ASAP VS.

PAL ET AL DIGEST
Case No. 32. October 2, 2009/ G.R. No. 178083-VD Balagat
Cabin crew personnel were covered by the retrenchment and demotion scheme of PAL due to
financial distress which is evidenced by proof of its claimed losses in a petition for suspension of
payments, as well as the Order of the Securities and Exchange Commission (SEC) approving
the said petition for suspension of payments, together with proof of summary of its debts and
other liabilities.
Exercising its management prerogative and sound business judgment, it decided to cut its fleet
of aircraft in order to minimize its operating losses and rescue itself from “total downfall;” which
meant that a corresponding company-wide reduction in manpower necessarily had to be made.
As a result, 5,000 PAL employees (including the herein 1,400 cabin attendants) were
retrenched.
PAL, however, gave a whole different reason for retrenchment when the pilots went on strike.
Accordingly, what really brought about “the really perilous situation of closure was that on June
5, 1998, the pilots went on strike, ninety (90%) per cent of the pilots went on strike,
approximately six hundred (600).” These pilots’ strike was so devastating x x x. Without any
pilots no plane can fly, your Honor, that is the stark reality of the situation, and without airplanes
flying, there would be no place for employment of cabin attendants.
Issue: Whether or not the strike, which PAL used as basis to undertake the massive
retrenchment under scrutiny, is an authorized cause.
Ruling: The strike was a temporary occurrence that did not necessitate the immediate and
sweeping retrenchment of 1,400 cabin or flight attendants.
There was no reason to drastically implement a permanent retrenchment scheme in response to
a temporary strike, which could have ended at any time, or remedied promptly, if management
acted with alacrity. Juxtaposed with its failure to implement the required cost-cutting measures,
the retrenchment scheme was a knee-jerk solution to a temporary problem that beset PAL at
the time.
PAL must still prove that it implemented cost-cutting measures to obviate retrenchment, which
under the law should be the last resort. By PAL’s own admission, however, the cabin personnel
retrenchment scheme was one of the first remedies it resorted to, even before it could complete
the proposed downsizing of its aircraft fleet.
The following elements under Article 283 of the Labor Code must concur or be present, to wit:
(1) That retrenchment is reasonably necessary and likely to prevent business losses which,
if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in good faith by the employer;
(2) That the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intended date of retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one (1)
month pay or at least one-half (½) month pay for every year of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to security of
tenure; and,
(5) That the employer uses fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for certain workers.
In the absence of one element, the retrenchment scheme becomes an irregular exercise of
management prerogative.
The retrenchment scheme under scrutiny was not triggered directly by any financial difficulty
PAL was experiencing at the time, nor borne of an actual implementation of its proposed
downsizing of aircraft.