Lepanto Ceramics, Inc. v. Lepanto Ceramics Employees Association, G.R. No.

180866, 02
March 2010
FACTS: Petitioner Lepanto Ceramics, Inc. is engaged in the business of making, buying and
selling tiles, marbles, mosaics, and other similar products while respondent Lepanto Ceramics
Employees Association is the sole and exclusive bargaining agent of petitioner. In December
1998, petitioner gave P3000 bonus to its employees. Subsequently, petitioner and respondent
entered into a Collective Bargaining Agreement which granted a Christmas gift package/bonus to
employees. In the succeeding years, the bonuses were given by way of Tile Redemption
Certificates equivalent to P3000. However, in 2002, petitioner gave year-end cash benefit of
P600 and offered a cash advance to interested employees equivalent to 1 month salary
payable in one year. Respondent objected to the same arguing it was in violation of the CBA
and considering it had ripen into a traditional practice of the company to give P3000 bonus at the
end of each year whether it be in the form of cash or company tiles. On the other hand, petitioner
averred that the complaint has no basis as the same was not a demandable and enforceable
obligation and besides, the company was also suffering from financial losses. When it was
referred to the Voluntary Arbitrator, it granted the members of the respondent association a
Christmas Bonus of P3000.
ISSUE: Is petitioner obliged to give the members of the respondent Association a Christmas
bonus of P3000?
DECISION: YES. Generally, a bonus is not a demandable and enforceable obligation. For a
bonus to be enforceable, it must have been promised by the employer and expressly agreed
upon by the parties. Given that the bonus in this case is integrated in the CBA, the same takes
the nature of a demandable obligation. By virtue of its incorporation in the CBA, the Christmas
bonus due to respondent Association has become more than just an act of generosity on the
part of the petitioner but a contractual obligation it has undertaken.

National Sugar Refineries Corp. vs. NLRC, G.R. No. 122277 February 24, 1998
FACTS: NASUREFCO is a domestic corporation engaged in sugar refinery. It launched its Raw
and Refined Sugar Exchange Program where clients of NASUREFCO were no longer required
to deliver raw sugar as precondition to their withdrawal of refined sugar. All they had to do was
to present properly endorsed documents chargeable against their future deliveries of raw sugar to
NASUREFCO. Susan Pabiona was appointed as Sugar Accountant-Bookkeeper. She was tasked
to maintain records of all transactions pertaining to the Raw and Refined Sugar Exchange
Program, validate Raw Sugar Quedans submitted by Exchange participants prior to issuance of
the Refined Sugar Delivery Orders only after validation procedures have been properly complied
with. When the books of NASUREFCO were audited in 1990, it was found out that Fabiona
issued a Refined Sugar Delivery Order to Shantung Commercial without even seeing the
corresponding Raw Sugar Quedan or Delivery Order. Consequently, Shantung Commercial was
able to withdraw a larger quantity of refined sugar that what was allowable to it. NASUREFCO
later terminated the services of Pabiona for willful violation of company policies, gross and
habitual neglect of duties, and willful breach of trust. The Labor Arbiter later held that private
respondent Pabiona was illegally dismissed by NASURFECO since the duties which she
performed for which she was charged of neglect, were not within her ordinary functions as per
job description. The NLRC affirmed the Labor Arbiter ruling that Pabionas infractions were
neither gross nor habitual, but that she merely failed to exercise due diligence in performing her
duties, and the same does not constitute a sufficient ground to cause her termination.
ISSUE: Was Pabionas neglect of duty considered gross and habitual?
DECISION: YES. Neglect of duty, to be a ground for dismissal, must be both gross and
habitual. In the instant case, Pabionas neglect of duty was gross. As her position related to
money matters, she was expected and required to be extra vigilant in the performance of her job
as it involved the financial interest of the company. She was also habitually remiss in her duties.
She issued a Refined Sugar Deliver Order to Shantung Commercial without first examining the
corresponding Raw Sugar Quedan and Delivery Order. Consequently, Shantung Commercial was
able to withdraw a larger quantity of refined sugar than what was allowable to it.

INSTALLATION OF LABOR-SAVING DEVICES

Philippine Sheet Metal Workers' Union (CLO) vs. Court of Industrial Relations, Philippine
Can Company and Liberal Labor Union, 83 Phil. 453
FACTS: There was an industrial dispute between the Philippine Can Company (a corporation
engaged in the manufacture of tin plates, aluminum sheets, etc.) and its laborers belonging to
Philippine Sheet Metal Workers' Union (CLO) and Liberal Labor Union. The laborers made
demands from the Company, among of which includes, the recall of eleven (11) workers who
had been laid off due to their union activities. The Court of Industrial Relations found that the
Company was discriminatory in reducing the number of its workers for having selected officers
and members of the petitioning union. Consequently, the Court ordered the retention of the 11
workers by the Company. In a separate incident, the Company filed a motion in the case, asking
for authority to lay off at least 15 workers in its can department on the ground that the
installation and operation of nine new labor-saving machines in said department had rendered
the services of the said workers unnecessary. The Philippine Sheet Metal Workers' Union (CLO)
opposed the motion, alleging that there was more than sufficient work in the company to keep all
its workers busy. About a year later, the Court granted the company's motion to lay off 15
workers.
ISSUE: Was there justification for the reduction of the number of workers in the Companys
factory?
DECISION: YES. There was real justification in reducing the number of workers in respondent
company's factory due to the introduction of machinery in the manufacture of its products. There
can be no question as to the right of the manufacturer to use new labor-saving devices with a
view to effecting more economy and efficiency in its method of production. However, the right
to reduce personnel should not be abused. It should not be made a pretext for easing out laborers
on account of their union activities. But neither should it be denied when it is shown that they are
not discharging their duties in a manner consistent with good discipline and the efficient
operation of an industrial enterprise.

Agustillo vs. Court of Appeals and San Miguel Corporation, G.R. No. 142875, September
07, 2001
FACTS: In June 1979, petitioner Edgar Agustillo was hired by respondent San Miguel
Corporation (SMC) at its Mandaue Brewery in Cebu. Initially, he was designated as safety clerk
with permanent status. In 1982, he was promoted to the position of administrative secretary of
the Engineering Department. Sometime in August 1991, he was transferred to the company's
Plant Director's Office-Quality Improvement Team (PDO-QIT). In February 1992, Agustillo
was informed that 584 employees, including him, would be retrenched due to the modernization
program of the company which will automate the processes of brewing, bottling and auxiliary
services. Agustillo was told that his services would be terminated. Agustillo then filed before the
Executive Labor Arbiter a complaint against SMC for illegal dismissal and payment of
separation pay, attorney's fees, and damages. The ELA dismissed the complaint and ruled in
favor of SMC because Agustillo's separation from employment was due to the installation of
labor saving devices and machineries (Article 283, LC) pursuant to the employer's modernization
program. Agustillo contends that he was illegally dismissed and that his transfer from the
Engineering Department to the PDO-QIT amounted to a constructive dismissal.
ISSUE: Was Edgar Agustillo illegally dismissed by SMC?
DECISION: NO. Agustillo's employment was terminated on the ground of the installation of
labor saving devices and machineries pursuant to the employer's reorganizational and expansion
program. The law in this regard allows such a state of change. Article 283 of the Labor Code
allows the reduction of personnel with the installation of labor saving devices.
Magnolia Dairy Products Corporation vs. NLRC and Jenny Calibo, G.R. No. 114952,
January 29, 1996
FACTS: Petitioner Magnolia Dairy Products Corporation, a division of San Miguel Corporation
(SMC), entered into a contract of service with Skillpower, Inc., which is engaged in the business
of offering and providing manpower services to the public. In 1983, Skillpower, Inc., assigned
Jenny A. Calibo to petitioners Tetra Paster Division. She was tasked with the removal,
replacement and disposal of damaged goods and re-pasting of the dilapidated cartons. When
Magnolias contract with Skillpower expired, Calibo applied with Lippercon Manpower
Services. In July 1987, Lippercon assigned her to Magnolias Tetra Paster Division as a
cleaning aide. In December 1987, Calibo was terminated from service due to Magnolias
installation of automated machines. Two years later, Calibo instituted a complaint for illegal
dismissal against Magnolia. Magnolia averred that the dismissal was prompted by the installation
of labor saving devices - an authorized cause for dismissal under the Labor Code. The Labor
Arbiter ruled that the installation of labor saving devices was a valid ground for the termination
of Calibos employment. Meanwhile, NLRC modified the decision by directing Calibos
reinstatement and payment of backwages not exceeding three (3) years. Magnolia asseverates
that Calibo was not illegally dismissed since the termination of her employment was due to a
cause expressly authorized by the Labor Code and the absence of notice did not make it so.
Petitioner asserts its claim that Calibo is only entitled to an indemnity of P1000.00, but not
backwages.
ISSUE:
1. Was Calibos termination illegal?
2. Did Magnolia failed to comply with the 30-day prior notice rule?
3. Was the NLRCs grant of backwages and order of reinstatement tenable?
DECISION: NO. The law authorizes an employer, like Magnolia, to terminate the employment
of any employee due to the installation of labor saving devices. The installation of these devices
is a management prerogative, and the courts will not interfere with its exercise in the absence
of abuse of discretion, arbitrariness, or maliciousness on the part of management, as in this case.
However, Magnolia failed to comply with the required written notice to the employee and to the
Department of Labor and Employment (DOLE) at least one month before the intended date of
termination, which is required under Article 283 of the Labor Code. This procedure enables an
employee to contest the reality or good faith character of the asserted ground for the termination
of his services before the DOLE. The failure of petitioner to serve the written notice to private
respondent and to the DOLE, however, does not ipso facto make Calibos termination from
service illegal so as to entitle her to reinstatement and payment of backwages.
Moreover, the grant of backwages and order of reinstatement by the NLRC was not proper
because it is proper only for an illegally dismissed employee which is obviously not the situation
in this case. The appropriate award is separation pay pursuant to Article 283 of the Labor Code
which explicitly provides that an employee removed from service due to the installation of labor
saving devices is entitled to separation pay.
REDUNDANCY; CONCEPT
Redundancy in an employers personnel force does not necessarily or even ordinarily refers to
duplication of work. That no other person was holding the same position that private respondent
held prior to the termination of his services, does not show that his position had not become
redundant. Indeed, in any well organized business enterprise, it would be surprising to find
duplication of work and two (2) or more people doing the work of one person. We believe that
redundancy, for purposes of the Labor Code, exists where the services of an employee are in
excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly
put, a position is redundant where it is superfluous, and superfluity of a position or positions may
be the outcome of a number of factors, such as over hiring of workers, decrease in volume of
business, or dropping of a particular product line or service activity previously manufactured or
undertaken by the enterprise. The characterization of an employees 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. However, such characterization may be rejected
if the same is found to be in violation of law or is arbitrary or malicious.

CASES:

Wiltshire File Co., vs. NLRC, G.R. No. 82249 February 7, 1991

FACTS: Private respondent Vicente Ong was the Sales Manager of petitioner Wiltshire File
Co., Inc. (Wiltshire) from 1981 to 1985. In 1985, upon Ongs return from a trip abroad, he was
informed thru a letter which formally informed him that his services were being terminated upon
the ground of redundancy. Ong filed a complaint for illegal dismissal alleging that his position
could not possibly be redundant because nobody in the company was then performing the same
duties, but only him. Wiltshire contends that Ongs dismissal was justified because the company
had been incurring business losses beginning 1984 and that it was compelled to reduce the size
of its personnel force. Hence, Ongs position as Sales Manager of the company became
redundant. The Labor Arbiter declared the termination of Ongs services as illegal and ordered
Wiltshire to pay Ong backwages, unpaid salaries and other benefits. NLRC affirmed the decision
of the Labor Arbiter on the reason that the supposed duplication of work of Ong and Mr. Deliva,
the Vice-President is absent that would justify redundancy. Wiltshire contends that redundancy as
a cause for termination does not necessarily mean duplication of work but a situation where
the services of an employee are in excess of what is demanded by the needs of an undertaking.

ISSUE: Was Ong illegally terminated?

DECISION: NO. Wiltshire had serious financial difficulties before, during and after the
termination of the services of Ong, which resulted to the latters retrenchment. While Wiltshires
termination letter used the word "redundant" as ground for Ongs termination, that letter also
referred to the company having "incurred financial losses which compelled it to resort to
retrenchment to prevent further losses". In effect, the letter states that because of financial losses,
retrenchment was necessary, which retrenchment in turn resulted in the redundancy of Ongs
position. Redundancy in an employers personnel force does not necessarily or even ordinarily
refers to duplication of work. That no other person was holding the same position that private
respondent held prior to the termination of his services, does not show that his position had not
become redundant. Redundancy, for purposes of the Labor Code, exists where the services of an
employee are in excess of what is reasonably demanded by the actual requirements of the
enterprise.
Coats Manila Bay vs. Ortega, G.R. No. 172628, February 13, 2009
FACTS: Respondents Purita Ortega and Marina Montero were both employed by Coats Manila
Bay as Clerk Analysts in the Industrial Engineering Department. In 2000, Coats Manila Bay
announced that a redundancy plan would be implemented to prevent further losses. In fact,
respondents were notified that they would be subject to redundancy. As a result of this
redundancy program, 135 employees were terminated, including respondents. Respondents were
notified that they would be subject to redundancy and that they never objected thereto. Coats
Manila Bay also filed with the Department of Labor and Employment its Establishment
Termination Report, indicating that it was terminating 135 of its employees, including
respondents, on the ground of redundancy. Respondents received their respective separation
payments. In the meantime, 11 of the terminated employees were rehired by Coats Manila Bay to
different positions but with lower salaries. As such, respondents filed a complaint for illegal
dismissal with the NLRC against Coats Manila Bay. Coats Manila Bay claimed that they had the
management prerogative to implement a redundancy program as per Article 283 of the Labor
Code. Coats Manila Bay also asserts that it implemented reasonable criteria in selecting
employees to be retrenched, hence, not discriminatory. Moreover, the decision to dismiss
respondents was reached after consultations with the Union. On the other hand, respondents
contend that Coats Manila Bay cannot invoke redundancy since there was no showing that the
functions of respondents are duplicitous or superfluous. They also assert that Coats Manila Bay
failed to show that it was suffering from a serious downturn in business that would warrant
redundancy.

ISSUE:
1. Was the redundancy program terminating the respondents proper?
2. Is the employer required to show that it was suffering from business losses before he can
terminate an employee on the ground of redundancy?

DECISION: YES. Coats Manila Bay employed fair and reasonable criteria in choosing which
positions to declare redundant, which was based on performance, absenteeism, record of
disciplinary action, efficiency, work attitude, and above all, seniority. Moreover, the decision to
dismiss respondents was reached after consultations with the Union considering that there was
duplicity of functions of clerk analysts in the Industrial Engineering Section and finishing
production clerks in the Operations Department. Coats Manila Bay and the Union had exercised
business judgment in choosing who should be re-employed. Absent any showing of arbitrariness
or bad faith, the Court will not interfere with their decision.
NO. Coats Manila Bay need not show that it was suffering from a serious downturn in business
because the ground of redundancy does not require the exhibition of proof of losses or imminent
losses. In fact, it is only retrenchment which requires proof of losses or possible losses as
justification for termination of employment.
Asufrin vs. San Miguel Corporation, G.R. No. 156658, March 10, 2004
FACTS: Coca Cola Plant, then a department of respondent San Miguel Beer Corporation
(SMC), hired Bonifacio Asufrin as a utility/miscellaneous worker in 1972. In 1973, he became
a regular employee paid on daily basis as a Forklift Operator. By 1981, he became a monthly
paid employee promoted as Stock Clerk. Sometime in 1984, the sales office and operations at
the Sum-ag Sales Office were reorganized. Several positions were abolished including Asufrins
position as Stock Clerk. After reviewing his qualifications, he was designated warehouse
checker at the Sum-ag Sales Office. In 1996, respondent SMC implemented a new marketing
system known as the pre-selling scheme at the Sum-ag Beer Sales Office. As a consequence,
all positions of route sales and warehouse personnel were declared redundant, including
Asufrins position as warehouse checker. Asufrin thus filed a complaint for illegal dismissal with
the NLRC but was dismissed by the Labor Arbiter for lack of merit. When it reached the Court of
Appeals, it affirmed the finding of the Labor Arbiter that the position of Asufrin became
redundant at the Sum-ag Sales Offices.
ISSUE: Was the dismissal of Asufrin based on a just and authorized cause?
DECISION: NO. SMC failed to produce adequate proof of such redundancy to justify the
dismissal of the affected employees. It is not enough for a company to merely declare that it has
become overmanned. In selecting employees to be dismissed, a fair and reasonable criterion
must be used, such as but not limited to (a) less preferred status, e.g. temporary employee; (b)
efficiency; and (c) seniority. In the case at bar, no criterion whatsoever was adopted by SMC in
dismissing petitioner. Furthermore, SMC has not shown how the cessation of operations of the
Sum-ag Sales Office contributed to the ways and means of improving effectiveness of the
organization with the end in view of efficiency and cutting distribution overhead and other
related costs. SMC, thus, clearly resorted to sweeping generalizations in dismissing Asufrin.

Caltex vs. NLRC, G.R. No. 159641, October 15, 2007

FACTS: Private respondent Romeo T. Sto. Tomas was a regular a Senior Accounting Analyst
of Caltex since February 2, 1984. In 1996, Caltex informed the DOLE of its plan to implement a
redundancy program in its Marketing Division as a response to the market situation which
constrained Caltex to rationalize and simplify its business processes. As a result, Sto Tomas was
terminated due to the redundancy of his position. Sto Tomas filed with the Labor Arbiter a
complaint for illegal dismissal against Caltex alleging that the latter opened positions for hiring
some of which offered jobs that are the same as what Sto Tomas was performing. Caltex averred
that Sto Tomas dismissal was due to redundancy of his position which was determined after a
review, restructuring and streamlining of its organization and conducted with Sto Tomas
knowledge. Furthermore, Caltex argued that redundancy is an authorized cause to terminate an
employee which is a management prerogative and cannot be interfered with absent any abuse of
discretion. The LA found that Sto Tomas dismissal from the service on the ground of
redundancy was done in good faith and a valid exercise of management prerogative and that
redundancy did not deter the employer to hire additional workers when it is deemed best for
proper management. However, NLRC found that although Article 283 of the Labor Code
authorizes termination due to redundancy, the records did not disclose any evidence to show
basis for Sto Tomas termination. On appeal, the CA ruled that Caltex failed to apply the criteria
in effecting Sto Tomas dismissal due to redundancy as there was no showing that it underwent
painstaking selection from among its employees to be dismissed. CA also found that Caltex
failed to provide proof that it truly had an extensive reengineering study on account of business
losses arising out of massive oil deregulation.
ISSUE: Was Sto Tomas termination on the ground of redundancy valid?
DECISION: NO. There was no substantial evidence presented by Caltex to justify Sto Tomas
dismissal due to redundancy. Caltexs evidence to show redundancy merely consisted of a copy
of its letter to the DOLE informing the latter of its intention to implement a redundancy program
and nothing more. Besides, Caltex also failed to show any fair and reasonable criteria in
ascertaining what positions are redundant and how the selection of employees to be dismissed
was made. The absence of criteria in the selection of an employee to be dismissed renders the
dismissal arbitrary. It is the burden of Caltex, as employer, to prove the factual and legal basis for
the dismissal of its employees on the ground of redundancy. Caltexs failure to show an
authorized cause for Sto Tomas termination is sufficient to declare the dismissal illegal.

De Ocampo vs. NLRC, G.R. No. 101539, September 4, 1992

FACTS: In 1998, petitioners Cecile de Ocampo and other officers or members of the Baliwag
Mahogany Corporation Union-CFW (Union) were employed as mechanics under private
respondent Baliwag Mahogany Corporation (Company), a transportation company. In 1990, the
Company issued a notice of termination to three (3) employees or union members, namely,
Cecile de Ocampo, Rene Villanueva and Marcelo dela Cruz, of the machinery department,
allegedly to effect cost reduction and redundancy. Petitioners contend that the company acted in
bad faith when it terminated the services of the three mechanics because the positions held by
them were not at all abolished but merely given to Gemac Machineries. On the contrary, the
company stresses that when it contracted the services of Gemac Machineries for the maintenance
and repair of its industrial machinery, it only adopted a cost-saving and cost-consciousness
program in order to improve production efficiency. NLRC found that petitioners' dismissal was
justified by redundancy due to superfluity and hence legal.
ISSUE: Were the dismissals of petitioners Cecile de Ocampo, Rene Villanueva, and Marcelo
dela Cruz on the ground of redundancy valid and done in good faith?
DECISION: YES. The dismissal of the three mechanics was justified due to the introduction of
the services of Gemac Machineries in the maintenance and repair of its industrial machinery.
There can be no question as to the right of the company to contract the services of Gemac
Machineries to replace the services rendered by the terminated mechanics with a view to
effecting more economic and efficient methods of production. In contracting the services of
Gemac Machineries, as part of the company's cost-saving program, the services rendered by the
mechanics became redundant and superfluous, and therefore properly terminable. The company
merely exercised its business judgment or management prerogative. And in the absence of any
proof that the management abused its discretion or acted in a malicious or arbitrary manner, the
court will not interfere with the exercise of such prerogative.

Serrano vs. NLRC, G.R. No. 117040, January 27, 2000

FACTS: In 1984, petitioner Ruben Serrano was hired on contractual basis by private respondent
Isetann Department Store as a security checker to apprehend shoplifters and prevent pilferage of
merchandise. He later became head of the Security Checkers Section of Isetann Department
Store. Sometime in 1991, as a cost-cutting measure, Isetann Department Store decided to phase
out its entire security section and engage the services of an independent security agency. As a
result, Serrano was terminated from service in view of the retrenchment program of the company.
Serrano filed a complaint for illegal dismissal. The Labor Arbiter found Serrano to have been
illegally dismissed since the employer failed to establish that it had retrenched its security section
to prevent or minimize losses to its business. NLRC, however, ruled that the phase-out of Isetann
Department Stores security section and the hiring of an independent security agency constituted
an exercise of management prerogative. It added that the abolition of the employers Security
Checkers Section and the employment of an independent security agency do not fall under any of
the authorized causes for dismissal under Article 283 of the Labor Code.
ISSUE: Was there a valid ground for the dismissal of Serrano?
DECISION: YES. The termination of Serranos services on the ground of redundancy was for
an authorized cause. The phase-out of Serranos security section and the hiring of an independent
security agency also constituted an exercise by the employer of a legitimate business decision.
The company merely exercised its business judgment or management prerogative. And in the
absence of any proof that the management abused its discretion or acted in a malicious or
arbitrary manner, the court will not interfere with the exercise of such prerogative.
NOTE: With respect to Art. 283 of the Labor Code, the employers failure to comply with the
notice requirement does not constitute a denial of due process but a mere failure to observe a
procedure for the termination of employment which makes the termination of employment
merely ineffectual. Under the Labor Code, only the absence of a just cause for the termination of
employment can make the dismissal of an employee illegal.

RETRENCHMENT; Criteria in selecting employees to be dismissed; Basic requirements of

a valid retrenchment; Standards which justify retrenchment

Retrenchment on the ground of serious business losses is allowed subject to the conditions that
(1) the losses expected should be substantial and not merely de minimis in extent; (2) the
substantial losses apprehended must be reasonably imminent as such imminence can be
perceived objectively in good faith by the employer; (3) retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses; and (4) the alleged losses, if
already realized and the expected imminent losses sought to be forestalled, must be proven by
sufficient and convincing evidence.
While retrenchment and closure of a business establishment or undertaking are often used
interchangeably and are interrelated, they are actually two separate and independent authorized
causes for termination of employment.
Retrenchment 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.
Closure of a business or undertaking due to business losses is the reversal of fortune of the
employer whereby there is a complete cessation of business operations to prevent further
financial drain upon an employer who cannot pay anymore his employees since business has
already stopped.
While the Labor Code provides for the payment of separation package in case of retrenchment to
prevent losses, it does not obligate the employer for the payment thereof if there is closure of
business due to serious losses.
Alabang Country Club vs. NLRC, G.R. No. 157611, August 9, 2005
FACTS: Petitioner Alabang Country Club Inc. (ACCI) operates and maintains a country club
and various sports and recreational facilities for the exclusive use of its members. A financial
statement report by an independent external auditor, SGV & Co., showed that the ACCI's Food
and Beverage Department (F & B Department) had been gaining profits. However, when the
internal auditor of the company conducted its own financial statement report of the department, it
deducted from the department's annual income the undistributed operating costs and expenses.
Consequently, the report showed that the F & B Department had been incurring substantial losses
in the aggregate amount of P8,727,135.00. As a result, the management decided to cease from
operating the F & B Department and to open the same to La Tasca Restaurant which would be
willing to operate its own food and beverage business within the club. ACCI sent the employees
of the F & B Department individual letters informing them that their services were being
terminated in view of serious business losses. The Alabang Country Club Independent
Employees Union and employees filed before the NLRC a complaint for illegal dismissal. They
argued that the F & B Division had been gaining profits as shown by the financial statement
prepared by SGV & Co. Moreover, compliance with the standards for losses to justify their
retrenchment was not met by ACCI. On the other hand, ACCI averred that it may exercise
management prerogatives to adopt a cost-saving and cost-consciousness program and improve
efficiency in its operations and prevent losses. The Labor Arbiter dismissed the complaint and
found that ACCI was justified in exercising its inherent prerogative to retrench its workers to
prevent further losses.
ISSUE: Were the F & B Department employees validly dismissed on the ground of
retrenchment?
DECISION: NO. The F & B Department employees were not terminated due to retrenchment
to prevent losses since ACCI failed to prove that the closure of its F & B Department was due to
substantial losses. The report submitted by the internal auditor of ACCI to prove its alleged
losses, is self-serving and falls short of the stringent requirement of the law that the employer
proves its allegation of substantial losses. Nevertheless, the employees were validly dismissed on
the ground of closure or cessation of an undertaking not due to serious business losses or
financial reverses under Article 283 of the Labor Code. While ACCI did not sufficiently
establish substantial losses to justify closure of its F & B Department on the ground of
retrenchment due to serious losses, there is basis for its claim that the continued maintenance of
said department had become more expensive through the years. Besides, when petitioner decided
to cease operating its F & B Department and open the same to a concessionaire, it did not reduce
the number of personnel assigned thereat. It terminated the employment of all personnel assigned
at the department.
For retrenchment due to serious business losses to be regarded as an authorized cause for
terminating employees, it must be proven that the losses incurred are substantial and actual or
reasonably imminent; that the same increased through a period of time; and that the condition of
the company is not likely to improve in the near future. In fine, management's exercise of its
prerogative to close a section, branch, department, plant or shop will be upheld as long as it is
done in good faith to advance the employer's interest and not for the purpose of defeating or
circumventing the rights of employees under the law or a valid agreement.

CLOSURE OF BUSINESS OPERATIONS; CONCEPT

Closure or cessation of business operations is allowed even if the business is not undergoing
economic losses. The owner, for any bona fide reason, can lawfully close shop at anytime. Just as
no law forces anyone to go into business, no law can compel anybody to continue in it. It would
indeed be stretching the intent and spirit of the law if we were to unjustly interfere with the
management's prerogative to close or cease its business operations just because said business
operation or undertaking is not suffering from any loss or simply to provide the workers
continued employment.

The employer need only comply with the following requirements for a valid cessation of
business operations. (a) service of a written notice to the employees and to the DOLE at least one
month before the intended date thereof; (b) the cessation of or withdrawal from business
operations must be bona fide in character and (c) payment of termination pay equivalent to at
least one-half month pay for each year of service, or one month pay, whichever is higher.

Mac Adams Union vs. Mac Adams, G.R. No. 141615, October 24, 2003

FACTS: Petitioner Mac Adams Metal Engineering Workers Union-Independent (MAMEWU)

and 38 employees filed a complaint against their employer private respondents Mac Adams
Metal and Engineering (MAME) and GBS Engineering Services (GBS) for unfair labor practices
(ULP) committed through union busting and illegal closure, and illegal dismissal. Petitioners
insist that the closure of MAME and GBS was illegal as it continued doing business under new
business names or by way of runaway shops, i.e., MBS Machine and Industrial Supply (MBS)
and MVS Heavy Equipment Rental and Builders (MVS). One of the proprietors, private
respondent Lydia Sison, denied the allegations explaining that the closure was brought by her
decision to retire from business due to her worsening health condition. For their part, MBS and
MVS denied being run-away shops of MAME and GBS maintaining that they were an entirely
separate and distinct business enterprise from MAME and GBS as it is engaged in
manufacturing carton boxes and other allied products. On the other hand, MAME and GBS
were both engaged in the businesses of machine shop operations, fabrication and construction.
The labor arbiter rendered a decision declaring that the closure of business of MAME and GBS
was legitimate, having been done in good faith and in accordance with law.

ISSUE: Was the closure of private respondents' business was done in good faith and for
legitimate business reasons?

DECISION: YES. There was a legitimate and bona fide closure and cessation of business by
MAME and GBS. Private respondents complied with the requirements for a valid cessation of
business operations. MAME's and GBS employees were adequately informed at least one month
prior to the date of the intended business closure and a written notice to the Regional Director of
the Department of Labor and Employment (DOLE) was filed by private respondents. Moreover,
private respondents had already given the separation pay to all their regular employees except to
those employees who refused to accept their separation pay.
The employer need only comply with the following requirements for a valid cessation of
business operations. (a) service of a written notice to the employees and to the DOLE at least one
month before the intended date thereof; (b) the cessation of or withdrawal from business
operations must be bona fide in character and (c) payment of termination pay equivalent to at
least one-half month pay for each year of service, or one month pay, whichever is higher.

Entitlement to full back wages; definition of back wages;

Equitable PCI Bank v. Sadac, G.R. No. 164772, June 8, 2006

Article 279 of the Labor Code mandates that an employees full backwages shall be inclusive
of allowances and other benefits or their monetary equivalent, but the Court does not see that
a salary increase can be interpreted as either an allowance or a benefitsalary increases are
not akin to allowances or benefits, and cannot be confused with either.

The distinction between backwages and separation pay is elementaryseparation pay is

granted where reinstatement is no longer advisable because of strained relations between the
employee and the employer while backwages represent compensation that should have been
earned but were not collected because of the unjust dismissal.

An unqualified award of backwages means that the employee is paid at the wage rate at the
time of his dismissal. The base figure to be used in the computation of backwages is pegged
at the wage rate at the time of the employees dismissal, inclusive of regular allowances that
the employee had been receiving such as the emergency living allowances and the 13th month
pay mandated under the law.

Salary increase employee not entitled

Backwages are not subject to interest, subject to 12% per annum

Sick and vacation leaves

With just or authorized cause; No due process

Wenphil Corp. v. NLRC, G.R. No. 80587, 8 February 1989, 170 SCRA 69
Dismissal of an employee must be for a just and authorized cause and after due process.Thus
in the present case, where the private respondent, who appears to be of violent temper, caused
trouble during office hours and even defied his superiors as they tried to pacify him, should not
be rewarded with reemployment and back wages. Under the circumstances, the dismissal of the
private respondent for just cause should be maintained. He has no right to return to his former
employment. However, the petitioner must nevertheless be held to account for failure to extend
to private respondent his right to an investigation before causing his dismissal. The dismissal of
an employee must be for just or authorized cause and after due process. Petitioner failed to give
a formal notice and conduct an investigation as required by law before dismissing petitioner from
employment. Thus, petitioner must indemnify the private respondent the amount of P1000.00.

The failure of petitioner to give private respondent the benefit of a hearing before he was
dismissed constitutes an infringement of his constitutional right to due process of law and equal
protection of the laws.

Serrano v. NLRC, G.R. No. 117040, 27 January 2000, 323 SCRA 445
Termination of petitioners services was for an authorized cause, i.e., redundancy. Pursuant to
Article 283 of the Labor Code, petitioner should be given separation pay at the rate of one month
pay for every year of service.

Art. 283 also provides that to terminate the employment of an employee for any of the authorized
causes the employer must serve a written notice on the workers and the Department of Labor
and Employment at least one (1) month before the intended date thereof. In the case at bar,
petitioner was given a notice of termination on October 11, 1991. On the same day, his services
were terminated. He was thus denied his right to be given written notice before the termination
of his employment.

Where the dismissal of one employee is for a just and valid cause but he is not accorded his right
to due process, the dismissal shall be upheld but the employer must be sanctioned for non-
compliance with the requirements of due process.

Employers failure to comply with the notice requirement does not constitute a denial of due
process but a mere failure to observe a procedure for the termination of employment which
makes the termination of employment merely ineffectual.
Whether the employee is reinstated or only granted separation pay, he should be paid full
backwages if he has been laid off without written notice at least 30 days in advance.

Agabon v. NLRC, G.R. No. 158693, November 17, 2004

To dismiss an employee, the law requires not only the existence of a just and valid cause but also
enjoins the employer to give the employee the opportunity to be heard and to defend himself.

Failure to observe due process in a dismissal for just or authorized cause does not invalidate the
dismissal but makes the employer liable for non-compliance with the procedural requirements of
due process.

Employees committed a grave offense, i.e., abandonment, which is a form of a neglect of duty
which, in turn, is one of the just causes enumerated under Article 282 of the Labor Code. In said
case, we upheld the validity of the dismissal despite noncompliance with the notice requirement
of the Labor Code. However, we required the employer Riviera Home Improvements to pay the
dismissed employees the amount of P30000.00 representing nominal damages for non-
compliance with statutory due process.

Procedurally, (1) if the dismissal is based on a just cause under Article 282 of the Labor Code,
the employer must give the employee two written notices and a hearing or opportunity to be
heard if requested by the employee before terminating the employment, and (2) if the dismissal is
based on authorized causes under Articles 283 and 284, the employer must give the employee
and the Department of Labor and Employment written notices 30 days prior to the effectivity of
his separation; Failure to observe due process in a dismissal for just or authorized cause does
not invalidate the dismissal but makes the employer liable for non-compliance with the
procedural requirements of due process.

From the foregoing rules four possible situations may be derived:

(1) The dismissal is for a just cause under Article 282 of the Labor Code, for an authorized
cause under Article 283, or for health reasons under Article 284, and due process was
observed. Here, the dismissal is undoubtedly valid and the employer will not suffer any
liability.
(2) The dismissal is without just or authorized cause but due process was observed; Here the
dismissals are illegal and Article 279 mandates that the employee is entitled to
reinstatement without loss of seniority rights and other privileges and full backwages,
inclusive of allowances, and other benefits or their monetary equivalent computed from
the time the compensation was not paid up to the time of actual reinstatement.
(3) The dismissal is without just or authorized cause and there was no due process; (Effect of
dismissal is the same in number 2.)
(4) The dismissal is for just or authorized cause but due process was not observed. Here, the
dismissal should be upheld. While the procedural infirmity cannot be cured, it should not
invalidate the dismissal. However, the employer should be held liable for non-
compliance with the procedural requirements of due process.
Jaka Food Processing vs. Pacot, 2005, G.R. No. 151378, March 28, 2005
Distinction between a dismissal for just cause under Article 282 and a dismissal for authorized
cause under Article 283.A dismissal for just cause under Article 282 implies that the
employee concerned has committed, or is guilty of, some violation against the employer, i.e. the
employee has committed some serious misconduct, is guilty of some fraud against the employer,
or, as in Agabon, he has neglected his duties. Thus, it can be said that the employee himself
initiated the dismissal process. On another breath, a dismissal for an authorized cause under
Article 283 does not necessarily imply delinquency or culpability on the part of the employee.
Instead, the dismissal process is initiated by the employers exercise of his management
prerogative, i.e. when the employer opts to install labor saving devices, when he decides to cease
business operations or when, as in this case, he undertakes to implement a retrenchment
program. The clear-cut distinction between a dismissal for just cause under Article 282 and a
dismissal for authorized cause under Article 283 is further reinforced by the fact that in the first,
payment of separation pay, as a rule, is not required, while in the second, the law requires
payment of separation pay.

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282
but the employer failed to comply with the notice requirement, the sanction to be imposed upon
him should be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee; and (2) if the dismissal is based on an authorized cause under Article
283 but the employer failed to comply with the notice requirement, the sanction should be stiffer
because the dismissal process was initiated by the employers exercise of his management
prerogative.

In this case, the dismissal due to retrenchment (JAKA was suffering from serious business losses
at the time it terminated respondents employment), which is one of the authorized causes under
Article 283 of the same Code, was effected without JAKA complying with the requirement under
Article 283 of the Labor Code regarding the service of a written notice upon the employees and
the Department of Labor and Employment at least one (1) month before the intended date of
termination. Considering the factual circumstances in the instant case and the above
ratiocination, we, therefore, deem it proper to fix the indemnity at P50000.00.

CONSTRUCTIVE DISMISSAL; DEFINITION; EFFECT

Leonardo v. NLRC, June 16, 2000, G.R. 125303

FUERTE was instructed to report at private respondents main office where he was
informed by the companys personnel manager that he would be transferred to its
Sucat plant due to his failure to meet his sales quota. FUERTE reported for work at
the Sucat plant; however, he protested his transfer, subsequently filing a complaint
for illegal termination.
In FUERTEs case, private respondent claims that the latter was demoted pursuant
to a company policy intended to foster competition among its employees. Under this
scheme, private respondents employees are required to comply with a monthly sales
quota. Should FUERTE fail to meet his quota for a certain number of consecutive
months, he will be demoted.

FUERTE decries his transfer as being violative of his security of tenure, the clear
implication being that he was constructively dismissed. We have held that an
employer acts well within its rights in transferring an employee as it sees fit
provided that there is no demotion in rank or diminution in pay. The two
circumstances are deemed badges of bad faith, and thus constitutive of constructive
dismissal.

Constructive dismissal is defined as an involuntary resignation resorted to when continued

employment becomes impossible, unreasonable, or unlikely; when there is a demotion in
rank or diminution in pay; or when a clear discrimination, insensibility or disdain by an
employer becomes unbearable to the employee.

EFFECT: Same as actual dismissal; forced dismissal due to maltreatment of employee.

The instinctive conclusion would be that his transfer is actually a constructive dismissal,
but oddly, private respondent never denies that it was really demoting FUERTE for cause.

It should be borne in mind, however, that the right to demote an employee also falls within
the category of management prerogatives.

In the case at bar, the petitioners failure to meet the sales quota assigned to each of them
constitute a just cause of their dismissal, regardless of the permanent or probationary
status of their employment. Failure to observe prescribed standards of work or to fulfill
reasonable work assignments due to inefficiency may constitute just cause for dismissal.

DISMISSAL BASED ON FALSE OR NON-EXISTENT CAUSE; EFFECT (Illegal dismissal)

Standard Electric Manufacturing Co. v. Standard Electric Employees Union G.R. No.
166111, August 25, 2005

He averred that since the reason for his detention for rape was non-
existent, the termination of his employment was illegal. For its part,
the SEMC averred that Javiers prolonged absences caused irreparable damages to
its orderly operation; he had to be replaced so that the continuity and flow of
production would not be jeopardized. It could not afford to wait for Javiers
indefinite return from detention.

Javier contends that RESPONDENT COMPANY VIOLATED his RIGHT TO PRIOR

NOTICE RELATIVE TO THE LATTERS DISMISSAL.

CA held that Javier could not be terminated on the ground of commission of a crime,
as when he was acquitted of the rape charges, the second ground relied upon by the
SEMC ceased to have factual basis. Hence, despite the fact that Javier was allegedly
afforded the opportunity to explain his side, the same was unnecessary since, in the
first place, there was no just or authorized cause for the dismissal.

NO reinstatement:
1. When there is closure of business
2. Strained relations
3. Supervening events;
4. Employee chooses to be awarded separation pay