Labor Law 1 - AMBERHA | 1

Title I
TERMINATION OF EMPLOYMENT
Art. 278. Coverage. The provisions of this Title shall apply to all establishments or undertakings, whether for profit or
not.

Art. 279. Security of tenure. In cases of regular employment, the employer shall not terminate the services of an
employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive
of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement. (As amended by Section 34, Republic Act No. 6715, March
21, 1989)

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has
been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the
employer, except where the employment has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement of the employee or where the work or service
to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any
employee who has rendered at least one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is employed and his employment shall continue
while such activity exists.

Art. 281. Probationary employment. Probationary employment shall not exceed six (6) months from the date the
employee started working, unless it is covered by an apprenticeship agreement stipulating a longer period. The services
of an employee who has been engaged on a probationary basis may be terminated for a just cause or when he fails to
qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee
at the time of his engagement. An employee who is allowed to work after a probationary period shall be considered a
regular employee.

Art. 282. Termination by employer. An employer may terminate an employment for any of the following causes:
1. Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
representative in connection with his work;
2. Gross and habitual neglect by the employee of his duties;
3. Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;
4. 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
5. Other causes analogous to the foregoing.

Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of
any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month
pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month
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pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole
year.

Art. 284. Disease as ground for termination. An employer may terminate the services of an employee who has been
found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his
health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one
(1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six
(6) months being considered as one (1) whole year.

Art. 285. Termination by employee.

An employee may terminate without just cause the employee-employer relationship by serving a written notice on
the employer at least one (1) month in advance. The employer upon whom no such notice was served may hold the
employee liable for damages.

An employee may put an end to the relationship without serving any notice on the employer for any of the following
just causes:

1. Serious insult by the employer or his representative on the honor and person of the employee;
2. Inhuman and unbearable treatment accorded the employee by the employer or his representative;
3. Commission of a crime or offense by the employer or his representative against the person of the
employee or any of the immediate members of his family; and
4. Other causes analogous to any of the foregoing.

Art. 286. When employment not deemed terminated. The bona-fide suspension of the operation of a business or
undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall
not terminate employment. In all such cases, the employer shall reinstate the employee to his former position without
loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of
operations of his employer or from his relief from the military or civic duty.

o Abandonment
Abandonment as a just cause for dismissal is based on Article 282(b) of the Labor Code i.e. gross and habitual
neglect by the employee of his duties.

Protective Maximum Security vs. Fuentes, G.R. No. 169303, February 11, 2015

Doctrine. Abandonment as a just cause for dismissal is based on Article 282(b) of the Labor Code i.e. gross and habitual
neglect by the employee of his duties.

Abandonment constitutes a just cause for dismissal because "the law in protecting the rights of the laborer, authorizes
neither oppression nor self-destruction of the employer." The employer cannot be compelled to maintain an employee
who is remiss in fulfilling his duties to the employer, particularly the fundamental task of reporting to work.

In Agabon v. National Labor Relations Commission, this court discussed the concept of abandonment: Abandonment is
the deliberate and unjustified refusal of an employee to resume his employment. It is a form of neglect of duty, hence, a
just cause for termination of employment by the employer. For a valid finding of abandonment, these two factors
should be present: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear
intention to sever employer-employee relationship, with the second as the more determinative factor which is
manifested by overt acts from which it may be deduced that the employees has [sic] no more intention to work. The
intent to discontinue the employment must be shown by clear proof that it was deliberate and unjustified.

There is no abandonment in this case.

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The first element of abandonment is the failure of the employee to report to work without a valid and justifiable reason.
Petitioner asserts that respondent failed to report for work immediately after his release from prison. He also failed to
abide by company procedure and report to his immediate superior. According to petitioner, respondent’s actions
constitute a failure to report to work without a valid and justifiable reason.

The National Labor Relations Commission and the Court of Appeals found that respondent’s failure to return to work
was justified because of his detention and its adverse effects. The Court of Appeals found that petitioner did not refute
the allegation that respondent, while in the custody of the police, suffered physical violence in the hands of its
employees. Thus, the Court of Appeals gave credence to the report submitted by Inspector Escartin, which stated that
respondent was "so traumatized that he actually asked to remain in the custody of the police because he feared for his
life." The Court of Appeals further found that respondent experienced intense fear, "manifest[ed] by the fact that he left
the custody of the police only when his mother accompanied him."

Thus, the intervening period when respondent failed to report for work, from respondent’s prison release to the time he
actually reported for work, was justified. Since there was a justifiable reason for respondent’s absence, the first element
of abandonment was not established.

The second element is the existence of overt acts which show that the employee has no intention to return to work.
Petitioner alleges that since respondent "vanished" and failed to report immediately to work, he clearly intended to
sever ties with petitioner.

However, respondent reported for work after August 15, 2001, when the criminal Complaint against him was dropped.
Further, petitioner refused to allow respondent to resume his employment because petitioner believed that respondent
was a member of the New People’s Army and had already hired a replacement.

Respondent’s act of reporting for work after being cleared of the charges against him showed that he had no intention
to sever ties with his employer. He attempted to return to work after the dismissal of the Complaint so that petitioner
would not have any justifiable reason to deny his request to resume his employment. Thus, respondent’s actions
showed that he intended to resume working for petitioner. The second element of abandonment was not proven, as
well.

Balais Jr. vs. Se’Lon

The Court finds that respondents failed to establish that Balais abandoned his work. To constitute abandonment, two
elements must concur: (a) the failure to report for work or absence without valid or justifiable reason, and (b) a clear
intention to sever the employer-employee relationship, with the second element as the more determinative factor and
being manifested by some overt acts.14 Mere absence is not sufficient. The employer has the burden of proof to show a
deliberate and unjustified refusal of the employee to resume his employment without any intention of returning.
Respondents, other than their bare allegation of abandonment, failed to prove that these two elements were met. It
cannot be said that Balais failed to report back to work without justifiable reason as in fact he was told that he was no
longer wanted in the salon.

o Preventive Suspension

Blue Sky Trading Co. vs. Blas, G.R. No. 190559

Doctrine. Blue Sky committed no impropriety in imposing preventive suspension against Arlene and Joseph pending
investigation of the theft allegedly committed against the company.
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We, however, find no merit in the challenge made by Arlene and Joseph against the legality of the preventive
suspension imposed by Blue Sky upon them pending the investigation of the alleged theft.

In Mandapat v. Add Force Personnel Services, Inc., we explained that preventive suspension may be legally imposed on
an employee whose alleged violation is the subject of an investigation. The purpose of the suspension is to prevent an
employee from causing harm or injury to his colleagues and to the employer. The maximum period of suspension is 30
days, beyond which the employee should either be reinstated or be paid wages and benefits due to him.

In Arlene and Joseph's case, Blue Sky issued to them notices to explain on February 3, 2005. They submitted their
written explanation the day after and they were dismissed from service on February 5, 2005. While we do not agree
with Blue Sky's subsequent decision to terminate them from service, we find no impropriety in its act of imposing
preventive suspension upon the respondents since the period did not exceed the maximum imposed by law and there
was a valid purpose for the same.

Agcolicol Jr. vs. Casino

Casiño was constructively dismissed through the imposition of indefinite preventive suspension.

An employee is considered to be constructively dismissed from service if an act of clear discrimination, insensibility or
disdain by an employer has become so unbearable to the employee as to leave him or her with no option but to forego
with his or her continued employment. From said definition, it can be gathered that various situations, whereby the
employee is intentionally placed by the employer in a situation which will result in the former’s being coerced into
severing his ties with the latter, can result in constructive dismissal. One such situation is where an employee is
preventively suspended pending investigation for an indefinite period of time. At this point it is well to note that not all
preventive suspensions are tantamount to constructive dismissal. The employer’s right to place an employee under
preventive suspension is recognized in Rule XXIII, Implementing Book V of the Omnibus Rules Implementing the Labor
Code. Section 8 of said Rule provides:

8.SEC.Preventive suspension.—The employer may place the worker concerned under preventive suspension if his
continued employment poses a serious and imminent threat to the life or property of the employer or of hiscoworkers.

To be valid, however, not only must the preventive suspension be imposed pursuant to Section 8, it must also follow the
30-day limit exacted under the succeeding Section 9 of the Rule. Thus:

9.SEC.Period of suspension.—No preventive suspension shall last longer than thirty (30) days. The employer shall
thereafter reinstate the worker in his former or in a substantially equivalent position or the employer may extend the
period of suspension provided that during the period of extension, he pays the wages and other benefits due to the
worker. In such case, the worker shall not be bound to reimburse the amount paid to him during the extension if the
employer decides, after completion of the healing, to dismiss the worker.

Here, there is no inquiry on the propriety of petitioner’s resort to the imposition of a preventive suspension. What is
now in question is the fact that respondent was preventively suspended by petitioner for an indefinite period of time
and whether the imposition of indefinite preventive suspension is tantamount to constructive dismissal. On the 30-day
limit on the duration of an employee’s preventive suspension, We have previously ruled that “when preventive
suspension exceeds the maximum period allowed without reinstating the employee either by actual or payroll
reinstatement or when preventive suspension is for [an] indefinite period, only then will constructive dismissal set in.”

o Termination of a probationary employee

Canadian Opportunities Unlimited vs. Dalangin, Jr., G.R. No. 172223, February 6, 2012
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Doctrine. The essence of a probationary period of employment fundamentally lies in the purpose or objective of both
the employer and the employee during the period. While the employer observes the fitness, propriety and efficiency of
a probationer to ascertain whether he is qualified for permanent employment, the latter seeks to prove to the former
that he has the qualifications to meet the reasonable standards for permanent employment.

The "trial period" or the length of time the probationary employee remains on probation depends on the parties’
agreement, but it shall not exceed six (6) months under Article 281 of the Labor Code, unless it is covered by an
apprenticeship agreement stipulating a longer period. Article 281 provides:

Probationary employment. — Probationary employment shall not exceed six (6) months from the date the employee
started working, unless it is covered by an apprenticeship agreement stipulating a longer period. The services of an
employee who has been engaged on a probationary basis may be terminated for a just cause or when he fails to qualify
as a regular employee in accordance with reasonable standards made known by the employer to the employee at the
time of his engagement. An employee who is allowed to work after a probationary period shall be considered a regular
employee.

As the Court explained in International Catholic Migration Commission, "the word ‘probationary,’ as used to describe the
period of employment, implies the purpose of the term or period, but not its length." Thus, the fact that Dalangin was
separated from the service after only about four weeks does not necessarily mean that his separation from the service is
without basis.
Contrary to the CA’s conclusions, we find substantial evidence indicating that the company was justified in terminating
Dalangin’s employment, however brief it had been. Time and again, we have emphasized that substantial evidence is
such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.

Dalangin overlooks the fact, wittingly or unwittingly, that he offered glimpses of his own behavior and actuations during
his four-week stay with the company; he betrayed his negative attitude and regard for the company, his co-employees
and his work.

Dalangin admitted in compulsory arbitration that the proximate cause for his dismissal was his refusal to attend the
company’s "Values Formation Seminar" scheduled for October 27, 2001, a Saturday. He refused to attend the seminar
after he learned that it had no relation to his duties, as he claimed, and that he had to leave at 2:00 p.m. because he
wanted to be with his family in the province. When Abad insisted that he attend the seminar to encourage his co-
employees to attend, he stood pat on not attending, arguing that marked differences exist between their positions and
duties, and insinuating that he did not want to join the other employees. He also questioned the scheduled 2:00 p.m.
seminars on Saturdays as they were not supposed to be doing a company activity beyond 2:00 p.m. He considers 2:00
p.m. as the close of working hours on Saturdays; thus, holding them beyond 2:00 p.m. would be in violation of the law.

The "Values Formation Seminar" incident is an eye-opener on the kind of person and employee Dalangin was. His refusal
to attend the seminar brings into focus and validates what was wrong with him, as Abad narrated in her affidavit and as
reflected in the termination of employment memorandum. It highlights his lack of interest in familiarizing himself with
the company’s objectives and policies. Significantly, the seminar involved acquainting and updating the employees with
the company’s policies and objectives. Had he attended the seminar, Dalangin could have broadened his awareness of
the company’s policies, in addition to Abad’s briefing him about the company’s policies on punctuality and attendance,
and the procedures to be followed in handling the clients’ applications. No wonder the company charged him with
obstinacy.

The incident also reveals Dalangin’s lack of interest in establishing good working relationship with his co-employees,
especially the rank and file; he did not want to join them because of his view that the seminar was not relevant to his
position and duties. It also betrays an arrogant and condescending attitude on his part towards his co-employees, and a
lack of support for the company objective that company managers be examples to the rank and file employees.
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Additionally, very early in his employment, Dalangin exhibited negative working habits, particularly with respect to the
one hour lunch break policy of the company and the observance of the company’s working hours. Thus, Abad stated
that Dalangin would take prolonged lunch breaks or would go out of the office – without leave of the company – only to
call the personnel manager later to inform the latter that he would be unable to return as he had to attend to personal
matters. Without expressly countering or denying Abad’s statement, Dalangin dismissed the charge for the company’s
failure to produce his daily time record.

The same thing is true with Dalangin’s handling of Tecson’s application for immigration to Canada, especially his failure
to find ways to appeal the denial of Tecson’s application, as Abad stated in her affidavit. Again, without expressly
denying Abad’s statement or explaining exactly what he did with Tecson’s application, Dalangin brushes aside Abad’s
insinuation that he was not doing his job well, with the ready argument that the company did not even bother to
present Tecson’s testimony.

In the face of Abad’s direct statements, as well as those of his co-employees, it is puzzling that Dalangin chose to be
silent about the charges, other than saying that the company could not cite any policy he violated. All along, he had
been complaining that he was not able to explain his side, yet from the labor arbiter’s level, all the way to this Court, he
offered no satisfactory explanation of the charges. In this light, coupled with Dalangin’s adamant refusal to attend the
company’s "Values Formation Seminar" and a similar program scheduled earlier, we find credence in the company’s
submission that Dalangin was unfit to continue as its Immigration and Legal Manager. As we stressed earlier, we are
convinced that the company had seen enough from Dalangin’s actuations, behavior and deportment during a four-week
period to realize that Dalangin would be a liability rather than an asset to its operations.

We, therefore, disagree with the CA that the company could not have fully determined Dalangin’s performance barely
one month into his employment. As we said in International Catholic Migration Commission, the probationary term or
period denotes its purpose but not its length. To our mind, four weeks was enough for the company to assess Dalangin’s
fitness for the job and he was found wanting. In separating Dalangin from the service before the situation got worse, we
find the company not liable for illegal dismissal.

 Authorized Causes

Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of
any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month
pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, 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 is higher. A fraction of at least six (6) months shall be considered one (1) whole
year.

Art. 284. Disease as ground for termination. An employer may terminate the services of an employee who has been
found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his
health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one
(1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six
(6) months being considered as one (1) whole year.

o Separation Pay
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Philippine Geothermal Inc. Employees Union vs Unocal Philippines Inc.

The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied termination of the
employment of petitioner's members. Assuming respondent is a party to the merger, its employment contracts are
deemed to subsist and continue by "the combined operation of the Corporation Code and the Labor Code under the
backdrop of the labor and social justice provisions of the Constitution.

Thus, these employment contracts are part of the obligations that the merging parties have to account and make
provisions for under the Constitution and the Corporation Code; in the absence of any clear agreement, these
employment contracts subsist, subject to the right of the employees to reject them as they cannot be compelled to
render service but can only be made to answer in damages if the rejection constitutes a breach. In other words, in
mergers and consolidations, these contracts should be held to be continuing, unless rejected by the employees
themselves or declared by the merging parties to be subject to the authorized causes for termination of employment
under Sections 282 and 283 of the Labor Code. In this sense, the merging parties' control and business decision on how
employees shall be affected, in the same manner that the affected employees' decision on whether to abide by the
merger or to opt out, remain unsullied.

In this case, there is no dismissal of the employees on account of the merger. Petitioner does not deny that respondent
actually continued its normal course of operations after the merger, and that its members, as employees, resumed their
work with their tenure, salaries, wages, and other benefits intact. Petitioner was even able to execute with respondent,
after the merger, the Collective Bargaining Agreement from which it anchors its claims.

Given these circumstances, petitioner is not entitled to separation pay. Although the policy of the state is to rule in favor
of labor in light of the social justice provisions under the Constitution, this Court cannot unduly trample upon the rights
of management, which are likewise entitled to respect in the interest of fair play.

o Retrenchment to prevent losses

 Definition - Retrenchment . . . is used interchangeably with the term "lay-off." It is the termination
of employment initiated by the employer through no fault of the employee's and without prejudice
to the latter, resorted to by management during periods of business recession, industrial
depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of
materials, conversion of the plant for a new production program or the introduction of new
methods or more efficient machinery, or of automation. Simply put, it is an act of the employer of
dismissing employees because of losses in the operation of a business, lack of work, and
considerable reduction on the volume of his business, a right consistently recognized and affirmed
by this Court. (Am-Phil Food Concepts vs. Padilla)
 Requisites:
(1) that the retrenchment is reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) that the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intended date of retrenchment;

(3) that the employer pays the retrenched employees separation pay equivalent to one month
pay or at least ½ month pay for every year of service, whichever is higher;

(4) that the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to security of
tenure; and
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(5) that the employer used fair and reasonable criteria in ascertaining who would be dismissed
and who would be retained among the employees, such as status (i.e., whether they are
temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age,
and financial hardship for certain workers.

 Relocation of Business - It must be stressed that the phrase "closure or cessation of operation of an
establishment or undertaking not due to serious business losses or reverses" under Article 283 of
the Labor Code includes both the complete cessation of all business operations and the cessation of
only part of a company's business. . In Philippine Tobacco Flue-Curing & Redrying Corp. vs. NLRC, a
company transferred its tobacco processing plant in Balintawak, Quezon City to Candon, Ilocos Sur.
The company therein did not actually close its entire business but merely relocated its tobacco
processing and redrying operations to another place. Yet, this Court considered the transfer as
closure not due to serious business losses for which the workers are entitled to separation pay.
(Cheniver Deco Print Technics vs. NLRC)

Cheniver Deco Print Technics vs. NLRC, 325 SCRA 758, G.R. No. 122876, February 17, 2000, Quisumbing, J.

Doctrine. Broadly speaking, there appears no complete dissolution of petitioner's business undertaking but the
relocation of petitioner's plant to Batangas, in our view, amounts to cessation of petitioner's business operations in
Makati. It must be stressed that the phrase "closure or cessation of operation of an establishment or undertaking not
due to serious business losses or reverses" under Article 283 of the Labor Code includes both the complete cessation of
all business operations and the cessation of only part of a company's business. In Philippine Tobacco Flue-Curing &
Redrying Corp. vs. NLRC, a company transferred its tobacco processing plant in Balintawak, Quezon City to Candon,
Ilocos Sur. The company therein did not actually close its entire business but merely relocated its tobacco processing and
redrying operations to another place. Yet, this Court considered the transfer as closure not due to serious business
losses for which the workers are entitled to separation pay.

There is no doubt that petitioner has legitimate reason to relocate its plant because of the expiration of the lease
contract on the premises it occupied. That is its prerogative. But even though the transfer was due to a reason beyond
its control, petitioner has to accord its employees some relief in the form of severance pay. Thus, in E. Razon, Inc. vs.
Secretary of Labor and Employment, petitioner therein provides arrastre services in all piers in South Harbor, Manila,
under a management contract with the Philippine Ports Authority. Before the expiration of the term of the contract, the
PPA cancelled the said contract resulting in the termination of employment of workers engaged by petitioner. Obviously,
the cancellation was not sought, much less desired by petitioner. Nevertheless, this Court required petitioner therein to
pay its workers separation pay in view of the cessation of its arrastre operations.

Now, let it be noted that the termination of employment by reason of closure or cessation of business is authorized
under Article 283 of the Labor Code which provides:

Art. 283. Closure of establishment and reduction of personnel. — The employer may terminate the employment of any
employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month
pay or at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month
 Labor Law 1 - AMBERHA | 9

pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole
year.

Consequently, petitioner herein must pay his employees their termination pay in the amount corresponding to their
length of service. Since the closure of petitioner's business is not on account of serious business losses, petitioner shall
give private respondents separation pay equivalent to at least one (1) month or one-half (1/2) month pay for every year
of service, whichever is higher.

 Proof Required - It is imperative and incumbent on the part of the employer to sufficiently and
convincingly establish business reverses of the kind or in the amount that would justify
retrenchment. As consistently held by this Court, to guard against abuse, any claim of actual or
potential business losses must satisfy the following established standards, to wit; (a) the losses
incurred are substantial and not de minimis; (b) the losses are actual or reasonably imminent; (c) the
retrenchment is reasonably necessary and is likely to be effective in preventing the expected losses;
and (d) the alleged losses, if already incurred, or the expected imminent losses sought to be
forestalled are proven by sufficient and convincing evidence.

The Court has previously ruled that financial statements audited by independent external auditors
constitute the normal method of proof of the profit and loss performance of a company.

 Standards to be Observed - Art. 283. Closure of establishment and reduction of personnel. — The
employer may also terminate the employment of any employee due to the installation of labor-
saving devises, redundancy, retrenchment to prevent losses or the closing or cessation of operation
of the establishment or undertaking unless the closing is for the purpose of circumventing in the
provisions of this title, by serving a written notice on the workers and the Department of Labor and
Employment at least one (1) month before the intended date thereof. In case of retrenchment to
prevent losses of operations of establishment or undertaking not due to serious business losses or
financial reverses, the one (1) month pay or at least one-half (1/2) pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.”

 Substantial Loss - Serious business losses are substantial losses, not de minimis.43 "Losses" means
that the business must have operated at a loss for a period of time for the employer "to [have]
perceived objectively and in good faith"44 that the business’ financial standing is unlikely to improve
in the future.

The burden of proving serious business losses is with the employer.45 The employer must show
losses on the basis of financial statements covering a sufficient period of time. The period covered
must be sufficient for the National Labor Relations Commission and this court to appreciate the
nature and vagaries of the business.

 Retrenchment of an OFW - Philippine Law recognizes retrenchment as a valid cause for the
dismissal of a migrant or overseas Filipino worker under Article 283 of the Labor Code. Proper notice
to the DOLE within 30 days prior to the intended date of retrenchment is necessary and must be
complied with despite the fact that respondent is an overseas Filipino worker.

 Closure of Business – The underscored portion of Art. 283 governs the grant of separation benefits "in case
of closures or cessation of operation" of business establishments "NOT due to serious business losses or
financial reverses . . . ". Where, however, the closure was due to business losses — as in the instant case, in
which the aggregate losses amounted to over P20 billion — the Labor Code does not impose any obligation
upon the employer to pay separation benefits, for obvious reasons.
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In the instant case however, the company's practice of giving one month's pay for every year of service
could no longer be continued precisely because the company could not afford it anymore. It was forced to
close down on account of accumulated losses of over P20 billion.

 Cessation of Business Operations - Notably, in both a permanent and temporary lay-off, jurisprudence
dictates that the one-month notice rule to both the DOLE and the employee under Article 283 of the Labor
Code is mandatory. Also, in both cases, the lay-off, being an exercise of the employer's management
prerogative, must be exercised in good faith - that is, one which is intended for the advancement of
employers' interest and not for the purpose of defeating or circumventing the rights of the employees under
special laws or under valid agreements. Instructive on the nature of a lay-off as a management prerogative is
the following excerpt from the case of Industrial Timber Corporation v. NLRC:

Closure or [suspension] of operations for economic reasons is, therefore, recognized as a valid exercise of
management prerogative. The determination to cease [or suspend] operations is a prerogative of
management, which the State does not usually interfere with, as no business or undertaking [is] required to
continue operating at a loss simply because it has to maintain its workers in employment. Such an act would
be tantamount to a taking of property without due process of law.

 Redundancy - for purposes of our Labor Code, exists where the services of an employee are in excess of
what is reasonably demanded by the actual requirements of the enterprise. (Wiltshire File Co. vs. NLRC, 193
SCRA 665, February 7, 1991, Feliciano, J.) 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 overhiring of
workers, decreased volume of business, or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.

 Temporary Closure –

Art. 286. When employment not deemed terminated. The bona-fide suspension of the operation of a
business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a
military or civic duty shall not terminate employment. In all such cases, the employer shall reinstate the
employee to his former position without loss of seniority rights if he indicates his desire to resume his work
not later than one (1) month from the resumption of operations of his employer or from his relief from the
military or civic duty.

 Disease –

Art. 284. Disease as ground for termination. An employer may terminate the services of an employee who has
been found to be suffering from any disease and whose continued employment is prohibited by law or is
prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid separation pay
equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever
is greater, a fraction of at least six (6) months being considered as one (1) whole year.

*Article 157 of R.A. No. 10151 (Night Workers Act) provides that “a night worker certified as temporarily unfit
for night work shall be given the same protection against dismissal or notice of dismissal as other workers who
are prevented from working for reasons of health.” The underline phrase refers to Article 284 of the Labor
Code.

Procedural Due Process

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 Twin Notice Requirement - It is only in the exceptional case of clear and existing danger to the safety of the
crew or vessel that the required notices are dispensed with; but just the same, a complete report should be
sent to the manning agency, supported by substantial evidence of the findings.

 Failure to comply - The dismissal is valid, but Riviera should pay nominal damages in the amount of P30,000
to the Agabons in vindication of the latter for violating their right to notice and hearing. The penalty is in the
nature of a penalty or indemnification, the amount dependent on the facts of each case, including the
nature of gravity of offense of the employer. In this case, the Serrano doctrine was re-examined. First, in the
Serrano case, the dismissal was upheld, but it was held to be ineffectual (without legal effect). Hence,
Serrano was still entitled to the payment of his backwages from the time of dismissal until the promulgation
of the court of the existence of an authorized cause. Further, he was entitled to his separation pay as
mandated under Art.283. The ruling is unfair to employers and has the danger of the following
consequences: (a.) of filing frivolous suits even by notorious employees who were justly dismissed but were
deprived of statutory due process; they are rewarded by invoking due process; (b.) It would create absurd
situations where there is just or authorized cause but a procedural infirmity invalidates the termination, i.e.
an employee who became a criminal and threatened his co-workers’ lives, who fled and could not be found;
(c.) it could discourage investments that would generate employment in the economy. Resultantly, where
there is just cause for dismissal but due process has not been properly observed by an employer, it would
not be right to order either the reinstatement of the dismissed employee or the payment of backwages to
him. In failing, however, to comply with the procedure prescribed by law in terminating the services of the
employee, the employer must be deemed to have opted or, in any case, should be made liable, for the
payment of separation pay. It might be pointed out that the notice to be given and the hearing to be
conducted generally constitute the two-part due process requirement of law to be accorded to the
employee by the employer. Nevertheless, peculiar circumstances might obtain in certain situations where to
undertake the above steps would be no more than a useless formality and where, accordingly, it would not
be imprudent to apply the res ipsa loquitur rule and award, in lieu of separation pay, nominal damages to
the employee.

 Ample Opportunity to be heard; Hearing - The Labor Code, on one hand, provides that an employer must
provide the employee ample opportunity to be heard and to defend himself with the assistance of his
representative if he so desires. The omnibus rules implementing the Labor Code, on the other hand, require
a hearing and conference during which the employee concerned is given the opportunity to respond to the
charge, present his evidence or rebut the evidence presented against him. The Labor Code provision
prevails over the implementing rule under the time-honored doctrine that in case of conflict, the law
prevails over the administrative regulations implementing it. The authority to promulgate implementing
rules proceeds from the law itself.

 Contents of a valid notice –

As provided in Art. 277 of the Labor Code and the implementing rule, the following should be considered in
terminating the services of employees based on just causes under Art. 282: (1.) The first written notice to
be served on the employees should contain the specific causes or grounds for termination against them, and
a directive that the employees are given the opportunity to submit their written explanation within a
reasonable period. "Reasonable opportunity" under the Omnibus Rules means every kind of assistance that
management must accord to the employees to enable them to prepare adequately for their defense. This
should be construed as a period of at least five (5) calendar days from receipt of the notice to give the
employees an opportunity to study the accusation against them, consult a union official or lawyer, gather
data and evidence, and decide on the defenses they will raise against the complaint. Moreover, in order to
enable the employees to intelligently prepare their explanation and defenses, the notice should contain a
detailed narration of the facts and circumstances that will serve as basis for the charge against the
employees. A general description of the charge will not suffice. Lastly, the notice should specifically mention
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which company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees. (2.) After serving the first notice, the employers should schedule and conduct a
hearing or conference wherein the employees will be given the opportunity to: (1) explain and clarify their
defenses to the charge against them; (2) present evidence in support of their defenses; and (3) rebut the
evidence presented against them by the management. During the hearing or conference, the employees are
given the chance to defend themselves personally, with the assistance of a representative or counsel of their
choice. Moreover, this conference or hearing could be used by the parties as an opportunity to come to an
amicable settlement. (3.) After determining that termination of employment is justified, the employers shall
serve the employees a written notice of termination indicating that: (1) all circumstances involving the
charge against the employees have been considered; and (2) grounds have been established to justify the
severance of their employment.

 Terminating a probationary employee - The services of an employee who has been engaged on a
probationary basis may be terminated for a just cause or when he fails to qualify as a regular employee in
accordance with reasonable standards made known by the employer to the employee at the time of his
engagement. An employee who is allowed to work after a probationary period shall be considered a regular
employee. Unlike under the first ground for the valid termination of probationary employment which is for
just cause, the second ground does not require notice and hearing. Due process of law for this second
ground consists of making the reasonable standards expected of the employee during his probationary
period known to him at the time of his probationary employment

 Failure to comply with requirements of due process

o Substantive
 Reinstatement - it is obligatory on the part of the employer to reinstate and pay the wages
of the dismissed employee during the period of appeal until reversal by the higher court.
This is so because the order of reinstatement is immediately executory.

After the labor arbiter’s decision is reversed by a higher tribunal, the employee may be
barred from collecting the accrued wages, if it is shown that the delay in enforcing the
reinstatement pending appeal was without fault on the part of the employer.

The test is two-fold: (1) there must be actual delay or the fact that the order of
reinstatement pending appeal was not executed prior to its reversal; and (2) the delay must
not be due to the employer’s unjustified act or omission. If the delay is due to the
employer’s unjustified refusal, the employer may still be required to pay the salaries
notwithstanding the reversal of the Labor Arbiter’s decision.

 Doctrine of Strained Relations – Under the law and prevailing jurisprudence, an illegally
dismissed employee is entitled to reinstatement as a matter of right. However, if
reinstatement would only exacerbate the tension and strained relations between the
parties, or where the relationship between the employer and the employee has been unduly
strained by reason of their irreconcilable differences, particularly where the illegally
dismissed employee held a managerial or key position in the company, it would be more
prudent to order payment of separation pay instead of reinstatement.

In such cases, it should be proved that the employee concerned occupies a position where
he enjoys the trust and confidence of his employer; and that it is likely that if reinstated, an
atmosphere of antipathy and antagonism may be generated as to adversely affect the
efficiency and productivity of the employee concerned.
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o Backwages
 Basis - The employees (petitioners) have not performed any act to warrant termination of
their employment. Consequently, petitioners are entitled to their full backwages and other
benefits from the time their compensation was withheld from them up to the time of their
actual reinstatement. The labor arbiter recomputed the award to include the separation pay
and the backwages due up to the finality of the CA decision that fully terminated the case on
the merits.

By the nature of an illegal dismissal case, the reliefs continue to add on until full satisfaction,
as expressed under Article 279 of the Labor Code. The re-computation of the consequences
of illegal dismissal upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal dismissal ruling stands; only
the computation of monetary consequences of this dismissal is affected and this is not a
violation of the principle of immutability of final judgments.

Employees who are illegally dismissed are entitled to full backwages, inclusive of allowances
and other benefits or their monetary equivalent, computed from the time their actual
compensation was withheld from them up to the time of their actual reinstatement. But if
reinstatement is no longer possible, the backwages shall be computed from the time of their
illegal termination up to the finality of the decision.

 Rationale - Though the grant of reinstatement commonly carries with it an award of

backwages, the inappropriateness or non-availability of one does not carry with it the
inappropriateness or non-availability of the other. Separation pay was awarded in favor of
petitioner Lydia Santos because the NLRC found that her reinstatement was no longer
feasible or appropriate. As the term suggests, separation pay is the amount that an
employee receives at the time of his severance from the service and, as correctly noted by
the Solicitor General in his Comment, is designed to provide the employee with "the
wherewithal during the period that he is looking for another employment." In the instant
case, the grant of separation pay was a substitute for immediate and continued re-
employment with the private respondent Bank. The grant of separation pay did not redress
the injury that is intended to be relieved by the second remedy of backwages, that is, the
loss of earnings that would have accrued to the dismissed employee during the period
between dismissal and reinstatement. Put a little differently, payment of backwages is a
form of relief that restores the income that was lost by reason of unlawful dismissal;
separation pay, in contrast, is oriented towards the immediate future, the transitional
period the dismissed employee must undergo before locating a replacement job. It was
grievous error amounting to grave abuse of discretion on the part of the NLRC to have
considered an award of separation pay as equivalent to the aggregate relief constituted by
reinstatement plus payment of backwages under Article 280 of the Labor Code. The grant of
separation pay was a proper substitute only for reinstatement; it could not be an adequate
substitute both for reinstatement and for backwages. In effect, the NLRC in its assailed
decision failed to give to petitioner the full relief to which she was entitled under the
statute. [emphasis ours]

Separation pay is granted where reinstatement is no longer advisable because of s trained

relations between the employee and the employer. Backwages represent compensation
that should have been earned but were not collected because of the unjust dismissal. The
basis for computing separation pay is usually the length of the employee’s past service,
while that for backwages is the actual period when the employee was unlawfully prevented
from working.