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Case no.

G.R. No. 79762 January 24, 1991



Facts: Private respondent is stockholder of Fortune Cement Corp (FCC). He was elected executive
vice-president by the FCC board. Later on he was dismissed from his post so he filed before the
NLRC a complaint for illegal dismissal against FCC alleging that his dismissal was done without a
formal hearing and investigation and, therefore, without due process. FCC moved for the dismissal on
the complaint on the ground that his dismissal as a corporate officer is a purely intra-corporate
controversy over which the Securities and Exchange Commission (SEC) has original and exclusive
jurisdiction. The Labor Arbiter granted the motion to dismiss. On appeal, however, the NLRC set
aside the Labor Arbiter's order and remanded the case to the Arbitration.

Issue: WON such dismissal is a purely intra-corporate controversy and therefore SEC has jurisdiction
and not NLRC

Ruling: Yes it is a purely intra-corporate controversy. NLRC has NO jurisdiction. SEC has
jurisdiction. A person who is not a mere employee but a stockholder and officer, an integral part, it
might be said, of the corporation, is not a simple labor problem but a matter that comes within the
area of corporate affairs and management, and is in fact a corporate controversy in contemplation of
the Corporation Code.

Note: In summary, if a company through its board fires a stockholder who holds a position like an
executive vice-president such is not under the jurisdiction of the NLRC. It should be under SEC
because it is an intra-corporate controversy. Basis of SEC jurisdiction is Section 5 of Presidential
Decree No. 902-A
Emco Plywood Corp vs Abelgas et al. The “loss” referred to in this provision cannot be of just any kind or
amount; otherwise, a company could easily feign excuses to suit its
Facts: Emco informed DOLE that they intend to retrench (meaning to whims and prejudices or to rid itself of unwanted employees. The
cut down, reduce, remove, fire babay na) some of their workers. The Court has laid down the following standards that a company must meet
to justify retrenchment and to guard against abuse:
retrenchment was grounded on purported financial difficulties
occasioned by alleged lack of raw materials, frequent machinery
breakdown, low market demand and expiration of permit to operate its Firstly, the losses expected should be substantial and not merely de
minimis in extent. If the loss purportedly sought to be forestalled by
sawmill department. To prove that the retrenchment was necessary to
retrenchment is clearly shown to be insubstantial and inconsequential
prevent substantial losses, petitioners present their audited financial in character, the bonafide nature of the retrenchment would appear to
statements for the years 1991 and 1992 which showed a decrease of be seriously in question. Secondly, the substantial loss apprehended
income from 1991 to 1992. must be reasonably imminent, as such imminence can be perceived
objectively and in good faith by the employer. There should, in other
Emco then issued a memorandum addressed to all its foremen, words, be a certain degree of urgency for the retrenchment, which is
section heads, supervisors and department heads which contained after all a drastic recourse with serious consequences for the livelihood
of the employees retired or otherwise laid-off. Because of the
instructions on who among the employees should be removed.
consequential nature of retrenchment, it must, thirdly, be reasonably
necessary and likely to effectively prevent the expected losses. The
Per EMCO’s notice to the DOLE, one hundred four (104) workers were employer should have taken other measures prior or parallel to
proposed to be removed but in the end 250 employees were actually retrenchment to forestall losses, i.e., cut other costs other than labor
removed. costs. An employer who, for instance, lays off substantial numbers of
workers while continuing to dispense fat executive bonuses and
The respondents then received their separation pay but deductions perquisites or so-called ‘golden parachutes,’ can scarcely claim to be
were made by EMCO purportedly for the attorney’s fees payable to retrenching in good faith to avoid losses. To impart operational
meaning to the constitutional policy of providing ‘full protection’ to
the respondents’ lawyer, for the latter’s effort in purportedly
labor, the employer’s prerogative to bring down labor costs by
renegotiating, sometime in 1993, the three peso (P3.00) increase in retrenching must be exercised essentially as a measure of last resort,
the wages of respondents, as now contained in the Collective after less drastic means – e.g., reduction of both management and
Bargaining Agreement. 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.
Upon receipt of their separation pay, [respondents] were made to sign
quitclaims, which read:
Lastly, but certainly not the least important, alleged losses if already
realized, and the expected imminent losses sought to be forestalled,
TO WHOM IT MAY CONCERN: must be proved by sufficient and convincing evidence. The reason for
requiring this quantum of proof is readily apparent: any less exacting
‘I, ___________ of legal age and a resident of _______________, for standard of proof would render too easy the abuse of this ground for
and in consideration of the amount of (P____), the receipt of which, in termination of services of employees.
full, is hereby acknowledged, forever discharge and release x x x
EMCO PLYWOOD CORPORATION and all its officers men agents Retrenchment is only “a measure of last resort when other less drastic
and corporate assigns from any and all forms of actions/suits, debts,
means have been tried and found to be inadequate.
sums of money, unpaid wages, overtime pay allowances, overtime pay
or an other liability of any nature by reason of my employment which
has ceased by this date. In essence, the Supreme Court did not believe that the retrenchment
was valid because even though Emco showed its audited “shit”
‘Done this ______________, at Magallanes, Agusan del Norte financial statements covering 1991 and 1992 which showed a
reduction of income, it was still possible that the reduction of said
income from 91 to 92 is less compared to other years which would
About two (2) years later, [respondents], through their labor union,
mean that they are actually recovering.
lodged a complaint against EMCO for illegal dismissal, damages and
Also the only less drastic measure that EMCO undertook was the
attorney’s fees
rotation work scheme: the three-day-work per employee per week
schedule. It did not try other measures, such as cost reduction, lesser
Both the labor arbiter and NLRC ruled in favor of Emco on the ground
investment on raw materials, adjustment of the work routine to avoid
that the retrenchment and quitclaims were valid. The Court of Appeals
the scheduled power failure, reduction of the bonuses and salaries of
sided with the respondents.
both management and rank-and-file, improvement of manufacturing
efficiency, trimming of marketing and advertising costs, and so on.
Issues: 1. WON there was valid retrenchment
The fact that petitioners did not resort to other such measures
seriously belies their claim that retrenchment was done in good faith to
2. WON the quitclaim signed by respondents is valid – This is the
avoid losses.
issue discussed in class by Sir Plagata

3. WON there was valid notice prior to the retrenchment

1. WON the quitclaim signed by respondents is valid
4. WON the separation pay was in accordance with the labor code
The Supreme Court held that the labor arbiter and the NLRC erred in
Ruling: WON there was valid retrenchment- --- NO, the retrenchment concluding that respondents had voluntarily signed the Waivers and
was illegal. Quitclaim Deeds.

Contrary to this assumption, the mere fact that respondents were not
Retrenchment is one of the authorized causes for the dismissal of
physically coerced or intimidated does not necessarily imply that they
employees. Resorted to by employers to avoid or minimize business
losses, it is recognized under Article 283 of the Labor Code. freely or voluntarily consented to the terms thereof. Moreover,
petitioners (EMCO), not respondents, have the burden of proving that
the Quitclaims were voluntarily entered into.
Since the retrenchment was illegal and of no effect, the Quitclaims was defective, because it stated that EMCO would terminate the
were therefore not voluntarily entered into by respondents. Their services of 104 of its workers. The corporation, however, actually
consent was similarly vitiated by mistake or fraud. (Akala ng mg dismissed 250. Petitioners aver that the 146 employees not listed
workers magsasara na yung company kaya nag sign na lang sila ng
in the Notice sent to DOLE voluntarily resigned; hence, the latter
quitclaim parang ganun lang)
were not retrenched. This assertion does not deserve any
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 present 3. WON the separation pay was in accordance with the labor code---
respondents as consideration for signing the Quitclaims should, -No!
however, be deducted from their respective monetary awards
Petitioners had not complied with this statutory requirement.
Article 283. x x x In case of retrenchment to prevent losses x x x,
2. WON there was valid notice prior to the retrenchment---No! 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
For a valid termination due to retrenchment, the law requires that is higher. A fraction of at least six (6) months shall be considered
written notices of the intended retrenchment be served by the one (1) whole year.
employer on the worker and on the Department of Labor and
Employment at least one (1) month before the actual date of the The deductions made by EMCO on the separation pay which was
retrenchment. There is no showing that such notice was served allegedly for the attorney’s fees of the respondents should not
on the employees in the present case. The Notice sent to DOLE have been done. It should have been charged to the union.

Case Digest short cut version

Facts: Emco retrenched some of its workers. Two years after, the workers filed a complaint. The
Labor Arbiter and NLRC sided with EMCO while the CA ruled in favor of the respondent workers. The
Labor Arbiter and NLRC based their decision on the validity of the quitclaim declaring it valid and so
the respondent workers can no longer complain.

Issue: WON the quitclaim is valid

Ruling: No, it is not valid. The mere fact that respondents were not physically coerced or intimidated
does not necessarily imply that they freely or voluntarily consented to the terms of the quitclaim.
Since the retrenchment was illegal and of no effect, the Quitclaims were therefore not voluntarily
entered into by respondents. Their consent was similarly vitiated by mistake or fraud. (Akala ng mg
workers magsasara na yung company kaya nag sign na lang sila ng quitclaim parang ganun lang)