45. Asian Alcohol Corp. v. NLRC, G.R. No.

131108, 1999

Facts: Private respondents filed complaints for illegal dismissal with prayer for reinstatement
with backwages, moral damages and attorneys fees. They alleged that petitioner used the
retrenchment program as a subterfuge for union busting. They also alleged that petitioner was
not bankrupt as it has engaged in an aggressive scheme of contractual hiring. The Labor Arbiter
dismissed the complaints ruling that the dismissal of private respondents on ground of
redundancy/retrenchment was valid.

ISSUE: W/N the implementation of a redundancy program was destroyed by availment of the
services of the respondents of an independent contractor to replace the services of the terminated
employees;

Ruling: Article 283 of the Labor Code, as amended, governs the right of management to dismiss
workers during the period of business recession and to install labor saving devices to prevent
losses. The condition of business losses is normally shown by audited financial documents. In
the instant case, private respondents never contested the veracity of the audited financial
documents offered by petitioner. Neither did they object to their admissibility. They show that
petitioner had accumulated losses and showing no sign of abating in the near future. The
Supreme Court also found that petitioners reorganizational plan and comprehensive cost saving
program to turn the business around were not designed to bust the union. Union and non-union
members were treated alike.

An employers good faith in implementing a redundancy program is not necessarily destroyed by

availment of the services of an independent contractor to replace the services of the terminated
employees. The reduction of the number of workers in a company made necessary by the
introduction of the services of an independent contractor is justified when the latter is undertaken
in order to effectuate more economic and efficient methods of production. Private respondents
failed to proffer any proof that the management acted in malicious or arbitrary manner in
engaging the services of an independent contractor.

Absent any such proof, the Court had no basis to interfere with the bonafide decision of
management to effect more and efficient methods of production. Thus, the Supreme Court
dismissed the complaints for illegal dismissal filed by private respondents.
46. LOPEZ SUGAR CORP V. FRANCO

FACTS: Lopez Sugar issued a Memorandum for the adoption of a special retirement program for
selected supervisory and middle-level managers, allegedly due to over-staffing and duplication
of functions. Private respondents, all supervisory employees who organized a labor union which
was currently undergoing CBA negotiations with Lopez Sugar were included in its coverage and
terminated from employment.

ISSUE: Was the termination of respondents by virtue of the special retirement program valid?

HELD: NO. The corporation illegally dismissed the private respondents by including them in its
special retirement program, this debilitating the union, rendering it pliant by decapacitating its
leadership. No standards, criteria, or guidelines for the selection of the employees to be dismisses
were made known to them, and all they were told was that they had been selected for
termination.
47. Oriental Petroleum & Minerals Corp. v. Fuentes, G.R. No. 151818, October 14, 2005

FACTS: Petitioner Oriental Petroleum and Minerals Corporation informed respondents of its
retrenchment program as a consequence of which respondents would be terminated from
employment. Petitioner advised respondents that they would be getting separation pay equivalent
to one-half (1/2) month salary for every year of service in accordance with the companys
retirement plan. However, if respondents qualify for retirement or resignation benefits under the
retirement plan, they would receive the greater amount as separation benefits.
Respondents sought clarification on the retrenchment package being offered them.
Petitioner replied that respondents Mesina, Rodriguez, De Castro and Buenavista would be
entitled to one (1) month gross salary for every year of service, while respondents Fuentes,
Gacula and Belo would receive one-half (1/2) month gross salary for every year of service.

Finding this unacceptable, respondents requested that the following benefits be extended
to them: (a) two (2) months separation pay (gross salary) on top of one (1) month retirement fund
for every year of service; (b) profit sharing; (c) one (1) month balance of the 1993 Christmas
bonus; (d) two (2) months 1994 mid-year bonus; (e) loyalty bonus for those who have rendered
fifteen (150 years of service amounting to about P10,000.00; (f) conversion to cash of accrued
vacation and sick leaves; (g) thirteenth (13th) month pay; and (h) I-care coverage to continue up
to the end of coverage in December 1994 since premiums have been paid for in full and no
refunds are given for early cancellation.

Acting on the request, petitioner countered that respondents would be given the following
benefits: (1) loyalty bonus for those who have rendered at least 15 years of continuous service
amounting to P10,000.00; (2) conversion to cash of the accrued 1994 vacation and sick leave
credits; and (3) pro-rated 13th month pay.

Dissatisfied with petitioners counter-offer, respondents filed separate complaints for

illegal retrenchment with prayer for the payment of backwages, actual damages, moral and
exemplary damages, and attorneys fees.

ISSUE: W/N there is an existence of substantial losses that would justify the
retrenchment of respondents

RULING: No.
Retrenchment is one of the authorized causes recognized by the Labor Code[22] for the dismissal
of employees. It is a management prerogative resorted to by employers to avoid or minimize
business losses. The Court has laid down the following standards that a company must meet to
justify retrenchment and to foil abuse:

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 bonafide 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 other 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 employers prerogative to bring down labor costs by
retrenching must be exercised essentially as a measure of last resort, after less
drastic meanse.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 reason for requiring this quantum of
proof is readily apparent: any less exacting standard of proof would render too
easy the abuse of this ground for termination of services of employees.[23]

Petitioner presented its audited financial statements for the years 1992 and 1993 to demonstrate
that retrenchment was necessary to put a stop to its actual losses and prevent further losses. The
financial statements show that petitioners total current assets dipped from P325,167,148.00 in
1992 to P221,001,191.00 in 1993. Its total current liabilities, on the other hand, swelled
from P373,571,128.00 in 1992 to P517,301,874.00 in 1993. Its costs likewise increased
from P262,698,049.00 in 1992 to P456,507,065.00 in 1993. The financial statements reflect that
petitioner suffered a net loss of P107,812,816.00 in 1993 contrasted with its net earnings
of P148,229,404.00 in 1992.

These figures do not bode well for petitioners financial future. However, while it is true
that the Court has ruled that financial statements audited by independent external auditors
constitute the normal method of proof of the profit and loss performance of a
Company,[24] financial statements, in themselves, do not suffice to meet the stringent requirement
of the law that the losses must be substantial, continuing and without any immediate prospect of
abating.[25]
Retrenchment being a measure of last resort, petitioner should have been able to
demonstrate that it expected no abatement of its losses in the coming years. Petitioner having
failed in this regard, we find that the Court of Appeals did not err in dismissing as unimpressive
and insufficient petitioners audited financial statements.
As regards the rule that reasonable criteria be used in effecting retrenchment, such as but
not limited to: (a) less preferred status (e.g., temporary employee); (b) efficiency; and (c)
seniority,[26] we find that petitioner failed to demonstrate its transparency and good faith in the
implementation of its decision to retrench respondents. While it contends that the termination of
two (2) non-regular employees ahead of respondents shows that it complied with the requisite
fair and reasonable criteria, that fact alone is insufficient, considering the importance this Court
has given to the observance of fair and reasonable criteria in the implementation of a
retrenchment scheme.
The retrenchment in this case must be held invalid, considering that petitioner utterly
failed to show that it had any standard at all in selecting the employees to be retrenched. Verily,
the assistance that two (2) non-regular employees were similarly retrenched ahead of respondents
appears more like a handy excuse than any deliberate effort on petitioners part to follow the fair
and reasonable criteria established by jurisprudence.
48. JAT GEN SERVICES V NLRC (MASCARINAS) 421 SCRA 78, January 26, 2004

NATURE
Certiorari on decision of CA affirming NLRC affirming LA finding petitioner liable for illegal
dismissal and ordering petitioners to pay private respondent Mascarinas separation pay,
backwages, legal holiday pay, service incentive leave pay and 13th month pay in the aggregate
sum of P85,871.00.

FACTS
- JAT is engaged in the business of selling second-hand heavy equipment. It hired private
respondent as helper tasked to coordinate with the cleaning and delivery of the heavy equipment
sold to customers. Initially, private respondent was hired as a probationary employee and was
paid P165 per day that was increased to P180 in July 1997 and P185 in January 1998.
- In October 1997, the sales of heavy equipment declined because of the Asian currency crisis.
Consequently, JAT temporarily suspended operations. It advised its employees, including private
respondent, not to report for work starting on the first week of March 1998. JAT indefinitely
closed shop effective May 1998.
- A few days after, Mascarinas filed a case for illegal dismissal and underpayment of wages.
- On December 14, 1998, JAT filed an Establishment Termination Report with the DOLE,
notifying its decision to close its business operations due to business losses and financial
reverses.

ISSUE
WON private respondent was illegally dismissed

HELD: NO
Ratio Article 283 of the Labor Code is clear that an employer may close or cease his business
operations or undertaking even if he is not suffering from serious business losses or financial
reverses, as long as he pays his employees their termination pay in the amount corresponding to
their length of service, It would, indeed, be stretching the intent and spirit of the law if we were
to unjustly interfere in managements prerogative to close or cease it s business operations just
because said undertaking is not suffering from any loss. (Industrial Timber Corp. v NLRC)

Reasoning
- While the CA defined the issue to be the validity of dismissal due to alleged closure of
business, it cited jurisprudence relating to retrenchment to support its resolution and
conclusion. While they are often used interchangeably and are interrelated, they are actually
two separate and independent causes for termination of employment. Termination of an
employment may be predicated on one without the need of resorting to the other.
- Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a
complete cessation of business operations and/or an actual locking-up of the doors of
establishment, usually due to financial losses. Closure of business as an authorized cause for
termination of employment aims to prevent further financial drain upon an employer who cannot
pay anymore his employees since business has already stopped.
- On the other hand, retrenchment is reduction of personnel usually due to poor financial returns
so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of
the company. It issometimes also referred to as downsizing. Retrenchment is an authorized
cause for termination of employment which the law accords an employer who is not making
good in its operations in order to cut back on expenses for salaries and wages by laying off some
employees. The purpose of retrenchment is to save a financially ailing business establishment
from eventually collapsing.
- However, the burden of proving that such closure is bona fide falls upon the employer. JATs
submitted financial statements were bereft of details on the extent of alleged losses incurred.
- So we proceed to determining if there was valid dismissal on the ground of closure or cessation
of operations for reasons other than substantial business losses. JATs income statement showed
declining sales enough to justify the closure of business.
The dismissal being valid, backwages need not be awarded.