Statutory Reference: Arts. 298-299 and Art.

302 as well as related provisions in the

Omnibus Rules
DOLE Department Order No. 147-15, series of 2015
SSS Law on retirement

Topics: Authorized causes, disease as a ground for termination, reinstatement,

backwages, separation pay, financial assistance, damages, retirement

Cases:

Escareal vs. NLRC, 213 SCRA 472, GR 99359, Sep. 2, 1992

Asian Alcohol vs. NLRC, 305 SCRA 416, GR 131108, Mar. 25, 1999

Mayon Hotel vs. Adana, 458 SCRA 609, GR 157634, May 16,
2005
FACTS: Petitioner Mayon Hotel & Restaurant is a single proprietor business registered
in the name of petitioner Pacita O. Po,6 whose mother, petitioner Josefa Po Lam,
manages the establishment.7 The hotel and restaurant employed about sixteen (16)
employees.
Due to the expiration and non-renewal of the lease contract for the rented space
occupied by the said hotel and restaurant at Rizal Street, the hotel operations of the
business were suspended on March 31, 1997.9 The operation of the restaurant was
continued in its new location at Elizondo Street, Legazpi City, while waiting for the
construction of a new Mayon Hotel & Restaurant at Peñaranda Street,
Legazpi City.10Only nine (9) of the sixteen (16) employees continued working in the
Mayon Restaurant at its new site.11
the 16 employees filed complaints for underpayment of wages and other money claims
against petitioners
Executive Labor Arbiter Gelacio L. Rivera, Jr. rendered a Joint Decision in favor of the
employees. The Labor Arbiter awarded substantially all of respondents’ money claims,
and held that respondents Loveres, Macandog and Llarena were entitled to separation
pay, while respondents Guades, Nicerio and Alamares were entitled to their retirement
pay. The Labor Arbiter also held that based on the evidence presented, Josefa Po Lam
is the owner/proprietor of Mayon Hotel & Restaurant and the proper respondent in these
cases.
On appeal to the NLRC, the decision of the Labor Arbiter was reversed, and all the
complaints were dismissed.
Respondents filed a motion for reconsideration with the NLRC and when this was
denied, they filed a petition for certiorari with the CA. CA reversed the NLRC decision
and the employers filed MR which was denied, hence the case before the SC.
RULING:
1. Ownership by Josefa Po Lam
notwithstanding the certificate of registration in the name of Pacita Po, it is Josefa Po
Lam who is the owner/proprietor of Mayon Hotel & Restaurant, and the proper
respondent in the complaints filed by the employees.
First. It is significant that only Josefa Po Lam appeared in the proceedings with the
Labor Arbiter. Despite receipt of the Labor Arbiter’s notice and summons, other notices
and Orders, petitioner Pacita Po failed to appear in any of the proceedings with the
Labor Arbiter in these cases, nor file her position paper.26 It was only on appeal with
the NLRC that Pacita Po signed the pleadings.27 The apathy shown by petitioner Pacita
Po is contrary to human experience as one would think that the owner of an
establishment would naturally be concerned when all her employees file complaints
against her.
Second. Mayon Hotel and Restaurant is a [business name] of an enterprise. While
[petitioner] Josefa Po Lam claims that it is her daughter, Pacita Po, who owns the hotel
and restaurant when the latter purchased the same from one Palanos in 1981, Josefa
failed to submit the document of sale from said Palanos to Pacita as allegedly the sale
was only verbal although the license to operate said hotel and restaurant is in the name
of Pacita which, despite our Order to Josefa to present the same, she failed to comply.
Third. Respondents] testified that it was Josefa who exercises all the acts and
manifestation of ownership of the hotel and restaurant like transferring employees from
the Greatwall Palace Restaurant which she and her husband Roy Po Lam previously
owned; it is Josefa to whom the employees submits (sic) reports, draws money for
payment of payables and for marketing, attending (sic) to Labor Inspectors during
ocular inspections. Except for documents whereby Pacita Po appears as the owner of
Mayon Hotel and Restaurant, nothing in the record shows any circumstance or
manifestation that Pacita Po is the owner of Mayon Hotel and Restaurant. The least that
can be said is that it is absurd for a person to purchase a hotel and restaurant in the
very heart of the City of Legazpi verbally.
Article 221 of the Labor Code is clear: technical rules are not binding, and the
application of technical rules of procedure may be relaxed in labor cases to serve the
demand of substantial justice. The rule of evidence prevailing in court of law or equity
shall not be controlling in labor cases and it is the spirit and intention of the Labor Code
that the Labor Arbiter shall use every and all reasonable means to ascertain the facts in
each case speedily and objectively and without regard to technicalities of law or
procedure, all in the interest of due process. Labor laws mandate the speedy
administration of justice, with least attention to technicalities but without sacrificing the
fundamental requisites of due process. As to the best evidence rule raised by the
employers (certificate of registration as the best proof of ownership)
To apply the concept of judicial admissions to respondents — who are but lowly
employees – would be to exact compliance with technicalities of law that is contrary to
the demands of substantial justice.
Petitioners were also not denied due process, as they were given sufficient opportunity
to be heard on the issue of ownership. The essence of due process in administrative
proceedings is simply an opportunity to explain one’s side or an opportunity to seek
reconsideration of the action or ruling complained of.34 And there is nothing in the
records which would suggest that petitioners had absolute lack of opportunity to be
heard. Obviously, the choice not to present evidence was made by petitioners
themselves.
2. Illegal Dismissal: claim for separation pay
First, petitioners admit that since April 1997, when hotel operations were suspended
due to the termination of the lease of the old premises, respondents Loveres,
Macandog, Llarena, Nicerio and Guades have not been permitted to work. Second,
even after six months of what should have been just a temporary lay-off, the same
respondents were still not recalled to work. As a matter of fact, the Labor Arbiter even
found that as of the time when he rendered his Joint Decision on July 2000 — or more
than three (3) years after the supposed “temporary lay-off,” the employment of all of the
respondents with petitioners had ceased, notwithstanding that the new premises had
been completed and the same operated as a hotel with bar and restaurant. This is
clearly dismissal — or the permanent severance or complete separation of the worker
from the service on the initiative of the employer regardless of the reasons therefor.
But they made no mention of any intent to recall these respondents to work upon
completion of the new premises.
And even assuming that the closure was due to a reason beyond the control of the
employer, it still has to accord its employees some relief in the form of severance pay.
While we recognize the right of the employer to terminate the services of an employee
for a just or authorized cause, the dismissal of employees must be made within the
parameters of law and pursuant to the tenets of fair play.66 And in termination disputes,
the burden of proof is always on the employer to prove that the dismissal was for a just
or authorized cause.67 Where there is no showing of a clear, valid and legal cause for
termination of employment, the law considers the case a matter of illegal dismissal.
Industrial Timber vs. Ababon, 480 SCRA 171, GR 164518, January 25,
2006
FACTS

Industrial Plywood Group Corporation (IPGC) is the owner of a plywood plant located at
Agusan, Pequeño, Butuan City, leased to Industrial Timber Corporation (ITC) on August
30, 1985 for a period of five years. Thereafter, ITC commenced operation of the
plywood plant and hired 387 workers. On March 16, 1990, ITC notified the DOLE and
its workers that effective March 19, 1990 it will undergo a “no plant operation” due to
lack of raw materials and will resume only after it can secure logs for
milling. Meanwhile, IPGC notified ITC of the expiration of the lease contract in August
1990 and its intention not to renew the same.
On June 26, 1990, ITC notified the DOLE and its workers of the plant’s shutdown due to
the non-renewal of anti-pollution permit that expired in April 1990. This fact and the
alleged lack of logs for milling constrained ITC to lay off all its workers until further
notice. This was followed by a final notice of closure or cessation of business
operations on August 17, 1990 with an advice for all the workers to collect the benefits
due them under the law and CBA. On October 15, 1990, IPGC took over the plywood
plant after it was issued a Wood Processing Plant Permit, which included the anti-
pollution permit, by the DENR coincidentally on the same day the ITC ceased operation
of the plant.
This prompted Virgilio Ababon, et al. to file a complaint against ITC and IPGC for illegal
dismissal, unfair labor practice and damages. They alleged, among others, that the
cessation of ITC’s operation was intended to bust the union and that both corporations
are one and the same entity being controlled by one owner.

ISSUE
Whether or not complainants were illegally dismissed due to the closure of ITC’s
business.

HELD
The SC held that ITC’s closure or cessation of business was done in good faith and for
valid reasons. The right to close the operation of an establishment or undertaking is 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.
A reading of article 283 of the Labor Code shows that a partial or total closure or
cessation of operations of establishment or undertaking may either be due to serious
business losses or financial reverses or otherwise. Under the first kind, the employer
must sufficiently and convincingly prove its allegation of substantial losses, while under
the second kind, the employer can lawfully close shop anytime as long as cessation of
or withdrawal from business operations was bona fide in character and not impelled by
a motive to defeat or circumvent the tenurial rights of employees, and as long as he
pays his employees their termination pay in the amount corresponding to their length of
service. 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.
In sum, under Article 283 of the Labor Code, three requirements are necessary for a
valid cessation of business operations: (a) service of a written notice to the employees
and to the DOLE at least one month before the intended date thereof; (b) the cessation
of business must be bona fide in character; and (c) payment to the employees of
termination pay amounting to one month pay or at least one-half month pay for every
year of service, whichever is higher.
The records reveal that the decision to permanently close business operations was
arrived at after a suspension of operation for several months precipitated by lack of raw
materials used for milling operations, the expiration of the anti-pollution permit in April
1990, and the termination of the lease contract with IPGC in August 1990 over the
plywood plant at Agusan, Pequeño, Butuan City.
As borne out from the records, respondent ITC actually underwent ‘no plant operation’
since 19 March 1990 due to lack of log supply. This fact is admitted by complainants
(Minutes of hearing, 28 October 1991). Since then several subsequent incidents
prevented respondent ITC to resume its business operations e.g. expiration and non-
renewal of the wood processing plant permit, anti-pollution permit, and the lease
contract on the plywood plant. Without the raw materials respondent ITC has nothing to
produce. Without the permits it cannot lawfully operate the plant. And without the
contract of lease respondent ITC has no option but to cease operation and turn over the
plant to the lessor.
Moreover, the lack of raw materials used for milling operations was affirmed in Industrial
Timber Corporation v. National Labor Relations Commission as one of the reasons for
the valid closure of ITC’s Butuan Logs Plant in 1989. In said case, we upheld the
management prerogative to close the plant as the only remedy available in order to
prevent imminent heavy losses on account of high production costs, erratic supply of
raw materials, depressed prices and poor market conditions for its wood products.
Having established that ITC’s closure of the plywood plant was done in good faith and
that it was due to causes beyond its control, the conclusion is inevitable that said
closure is valid. Consequently, Ababon, et al. could not have been illegally dismissed to
be entitled to full backwages. Thus, we find it no longer necessary to discuss the issue
regarding the computation of their backwages. However, they are entitled to separation
pay equivalent to one month pay or at least one-half month pay for every year of
service, whichever is higher.
Although the closure was done in good faith and for valid reasons, we find that ITC did
not comply with the notice requirement. While an employer is under no obligation to
conduct hearings before effecting termination of employment due to authorized cause,
however, the law requires that it must notify the DOLE and its employees at least one
month before the intended date of closure.
In the case at bar, ITC notified its employees and the DOLE of the ‘no plant operation’
on March 16, 1990 due to lack of raw materials. This was followed by a ‘shut down’
notice dated June 26, 1990 due to the expiration of the anti-pollution permit. However,
this shutdown was only temporary as ITC assured its employees that they could return
to work once the renewal is acted upon by the DENR. On August 17, 1990, the ITC
sent its employees a final notice of closure or cessation of business operations to take
effect on the same day it was released. We find that this falls short of the notice
requirement for termination of employment due to authorized cause considering that the
DOLE was not furnished and the notice should have been furnished both the employees
and the DOLE at least one month before the intended date of closure.
Where the dismissal is based on an authorized cause under Article 283 of the Labor
Code but the employer failed to comply with the notice requirement, the sanction should
be stiff as the dismissal process was initiated by the employer’s exercise of his
management prerogative, as opposed to a dismissal based on a just cause under
Article 282 with the same procedural infirmity where the sanction to be imposed upon
the employer should be tempered as the dismissal process was, in effect, initiated by an
act imputable to the employee.
Decision of the CA is reversed.

JAT General Services vs. NLRC, 421 SCRA 78, GR 148340, Jan. 26, 2004

Genuino Ice vs. Magpantay, 493 SCRA 195, GR No. 147790, June 27,
2006
NATURE
Review on certiorari
FACTS
- Alfonso Magpantay (respondent) was employed as a machine operator with Genuino
Ice Company, Inc. (petitioner). On November 18, 1996, respondent filed against
petitioner a complaint for illegal dismissal with prayer for moral and exemplary
damages. In his Position Paper, respondent alleged that he was dismissed from service
effective immediately by virtue of a memorandum, after which he was not allowed
anymore to enter the company premises. Respondent bewailed that his termination
from employment was done without due process.Petitioner countered that he was not
illegally dismissed, since the dismissal was based on a valid ground, i.e., he led an
illegal strike at petitioner’s sister company, Genuino Agro Industrial Development
Corporation, which lasted from November 18 to 22, 1995, resulting in big operation
losses on the latter’s part. Petitioner also maintained that respondent’s dismissal was
made after he was accorded due process.
- Petitioner initially claimed that respondent’s acts were tantamount to serious
misconduct or willful disobedience, gross and habitual neglect of duties, and breach of
trust. Subsequently, petitioner amended its position paper to include insubordination
among the grounds for his dismissal, since it came out during respondent’s cross-
examination, and the matter was reported only after the new personnel manager
assumed his position in August 1996.
- Labor Arbiter of the National Labor Relations Commission (NLRC) dismissed the case
for lack of merit finding that petitioner had valid cause to dismiss respondent. Labor
Arbiter’s Decision affirmed. Motion for reconsideration of the NLRC Decision was
denied. Special civil action for certiorari with the CA was filed. Petitioner filed its
Comment, contending that the petition was filed out of time, considering that contrary to
respondent’s claim that the NLRC Resolution dated August 31, 1999 was received on
December 20, 1999, it was actually received on September 15, 1999, as shown in the
registry return card. Petitioner also reiterated its arguments that respondent was
dismissed for cause and with due process.
- CA rendered the assailed Decision granting the petition and declaring respondent’s
dismissal as illegal. Petitioner filed a motion for reconsideration which the CA denied.

ISSUES
1. WON the petition was filed by petitioner out of time
2. WON he was illegally dismissed (and on what ground)
3. WON there was due process under Section 2 (d), Rule 1, Book VI of the Omnibus
Rules Implementing the Labor Code provides for the standards of due process

HELD
1. NO
- The New Rules of Procedure of the NLRC provides the rule for the service of notices
and resolutions in NLRC cases, to wit:
Sec. 4. Service of notices and resolutions. – a) Notices or summons and copies of
orders, resolutions or decisions shall be served on the parties to the case personally by
the bailiff or the duly authorized public officer within three (3) days from receipt thereof
by registered mail; Provided, that where a party is represented by counsel or authorized
representative, service shall be made on such counsel or authorized representative;
- The presumption is that the decision was delivered to a person in his office, who was
duly authorized to receive papers for him, in the absence of proof to the contrary. It is
likewise a fundamental rule that unless the contrary is proven, official duty is presumed
to have been performed regularly and judicial proceedings regularly conducted, which
includes the presumption of regularity of service of summons and other notices. The
registry return of the registered mail as having been received is prima facie proof of the
facts indicated therein. Thus, it was necessary for respondent to rebut that legal
presumption with competent and proper evidence. Records show that Ducut is not an
employee of the FEU Legal Aid Bureau, but is connected with the Computer Services
Department. The FEU Legal Aid Bureau has its own personnel which include Ms. dela
Paz who is the one authorized to receive communications in behalf of the office. It has
been ruled that a service of a copy of a decision on a person who is neither a clerk nor
one in charge of the attorney’s office is invalid. The CA was correct in ruling that the
reckoning period should be the date when respondent’s counsel actually received the
NLRC Resolution dated August 31, 1999, which was on December 20, 1999. Petitioner,
however, pointed out that a certain Ruby D.G. Sayat received a copy of their Motion for
Reconsideration filed by registered mail on August 16, 2000. Respondent contended
that at the time Sayat received the motion, she was then detailed at the office and was
authorized to receive said pleading, and that it was an isolated and exceptional
instance. On this matter, the FEU Acting Postmaster certified that Sayat is a permanent
employee of the FEU Legal Aid Bureau. As such, she is authorized to receive
communications in behalf of the office and need not possess an express authority to do
so. More importantly, the Court has consistently frowned upon the dismissal of an
appeal on purely technical grounds. While the right to appeal is a statutory, not a
natural right, it is, nonetheless, an essential part of our judicial system. Courts should
proceed with caution so as not to deprive a party of the right to appeal, but rather,
ensure amplest opportunity for the proper and just disposition of a cause, free from the
constraints of technicalities.
2. NO, on the ground of habitual neglect of duties but YES on the ground of
insubordination. The Court sustained the CA’s finding that respondent’s four-day
absence does not amount to a habitual neglect of duty; however, the Court found that
respondent was validly dismissed on ground of willful disobedience or insubordination.
- FOR HABITUAL NEGLECT OF DUTY: Neglect of duty, to be a ground for dismissal,
must be both gross and habitual. Gross negligence connotes want of care in the
performance of one’s duties. Habitual neglect implies repeated failure to perform one’s
duties for a period of time, depending upon the circumstances. On the other hand,
fraud and willful neglect of duties imply bad faith on the part of the employee in failing to
perform his job to the detriment of the employer and the latter’s business. Thus, the
single or isolated act of negligence does not constitute a just cause for the dismissal of
the employee. Thus, the Court agrees with the CA that respondent’s four-day absence
is not tantamount to a gross and habitual neglect of duty. As aptly stated by the CA,
“(W)hile he may be found by the labor courts to be grossly negligent of his duties, he
has never been proven to be habitually absent in a span of seven (7) years as GICI’s
employee. The factual circumstances and evidence do not clearly demonstrate that
petitioner’s [respondent] absences contributed to the detriment of GICI’s operations and
caused irreparable damage to the company.”
- FOR insubordination or willful disobedience: On this point, the CA opined that
petitioner included insubordination as a “mere after-thought.” It noted that petitioner
seemed to be “irresolute” in stating the cause of respondent’s dismissal, as in its
Position Paper, it originally relied on respondent’s four-day absence or participation in
the illegal strike as a cause for dismissal but later on amended its Position Paper to
include insubordination. Thus, the CA did not make any factual finding or conclusion in
its Decision vis-à-vis petitioner’s allegation of respondent’s insubordination.
While its perception may be true, it should not have deterred the CA from making any
resolution on the matter. For one, respondent was able to argue against petitioner’s
allegation of insubordination before the Labor Arbiter and the NLRC. For another, it
was respondent himself who raised the subject before the CA, wherein he stated in his
Petition. Further, the proceedings before the Labor Arbiter and the NLRC are non-
litigious in nature. As such, the proceedings before it are not bound by the technical
niceties of the law and procedure and the rules obtaining in courts of law, as dictated by
Article 221 of the Labor Code:
ART. 221. Technical rules not binding and prior resort to amicable settlement. – In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the spirit and
intention of this Code that the Commission and its members and the Labor Arbiters shall
use every and all reasonable means to ascertain the facts in each case speedily and
objectively and without regard to technicalities of law or procedure, all in the interest of
due process. This rule applies equally to both the employee and the employer. In the
interest of due process, the Labor Code directs labor officials to use all reasonable
means to ascertain the facts speedily and objectively, with little regard to technicalities
or formalities. What is essential is that every litigant is given reasonable opportunity to
appear and defend his right, introduce witnesses and relevant evidence in his favor,
which undoubtedly, was done in this case. Willful disobedience, or insubordination as
otherwise branded in this case, as a just cause for dismissal of an employee,
necessitates the concurrence of at least two requisites: (1) the employee's assailed
conduct must have been willful, that is, characterized by a wrongful and perverse
attitude; and (2) the order violated must have been reasonable, lawful, made known to
the employee and must pertain to the duties which he had been engaged to discharge.
Company policies and regulations are generally valid and binding on the parties and
must be complied with until finally revised or amended, unilaterally or preferably through
negotiation, by competent authority. For misconduct or improper behavior to be a just
cause for dismissal, the same must be related to the performance of the employee’s
duties and must show that he has become unfit to continue working for the employer. In
the case at bench, petitioner informed respondent, through a Memorandum dated
November 14, 1995, that he was being transferred to its GMA, Cavite operations
effective November 20, 1995.
- Due to his refusal to report to the Cavite plant, petitioner reiterated its order
transferring respondent in its Memorandum dated November 24, 1995, where
respondent was also warned that his failure to report to the Cavite plant will be
considered as an absence without leave (AWOL) and insubordination. Respondent was
required to comply with the order within 24 hours from receipt, otherwise, disciplinary
action will be imposed on respondent. Respondent replied with a request that he remain
in the Otis plant since a transfer to the Cavite plant will entail additional expenditure and
travel time on his part. Petitioner again wrote respondent inviting him to appear before
the Plant Level Investigation on December 11, 1995 for the latter to be able to clarify his
reasons for refusing the transfer. Finally, petitioner issued its Memorandum dated
December 12, 1995 informing respondent of its decision to terminate his services. The
rule is that the transfer of an employee ordinarily lies within the ambit of the employer’s
prerogatives. The employer exercises the prerogative to transfer an employee for valid
reasons and according to the requirement of its business, provided the transfer does not
result in demotion in rank or diminution of the employee’s salary, benefits and other
privileges. In this case, petitioner’s order for respondent to transfer to the GMA, Cavite
Plant is a reasonable and lawful order was made known to him and pertains to his
duties as a machine operator. There was no demotion involved or diminution of salary,
benefits and other privileges, and in fact, petitioner was even willing to provide
respondent with monetary allowance to defray whatever additional expenses he may
incur with the transfer. Such being the case, respondent cannot adamantly refuse to
abide by the order of transfer without exposing himself to the risk of being dismissed.
Hence, his dismissal was for just cause in accordance with Article 282 (a) of the Labor
Code. Consequently, respondent is not entitled to reinstatement or separation pay and
backwages.
3. YES
- Simply stated, the employer must furnish the employee a written notice containing a
statement of the cause for termination and to afford said employee ample opportunity to
be heard and defend himself with the assistance of his representative, if he so desires,
and the employee must be notified in writing of the decision dismissing him, stating
clearly the reasons therefor.
- The CA found that petitioner failed to observe the twin requirements of notice and
hearing, stating that its Memorandum dated December 13, 1995 does not squarely
meet the standards of due process. The circumstances surrounding respondent’s
dismissal, however, prove the contrary. The CA failed to take into account that prior to
the Memorandum dated December 13, 1995, petitioner sent respondent several
memoranda apprising him of the possible implications of his refusal to comply with the
order of transfer. Thus, in its Memorandum dated November 24, 1995, petitioner
notified respondent that his continued non-compliance with the order of transfer might
bring about disciplinary action. Respondent replied to this memorandum, stating the
reasons for his refusal, i.e., additional expenses, longer travel time, and union concerns.
Petitioner sent another Memorandum on December 9, 1995, asking respondent to
appear on December 11, 1995, for further clarification of his reasons for refusing the
transfer. Despite the meeting, and since respondent, apparently, stubbornly refused to
heed petitioner’s order, it was then that the Memorandum dated December 13, 1995
was issued to respondent informing him of the management’s decision to terminate his
services. Clearly, respondent’s right to due process was not violated.
Disposition petition is GRANTED. The CA Decision dated August 3, 2000 and
Resolution dated March 16, 2001 are SET ASIDE, and the NLRC Decision dated June
30, 1999 is REINSTATED.

General Baptist vs. NLRC, 219 SCRA 549, GR 85534, Mar. 5, 1993
BPI Union vs. BPI, 454 SCRA 357, GR 137863, March 31, 2005

Equitable vs. Sadac, 490 SCRA 380, GR 164772, June 8, 2006

Facts:
Respondent Sadac was appointed as the General Counsel of Equitable Bank. Later on,
lawyers of the bank accused Sadac of abusive conduct which resulted to the
termination of his services. Sadac then filed a complaint for illegal dismissal with
damages. The dismissal was finally declared as illegal. Sadac filed with the Labor
Arbiter a motion for execution of the decision and argued that in the computation of
backwages, salary increases should be deemed included.
Issue:
Should periodic general increases in basic salary be included in computing full
backwages for illegally dismissed employees?
Held:
No. Backwages are granted on grounds of equity for earnings which a worker or
employee has lost due to his illegal dismissal; it is not private compensation or damages
but is awarded in furtherance and effectuation of the public objective of the Code.
Backwages to be awarded to an illegally dismissed employee should not as a general
rule be diminished or reduced by the earnings derived by him elsewhere during the
period of his illegal dismissal. Article 279 of the Labor Code mandates that an
employee’s full backwages shall be inclusive of allowance and other benefits or their
monetary equivalent. The salary increase cannot be interpreted as either as an
allowance or a benefit. Salary increases are not akin to allowances or benefits and
cannot be confused with either. Allowances and benefits are granted to the employee
apart or separate from the wage or salary. In contrast, salary increases are amounts
which are added to the employee’s salary as an increment thereto for varied reasons
deemed appropriate by the employer.
An unqualified award of backwages means that the employee is paid at the wage rate at
the time of his dismissal. And the court has declared that the base figure to be used in
the computation of backwages due to the employee should include not just the basic
salary, but also the regular allowances that he had been receiving, such as the
emergency living allowances and the 13th month pay mandated under the law
The term “backwages without qualification and deduction” means that the workers are
to be paid their backwages fixed as of the time of the dismissal or strike without
deduction for their earnings elsewhere during their layoff and without qualification of
their wages as thus fixed; unqualified by any wage increases or other benefits that may
have been received by their co-workers who are not dismissed or did not go on strike.
Awards including salary differentials are not allowed. The salary base properly used
should, however, included not only the basic salary but also the emergency cost of
living allowance and also transportation allowances if the workers are entitled thereto.

Eastern Shipping vs. Sedan, 486 SCRA 565, GR 159354, April 7, 2006
FACTS
On December 30, 1973, petitioners hired on a per-voyage basis private respondent
Dioscoro Sedan as 3rd marine engineer and oiler in one of the vessels owned by
petitioners. His last voyage was on July 27, 1997 on board the vessel M/V Eastern
Universe. His monthly pay was P22,000. Additionally, after each voyage his earned
leave credits are monetized and paid in cash. He said he was disembarking because
he was going to take the board examinations for marine engineers.
Two months later, on September 27, 1997, Sedan sent a letter to petitioners applying
for optional retirement, citing as reason the death of his only daughter, hence the
retirement benefits he would receive would ease his financial burden. However,
petitioners deferred action on his application for optional retirement since his services
on board ship were still needed. Nonetheless, according to petitioners, the company
expressed intention to extend him a loan in order to defray the costs incurred for the
burial and funeral expenses of his daughter. On October 28, 1997, Sedan sent
petitioners another letter insisting on the release of half of his optional retirement
benefits. Later, he said that he no longer wanted to continue working on board a vessel
for reasons of health.
On December 1, 1997, Sedan sent another letter to petitioners threatening to file a
complaint if his application was not granted. In reply, according to petitioners, the
company management sent a telegram on December 9, 1997 informing Sedan that his
services were needed on board a vessel and that he should report immediately for work
as there was no available replacement. Sedan claims he did not receive the telegram,
nor was this fact proved by the company before the Labor Arbiter or the NLRC.

Sedan proceeded to file a complaint with the Labor Arbiter against petitioners,
demanding payment of his retirement benefits, leave pay, 13th month pay and
attorney’s fees.
Petitioners contend that by refusing to report for work and insisting on applying for
optional retirement, private respondent wrongly assumed that he was justified in
abandoning his job. Petitioners maintain that private respondent’s refusal to report back
to work, despite being duly notified of the need for his service, is tantamount to
voluntary resignation. Therefore, petitioners contend, the respondent should not be
entitled to any financial assistance.

ISSUE
Whether or not respondent is entitled to optional retirement benefits.

HELD
The SC held that respondent is not entitled to retirement benefits. The pertinent law
governing retirement is found in the Labor Code, which provides:
ART. 287. Retirement. – Any employee may be retired upon reaching the retirement
age established in the collective bargaining agreement or other applicable employment
contract.
In case of retirement, the employee shall be entitled to receive such retirement benefits
as he may have earned under existing laws and any collective bargaining agreement
and other agreements: Provided, however, That an employee’s retirement benefits
under any collective bargaining and other agreements shall not be less than those
provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years
or more, but not beyond sixty-five (65) years which is hereby declared the compulsory
retirement age, who has served at least five (5) years in the said establishment may
retire and shall be entitled to retirement pay equivalent to at least one half (1/2) month
salary for every year of service, a fraction of at least six (6) months being considered as
one whole year.
xxx
The age of retirement is primarily determined by the existing agreement between the
employer and the employees. However, in the absence of such agreement, the
retirement age shall be fixed by law. Under the aforecited article of the Labor Code, the
legally mandated age for compulsory retirement is 65 years, while the set minimum age
for optional retirement is 60 years.

In the instant case, there is an agreement between petitioner shipping company and its
employees. The agreement states:
xxx
B. Retirement under the Labor Code:
Any employee whether land-based office personnel or shipboard employee who
shall reach the age of sixty (60) while in active employment with this company may
retire from the service upon his written request in accordance with the provisions of Art.
277 of the Labor Code and its Implementing Rules, Book 6, Rule 1, Sec. 13 and he
shall be paid termination pay equivalent to fifteen (15) days pay for every year of service
as stated in said Labor Code and its Implementing Rules. However, the company may
at its own volition grant him a higher benefit which shall not exceed the benefits
provided for in the Retirement Gratuity table mentioned elsewhere in this policy.
C. Optional Retirement:
It will be the exclusive prerogative and sole option of this company to retire any covered
employee who shall have rendered at least fifteen (15) years of credited service for land
based employees and 3,650 days actually on board vessel for shipboard personnel.

Clearly, the eligibility age for optional retirement is set at 60 years. However,
employees of herein petitioners who are under the age of 60 years, but have rendered
at least 3650 days (10 years) on board ship or fifteen (15) years of service for land-
based employees may also avail of optional retirement, subject to the exclusive
prerogative and sole option of petitioner company.

Records show that private respondent was only 48 years old when he applied for
optional retirement. Thus he cannot claim optional retirement benefits as a matter of
right. His application for optional retirement was subject to the exclusive prerogative
and sole option of the shipping company pursuant to the above cited agreement
between the workers and the company.

Petition is denied.

Hanford vs. Joseph, 454 SCRA 773, GR 158251, March 31, 2005

FACTS:
On July 17, 1978, petitioner Hanford Philippines, Inc. (Hanford) hired Shirley Joseph as
a sewer.
On August 10, 1998, respondent voluntarily tendered her resignation effective
September 17, 1998, which petitioner accepted the following day.
Petitioner then paid respondent her last salary, 13th month pay and the cash conversion
of her unused vacation and sick leave.
On November 19, 1998, respondent sent a letter to petitioner requesting payment of her
separation pay pursuant to Section 1, Article IV of the Collective Bargaining
Agreement.
Petitioner denied respondent’s request on the ground that under the Labor Code,
voluntary resignation is not one of the grounds which justifies the grant of separation
pay.
On December 17, 1998, respondent filed with the Office of the Labor Arbiter a complaint
for the payment of her separation pay against petitioner Hanford and co-petitioner Victor
Te.
On May 20, 1999, the Labor Arbiter rendered a Decision granting respondent’s petition
and ordering petitioners to pay her separation pay in the amount ofP93,820.00 as
authorized by Section 1, Article IV of the parties’ CBA.
On appeal, the NLRC and Court of appeals ruled in favour of respondent Shirley.

ISSUE: WON Shirley Joseph is entitled for separation pay

RULING: The SC denied the petition.

It is well to note that there is no provision in the Labor Code which grants separation
pay to employees who voluntarily resign. Under the Code, separation pay may be
awarded only in cases when the termination of employment is due to: (a) installation of
labor saving devices, (b) redundancy, (c) retrenchment, (d) closing or cessation of
business operations, (e) disease of an employee and his continued employment is
prejudicial to himself or his co-employees, or (f) when an employee is illegally dismissed
but reinstatement is no longer feasible.
As aptly held by the Labor Arbiter, the NLRC and the Court of Appeals, it is very clear
from the CBA that when an employee or worker voluntarily resigns due to, among
others, “separation from the company without cause,” such as voluntary resignation,
then he is entitled to a separation pay.

Moreover, records show that petitioners granted the employees mentioned earlier their
separation pay upon their separation by reason of their retirement. Under the Labor
Code, retirement is not also a ground for the grant of separation pay. If petitioners could
be liberal to those employees who retired, there is no reason why they should not also
extend such liberality to respondent considering that she served petitioner for twenty
one years.

North Davao Mining vs. NLRC, 254 SCRA 721, GR 112546, Mar. 13,
1996
FACTS: North Davao Mining Corporation was incorporated in 1974 as a 100% privately-
owned company. As of December 31, 1990 the national government held 81.8% of the
common stock and 100% of the preferred stock of said company.
In May 1992, North Davao completely ceased operations due to serious business
reverses. When it ceased operations, its remaining employees were separated and
given the equivalent of 12.5 days’ pay for every year of service, computed on their basic
monthly pay.
However, it appears that, during the life of the petitioner corporation, from the beginning
of its operations in 1981 until its closure in 1992, it had been giving separation pay
equivalent to 30 days’ pay for every year of service.
Subsequently, a complaint was filed with respondent LA by respondent Guillema and
271 other seperated employees for additional separation pay of 17.5 days for every
year of service, among others.
ISSUE: Is a company which is forced by huge business losses to close its business,
legally required to pay separation benefits to its employees at the time of its closure in
an amount equivalent to the separation pay paid to those who were separated when the
company was still a going concern?
HELD: NO
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 under-taking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on the workers and
the Ministry of Labor and Employment at least 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 1 month pay or to at least 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 1 month pay or at
least ½ month pay for every year of service, whichever is higher. A fraction of at least 6
months shall be considered whole year.”
The underscored portion of Art. 283 governs the grant of sepAration benefits “in case of
closures or cessation of operation” of business establishments “NOT due to serious
business losses or financial reverses x x x”. Where, however, the closure was due to
business losses – as in the instant case, in which the aggregate losses amounted to
over P20 billion – the Labor Code does not impose any obligation upon the employer to
pay separation benefits, for obvious reasons.
In the instant case, the company’s practice of giving one month’s pay for every year of
service could no longer be continued precisely because the company could not afford it
anymore. It was forced to close down on account of accumulated losses of over P20
billion. North Davao gave 30-days’ separation pay to its employees when it was still a
going concern even if it was already losing heavily. As a going concern, its cash flow
could still have sustained the payment of such separation benefits. But when a
business enterprise completely ceases operations, i.e., upon its death as a going
business concern, its vital lifeblood -its cashflow – literally dries up. Therefore, the fact
that less separation benefits were granted when the company finally met its business
death cannot be characterized as discrimination. Such action was dictated not by a
discriminatory management option but by its complete inability to continue its business
life due to accumulated losses. Indeed, one cannot squeeze blood out of a dry stone.
Nor water out of parched land.
NOTES:
Even if the national government owned or controlled 81.8% of the common stock and
100% of the preferred stock of North Davao, it remains only a stockholder thereof, and
under existing laws and prevailing jurisprudence, a stockholder as a rule is not directly,
individually and/or personally liable for the indebtedness of the corporation. The
obligation of North Davao cannot be considered the obligation of the national
government, hence, whether the latter be solvent or not is not material to the instant
case. The respondents have not shown that this case constitutes one of the instances
where the corporate veil may be pierced. From another angle, the national government
is not the employer of private respondent and his co-complainants, so there is no
reason to expect any kind of bailout by the national government under existing law and
jurisprudence.

Tan vs Timbal, 434 SCRA 381, GR 141926, July 14, 2004

Brion vs. South Philippine, 307 SCRA 497, GR 135136, May 19, 1999

Sta. Catalina vs. NLRC, 416 SCRA 233, GR 144483, Nov. 19, 2003

FACTS:
In June 1955, Hilaria was hired as an elementary school teacher at the Sta. Catalina
College. In 1970, she applied for and was granted a one year leave of absence without
pay on
account of the illness of her mother. After the expiration in 1971 of her leave of
absence, she
had not been heard from by Sta. Catalina College. In the meantime, she was employed
as a
teacher at the San Pedro Parochial School during school year 1980-1981 and at the
Liceo de San
Pedro, Biñan, Laguna during school year 1981-1982.
In 1982, she applied anew at petitioner school which hired her. On March 1997, during
the 51st Commencement Exercises of petitioner school, Hilaria was awarded a Plaque
of
Appreciation for thirty years of service and P12,000.00 as gratuity pay. On May 1997,
Hilaria
reached the compulsory retirement age of 65. Retiring pursuant to Article 287 of the
Labor
Code, as amended by Republic Act 7641, petitioner school pegged her retirement
benefits at
P59,038.35, computed on the basis of fifteen years of service from 1982 to 1997. Her
service
from 1955 to 1970 was excluded in the computation, petitioner school having asserted
that she
had, in 1971, abandoned her employment. Hilaria insisted, that her retirement benefits
should
be computed on the basis of her thirty years of service, inclusive of the period from
1955 to
1970 and that the gratuity pay earlier given to her should not be deducted there from.
The parties having failed to agree on how the retirement benefits should be computed,
Hilaria filed a complaint before the NLRC for non-payment of retirement benefits. Labor
Arbiter
rendered ordering the respondents to pay the complainant the amount of P18,185.26
only as
the differential of her retirement benefits.
ISSUE:
Whether or not Hilaria's services for the school during the period from 1955 to 1970
should be factored in the computation of her retirement benefits.
RULING:
Hilaria cannot be credited for her services in 1955-1970 in the determination of her
retirement benefits. This Court is not unmindful of Hilaria's rendition of a total of thirty
years of
teaching in petitioner school and should be accorded ample support in her twilight
years.
Petitioner school in fact acknowledges her dedicated service to its students. She can,
however,
only be awarded with what she is rightfully entitled to under the law.

146

Retirement benefits, on the other hand, are intended to help the employee enjoy the
remaining years of his life, releasing him from the burden of worrying for his financial
support,
and are a form of reward for his loyalty to the employer.
In Hilaria's case, her retirement pay as computed by petitioners amounts to P59,038.35,
P28,853.09 of which had already been given to her under the PERAA. Since the
computed
amount of her retirement pay is much lower than that provided under the law, she is
entitled to
receive the difference between the actual amount of her retirement benefits as required
by law
and that provided for under the PERAA.
Article 287 of the Labor Code, as amended by Republic Act 7641 or the New
Retirement
Law, provides: Retirement. — Any employee may be retired upon reaching the
retirement age
established in the collective bargaining agreement or other applicable employment
contract. In
case of retirement, the employee shall be entitled to receive such retirement benefits as
he may
have earned under existing laws and any collective bargaining agreement and other
agreements: Provided, however, That an employee's retirement benefits under any
collective
bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years
or
more, but not beyond sixty-five (65) years which is hereby declared the compulsory
retirement
age, who has served at least five (5) years in the said establishment, may retire and
shall be
entitled to retirement pay equivalent to at least one-half (½) month salary for every year
of
service, a fraction of at least six (6) months being considered as one whole year.
Unless the parties provide for broader inclusions, the term one half (½) month salary
shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash
equivalent of not more than five (5) days of service incentive leaves.
Likewise, Section 3.3, Rule II of the Rules Implementing R.A. 7641 provides: 3.3. Where
both the employer and the employee contribute to a retirement fund in accordance with
an
individual or collective agreement or other applicable employment contract, the
employer's
total contribution thereto shall not be less than the total retirement benefits to which the
employee would have been entitled had there been no such retirement fund. In case the
employer's contribution is less than the retirement benefits provided under this Rule, the
employer shall pay the difference.
Hence, Hilaria is entitled to receive P98,706.45 computed as follows:
One-half month salary
= (15 days x latest salary per day) + (5 days leave x
latest salary per day) + (1/12 of 13th month pay)
= P4,512.30 + P1,504.10 + P547.33
= P6,563.73
Retirement Pay

= number of years in service x one-half month salary

= 5 years x P6,580.43
= P98,455.95

Since petitioner school had already paid Hilaria P28,853.09 representing employer
contributions under the PERAA, the same should be deducted from the retirement pay
due her,
to thereby leave a balance of P69,602.86 still due her.

147