RETRENCHMENT AND REDUNDANCY: ILLEGAL DISMISSAL

RETRENCHMENT AND REDUNDANCY
G.R. No. 173231 December 28, 2007
RUBEN L. ANDRADA, BERNALDO V. DELOS SANTOS, JOVEN M. PABUSTAN, FILAMER

ALFONSO, VICENTE A. MANTALA, JR., HARVEY D. CAYETANO, and JOVENCIO L.
POBLETE, Petitioners,
vs.
NATIONAL LABOR RELATIONS VELASCO, JR., COMMISSION, SUBIC LEGEND RESORTS
AND CASINO, INC., and/or MR. HWA PUAY, MS. FLORDELIZA MARIA REYES RAYEL, and
its CORPORATE OFFICERS,Respondents.
DECISION
VELASCO, JR., J.:
To provide full protection to labor, the employers’ prerogative to bring down labor costs through
retrenchment must be exercised carefully and essentially as a measure of last resort. So should
managements’ prerogative to declare the employees’ services redundant not be used a weapon
to frustrate labor. This case brings to fore the continuing labor-management struggle for mutual
survival.
Petitioners Ruben Andrada, Jovencio Poblete, Filamer Alfonso, Harvey Cayetano, Vicente
Mantala, Jr., Bernaldo delos Santos, and Joven Pabustan were hired on various dates from 1995
up to 1997 and worked as architects, draftsmen, operators, engineers, and surveyors in the Subic
Legend Resorts and Casino, Inc. (Legend) Project Development Division on various projects.
Hwa Puay, Flordeliza Maria Reyes Rayel, and other corporate officers are impleaded in this case
in their official capacities as officers of Legend.
On January 6, 1998, Legend sent notice to the Department of Labor and Employment of its
intention to retrench and terminate the employment of thirty-four (34) of its employees, which
include petitioners, in the Project Development Division. Legend explained that it would be
retrenching its employees on a last-in-first-out basis on the strength of the updated status report
of its Project Development Division, as follows: (1) shelving of the condotel project until economic
conditions in the Philippines improve; (2) completion of the temporary casino in Cubi by mid-
February 1998; (3) subcontracting the super structure work of Grand Legend to a third party; (4)
completion of most of the rectification work at the Legenda Hotel; (5) completion of the temporary
casino in Cubi; and (6) abolition of the Personnel and Administrative Department of the Project
Development Division and transfer of its function back to Legend’s Human Resources
Department.
The following day, on January 7, 1998, Legend sent the 34 employees their respective notices of
retrenchment, stating the same reasons for their retrenchment. It also offered the employees the
following options, to wit:
1. Temporary retrenchment/lay-off for a period not to exceed six months within which we
shall explore your possible reassignment to other departments or affiliates, after six
months and redeployment and/or matching are unsuccessful, permanent retrenchment
takes place and separation pay is released.
2. Permanent retrenchment and payment of separation pay and other benefits after the
thirty (30) days notice has lapsed; or
3. Immediate retrenchment and payment of separation pay, benefits and one month’s
salary in lieu of notice to allow you to look for other employment opportunities.1
Legend gave said employees a period of one week or until January 14, 1998 to choose their
option, with option number 2 (permanent retrenchment) as the default choice in case they failed
to express their preferences. After the employees made their choices, they also expressed their
reservation that their choice should not be deemed as waiver of their rights granted under the
Labor Code or their right to question the validity of their retrenchment should their separation
benefits not be settled by January 30, 1998.
Curiously, on the same day, the Labor and Employment Center of the Subic Bay Metropolitan
Authority advertised that Legend International Resorts, Inc. was in need of employees for
positions similar to those vacated by petitioners.2
Afterwards, on February 6, 1998, Legend informed the retrenched employees of their permanent
retrenchment and/or their options. Legend paid the retrenched employees their salaries up to
February 6, 1998, separation pay, pro-rated 13th-month pay, ex-gratia, meal allowance, unused
vacation leave credits, and tax refund. Petitioners, in turn, signed quitclaims but reserved their
right to sue Legend.
Subsequently, on March 3, 1998, 143 of the 34 retrenched employees filed before the Regional
Arbitration Branch of the National Labor Relations Commission (NLRC) in San Fernando City,
Pampanga, a complaint for illegal dismissal and money claims for the payment of their share in
the service charges, unused leaves, and their salaries for the unexpired portion of their respective
employment contracts, damages, and attorney’s fees against Legend and its officials, Hwa Puay
and Flordeliza Maria Reyes Rayel. The complaint was docketed as NLRC RAB III-03-9080-98.
Before the Labor Arbiter, complainants alleged that they were illegally dismissed because
Legend, after giving retrenchment as the reason for their termination, created new positions
similar to those they had just vacated. Legend, on the other hand, invoked management
prerogative when it terminated the retrenched employees; and said that complainants voluntarily
signed quitclaims so that they were already barred from suing Legend.
On February 7, 2000, the Labor Arbiter rendered a Decision, the fallo of which reads:
WHEREFORE, premises considered, respondents are hereby adjudged guilty of Illegal dismissal,
and they are ordered to immediately reinstate the complainants without loss of seniority rights
and to pay to them the following:
1. Ruben Andrada:
a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of
P14,300.00 and the same amount every month thereafter until reinstated ---------
P343,200.00
b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24
months) and the same amount every month thereafter until reinstated
-----------P19,200.00
c) 13th month pay for 2 years (1998 to 1999) ------ P28,600.00

d) 14th month pay for 2 years (1998 to 1999) ------ P28,600.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P519,600.00
2. Darryl Bautista:
P268,800.00
months) and the same amount every month thereafter until reinstated ----------
P19,200.00
T O T A L -------------------------------- P332,800.00
3. Jovencio Poblete
P288,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P455,200.00
4) Renato Pangilinan:
P408,000.00
P19,200.00

T O T A L -------------------------------- P495,200.00
5) Dario Rapada:
P240,000.00
P19,200.00
T O T A L -------------------------------- P299,200.00
6) Adrian Camacho:
P168,000.00
P19,200.00
T O T A L -------------------------------- P215,200.00
7) Marvin Samaniego:
P168,000.00
P19,200.00
T O T A L -------------------------------- P215,200.00
8) Filamer Alfonso:
P240,000.00
P19,200.00
T O T A L -------------------------------- P299,200.00
9) Milton Maravilla:
P312,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P483,200.00
10) Harvey Cayetano:
P192,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P343,200.00
11) Vicente Mantala, Jr.:
P132,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P273,200.00
12) Carlos Mananquil:
P720,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P959,200.00
13) Bernaldo delos Santos:
P444,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00

f) Service charge at P1,500.00 a month from May 15, 1996 to February 6, 2000 (44
months) and every month thereafter until reinstated
-------------------------------------- P72,000.00
T O T A L -------------------------------- P709,200.00
14) Joven Pabustan:
P240,000.00
P19,200.00
e) Damages -------------------------------------------- P100,000.00
T O T A L -------------------------------- P399,200.00
The respondents are further ordered to pay to the complainants attorney’s fees equivalent to ten
(10%) percent of the total award due the complainants. The payment of back salary, 13th month
pay and 14th month pay, meal allowance and service charge shall be computed up to the date of
the finality of this decision.
SO ORDERED.4
The Labor Arbiter stated that the documents submitted by Legend to justify the retrenchment of
its personnel were insufficient because the documents failed to show that Legend was suffering
from actual losses or that there was redundancy in the positions occupied by petitioners. The
Labor Arbiter also attributed bad faith on the part of Legend when it advertised openings for
positions similar to those occupied by the retrenched employees at the same time the
retrenchment program was being implemented.
The Labor Arbiter gave no evidentiary weight to complainants’ quitclaims because, according to
the Labor Arbiter, these quitclaims were part of the clearance forms prepared and imposed by
Legend on the retrenched employees before their clearances could be approved. The Labor
Arbiter also found that in the conference held on January 28, 1998 between complainants and
Legend’s management, complainants inscribed their reservations at the bottom of their clearance
forms, stating that they would accept Legend’s offer on the condition that they reserved the option
to later file their respective claims with the NLRC.
With regard to the issue of damages, the Labor Arbiter observed that complainants, who were
licensed professionals, had sufficiently proven that they suffered social humiliation and mental
trauma because their dismissal was clearly attended by bad faith and contrary to laws and public
policy. On account of Legend’s bad faith, the Labor Arbiter awarded attorney’s fees equivalent to
ten percent (10%) of the total amount awarded to complainants.
On April 7, 2000, Legend filed an appeal with the NLRC. Notably, its new counsel did not submit
his formal substitution as counsel. Complainants consequently filed their Memorandum on Appeal
with a prayer to declare the Labor Arbiter’s decision final. They aver that since there was no
formal substitution of counsel, Legend’s new counsel had no personality to file an appeal; and
because no appeal was perfected within the reglementary period, the Labor Arbiter’s decision
should be deemed final and executory.
After three years, the NLRC rendered its June 23, 2003 Decision which reversed the Labor
Arbiter. The NLRC held that the Labor Arbiter erred when he failed to consider the numerous
documents presented and submitted by Legend to prove that it was suffering from actual losses,
and that there was redundancy in the work of the retrenched employees. The NLRC also gave
credence to Legend’s claim that it was Yap Yuen Khong, and not Legend, who asked for Subic
Bay Metropolitan Authority’s help in recruiting personnel for Gaehin International Inc. (Gaehin) as
the sub-contractor for the construction of the Grand Legenda Hotel and Casino. The NLRC
observed that Gaehin was an entity distinct and separate from Legend.
With regard to the Labor Arbiter’s award of payment of service charges to Bernaldo delos Santos
and Carlos Mananquil, the NLRC held that the award was improper since delos Santos and
Mananquil’s employment contracts did not provide for the payment of service charges. According
to the NLRC, though they previously received this benefit, it was because of an error in the
administrative system; and since the benefits were paid by mistake, these did not ripen into a
company practice.
The NLRC likewise held that the Labor Arbiter erred when it awarded the retrenched employees
14th month pay, or ex-gratia payment. The NLRC explained that this was a one-time bonus for
the year 1997 given for the employees’ hard work and contribution for the year 1997. Further, no
evidence suggested that this was done in the past or subsequent years.
The NLRC also held that Legend fully and properly complied with the 30-day notice requirements
to the DOLE and to the retrenched employees.
The NLRC Decision’s fallo reads:
WHEREFORE, premises considered, the assailed decision is hereby reversed and set aside.
Respondents are adjudged not guilty of illegal dismissal. The order of reinstatement as well as all
monetary awards are deleted from the decision.
SO ORDERED.5
Complainants moved for the reconsideration of the NLRC’s Decision, but their motion was denied
by the NLRC. Consequently, 106 out of the 147 original complainants filed a Petition for Certiorari
with the Court of Appeals (CA), docketed as CA-G.R. SP No. 81701. This petition was, however,
denied by the CA for lack of merit in its April 28, 2006 Decision.8
The CA held that the retrenched employees were validly dismissed from employment due to
redundancy and not retrenchment. The CA ratiocinated that Legend had validly terminated the
employment of its employees since it had proven that complainants’ positions were superfluous
and that there was an oversupply of employees; more than what its projects needed.
On the issue of Legend’s recruitment of new personnel after terminating complainants’

employment, the CA held that the NLRC had sufficiently explained that it was not Legend but
Gaehin, through Mr. Khong, which was recruiting for personnel.
Aggrieved by the CA Decision, seven9 out of the 14 original complainants filed the present
petition. They raise the following issues:
1. Did Legend perfect its appeal before the NLRC, though it had not formally and properly
substituted its counsel?
2. Were complainants illegally dismissed? Corrollarily, was there a valid retrenchment?

Or, did Legend prove the existence of redundancy in its Project Development Division?
Petitioners argue that the Labor Arbiter’s decision should be deemed final and executory since
Legend failed to formally substitute its counsel, and, thus, failed to perfect its appeal.
Legend, on the other hand, relies heavily on the CA’s ruling, which held that lack of proper
substitution is not a sufficient ground to arrive at a finding of grave abuse of discretion. Even
without substitution, private respondent’s new lawyer could still be considered a collaborating
counsel. A party may have two or more lawyers working in collaboration in a given litigation.
We rule for Legend.
The CA correctly held in this case that Legend perfected its appeal, albeit, through a new
counsel. It has long been settled that the NLRC is not bound by the strict technical rules of
procedure of the Rules of Court. The CA had correctly held that as a general rule, our policy
towards invocation of the right to appeal has been one of liberality, since it is an essential part of
the judicial system. In line with this principle, courts have been advised to proceed with caution so
as not to deprive a party of the right to appeal. Every party litigant should be given the amplest
opportunity for the proper and just disposition of his/her cause freed from the constraints of
technicalities. Thus, the NLRC did not commit grave abuse of discretion when it decided the case
on the merits instead of dismissing the appeal on a mere technicality.
With regard to the issue of the legality of the dismissals, petitioners argue that Legend failed to
prove the legal and factual existence of the cause for dismissal, and that it failed to comply with
the requirements for the implementation of retrenchment. Petitioners further argue that the CA
abused its discretion in ruling that the employees were validly dismissed not because of
retrenchment but for redundancy. Legend, in contrast, relies on its management prerogative to
justify the termination of petitioners’ employment. Legend also relies on the CA’s ruling that
Legend sufficiently proved the existence of redundancy that justified petitioners’ dismissal from
service.
On this issue, we rule for petitioners.
A company’s exercise of its management prerogatives is not absolute. It cannot exercise its
prerogative in a cruel, repressive, or despotic manner. We held in F.F. Marine Corp. v. NLRC:
This Court is not oblivious of the significant role played by the corporate sector in the country’s
economic and social progress. Implicit in turn in the success of the corporate form in doing
business is the ethos of business autonomy which allows freedom of business determination with
minimal governmental intrusion to ensure economic independence and development in terms
defined by businessmen. Yet, this vast expanse of management choices cannot be an unbridled
prerogative that can rise above the constitutional protection to labor. Employment is not merely a
lifestyle choice to stave off boredom. Employment to the common man is his very life and blood,
which must be protected against concocted causes to legitimize an otherwise irregular
termination of employment. Imagined or undocumented business losses present the least
propitious scenario to justify retrenchment.10
Under the Labor Code, retrenchment and redundancy are authorized causes for separation from
service. However, to protect labor, dismissals due to retrenchment or redundancy are subject to
strict requirements under Article 283 of the Labor Code, to wit:
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 establishment or undertaking unless the closing is for the purpose of circumventing
the provisions of this Title by serving a written notice on the worker and the 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 separation pay equivalent to at least his one (1) month pay or 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 as one (1) whole year.
Retrenchment is an exercise of management’s prerogative to terminate the employment of its

employees en masse, to either minimize or prevent losses, or when the company is about to
close or cease operations for causes not due to business losses.
In Lopez Sugar Corporation v. Federation of Free Workers,11 this Court had the opportunity to lay
down the following standards that a company must meet to justify retrenchment to prevent abuse
by employers:
Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss
purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and
inconsequential in character, the bona fide nature of retrenchment would appear to be seriously
in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such
imminence can be perceived objectively and in good faith by the employer. There should, in other
words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse
with serious consequences for the livelihood of the employees retired or otherwise laid-off.
Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary
and likely to effectively prevent the expected losses. The employer should have taken other
measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs other than labor
costs. An employer who, for instance, lays off substantial numbers of workers while continuing to
dispense fat executive bonuses and perquisites or so-called "golden parachutes," can scarcely
claim to be retrenching in good faith to avoid losses. To impart operational meaning to the
constitutional policy of providing "full protection" to labor, the employer’s prerogative to bring
down labor costs by retrenching must be exercised essentially as a measure of last resort, after
less drastic means – e.g., reduction of both management and rank-and-file bonuses and salaries,
going on reduced time, improving manufacturing efficiencies, trimming of marketing and
advertising costs, etc. – have been tried and found wanting.
Lastly, but certainly not the least important, 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 quantum of proof is readily apparent: any less exacting standard of
proof would render too easy the abuse of this ground for termination of services of employees.
In Ariola v. Philex Mining Corporation,12 the Court summarized the requirements for retrenchment,
as follows:
Thus, the requirements for retrenchment are: (1) it is undertaken to prevent losses, which 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) the employer serves
written notice both to the employees and the DOLE at least one month prior to the intended date
of retrenchment; and (3) the employer pays the retrenched employees separation pay equivalent
to one month pay or at least ½ month pay for every year of service, whichever is higher. The
Court later added the requirements that the employer must use fair and reasonable criteria in
ascertaining who would be dismissed and x x x retained among the employees and that the
retrenchment must be undertaken in good faith. Except for the written notice to the affected
employees and the DOLE, non-compliance with any of these requirements render[s] the
retrenchment illegal.
In the present case, Legend glaringly failed to show its financial condition prior to and at the time
it enforced its retrenchment program. It failed to submit audited financial statements regarding its
alleged financial losses. Though Legend complied with the notice requirements and the payment
of separation benefits to the retrenched employees, its failure to establish the basis for the
retrenchment of its employees constrains us to declare the retrenchment illegal.
However, the CA in its decision ruled that the petitioners were validly dismissed not for
retrenchment but for redundancy. The CA explained that Legend mistakenly used the term
retrenchment when all its reasons and justifications for the dismissal of its employees point to
redundancy.
Were petitioners’ positions redundant? Had Legend sufficiently established the fact of
redundancy?
Petitioners claim that the CA erred in concluding that Legend substantially established
redundancy as the authorized cause underlying their dismissal from service. They aver that
retrenchment and redundancy are not interchangeable, and both were not proven by Legend to
justify their dismissal.
Legend, on the other hand, claims that petitioners never refuted the causes for termination
contained in the notice of retrenchment. It further explains that it really had intended redundancy
as the basis for the termination of the employees, as seen in its arguments before the Labor
Arbiter, NLRC, and CA, where it claimed that before the retrenched employees were actually
dismissed, the retrenched employees were not doing any work; that the work of the Project
Development Division had already been completed and accomplished; and that the Engineering
Services Division and the Project Development Division performed overlapping functions. Legend
points out that it had really intended redundancy as the basis for the termination of the
employees, that is why it had paid one month’s pay instead of one-half month’s pay for every year
of service.
We rule that Legend failed to establish redundancy.
Retrenchment and redundancy are two different concepts; they are not synonymous and
therefore should not be used interchangeably. This Court explained in detail the difference
between the two concepts in Sebuguero v. NLRC:13
Redundancy exists where the services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise. A position is redundant where it is
superfluous, and superfluity of a position or positions may be the outcome of a number of factors,
such as over hiring of workers, decreased volume of business, or dropping of a particular product
line or service activity previously manufactured or undertaken by the enterprise.
Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is the
termination of employment initiated by the employer through no fault of the employee’s and
without prejudice to the latter, resorted to by management during periods of business recession,
industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders,
shortage of materials, conversion of the plant for a new production program or the introduction of
new methods or more efficient machinery, or of automation. Simply put, it is an act of the
employer of dismissing employees because of losses in the 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.
Thus, simply put, redundancy exists when the number of employees is in excess of what is
reasonably necessary to operate the business. The declaration of redundant positions is a
management prerogative. The determination that the employee’s services are no longer
necessary or sustainable and therefore properly terminable is an exercise of business judgment
by the employer. The wisdom or soundness of this judgment is not subject to the discretionary
review of the Labor Arbiter and NLRC.14
It is however not enough for a company to merely declare that positions have become redundant.
It must produce adequate proof of such redundancy to justify the dismissal of the affected
employees.15 In Panlilio v. NLRC,16 we said 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 another case, it was held that the company sufficiently established the fact of
redundancy through "affidavits executed by the officers of the respondent PLDT, explaining the
reasons and necessities for the implementation of the redundancy program."17
According to the CA, Legend proved the existence of redundancy when it submitted a status
review of its project division where it reported that the 78-man personnel exceeded the needs of
the company. The report further stated that there was duplication of functions and positions, or an
over supply of employees, especially among architects, engineers, draftsmen, and interior
designers.
We cannot agree with the conclusion of the CA.
The pieces of evidence submitted by Legend are mere allegations and conclusions not supported
by other evidence. Legend did not even bother to illustrate or explain in detail how and why it
1awphi1
considered petitioners’ positions superfluous or unnecessary. The CA puts too much weight on
petitioners’ failure to refute Legend’s allegations contained in the document it submitted.
However, it must be remembered that the employer bears the burden of proving the cause or
causes for termination. Its failure to do so would necessarily lead to a judgment of illegal
dismissal.
Again, it bears stressing that substantial evidence is the question of evidence required to
establish a fact in cases before administrative and quasi-judicial bodies. Substantial evidence, as
amply explained in numerous cases, is that amount of "relevant evidence which a reasonable
mind might accept as adequate to support a conclusion."18
Thus, in the same way, we held that the basis for retrenchment was not established by
substantial evidence, we also rule that Legend failed to establish by the same quantum of proof
the fact of redundancy; hence, petitioners’ termination from employment was illegal.
WHEREFORE, the petition is GRANTED. The April 28, 2006 Decision of the CA in CA-G.R. SP
No. 81701 and the June 23, 2003 Decision of the NLRC in NLRC NCR CA No. 024306-2000 are
hereby REVERSED and SET ASIDE. The February 7, 2000 Decision of Labor Arbiter Elias H.
Salinas in NLRC RAB III-03-9080-98 is hereby REINSTATED with the MODIFICATION that the
award for 14th-month pay or ex-gratia payment to all complainants in NLRC RAB III-03-9080-98
and the award for service charges to Bernaldo delos Santos and Carlos Mananquil are hereby
DELETED.
SO ORDERED.
5
Id. at 118.
Ruben Andrada, Bernaldo delos Santos, Carlos Mananquil, Jovencio Poblete, Dario
6
Rapada, Joven Pabustan, Harvey Cayetano, Milton Maravilla, Vicente Mantala, Jr., and
Filamer Alfonso.
7
Darryl Bautista, Renato Pangilinan, Marvin Samaniego, and Adrian Camacho were
unavailable at the time the petition for certiorari was filed before the CA.
Rollo, pp. 50-64. Penned by Presiding Justice Ruben T. Reyes (now a member of this
8
Court) and concurred in by Associate Justices Rebecca de Guia-Salvador and Aurora

Santiago-Lagman.
Ruben Andrada, Bernaldo delos Santos, Jovencio Poblete, Joven Pabustan, Harvey
9
Cayetano, Vicente Mantala, Jr., and Filamer Alfonso.
10
G.R. No. 152039, April 8, 2005, 455 SCRA 154, 164.
11
G.R. Nos. 75700-01, August 30, 1990, 189 SCRA 179, 186-187; citations omitted.
12
G.R. No. 147756, August 9, 2005, 466 SCRA 152, 170-171.
13
G.R. No. 115394, September 27, 1995, 248 SCRA 532, 542.
San Miguel Corporation v. Del Rosario, G.R. Nos. 168194 & 168603, December 13,
14
2005, 477 SCRA 604, 614.
15
Id. at 614-615.
16
G.R. No. 117459, October 17, 1997, 281 SCRA 53, 56.
17
Soriano v. NLRC, G.R. No. 165594, April 23, 2007.
18
Reno Foods, Inc. v. NLRC, G.R. No. 116462, October 18, 1995, 249 SCRA 379, 385.
G.R. No. 121314 February 12, 1998
EDGE APPAREL, INC., Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, Fourth

Division, Cebu City; Regional Arbitration Branch No. 7, Cebu City; and JOSEPHINE
ANTIPUESTO, NORINA ANDO, JULIET BAGUIO, APOLINARIA VELONTA, CORAZON PINO,
and JOSEPHINE CAÑETE, Respondents.

VITUG, J.:
Pursuing its retrenchment program, petitioner Edge Apparel, Inc., dismissed private respondents
Josephine Antipuesto, Norina Ando, Juliet Baguio, Apolinaria Velonta, Corazon Pino and Josephine
Cañete from employment effective 03 September 1992. Feeling aggrieved, Antipuesto, et al.,
consulted with the Regional Director of the Department of Labor and Employment ("DOLE") who
opined that it would be best for them to receive the separation pay being offered by the
corporation. His advice was heeded. The subsequent receipt of their separation pay benefits,
nevertheless, did not deter Antipuesto, et al., from later going through with their complaint for
illegal dismissal against the corporation. The charge averred that the retrenchment program was a
mere subterfuge used by Edge Apparel to give a semblance of regularity and validity to the
dismissal of the complainants.
Edge Apparel countered that its financial obligations, amounting to about P8 Million, had begun to
eat up most of its capital outlay and resulted in unabated losses of P681,280.00 in 1989,
P262,741.00 in 1990, P162,170.00 in 1991 and P749,294.00 in 1992, constraining the company to
adopt and implement a retrenchment program.
Satisfied with the legality of the retrenchment program, Labor Arbiter Nicasio C. Aniñon, on 20 June
1994, dismissed the complaint of Antipuesto, et al., against Edge Apparel.
Antipuesto, et al., appealed the decision of the Labor Arbiter to the National Labor Relations
Commission ("NLRC"). In their appeal, Antipuesto, et al., claimed that the documents submitted by
Edge Apparel to demonstrate its alleged losses had been "bloated" so as to reflect financial losses.
In its decision, promulgated on 26 April 1995, the NLRC held:
There is therefore basis in the retrenchment of these 27 workers .
We note however that these 27 workers were assigned to row #8 of the sewing line for simple
garments which was phased out due in fact to the dropping of this particular line of business.
Termination of an employee's services because of a reduction of work force due to a decrease in the
scope or volume of work of the employer is synonymous to, or a shade of termination because of
redundancy under Article 283 (formerly 284) of the Labor Code. Redundancy exist where the
services of an employee are in excess of what is reasonably demanded by the actual requirements
of the enterprise. A position is redundant where it is superfluous, and superfluity of a position or
positions may be the outcome of a number of factors, such as overhiring of workers, decreased
volume of business, or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise. (Tierra International Construction Corporation vs.
NLRC, 77 SCRA Vol. 211)
In case of termination due to the installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to at least one (1) month pay or to at least one month pay for
every year of service, which ever is higher. (Art. 283, Labor Code).
Under the circumstances obtaining in this case, the termination of the 27 retrenched employees is
considered a redundancy. Hence, the complainants, who were already paid the separation pay
equivalent to 1/2 month pay per year of service, are entitled to be paid the additional separation
pay equivalent to 1/2 month pay for every year of service.
WHEREFORE, the respondents are ordered to pay the complainants an additional separation pay
equivalent to 1/2 month pay for every year of service. The Decision of the Labor Arbiter is
AFFIRMED in all other respects.
SO ORDERED. 1
Edge Apparel filed a motion for a partial reconsideration of the above decision insofar as it awarded
"an additional separation pay equivalent to 1/2 month pay for every year of service" to the
complainants. In a resolution, dated 21 June 1995, the NLRC denied the motion; thus:
From the foregoing, it can clearly be gleaned that row #8 in which complainants were employed,
was phased out because respondent Company's "buyers had already ceased its orders for simple
style garments." This is similar to "dropping of a particular product line" or a "decrease in the
volume of business," two (2) of the reasons which justify the classification of positions as
redundant, as ruled in Tierra- International Construction Corporation vs. NLRC, 77 SCRA 211, cited
in Our decision.
Although the phasing out of row #8 was also caused by financial and business losses of respondent
company, the real and proximate cause thereof was the cessation of orders from respondent
Company's buyers.
We, therefore, rule, as We did in Our Decision, that the cause of termination of the employment of
the complainants was redundancy.
WHEREFORE, the Motion for Reconsideration of respondent is hereby DENIED, for lack of merit. 2
In its instant petition for certiorari and prohibition, Edge Apparel argues that -
RESPONDENT NLRC'S AWARD TO PRIVATE RESPONDENTS OF "ADDITIONAL SEPARATION PAY" IS

CONTRARY TO THE DOCTRINE LAID DOWN BY THIS HONORABLE COURT IN THE FACTUALLY-
SIMILAR CASE OF CAFFCO INTERNATIONAL LIMITED VS. OFFICE OF THE MINISTER-MINISTRY OF
LABOR AND EMPLOYMENT . 3
The employer has a right to dismiss employees for valid causes after proper observance of due
process. 4 These valid causes are categorized into two groups, i.e., "just" causes under Article 282
of the Labor Code and "authorized" causes under Articles 283 and 284 of the same code.
The just causes for termination of employment, enumerated in Article 282, include -
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer
or representative relative to his work; 5
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly
authorized representative; 6
(d) Commission of a crime or offense by the employee against the person of his employer or any
immediate member of his family or his duly authorized representative; 7 and
(e) Other causes analogous to the foregoing.
An employee who is terminated from employment for a just cause is not entitled to payment of
separation benefits. 8Section 7, Rule I, Book VI, of the Omnibus Rules Implementing the Labor Code
provides, thus:
Sec. 7. Termination of employment by employer. - The just causes for terminating the services of
an employee shall be those provided in Article 282 of the Code. The separation from work of an
employee for a just cause does not entitle him to the termination pay provided in Code, without
prejudice, however, to whatever rights, benefits and privileges he may have under the applicable
individual or collective bargaining agreement with the employer or voluntary employer policy or
practice.
Article 283, in turn, specifies the authorized causes for the termination of employment, viz:
(a) installation of labor-saving devices;
(b) redundancy;
(c) retrenchment to prevent losses; and
(d) closing or cessation of operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of law. 9
In addition, Article 284 provides that an employer would be authorized to terminate the services of
an employee found to be suffering from any disease if the employee's continued employment is
prohibited by law or is prejudicial to his health or to the health of his fellow employees.
The installation of labor-saving devices contemplates the installation of machinery to effect

economy and efficiency in its method of production. 10
Redundancy exists where the services of an employee are in excess of what would reasonably be
demanded by the actual requirements of the enterprise. 11 A position is redundant when it is
superfluous, and superfluity of a position or positions could be the result of a number of factors,
such as the overhiring of workers, a decrease in the volume of business or the dropping of a
particular line or service previously manufactured or undertaken by the enterprise.12 An employer
has no legal obligation to keep on the payroll employees more than the number needed for the
operation of the business. 13
Retrenchment, in contrast to redundancy, is an economic ground to reduce the number of

employees. In order to be justified, the termination of employment by reason of retrenchment must
be due to business losses or reverses which are serious, actual and real. 14 Not every loss incurred
or expected to be incurred by the employer will justify retrenchment, 15 since, in the nature of
things, the possibility of incurring losses is constantly present, in greater or lesser degree, in
carrying on the business operations. 16 Retrenchment is normally resorted to by management
during periods of business reverses and economic difficulties occasioned by such events as
recession, industrial depression, or seasonal fluctuations. 17 It is an act of the employer of reducing
the work force because of losses in the operation of the enterprise, lack of work, or considerable
reduction on the volume of business. 18 Retrenchment is, in many ways, a measure of last resort
when other less drastic means have been tried and found to be inadequate. 19 A lull caused by lack
of orders or shortage of materials must be of such nature as would severely affect the continued
business operations of the employer to the detriment of all and sundry if not properly addressed.
The institution of "new methods or more efficient machinery, or of automation" is technically a
ground for termination of employment by reason of installation of labor-saving devices but where
the introduction of these methods is resorted to not merely to effect greater efficiency in the
operations of the business but principally because of serious business reverses and to avert further
losses, the device could then verily be considered one of retrenchment.
The payment of separation pay would be due when a dismissal is on account of an authorized
cause. The amount of separation pay depends on the ground for the termination of employment. A
dismissal due to the installation of labor saving devices, redundancy (Article 283) or disease (Article
284), entitles the worker to a separation pay equivalent to "one (1) month pay or at least one (1)
month pay for every year of service, whichever is higher." When the termination of employment is
due to retrenchment to prevent losses, or to closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay is only an
equivalent of "one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher." In the above instances, a fraction of at least six (6) months is considered as
one (1) whole year.
In this case, the Labor Arbiter and the NLRC both concluded that there had been a valid ground for
the retrenchment of private respondents. The documents presented in evidence were found to
"conclusively show that (petitioner) suffered serious financial losses." 20 The general standards or
elements needed for the retrenchment to be valid - i.e., that the losses expected are substantial
and not merely de minimis in extent; that the expected losses are reasonably imminent such as can
be perceived objectively and in good faith by the employer; that the retrenchment is reasonably
necessary and likely to effectively prevent the expected losses; and that the imminent losses sought
to be forestalled are substantiated 21 - were adequately shown in the present case. The findings of
the Labor Arbiter and the NLRC would negate any impression that petitioner was guilty of bad faith
or misdoing in its retrenchment policy; the NLRC stated:
The complainants questioned the firm's financial statements which were made the bases to support
the validity of the retrenchment. The complainants pointed out in their appeal that while the gross
profit on sales increased by about 26% in 1989, expenses on representation and entertainment
increased by 45.65% in 1989. These expenses were manipulated, according to the complainants, to
justify the retrenchment of these 27 employees.
A perusal of the financial statements show that the company incurred recreation and entertainment
expenses as follows: 1988 - P385,711; 1989 - P561,816; 1990 - P261,120; 1991 - P327,081; and
1992 - P374,290 for a total of P1,910,018 in five (5) years or at an average of P382,003.60 per
year.
These 27 retrenched employees received a daily wage of P105 in 1992. Multiplying this daily wage
by 314 days will result in a yearly income of P32,970 per retrenched worker. To retain the services
of these 27 workers would cost the company P964,372.50 per annumjust to pay their basic wages
& 13th month pay.
It is therefore very clear, that the deletion of this annual entertainment & representation expense of
P382,003.60 and reallocate it for the budget on salaries and wages would not be sufficient to pay
the salaries of the 27 retrenched workers amounting to P964,372.50 as of 1992. 22
Procedurally, in order to validly effect retrenchment, the employer must observe two other
requirements, viz: (a) service of a prior written notice of at least one month on the workers and the
Department of Labor and Employment, and (b) payment of the due separation pay. 23 In the
decision of Labor Arbiter Nicasio C. Aniñon, affirmed by the NLRC, petitioner has been found to have
complied with the above requirements of the law, including the payment of separation pay
equivalent to at least one month pay or to one-half (1/2) month pay for every year of service,
whichever is higher, with a fraction of at least six months being considered one whole year. 24
The NLRC, unfortunately, went further by holding that the dismissal of private respondents could
likewise be considered to have been occasioned by redundancy since it was only private
respondents' line of work which was phased out by petitioner.
The Court agrees with the Solicitor General that here the NLRC has gravely abused its discretion.
The law acknowledges the right of every business entity to reduce its work force if such measure is
made necessary or compelled by economic factors that would otherwise endanger its stability or
existence. 25 In exercising its right to retrench employees, the firm may choose to close all, or a
part of, its business to avoid further losses or mitigate expenses. 26 In Caffco International Limited
vs. Office of the Minister-Ministry of Labor and Employment, 27 the Court has aptly observed that -
Business enterprises today are faced with the pressures of economic recession, stiff competition,
and labor unrest. Thus, businessmen are always pressured to adopt certain changes and programs
in order to enhance their profits and protect their investments. Such changes may take various
forms. Management may even choose to close a branch, a department, a plant, or a shop (Phil.
Engineering Corp. vs. CIR, 41 SCRA 89 [1971]). 28
Clearly, the fact alone that a mere portion of the business of an employer, not the whole of it, is
shut down does not necessarily remove that measure from the ambit of the term "retrenchment"
within the meaning of Section 283(c) of the Labor Code.
The Court, accordingly, must sustain the position taken by the Labor Arbiter that private
respondents should only be entitled to severance compensation equivalent to one-half (1/2) month
pay for every year of service.
WHEREFORE, the appealed decision, promulgated on 26 April 1995, is MODIFIED by deleting the
additional award of separation pay to private respondents decreed by the NLRC. No costs.
SO ORDERED.
Davide, Jr., Bellosillo, Panganiban and Quisumbing, JJ., concur.
Endnotes:
1 Rollo, pp. 19-20.
2 Rollo, p. 24.
3 Rollo, p. 7.
4 Sec. 1, Rule XIV, Book V, Omnibus Rules Implementing The Labor Code.
5 The misconduct committed by the employee must not only be serious but must be related to the
performance of the duties of the employee such as would show him to be thereby unfit to continue
working for the employer (Aris Philippines, Inc., vs. NLRC, 238 SCRA 59.).
The employee's willful violation of any order, regulation or instruction of his employer and his
representative would constitute a ground for termination of employment. The employer's order,
however, must be lawful, reasonable and in connection with the duties of the employee who must
be sufficiently apprised of the rules and regulations sought to be enforced.
6 Employers are given wide latitude of discretion in terminating employees for lack of trust and
confidence; however, being subjective, this ground requires adequate factual basis to support it
(See San Antonio vs. NLRC, et al., 250 SCRA 359.).
7 As a cause for termination of employment, commission of a crime or offense by the employee

against the person of his employer or any of immediate member of the family, or the duly
authorized representative of the latter, need not be coupled with conviction. The dropping of the
charges by the fiscal (Starlite Plastic Industrial Corp. vs. NLRC. 171 SCRA 315) or the acquittal of
the employee (Mercury Drug Corporation vs. NLRC, 177 SCRA 580) would not necessarily negate
the existence of lack of trust and confidence as a ground for dismissal.
8 See San Miguel Corporation vs. NLRC, 255 SCRA 580.
9 The closing or cessation of operation of the establishment or undertaking must be sufficiently

justified by the employer.
10 See Phil. Sheet Metal Workers' Union vs. Court of Industrial Relations, 83 Phil. 453.
11 Wiltshire File Co., Inc., vs. NLRC, 193 SCRA 665; AG & P United Rank and File Association vs.
NLRC, 265 SCRA 159.
12 American Home Assurance Co. vs. NLRC, 259 SCRA 280.
13 Wiltshire File Co., Inc., vs. NLRC, supra.

14 Guerrero vs. NLRC, 261 SCRA 301.
15 Ibid.
16 San Miguel Jeepney Service vs. NLRC, 265 SCRA 35.
17 See Sebuguero vs. NLRC, 248 SCRA 532, citing Jose Agaton Sibal, Philippine Legal
Encyclopedia, 502.
18 Ibid., citing LVN Pictures Employees and Workers Association vs. LVN Pictures, Inc., 35 SCRA
147 and Columbia Development Corp. vs. Minister of Labor and Employment, 146 SCRA 421.
19 Guerrero vs. NLRC, supra.
20 Rollo, p. 30.
21 Lopez Sugar Corporation vs. Federation of Free Workers, Philippine Labor Union Association
(PLUA-NACUSIP) and NLRC, 189 SCRA 179.
22 Rollo, pp. 18-19.
23 Catatista vs. NLRC, 247 SCRA 46.
24 Rollo, p. 30.
25 Balbalec vs. NLRC, 251 SCRA 398.
26 Catatista vs. NLRC, supra.
27 212 SCRA 351.
28 At p. 356.

RETRENCHMENT AND REDUNDANCY: ILLEGAL DISMISSAL

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RETRENCHMENT AND REDUNDANCY: ILLEGAL DISMISSAL

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RETRENCHMENT AND REDUNDANCY

G.R. No. 173231 December 28, 2007

RUBEN L. ANDRADA, BERNALDO V. DELOS SANTOS, JOVEN M. PABUSTAN, FILAMER

c) 13th month pay for 2 years (1998 to 1999) ------ P28,600.00

c) 13th month pay for 2 years (1998 to 1999) ------ P22,400.00

d) 14th month pay for 2 years (1998 to 1999) ------ P22,400.00

c) 13th month pay for 2 years (1998 to 1999) ------ P24,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P24,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P34,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P14,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P14,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P14,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P14,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P26,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P26,000.00

10) Harvey Cayetano:

c) 13th month pay for 2 years (1998 to 1999) ------ P16,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P16,000.00

c) 13th month pay for 2 years (1998 to 1999) ------ P11,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P11,000.00

12) Carlos Mananquil:

c) 13th month pay for 2 years (1998 to 1999) ------ P60,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P60,000.00

13) Bernaldo delos Santos:

c) 13th month pay for 2 years (1998 to 1999) ------ P37,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P37,000.00

e) Damages -------------------------------------------- P100,000.00

14) Joven Pabustan:

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

The NLRC Decision’s fallo reads:

On the issue of Legend’s recruitment of new personnel after terminating complainants’

2. Were complainants illegally dismissed? Corrollarily, was there a valid retrenchment?

We rule for Legend.

On this issue, we rule for petitioners.

ART. 283. CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. The

Retrenchment is an exercise of management’s prerogative to terminate the employment of its

We rule that Legend failed to establish redundancy.

We cannot agree with the conclusion of the CA.

Court) and concurred in by Associate Justices Rebecca de Guia-Salvador and Aurora

Cayetano, Vicente Mantala, Jr., and Filamer Alfonso.

2005, 477 SCRA 604, 614.

G.R. No. 121314 February 12, 1998

EDGE APPAREL, INC., Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, Fourth

In its decision, promulgated on 26 April 1995, the NLRC held:

There is therefore basis in the retrenchment of these 27 workers .

In its instant petition for certiorari and prohibition, Edge Apparel argues that -

RESPONDENT NLRC'S AWARD TO PRIVATE RESPONDENTS OF "ADDITIONAL SEPARATION PAY" IS

The just causes for termination of employment, enumerated in Article 282, include -

(b) Gross and habitual neglect by the employee of his duties;

(e) Other causes analogous to the foregoing.

(a) installation of labor-saving devices;

(c) retrenchment to prevent losses; and

The installation of labor-saving devices contemplates the installation of machinery to effect

Retrenchment, in contrast to redundancy, is an economic ground to reduce the number of

Davide, Jr., Bellosillo, Panganiban and Quisumbing, JJ., concur.

1 Rollo, pp. 19-20.

7 As a cause for termination of employment, commission of a crime or offense by the employee