11. SHS Perforated Materials, Inc.

, Winfried Hartmannshenn, and Hinrich Johann AUTHOR: Taliño’s Digest from Labor 1
Schumacher vs Jose Manuel F. Diaz NOTES:
[G.R. No. 185814; October 13, 2010] PEZA – Philippine Economic Zone Authority
TOPIC: Limits of Management Prerogatives ECCP – European Chamber of Commerce of the Philippines
PONENTE: Mendoza, J.
CASE LAW/ DOCTRINE:
 Management prerogative refers "to the right of an employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods,
processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of work."
 Although management prerogative refers to "the right to regulate all aspects of employment," it cannot be understood to include the right to temporarily withhold
salary/wages without the consent of the employee.
FACTS:
 SHS is a start-up Philippine Corporation registered with the PEZA, with Hartmannshenn (a German) as its president and Schumacher (also a German) as its treasurer.
Schumacher is also the Executive Vice President (EVP) of the ECCP.
 SHS and ECCP have an agreement wherein ECCP will handle the payroll requirements of SHS to help in its business operations and to limit operational expenses. As such,
the wages of SHS Employees are paid out by ECCP through its accounting department headed by Juliet Taguiang.
 Diaz (respondent) was hired by SHS as the manager for business development located at Lot C3-2A, Phase I, Camelray Industrial Park II, Calamba, Laguna. He had a
probationary status (July 18, 2005 to January 18, 2006) with a monthly salary of Php 100k. His work hours were from 8am-5pm, subject to the requirements of the job.
 (YOU CAN SKIP THIS IF YOU WANT BUT JUST IN CASE) The daily/general duties of Diaz were to:
o Represent the company in any event organized by the PEZA;
o Perform sales or marketing functions;
o Monitor and follow-up customer’s inquiry on employer’s services;
o Monitor on-going job orders/projects;
o Submit requirements as needed in application/renewal of necessary permits;
o Liaise closely with the other commercial and technical staff of the company;
o Accomplish PEZA documents/requirements for every sales made, with legal assistance where necessary at the employer’s expense; and
o Perform other related duties and responsibilities.
 Diaz was also instructed by Hartmannshenn to report to the SHS office and plant at least 2 days every work week to observe technical processes involved in the
manufacturing of perforated materials, and to learn about the products of the company, which Diaz would have to market and sell.
 During Diaz’s employment, Hartmannshenn was often abroad. His instructions were thus being sent to Diaz through e-mail or through phone. Whenever he is in the
country, he would have meetings with Diaz.
 During one of the meetings, Hartmannshenn expressed his dissatisfaction with the poor performance of Diaz (failure to make any concrete business proposal or
implement any specific measure to improve the productivity of the SHS office and plant and failure to deliver sales except for a meager Php 2500 for a sample product).
 Hartmannshenn alleged that Diaz acknowledged his poor performance and offered to resign from the company through e-mail. However, Diaz denied sending such e-mail.
But he admitted that he had reported to the office only 8 times from July 18 to Nov. 30, 2005.
 On Nov. 29, 2005, Hartmannshenn instructed Taguiang not to release the salary of Diaz. The next day, Diaz served SHS a demand letter and his resignation letter. The
resignation letter demanded for his unpaid and withheld salary of Php 50k from Nov. 16-30 and stated that it is because of such illegal and unfair labor practices that he is
resigning.
 Hartmannshenn alleged that he met with Diaz in the evening of Nov. 30 accepted his resignation and informed the latter that his salary would be released upon
explanation of his failure to report to work and upon proof that he did work for the period covered by his withheld salary (Nov. 16-30). Diaz agreed to such conditions but
later sent an e-mail on Dec. 1, 2005 asking for the release of his salary.
 Diaz, however, claimed that the meeting took place in the evening of Dec. 1, during which, he was repeatedly insulted and was demanded to accept Php 25k instead of his
accrued salary and to stop working for SHS. He then sent an e-mail asking for the release of his salary. A second e-mail was sent the following day demanding, in addition,
his 13th month pay, moral and exemplary damages, and attorney’s fees.
 On Dec. 9, Diaz filed a complaint for illegal dismissal and non-payment of salaries/wages and 13th month pay with prayer for reinstatement and full backwages.
 LABOR ARBITER: Ruled in favour of Diaz (Php 704,166.67 as backwages; Php 50k for unpaid wages; Php 37,083.33 as unpaid 13 th month pay). Diaz was constructively
dismissed because the withholding of his salary was contrary to Art. 116 of the Labor Code because it was not one of the exceptions for allowable wage deduction by the
employer under Art. 113. His probationary status was also deemed regularized because Petitioners failed to conduct a prior evaluation of his performance and to give
notice 2 days prior to his termination as required by the Probationary Contract of Employment and Art. 281.
 NLRC: Reversed the decision of the LA. The withholding of the salary of Diaz was A VALID exercise of management prerogative. The act was deemed justified as it was
reasonable to demand an explanation for failure to report to work and to account for his work accomplishments. Diaz could not be deemed to have been regularized due
to voluntarily resigning prior to the completion of the probationary period.
 CA: Reversed the decision of the NLRC. The withholding of salary was NOT A VALID exercise of management prerogative as there is no such thing as a management
prerogative to withhold wages temporarily. Diaz’s alleged failure to report to work were found to be unsubstantiated allegations not corroborated by any other evidence,
insufficient to justify the withholding of salary and lacking in probative value.
ISSUE(S): WON the temporary withholding of respondent’s salary/wages was a valid exercise of management prerogative.

HELD: No, it is not.

RATIO:
 Management prerogative refers "to the right of an employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods,
processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of work." Although
management prerogative refers to "the right to regulate all aspects of employment," it cannot be understood to include the right to temporarily withhold salary/wages
without the consent of the employee.
 Sanctioning such would run contrary to Art. 116 of the Labor Code:
ART. 116. Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages of a
worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent.
 Any withholding of an employee’s wages by an employer may only be allowed in the form of wage deductions under the circumstances provided in Art. 113:
ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as
premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the
individual worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.
 Although it cannot be determined with certainty whether respondent worked for the entire period from Nov. 16-30, 2005, the consistent rule is that if doubt exists
between the evidence presented by the employer and that by the employee, the scales of justice must be tilted in favor of the latter in line with the policy mandated by
Art. 2 and 3 of the Labor Code to afford protection to labor and construe doubts in favor of labor. For petitioners’ failure to satisfy their burden of proof, respondent is
presumed to have worked during the period in question and is, accordingly, entitled to his salary. Therefore, the withholding of respondent’s salary by petitioners is
contrary to Art. 116 of the Labor Code and, thus, unlawful.
DISSENTING/CONCURRING OPINION(S):