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TERMINATION OF EMPLOYMENT
A. Right to discipline.
The employers right to conduct the affairs of his business, according to its own
discretion and judgment, includes the prerogative to instill discipline in its employees and
to impose penalties, including dismissal, upon erring employees. This is a management
prerogative where the free will of management to conduct its own affairs to achieve its
purpose takes form. The only criterion to guide the exercise of its management
prerogative is that the policies, rules and regulations on work-related activities of the
employees must always be fair and reasonable and the corresponding penalties, when
prescribed, commensurate to the offense involved and to the degree of the infraction. (St.
Michaels Institute vs. Santos, G. R. No. 145280, Dec. 4, 2001; Consolidated Food
Corporation vs. NRLC, 315 SCRA 129, 139 [1999]).
Instilling discipline among its employees is a basic management right and
prerogative. Management may lawfully impose reasonable penalties such as dismissal
upon an employee who transgresses the company rules and regulations. (Deles, Jr. vs.
NLRC, G. R. No. 121348, March 9, 2000).
The employer cannot be compelled to maintain in his employ the undeserving, if not
undesirable, employees. (Shoemart, Inc. vs. NLRC, G. R. No. 74229, Aug. 11, 1989).
B. Definitions
a. Actual Dismissal
Dismissal where the employer has terminated the contract of employment
b. Constructive Dismissal concept
Constructive dismissal is an employers act amounting to dismissal but made to appear as if
it were not a dismissal in disguise. In most cases of constructive dismissal, the employee is
allowed to continue to work, but is simply reassigned, or demoted, or his pay diminished without a
valid reason to do so.
Constructive dismissal does not always involve forthright dismissal or diminution in rank,
compensation, benefit and privileges. There may be constructive dismissal if an act of clear
discrimination, insensibility or disdain by an employer becomes so unbearable on the part or the
employee that it could foreclose any choice by him except to forego his continued employment.
(See Hyatt Taxi Services case, G.R. No. 143204, June 26, 2001.)
Constructive Dismissal and Involuntary Resignation
Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when there is a
demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by
an employer becomes unbearable to an employee.
In Globe Telecom, Inc. v. Florendo-Flores, it was held that where an employee ceases to work
due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an
adverse working environment rendering it impossible for such employee to continue working for her
employer. Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment. (Cited in Francisco vs. NLRC, G.R. No. 170087,
August 21, 2006.)
Example Cases
Diminution of pay. A diminution of pay is prejudicial to the employee and amounts to
constructive dismissal. (Francisco vs. NLRC)
Transfer of employee not amounting to constructive dismissal. Transfer of an employee from
one area of operation to another is a management prerogative and is not constitutive of
constructive dismissal, when the transfer is based on sound business judgment, unattended
by a demotion in rank or a diminution of pay or bad faith. (Tan vs. NLRC, G.R. No. 128290,
November 24, 1998.)
Transfer of employee amounting to constructive dismissal. A transfer amounts to
constructive dismissal when the transfer is unreasonable, unlikely, inconvenient, impossible,
or prejudicial to the employee. (Phil. Industrial Security Agency Corp. vs. Aguinaldo, G.R. No.
149974, June 15, 2005.)
Good faith in the termination of employee, i.e., the implementation of the company
program resulting to termination of employees must be for a valid cause and not
merely a tool to circumvent the law on employees security of tenure;
The employer must adopt a fair and reasonable criteria in the selection of employee
to be dismissed; and,
The employee must be paid separation pay not less than the amount fixed by law.
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representative; + Loss of confidence
Loss of confidence arising from fraud or willful breach of trust by employee of the trust
reposed in him by his employer or his duly authorized representative is a just cause for
termination of employment under Article 282 of the Labor Code of the Philippines.
Fraud Meaning.
Fraud is any act, omission, or concealment which involves a breach of legal duty, trust, or
confidence justly reposed and is injurious to another.
(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 representatives; and
II. Abandonment
Jurisprudence provides for two essential requirements for abandonment of work to exist:
1. the failure to report for work or absence without valid or justifiable reason, and
2. clear intention to sever the employer-employee relationship manifested by some overt
acts should both concur.
Further, the employees deliberate and unjustified refusal to resume his employment
without any intention of returning should be established and proven by the employer. Harpoon
Marine Services, Inc., et al. v. Fernan H. Francisco, GR No. 167751, March 2, 2011.
b. Redundancy
Redundancy Concept
Redundancy is one of the authorized causes for termination of employment under Article 283 of the
Labor Code of the Philippines.
Redundancy exists where the services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise. A position is redundant where it superfluous,
and superfluity of a position or positions may be the outcome of a number of factors, such as over
hiring of workers, decreased of volume business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise.
In Wiltshire, the Court held that an employer has no legal obligation to keep on the payroll
employees more than the number needed for the operation of the business. (See Wiltshire File Co., v.
NLRC, 1991; Coats Manila Bay vs. Ortega, 2009)
Adequate Proof of Redundancy
It is the employers burden to show that redundancy exists. It is not enough for a company to
merely declare that it has become overmanned. It must produce adequate proof of such redundancy
to justify the dismissal of the affected employees (Asufrin vs. San Miguel Corporation, 2004).
Evidence must be presented to substantiate redundancy such as but not limited to the new staffing
pattern, feasibility studies/proposal, on the viability of the newly created positions, job description
and the approval by the management of the restructuring (Panlilio vs. NLRC, 1997).
Requirements of a Valid Redundancy Program
The employer must comply with the following requisites to ensure the validity of the
implementation of a redundancy program:
1. A written notice served on both the employees and the Department of Labor and
Employment (DOLE) at least one month prior to the intended date of retrenchment as
required by the Labor Code;
2. Payment of separation pay equivalent to at least one month pay or at least one month pay
for every year of service, whichever is higher;
3. Good faith in abolishing the redundant positions; and
4. Fair and reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished. (See Caltex vs. NLRC, 2007, )
Separation Pay
In case of termination due to redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every
year of service, whichever is higher.
c. Retenchment
Retrenchment Concept
Retrenchment is an economic ground to reduce the number of employees. It is the reduction of
personnel for the purpose of cutting down on costs of operations in terms of salaries and wages
resorted to by an employer because of losses in operation of a business occasioned by lack of work
and considerable reduction in the volume of business (See Alabang Country Club vs. NLRC, G.R. No.
157611, August 9, 2005 ).
Retrenchment is sometimes also referred to as downsizing. It is aimed at saving a financially ailing
business establishment from eventually collapsing.
Basic Requisites of Valid Retrenchment
To justify retrenchment, the following requisites must be complied with:
1. The retrenchment must be necessary to prevent business losses; and
2. The business losses sought to be prevented are serious, actual and real.
Meaning of To Prevent Losses
The phrase to prevent losses means that retrenchment is authorized to be undertaken by the
employer sometime before the losses anticipated are actually sustained or realized. Actual losses
need not set in prior to retrenchment. (Lopez Sugar Corporation vs. Federation of Free Workers, G.R.
Nos. 75700-01, August 30, 1990.)
Meaning of Serious, Actual and Real
In order to be justified, the termination of employment by reason of retrenchment must be due to
business losses or reverses which are serious, actual and real.
Not every loss incurred or expected to be incurred by the employer will justify retrenchment, since,
in the nature of things, the possibility of incurring losses is constantly present, in greater or lesser
degree, in carrying on the business operations. (See Edge Apparel Inc. vs. NLRC, G.R. No. 121314,
February 12, 1998 .)
The following are the general standards to determine whether the business losses sought to be
prevented are serious, actual and real, and sufficient to justify retrenchment of employees:
1. The losses expected should be substantial and not merely de minimis in extent;
2. The losses apprehended must be reasonably imminent;
3. The alleged losses if already realized, and the expected imminent losses sought to be
forestalled, must be proven by sufficient and convincing evidence. (See Lopez Sugar
Corporation case.)
Separation Pay
In case of retrenchment to prevent losses, the separation pay shall be equivalent to one month pay
or at least one-half month pay for every year of service, whichever is higher. A fraction of at least six
months shall be considered one whole year. (Article 283, LC.)