Management Prerogative

Concept of the doctrine of management prerogative

Under the doctrine of management prerogative, every employer has the right to regulate, according to
his own discretion and judgment, all aspects of employment, including hiring, work assignments,
working methods, the time, place and manner of work, work supervision, transfer of employees, lay-off
of workers, and discipline dismissal and recall of employees. The only limitations to the exercise of this
prerogative are those imposed by labor laws and the principle of equity and substantial justice. (Pekson
v. Supermarket, Corp., G.R. No. 198534)

Limitations on the exercise of management prerogative.

1. Special laws such as labor laws

2. Principles of equity and substantial justice
3. Principles of fair play and justice
4. Collective bargaining agreement
5. Employment contract
6. Employer policy and practice
7. Good faith
8. Subject to state’s inherent police power
9. Must be exercised without grave abuse of discretion

A. Discipline

Concept of right to discipline

The employer’s right to conduct the affairs of its business includes the prerogative to instill discipline
among its employees and to impose reasonable penalties including dismissal, upon erring employees.
The employer has the right to dismiss and the right to choose the penalty to impose.

Proportionality rule

The employer could validly impose appropriate penalties upon erring workers pursuant to its company
rules and regulations. The penalty must be commensurate with the act, conduct or omission imputed to
the employee and imposed in connection with the employer’s disciplinary authority. Dismissal should
not be imposed if it is unduly harsh and grossly disproportionate to the charges.

B. Transfer of employees

The right to transfer covers movement of personnel in terms of reorganization, promotion, and
demotion.

Promotion is the advancement from one position to another with an increase in duties and
responsibilities, and usually accompanied by an increase in salar.
Demotion involves a situation where an employee, is relegated to a subordinate or less important
position constituting reduction to a lower grade or rank, with a corresponding decrease in duties and
responsibilities, and usually accompanied by a decrease in salary.

An increase in salary is not determinative of promotion, merely incidental.

The employer has the right to demote and transfer an employee who has failed to observe proper
diligence in his work and incurred habitual tardiness and absences and indolence in his assigned work.

The employer is charged with the burden of proving that its conduct and actions are for valid and
legitimate grounds. The following are legitimate grounds:

1. Genuine business necessity

2. The transfer is part of the employment contract
3. The nature of the employee’s job

2 types of transfer:

1. Transfer from one position to another of equivalent rank, level or salary, without a break in
the service; or
2. Transfer from one office to another within the same business establishment

The employee’s right to security of tenure does not give him such a vested right in his position as would
deprive the company of its prerogative to change his assignments or transfer him where he will be most
useful. When his transfer is not unreasonable, or inconvenient, or prejudicial to him, and it does not
involve a demotion in rank or a diminution of his salaries, benefits and other privileges, the employee
may not complain that it amounts to a constructive dismissal (Phil. Japan Active Carbon Corp. v. NLRC,
253 Phil. 149 [1989])

C. Productivity standards

The employer has the right to prescribe productivity standards or quota which the employees
should comply. These standards may be used as an incentive or as a disciplinary measure. If an
employee was able to attain his work goals, the management may provide some incentive benefits.
However, failure to observe the prescribed standards of work, because of inefficiency, may
constitute just cause for dismissal.

An employee’s failure to meet sales or work quotas fall under the concept of gross inefficiency,
which in turn is analogous to gross neglect of duty that is a just cause for dismissal under Art. 297
of the Labor Code. The productivity standard imposed must be exercised in good faith for the
advancement of interest.

D. Bonus

Bonus is an amount granted and paid ex gratia to the employee. In general it is not demandable and
is a matter of privilege. However bonus may become demandable under any of the following
circumstances:

1. When it is stipulated in an employment contract or CBA;

2. When the grant of bonus is a company policy or practice;
3. When it is granted as an additional compensation which the employer agreed to give not
contingent on profit becomes a part of a wage; therefore, a demandable obligation.