G.R. No.
197384               January 30, 2013 during the probationary period, his attendance, performance and work
SAMPAGUITA AUTO TRANSPORT CORPORATION, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMMISSION and EFREN
I. SAGAD, Respondents.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari 1 in caption,
assailing the decision2 dated March 4, 2011 and the resolution 3 dated
June 13, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112760.
The Antecedents
In a complaint4 dated August 10, 2007, respondent Efren I. Sagad
charged the petitioner Sampaguita Auto Transport Corporation
(company); Andy Adagio, President and General Manager; Monina
Ariola Adagio, Vice-President and Finance Manager; Virgilio Olunan
(referred to as Olonan by Sagad), Operations Manager; and Gerry
Dimate, HRO Officer, with illegal dismissal and damages plus attorney's
fees.
Sagad alleged that on May 14, 2006, the company hired him as a regular
bus driver, not as a probationary employee as the company claimed. He
disowned his purported signature on the contract of probationary
Employment5 submitted in evidence by the company. He maintained
that his signature was forged. He further alleged that on November 5,
2006, he was dismissed by the company for allegedly conniving with
conductor Vitola in issuing tickets outside their assigned route.
The company countered that it employed Sagad as a probationary bus
driver (evidenced by a probationary employment contract 6) from May
14, 2006 to October 14, 2006; he was duly informed of his
corresponding duties and responsibilities.7 He was further informed that
attitude shall be evaluated to determine whether he would qualify for
regular employment. For this purpose and as a matter of company
policy, an evaluator was deployed on a company bus (in the guise of a
passenger) to observe the driver’s work performance and attitude.
Allegedly, on September 21, 2006, an evaluator boarded Sagad’s bus.
The evaluator described Sagad’s manner of driving as "reckless driver,
nakikipaggitgitan, nakikipaghabulan, nagsasakay sa gitna ng kalsada,
sumusubsob ang pasahero."8 Sagad disputed the evaluator’s
observations. In an explanation (rendered in Filipino),9 he claimed that
he could not have been driving as reported because his wife (who was
pregnant) and one of his children were with him on the bus. He admitted
though that at one time, he chased an "Everlasting" bus to serve warning
on its driver not to block his bus when he was overtaking. He also
admitted that once in a while, he sped up to make up for lost time in
making trips.
The company further alleged that on October 13, 2006, it conducted a
thorough evaluation of Sagad’s performance. It requested conductors
who had worked with Sagad to comment on his work. Conductors A.
Hemoroz and Israel Lucero revealed that Sagad proposed that they cheat
on the company by way of an unreported early bus trip. 10 Dispatcher E.
Castillo likewise submitted a negative report and even recommended the
termination of Sagad’s employment.11 The company also cited Sagad’s
involvement in a hit-and-run accident on September 9, 2006 along
Commonwealth Avenue in Quezon City while on a trip (bus with Plate
No. NYK-216 and Body No. 3094).12 Allegedly, Sagad did not report
the accident to the company.
On October 15, 2006, upon conclusion of the evaluation, the company
terminated Sagad’s employment for his failure to qualify as a regular
employee.13
The Compulsory Arbitration Rulings
In her decision dated May 8, 2008,14 Labor Arbiter Marita V. Padolina
dismissed the complaint for lack of merit. She ruled that the company
successfully proved that Sagad failed to qualify as a regular employee.
Labor Arbiter Padolina stressed that on October 15, 2006, the company
ordered Sagad not to work anymore as his probationary employment had
expired. While Sagad claimed that he worked until November 5, 2006,
she pointed out that "there is no record to show that he worked beyond
October 14, 2006."15
Sagad appealed the Labor Arbiter’s ruling. On July 10, 2009, the
National Labor Relations Commission (NLRC) rendered a
decision16 declaring that Sagad had been illegally dismissed. It held that
Sagad was not a probationary employee as the company failed to prove
by substantial evidence the due execution of Sagad’s supposed
probationary employment contract. It found credible Sagad’s submission
that his signature on the purported contract was a forgery. It opined that
his signature on the contract was "extremely different" from his
signatures in his pleadings and in other documents on record. Further,
the NLRC brushed aside the company memorandum dated October 15,
200617 supposedly terminating Sagad’s probationary employment as
there was no showing that the memorandum had been served on him.
The NLRC disregarded Sagad’s alleged infractions that served as
grounds for the termination of his employment, holding that his
dismissal was not based on these infractions but on his alleged
connivance with a conductor in defrauding the company. The NLRC
awarded Sagad backwages of ₱559,050.00 and separation pay of
₱45,000.00 in lieu of reinstatement, in view of the strained relations
between the parties resulting from the filing of the complaint.
Both parties moved for reconsideration of the NLRC decision, to no
avail. The company then elevated the case to the CA through a petition
for certiorari under Rule 65 of the Rules of Court.
The CA Decision
The CA, in its currently assailed decision, 18 affirmed the NLRC rulings
in toto, finding no grave abuse of discretion in the labor tribunal’s
reversal of the labor arbiter’s dismissal of the complaint. It found the
"genuineness of respondent’s signature on the employment contract is
tainted with doubt."19 It agreed with the NLRC that Sagad had been
illegally dismissed considering, as it noted, that the grounds the
company relied upon for the termination of Sagad’s employment were
not among the causes for a valid dismissal enumerated under Article 282
of the Labor Code. It added that even if it had been otherwise, the
company failed to comply with the twin-notice requirement in employee
dismissals.
The Petition
The company seeks the reversal of the appellate court’s decision through
the present appeal,20 and raises the following issues:
1. Whether it dismissed Sagad illegally; and
2. Whether Sagad is entitled to backwages and separation pay,
totaling ₱604,050.00, after working with the company for
barely five months.
The company insists that Sagad entered into a contract of probationary
employment with it. It was thus surprised with Sagad’s allegation that
his signature appearing in the contract was a forgery. It explained that
his signature on the contract is the same as his signatures on his
employment papers (which include the probationary employment
contract). In any event, it faults the NLRC for not considering other
pieces of evidence indicating Sagad’s actual employment status.
The company points out that one such piece of competent and
compelling evidence is Sagad’s admission of the nature of his
employment expressed in his letter dated October 16, 2006, addressed to
Adagio and Olunan.21 In this letter, he asked for another chance to work
with the company.
The company posits that with the letter, Sagad acknowledged that his
probationary employment had expired.22
The company maintains that it terminated Sagad’s employment in good
faith. They are not expected to follow the procedure for dismissing a
regular employee, as the NLRC opined, considering that Sagad was
merely on probation. Lastly, it contends that the award of backwages
and separation pay to Sagad amounting to ₱604,050.00 is unwarranted
and confiscatory since he worked for only five months. It laments that
the award would put a premium on reckless driving and would
encourage other drivers to follow Sagad’s example.
The company disputes the NLRC‘s basis for the award — Sagad’s
purported average daily commission of ₱1,000.00 — as non-existent.
They contend in this respect that the payslips Sagad submitted to the
NLRC rarely showed his daily commission to reach ₱1,000.00. It
explains that Sagad presented only one (1) payslip for November 2006,
five (5) for October 2006, one (1) each for July, August and September
2006. It posits that the company payrolls from June 29, 2006 to October
8, 2006 showed that his daily commissions were below ₱1,000.00.
The Case for Sagad
Through his Comment (on the Petition),23 Sagad asks that the petition be
denied due course. He presents the following arguments:
1. He was not a probationary employee. The signature on the
alleged probationary employment contract attributed to him was
not his; it was a forgery, as confirmed by the NLRC and the
CA. The same thing is true with the supposed letter (dated
October 16, 2006)24 in which he allegedly appealed to be given
another chance to work for the company. Not only was the
letter not in his handwriting (it allegedly belonged to Vitara, a
bus conductor of the company), the signature on the letter
attributed to him was also falsified.
2. On the assumption that he was a probationary employee, it is
not correct to say that he failed to qualify for regular
employment. The written statements of bus conductors
Hemoroz and Lucero25 regarding his alleged attempt to cheat on
the company are without probative value. The statements were
not under oath and the irregular acts he allegedly proposed
could only be done by the conductors.
The company’s claim that he figured in a "hit-and-run" accident on
September 9, 2006, which he allegedly did not report to management, is
not also correct. It was not his bus that was involved in the accident that
he duly reported to the management. Further, the company’s contention
that he drove recklessly on September 16, 2006 cannot be used to
support his dismissal as he had already been penalized for the incident
with a five-day suspension.26
Also, the company grounds in Castillo’s evaluation report 27 (that the
company relied upon to justify the non-renewal of his contract) are not
just causes for the termination of his employment as the CA correctly
ruled.
3. He was a regular employee. He continued to work as driver
until November 4, 2006. The company’s notice of termination
of his Employment28 was not served on him because no such
letter existed. If his probationary employment was to expire on
October 14, 2006, he asks: why was he evaluated only on
October 13 and 14, 2006 and why did the company serve him
the termination notice only on October 15, 2006, when he was
supposed to have been separated the previous day, October 14,
2006? He adds: when was the notice served on him that would
have prompted him to write the company a letter on October 16,
2006 to ask for a second chance? All these nagging questions,
he stresses, demonstrate the incredibility of the company’s
claim that he was a probationary employee.
4. He does not have to prove his denial that the signatures on
the above-mentioned documents were not really his. He posits
that evidence need not be given in support of a negative
 allegation and this is particularly true in dismissal cases where
the burden of proof is on the employer.
5. The petition suffers from a procedural defect as it raises only
questions of fact and not of law, in violation of Rule 45 of the
Rules of Court.
The Court’s Ruling
The procedural issue
This Court, as a rule, only reviews questions of law in a Rule 45 petition
for review. In labor cases, the factual findings of the labor arbiter and of
the NLRC are generally respected and, if supported by substantial
evidence, accorded finality. This rule, however, is not absolute. When
the factual findings of the CA conflict with those of the labor
authorities, the Court is forced to review the evidence on record.29
In this case, the labor arbiter’s factual conclusions, on the one hand, and
those of the NLRC and the CA, on the other hand, differ. The labor
arbiter found that Sagad was a probationary employee and was validly
dismissed for his failure to qualify for regular employment, whereas the
NLRC and the CA concluded that he was a regular employee and was
illegally dismissed. We thus find the need to review the facts in the
present labor dispute.
The merits of the case
After a review of the records, we are convinced that Sagad was
dismissed, not as a probationary employee, but as one who had attained
regular status. The company’s evidence on Sagad’s purported hiring as a
probationary employee is inconclusive. To start with, Sagad denied that
he entered into a probationary employment contract with the company,
arguing that the signature on the supposed contract was not his. 30 He also
denied receiving the alleged notice 31 terminating his probationary
employment. The same thing is true with his purported letter 32 asking
that he be given another chance to work for the company. He asserts that
not only is the letter not in his handwriting, the signature on the letter
was also not his.
The submissions of the parties on the issue created a doubt on whether
Sagad really entered into a probationary employment contract with the
company. The NLRC resolved the doubt in Sagad’s favor, ruling that
Sagad’s signature on the contract was not his, because it was a forgery.
It declared that his signature on the contract "is extremely different from
those in his pleadings and from the other documents on
record,"33 without explaining how and why the two sets of signatures
were vastly different. Lending further support to the NLRC conclusion,
which the CA upheld, is its finding that the company failed to refute
Sagad’s denial of his signature in the contract, which the labor tribunal
considered as an admission of the veracity of Sagad’s statement,
pursuant to the Rules of Court.34
Independently of the above discussion and even if we were to consider
that Sagad went through a probationary period, the records indicate that
he was retained even beyond the expiration of his supposed probationary
employment on October 14, 2006. As the NLRC noted, Sagad claimed
that he was dismissed by the company on November 5, 2006, after he
was accused of conniving with conductor Vitola in issuing tickets
outside their assigned route.
The company never refuted this particular assertion of Sagad and its
silence can only mean that Sagad remained in employment until
November 4, 2006, thereby attaining regular status as of that date. Under
the law, "an employee who is allowed to work after a probationary
period shall be considered a regular employee."35
Further, when the company questioned the payslips submitted by Sagad
to substantiate his claim that he earned on the average a daily
commission of ₱1,000.00, it pointed out that Sagad presented only one
(1) payslip for the whole month of November 2006, five (5) payslips for
the month of October 2006, and one (1) payslip each for the months of
July, August and September 2006.36 This seemingly harmless allegation
is significant in that it revealed that Sagad continued working until the
first week of November 2006 and was paid his salary for at least one
payroll period. Sagad, therefore, had become a regular employee when
he was dismissed on November 5, 2006.
Is Sagad’s dismissal illegal?
The NLRC and the CA ruled in the affirmative. The labor tribunal
opined that the infractions which Sagad allegedly committed and which
disqualified him from attaining regular status are "unavailing" with
respect to his dismissal because the dismissal was not based on those
infractions but on his alleged connivance with conductor Vitola to cheat
on the company.
The CA concurred with the NLRC but for a different reason. It declared
that the "grounds upon which petitioners based respondent’s termination
from employment, viz: ‘hindi lahat ng schedule nailalabas,’ ‘mababa
ang revenue ng bus, laging kasama ang asawa sa byahe’ and ‘maraming
naririnig na kwento tungkol sa kanya, nag-uutos ng conductor para
kumita sa hindi magandang paraan,’ xxx are not among those
enumerated under Article 282 of the Labor Code as just causes for
termination of employment."37 The CA added that on the assumption
that the cited grounds can be considered just causes, the company
nonetheless failed to comply with the twin-notice requirement for the
termination of Sagad’s employment.
We disagree with the finding that Sagad’s dismissal had no basis.
First. It is not disputed that the company called Sagad’s attention to his
negative actuations as a bus driver, which were reported by a company
evaluator38 who boarded his bus on September 21, 2006. The evaluator
reported that he was driving recklessly, racing and jostling for position
on the road, thereby jarring the passengers on their seats, and picking up
passengers on the middle of the road. He disputed the evaluator’s
observations,39 claiming that he could not have been driving as reported
because his pregnant wife and one of his children were with him on the
bus at the time. He admitted, however, that on one occasion, he chased
an "Everlasting" bus to warn its driver not to block him. He also
admitted that once in a while, he sped up to compensate for lost time in
his trips.
Sagad’s explanation reveals more than what it stated. During his brief
employment with the company, he exhibited the tendency to speed up
when he finds the need for it, very obviously in violation of traffic rules,
regulations and company policy. Instead of negating the evaluator’s
observations, his admissions make them credible.
Second. He was also asked to react to the comments of conductors who
had worked with him (Hemoroz and Lucero) to the effect that he
proposed to them that they cheat on the company by making early (but
not to be reported) bus trips. 40 Further, there was Castillo’s evaluation
dated
October 13, 2006,41 rating Sagad’s work performance as poor on account
of: (1) the low revenue of Sagad’s bus; (2) his inability to make all his
scheduled trips; and (3) his habit of bringing his wife with him on his
trips. Castillo also heard of talks of Sagad’s orders to the conductors to
earn money in a questionable way.
During the arbitration, Sagad disputed the conductors’ comments,
maintaining that they were not under oath and that the fraudulent
proposal they mentioned could only be committed by conductors. With
respect to Castillo’s evaluation, Sagad invoked the CA’s pronouncement
that the infractions mentioned in the report are not just causes for the
termination of his employment.
Sagad’s position fails to convince us. We find no evidence that Hemoroz
and Lucero had an ax to grind against Sagad so that they would lie about
their impression of him as a bus driver. Significantly, their statements
validate Castillo’s own observation that he heard talks of Sagad’s orders
to the conductors for them to cheat on the company. The scheme,
contrary to Sagad’s explanation, can only be committed with the
cooperation, or even at the behest, of the driver, as the proposed scheme
is for the bus to make unscheduled, but unreported, early trips.
Lastly, the company cites Sagad’s involvement in a hit-and-run incident
on September 9, 2006 while driving his assigned bus (with Plate No.
NYK-216 and Body No. 3094).42 Once more, he denies the charge,
claiming that it was not his bus, but two other vehicles, a Honda City
and an Elf truck, which figured in the incident. 43 To prove his point, he
submitted the "SALAYSAY"44 of his replacement driver, Carlito Laude,
for September 10, 2006, saying that there was no dents or scratches on
the bus.
Again, Sagad’s stance fails to persuade us. Sagad’s statements vis-à-vis
the incident, as well as those of Laude, are belied by the Traffic
Accident Investigation Report45 which mentioned the "Unidentified
driver of Public Utility Bus with plate No. NYK-216 and Body No.
3094." The report was corroborated by the sworn statements of Ronald
Apura, driver of the Elf truck, UFF-597, the second party in the
incident,46 and Bibiana Fuentes, driver of the White Honda City, WDV-
422 (owned by Purefoods Hormel Co.), the first party in the vehicular
accident. There was also the letter to the company of Standard Insurance
Co., Inc. dated February 14, 2007 47 demanding the reimbursement of
₱24,667.54 it paid to Purefoods Hormel Co. by way of damages
sustained by the Honda City.
Third. The CA misappreciated the law when it declared that the grounds
relied upon by the company in terminating Sagad’s employment are not
among those enumerated under Article 282 of the Labor Code as just
causes for employee dismissals.  Article 282 of the Code provides:
1âwphi1
Art. 282. Termination by employer. – An employer may terminate an
employment for any of the following causes:
(a) Serious misconduct or willful disobedience by the employee
of the lawful orders of his employer or representative in
connection with his work;
(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;
(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; and
(e) Other causes analogous to the foregoing. [emphasis
supplied]
The irregularities or infractions committed by Sagad in connection with
his work as a bus driver constitute a serious misconduct or, at the very
least, conduct analogous to serious misconduct, under the above-cited
Article 282 of the Labor Code. To be sure, his tendency to speed up
during his trips, his reckless driving, his picking up passengers in the
middle of the road, his racing with other buses and his jostling for
vantage positions do not speak well of him as a bus driver. While he
denies being informed, when he was hired, of the duties and
responsibilities of a driver — contained in a document submitted in
evidence by the company48 — the requirement "3. to obey traffic rules
and regulations as well as the company policies. 4. to ensure the safety
of the riding public as well as the other vehicles and motorist (sic)" 49 is
so fundamental and so universal that any bus driver is expected to
satisfy the requirement whether or not he has been so informed.
Sagad tries to minimize the adverse effect of the evaluator’s report of
September 21, 2006 about his conduct as a driver with the argument that
he had already been penalized with a five-day suspension for chasing an
"Everlasting" bus at one time. The suspension is of no moment. He was
penalized for one reckless driving incident, but it does not erase all the
other infractions he committed. The conductors’ comments and the
dispatcher’s evaluation, together with the earlier on-board evaluation, all
paint a picture of a reckless driver who endangers the safety of his
passengers, other motorists and the general public. With this record, it is
not surprising that he figured in a hit-and-run accident on September 9,
2006.
Under the circumstances, Sagad has become a liability rather than an
asset to his employer, more so when we consider that he attempted to
cheat on the company or could have, in fact, defrauded the company
during his brief tenure as a bus driver. This calls to mind Castillo’s
report on the low revenue of Sagad’s bus, an observation which is
validated by the company’s Daily Operation Reports from June to
October 2006.50

All told, we find substantial evidence supporting Sagad’s removal as a

bus driver. Through his reckless driving and his schemes to defraud the
company, Sagad committed serious misconduct and breach of the trust
and confidence of his employer, which, without doubt, are just causes
for his separation from the service. It is well to stress, at this point, an
earlier pronouncement of the Court "that justice is in every case for the
deserving, to be dispensed in the light of the established facts and
applicable law and doctrine."51

The twin-notice requirement

Even as we find a just cause for Sagad’s dismissal, we agree with the
CA that the company failed to comply with the two-notice rule. It failed
to serve notice of: (1) the particular acts for which Sagad was being
dismissed on November 5, 2006 and (2) his actual dismissal. Consistent
with our ruling in Agabon v. NLRC, 52 we hold that the violation of
Sagad's right to procedural due process entitles him to an indemnity in
the form of nominal damages. Considering the circumstances in the
present case, we deem it appropriate to award Sagad ₱30,000.00.

WHEREFORE, premises considered, the appeal is granted. The assailed

decision and resolution of the Court of Appeals are SET ASIDE. The
complaint is DISMISSED for lack of merit. Efren I. Sagad is awarded G.R. No. 178083               July 22, 2008
nominal damages of ₱30,000.00 for violation of his right to procedural
due process. FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF
THE PHILIPPINES (FASAP), Petitioner,
SO ORDERED. vs.
PHILIPPINE AIRLINES, INC., PATRIA CHIONG and COURT
OF APPEALS, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the Decision 1 of the Court
of Appeals (CA) dated August 23, 2006 in CA-G.R. SP No. 87956
which affirmed the National Labor Relations Commission’s (NLRC)
decision setting aside the Labor Arbiter’s findings of illegal
retrenchment and ordering the reinstatement of the retrenched Philippine
Airlines, Inc. (PAL) employee-members of petitioner Flight Attendants
and Stewards Association of the Philippines (FASAP), with payment of
backwages, moral and exemplary damages, and attorney’s fees. Also
assailed is the May 29, 2007 Resolution2 denying the motion for
reconsideration.
Petitioner FASAP is the duly certified collective bargaining
representative of PAL flight attendants and stewards, or collectively
known as PAL cabin crew personnel. Respondent PAL is a domestic
corporation organized and existing under the laws of the Republic of the
Philippines, operating as a common carrier transporting passengers and
cargo through aircraft.
On June 15, 1998, PAL retrenched 5,000 of its employees, including
more than 1,400 of its cabin crew personnel, to take effect on July 15,
1998. PAL adopted the retrenchment scheme allegedly to cut costs and
mitigate huge financial losses as a result of a downturn in the airline
industry brought about by the Asian financial crisis. During said period,
PAL claims to have incurred P90 billion in liabilities, while its assets
stood at P85 billion.3
In implementing the retrenchment scheme, PAL adopted its so-called
"Plan 14" whereby PAL’s fleet of aircraft would be reduced from 54 to
14, thus requiring the services of only 654 cabin crew personnel. 4 PAL
admits that the retrenchment is wholly premised upon such reduction in
fleet,5 and to "the strike staged by PAL pilots since this action also
translated into a reduction of flights."6 PAL claims that the scheme
resulted in "savings x x x amounting to approximately P24 million per
month – savings that would greatly alleviate PAL’s financial crisis."7
Prior to the full implementation of the assailed retrenchment program,
FASAP and PAL conducted a series of consultations and meetings and
explored all possibilities of cushioning the impact of the impending
reduction in cabin crew personnel. However, the parties failed to agree
on how the scheme would be implemented. Thus PAL unilaterally
resolved to utilize the criteria set forth in Section 112 of the PAL-
FASAP Collective Bargaining Agreement8 (CBA) in retrenching cabin
crew personnel: that is, that retrenchment shall be based on the
individual employee’s efficiency rating and seniority.
PAL determined the cabin crew personnel efficiency ratings through an
evaluation of the individual cabin crew member’s overall performance
for the year 1997 alone.9 Their respective performance during previous
years, i.e., the whole duration of service with PAL of each cabin crew
personnel, was not considered. The factors taken into account on
whether the cabin crew member would be retrenched, demoted or
retained were: 1) the existence of excess sick leaves; 2) the crew
member’s being physically overweight; 3) seniority; and 4) previous
suspensions or warnings imposed.10
While consultations between FASAP and PAL were ongoing, the latter
began implementing its retrenchment program by initially terminating
the services of 140 probationary cabin attendants only to rehire them in
April 1998. Moreover, their employment was made permanent and
regular.11
On July 15, 1998, however, PAL carried out the retrenchment of its
more than 1,400 cabin crew personnel.
Meanwhile, in June 1998, PAL was placed under corporate
rehabilitation and a rehabilitation plan was approved per Securities and
Exchange Commission (SEC) Order dated June 23, 1998 in SEC Case
No. 06-98-6004.12
On September 4, 1998, PAL, through its Chairman and Chief Executive (to) the suspension of the PAL-PALEA CBA for a period of ten
Officer (CEO) Lucio Tan, made an offer to transfer shares of stock to its (10) years, provided the following safeguards are in place:
employees and three seats in its Board of Directors, on the condition that
all the existing Collective Bargaining Agreements (CBAs) with its a. PAL shall continue recognizing PALEA as the duly
employees would be suspended for 10 years, but it was rejected by the certified bargaining agent of the regular rank-and-file
employees. On September 17, 1998, PAL informed its employees that it ground employees of the Company;
was shutting down its operations effective September 23, 1998, 13 despite
the previous approval on June 23, 1998 of its rehabilitation plan. b. The ‘union shop/maintenance of membership’
provision under the PAL-PALEA CBA shall be
On September 23, 1998, PAL ceased its operations and sent notices of respected.
termination to its employees. Two days later, PAL employees, through
the Philippine Airlines Employees Association (PALEA) board, sought c. No salary deduction, with full medical benefits.
the intervention of then President Joseph E. Estrada. PALEA offered a
10-year moratorium on strikes and similar actions and a waiver of some
5. PAL shall grant the benefits under the 26 July 1998
of the economic benefits in the existing CBA. Lucio Tan, however,
Memorandum of Agreement forged by and between PAL and
rejected this counter-offer.14
PALEA, to those employees who may opt to retire or be
separated from the company.
On September 27, 1998, the PALEA board again wrote the President
proposing the following terms and conditions, subject to ratification by
6. PALEA members who have been retrenched but have not
the general membership:
received separation benefits shall be granted priority in the
hiring/rehiring of employees.
1. Each PAL employee shall be granted 60,000 shares of stock
with a par value of P5.00, from Mr. Lucio Tan’s shareholdings,
7. In the absence of applicable Company rule or regulation, the
with three (3) seats in the PAL Board and an additional seat
provisions of the Labor Code shall apply.15
from government shares as indicated by His Excellency;
In a referendum conducted on October 2, 1998, PAL employees ratified
2. Likewise, PALEA shall, as far as practicable, be granted
the above proposal. On October 7, 1998, PAL resumed domestic
adequate representation in committees or bodies which deal
operations and, soon after, international flights as well.16
with matters affecting terms and conditions of employment;
Meanwhile, in November 1998, or five months after the June 15, 1998
3. To enhance and strengthen labor-management relations, the
mass dismissal of its cabin crew personnel, PAL began recalling to
existing Labor-Management Coordinating Council shall be
service those it had previously retrenched. Thus, in November
reorganized and revitalized, with adequate representation from
199817 and up to March 1999,18 several of those retrenched were called
both PAL management and PALEA;
back to service. To date, PAL claims to have recalled 820 of the
retrenched cabin crew personnel.19 FASAP, however, claims that only 80
4. To assure investors and creditors of industrial peace, PALEA were recalled as of January 2001.20
agrees, subject to the ratification by the general membership,
In December 1998, PAL submitted a "stand-alone" rehabilitation plan to
the SEC by which it undertook a recovery on its own while keeping its
options open for the entry of a strategic partner in the future.
Accordingly, it submitted an amended rehabilitation plan to the SEC
with a proposed revised business and financial restructuring plan, which
required the infusion of US$200 million in new equity into the airline.
On May 17, 1999, the SEC approved the proposed "Amended and
Restated Rehabilitation Plan" of PAL and appointed a permanent
rehabilitation receiver for the latter.21
On June 7, 1999, the SEC issued an Order confirming its approval of the
"Amended and Restated Rehabilitation Plan" of PAL. In said order, the
cash infusion of US$200 million made by Lucio Tan on June 4, 1999
was acknowledged.22
On October 4, 2007, PAL officially exited receivership; thus, our ruling
in Philippine Air Lines v. Kurangking23 no longer applies.
On June 22, 1998, FASAP filed a Complaint24 against PAL and Patria T.
Chiong25 (Chiong) for unfair labor practice, illegal retrenchment with
claims for reinstatement and payment of salaries, allowances and
backwages of affected FASAP members, actual, moral and exemplary
damages with a prayer to enjoin the retrenchment program then being
implemented. Instead of a position paper, respondents filed a Motion to
Dismiss and/or Consolidation with NCMB Case No. NS 12-514-97
pending with the Office of the Secretary of the Department of Labor and
Employment and/or Suspension and Referral of Claims to the interim
rehabilitation proceedings (motion to dismiss).26
On July 6, 1998, FASAP filed its Comment to respondents’ motion to
dismiss. On July 23, 1998, the Labor Arbiter issued an Order 27 denying
respondents’ motion to dismiss; granting a writ of preliminary
injunction against PAL’s implementation of its retrenchment program
with respect to FASAP members; setting aside the respective notices of
retrenchment addressed to the cabin crew; directing respondents to
restore the said retrenched cabin crew to their positions and PAL’s
payroll until final determination of the case; and directing respondents to
file their position paper.
Respondents appealed to the NLRC which reversed the decision of the
Labor Arbiter. The NLRC directed the lifting of the writ of injunction
and to vacate the directive setting aside the notices of retrenchment and
reinstating the dismissed cabin crew to their respective positions and in
the PAL payroll.28
FASAP filed its Position Paper 29 on September 28, 1999. On November
8, 1999, respondents filed their Position Paper 30 with counterclaims
against FASAP, to which FASAP filed its Reply. 31 Thereafter, the
parties were directed to file their respective Memoranda.32
Meanwhile, instead of being dismissed in accordance with the
Kurangking case, the FASAP case (NLRC-NCR Case No. 06-05100-98)
was consolidated with the following cases:
1. Ramon and Marian Joy Camahort v. PAL, et al. (NLRC-
NCR Case No. 00-07-05854-98);
2. Erlinda Arevalo and Chonas Santos v. PAL, et al. (NLRC-
NCR Case No. 00-07-09793-98); and
3. Victor Lanza v. PAL, et al. (NLRC-NCR Case No.00-04-
04254-99).
On July 21, 2000, Labor Arbiter Jovencio Ll. Mayor rendered a
Decision,33 the dispositive portion of which reads, as follows:
WHEREFORE, premises considered, this Office renders judgment
declaring that Philippine Airlines, Inc., illegally retrenched One
Thousand Four Hundred (1,400) cabin attendants including flight
pursers for effecting the retrenchment program in a despotic and
whimsical manner. Philippine Airlines, Inc. is likewise hereby ordered
to:
 1. Reinstate the cabin attendants retrenched and/or demoted to
their previous positions;
2. Pay the concerned cabin attendants their full backwages from
the time they were illegally dismissed/retrenched up to their
actual reinstatements;
3. Pay moral and exemplary damages in the amount of Five
Hundred Thousand Pesos (P500,000.00); and
4. Ten (10%) per cent of the total monetary award as and by
way of attorney’s fees.
SO ORDERED.34
Respondents appealed to the NLRC. Meanwhile, FASAP moved for the
implementation of the reinstatement aspect of the Labor Arbiter’s
decision. Despite respondents’ opposition, the Labor Arbiter issued a
writ of execution with respect to the reinstatement directive in his
decision. Respondents moved to quash the writ, but the Labor Arbiter
denied the same. Again, respondents took issue with the NLRC.
Meanwhile, on May 31, 2004, the NLRC issued its Decision 35 in the
appeal with respect to the Labor Arbiter’s July 21, 2000 decision. The
dispositive portion thereof reads:
WHEREFORE, premises considered, the Decision dated July 21, 2000
is hereby SET ASIDE and a new one entered DISMISSING the
consolidated cases for lack of merit.
With respect to complainant Ms. Begonia Blanco, her demotion is
hereby declared illegal and respondent PAL is ordered to pay her salary
differential covering the period from the time she was downgraded in
July 1998 up to the time she resigned in October 1999.
Respondent PAL is likewise ordered to pay the separation benefits to
those complainants who have not received their separation pay and to
pay the balance to those who have received partial separation pay.
The Order of the Labor Arbiter dated April 6, 2000 is also SET ASIDE
and the Writ of Execution dated November 13, 2000 is hereby quashed.
Annexes "A" and "B" are considered part of this Decision.
SO ORDERED.36
FASAP moved for reconsideration but it was denied; hence it filed an
appeal to the Court of Appeals which was denied in the herein assailed
Decision.
FASAP’s motion for reconsideration was likewise denied; hence, the
instant petition raising the following issues:
WHETHER OR NOT THE COURT OF APPEALS DECIDED THE
CASE A QUO IN A WAY CONTRARY TO LAW AND/OR
APPLICABLE JURISPRUDENCE WHEN IT DENIED FASAP’S
PETITION FOR CERTIORARI UNDER RULE 65 AND
EFFECTIVELY VALIDATED THE RETRENCHMENT EXERCISED
BY RESPONDENT PAL WHICH WAS INITIALLY DECLARED AS
ILLEGAL BY THE LABOR ARBITER A QUO SINCE:
FIRST, the record shows that PAL failed or neglected to adopt less
drastic cost-cutting measures before resorting to retrenchment. No less
than the Supreme Court held that resort to less drastic cost-cutting
measures is an indispensable requirement for a valid retrenchment x x x.
SECOND, PAL arbitrarily and capriciously singled out the year 1997 as
a reference in its alleged assessment of employee efficiency. With this,
it totally disregarded the employee’s performance during the years prior
to 1997. This resulted in the unreasonable and unfair retrenchment or
demotion of several flight pursers and attendants who showed
impeccable service records during the years prior to 1997.
THIRD, seniority was totally disregarded in the selection of employees
to be retrenched, which is a clear and willful violation of the CBA.
FOURTH, PAL maliciously represented in the proceedings below that it
could only operate on a fleet of fourteen (14) planes in order to justify
the retrenchment scheme. Yet, the evidence on record revealed that PAL
operated a fleet of twenty two (22) planes. In fact, after having illegally
retrenched the unfortunate flight attendants and pursers, PAL rehired
those who were capriciously dismissed and even hired from the outside
just to fulfill their manning requirements.
FIFTH, PAL did not use any fair and reasonable criteria in effecting
retrenchment. If there really was any, the same was applied arbitrarily, if
not discriminatorily.
FINALLY, and perhaps the worst transgression of FASAP’s rights, PAL
used retrenchment to veil its union-busting motives and struck at the
heart of FASAP when it retrenched seven (7) of its twelve (12) officers
and demoted three (3) others.37 (Emphasis supplied)
These issues boil down to the question of whether PAL’s retrenchment
scheme was justified.
It is a settled rule that in the exercise of the Supreme Court’s power of
review, the Court is not a trier of facts and does not normally undertake
the re-examination of the evidence presented by the contending parties
during trial. However, there are several exceptions to this rule 38 such as
when the factual findings of the Labor Arbiter differ from those of the
NLRC, as in the instant case, which opens the door to a review by this
Court.39
Under the Labor Code, retrenchment or reduction of employees is
authorized as follows:
ART. 283. Closure of establishment and reduction of personnel. - The
employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on
the workers and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof. In case of termination due to the
installation of labor-saving devices or redundancy, the worker affected
thereby shall be entitled to a separation pay equivalent to at least his one
(1) month pay or to at least one (1) month pay for every year of service,
whichever is higher. In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one-
half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole
year.
The law recognizes the right of every business entity to reduce its work
force if the same is made necessary by compelling economic factors
which would endanger its existence or stability.40 Where appropriate and
where conditions are in accord with law and jurisprudence, the Court
has authorized valid reductions in the work force to forestall business
losses, the hemorrhaging of capital, or even to recognize an obvious
reduction in the volume of business which has rendered certain
employees redundant.41
Nevertheless, while it is true that the exercise of this right is a
prerogative of management, there must be faithful compliance with
substantive and procedural requirements of the law and jurisprudence,
for retrenchment strikes at the very heart of the worker’s employment,
the lifeblood upon which he and his family owe their survival.
Retrenchment is only a measure of last resort, when other less drastic
means have been tried and found to be inadequate.42
The burden clearly falls upon the employer to prove economic or
business losses with sufficient supporting evidence. Its failure to prove
these reverses or losses necessarily means that the employee’s dismissal
was not justified.43 Any claim of actual or potential business losses must
satisfy certain established standards, all of which must concur, before
any reduction of personnel becomes legal.44 These are:
(1) That retrenchment is reasonably necessary and likely to
prevent business losses which, if already incurred, are not
merely de minimis, but substantial, serious, actual and real, or if
only expected, are reasonably imminent as perceived
objectively and in good faith by the employer;
(2) That the employer served written notice both to the
employees and to the Department of Labor and Employment at
least one month prior to the intended date of retrenchment;
(3) That the employer pays the retrenched employees separation
pay equivalent to one (1) month pay or at least one-half (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 used fair and reasonable criteria in
ascertaining who would be dismissed and who would be
retained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for
certain workers.45
In view of the facts and the issues raised, the resolution of the instant
petition hinges on a determination of the existence of the first, fourth
and the fifth elements set forth above, as well as compliance therewith
by PAL, taking to mind that the burden of proof in retrenchment cases
lies with the employer in showing valid cause for dismissal; 46 that
legitimate business reasons exist to justify retrenchment.47
FIRST ELEMENT: 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.
The employer’s prerogative to layoff employees is subject to certain
limitations. In Lopez Sugar Corporation v. Federation of Free
Workers,48 we held that:
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 the 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 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 law speaks of serious business losses or financial reverses. Sliding
incomes or decreasing gross revenues are not necessarily losses, much
less serious business losses within the meaning of the law. The fact that
an employer may have sustained a net loss, such loss, per se, absent any
other evidence on its impact on the business, nor on expected losses that
would have been incurred had operations been continued, may not
amount to serious business losses mentioned in the law. The employer
must show that its losses increased through a period of time and that the
condition of the company will not likely improve in the near future, 49 or
that it expected no abatement of its losses in the coming years. 50 Put
simply, not every loss incurred or expected to be incurred by a company
will justify retrenchment.51
The employer must also exhaust all other means to avoid further losses
without retrenching its employees.52 Retrenchment is a means of last
resort; it is justified only when all other less drastic means have been
tried and found insufficient.53 Even assuming that the employer has
actually incurred losses by reason of the Asian economic crisis, the
retrenchment is not completely justified if there is no showing that the
retrenchment was the last recourse resorted to. 54 Where the only less
drastic measure that the employer undertook was the rotation work
scheme, or the three-day-work-per-employee-per-week schedule, and it
did not endeavor at other measures, such as cost reduction, lesser
investment on raw materials, adjustment of the work routine to avoid
scheduled power failure, reduction of the bonuses and salaries of both
management and rank-and-file, improvement of manufacturing
efficiency, and trimming of marketing and advertising costs, the claim
that retrenchment was done in good faith to avoid losses is belied.55
Alleged losses if already realized, and the expected imminent losses
sought to be forestalled, must be proved by sufficient and convincing
evidence. The reason for requiring this is readily apparent: any less
exacting standard of proof would render too easy the abuse of this
ground for termination of services of employees; scheming employers
might be merely feigning business losses or reverses in order to ease out
employees.56
In establishing a unilateral claim of actual or potential losses, financial
statements audited by independent external auditors constitute the
normal method of proof of profit and loss performance of a
company.57 The condition of business losses justifying retrenchment is
normally shown by audited financial documents like yearly balance
sheets and profit and loss statements as well as annual income tax
returns. Financial statements must be prepared and signed by
independent auditors; otherwise, they may be assailed as self-
serving.58 A Statement of Profit and Loss submitted to prove alleged
losses, without the accompanying signature of a certified public
accountant or audited by an independent auditor, is nothing but a self-
serving document which ought to be treated as a mere scrap of paper
devoid of any probative value.59
The audited financial statements should be presented before the Labor
Arbiter who is in the position to evaluate evidence. They may not be
submitted belatedly with the Court of Appeals, because the admission of
evidence is outside the sphere of the appellate court’s certiorari
jurisdiction. Neither can this Court admit in evidence audited financial
statements, or make a ruling on the question of whether the employer
incurred substantial losses justifying retrenchment on the basis thereof,
as this Court is not a trier of facts. 60 Even so, this Court may not be
compelled to accept the contents of said documents blindly and without
thinking.61
The requirement of evidentiary substantiation dictates that not even the
affidavit of the Assistant to the General Manager is admissible to prove
losses, as the same is self-serving. 62 Thus, in Central Azucarera de la
Carlota v. National Labor Relations Commission,63 the Court ruled that
the mere citation by the employer of the economic setback suffered by
the sugar industry as a whole cannot, in the absence of adequate,
credible and persuasive evidence, justify its retrenchment
program,64 thus:
A litany of woes, from a labor strike way back in 1982 to the various
crises endured by the sugar industry, droughts, the 1983 assassination of
former Senator Benigno Aquino, Jr., high crop loan interests, spiraling
prices of fertilizers and spare parts, the depression of sugar prices in the
world market, cutback in the U.S. sugar quota, abandonment of
productive areas because of the insurgency problem and the absence of
fair and consistent government policies may have contributed to the
unprecedented decline in sugar production in the country, but there is no
solid evidence that they translated into specific and substantial losses
that would necessitate retrenchment. Just exactly what negative effects
were borne by petitioner as a result, petitioner failed to underscore. 65
In Anino v. National Labor Relations Commission, 66 the Court also held
that the employer’s claim – that retrenchment was undertaken as a
measure of self-preservation to prevent losses brought about by the
continuing decline of nickel prices and export volume in the mining
industry, as well as its allegation that the reduction of excise taxes on
mining from 5% to 1% on a graduated basis as provided under Republic
Act No. 7729 was a clear recognition by the government of the
industry’s worsening economic difficulties – was a bare claim in the
absence of evidence of actual losses in its business operations.67
In the instant case, PAL failed to substantiate its claim of actual and
imminent substantial losses which would justify the retrenchment of
more than 1,400 of its cabin crew personnel. Although the Philippine
economy was gravely affected by the Asian financial crisis, however, it
cannot be assumed that it has likewise brought PAL to the brink of
bankruptcy. Likewise, the fact that PAL underwent corporate
rehabilitation does not automatically justify the retrenchment of its cabin
crew personnel.
Records show that PAL was not even aware of its actual financial
position when it implemented its retrenchment program. It initially
decided to cut its fleet size to only 14 ("Plan 14") and based on said
plan, it retrenched more than 1,400 of its cabin crew personnel. Later on,
however, it abandoned its "Plan 14" and decided to retain 22 units of
aircraft ("Plan 22"). Unfortunately, it has retrenched more than what was
necessary. PAL admits that:
[U]pon reconsideration and with some optimistic prospects for
operations, the Company (PAL) decided not to implement "Plan 14" and
instead implemented "Plan 22," which would involve a fleet of 22
planes. Since "Plan 14" was abandoned, the Company deemed it
appropriate to recall back into employment employees it had previously
retrenched. Thus, some of the employees who were initially laid off
were recalled back to duty, the basis of which was passing the 1997
efficiency rating to meet the Company’s operational requirements.68
PAL decided to adopt "Plan 14" on June 12, 1998. Three days after, or
on June 15, 1998, it sent notices of retrenchment to its cabin crew
personnel to take effect on July 15, 1998. However, after allegedly
realizing that it was going to retain 22 of its aircraft instead of 14, and
after more than 1,400 of its cabin crew have been fired – during the
period from November 30, 1998 to December 15, 1998, it suddenly
recalled to duty 202 of the retrenched cabin crew personnel.69
This only proves that PAL was not aware of the true state of its finances
at the time it implemented the assailed massive retrenchment scheme. It
embarked on the mass dismissal without first undertaking a well-
considered study on the proposed retrenchment scheme. This view is
underscored by the fact that previously, PAL terminated the services of
140 probationary cabin attendants, but rehired them almost immediately
and even converted their employment into permanent and regular, even
as a massive retrenchment was already looming in the horizon.
To prove that PAL was financially distressed, it could have submitted its
audited financial statements but it failed to present the same with the
Labor Arbiter. Instead, it narrated a litany of woes without offering any
evidence to show that they translated into specific and substantial losses
that would necessitate retrenchment, thus:
1. It is a matter of public knowledge that PAL had been suffering severe
financial losses that reached its most critical condition in 1998 when its
liabilities amounted to about P90,642,933,919.00, while its assets
amounted to only about P85,109,075,351.00. The precarious situation
prompted PAL to adopt cost-cutting measures to prevent it from
becoming totally bankrupt, including the reduction of its flight fleet
from 56 to 14 aircrafts and the retrenchment of unneeded employees.
xxxx
26. To save its business, PAL had every right to undergo a retrenchment
program immediately. PAL did not need, by law, to justify or explain to
FASAP the reasons for the retrenchment before it could implement it.
Proof of actual financial losses incurred by the company is not a
condition sine qua non for retrenchment.70
This bare and unilateral claim does not suffice. The Labor Arbiter’s
finding that PAL "amply satisfied the rules imposed by law and
jurisprudence that sustain retrenchment," is without basis, absent the
presentation of documentary evidence to that effect. In Saballa v.
National Labor Relations Commission,71 we ruled that where the
decision of the Labor Arbiter did not indicate the specific bases for such
crucial finding that the employer was suffering business reverses, the
same was arbitrary. We ratiocinated therein that since the employer
insisted that its critical financial condition was the central and pivotal
reason for its retrenchment, there was no reason why it should have
neglected or refused to submit its audited financial statements.
PAL’s assertion – that its finances were gravely compromised as a result
of the 1997 Asian financial crisis and the pilots’ strike – lacks basis due
to the non-presentation of its audited financial statements to prove actual
or imminent losses. Also, the fact that PAL was placed under
receivership did not excuse it from submitting to the labor authorities
copies of its audited financial statements to prove the urgency, necessity
and extent, of its retrenchment program. PAL should have presented its
audited financial statements for the years immediately preceding and
during which the retrenchment was carried out. Law and jurisprudence
require that alleged losses or expected imminent losses must be proved
by sufficient and convincing evidence.
Likewise, PAL has not shown to the Court’s satisfaction that the pilots’
strike had gravely affected its operations. It offered no proof to show the
correlation between the pilots’ strike and its alleged financial
difficulties. In Guerrero v. National Labor Relations Commission, 72 the
Court held that where the employer failed to prove its claim with
competent evidence that the employees’ strike paralyzed its operations
and resulted in the withdrawal of its clients’ orders, the retrenchment of
its employees must be declared illegal.73
Moreover, as the Court ruled in the case of EMCO Plywood
Corporation,74 it must be shown that the employer resorted to other
means but these proved to be insufficient or inadequate, such as cost
reduction, lesser investment on raw materials, adjustment of the work
routine to avoid scheduled power failure, reduction of the bonuses and
salaries of both management and rank-and-file, improvement of
manufacturing efficiency, and trimming of marketing and advertising
costs. In the instant case, there is no proof that PAL engaged in cost-
cutting measures other than a mere reduction in its fleet of aircraft and
the retrenchment of 5,000 of its personnel.
The only manifestation of PAL’s attempt at exhausting other possible
measures besides retrenchment was when it conducted negotiations and
consultations with FASAP which, however, ended nowhere. None of the
plans and suggestions taken up during the meetings was implemented.
On the other hand, PAL’s September 4, 1998 offer of shares of stock to
its employees was adopted belatedly, or only after its more than 1,400
cabin crew personnel were retrenched. Besides, this offer can hardly be
considered to be borne of good faith, considering that it was premised
on the condition that, if accepted, all existing CBAs between PAL and
its employees would have to be suspended for 10 years. When the offer
was rejected by the employees, PAL ceased its operations on September
23, 1998. It only resumed business when the CBA suspension clause
was ratified by the employees in a referendum subsequently
conducted.75 Moreover, this stock distribution scheme does not do away
with PAL’s expenditures or liabilities, since it has for its sole
consideration the commitment to suspend CBAs with its employees for
10 years. It did not improve the financial standing of PAL, nor did it
result in corporate savings, vis-à-vis the financial difficulties it was
suffering at the time.
Also, the claim that PAL saved P24 million monthly due to the
implementation of the retrenchment program does not prove anything; it
has not been shown to what extent or degree such savings benefited
PAL, vis-à-vis its total expenditures or its overall financial position.
Likewise, its claim that its liabilities reached P90 billion, while its assets
amounted to P85 billion only – or a debt to asset ratio of more than 1:1 –
may not readily be believed, considering that it did not submit its
audited financial statements. All these allegations are self-serving
evidence.
Interestingly, PAL submitted its audited financial statements only when
the case was the subject of certiorari proceedings in the Court of
Appeals by attaching in its Comment76 a copy of its consolidated audited
financial statements for the years 2002, 2003 and 2004.77 However, these
are not the financial statements that would have shown PAL’s alleged
precarious position at the time it implemented the massive retrenchment
scheme in 1998. PAL should have submitted its financial statements for
the years 1997 up to 1999; and not for the years 2002 up to 2004
because these financial statements cover a period markedly distant to the
years in question, which make them irrelevant and unacceptable.
Neither could PAL claim to suffer from imminent or resultant losses had
it not implemented the retrenchment scheme in 1998. It could not have
proved that retrenchment was necessary to prevent further losses,
because immediately thereafter – or in February 1999 78 – PAL was on
the road to recovery; this is the airline’s bare admission in its Comment
to the instant petition.79 During that period, it was recalling to duty cabin
crew it had previously retrenched. In March 2000, PAL declared a net
income of P44.2 million. In March 2001, it reported a profit of P419
million. In March 2003, it again registered a net income of P295
million.80 All these facts are anathema to a finding of financial
difficulties.
Finally, what further belied PAL’s allegation that it was suffering from
substantial actual and imminent losses was the fact that in December
1998, PAL submitted a "stand-alone" rehabilitation plan to the SEC, and
on June 4, 1999, or less than a year after the retrenchment, the amount
of US$200 million was invested directly into PAL by way of additional
capital infusion for its operations.81 These facts betray PAL’s claim that
it was in dire financial straits. By submitting a "stand-alone"
rehabilitation plan, PAL acknowledged that it could undertake recovery
on its own and that it possessed enough resources to weather the
financial storm, if any.
Thus said, it was grave error for the Labor Arbiter, the NLRC and the
Court of Appeals, to have simply assumed that PAL was in grievous
financial state, without requiring the latter to substantiate such claim. It
bears stressing that in retrenchment cases, the presentation of proof of
financial difficulties through the required documents, preferably audited
financial statements prepared by independent auditors, may not
summarily be done away with.
That FASAP admitted and took for granted the existence of PAL’s
financial woes cannot excuse the latter from proving to the Court’s
satisfaction that indeed it was bleeding financially. It was the airline’s
obligation to prove that it was in such financial distress; that it was
necessary to implement an appropriate retrenchment scheme; that it had
to undergo a retrenchment program in proportion to or commensurate
with the extent of its financial distress; and that, it was carrying out the
scheme in good faith and without undermining the security of tenure of
its employees. The Court is mindful that the characterization of an
employee’s services as no longer necessary or sustainable, and
therefore, properly terminable, is an exercise of business judgment on
the part of the employer, and that the wisdom or soundness of such
characterization or decision is not subject to discretionary review,
provided of course that violation of law or arbitrary or malicious action
is not shown.82
The foregoing principle holds true with respect to PAL’s claim in its
Comment that the only issue is the manner by which its retrenchment
scheme was carried out because the validity of the scheme has been
settled in its favor.83 Respondents might have confused the right to
retrench with its actual retrenchment program, treating them as one and
the same. The first, no doubt, is a valid prerogative of management; it is
a right that exists for all employers. As to the second, it is always subject
to scrutiny in regard to faithful compliance with substantive and
procedural requirements which the law and jurisprudence have laid
down. The right of an employer to dismiss an employee differs from and
should not be confused with the manner in which such right is
exercised.84
FOURTH ELEMENT: 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.
Concededly, retrenchment to prevent losses is an authorized cause for
terminating employment and the decision whether to resort to such
move or not is a management prerogative. However, the right of an
employer to dismiss an employee differs from and should not be
confused with the manner in which such right is exercised. It must not
be oppressive and abusive since it affects one's person and property. 85
In Indino v. National Labor Relations Commission,86 the Court held that
it is almost an inflexible rule that employers who contemplate
terminating the services of their workers cannot be so arbitrary and
ruthless as to find flimsy excuses for their decisions. This must be so
considering that the dismissal of an employee from work involves not
only the loss of his position but more important, his means of livelihood.
Applying this caveat, it is therefore incumbent for the employer, before
putting into effect any retrenchment process on its work force, to show
by convincing evidence that it was being wrecked by serious financial
problems. Simply declaring its state of insolvency or its impending
doom will not be sufficient. To do so would render the security of tenure
of workers and employees illusory. Any employer desirous of ridding
itself of its employees could then easily do so without need to adduce
proof in support of its action. We can not countenance this. Security of
tenure is a right guaranteed to employees and workers by the
Constitution and should not be denied on the basis of mere speculation.
On the requirement that the prerogative to retrench must be exercised in
good faith, we have ruled that the hiring of new employees and
subsequent rehiring of "retrenched" employees constitute bad
faith;87 that the failure of the employer to resort to other less drastic
measures than retrenchment seriously belies its claim that retrenchment
was done in good faith to avoid losses; 88 and that the demonstrated
arbitrariness in the selection of which of its employees to retrench is
further proof of the illegality of the employer’s retrenchment program,
not to mention its bad faith.89
When PAL implemented Plan 22, instead of Plan 14, which was what it
had originally made known to its employees, it could not be said that it
acted in a manner compatible with good faith. It offered no satisfactory
explanation why it abandoned Plan 14; instead, it justified its actions of
subsequently recalling to duty retrenched employees by making it
appear that it was a show of good faith; that it was due to its good
corporate nature that the decision to consider recalling employees was
made. The truth, however, is that it was unfair for PAL to have made
such a move; it was capricious and arbitrary, considering that several
thousand employees who had long been working for PAL had lost their
jobs, only to be recalled but assigned to lower positions (i.e., demoted),
and, worse, some as new hires, without due regard for their long years of
service with the airline.
The irregularity of PAL’s implementation of Plan 14 becomes more
apparent when it rehired 140 probationary cabin attendants whose
services it had previously terminated, and yet proceeded to terminate the
services of its permanent cabin crew personnel.
In sum, we find that PAL had implemented its retrenchment program in
an arbitrary manner and with evident bad faith, which prejudiced the
tenurial rights of the cabin crew personnel.
Moreover, the management’s September 4, 1998 offer to transfer PAL
shares of stock in the name of its employees in exchange for the latter’s
commitment to suspend all existing CBAs for 10 years; the closure of its
operations when the offer was rejected; and the resumption of its
business after the employees relented; all indicate that PAL had not
acted in earnest in regard to relations with its employees at the time.
FIFTH ELEMENT: That the employer used fair and reasonable criteria
in ascertaining who would be dismissed and who would be retained
among the employees, such as status, efficiency, seniority, physical
fitness, age, and financial hardship for certain workers.
In selecting employees to be dismissed, fair and reasonable criteria must
be used, such as but not limited to: (a) less preferred status (e.g.,
temporary employee), (b) efficiency and (c) seniority.90
In Villena v. National Labor Relations Commission,91 the Court
considered seniority an important aspect for the validity of a
retrenchment program. In Philippine Tuberculosis Society, Inc. v.
National Labor Union,92 the Court held that the implementation of a
retrenchment scheme without taking seniority into account rendered the
retrenchment invalid, even as against factors such as dependability,
adaptability, trainability, job performance, discipline, and attitude
towards work.
In the implementation of its retrenchment scheme, PAL evaluated the
cabin crew personnel’s performance during the year preceding the
retrenchment (1997), based on the following set of criteria or rating
variables found in the Performance Evaluation Form of the cabin crew
personnel’s Grooming and Appearance Handbook:
A. INFLIGHT PROFICIENCY EVALUATION – 30%
B. JOB PERFORMANCE – 35%
· Special Award – +5
· Commendations – +2
· Appreciation – +1
· Disciplinary Actions – Reminder (-3),
Warning/Admonition & Reprimands (-5), Suspension
(-20), Passenger Complaints (-30), Appearance (-10)
C. ATTENDANCE – 35%
· Perfect Attendance – +2
· Missed Assignment – -30
· Sick Leaves in excess of allotment and other leaves in
excess of allotment – -20
· Tardiness – -10 93
The appellate court held that there was no need for PAL to consult with
FASAP regarding standards or criteria that the airline would utilize in
the implementation of the retrenchment program; and that the criteria
actually used which was unilaterally formulated by PAL using its
Performance Evaluation Form in its Grooming and Appearance
Handbook was reasonable and fair. Indeed, PAL was not obligated to
consult FASAP regarding the standards it would use in evaluating the
performance of the each cabin crew. However, we do not agree with the
findings of the appellate court that the criteria utilized by PAL in the
actual retrenchment were reasonable and fair.
This Court has repeatedly enjoined employers to adopt and observe fair
and reasonable standards to effect retrenchment. This is of paramount
importance because an employer’s retrenchment program could be
easily justified considering the subjective nature of this requirement.
The adoption and implementation of unfair and unreasonable criteria
could not easily be detected especially in the retrenchment of large
numbers of employees, and in this aspect, abuse is a very distinct and
real possibility. This is where labor tribunals should exercise more
diligence; this aspect is where they should concentrate when placed in a
position of having to judge an employer’s retrenchment program.
Indeed, the NLRC made a detailed listing of the retrenchment scheme
based on the ICCD Masterank and Seniority 1997 Ratings. It found the
following:
1. Number of employees retrenched due to inverse seniority
rule and other reasons -- 454
 2. Number of employees retrenched due to excess sick leaves --
299
3. Number of employees who were retrenched due to excess
sick leave and other reasons -- 61
4. Number of employees who were retrenched due to other
reasons -- 107
5. Number of employees who were demoted -- 552
Total -- 1,473.94
Prominent from the above data is the retrenchment of cabin crew
personnel due to "other reasons" which, however, are not specifically
stated and shown to be for a valid cause. This is not allowed because it
has no basis in fact and in law.
Moreover, in assessing the overall performance of each cabin crew
personnel, PAL only considered the year 1997. This makes the
evaluation of each cabin attendant’s efficiency rating capricious and
prejudicial to PAL employees covered by it. By discarding the cabin
crew personnel’s previous years of service and taking into consideration
only one year’s worth of job performance for evaluation, PAL virtually
did away with the concept of seniority, loyalty and past efficiency, and
treated all cabin attendants as if they were on equal footing, with no one
more senior than the other.
In sum, PAL’s retrenchment program is illegal because it was based on
wrongful premise (Plan 14, which in reality turned out to be Plan 22,
resulting in retrenchment of more cabin attendants than was necessary)
and in a set of criteria or rating variables that is unfair and unreasonable
when implemented. It failed to take into account each cabin attendant’s
respective service record, thereby disregarding seniority and loyalty in
the evaluation of overall employee performance.
Anent the claim of unfair labor practices committed against petitioner,
we find the same to be without basis. Article 261 of the Labor Code
provides that violations of a CBA, except those which are gross in
character, shall no longer be treated as unfair labor practice and shall be
resolved as grievances under the parties’ CBA. Moreover, "gross
violations of CBA" under the same Article referred to flagrant and/or
malicious refusal to comply with the economic provisions of such
agreement, which is not the issue in the instant case.
1avvphi1
Also, we fail to see any specific instance of union busting, oppression or
harassment and similar acts of FASAP’s officers. The fact that majority
of FASAP’s officers were either retrenched or demoted does not prove
restraint or coercion in their right to organize. Instead, we see a simple
retrenchment scheme gone wrong for failure to abide by the stringent
rules prescribed by law, and a failure to discharge the employer’s burden
of proof in such cases.
Quitclaims executed as a result of PAL’s illegal retrenchment program
are likewise annulled and set aside because they were not voluntarily
entered into by the retrenched employees; their consent was obtained by
fraud or mistake, as volition was clouded by a retrenchment program
that was, at its inception, made without basis. The law looks with
disfavor upon quitclaims and releases by employees pressured into
signing by unscrupulous employers minded to evade legal
responsibilities. As a rule, deeds of release or quitclaim cannot bar
employees from demanding benefits to which they are legally entitled or
from contesting the legality of their dismissal. The acceptance of those
benefits would not amount to estoppel. The amounts already received by
the retrenched employees as consideration for signing the quitclaims
should, however, be deducted from their respective monetary awards.95
In Trendline Employees Association-Southern Philippines Federation of
Labor v. NLRC,96 we held that where the employer led its employees to
believe that the employer was suffering losses and as a result thereof
accept retrenchment by executing quitclaims and waivers, there was
evident bad faith on the part of the employer justifying the setting aside
of the quitclaims and waivers executed.
As to PAL’s recall and rehire process (of retrenched cabin crew
employees), the same is likewise defective. Considering the illegality of
the retrenchment, it follows that the subsequent recall and rehire process
is likewise invalid and without effect.
A corporate officer is not personally liable for the money claims of
discharged corporate employees unless he acted with evident malice and
bad faith in terminating their employment.97 We do not see how
respondent Patria Chiong may be held personally liable together with
PAL, it appearing that she was merely acting in accordance with what
her duties required under the circumstances. Being an Assistant Vice
President for Cabin Services of PAL, she takes direct orders from
superiors, or those who are charged with the formulation of the policies
to be implemented.
With respect to moral damages, we have time and again held that as a
general rule, a corporation cannot suffer nor be entitled to moral
damages. A corporation, being an artificial person and having existence
only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a nervous
system and it flows from real ills, sorrows, and griefs of life – all of
which cannot be suffered by an artificial, juridical person. 98 The Labor
Arbiter’s award of moral damages was therefore improper.
demotion scheme of June 15, 1998 made effective on July 15,
1998, without loss of seniority rights and other privileges, and
to pay them full backwages, inclusive of allowances and other
monetary benefits computed from the time of their separation
up to the time of their actual reinstatement, provided that with
respect to those who had received their respective separation
pay, the amounts of payments shall be deducted from their
backwages. Where reinstatement is no longer feasible because
the positions previously held no longer exist, respondent
Corporation shall pay backwages plus, in lieu of reinstatement,
separation pay equal to one (1) month pay for every year of
service;
3. ORDERING Philippine Airlines, Inc. to pay attorney’s fees
equivalent to ten percent (10%) of the total monetary award.
Costs against respondent PAL.
SO ORDERED.

WHEREFORE, the instant petition is GRANTED. The assailed

Decision of the Court of Appeals in CA-G.R. SP No. 87956 dated
August 23, 2006, which affirmed the Decision of the NLRC setting
aside the Labor Arbiter’s findings of illegal retrenchment and its
Resolution of May 29, 2007 denying the motion for reconsideration, are
REVERSED and SET ASIDE and a new one is rendered:

1. FINDING respondent Philippine Airlines, Inc. GUILTY of

illegal dismissal;

2. ORDERING Philippine Air Lines, Inc. to reinstate the cabin

crew personnel who were covered by the retrenchment and
 For resolution is respondent Philippine Airlines, Inc.’s (PAL)
Motion for Reconsideration1 of our Decision of July 22, 2008,
the dispositive portion of which provides:

WHEREFORE, the instant petition is GRANTED. The assailed

Decision of the Court of Appeals in CA-G.R. SP No. 87956
dated August 23, 2006, which affirmed the Decision of the
NLRC setting aside the Labor Arbiter’s findings of illegal
retrenchment and its Resolution of May 29, 2007 denying the
motion for reconsideration, are REVERSED and SET ASIDE
and a new one is rendered:

1. FINDING respondent Philippine Airlines, Inc. GUILTY of

illegal dismissal;

2. ORDERING Philippine Airlines, Inc. to reinstate the cabin

crew personnel who were covered by the retrenchment and
demotion scheme of June 15, 1998 made effective on July 15,
1998, without loss of seniority rights and other privileges, and
to pay them full backwages, inclusive of allowances and other
G.R. No. 178083               October 2, 2009 monetary benefits computed from the time of their separation
up to the time of their actual reinstatement, provided that with
FLIGHT ATTENDANTS AND STEWARDS respect to those who had received their respective separation
ASSOCIATION OF THE PHILIPPINES pay, the amounts of payments shall be deducted from their
(FASAP), Petitioner, backwages. Where reinstatement is no longer feasible because
vs. the positions previously held no longer exist, respondent
PHILIPPINE AIRLINES, INC., PATRIA CHIONG and Corporation shall pay backwages plus, in lieu of reinstatement,
COURT OF APPEALS, Respondents. separation pay equal to one (1) month pay for every year of
service;
RESOLUTION
3. ORDERING Philippine Airlines, Inc. to pay attorney’s fees
YNARES-SANTIAGO, J.: equivalent to ten percent (10%) of the total monetary award.
Costs against respondent PAL.
SO ORDERED.
In its Motion for Reconsideration, PAL maintains that it was
suffering from financial distress which justified the
retrenchment of more than 1,400 of its flight attendants. This, it
argued, was an established fact. Furthermore, FASAP never
assailed the economic basis for the retrenchment, but only the
allegedly discriminatory and baseless manner by which it was
carried out.
PAL asserts that it has presented proof of its claimed losses by
attaching its petition for suspension of payments, as well as the
June 23, 1998 Order of the Securities and Exchange
Commission (SEC) approving the said petition for suspension
of payments, in its Motion to Dismiss and/or Consolidation of
Case filed with the Labor Arbiter in NLRC-NCR Case No. 06-
05100-98, or the labor case subject of the herein petition. Also
attached to the petition for suspension of payments were its
audited financial statements for its fiscal year ending March
1998, and interim financial statements as of the end of the
month prior to the filing of its petition for suspension of
payments, as well as:
a) A summary of its debts and other liabilities;
b) A summary of its assets and properties;
c) List of its equity security shareholders showing the name of
the security holder and the kind of interest registered in the
name of each holder;
d) A schedule which contains a full and true statement of all of
its debts and liabilities, together with a list of all those to whom
said debts and liabilities are due;
e) An inventory which contains an accurate description of all
the real and personal property, estate and effects of PAL,
together with a statement of the value of each item of said
property, estate and effects, their respective location and a
statement of the encumbrances thereon.
In the instant Motion for Reconsideration, PAL attached a copy
of its audited financial statements for fiscal years 1996, 1997
and 1998. It justifies the submission before the Court of
Appeals of its 2002-2004, and not the 1996-1998, audited
financial statements, to show that as of the time of their
submission with the Court of Appeals, PAL was still under
rehabilitation, and not for the purpose of establishing its
financial problems during the retrenchment period.
PAL asserts further that the Court should have accorded the
SEC’s findings as regards its financial condition respect and
finality, considering that said findings were based on the
financial statements and other documents submitted to it, which
PAL now submits, albeit belatedly, via the instant Motion for
Reconsideration. It cites the case of Clarion Printing House Inc.
v. National Labor Relations Commission,2 where the Court
declared that the appointment of a receiver or management
committee by the SEC presupposes a finding that, inter alia, a
company possesses sufficient property to cover all its debts but
foresees the impossibility of meeting them when they
respectively fall due and there is imminent danger of
dissipation, loss, wastage or destruction of assets or other
properties or paralyzation of business operations. On the other
hand, it claims that in Rivera v. Espiritu, 3 the Court made a
finding that as a result of the pilots’ three-week strike that
began on June 5, 1998, PAL’s financial situation went from
bad to worse and it was faced with bankruptcy, requiring it to
seek rehabilitation and downsize its labor force by more than
one-third; and that said pilots’ strike was immediately followed
by another four-day employee-wide strike on July 22, 1998,
which involved 1,899 union4 members.
PAL likewise cites previous decisions of the Court which
declared a suspension of claims against it in light of pending
rehabilitation proceedings and the issuance of a stay order in
the enforcement of all claims, whether for money or otherwise,
which is effective from the date of its issuance until the
dismissal of the petition or the termination of the rehabilitation
proceedings.5 Moreover, it claims that the infusion of $200
million in PAL in June 1999 is proof of the airline’s financial
distress, and was a condition sine qua non if PAL’s Amended
and Restated Rehabilitation Plan were to be approved by the
SEC, and if the absolute closure of PAL were to be averted.
PAL underscores that its situation in 1998 was unique, as it had
to contend with—
the very distinct possibility that its losses would eventually
result in default on its payments to creditors for its aircraft
leases. If that happened, creditors could have immediately
seized all its leased planes and that would have spelled PAL’s
demise. The petition for rehabilitation and suspension of
payments was precisely intended to avoid PAL’s collapse and
eventual liquidation.6
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.
Further, PAL argues that aside from the confluence of
simultaneous unfortunate events that occurred during the time,
like successive strikes, peso depreciation and the Asian
currency crisis, there was a serious drop in passenger traffic
which necessitated the closure of PAL’s entire European,
Australian, and Middle East operations and numerous Asian
stations, as well as some of its domestic stations. Consequently,
its 27 international routes were reduced to only 7, and its 37
domestic routes to just 17.
PAL claims that it did not act with undue haste in effecting the
mass retrenchment of cabin attendants since, as early as
February 17, 1998, consultations were being held in connection
with the proposed retrenchment, and that twice-weekly
meetings between the union and the airline were being held
since February 12, 1998. It claims that it took PAL four months
before the retrenchment scheme was finally implemented.
With regard to the implementation of Plan 22 instead of the
original Plan 14, PAL asserts that, in so doing, it should not be
found guilty of bad faith. It sets out the chronology of events
that led it to implement Plan 22 instead of Plan 14, thus:
The initial plan was, indeed, to reduce PAL’s fleet from 54
planes to 14. With a smaller fleet, PAL necessarily had to
reduce manpower accordingly, and this was the basis for the
retrenchment. The retrenchment was done on the basis of the
conditions and circumstances existing at that time. However, a
series of events ensued—
PAL was placed under corporate rehabilitation by the SEC on
June 23, 1998.
Later, on July 22, 1998, the rank-and-file employees belonging
to PALEA staged a strike.
Then, on August 28, 1998, President Joseph Ejercito Estrada
issued Administrative Order No. 16 creating Inter-Agency
Task Force to aid PAL and its employees in solving the
problem.
On September 4, 1998, PAL submitted an offer to the Task
Force of a plan to transfer shares of stocks to its employees
with a request to suspend existing Collective Bargaining
Agreements, which was later rejected by the employees.
On September 23, 1998, PAL ceased operations.
Then, President Estrada intervened again through the request of
PAL employees. PALEA made an offer, which was rejected by
PAL. Finally, PALEA made an offer again which was
successfully ratified by the employees on October 2, 1998 and
accepted by PAL.
Subsequently, PAL partially resumed domestic operations on
October 7, 1998 believing that the mutually beneficial terms of
the suspension agreement could possibly redeem PAL. Later, it
partially resumed its operations internationally (Los Angeles
and San Francisco, United States).
True enough, with some degree of relief as a result of the
suspension of payment and rehabilitation proceedings in the
SEC and the suspension of the CBA, PAL began to see slow
but steady improvements. Also, airline industry experts who
were commissioned by PAL to assist in drafting its Amended
and Restated Rehabilitation Plan came to a conclusion that
PAL had to increase its fleet of planes to improve its financial
and operational viability. This advice was adopted by PAL in
its Amended and Restated Rehabilitation Plan, which was
eventually approved by the SEC.
With these supervening events, PAL decided to implement
Plan 22 upon reevaluation and optimistic future projection for
its operations. The decision to abandon Plan 14 was not done
with precipitate haste. The Honorable Court should appreciate
that the chain of unfolding events after the retrenchment
encouraged PAL, in the exercise of its sound business
discretion, to implement Plan 22. This was not a capricious
decision. In fact, the SEC approved PAL’s Amended and
Restated Rehabilitation Plan, which includes, among others,
PAL’s Fleet Plan composed of 22 planes.
Neither does it show that PAL was uncertain of its financial
condition when it retrenched based on Plan 14. PAL would not
have even petitioned the SEC for its rehabilitation were it not
certain of its dire financial state. The decision to later abandon
Plan 14 was a business judgment that PAL made in good faith
upon the advice of foreign airline industry experts and in light
of the supervening circumstances explained above.
In this regard, this Honorable Court has once held that—
“Questions of policy or of management are left solely to the
honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute its
judgment for that of the board, and as long as it acts in good
faith and in the exercise of honest judgment in the interest of
the corporation, its orders are not reviewable by the courts.”
On the basis of Plan 22, PAL decided to recall/rehire some of
the retrenched employees.
With due respect, this Honorable Court is mistaken in its ruling
that PAL acted in bad faith simply because it later on decided
to recall or rehire the employees it initially retrenched. The
decision to recall/rehire was a logical consequence of PAL’s
decision to increase its fleet from 14 to 22 planes, which as
discussed earlier, was a business judgment exercised in good
faith by PAL after a series of significant events.
PAL did not even have any legal obligation to rehire the
employees who have already been paid their separation pay and
who have executed valid quitclaims. PAL, instead of being
accused of bad faith for rehiring these employees, should in
fact be commended. That the retrenched employees were given
priority in hiring is certainly not bad faith. Noteworthy is the
fact that PAL never hired NEW employees until November
2000 or more than 2 years after the 1998 retrenchment.
It is respectfully submitted that the legality of the retrenchment
could not be made to depend on the fact that PAL
recalled/rehired some of the employees after five months
without taking into account the supervening events. At the
exact time of retrenchment, PAL was not in a position to know
with certainty that it could actually recover from the precarious
financial problem it was facing and, if so, when.
The only thing PAL knew at that exact point in time was that it
was in its most critical condition—when its liabilities
amounted to about Php 85,109,075,351.00, while its assets
amounted to only about Php 90,642,330,919.00 aggravated by
many other circumstances as explained earlier. At the time of
the retrenchment in June 1998, PAL was at the brink of total
collapse and it could not have known that in five months, there
will be supervening events that will impel it to reassess its
initial decisions.
xxxx
In the present case, PAL beseeches this Honorable Court to
take a second look at the peculiar facts and circumstances that
clearly show that the recall/rehire was done in good faith.
These facts and circumstances make the case of PAL totally
different from the other cases decided by this Honorable Court
where it found bad faith on the part of the employer for
immediately rehiring or hiring employees after retrenchment.
xxxx
But even then, PAL still endeavored to recall or rehire the
maximum number of FASAP members that it could. Thus, out
of the 1,423 FASAP members who were retrenched, 496 were
eventually recalled or reinstated (those who did not receive
separation pay and opted to resume their employment with
PAL with no loss of seniority).
On the other hand, 321 FASAP members were rehired (those
who received separation pay and voluntarily rejoined PAL as
new employees). In this regard, PAL would like to take
exception to the Honorable Court’s observation that these
employees were taken in as new hires without due regard to
their long years of service. The FASAP members who were
rehired as new employees were those who already received
their separation pay because of the retrenchment but
voluntarily accepted PAL’s offer for them to be rehired when
Plan 22 was implemented. It cannot be said that they were
prejudiced by the rehire process, as they already “cashed in” on
their tenure when they accepted the separation pay. That they
later on accepted PAL’s offer to rehire them as new employees
was purely voluntary on their part.
Meanwhile, around 591 FASAP members opted not to return
anymore after receiving their full separation pay. Thus,
including those who voluntarily opted not to resume their
employment with PAL, only about 591 can be considered to
have remained unrecalled or unrehired.
It is significant to mention that FASAP directly and actively
participated in the recall process, and even suggested the names
of its members for prospective recall.
Likewise, in the recall process, PAL followed the provisions of
the CBA and as a result, some of the recalled employees were
assigned to lower positions (or “demoted” as noted by this
Honorable Court). However, this was only because there were
not enough positions for all of them to be restored to their
previous posts. Evidently, with lesser planes flying
international routes, not all international flight attendants
would be restored to international flight posts. Some of them
would be downgraded to domestic flights. This was the natural
and logical effect of the fleet downsizing that PAL adopted.
This could not be a badge of bad faith, as this Honorable Court
seems to believe.
xxxx
Likewise, no bad faith should be inferred from PAL’s closure
in September 1998. That decision was by no means easy being
the national flag carrier and the oldest airline in Asia (having
operated for 57 years at the time). The closure could not have
been a mere retaliation for rejecting the offer of PAL, as it
would have aggravated matters further and rendered
rehabilitation impossible.
Hence, PAL’s decision to resume operations when the
employees acceded to its request to suspend the CBA should be
seen in this context. This was not a coercive posture. PAL
resumed operations only because the suspension of the CBA,
among others, gave it hope that it could recover.
Furthermore, any issue on the legality of the suspension of the
CBA had already been put to rest by no less than this
Honorable Court in the case of Rivera vs. Espiritu where it held
that—
“The assailed PAL-PALEA agreement was the result of
voluntary collective bargaining negotiations undertaken in the
light of the severe financial situation faced by the employer,
with the peculiar and unique intention of not merely promoting
industrial peace at PAL, but preventing the latter’s
closure.”7 (Emphasis supplied)
PAL explains that the 140 probationary cabin attendants who
were fired and subsequently rehired were part of an earlier
retrenchment process in February and March 1998, a
component of PAL’s “less drastic cost cutting measures” then
being implemented. Eventually, these rehired probationary
cabin attendants were included in the subject retrenchment of
more than 1,400. Thus, it claims that it was inaccurate for the
Court to have held that these 140 probationary cabin attendants
were retained while those with permanent status were fired.
Finally, PAL begs the Court to reconsider its finding that the
retrenchment scheme in question did not pass the test of
fairness and reasonableness with respect to the criteria used in
selecting those whose services should be retained or
terminated. That it merely used the criteria stipulated in its
CBA with FASAP where efficiency rating and inverse
seniority are the basic considerations as carried over from the
parties’ previous CBAs could allegedly be seen from the
manner the retrenchment plan was carried out. The rating
variables contained in the Performance Evaluation Form of
each and every cabin crew personnel’s Grooming and
Appearance Handbook are fair and reasonable since they are
inherent requirements (“necessarily intertwined,” as PAL
would put it) for employment as flight attendant or steward.
More significantly, it claims that the criteria used in the
implementation of the retrenchment scheme in question was
based on the ratified PAL-FASAP 1996-2000 CBA, which
should be considered as the law between the parties.
PAL believes that the Court may have misconstrued the
significance of the term “other reasons” which the NLRC
utilized in its summary of FASAP members and causes for
their retrenchment,8 arguing that the use of the phrase does not
necessarily mean that the employees were retrenched for
obscure reasons that are not acceptable under the law; it simply
points to the NLRC’s economy of language in lumping
together various reasons for retrenchment, such as excess sick
leaves, previous admonitions, suspensions, passenger
complaints, poor performance, tardiness, etc. It claims that it
used seniority in conjunction with a combination of these
grounds in arriving at a conclusion of whether to retain or
retrench.
PAL defends as well its use of a single year (1997) as basis for
assessing the cabin attendants’ fitness for retention or
retrenchment, stressing that its CBA with FASAP requires—as
basis for reduction in personnel—only one efficiency rating,
which should be construed as that obtained by each cabin
attendant for a single year, in accordance with Section 112 of
the CBA which provides:
In the event of redundancy, phase-out of equipment or
reduction of operations, the following rules in the reduction of
personnel shall apply:
A. Reduction in the number of Pursers:
1. In the event of a reduction of purser OCARs, pursers who
have not attained an efficiency rating of 85% shall be
downgraded to international Cabin Attendant in the reverse
order of seniority.
2. If the reduction of purser OCARs would involve more than
the number of pursers who have not attained an efficiency
rating of 85%, then pursers who have attained an efficiency
rating of 85% shall be downgraded to international Cabin
Attendant in the inverse order of seniority.
B. In reducing the number of international Cabin Attendants
due to reduction in international Cabin Attendant OCARs, the
same process in paragraph A shall be observed. International
Cabin Attendants shall be downgraded to domestic.
C. In the event of reduction of domestic OCARs thereby
necessitating the retrenchment of personnel, the same process
shall be observed.
In no case, however, shall a regular Cabin Attendant be
separated from the service in the event of retrenchment until all
probationary or contractual Cabin Attendant in the entire Cabin
Attendants Corps, in that order, shall have been retrenched.
(Emphasis and underscoring supplied)
PAL asserts that since efficiency ratings for each cabin or flight
attendant are computed on an annual basis, it should therefore
mean that when Section 112 referred to “an” efficiency rating
of 85%, then it should logically and practically follow that only
one year’s worth of performance should be used as criteria for
the retrenchment of cabin attendants—that is, the most recent
efficiency rating obtained by each of them. For purposes of the
present case, it would necessarily be that for the year 1997, or
the year immediately prior to the retrenchment, and no other.
Finally, regarding the quitclaims executed, PAL maintains that
since the retrenchment scheme it implemented was essentially
valid, then it should follow that the quitclaims are regular as
well, and more so given the absence of mistake, duress, fraud
or misrepresentation.
In its Comment9 to PAL’s Motion for Reconsideration, FASAP
asserts that the issue is not centered on PAL’s financial
condition but whether the retrenchment of the 1,400 cabin
personnel was warranted. It alleges that:
The issue is whether or not the nature and extent of the
financial circumstances and the methods used to resolve fiscal
difficulties warranted the illegal and unceremonious dismissal
of around 1,400 flight attendants, stewards, and cabin crew. It
was the termination without considering the legal factors for
retrenchment. Because of the difficulties that the entire nation
was going through, the ostensible name given was
retrenchment. But it was really an illegal dismissal and
arbitrary termination. x x x
The casualties of illegal action, the ones sacrificed in the early
stages of the situation and not as a last resort, are not the
employer and its officers or owner. As the Honorable Court
pointed out, the questioned action struck at the very heart of the
workers’ employment, the lifeblood upon which the worker
and his family owe their survival. No proof has been adduced
in ten long years of litigation that retrenchment was only a
measure of last resort, (that) other less drastic means were
considered and tried and found inadequate.
xxxx
The Court has treated the instant case for what it truly is—an
illegal retrenchment, one that was prematurely done and
whimsically carried out. x x x
This is about a “bad faith” retrenchment—one which neither
complied with the legal prerequisites therefor nor observed the
provisions of the PAL-FASAP CBA thereon; one which was
not employed as a last resort and which did not have any fair
and reasonable criteria to serve as basis for selecting who
would be retrenched; one which was capriciously and
whimsically implemented; one which was illegally made.10
FASAP declares that although it recognized PAL’s financial
difficulties in 1997 and 1998, it never conceded the same to be
valid reason upon which to base the questioned retrenchment,
citing that in proceedings below, the reasonable necessity of
the retrenchment and its effectiveness in preventing losses to
PAL had been squarely raised. FASAP maintains that prior
negotiations with PAL (on the possible implementation of cost-
cutting measures, employee rotation plans, triple and quadruple
room sharing arrangements, allocation of vacation leaves
without pay, etc.) is proof of that recognition, but that
ultimately, it was incumbent upon PAL to have shown that it
undertook a retrenchment scheme that was in proportion to and
commensurate with the financial distress it was experiencing at
the time.
Essentially, FASAP merely echoed our pronouncements,
focusing upon our dissertation on each of the elements required
in order to justify retrenchment, most of which were found
lacking in PAL’s retrenchment program or scheme.
Specifically, FASAP points to the lack of prior resort to cost-
cutting measures, the rehiring of probationary employees, prior
assurances by PAL that retrenchment was no longer necessary,
and lack of fair and reasonable criteria in selecting the
employees to retrench.
Specifically, mention is made that there is nothing in its then
existing CBA with PAL which mandates that a single year—
1997—should be used as the gauge or measure for determining
the flight attendants’ performance for purposes of
retrenchment. Asserting that PAL’s justification of its use of a
single year was a “very strained interpretation” of the
provisions in the CBA, FASAP insists that seniority, loyalty
and past efficiency are requirements of law and jurisprudence
which may not be summarily disregarded in choosing whom to
retrench, demote or retain, a proposition it claims to find
support in Article III, Section 7(A) of its CBA which provides:
The Association (FASAP) hereby acknowledges that the
management of the Company (PAL) and the direction of its
employees; x x x; and the lay-off and re-employment of
employees in connection with increases or decreases in the
work force are the exclusive rights and functions of
management provided only that the Company act in accordance
with applicable laws and the provisions of this
Agreement.11 (Words in parentheses supplied)
FASAP goes on further to suggest that the basic criterion for
effecting the retrenchment scheme should have been seniority,
as enunciated in Maya Farms Employees Organization v.
National Labor Relations Commission.12 In said case, the
employer was constrained to streamline its manpower base
owing to losses and setbacks in operations. Management sent
notices of termination (due to redundancy) to 66 of its
employees. In the labor case that ensued, the union pointed to a
violation of a specific provision in its CBA which declared,
thus:
Sec. 2. LIFO RULE. In all cases of lay-off or retrenchment
resulting in termination of employment in the line of work, the
Last-In-First-Out (LIFO) Rule must always be strictly
observed.
Ultimately, we held therein that the employer did not violate
the LIFO rule in the CBA. We explained therein that—
It is not disputed that the LIFO rule applies to termination of
employment in the line of work. Verily, what is contemplated
in the LIFO rule is that when there are two or more employees
occupying the same position in the company affected by the
retrenchment program, the last one employed will necessarily
be the first to go.
Moreover, the reason why there was no violation of the LIFO
rule was amply explained by public respondent in this wise:
. . . The LIFO rule under the CBA is explicit. It is ordained that
in cases of retrenchment resulting in termination of
employment in line of work, the employee who was employed
on the latest date must be the first one to go. The provision
speaks of termination in the line of work. This contemplates a
situation where employees occupying the same position in the
company are to be affected by the retrenchment program. Since
there ought to be a reduction in the number of personnel in
such positions, the length of service of each employee is the
determining factor, such that the employee who has a longer
period of employment will be retained.
In the case under consideration, specifically with respect to
Maya Farms, several positions were affected by the special
involuntary redundancy program. These are packers, egg
sorters/stockers, drivers. In the case of packers, prior to the
involuntary redundancy program, twenty-one employees
occupied the position of packers. Out of this number, only 5
were retained. In this group of employees, the earliest date of
employment was October 27, 1969, and the latest packer was
employed in 1989. The most senior employees occupying the
position of packers who were retained are as follows:
Santos, Laura C. Oct. 27, 1969
Estrada, Mercedes Aug. 20, 1970
Hortaleza, Lita June 11, 1971
Jimenez, Lolita April 25, 1972
Aquino, Teresita June 25, 1975
All the other packers employed after June 2, 1975 (sic) were
separated from the service.
The same is true with respect to egg sorters. The egg sorters
employed on or before April 26, 1972 were retained. All those
employed after said date were separated.
With respect to the position of drivers, there were eight drivers
prior to the involuntary redundancy program. Thereafter only 3
positions were retained. Accordingly, the three drivers who
were most senior in terms of period of employment, were
retained.
They are: Ceferino D. Narag, Efren Macaraig and Pablito
Macaraig.
The case of Roberta Cabrera and Lydia C. Bandong, Asst.
Superintendent for packing and Asst. Superintendent for meat
processing respectively was presented by the union as an
instance where the LIFO rule was not observed by
management. The union pointed out that Lydia Bandong who
was retained by management was employed on a much later
date than Roberta Cabrera, and both are Assistant
Superintendent. We cannot sustain the union’s argument. It is
indeed true that Roberta Cabrera was employed earlier
(January 28, 1961) and (sic) Lydia Bandong (July 9, 1966).
However, it is maintained that in meat processing department
there were 3 Asst. Superintendents assigned as head of the 3
sections thereat. The reason advanced by the company in
retaining Bandong was that as Asst. Superintendent for meat
processing she could “already take care of the operations of the
other sections.” The nature of work of each assistant
superintendent as well as experience were taken into account
by management. Such criteria was not shown to be whimsical
nor carpricious (sic).13
Finally, FASAP claims that PAL did not provide reasons for
retrenching the more than 1,400 flight attendants; that it was
only when it filed its Supplemental Memorandum before the
Labor Arbiter in March 2000 that the airline submitted in
evidence the ICCD Masterank and Seniority 1997 Ratings,
which allegedly took into account the subjective factors such as
appearance and good grooming, which supposedly require the
written conformity of its members if they were to be
considered at all, in accordance with Section 124, Article
XXVI of the CBA.
By way of reply to FASAP’s Comment, PAL insists that its
decision to downsize the flight fleet was the principal reason
why it had to put into effect a corresponding downsizing of
cabin crew personnel; that the reduction in fleet size was an
integral part of its SEC-approved rehabilitation plan; that the
reduction in the number of its aircraft by 75%—from 54 to just
14—likewise necessitated a corresponding 75% reduction in its
total cabin crew personnel; and that its subsequent decision to
increase its remaining fleet from 14 aircraft to 22 was a
“business judgment exercised in good faith after a series of
significant events and upon the advice of airline industry
experts who were assisting it in its rehabilitation efforts.”14 This
increase from 14 to 22 aircraft was then included in its
Amended and Restated Rehabilitation Plan, which was
subsequently approved by the SEC. Because of this, it then had
to increase its manpower; it recalled or rehired the services of
the employees it had previously terminated.
PAL begs the Court to recognize this downsizing of aircraft as
a valid exercise of its management prerogative to close its
business operations, and not merely to reduce personnel. In
other words, PAL would have the Court believe that its
retrenchment program is not merely a reduction of personnel
for the purpose of cutting on costs of operations, but as a
closure of its business, a cessation of business operations to
prevent further financial drain.15 PAL argues that cost-cutting
measures could not have sufficed to nurse the airline back to
financial health; it had to resort to partial closure of its
business. Thus:
18. Moreover, how can PAL possibly implement the cost-
cutting measures allegedly suggested by FASAP with 75% of
its fleet already gone? The situation would be different if PAL
retained its 54-plane fleet, and PAL’s only concern was to save
on salaries and wages. In such a situation, PAL is indeed
obliged to resort to “less drastic cost-cutting measures” before
it can validly proceed with retrenchment. But this is not the
case here. PAL’s financial condition could not have improved
by merely adopting cost-cutting measures such as work
rotation and forced leaves. In fact, retrenchment alone could
not have saved PAL from financial ruin. PAL had to resort to
the drastic action of partially closing its business operations by
downsizing its fleet of aircrafts. This naturally resulted in the
reduction of PAL’s personnel.
19. Assuming arguendo that the jurisprudence relied upon by
FASAP apply, the proven facts in this case show that
retrenchment was not the only option for PAL. The problem
with FASAP is that it is taking a myopic view of what truly
happened. It stubbornly claims that the reduction of employees
is a simple case of retrenchment program that was implemented
in the first instance. But it is clear from the record that when
PAL suffered serious business losses, retrenchment was not the
only option, obviously because the objective was to cut down
on operating expenses as a whole, and not merely in terms of
salaries and wages, which is the only purpose of a
retrenchment.
20. What PAL did was to reduce its fleet of 54 planes to only
14 planes. It was only after PAL reduced its fleet of aircrafts
that it had to terminate the employment of its employees who
were already in excess of the workforce required under the
reduced fleet set-up. In other words, retrenchment was merely a
necessary and natural consequence of PAL’s earlier decision to
downsize its fleet of aircrafts. There is thus simply no basis to
say that PAL implemented retrenchment in the first instance.
xxxx
22. Neither is there basis to FASAP’s claim that PAL made the
assurance that there will be no more need for retrenchment.
How could have PAL given such assurance in light of its huge
business losses, bordering on bankruptcy? The truth is, no such
assurance was ever given by PAL. This is clear in the minutes
of all of the meetings with FASAP where the only issue
discussed was how to proceed with the retrenchment. These
meetings were held in February to April 1998, or two to three
months before the decision to reduce operations was made by
PAL due to various serious supervening events—the strike
staged by the Airline Pilots Association of the Philippines
(ALPAP) and by the Philippine Airlines Employees
Association (PALEA).16
On the use of efficiency ratings obtained for the year 1997 as
singular basis for determining the fitness of cabin crew
personnel to continue working with it, PAL explains that—
24. There is nothing unreasonable in using the year 1997 as
basis for arriving at the efficiency ratings. FASAP’s
insinuations that it ignored the employees’ alleged exceptional
performance ratings and exemplary attendance records in the
past are simply baseless, misleading and erroneous.
24.1. First, while an employee may rack up hundreds of awards
and commendations and hundreds of hours of leave credits, it
does not necessarily follow that the same employee, although
admittedly of exceptional caliber, cannot be terminated if just
or authorized cause subsequently exists. For instance, if there is
redundancy, an employee holding a superfluous position may
be terminated regardless of numerous awards and leave credits
he may have earned. In this case, it cannot be denied that
PAL’s reduction, or partial closure, of its business operations,
i.e., downsizing its flight fleet from 54 to 14 aircrafts, in order
to prevent business losses and avoid total closure of its
business, is one of the recognized authorized causes expressly
provided under Article 283 of the Labor Code.
PAL could, therefore, retrench employees regardless of the
number of commendations, awards and accumulated leave
credits the latter obtained in the course of employment
provided, of course, that the retrenchment is valid and legal. In
this case, the Labor Arbiter, the NLRC and the Court of
Appeals unanimously found that the retrenchment is
intrinsically valid and legal based on the same set of evidence.
In fact, the Labor Arbiter categorically ruled:
…there is no question that the rules imposed by law and
jurisprudence to sustain retrenchment have been amply
satisfied by PAL. The only issue at hand is whether or not the
retrenchment can be upheld for complying with rules set forth
in the collective bargaining agreement.
24.2. Second, in implementing retrenchment, the law does not
require an employer to look back into far reaches of time to
check every good deed performed by every employee. This
would not only be highly impractical, but manifestly absurd as
well. In evaluating job efficiency, it is enough for an employer
to fix a determinate time frame within which to base its
evaluation. It can be six months, one year, two years, three
years or ten years. It can in fact be any period of time, subject
to management’s sound discretion.
But to be fair and reasonable, the application of the period must
be uniform and consistent. It cannot be one year for employee
A, two years for employee B and three years for employee C.
In this case, PAL selected a period of one year (the year 1997),
which was uniformly and consistently applied to all, without
exception.
The year 1997 was chosen by PAL as it was the most logical
period being the year immediately preceding the retrenchment.
All relevant records for the year 1997, such as attendance and
performance evaluation, were complete and accurate.
Certainly, the year 1997 was not selected for the purpose of
discriminating against any employee, but with the sole
objective of retaining the more efficient among the employees.
xxxx
26. FASAP then insists that the basic criterion to effect lay-off
or retrenchment is seniority. FASAP cites Article VII, Section
23 of the PAL-FASAP 1995-2000 CBA:
The term “seniority” whenever used in this Agreement shall be
deemed to mean a measure of a regular Cabin Attendant’s
claim in relation to other regular Cabin Attendants holding
similar positions, to preferential consideration whenever the
Company exercises its right to promote to a higher paying
position or lay-off of any Cabin Attendant.
27. FASAP obviously misread and misinterpreted Section 23 of
the PAL-FASAP 1995-2000 CBA. The provision does not
even mandate seniority to be a criterion whenever PAL
implements a reduction or retrenchment, much less does it say
that seniority is the one and only criterion to be applied.
Section 23 simply defines seniority and states that seniority
may be given “preferential consideration” whenever PAL
exercises its right to promote to a higher paying position or lay-
off of cabin attendants. PAL did just that in complying with
Section 112 of the PAL-FASAP CBA 1995-2000 when
seniority was applied whenever all other factors were found to
be equal. PAL clearly followed Section 23 of the PAL-FASAP
CBA in giving seniority preferential consideration. This is also
reflected in the tabulation made by the NLRC in its Decision.17
PAL argues that in its past two CBAs with FASAP prior to the
one under controversy, the same provisions and criteria for
appearance, grooming, efficiency and performance were used,
without objections having been advanced by FASAP.
During oral arguments, PAL advanced an altogether new line
of reasoning that has, until now, never been advanced as the
primary argument in defense of its retrenchment scheme: that
the principal and true reason why PAL had to implement the
mass lay-off of cabin personnel was not the downsizing of
aircraft fleet size, but the June 5, 1998 pilots’ strike, where
approximately six hundred (600) of its pilots apparently
abandoned their planes and simultaneously refused to fly.
Thus, counsel for PAL manifested to the Court that—
ATTY. MENDOZA
As a consequence, if your Honor please, but what really
brought about, shall we say, “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 because the pilots, if your Honors please, even left
their place where they were at the time, somewhere in
Bangkok, somewhere in Taipei and they just left the planes.
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.18 (Emphasis supplied)
As a result of this pilots’ strike, PAL claims to have suffered
daily revenue losses equivalent to P100 million and P50
million of lost fixed costs, which came at a time when PAL had
“no more money.”19 Owing to this pilots’ strike, PAL was
brought to the brink of disaster and emergency that it needed to
align the number of cabin attendants with the number of
airplanes that were flying.20 After the pilots went on strike,
PAL was left with only 68 pilots who chose to remain, but with
2,039 cabin attendants. Faced with this disproportionate ratio
of pilots to cabin attendants, PAL immediately decided to
terminate the services of more than 1,400 cabin attendants via
the retrenchment scheme in question. At the same time, the
reduction in fleet—which until that time remained a mere
proposal—had to be immediately implemented, and cost-
cutting measures were simply out of the question. Thus:
ATTY. MENDOZA
While meetings between PAL and FASAP may have occurred
prior to June 1998 to discuss measures in which to possibly
avoid retrenchment with its planned reduction of fleet, PAL’s
financial circumstances drastically changed in June 1998 that
necessitated immediate and corresponding measures. Harsh
reality was that, there simply was no time. FASAP-suggested
less drastic measures of work rotation, forced vacation leaves,
hotel sharing etc. were no longer feasible. Indeed, reduction by
about 5,000 employees, including 1,423 cabin crew, was the
less drastic measure. The alternative, harsher obviously, was
closure and liquidation.21 (Emphasis supplied)
All throughout, it has been impressed upon us that PAL’s
decision to downsize its fleet size is the principal reason why it
had to put into effect a corresponding downsizing of cabin
crew personnel. However, on oral arguments before us, PAL
now makes a total turnaround and attributes the retrenchment
to the June 5, 1998 pilots’ strike. Repeatedly, counsel for PAL
blamed the pilots’ strike as the main culprit, thus:
ATTY. MENDOZA
As a consequence, if your Honor please, but what really
brought about, shall we say, “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.
xxxx
ATTY. MENDOZA
Well, according to the Court, Your Honor, the Court
principally invalidated this because, according to the Court it
was fraudulent. And it was fraudulent because PAL
misrepresented that it was losing, but in fact it was not as the
Court found. So, in other words, if Your Honor please, as I
have explained, there was no misrepresentation because the
members of FASAP could not have but known that there were
less planes that were flying. And they could not have but
known that the number of cabin attendants cannot have exceed
that which were required by the number of planes that were
flying. So that was basically the reason for the redundancy and
so it can never be said that this was redundant. But as I have
said, if Your Honor please, if the Court reconsiders its finding
that there was illegal dismissal there would really be no
relevance to this quitclaim because, in any event, the separation
pay has been received by some, except for those who declined
it.
So therefore, if Your Honor please, if I may conclude since my
time is practically up. First, there can hardly be any question, in
fact, it is considered by FASAP and found by the National
Labor Relations Commission, the Labor Arbiter, and the Court
of Appeals that circumstances existed that did not only warrant
the reduction of personnel including the members of FASAP
and the cabin attendants but that these were compelled by
circumstances. If the cabin attendants were not retrenched you
would have a situation where cabin attendants would be there
but were not needed but would earn compensation.
Second, if Your Honor please, as to the second issue, “cost-
cutting measures”—they were contemplated. But when the
pilots struck, an emergency situation arose and so there needed
to be an immediate response to that situation and the only one
of the components of that response is this retrenchment.
Incidentally, if Your Honor please, a basic core of the
rehabilitation of PAL was for the creditors to agree. PAL is a
different business than other businesses, Your Honor. An
airline cannot stand still and the creditors’ demands are not met
immediately, PAL would simply lose its airplanes. And so far
as Point No. 3 is concerned, if Your Honor please, PAL did the
best it could under the circumstances. And as to number 3, as I
said, if Your Honor please, PAL acted in accordance with
criteria in the Collective Bargaining Agreement which it
followed meticulously and religiously.
Whereas for the fourth, if Your Honor please, there was no
fraud in the execution of the quitclaim but I must emphasize
once again that PAL’s case does not really rest on the
quitclaims. PAL’s case rests on the response that we made on
the first three (3) questions.
xxxx
ATTY. MENDOZA
Yes. As I explained, Your Honor, when the 1997 economic
crisis took place and PAL saw that it was going to create a
problem, PAL started studying measures already. But before it
could implement any of these measures, even conclude the
study the pilots struck, when the pilots struck the situations
changed entirely. It put PAL in complete peril of total closure
because no planes could fly, so that changed the picture, there
was no more time to engage in cost-cutting measures. What
needed to be done, if Your Honor please, is to do what was
necessary to survive at that point? The first thing to do to
survive was to fly as many planes as possible in order to earn
some revenue. But you could only fly as many planes as there
were pilots, and that was the reason for the initial flights.
xxxx
ASSOCIATE JUSTICE NACHURA
During these conferences, did FASAP not suggest any other
cost-cutting measures in order to determine the immediate
implementation of a retrenchment program?
ATTY. MENDOZA
Well, there was an endorsed initial conversation; there were
suggestions if there is to be reduction of personnel, rotations,
and so on and so forth, Your Honor. So, by the time the pilots
struck you have to retrench quickly x x x.
ASSOCIATE JUSTICE NACHURA
Because related to this is a statement in our Decision that the
retrenchment was illegal because it was not actually the last
resort that PAL could have; it was not the last resort that PAL
could have attended, well used. That means, there were other
options that would probably have opened to PAL which would
not be as detrimental to FASAP as retrenchment.
ATTY. MENDOZA
If Your Honor please, may I put it this way? It was not just the
last; it was the only resort, Your Honor, because of these
circumstances. There was no other option, but to operate flghts
and spend only as necessary. If you have more cabin attendants
than we required for those planes which were flying you are
spending needlessly actually, Your Honor, and that is certainly
not conducive to bring about a recovery of Philippine Airlines.
xxxx
ASSOCIATE JUSTICE DE CASTRO
You mentioned that…before that, that there is a need for
rehabilitation because the PAL was in dire financial condition
at that time, and it was…
ATTY. MENDOZA
Your Honor please, the rehabilitation came after the pilots’
strike. Actually, before the pilots’ strike the effort of PAL is to
find the way to address the Asian economic crisis. It’s just like,
if Your Honor please, a factory which is to be more efficient in
order to be able to compete, let us say, with the imported
goods, so you downsize or you may try to be more efficient but
the situation PAL confronted after the pilots’ strike was
entirely different. It was a case of survival already, Your
Honor, because it meant closure and PAL was able to operate
some planes only because of what they called management
pilots. There were certain pilots who were occupying
supervisory positions but who were employed still by PAL.
They were the ones who actually flew the plane because the
members of the pilots’ union simply stopped
working.22 (Emphasis supplied)
On the other hand, FASAP argued and reiterated its original
contentions, inter alia, that during negotiations for the
implementation of cost-cutting measures, it was assured by
PAL that since there were negotiations with possible investors
who were being eyed as business partners, retrenchment was
no longer necessary;23 that although it admitted PAL’s financial
difficulties, it did not concede that these losses justified the
urgency, necessity and extent of the questioned retrenchment
scheme;24 that the ICCD Masterank Listing was an
afterthought, the same having been presented only on March
13, 2000, and was never shown to the retrenched employees
during the period of retrenchment;25 that the criteria for
retrenchment did not conform to the CBA;26 and that no cost-
cutting measures were implemented.27
PAL has all this time tried to convince the Court that its
decision to downsize its flight fleet was the principal reason
why it undertook a corresponding downsizing of cabin crew
personnel. This time, however, it significantly changed stance
and blamed the June 5, 1998 pilots’ strike as the real culprit
which drove it to undertake the massive retrenchment under
scrutiny. This time, PAL characterizes the retrenchment
scheme and the downsizing of aircraft as mere necessary
reactions to or unfortunate consequences of the pilots’ strike,
which it claims likewise necessitated a disregard of all previous
negotiations for the implementation of cost-cutting measures
that could have rendered the retrenchment scheme unnecessary,
and which cost-cutting measures it no longer found necessary
to undertake.
We find this argument untenable. The strike was a temporary
occurrence that did not necessitate the immediate and sweeping
retrenchment of 1,400 cabin or flight attendants. By PAL’s
own account, some of the striking pilots went back to work in
July 1998, or less than one month after the strike began.
Moreover, PAL admitted that it remedied the situation by
employing “management pilots.”28 It could have hired new
pilots as well. Certainly, it could have implemented the cost-
cutting measures being discussed as a temporary measure to
obviate the adverse effects of the pilots’ strike. 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.
Besides, we cannot simply allow PAL to conveniently blame
the striking pilots for causing the massive retrenchment of
cabin personnel. Using them as scapegoats to validate a
comprehensive retrenchment scheme of cabin personnel
without observing the requirements set by law is both unfair
and underhanded. 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. It admittedly
dropped all plans of implementing cost-cutting measures as
soon as the pilots went on strike, and right away it sent notices
of termination to its cabin personnel.29 This knee-jerk reaction
would explain why it had to eventually recall and rehire some
of the cabin attendants almost immediately after it retrenched
them, because the retrenchment simply was not commensurate
with the downsizing of aircraft fleet size. This outcome only
proves to show that the decision to retrench came even before a
final determination of how many aircraft were needed to be
retained or discarded, or even before the rehabilitation plan
could be approved.30
Again, it must be emphasized that in order for a retrenchment
scheme to be valid, all of 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
employer’s obligation to exhaust all other means to avoid
further losses without retrenching its employees is a component
of the first element as enumerated above. 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 have been tried
and found wanting.31
In the instant case, PAL admitted that since the pilots’ strike
allegedly created a situation of extreme urgency, it no longer
implemented cost-cutting measures and proceeded directly to
retrench. This being so, it clearly did not abide by all the
requirements under Article 283 of the Labor Code. At the time
it was implemented, 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. It was brought about by
—and resorted to as an immediate reaction to—a pilots’ strike
which, in strict point of law and as herein earlier discussed,
may not be considered as a valid reason to retrench, nor may it
be used to excuse PAL for its non-observance of the
requirements of the law on retrenchment under the Labor Code.
On the basis of the foregoing disquisition, we find no further
need to discuss the other arguments advanced by the parties in
their pleadings and during the oral arguments.
Therefore, this Court finds no reason to disturb its finding that
the retrenchment of the flight attendants was illegally executed.
As held in the Decision sought to be reconsidered, PAL failed
to observe the procedure and requirements for a valid
retrenchment. Assuming that PAL was indeed suffering
financial losses, the requisite proof therefor was not presented
before the NLRC which was the proper forum. More
importantly, the manner of the retrenchment was not in
accordance with the procedure required by law. Hence, the
retrenchment of the flight attendants amounted to illegal
dismissal. Consequently, the flight attendants affected are
entitled to the reliefs provided by law, which include
backwages and reinstatement or separation pay, as the case
may be.
PAL begs the compassion of this Court and alleges that the
monetary award it stands to pay to the affected flight attendants
totals a whopping P2.3 billion, the payment of which will
certainly paralyze its operations and even lead to its untimely
demise. However, a careful review of the records of the case,
as well as the respective allegations of the parties, shows that
several of the crew members do not need to be paid full
backwages or separation pay. A substantial fraction of the
1,400 flight attendants have already been either recalled,
reinstated or relieved from the service. Still, some of them have
reached the age of compulsory retirement or even died.
Likewise, a significant portion of these retrenched flight
attendants have already received separation pay and signed
quitclaim. All of these factors, to the mind of the Court, will
greatly reduce the quoted amount of the money judgment that
PAL will have to pay.
After finality of this case, the records will have to be remanded
to the Labor Arbiter who decided the case at the first instance.
There, the actual amount of PAL’s liability to each and every
flight attendant will be computed. Both parties will have a
chance to submit further proof and argument in support of their
respective proposed computations. For the guidance of the
Labor Arbiter as well as the parties, this Court lays down the
following yardsticks in the computation of the final amount of
liability, in order to avoid any protracted and heated debates
which can again lead to further delays in the final resolution of
this case and the full realization by the retrenched flight
attendants of the amounts necessary to compensate and
indemnify them for the wrongful retrenchment.
1. Flight attendants who have been re-employed without loss of
seniority rights shall be paid backwages but only up to the time
of their actual reinstatement.
2. Flight attendants who have been re-employed as new hires
shall be restored their seniority and other preferential rights.
However, their backwages shall be computed only up to the
date of actual re-hiring.
3. Flight attendants who have reached their compulsory age of
retirement shall receive backwages up to the date of their
retirement only. The same is true as regards the heirs of those
who have passed away.
4. Flight attendants who have not been re-employed by PAL,
including those who executed quitclaims and received
separation pay or financial assistance, shall be reinstated
without loss of seniority rights and paid full backwages.
However, the amounts they already received should be
deducted from whatever amounts are finally adjudged to them
individually.
Four members of the Division voted to include a fifth (5th)
criterion, namely that flight attendants who had obtained
substantially equivalent or even more lucrative employment
elsewhere in 1998 or thereafter are deemed to have severed
their employment with PAL. They shall be entitled to full
backwages from the date of their retrenchment only up to the
date they found employment elsewhere.
On a final note, this Court finds that the award of attorney’s
fees equivalent to 10% of the total monetary award should be
tempered, considering the number of flight attendants who
stand to receive monetary awards and the totality of all
amounts due to them. To be sure, attorney’s fees in labor cases
are awarded specifically in actions for recovery of wages or
where an employee was forced to litigate and thus incurred
expenses to protect his rights and interests. In such cases, a
maximum of 10% of the total monetary award is justifiable
under Article 111 of the Labor Code, Section 8, Rule VIII,
Book III of its Implementing Rules and paragraph 7, Article
2208 of the Civil Code.32 The award of attorney’s fees is proper
where there is a showing that the lawful wages were not paid
accordingly.33
x x x [T]here are two commonly accepted concepts of
attorney’s fees, the so-called ordinary and extraordinary. In its
ordinary concept, an attorney’s fee is the reasonable
compensation paid to a lawyer by his client for the legal
services he has rendered to the latter. The basis of this
compensation is the fact of his employment by and his
agreement with the client. In its extraordinary concept,
attorney’s fees are deemed indemnity for damages ordered by
the court to be paid by the losing party in a litigation. The
instances where these may be awarded are those enumerated in
Article 2208 of the Civil Code, specifically par. 7 thereof
which pertains to actions for recovery of wages, and is payable
not to the lawyer but to the client, unless they have agreed that
the award shall pertain to the lawyer as additional
compensation or as part thereof. The extraordinary concept of
attorney’s fees is the one contemplated in Article 111 of the
Labor Code, which provides:
Art. 111. Attorney’s fees. – (a) In cases of unlawful
withholding of wages, the culpable party may be assessed
attorney’s fees equivalent to ten percent of the amount of
wages recovered x x x
The afore-quoted Article 111 is an exception to the declared
policy of strict construction in the awarding of attorney’s
fees. Although an express finding of facts and law is still
necessary to prove the merit of the award, there need not
be any showing that the employer acted maliciously or in
bad faith when it withheld the wages. There need only be a
showing that the lawful wages were not paid accordingly, as
in this case.
In carrying out and interpreting the Labor Code’s provisions
and its implementing regulations, the employee’s welfare
should be the primordial and paramount consideration. This
kind of interpretation gives meaning and substance to the
liberal and compassionate spirit of the law as provided in
Article 4 of the Labor Code which states that “[a]ll doubts in
the implementation and interpretation of the provisions of [the
Labor] Code including its implementing rules and regulations,
shall be resolved in favor of labor”, and Article 1702 of the
Civil Code which provides that “[i]n case of doubt, all labor
legislation and all labor contracts shall be construed in favor of
the safety and decent living for the laborer.” (Emphasis
supplied)34
In the case of Concept Placement Resources, Inc. v.
Funk,35 this Court reduced the amount of attorney’s fees which
it ruled to be iniquitous and unconscionable after finding that
the lawyer did not encounter difficulty in representing his
client. It was held:
We observe, however, that respondent did not encounter
difficulty in representing petitioner. The complaint against it
was dismissed with prejudice. All that respondent did was to
prepare the answer with counterclaim and possibly petitioner’s
position paper. Considering respondent’s limited legal services
and the case involved is not complicated, the award
of P50,000.00 as attorney’s fees is a bit excessive. In First
Metro Investment Corporation vs. Este del Sol Mountain
Reserve, Inc., we ruled that courts are empowered to reduce the
amount of attorney’s fees if the same is iniquitous or
unconscionable. Under the circumstances obtaining in this
case, we consider the amount of P20,000.00 reasonable.36
In the case at bar, we find that the flight attendants were
represented by respondent union which, in turn, engaged the
services of its own counsel. The flight attendants had a
common cause of action. While the work performed by
respondent’s counsel was by no means simple, seeing as it
spanned the whole litigation from the Labor Arbiter stage all
the way to this Court, nevertheless, the issues involved in this
case are simple, and the legal strategies, theories and arguments
advanced were common for all the affected crew members.
Hence, it may not be reasonable to award said counsel an
amount equivalent to 10% of all monetary awards to be
received by each individual flight attendant. Based on the
length of time that this case has been litigated, however, we
find that the amount of P2,000,000.00 is reasonable as
attorney’s fees. This amount should include all expenses of
litigation that were incurred by respondent union.
WHEREFORE, for lack of merit, the Motion for
Reconsideration is hereby DENIED with FINALITY. The
assailed Decision dated July 22, 2008 is AFFIRMED with
MODIFICATION in that the award of attorney’s fees and
expenses of litigation is reduced to P2,000,000.00. The case is
hereby REMANDED to the Labor Arbiter solely for the
purpose of computing the exact amount of the award pursuant
to the guidelines herein stated.

No further pleadings will be entertained.

SO ORDERED.

G.R. No. 202996               June 18, 2014

MARLO A. DEOFERIO, Petitioner,
vs.
INTEL TECHNOLOGY PHILIPPINES, INC. and/or MIKE
WENTLING, Respondents.
DECISION Deoferio responded to his termination of employment by filing a
complaint for illegal dismissal with prayer for money claims against
BRION, J.: respondents Intel and Mike Wentling (respondents). He denied that he
ever had mental illness and insisted that he satisfactorily performed his
We resolve the petition for review on certiorari  filed by petitioner Marlo
1 duties as a product engineer. He argued that Intel violated his statutory
A. Deoferio to challenge the February 24, 2012 decision  and the August
2 right to procedural due process when it summarily issued a notice of
2, 2012 resolution  of the Court of Appeals (CA) in CA-G.R. SP No.
3 termination. He further claimed that he was entitled to a salary
115708. differential equivalent to the pre-terminated period of his assignment in
the United States minus the base pay that he had already received.
Deoferio also prayed for backwages, separation pay, moral and
The Factual Antecedents
exemplary damages, as well as attorney’s fees. 10

On February 1, 1996, respondent Intel Technology Philippines, Inc.

In defense, the respondents argued that Deoferio’s dismissal was based
(Intel)employed Deoferio as a product quality and reliability engineer
on Dr. Lee’s certification that: (1) his schizophrenia was not curable
with a monthly salary of ₱9,000.00. In July2001, Intel assigned him to
within a period of six months even with proper medical treatment; and
the United States as a validation engineer for an agreed period of two
(2) his continued employment would be prejudicial to his and to the
years and with a monthly salary of US$3,000.00. On January 27, 2002,
other employees’ health.  The respondents also insisted that Deoferio’s
11

Deoferio was repatriated to the Philippines after being confined at

presence at Intel’s premises would pose an actual harm to his co-
Providence St. Vincent Medical Center for major depression with
employees as shown by his previous acts. On May 8, 2003, Deoferio
psychosis.  In the Philippines, he worked as a product engineer with a
4

emailed an Intel employee with this message: "All soul’s day back to
monthly salary of ₱23,000.00. 5

work Monday WW45.1." On January 18, 2005, he cut the mouse cables,
stepped on the keyboards, and disarranged the desks of his co-
Deoferio underwent a series of medical and psychiatric treatment at employees.  The respondents also highlighted that Deoferio incurred
12

Intel’s expense after his confinement in the United States. In 2002, Dr. numerous absences from work due to his mental condition, specifically,
Elizabeth Rondain of Makati Medical Center diagnosed him to be from January 31, 2002 until February 28, 2002,  from August 2002 until
13

suffering from mood disorder, major depression, and auditory September 2002,  and from May 2003 until July 2003.  Deoferio also
14 15

hallucination.  He was also referred to Dr. Norieta Balderrama, Intel’s

6
took an administrative leave with pay from January 2005 until
forensic psychologist, and to a certain Dr. Cynthia Leynes who both December 2005. 16

confirmed his mental condition.  On August 8, 2005, Dr. Paul Lee, a
7

consultant psychiatrist of the Philippine General Hospital, concluded

The respondents further asserted that the twin-notice requirement in
that Deoferio was suffering from schizophrenia. After several
dismissals does not apply to terminations under Article 284 of the Labor
consultations, Dr. Lee issued a psychiatric report dated January 17,2006
Code.  They emphasized that the Labor Code’s implementing rules
17

concluding and stating that Deoferio’s psychotic symptoms are not

(IRR) only requires a competent public health authority’s certification to
curable within a period of six months and "will negatively affect his
effectively terminate the services of an employee.  They insisted that
18

work and social relation with his co-worker[s]."  Pursuant to these

8

Deoferio’s separation and retirement payments for ₱247,517.35 were

findings, Intel issued Deoferio a notice of termination on March 10,
offset by his company car loan which amounted to ₱448,132.43.  He 19

2006.9

was likewise not entitled to moral and exemplary damages, as well as

attorney’s fees, because the respondents faithfully relied on Dr. Lee’s
certification that he was not fit to work as a product engineer.
20
The Labor Arbitration Ruling
In a decision  dated March 6, 2008,the Labor Arbiter (LA) ruled that
21
Deoferio had been validly dismissed. The LA gave weight to Dr. Lee’s
certification that Deoferio had been suffering from schizophrenia and
was not fit for employment. The evidence on record shows that
Deoferio’s continued employment at Intel would pose a threat to the
health of his co-employees. The LA further held that the Labor Code
and its IRR do not require the employer to comply with the twin-notice
requirement in dismissals due to disease. The LA also found
unmeritorious Deoferio’s money claims against Intel. 22
On appeal by Deoferio, the National Labor Relations Commission
(NLRC) wholly affirmed the LA’s ruling.  The NLRC also
23
denied  Deoferio’s motion for reconsideration,  prompting him to seek
24 25
relief from the CA through a petition for certiorari under Rule 65 of the
Rules of Court.
The CA’s Ruling
On February 24, 2012, the CA affirmed the NLRC decision. It agreed
with the lower tribunals’ findings that Deoferio was suffering from
schizophrenia and that his continued employment at Intel would be
prejudicial to his health and to those of his co-employees. It ruled that
the only procedural requirement under the IRR is the certification by a
competent public health authority on the non-curability of the disease
within a period of six months even with proper medical treatment. It
also concurred with the lower tribunals that Intel was justified in not
paying Deoferio separation pay as required by Article 284 of the Labor
Code because this obligation had already been offset by the matured car
loan that Deoferio owed Intel. 26
Deoferio filed the present petition after the CA denied his motion for
reconsideration. 27
The Petition
In the present petition before the Court, Deoferio argues that the uniform
finding that he was suffering from schizophrenia is belied by his
subsequent employment at Maxim Philippines Operating Corp. and
Philips Semiconductors Corp., which both offered him higher
compensations. He also asserts that the Labor Code does not exempt the
employer from complying with the twin-notice requirement in
terminations due to disease.28
The Respondents’ Position
In their Comment,  the respondents posit that the petition raises purely
29
questions of fact which a petition for review on certiorari does not
allow. They submit that Deoferio’s arguments have been fully passed
upon and found unmeritorious by the lower tribunals and by the CA.
They additionally argue that Deoferio’s subsequent employment in other
corporations is irrelevant in determining the validity of his dismissal; the
law merely requires the non-curability of the disease within a period of
six months even with proper medical treatment.
The respondents also maintain that Deoferio’s claim for salary
differential is already barred by prescription under Article 291 of the
Labor Code.  Even assuming that the claim for salary differential has
30
been timely filed, the respondents assert that the parties expressly agreed
in the International Assignment Relocation Agreement that "the
assignment length is only an estimate and not a guarantee of
employment for any particular length of time."  Moreover, his
31
assignment in the United States was merely temporary and did not
change his salary base, an amount which he already received.
The Issues
This case presents to us the following issues:
 (1) Whether Deoferio was suffering from schizophrenia and
whether his continued employment was prejudicial to his
health, as well as to the health of his co-employees;
(2) Whether the twin-notice requirement in dismissals applies to
terminations due to disease; and
As part of the second issue, the following issues are raised:
(a) Whether Deoferio is entitled to nominal damages for
violation of his right to statutory procedural due process; and
(b) Whether the respondents are solidarily liable to Deoferio for
nominal damages.
(3) Whether Deoferio is entitled to salary differential,
backwages, separation pay, moral and exemplary damages, as
well as attorney’s fees.
The Court’s Ruling
We find the petition partly meritorious.
Intel had an authorized cause to dismiss Deoferio from employment
Concomitant to the employer’s right to freely select and engage an
employee is the employer’s right to discharge the employee for just
and/or authorized causes. To validly effect terminations of employment,
the discharge must be for a valid cause in the manner required by law.
The purpose of these two-pronged qualifications is to protect the
working class from the employer’s arbitrary and unreasonable exercise
of its right to dismiss. Thus, in termination cases, the law places the
burden of proof upon the employer to show by substantial evidence that
the termination was for a lawful cause and in the manner required by
law.
In concrete terms, these qualifications embody the due process
requirement in labor cases - substantive and procedural due process.
Substantive due process means that the termination must be based on
just and/or authorized causes of dismissal. On the other hand, procedural
due process requires the employer to effect the dismissal in a manner
specified in the Labor Code and its IRR. 32
The present case involves termination due to disease – an authorized
cause for dismissal under Article 284 of the Labor Code. As substantive
requirements, the Labor Code and its IRR  require the presence of the
33
following elements:
(1) An employer has been found to be suffering from any
disease.
(2) His continued employment is prohibited by law or
prejudicial to his health, as well as to the health of his co-
employees.
(3) A competent public health authority certifies that the disease
is of such nature or at such a stage that it cannot be cured within
a period of six months even with proper medical treatment.
With respect to the first and second elements, the Court
liberally construed the phrase "prejudicial to his health as well
as to the health of his co-employees" to mean "prejudicial to his
health or to the health of his co-employees." We did not limit
the scope of this phrase to contagious diseases for the reason
that this phrase is preceded by the phrase "any disease" under
Article 284 of the Labor Code, to wit:
Art. 284. Disease as ground for termination. – An employer may
terminate the services of an employee who has been found to be
suffering from any disease and whose continued employment is
prohibited by law or is prejudicial to his health as well as to the health of
his co-employees: Provided, That he is paid separation pay equivalent to
at least one (1) month salary or to one-half (1/2) month salary for every
year of service, whichever is greater, a fraction of at least six (6) months
being considered as one (1) whole year. [underscores, italics and
emphases ours]
Consistent with this construction, we applied this provision in resolving
illegal dismissal cases due to non-contagious diseases such as stroke,
heart attack, osteoarthritis, and eye cataract, among others. In Baby Bus,
Inc. v. Minister of Labor,  we upheld the labor arbitration’s finding that
34
Jacinto Mangalino’s continued employment – after he suffered several
strokes – would be prejudicial to his health. In Duterte v. Kingswood
Trading Co., Inc.,  we recognized the applicability of Article 284 of the
35
Labor Code to heart attacks. In that case, we held that the employer-
company’s failure to present a certification from a public health
authority rendered Roque Duterte’s termination due to a heart attack
illegal. We also applied this provision in Sy v. Court of Appeals  to 36
determine whether Jaime Sahot was illegally dismissed dueto various
ailments such as presleyopia, hypertensive retinopathy, osteoarthritis,
and heart enlargement, among others. In Manly Express, Inc. v. Payong,
Jr.,  we ruled that the employer-company’s non-presentment of a
37
certification from a public health authority with respect to Romualdo
Payong Jr.’s eye cataract was fatal to its defense.
The third element substantiates the contention that the employee has
indeed been suffering from a disease that: (1) is prejudicial to his health
as well as to the health of his co-employees; and (2) cannot be cured
within a period of six months even with proper medical treatment.
Without the medical certificate, there can be no authorized cause for the
employee’s dismissal. The absence of this element thus renders the
dismissal void and illegal.
Simply stated, this requirement is not merely a procedural requirement,
but a substantive one.  The certification from a competent public health
1âwphi1
authority is precisely the substantial evidence required by law to prove
the existence of the disease itself, its non-curability within a period of
six months even with proper medical treatment, and the prejudice that it
would cause to the health of the sick employee and to those of his co-
employees.
In the current case, we agree with the CA that Dr. Lee’s psychiatric
report substantially proves that Deoferio was suffering from
schizophrenia, that his disease was not curable within a period of six
months even with proper medical treatment, and that his continued
employment would be prejudicial to his mental health. This conclusion
is further substantiated by the unusual and bizarre acts that Deoferio
committed while at Intel’s employ.
The twin-notice requirement applies
to terminations under Article 284 of
the Labor Code
The Labor Code and its IRR are silent on the procedural due process
required in terminations due to disease. Despite the seeming gap in the
law, Section 2, Rule 1, Book VI of the IRR expressly states that the
employee should be afforded procedural due process in all cases of
dismissals.
38
In Sy v. Court of Appeals  and Manly Express, Inc. v. Payong,
39
Jr.,  promulgated in 2003 and 2005, respectively, the Court finally
40
pronounced the rule that the employer must furnish the employee two
written notices in terminations due to disease, namely: (1) the notice to
apprise the employee of the ground for which his dismissal is sought;
and (2) the notice informing the employee of his dismissal, to be issued
after the employee has been given reasonable opportunity to answer and
to be heard on his defense. These rulings reinforce the State policy of
protecting the workers from being terminated without cause and without
affording them the opportunity to explain their side of the controversy.
From these perspectives, the CA erred in not finding that the NLRC
gravely abused its discretion when it ruled that the twin-notice
requirement does not apply to Article 284 of the Labor Code. This
conclusion is totally devoid of any legal basis; its ruling is wholly
unsupported by law and jurisprudence. In other words, the NLRC’s
unprecedented, whimsical and arbitrary ruling, which the CA
erroneously affirmed, amounted to a jurisdictional error.
Deoferio is entitled to nominal We award Deoferio the sum of ₱30,000.00 as nominal damages for
damages for violation of his right to violation of his statutory right to procedural due process. In so ruling,
statutory procedural due process we take into account Intel’s faithful compliance with Article 284 of the
Labor Code and Section 8, Rule 1, Book 6 of the IRR. We also note that
Intel’s violation of Deoferio’s right to statutory procedural due process Deoferio’s separation pay equivalent to one-half month salary for every
warrants the payment of indemnity in the form of nominal damages. In year of service  was validly offset by his matured car loan. Under
45

Jaka Food Processing Corp. v. Pacot,  we distinguished between

41 Article 1278 of the Civil Code, in relation to Article 1706 of the Civil
terminations based on Article 282 of the Labor Code  and dismissals
42 Code  and Article 113(c) of the Labor Code,  compensation shall take
46 47

under Article 283 of the Labor Code.  We then pegged the nominal
43 place when two persons are creditors and debtors of each other in their
damages at ₱30,000.00 if the dismissal is based on a just cause but the own right. We likewise consider the fact that Intel exhibited real concern
employer failed to comply with the twin-notice requirement. On the to Deoferio when it financed his medical expenses for more than four
other hand, we fixed the nominal damages at ₱50,000.00 if the dismissal years. Furthermore, prior to his termination, Intel liberally allowed
is due to an authorized cause under Article 283 of the Labor Code but Deoferio to take lengthy leave of absences to allow him to attend to his
the employer failed to comply with the notice requirement. The reason is medical needs.
that dismissals for just cause imply that the employee has committed a
violation against the employer, while terminations under Article 283 of Wentling is not personally liable for
the Labor Code are initiated by the employer in the exercise of his the satisfaction of nominal damages
management prerogative. in favor of Deoferio

With respect to Article 284 of the Labor Code, terminations due to
disease do not entail any wrongdoing on the part of the employee. It also
does not purely involve the employer’s willful and voluntary exercise of
management prerogative – a function associated with the employer's
inherent right to control and effectively manage its enterprise.  Rather,
44
terminations due to disease are occasioned by matters generally beyond
the worker and the employer's control.
Intel shall be solely liable to Deoferio for the satisfaction of nominal
damages. Wentling, as a corporate officer, cannot be held liable for acts
done in his official capacity because a corporation, by legal fiction, has a
personality separate and distinct from its officers, stockholders, and
members. There is also no ground for piercing the veil of corporate
fiction because Wentling acted in good faith and merely relied on Dr.
Lee’s psychiatric report in carrying out the dismissal.48

In fixing the amount of nominal damages whose determination is Deoferio is not entitled to salary
addressed to our sound discretion, the Court should take into account differential, backwages, separation
several factors surrounding the case, such as: (1) the employer’s pay, moral and exemplary damages,
financial, medical, and/or moral assistance to the sick employee; (2) the as well as attorney's fees
flexibility and leeway that the employer allowed the sick employee in
performing his duties while attending to his medical needs; (3) the Deoferio's claim for salary differential is already barred by prescription.
employer’s grant of other termination benefits in favor of the employee; Under Article 291 of the Labor Code, all money claims arising from
and (4) whether there was a bona fide attempt on the part of the employer-employee relations shall be filed within three years from the
employer to comply with the twin-notice requirement as opposed to time the cause of action accrued. In the current case, more than four
giving no notice at all. years have elapsed from the pre-termination of his assignment to the
United States until the filing of his complaint against the respondents.
We thus see no point in further discussing this matter. His claim for
backwages, separation pay, moral and exemplary damages, as well as
attorney's fees must also necessarily fail as a consequence of our finding
that his dismissal was for an authorized cause and that the respondents
acted in good faith when they terminated his services.

WHEREFORE, premises considered, we partially grant the petition; the

assailed February 24, 2012 decision and the August 2, 2012 resolution
of the Court of Appeals stand but respondent Intel Technology
Philippines, Inc. is ordered to pay petitioner Marlo A. Deoferio nominal
damages in the amount of ₱30,000.00. We totally deny the petition with
respect to respondent Mike Wending.

SO ORDERED.

G.R. No. 164518             March 30, 2006

INDUSTRIAL TIMBER CORPORATION, INDUSTRIAL

PLYWOOD GROUP CORPORATION, TOMAS TANGSOC, JR.,
LORENZO TANGSOC and TOMAS TAN, Petitioners,
vs.
VIRGILIO ABABON, IGNACIO ABACAJEN, ANGELINA
ABAY-ABAY, EDITH ABREA, SAMUEL ABREA, BIENVENIDO
ACILO, RODRIGO ACILO, VICTOR ACILO, ARTURO
ADVINCULA, GERTRUDES AMPARO, VIRGILIO ANTONIO,
MILA ARQUITA, PRUDENCIO ARQUITA, ALBERT ATON,
WARLITA AUTIDA, ALICIA AWITAN, LEOPOLDO AYATON,
ARTURO BALBOTEN, DANILO BANATE, LOLITA BATAN,
RAMIL BUTALON, CARMILITA CAINGLES, VICENTE
CAHARIAN, BENEDICTA CAJIPE, FELIPE CALLANO,
ALFREDO CARILLO, NILA CARILLO, ALGER CORBETA,
GREGORIO DABALOS, TERESITA DABALOS, VENERANDO
DALAUTA, RICARDO DANGCULOS, MONTANO DAPROSA,
LUISITO DIAZ, FELIZARDO DUMULAO, EDITHA DUMANON,
ALFREDO FAELNAR, RAUL FORTUN, MAXIMO GALLA,
ANGELES GALUPO, PERFECTO GAMBE, VERGINITA
GANGCA, RUPERTO GORGONIO, ROMEO HERRERO,
SERGIO HORO-HORO, FRANCISCO IBARRA, ABRAHAM
JALE, DANDY LABITAD, ANTONINA LAMBANG, ERNESTO
LAUSA, VICTORIA LOOD, NEMESIO LOPE, JR., ESCARLITO
MADLOS, MARCOS MAKINANO, REMEGIO MAKINANO,
VICENTE MAKINANO, REYNALDO MASUHAY, HELEN
MARATAS, ELIZABETH MENDOZA, GUILBERTA
MONTEROSO, GILDA NAVALTA, PILAR NAVARRO,
SIMPORIANO NUÑEZ, JR., ELISEO ORONGAN, ARMANDO
OROPA, ASUNCION OROPA, JOSE EDWIN OROPA,
BALDEMAR PAGALAN, BARTOLOME PAGALAN, DAMASO
PALOMA, MANALO PLAZA, JEREMIAS PELAEZ,
FRANCISCO PICARDAL, HERMINIA PUBLICO, ROMULO
QUINTOS, FIDEL QUITA, FELICIANO RANADA, RODOLFO
RARU, LEAN CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL TAGUPA,
VICTOR TAGUPA, BRIGIDA TABANAO, PEDRO TABANAO,
ROBERTO TABANAO, MARIA TAN, RONNIE TAN,
TOLENTINO TEE, ROGELIO TAMADA, MINDA TUMAOB and
ROBERTO TUTOR, Respondents.
x----------------x
G.R. No. 164965             March 30, 2006
VIRGILIO ABABON, IGNACIO ABACAJEN, ANGELINA
ABAY-ABAY, EDITH ABREA, SAMUEL ABREA, BIENVENIDO
ACILO, RODRIGO ACILO, VICTOR ACILO, ARTURO
ADVINCULA, GERTRUDES AMPARO, MILA ARQUITA,
VIRGILIO ANTONIO, PRUDENCIO ARQUITA, ALBERT
ATON, WARLITA AUDITA, ALICIA AWITAN, LEOPOLDO
AYATON, ARTURO BALBOTEN, DANILO BANATE, LOLITA
BATAN, RAMIL BUTALON, CARMELITA CAINGLES,
VICENTE CAHARIAN, BENEDICTA CAJIPE, FELIPE
CALLANO, ALFREDO CARILLO, NILA CARILLO, ALGIER
CORBETA, GREGORIO DABALOS, TERESITA DABALOS,
VENERANDO DALAUTA, RICARDO DANGCULOS,
MONTANO DAPROSA, LUISITO DIAZ, FELIZARDO
DUMULAO, EDITHA DUMANON, ALFREDO FAELNAR, RAUL
FORTUN, MAXIMO GALLA, ANGELES GALUPO, PERFECTO
GAMBE, VIRGINITA GANGCA, RUPERTO GORGONIO,
ROMEO HERRERO, SERGIO HOR-HORO, FRANCISCO
IBARRA, ABRAHAM JALE, DANDY LABITAD, ANTONINA
LAMBANG, ERNESTO LAUSA, VICTORIA LOOD, NEMESIO
LOPE, JR., ESCARLITO MADLOS, MARCOS MAKINANO,
REMEGIO MAKINANO, VICENTE MAKINANO, REYNALDO
MAHUSAY, HELEN MARATAS, ELIZABETH MENDOZA,
GUILBERTA MONTEROSO, GILDA NAVALTA, PILAR
NAVARRO, SIMPORIANO NUÑEZ, JR., ELISEO ORONGAN,
ARMANDO OROPA, ASUNCION OROPA, JOSE EDWIN
OROPA, BALDEMAR PAGALAN, BARTOLOME PAGALAN,
DAMASO PALOMA, MANALO PLAZA, JEREMIAS PELAEZ,
FRANCISCO PICARDAL, HERMINIA PUBLICO, ROMULO
QUINTOS, FIDEL QUITA, FELICIANO RANADA, RODOLFO
RARU, LEAN CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL TAGUPA,
VICTOR TAGUPA, BRIGIDA TABANAO, PEDRO TABANAO,
ROBERTO TABANAO, MARIA TAN, RONNIE TAN,
TOLENTINO TEE, ROGELIO TAMADA, MINDA TUMAOB,
and ROBERTO TUTOR, Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, INDUSTRIAL
TIMBER CORPORATION, INDUSTRIAL PLYWOOD GROUP
CORPORATION, TOMAS TANGSOC, JR., LORENZO
TANGSOC and TOMAS TAN, Respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
On January 25, 2006, the Court rendered judgment disposing of the case
as follows:
WHEREFORE, in view of the foregoing, the October 21, 2002
Decision of the Court of Appeals in CA-G.R. SP No. 51966, which set
aside the May 24, 1995 Decision of the NLRC, as well as the July 16,
2004 Resolution denying ITC’s motion for reconsideration, are
hereby REVERSED. The May 24, 1995 Decision of the NLRC
reinstating the decision of the Labor Arbiter finding the closure or
cessation of ITC’s business valid, is AFFIRMED with the
MODIFICATIONS that ITC is ordered to pay separation pay
equivalent to one month pay or at least one-half month pay for every
year of service, whichever is higher, and P50,000.00 as nominal
damages to each employee.
SO ORDERED.1
On March 14, 2006, respondents in G.R. No. 164518 who are also
petitioners in G.R. No. 164965 filed a Motion for Reconsideration
seeking to set aside the above-stated Decision and reinstate the October
21, 2002 Decision of the Court of Appeals, with the modification that
they be awarded full backwages, with the additional award of
P50,000.00 as nominal damages for each worker.
They insist that the holding in International Timber Corporation v.
National Labor Relations Commission2 that the closure of ITC’s Butuan
Plant was valid should not have been applied in the instant cases which
pertain to ITC’s Stanply Plant. They further claim that the findings by
the Labor Arbiter that there was a shortage of raw materials; that the
wood processing plaint permit has expired; that the lease contract with
IPGC was terminated; and that ITC and IPGC were not business
conduits, were all debunked by the NLRC.
The arguments raised have been amply discussed; at any rate, they are
inconsequential as to affect the assailed Decision.
On the other hand, petitioners in G.R. No. 164518 who are also
respondents in G.R. No. 164965 also filed a Motion for Partial
Reconsideration seeking to delete or reduce the nominal damages
awarded to each employee, considering that since August 17, 1990 it
had ceased operation of its business and that the award involves a huge
amount considering that there are 97 workers.3
While we ruled in this case that the sanction should be stiffer in a
dismissal based on authorized cause where the employer failed to
comply with the notice requirement than a dismissal based on just cause
with the same procedural infirmity, however, in instances where the
execution of a decision becomes impossible, unjust, or too burdensome,
modification of the decision becomes necessary in order to harmonize
the disposition with the prevailing circumstances.
In the determination of the amount of nominal damages which is
addressed to the sound discretion of the court, several factors are taken
into account: (1) the authorized cause invoked, whether it was a
retrenchment or a closure or cessation of operation of the establishment
due to serious business losses or financial reverses or otherwise; (2) the
number of employees to be awarded; (3) the capacity of the employers
to satisfy the awards, taken into account their prevailing financial status
as borne by the records; (4) the employer’s grant of other termination
benefits in favor of the employees; and (5) whether there was a bona
fide attempt to comply with the notice requirements as opposed to
giving no notice at all.
In the case at bar, there was valid authorized cause considering the
closure or cessation of ITC’s business which was done in good faith and
due to circumstances beyond ITC’s control. Moreover, ITC had ceased
to generate any income since its closure on August 17, 1990. Several
months prior to the closure, ITC experienced diminished income due to
high production costs, erratic supply of raw materials, depressed prices,
and poor market conditions for its wood products. It appears that ITC
had given its employees all benefits in accord with the CBA upon their
termination.
Thus, considering the circumstances obtaining in the case at bar, we
deem it wise and just to reduce the amount of nominal damages to be
awarded for each employee to P10,000.00 each instead of P50,000.00
each.
WHEREFORE, premises considered, the Motion for Reconsideration of
respondents in G.R. No. 164518 who are also petitioners in G.R. No.
164965 is DENIED. The Motion for Partial Reconsideration of
petitioners in G.R. No. 164518 who are also respondents in G.R. No.
164965 is GRANTED. The amount of nominal damages awarded to
each employee is reduced from P50,000.00 to P10,000.00.

SO ORDERED.

G.R. No. 177937               January 19, 2011

ROBINSONS GALLERIA/ROBINSONS SUPERMARKET

CORPORATION and/or JESS MANUEL, Petitioners,
vs.
IRENE R. RANCHEZ, Respondent.

DECISION

NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of
the Rules of Court, assailing the Decision 1 dated August 29, 2006 and
the Resolution2 dated May 16, 2007 of the Court of Appeals (CA) in
CA-G.R. SP No. 91631.
The Facts
The facts of the case are as follows.
Respondent was a probationary employee of petitioner Robinsons
Galleria/Robinsons Supermarket Corporation (petitioner Supermarket)
for a period of five (5) months, or from October 15, 1997 until March
14, 1998.3 She underwent six (6) weeks of training as a cashier before
she was hired as such on October 15, 1997.4
Two weeks after she was hired, or on October 30, 1997, respondent
reported to her supervisor the loss of cash amounting to Twenty
Thousand Two Hundred Ninety-Nine Pesos (₱20,299.00) which she had
placed inside the company locker. Petitioner Jess Manuel (petitioner
Manuel), the Operations Manager of petitioner Supermarket, ordered
that respondent be strip-searched by the company guards. However, the
search on her and her personal belongings yielded nothing. 5
Respondent acknowledged her responsibility and requested that she be
allowed to settle and pay the lost amount. However, petitioner Manuel
did not heed her request and instead reported the matter to the police.
Petitioner Manuel likewise requested the Quezon City Prosecutor’s
Office for an inquest.6
On November 5, 1997, an information for Qualified Theft was filed with
the Quezon City Regional Trial Court. Respondent was constrained to
spend two weeks in jail for failure to immediately post bail in the
amount of Forty Thousand Pesos (₱40,000.00).7
On November 25, 1997, respondent filed a complaint for illegal
dismissal and damages.8
On March 12, 1998, petitioners sent to respondent by mail a notice of
termination and/or notice of expiration of probationary employment
dated March 9, 1998.9
On August 10, 1998, the Labor Arbiter rendered a decision, 10 the fallo of
which reads:
CONFORMABLY WITH THE FOREGOING, judgment is hereby
rendered dismissing the claim of illegal dismissal for lack of merit.
Respondents are ordered to accept complainant to her former or
equivalent work without prejudice to any action they may take in the
premises in connection with the missing money of ₱20,299.00.
SO ORDERED.11
In dismissing the complaint for illegal dismissal, the Labor Arbiter
ratiocinated that at the time respondent filed the complaint for illegal
dismissal, she was not yet dismissed by petitioners. When she was strip-
searched by the security personnel of petitioner Supermarket, the guards
were merely conducting an investigation. The subsequent referral of the
loss to the police authorities might be considered routine. Respondent’s
non-reporting for work after her release from detention could be taken
against her in the investigation that petitioner supermarket would
conduct.12
On appeal, the National Labor Relations Commission (NLRC) reversed
the decision of the Labor Arbiter in a decision 13 dated October 20, 2003.
The dispositive portion of the decision reads:
WHEREFORE, the appealed decision is SET ASIDE. The respondents
are hereby ordered to immediately reinstate complainant to her former
or equivalent position without loss of seniority rights and privileges and
to pay her full backwages computed from the time she was
constructively dismissed on October 30, 1997 up to the time she is
actually reinstated.
SO ORDERED.14
In reversing the decision of the Labor Arbiter, the NLRC ruled that
respondent was denied due process by petitioners. Strip-searching
respondent and sending her to jail for two weeks certainly amounted to
constructive dismissal because continued employment had been
rendered impossible, unreasonable, and unlikely. The wedge that had
been driven between the parties was impossible to ignore. 15 Although
respondent was only a probationary employee, the subsequent lapse of
her probationary contract of employment did not have the effect of
validly terminating her employment because constructive dismissal had
already been effected earlier by petitioners.16
Petitioners filed a motion for reconsideration, which was denied by the
NLRC in a resolution17 dated July 21, 2005.
Petitioners filed a petition for certiorari under Rule 65 of the Rules of
Court before the CA. On August 29, 2006, the CA rendered a Decision,
the dispositive portion of which reads:
WHEREFORE, premises considered, the challenged Decision of the
National Labor Relations Commission is AFFIRMED with
MODIFICATION in that should reinstatement be no longer possible in
view of the strained relation between the parties, Petitioners are ordered
to pay Respondent separation pay equivalent to one (1) month pay in
addition to backwages from the date of dismissal until the finality of the
assailed decision.
SO ORDERED.18
Petitioners filed a motion for reconsideration. However, the CA denied
the same in a Resolution dated May 16, 2007.
Hence, this petition.
Petitioners assail the reinstatement of respondent, highlighting the fact
that she was a probationary employee and that her probationary contract
of employment lapsed on March 14, 1998. Thus, her reinstatement was
rendered moot and academic. Furthermore, even if her probationary
contract had not yet expired, the offense that she committed would
nonetheless militate against her regularization.19
On the other hand, respondent insists that she was constructively
dismissed by petitioner Supermarket when she was strip-searched,
divested of her dignity, and summarily thrown in jail. She could not
have been expected to go back to work after being allowed to post bail
because her continued employment had been rendered impossible,
unreasonable, and unlikely. She stresses that, at the time the money was
discovered missing, it was not with her but locked in the company
locker. The company failed to provide its cashiers with strong locks and
proper security in the work place. Respondent argues that she was not
caught in the act and even reported that the money was missing. She
claims that she was denied due process.20
The Issue
The sole issue for resolution is whether respondent was illegally
terminated from employment by petitioners.
The Ruling of the Court
We rule in the affirmative.
There is probationary employment when the employee upon his
engagement is made to undergo a trial period during which the employer
determines his fitness to qualify for regular employment based on
reasonable standards made known to him at the time of engagement. 21
A probationary employee, like a regular employee, enjoys security of
tenure.22 However, in cases of probationary employment, aside from just
or authorized causes of termination, an additional ground is provided
under Article 281 of the Labor Code, i.e., the probationary employee
may also be terminated for failure to qualify as a regular employee in
accordance with reasonable standards made known by the employer to
the employee at the time of the engagement. Thus, the services of an
employee who has been engaged on probationary basis may be
terminated for any of the following: (1) a just or (2) an authorized cause;
and (3) when he fails to qualify as a regular employee in accordance
with reasonable standards prescribed by the employer.23
Article 277(b) of the Labor Code mandates that subject to the
constitutional right of workers to security of tenure and their right to be
protected against dismissal, except for just and authorized cause and
without prejudice to the requirement of notice under Article 283 of the
same Code, the employer shall furnish the worker, whose employment is
sought to be terminated, a written notice containing a statement of the
causes of termination, and shall afford the latter ample opportunity to be
heard and to defend himself with the assistance of a representative if he
so desires, in accordance with company rules and regulations pursuant
to the guidelines set by the Department of Labor and Employment.
In the instant case, based on the facts on record, petitioners failed to
accord respondent substantive and procedural due process. The
haphazard manner in the investigation of the missing cash, which was
left to the determination of the police authorities and the Prosecutor’s
Office, left respondent with no choice but to cry foul. Administrative
investigation was not conducted by petitioner Supermarket. On the same
day that the missing money was reported by respondent to her
immediate superior, the company already pre-judged her guilt without
proper investigation, and instantly reported her to the police as the
suspected thief, which resulted in her languishing in jail for two weeks.
As correctly pointed out by the NLRC, the due process requirements
under the Labor Code are mandatory and may not be supplanted by
police investigation or court proceedings. The criminal aspect of the
case is considered independent of the administrative aspect. Thus,
employers should not rely solely on the findings of the Prosecutor’s
Office. They are mandated to conduct their own separate investigation,
and to accord the employee every opportunity to defend himself.
Furthermore, respondent was not represented by counsel when she was
strip-searched inside the company premises or during the police
investigation, and in the preliminary investigation before the
Prosecutor’s Office.
Respondent was constructively dismissed by petitioner Supermarket
effective October 30, 1997. It was unreasonable for petitioners to charge
her with abandonment for not reporting for work upon her release in jail.
It would be the height of callousness to expect her to return to work after
suffering in jail for two weeks. Work had been rendered unreasonable,
unlikely, and definitely impossible, considering the treatment that was
accorded respondent by petitioners.
As to respondent’s monetary claims, Article 279 of the Labor Code
provides that an employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights and other
privileges, to full backwages, inclusive of allowances, and to other
benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement. However, due to the strained relations of the parties, the
payment of separation pay has been considered an acceptable alternative
to reinstatement, when the latter option is no longer desirable or viable.
On the one hand, such payment liberates the employee from what could
be a highly oppressive work environment. On the other, the payment
releases the employer from the grossly unpalatable obligation of
maintaining in its employ a worker it could no longer trust.24
Thus, as an illegally or constructively dismissed employee, respondent
is entitled to: (1) either reinstatement, if viable, or separation pay, if
reinstatement is no longer viable; and (2) backwages. These two reliefs
are separate and distinct from each other and are awarded
conjunctively.25
lavvphil
In this case, since respondent was a probationary employee at the time
she was constructively dismissed by petitioners, she is entitled to
separation pay and backwages. Reinstatement of respondent is no longer
viable considering the circumstances. 1avvphi1
However, the backwages that should be awarded to respondent shall be
reckoned from the time of her constructive dismissal until the date of the
termination of her employment, i.e., from October 30, 1997 to March
14, 1998. The computation should not cover the entire period from the
time her compensation was withheld up to the time of her actual
reinstatement. This is because respondent was a probationary employee,
and the lapse of her probationary employment without her appointment
as a regular employee of petitioner Supermarket effectively severed the
employer-employee relationship between the parties.

In all cases involving employees engaged on probationary basis, the

employer shall make known to its employees the standards under which
they will qualify as regular employees at the time of their engagement.
Where no standards are made known to an employee at the time, he
shall be deemed a regular employee,26 unless the job is self-descriptive,
like maid, cook, driver, or messenger. However, the constitutional
policy of providing full protection to labor is not intended to oppress or
destroy management.27 Naturally, petitioner Supermarket cannot be
expected to retain respondent as a regular employee considering that she
lost ₱20,299.00 while acting as a cashier during the probationary period.
The rules on probationary employment should not be used to exculpate a
probationary employee who acts in a manner contrary to basic
knowledge and common sense, in regard to which, there is no need to
spell out a policy or standard to be met.28

WHEREFORE, in view of the foregoing, the petition is DENIED. The

Decision of the Court of Appeals in CA-G.R. SP No. 91631 is hereby
AFFIRMED with the MODIFICATION that petitioners are hereby
ordered to pay respondent Irene R. Ranchez separation pay equivalent to
one (1) month pay and backwages from October 30, 1997 to March 14,
1998.

Costs against petitioners.

SO ORDERED.