. Private respondents (former teachers of petitioner school)
upon reporting for work sometime in May of the same year for the opening of the
school year 1981-82, were surprised to learn from school authorities that the school
was already under new ownership and management. The new owner and administrator
(RCAM), required said respondent teachers to apply as new employees subject to the
usual. Demoted to probationary status and their past services not recognized by the
new employer, said teachers filed a complaint before the Labor Arbiter against all the
petitioners, including the RCAM the vendee or transferee, for payment of separation
pay, differential pay and other claims.

The Labor Arbiter rendered judgment in favor of private respondents, ordering

petitioners to pay the latter their separation pay. Petitionersappealed to the National
Labor Relations Commission (NLRC) claiming that the Commission has no jurisdiction
over them since no employer-employee relationship exists between said individual
petitioners and private respondents.The NLRC denied the Motion for Reconsideration.
Hence, this present petition .


Whether or not respondent teachers' employment was terminated by the sale

and transfer of San Felipe Neri School of Mandaluyong, Inc. to the Archbishop of
Manila that would entitle them to separation pay.


The Supreme Court held that the petition is devoid of merit.

It is not disputed that San Felipe Neri School of Mandaluyong, Inc. sold its
properties and assets to RCAM on April 18, 1981; but RCAM did not buy the school nor
assumed its liabilities. Immediately thereafter, RCAM as the transferee-purchaser,
continued the operation of the school, but applied for a new permit to operate the same
In short, there was a change of ownership or management of the school properties and
Change of ownership or management of an establishment or company, however,
is not one of the just causes provided by law for the termination of employment (Junio,
et al. vs. NLRC, et al., 127 SCRA 390 [1984]). As in the exercise of such management
prerogative, the employer may merge or consolidate its business with another, orsell or
dispose all or substantially all of its assets and properties which may bring about the
dismissal or termination of its employees in the process. Such dismissal or termination
should not, however, be interpreted in such a manner as to insulate the employer or
selling corporation (petitioner school) from its obligation to its employees, particularly
the payment of separation pay.

Hence, petitioners' contention that private respondents are not entitled to

separation pay on the ground that there was no termination of the latter's employment
but a mere change of ownership in the assets and properties of the school is
untenable. Neither can the flimsy excuse that at the time of their alleged termination,
there was no employer-employee relationship between them (private respondents) and
petitioners, be sustained.

Petitioner San Felipe Neri School of Mandaluyong is liable to the private

respondents, the other petitioners not being the employers of the teachers.


15. Golden Ace Builders and Arnold Azul vs. Jose A. Talde
G.R. No. 187200; 5 May 2010

In 1990, Golden Ace Builders hired Jose A. Talde (Talde) as a carpenter. In February
The owner -manager, Arnold Azul, stopped giving Talde work assignment due allegedly
to the unavailability of construction projects . Consequently, Talde filed a complaint for
illegal dismissal. The Labor Arbiter ruled in Taldes favor and ordered his immediate
reinstatement without loss of seniority rights , with payment of full backwages as well
as premium pay for rest days, service incentive leave pay and 13 th month pay. The
companybrought the case to the National Labor Relations Commission (NLRC)for
review. Pending such appeal, the company advised Talde to report for work within 10
days from notice. Talde, however, manifested to the Labor Arbiter that due to actual
animosity between him and the company and threats to his life and his familys safety,
he opted for payment of separation pay. The company denied there was such an
The NLRC laterdismissed the companys appeal.The company s appeal t o the Court
of Appeals was likewise dismissed . The Court of Appeals decision attained finality.
The monetary award, as recomputed by the NLRCs Fiscal Examiner , was approved
by the Labor Arbiter who thereupon issued the writ of execution. The company
questioned the re- computation before the NLRC, arguing that since Talde refused to
report back to work as the company advised, he should be deemed t o have
abandoned the same , thus, the re -computation
should not be beyond 15 May 2001 , the day he manifested his refusal to be
The NLRC vacated the re computation , holding that since Talde did not appeal the
Labor Arbiters decision granting him only reinstatement and backwages, not
separation pay in lieu of reinstatement , he may not be afforded affirmative relief, and
since he refused to go back to work, he may r ecover backwages only up to 20 M ay
2001, the day he was supposed to return to the job site. When Taldes motion for
reconsideration was denied by the NLRC, he filed a petition for certiorari with the Court
of Appeals. The Court of Appeals set aside the NLRC findings and held that Talde was
entitled to both backwages and separation pay, even if separation pay was not granted
by the Labor Arbiter, in view of the strained relations between the parties.
Consequently, the company filed a petition for review on certiorari before the Supreme

(1)Whether or not Talde was entitled to separation pay in lieu of actual reinstatement
account of strained relations between him and the company ; and (2) Up to what date
Taldes backwages be computed?

An illegally dismissed employee is entitled to two reliefs: backwages and
reinstatement. The two reliefs are separate and distinct. When reinstatement is no
longer feasible because of strained relations between the employee and the employer,
separation pay equivalent to one (1) month salary for every year of service should be
awarded as an alternative . The payment of separation pay is in addition to payment of
backwages. In effect, an illegally dismissed employee is entitled to either
reinstatement, if viable, or separation pay if reinstatement is no longer viable, and
(Citing Macasero vs. Southern Industrial Gases Philippines, G.R.No. 178524; 30
January 2009)

Under the doctrine of strained relations , the payment of separation pay is considered
anacceptable alternative to reinstatement when the latter option is no longer desirable
or viable. On one hand, such payment liberates the employee from what could be
a highly oppressive work environment.
On the other hand, it releases the employer from the grossly unpalatable obligation
of maintaining in its employ a worker it could no longer trust. Strained relations must be
demonstrated as a fact and must be supported by substantial evidence showingthat
the relationship between the employer and the employee is indeedstrainedas a
necessary consequence of the judicial controversy. In this case , the Labor Arbiter
found that actual animosity existed between the owner manager Azul and Talde as a
result of the filing of the illegal dismissal case. Such finding, especially when affirmed
by the appellate court as in the case at bar, is binding upon the Supreme Court,
consistent with the prevailing rules that the Supreme Court will not try facts anew and
that findings of facts of quasi judicial bodies are accorded great respect, even
finality.Thus, Talde was entitled to backwages and separation pay as his reinstatement
had been rendered impossible due to strained relations. His backwages must be
computed from the time he was unjustly dismissed until his actual reinstatement, or
from February 1999 until 30 June 2005 when his reinstatement was rendered
impossible without fault on his part. The Court of Appeals erroneously computed his
separation pay from 1990 (when he was hired) to 1999 (when he was unjustly
dismissed), covering a period of 8 years. He must be considered to have been in the
service of the company not only until 1999, but until 30 June 2005, the day he is
deemed to have been actually separated (his reinstatement having been rendered
impossible) from the company , or for a total of 15 years.