G.R. No. 82249 February 7, 1991 WILTSHIRE FILE CO., INC., petitioner, vs.

THE NATIONAL LABOR RELATIONS COMMISSION and VICENTE T. ONG, respondents. Angara, Abello, Concepcion, Regala & Cruz for petitioner. Jose R. Millares & Associates for private respondent.

FELICIANO, J.:p Private respondent Vicente T. Ong was the Sales Manager of petitioner Wiltshire File Co., Inc. ("Wiltshire") from 16 March 1981 up to 18 June 1985. As such, he received a monthly salary of P14,375.00 excluding commissions from sales which averaged P5,000.00 a month. He also enjoyed vacation leave with pay equivalent to P7,187,50 per year, as well as hospitalization privileges to the extent of P10,000.00 per year. On 13 June 1985, upon private respondent's return from a business and pleasure trip abroad, he was informed by the President of petitioner Wiltshire that his services were being terminated. Private respondent maintains that he tried to get an explanation from management of his dismissal but to no avail. On 18 June 1985, when private respondent again tried to speak with the President of Wiltshire, the company's security guard handed him a letter which formally informed him that his services were being terminated upon the ground of redundancy. Private respondent filed, on 21 October 1985, a complaint before the Labor Arbiter for illegal dismissal alleging that his position could not possibly be redundant because nobody (save himself) in the company was then performing the same duties. Private respondent further contended that retrenching him could not prevent further losses because it was in fact through his remarkable performance as Sales Manager that the Company had an unprecedented increase in domestic market share the preceding year. For that accomplishment, he continued, he was promoted to Marketing Manager and was authorized by the President to hire four (4) Sales Executives five (5) months prior to his termination. In its answer, petitioner company alleged that the termination of respondent's services was a cost-cutting measure: that in December 1984, the company had experienced an unusually low volume of orders: and that it was in fact forced to rotate its employees in order to save the company. Despite the rotation of employees, petitioner alleged; it continued to experience financial losses and private respondent's position, Sales Manager of the company, became redundant. On 2 December 1986, during the proceedings before the Labor Arbiter, petitioner, in a letter 1 addressed to the Regional Director of the then Ministry of Labor and Employment, notified that official that effective 2 January 1987, petitioner would close its doors permanently due to substantial business losses. In a decision dated 11 March 1987, the Labor Arbiter declared the termination of private respondent's services illegal and ordered petitioner to pay private respondent backwages in the amount of P299,000.00, unpaid salaries in the amount of P22,352.11, accumulated sick and vacation leaves in the amount of P12,543.91, hospitalization benefit package in the amount of P10,000.00, unpaid commission

in the amount of P57,500,00, moral damages in the amount of P100,000.00 and attorney's fees in the amount of P51,639.60. On appeal by petitioner Wiltshire, the National Labor Relations Commission ("NLRC") affirmed in toto on 9 February 1988 the decision of the Labor Arbiter. The NLRC held that: The termination letter clearly spelled out that the main reason in terminating the services of complainant is REDUNDANT and not retrenchment. The supposed duplication of work of herein complainant and Mr. Deliva, the VicePresident is absent that would justify redundancy. . . . On the claim for moral damages, the NLRC pointed out that the effective date of private respondent's termination was 18 July 1985, although it was only 18 June 1985 that he received the letter of termination, and concluded that he was not given any opportunity to explain his position on the matter. The NLRC held that the termination was attended by malice and bad faith on the part of petitioner, considering the manner of private respondent was ordered by the President to pack up and remove his personal belongings from the office. Private respondent was said to have been embarrassed before his immediate family and other acquaintance due to his inability to explain the reasons behind the termination of his services. In this Petition for Certiorari, it is submitted that private respondent's dismissal was justified and not illegal. Petitioner maintains that it had been incurring business losses beginning 1984 and that it was compelled to reduce the size of its personnel force. Petitioner also 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 . . ." Having reviewed the record of this case, the Court has satisfied itself that indeed petitioner had serious financial difficulties before, during and after the termination of the services of private respondent. For one thing, the audited financial statements of the petitioner for its fiscal year ending on 31 July 1985 prepared by a firm of independent auditors, showed a net loss in the amount of P4,431,321.00 and a total deficit or capital impairment at the end of year of P6,776,493.00. 2 In the preceding fiscal year (1983-1984), while the company showed a net after tax income of P843,506.00, it actually suffered a deficit or capital impairment of P2,345,172.00. Most importantly, petitioner Wiltshire finally closed its doors and terminated all operations in the Philippines on January 1987, barely two (2) years after the termination of private respondent's employment. We consider that finally shutting down business operations constitutes strong confirmatory evidence of petitioner's previous financial distress. The Court finds it very difficult to suppose that petitioner Wiltshire would take the final and irrevocable step of closing down its operations in the Philippines simply for the sole purpose of easing out a particular officer or employee, such as the private respondent. Turning to the legality of the termination of private respondent's employment, we find merit in petitioner's basic argument. We are unable to sustain public respondent NLRC's holding that private respondent's dismissal was not justified by redundancy and hence illegal. In the first place, we note that while the letter informing private respondent of the termination of his services used the word "redundant", that letter also referred to the company having "incur[red] financial losses which [in] fact has compelled [it] to resort to retrenchment to prevent further losses". 3 Thus, what the letter was in effect saying was that because of financial losses, retrenchment was necessary, which retrenchment in turn resulted in the redundancy of private respondent's position. In the second place, we do not believe that redundancy in an employer's personnel force 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 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. 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. 4 The employer has no legal obligation to keep in its payroll more employees than are necessarily for the operation of its business. In the third place, in the case at bar, petitioner Wiltshire, in view of the contraction of its volume of sales and in order to cut down its operating expenses, effected some changes in its organization by abolishing some positions and thereby effecting a reduction of its personnel. Thus, the position of Sales Manager was abolished and the duties previously discharged by the Sales Manager simply added to the duties of the General Manager, to whom the Sales Manager used to report. It is of no legal moment that the financial troubles of the company were not of private respondent's making. Private respondent cannot insist on the retention of his position upon the ground that he had not contributed to the financial problems of Wiltshire. The characterization of private respondent's services as no longer necessary or sustainable, and therefore properly terminable, was an exercise of business judgment on the part of petitioner company. The wisdom or soundness of such characterization or decision was not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown. It should also be noted that the position held by private respondent, Sales Manager, was clearly managerial in character. In D.M. Consunji, Inc. v. National Labor Relations Commission, 5 the Court held: An employer has a much wider discretion in terminating the employment relationship of managerial personnel as compared to rank and file employees. However, such prerogative of management to dismiss or lay off an employee must be made without abuse of discretion, for what is at stake is not only the private respondent's position but also his means of livelihood . . . . 6 The determination of the continuing necessity of a particular officer or position in a business corporation is management's prerogative, and the courts will not interfere with the exercise of such so long as no abuse of discretion or merely arbitrary or malicious action on the part of management is shown. 7 On the issue of moral damages, petitioner assails the finding of the NLRC that the dismissal was done in bad faith. Petitioner argues that it had complied with the one-month notice required by law; that there was no need for private respondent to be heard in his own defense considering that the termination of his services was for a statutory or authorized cause; and that whatever humiliation might have been suffered by private respondent arose from a lawful cause and hence could not be the basis of an award of moral damages. Termination of an employee's services because of retrenchment to prevent further losses or redundancy, is governed by Article 283 of the Labor Code which provides as follows: 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 of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. Termination of services for any of the above described causes should be distinguished from termination of employment by reason of some blameworthy act or omission on the part of the employee, in which case the applicable provision is Article 282 of the Labor Code which provides as follows: Art. 282. Termination by employer. any of the following causes: An employer may terminate an employment for

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; (b) Gross and habitual neglect by the employee of his duties; (c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; (d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and (e) Other causes analogous to the foregoing. Sections 2 and 5 of Rule XIV entitled "Termination of Employment:" of the "Rules to Implement the Labor Code" read as follows: Sec. 2. Notice of dismissal. Any employer who seeks to dismiss a worker shall furnish him a written notice stating the particular acts or omission constituting the grounds for his dismissal. In cases of abandonment of work, the notice shall be served at the worker's last known address. xxx xxx xxx Sec. 5. Answer and hearing. The worker may answer the allegations stated against him in the notice of dismissal within a reasonable period from receipt of such notice. The employer shall afford the worker ample opportunity to be heard and to defend himself with the assistance of his representative if he so desires. (emphasis supplied) We note that Section 2 of Rule XIV quoted above requires the notice to specify "the particular acts or omissions constituting the ground for his dismissal", a requirement which is obviously

applicable where the ground for dismissal is the commission of some act or omission falling within Article 282 of the Labor Code. Again, Section 5 gives the employee the right to answer and to defend himself against "the allegations stated against him in the notice of dismissal". It is such allegations by the employer and any counter-allegations that the employee may wish to make that need to be heard before dismissal is effected. Thus, Section 5 may be seen to envisage charges against an employee constituting one or more of the just causes for dismissal listed in Article 282 of the Labor Code. Where, as in the instant case, the ground for dismissal or termination of services does not relate to a blameworthy act or omission on the part of the employee, there appears to us no need for an investigation and hearing to be conducted by the employer who does not, to begin with, allege any malfeasance or non-feasance on the part of the employee. In such case, there are no allegations which the employee should refute and defend himself from. Thus, to require petitioner Wiltshire to hold a hearing, at which private respondent would have had the right to be present, on the business and financial circumstances compelling retrenchment and resulting in redundancy, would be to impose upon the employer an unnecessary and inutile hearing as a condition for legality of termination. This is not to say that the employee may not contest the reality or good faith character of the retrenchment or redundancy asserted as grounds for termination of services. The appropriate forum for such controversion would, however, be the Department of Labor and Employment and not an investigation or hearing to be held by the employer itself. It is precisely for this reason that an employer seeking to terminate services of an employee or employees because of "closure of establishment and reduction of personnel", is legally required to give a written notice not only to the employee but also to the Department of Labor and Employment at least one month before effectivity date of the termination. In the instant case, private respondent did controvert before the appropriate labor authorities the grounds for termination of services set out in petitioner's letter to him dated 17 June 1985. We hold, therefore, that the NLRC's finding that private respondent had not been accorded due process, is bereft of factual and legal bases. The award of moral damages that rests on such ground must accordingly fall. While private respondent may well have suffered personal embarrassment by reason of termination of his services, such fact alone cannot justify the award of moral damages. Moral damages are simply a species of damages awarded to compensate one for injuries brought about by a wrongful act. 8 As discussed above, the termination of private respondent's services was not a wrongful act. There is in this case no clear and convincing evidence of record showing that the termination of private respondent's services, while due to an authorized or statutory cause, had been carried out in an arbitrary, capricious and malicious manner, with evident personal ill-will. Embarrassment, even humiliation, that is not proximately caused by a wrongful act does not constitute a basis for an award of moral damages. Private respondent is, of course, entitled to separation pay and other benefits under Act 283 of the Labor Code and petitioner's letter dated 17 June 1985. ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Certiorari. The Resolutions of the National Labor Relations Commission dated 9 February 1988 and 7 March 1988 are hereby SET ASIDE and NULLIFIED. The Temporary Restraining Order issued by this Court on 21 March 1988 is hereby made PERMANENT. No pronouncement as to costs. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur

G.R. No. 151922. April 7, 2005 AMELITA M. ESCAREAL, RUBIROSA VERSOZA and DAVE FRANCISCO M. VELASCO, Petitioners, vs. PHILIPPINE AIRLINES, INC., PATRIA T. CHIONG, JORGE MA. CUI, JR., NATIONAL LABOR RELATIONS COMMISSION (3rdDivision), Respondents. DECISION TINGA, J.: The present Petition for Review assails a Court of Appeals Decision [1] declaring that where both contending parties, dissatisfied as they were with the judgment of the National Labor Relations Commission (NLRC), separately elevate said judgment by their respective petitions for certiorari, the first decision by the appellate court in one petition once it assumes finality, constitutes res judicata on the other petition. The quasi-judicial arbiters and the Court of Appeals, in the two petitions before two of its Divisions, share the following findings of facts,[2] viz: Petitioners Amelita M. Escareal, Rubirosa Versoza and Dave Francisco M. Velasco (collectively, 'petitioners') are regular employees of private respondent Philippine Airlines, Inc. (PAL). They are part of PAL's crew of International Cabin Attendants and as such receive a monthly salary of Nineteen Thousand Pesos (P19,000.00).[3] On the other hand, PAL is a domestic corporation organized and existing under the laws of the Republic of the Philippines, operating as a common carrier transporting passengers and cargo through aircraft, while private respondents Patria T. Chiong and Jorge Ma. Cui, Jr. (collectively, 'respondents') are former PAL employees. Petitioners were among those assigned to serve as cabin crew members of Flight PR501 for to Singapore, scheduled to depart from on 03 April 1997 at 3:00 p.m. and to return to at 8:00 a.m. the next day. During a pre-flight briefing conducted on the afternoon of departure, PAL Flight Purser, Jaime Gayoso, in the presence of senior PAL officials, announced to the members of the cabin crew a change in the departure time from 3:00 to 5:30 p.m. because the aircraft intended for PR501 would arrive late. Without giving the cabin crew members a chance to voice out their sentiments or objections, Flight Purser Gayoso announced that those taking the flight and its return leg would receive a per diem of Thirty-three US Dollars (US$33.00) due to the resultant reduction in the cabin crew's rest period. It appears that petitioners received per diem without incident. Upon the conclusion of the pre-flight briefing, at around 3:45 p.m., the cabin crew members were transported via shuttle to the Ninoy Aquino International Airport (NAIA). When they arrived at the NAIA at 4:00 p.m., the crew found out that the aircraft to be used for Flight PR501 was not yet available, a situation which would result in further delay. Petitioners decided to inform PAL's Line Administrator, Ms. Jesulita de Leon, as well as the union to which all petitioners belong, the Flight Attendants and Stewards Association of the Philippines (FASAP), through a Mr. Ricardo L. Montecillo,[4] their intention to back out from servicing Flight PR 501. Petitioners cited as basis for such intention the consequent decrease in their rest period, which infringed on the minimum rest period granted to them under the 1995 PAL-FASAP Collective Bargaining Agreement (CBA), the pertinent provision of which states:

Section 38. After the tour of duty, a cabin attendant shall be allowed a rest period of at least twice the number of flight duty hours in his tour-of-duty before he is assigned to another tour-of-duty. The minimum rest period after a tour-of-duty will be twelve (12) hours. Upon petitioners' request, FASAP's Mr. Montecillo contacted the PAL Scheduling Office and informed the Duty Manager, Mr. Jesus Estenor, about petitioners' intention to back out of the flight and assert their rest period under the CBA. It was agreed between them that it would be in the interest of PAL should petitioners assert their rest period while still in rather than in Singapore. Before being relieved from their scheduled flight duty by Flight Purser Gayoso and Line Administrator de Leon, petitioners were instructed to return their Thirty-three US Dollar (US $33.00) per diem, proceed by shuttle to the PAL Scheduling Office to make known the resultant changes in the cabin crew complement, and to arrange their next flight duty. These instructions were complied with. Without further incident, Flight PR501 left with a complete set of replacement cabin attendants at 6:00 p.m. (half an hour later than the adjusted departure time of 5:30 p.m.) and arrived in Singapore at 9:30 p.m. Petitioners thought that in having caused no interruption in the flight scheduling, they had heard the end of the matter. However, through a 'Letter of Inquiry dated 04 April 1997, petitioners were required by PAL to comment on their failure to take Flight PR501. Petitioner Velasco submitted his reply on even date while Petitioners Escareal and Versoza submitted their joint reply on 11 April 1997. Despite the explanation that they were asserting a right provided them under the CBA, PAL found probable cause to administratively charge the petitioners. Petitioners each received a Notice of Administrative Charge dated 22 April 1997 for Conspiracy or Concerted Action, Loitering or Abandonment of Post, Refusal to Take Assignment, and Withholding Cooperation. On 20 August 1997, petitioners submitted a Manifestation with Omnibus Motion to Dismiss and/or for a Bill of Particulars [5] praying, inter alia, that respondents' witnesses be required to submit their respective statements under oath, in the same manner that herein petitioners were required to file their written answers and counter-affidavits under oath, to ascertain who among them were resorting to falsehood. Without acting on the Manifestation with Omnibus Motion, PAL rendered a decision finding petitioners guilty as charged and imposing upon them a penalty of a one-year suspension without pay.[6] On 31 March 1998, petitioners filed a Complaint for Unfair Labor Practices before the NLRC, which was docketed as NLRC-NCR Case No. 00-03-02977-98 and raffled to the sala of Labor Arbiter Manuel Caday. After the parties submitted their respective Position Papers, Labor Arbiter Caday found no truth to the allegation that petitioners announced their intention to decline servicing Flight PR501 only immediately before take-off, leaving PAL short of time to arrange for relievers. The Labor Arbiter also belied the allegation that none of petitioners returned to the PAL Scheduling Office to notify personnel about the changes in cabin crew complement. It held: WHEREFORE, premises considered, judgment is rendered declaring the one (1) year suspension without pay of the complainants illegal and ordering the respondents to reinstate the complainants to their former positions with backwages amounting to P228,000.00 each and payment of their unenjoyed holiday pay, vacation and sick leaves (sic) pay and 13th month pay corresponding to the period of their suspension plus 10% of the total award as reasonable attorney's fees.

Complainants claim for damages are hereby dismissed for lack of evidence to support them. SO ORDERED.[7] On appeal, the NLRC rendered a Decision [8] reiterating the factual findings of the Labor Arbiter. Nevertheless, it found that the manner by which petitioners asserted their right to a full twelve (12) hours of rest merited the imposition of a one(1)-month suspension. It modified the Labor Arbiter's Decision accordingly, holding thus: . . . However, even if there were, indeed, a violation of the CBA on the part of the respondent, it would not completely justify the complainants' refusal to fulfill their duty of rendering service on board flight PR 501. There are specific legal procedures designed to provide relief for the violation of rights under a CBA. They should have availed of such remedies. That is, they should not have taken the law into their own hands. .... Considering that the respondent was not faultless and that no harm or delay was caused by the complainants' refusal to take flight PR 501, the penalty of one year suspension meted on them was too harsh. A suspension of one month would have been sufficient. Thus, the eleven-month period of their suspension was unwarranted, and they have a right to recover the salaries and benefits corresponding thereto. WHEREFORE, the decision is hereby MODIFIED to the extent that only eleven of the twelve-month suspension is hereby declared illegal. Consequently, the judgment award is hereby REDUCED to P209,000.00 (P19,000.00 x 11) plus the complainants' unenjoyed benefits like holiday pay, vacation and sick leave pay and 13th month pay for eleven (11) months. The award of attorney's fees equivalent to ten percent (10%) of the total monetary award is hereby AFFIRMED. SO ORDERED.[9] Both parties were dissatisfied with the Decision. Petitioners submitted a Motion for Partial Reconsideration and respondents filed a Motion for Reconsideration. Both, however, were denied by the NLRC in a minute Resolution dated 30 June 1999.[10] At this point, the twist which served as the root of the crucial issue before the Court took shape. On 26 July 1999, PAL first filed its original action for certiorari with the Court of Appeals. It was docketed as CA-G.R. SP No. 54099 and assigned to the Thirteenth Division of the Appellate Court. The Petition for Certiorari [11] ascribed to the NLRC grave abuse of discretion in holding: (1) that herein petitioners did not wait until the last minute to inform PAL of their decision not to take Flight PR501; (2) that PAL was not faultless and that no harm or delay was caused by petitioners' acts; and (3) that PAL wanted to keep the facts muddled by failing to require its witnesses to submit their statements under oath. Petitioners filed a Consolidated Comment/Opposition [12] on 31 August 1999, controverting PAL's assertions and buttressing their prayer for the reinstatement of the Decision of the Labor Arbiter. Despite their earlier submission of the Consolidated Comment/Opposition in CA-G.R. SP No. 54099, petitioners filed on 10 September 1999 their own Petition for Certiorari with the Court of Appeals.[13] It was docketed as CA-G.R. SP No. 54850 and assigned to its Special Eleventh Division. In their petition, which is the precursor to the instant case, petitioners sought the annulment and setting aside of the NLRC's Decision and the reinstatement of the Decision of the Labor Arbiter.

In October of 1999,[14] PAL submitted to the Special Eleventh Division in CA-G.R. SP No. 54850 a Manifestation And Motion Cum Notification Of Pending Action requesting the consolidation of the petition with CA-G.R. SP No. 54099 which is the petition with the lower case number. Apparently, petitioners did not file their own or separate motion for the consolidation of the two petitions before either Division of the Court of Appeals. On 12 November 1999, the Thirteenth Division of the Court of Appeals dismissed PAL's petition in CAG.R. SP No. 54099, holding that there was no justifiable reason to disturb the factual findings of the Labor Arbiter and the NLRC.[15] It also held that at most PAL had raised an error in judgment, which is not correctible through the original civil action of certiorari. Thus, the Court of Appeals affirmed in toto the ruling of the NLRC. This Decision became final and executory on 08 March 2000.[16] On 15 September 2000, PAL's motion for consolidation was denied[17] for having 'untenable since CAG.R. SP No. 54099 had already been decided by the Thirteenth Division. The same Resolution ordered respondents to comment on the Petition docketed as CA-G.R. SP No. 54850, and the petitioners to submit a reply thereto. PAL filed a Comment[18] praying for the dismissal of the Petition on the ground of res judicata, to which petitioners replied[19] in opposition. Both parties simultaneously filed their Memoranda on 02 April 2001. On 29 June 2001, the Special Eleventh Division issued a Decision [20] dismissing CA-G.R. SP No. 54850, on the ground of res judicata, since the issues therein were already conclusively determined in CA-G.R. SP No. 54099, to wit: In the case at bench, it is undeniable that this Court had jurisdiction to render a final judgment or order in CA G.R. SP No. 54099 which already became final and executory. Such finality is conclusive between petitioners and respondent PAL 'with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto. The 'matter directly adjudged is legality of the eleven (11) months suspension. The 'other matter that could have been raised in relation thereto is the remaining one (1) month suspension. Moreover, the resolution of the issue pertaining to the remaining one (1) month suspension is 'actually and necessarily included in the resolution of the issue pertaining to the eleven (11) months suspension.[21] (emphasis in the original) Petitioners filed a Motion for Reconsideration, which was denied,[22] causing them to file the instant Petition for Review. Petitioners now insist that the principle of res judicata is applicable only to the portion of CA-G.R. SP No. 54099 which declared illegal eleven of the twelve- months suspension meted on them, but is inapplicable to the declaration by the NLRC that the remaining one-month suspension is valid. The conclusion is based on their allegation that the one-month suspension is the issue, subject matter, and cause of action in CA-G.R. SP No. 54850 but which was not determined in CA-G.R. SP No. 54099, the latter having been rendered on a different issue, subject matter and cause of action. Paragraph (b), Sec. 47, Rule 39 of the Rules of Court establishes the distinctive principles governing res judicata,[23]to wit: Sec. 47. Effect of judgments or final orders.The effect of a judgment or a final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows: .... (b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; . . . .

Res judicata applies when there exists in two cases identity of parties, subject matter, and cause of action. Thus, the judgment in the first case is final as to the claim or demand in controversy, between the parties and those privy with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose and of all matters that could have been adjudged in that case.[24] For the preclusive effect of res judicata to be enforced, the following requisites must obtain: (1) The former judgment or order must be final; (2) It must be a judgment or order on the merits, that is, it was rendered after a consideration of the evidence or stipulations submitted by the parties at the trial of the case; (3) It must have been rendered by a court having jurisdiction over the subject matter and the parties; and (4) There must be, between the first and second actions, identity of parties, of subject matter and of cause of action. This requisite is satisfied if the two actions are substantially between the same parties.[25] On core examination, the first three elements of res judicata are present. The Decision of the Court of Appeals in CA-G.R. SP No. 54099 is final and executory.[26] It was rendered on the merits[27] and the Court of Appeals had jurisdiction over the case,[28] as even plaintiffs sought the same by filing their own Petition for Certiorari with said Court. Now, is the fourth requisite presentthat of uniformity of parties, subject matter and cause of action? We hold in the affirmative. Obviously the parties involved are the same; the subject matter and cause of action in CA-G.R. SP No. 54099 and CA-G.R. SP No. 54850 are the same despite an expected difference in the manner by which the opposing parties presented their grounds for certiorari. A subject matter is the item with respect to which the controversy has arisen, or concerning which the wrong has been done, and it is ordinarily the right, the thing, or the contract under dispute.[29] On the other hand, a cause of action is an act or omission of one party in violation of the legal right of the other.[30] The sole and common objective of petitioners and respondents in filing their respective original actions for certiorari and in impleading therein the NLRC as public respondent was to secure the reversal of the NLRC's Decision. By definition, therefore, the subject matter and the cause of action of the two original actions is the assailed Decision promulgated by the NLRC. Moreover, we have held in Stilanopolus v. City of Legaspi [31] that causes of action are identical when there is an identity in the facts essential to the maintenance of the two actions, or where the same evidence will sustain both actions. The Court of Appeals aptly observed that the reliefs sought in petitioners' Consolidated Comment/ Oppositionin CA-G.R. SP No. 54099 are similar to those prayed for in their Petition docketed as CA-G.R. SP No. 54850.[32] Thus, the singularity of the relief sought by herein petitioners and the identity of factual origins of the two cases ascertain the identity of the causes of action in the two cases. In fact, res judicata has been applied to cases far more diverse than the hair-splitting distinctions raised by petitioners concerning the instant case. For instance, a case for rendering an accounting of funds was held to preclude a subsequent case for the partition of the same funds and their fruits;[33] a judgment in an action for recovery of damages for property lost was an effective bar to any other action between the same parties for the recovery of the same property or its value.[34] All the more should res judicata be applied herein, where both cases emanated from, and contest the judiciousness of, a single decision a quo.

We note that the Petition, in its prayer, entreats this Court to first set aside the Decision of the Special Eleventh Division and, thereafter, affirm the Decision of the Labor Arbiter, which held them free of any liability from their actions.[35] However, implicit in petitioners' prayer is a request for this Court to annul or set aside the final and executoryDecision of the Court of Appeals in CA-G.R. SP No. 54099, since they seek a modification of the NLRC Decision which that court affirmed. The 1997 Rules of Civil Procedure provides only two remedies for aggrieved parties to annul a final and executory judgment. The first is by filing a verified petition for relief from judgment under Rule 38 on the ground of fraud, accident, mistake, or excusable negligence within sixty days after the petitioner learns of the judgment to be set aside, and not more than six months after such judgment was entered.[36] The other remedy is for a party to file a verified petition for annulment of judgment under Rule 47, on the ground of extrinsic fraud and lack of jurisdiction, within four years from its discovery.[37] However, in addition to these, jurisprudence has likewise recognized an additional relief through a direct action, as certiorari, or by a collateral attack against a judgment that is void on its face.[38] Petitioners have not alleged that the judgment in CA-G.R. SP No. 54099 was entered against them through fraud, accident, mistake, or excusable negligence; not to mention that the prescriptive period for filing a petition for relief had lapsed. Petitioners do not allege any extrinsic or collateral fraud taken against them in the rendition of the decision; nor do they claim the lack of jurisdiction of the NLRC to make its Decision, or the lack of jurisdiction of the Court of Appeals to affirm the same. Moreover, the Decision in CA-G.R. SP No. 54099 is not patently void. In fact, petitioners have recognized the final and executory nature thereof[39] and even admitted a partial res judicata effectof said judgment.[40] Consequently, there is neither statutory nor jurisprudential basis for this Court to annul theDecision of the Court of Appeals in CA-G.R. SP No. 54099. As a last-ditch effort, petitioners ask this Court to disregard the rigid application of res judicata to avoid the 'sacrifice of justice to technicality. In addressing this supplication, this Court must ask itself, were petitioners denied a fair hearing so as to merit an exception to the finality of judgments? A review of the proceedings a quo shows that petitioners had been given their day in court. Petitioners filed a complaint against respondents. They also elevated the adverse decision of the NLRC in their own Petition for Certiorari and filed a lengthy Consolidated Comment/Opposition to PAL's Petition forCertiorari, buttressed with factual and legal arguments not only to defeat PAL's allegations but also to substantiate their own bid to obtain the reinstatement of the Decision of the Labor Arbiter. The Special Eleventh Division of the Court of Appeals rendered its decision only after a review of the submissions of petitioners. Had there been a due process violation, it may have been possible for this Court to set aside even a final and executory judgment. However, we do not see any overriding reason not to abide by the wellentrenched doctrine ofres judicata. Indeed it has been well said that this maxim is more than a mere rule of law, more even than an important principle of public policy, and that it is a fundamental concept in the organization of every jural society,[41]for not only does it ward off endless litigation, it ensures the stability of judgment, and guards against inconsistent decisions on the same set of facts.[42] It also takes into consideration the ideal that a party should not be vexed twice regarding the same cause.[43] When an issue of fact or law is actually litigated and determined by a valid judgment, that determination is conclusive in a subsequent action to the parties thereto. What petitioners should have done was to appeal the adverse decision in CA-G.R. SP No. 54099, failing which, petitioners must contend and content themselves with the finality of judicial pronouncements.

WHEREFORE, premises considered, the assailed judgment and resolution of the Court of Appeals dismissing the petition are hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.

[G.R. No. 148195. May 16, 2005] LOPEZ SUGAR CORPORATION, petitioner, vs. LEONITO G. FRANCO, ROGELIO R. PABALAN, ROMEO T. PERRIN and EDUARDO T. CANDELARIO, respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 49964, which affirmed the decision of the National Labor Relations Commission (NLRC) in NLRC Case No. V-0138-97, which, in turn, reversed the decision of the Labor Arbiter in RAB Case Nos. 06-01-1004796, 06-64-10164-96 and 06-07-10292-96.

The Antecedents Private respondents Leonito G. Franco, Rogelio R. Pabalan, Romeo T. Perrin and Eduardo T. Candelario were supervisory employees of the Lopez Sugar Corporation (the Corporation, for brevity). Franco was barely 20 years old when he was employed in 1974 as Fuel-in-Charge. His co-employee, Pabalan, was about 28 years old when he was hired by the Corporation as Shift Supervisor in the Sugar Storage Department in 1975.[2] On the other hand, Perrin and Candelario were employed in 1975 and 1976, respectively, as Planter Service Representatives (PSRs), who rose from the ranks and, by 1994, occupied supervisory positions in the Corporation s Cane Marketing Section.[3] Franco supervised the fuel tenders, monitored fuel and lubricant requirements of the central, as well as those of the planters who ordered their requirements from the central. He also ensured the adequate supply of oil products. For his part, Pabalan supervised the delivery of sugar and molasses to and from the storage during his shift; he likewise supervised the regular, contractual and casual employees who were engaged in handling sugar. Perrin and Candelario, on the other hand, were tasked to convince planters to mill their canes using the services of the Corporation, provide technical assistance to planters, and attend to their various needs.[4] By 1994, the supervisory employees of the Corporation, spearheaded by Franco, Pabalan, Perrin and Candelario, decided to form a labor union called Lopez Sugar Corporation Supervisor s Association. On December 29, 1994, the Department of Labor and Employment (DOLE) in Iloilo City, Regional Office No. VI, issued a Certificate of Registration[5] to the union. During its organizational meeting, Franco was elected president and Pabalan as treasurer. Perrin and Candelario, on the other hand, were among its active members. Out of the 108 members, 105 had agreed to authorize the check-off[6] of union dues against their salaries even before any Collective Bargaining Agreement (CBA) had been executed by the union and management. In January 1995, the officers of the union and the management held a meeting, which led to the submission of the union s proposals for a CBA on July 24, 1995.[7] Meantime, on August 8, 1995, the Corporation s president issued a Memorandum[8] to the vicepresident and department heads for the adoption of a special retirement program for supervisory and middle level managers. He emphasized that the management shall have the final say on who would be covered, and that the program would be irrevocable once approved. In a Letter[9] dated August 14, 1995, the Corporation requested for more time to study the union s proposals for a CBA. The union was made to understand that the management s counter-proposals would be presented during their conference on August 30, 1995. Perrin and Candelario were on leave when they were invited by Juan Masa, Jr., the head of the Cane Marketing Section, to the Northeast Beach Resort in Escalante, Negros Occidental. The latter informed

them that they were all included in the special retirement program and would receive their respective notices of dismissal shortly.[10] True enough, Masa, Pabalan, Franco, Perrin and Candelario received copies of the Memorandum dated August 25, 1995 from the Corporation s Vice-President for Administration and Finance, informing them that they were included in the special retirement program for supervisors and middle level managers; hence, their employment with the Corporation was to be terminated effective September 29, 1995, and they would be paid their salaries until September 27, 1995, thus: In line with the memorandum of the President dated August 8, 1995, announcing the adoption of a special retirement program for the supervisors and the middle level managers, and our earlier discussion with you, we wish to formalize our advice that you are one of the employees who will be covered by the Program. Your inclusion in the Program is primarily due to the fact that our study of our current organizational set-up reveals that the organization is presently over-staff[ed]. There are actually duplication of functions and responsibilities, and some duties could actually be performed by just one person. Management therefore had no choice but to reduce the present number of employees and you were selected as among those who will be separated from the service. As stated in the memorandum, you will be entitled to a separation package equivalent to two months pay for every year of service, in addition to the conversion of your unused/earned sick leave and vacation leave credits and pro-rated 13th month pay. This generous non-precedent setting separation package, which is twice what the law provides, is being offered in consideration of your acceptance of your separation, thereby relieving the company from the trouble of any court litigation.[11] The private respondents received their respective separation pays and executed their respective Release Waiver and Quitclaim[12] after receiving their clearances from the Corporation. On August 31, 1995, the management wrote the union that its proposals for a CBA had been referred to its counsel. Thereafter, the private respondents filed separate complaints against the corporation with the NLRC for illegal dismissal, unfair labor practice, reinstatement and damages.[13] In their position paper, the private respondents claimed that they were made to understand that their employment was terminated on the ground of redundancy; however, they were not informed of the criteria, guidelines or standard in the implementation of the special retirement program. They were thus led to conclude that their dismissal was capricious. They pointed out that Perrin and Candelario, who had been with the corporation for already 20 years, were included in the special program, while others who had been employed with the corporation for only one to six years had been retained. Moreover, one year before the program was implemented, the Corporation hired two more PSRs, thus increasing their number; and even after the termination of Perrin and Candelario s employment, the Corporation hired two more on a contractual basis. Candelario was then rehired on a contractual basis only until January 1996 when the complaint was filed against the Corporation. Franco, on the other hand, had rejected a similar offer to work on a contractual basis. The private respondents also alleged that their inclusion in the said program was resorted to in order to intimidate the union and its members from pursuing their objective of institutionalizing a collective bargaining mechanism for supervisory employees in the company, thus, aborting the birth of a labor organization capable of bargaining with the management on the terms and conditions of employment. The complainants averred that for all intents and purposes, the collective bargaining process [was] over, having failed to progress beyond the proposal stage, a pathetic end for an enterprise that started with such great enthusiasm from 105 of the 108 supervisors. [14] They further averred that the connection between the untimely demise of the negotiations and the dismissal of 32 employees, who were officers and members of the union, was too obvious to be ignored

considering further that the claim of redundancy was untenable. The complainants also averred that they were all in their late 40s, and had served the petitioner for about 20 years; although still in their productive years, their prospects for other employment were very slim.[15] In its position paper, the Corporation maintained that the termination of the employment of the complainants was in response to the challenges brought about by the General Agreement on Tariff and Trade (GATT), the AFTA and other international trade agreements, which greatly affected the local sugar industry. The respondent summarized its position, thus: 12.0 Complainants separation from employment was made pursuant to a legitimate exercise by the Company of its prerogatives to adopt measures to cut cost and to maintain its profitability and competitiveness. 13.0 The inclusion of the complainants in the special retirement or right sizing program has nothing to do with their exercise of their right to self-organization; hence, there is no unfair labor practice being committed by the Company. 14.0 Complainants separation from service was done in good faith and in complete compliance with procedural and substantive legal requirements; hence, legal and justified. 15.0 Complainants are barred by the release waiver and quitclaim that they have executed in favor of the Company from further contesting the validity of their separation from service.[16] The Corporation also averred that in July 1995, it commissioned Sycip, Gorres, Velayo and Company (SGV) to conduct a study of the Corporation and its operations to identify changes that could be implemented to achieve cost effectiveness and global competitiveness. In their Reply-Affidavit, the complainants averred that they signed their respective Release Waiver and Quitclaim because their employer had driven them to the wall, and found themselves in no position to resist, as they were no longer employed. They insisted that it was a case of adherence, not of choice. They averred that they did not relent on their claim, nor did they waive any of their rights. They further emphasized that nowhere in the SGV study was it recommended that they be dismissed from employment, or that their positions be abolished. In the case of the Sugar and Molasses Storage Department (SMSD), for instance, the recommendation to save cost was not implemented; instead Pabalan and another shift supervisor who was also a union officer (Bitera), were dismissed, and replacements were hired on December 1, 1996. As to the Cane Marketing Department where Perrin and Candelario were assigned as PSRs, the study, in fact, recommended the strengthening of the said unit; the respondent dismissed such employees who had been employed from 13 to 25 years. The private respondents pointed out that this was an evidence of the Corporation s intention to contract out the work of the PSRs, considering further that those who had been employed for only one to six years were retained.[17] On February 26, 1997, the Labor Arbiter rendered judgment in favor of the Corporation and ordered the dismissal of the complainants. According to the Labor Arbiter, there was a real and factual basis to declare redundancy, thus: Based on this study, the position and functions of fuel-in-charge, held by complainant Franco, are basically the same as that of Fuel Tenders and therefore his activities could well be done by existing Fuel Tenders who would be directly under the General Warehouse Supervisor. In the case of complainant Pabalan, whose position was Shift-in-Charge/Supervisor, it was observed that his tasks could be merged in the functions of the Property Warehouse Supervisor. With respect to complainants Perrin and Candelario, who were Planters Service Representatives, it was observed that the job was more complementary to the marketing aspect, wherein they are tasked to maintain good and harmonious

relations with the company s sugar planters, to ensure continued patronage of the mill s services. It was found that these PSR functions could well be handled by agents or consultants, who would be paid on commission basis.[18] The Labor Arbiter noted that the complainants received their separation pay and other monetary benefits from the Corporation, and thereafter, voluntarily executed their respective Deeds of Release Waiver and Quitclaim[19] in its favor. The complainants appealed to the NLRC which rendered judgment on December 9, 1997 granting their appeal and reversing the decision of the Labor Arbiter. The NLRC ruled that there was no factual and legal basis for the termination of the employment of the private respondents based on retrenchment or redundancy, and that the Deeds of Release Waiver and Quitclaim executed by the complainants were ineffective. The Corporation filed a motion for reconsideration of the decision, which was denied by the NLRC. Unsatisfied, the Corporation filed a petition for certiorari with the CA, insisting that: PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT SET ASIDE AND OVERRULED THE DECISION OF THE LABOR ARBITER ON THE BASIS OF COINCIDENCES AND BASELESS ACCUSATION OF BAD FAITH, COMPLETELY MISAPPRECIATING THE SUBSTANTIAL EVIDENCE WHICH SUPPORTED THE LABOR ARBITER S DECISION. PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION IN OVERRIDING THE LEGITIMATE EXERCISE BY THE PETITIONER OF ITS MANAGEMENT PREROGATIVE OF REDUCING ITS WORK FORCE TO ADDRESS CURRENT BUSINESS AND ECONOMIC REALITIES. PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION IN DISREGARDING BASIC PRINCIPLES OF LAW AND JURISPRUDENCE LAID DOWN BY THE SUPREME COURT TO THE EFFECT THAT: i. The matter of evaluating the merits of the issues presented in a labor case is primarily addressed to the sound discretion of the Labor Arbiter. Thus, when the decision of the Labor Arbiter is amply supported by substantial evidence, his findings and conclusions should not be disturbed but must be accorded with respect by the NLRC and even by the Supreme Court. ii. The determination that a position is redundant and therefore legally terminable, is basically an exercise of management prerogative, and for as long as it is done in good faith, the wisdom or soundness thereof is beyond the review power of the Labor Arbiter nor of the NLRC, which by law and jurisprudence are not vested with managerial functions. Iii Termination on ground of redundancy is anchored on the superfluity of a position and not on the fact that actual loss is incurred by a company. iv. A waiver and quitclaim, when voluntarily and intelligently executed, is binding upon the employee, more so if he is not just an ordinary employee.[20] On April 28, 2000, the CA rendered judgment dismissing the petition, on the ground that the NLRC did not commit grave abuse of discretion in rendering judgment against the Corporation. The Corporation s motion for reconsideration thereof was, likewise, denied by the CA. The Corporation, now the petitioner, assails the ruling of the CA, contending that the decision of the Labor Arbiter should prevail, as it is supported by substantial evidence and the law. The petitioner, thus, maintains that the Labor Arbiter correctly ruled that

(1) (2) (3)

the separation of the Respondents from employment was for a valid and authorized cause; the positions of the Respondents were redundant; there was a real and factual basis to declare redundancy;

(4) there is no evidence to show that the right sizing program was deliberately intended to stifle union activities; (5) (6) the confluence of events was just a coincidence; there is no evidence of deviousness in the right sizing program;

(7) the Respondents received their individual separation benefits, and there is no evidence that either moral or physical compulsion or both made them accept the benefits offered; and (8) Petitioner Company has complied with the legal requisites of terminating the employment of the Respondents.[21] The petitioner further argues that the decision of the NLRC is essentially flawed because the private respondents were terminated on the ground of redundancy, and not retrenchment which is an entirely different concept. There is absolutely no evidence on record, save the bare allegations of the private respondents that they were singled out as victims of retrenchment. The other redundant positions were, likewise, eliminated. It insists that unlike retrenchment, redundancy does not require business losses to be an authorized cause for dismissal. Moreover, the law does not give any criteria, guidelines or standard for the selection of employees who are to be dismissed on the ground of redundancy. It insists that Article 283 of the Labor Code merely requires that 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. The petitioner further posits that the law does not require a corporation to adopt radical cost-cutting measures prior to a termination on the ground of redundancy. It avers that the mere fact that the termination took place at a time when the private respondents had just organized the union does not automatically render their termination invalid. It theorizes that the union could have been organized as leverage to the implementation of the redundancy program which the supervisory employees knew was forthcoming. It further claims that it is clearly not within the discretion of the NLRC to say that the termination was prematurely resorted to, as such determination was clearly within the business discretion of the petitioner corporation. It adds that, as evidenced by the generous separation packages given to the private respondents, their welfare was amply considered by it. Thus, the petitioner concludes, there was patent partiality and bias on the part of the NLRC when it sweepingly declared that the dismissal of the private respondents was illegal and without valid and authorized cause. [22]

The Ruling of the Court The petition is denied for lack of merit. In the main, the issues in this case are factual. Under Rule 45 of the Rules of Court, only questions of law may be raised in this Court; such factual issues may be considered and resolved only when the

findings of facts and the conclusions of the Labor Arbiter are inconsistent with those of the NLRC and the CA. Nevertheless, we have meticulously reviewed the records in this case and find that the NLRC did not commit any grave abuse of its discretion amounting to lack or excess of jurisdiction in rendering its decision in favor of the private respondents. The CA acted in accord with the evidence on record and case law when it dismissed the petitioner s petition for certiorari and affirmed the assailed decision and resolution of the NLRC. We reiterate that it is the burden of the petitioner, as employer, to prove the factual and legal basis for the dismissal of its employees on the ground of redundancy. In Asian Alcohol Corporation v. National Labor Relations Commission,[23] the Court ruled that redundancy exists when the service capability of the work force is in excess of what is reasonably needed to meet the demands on the enterprise. The Court proceeded to expound, as follows: A redundant position is one rendered superfluous by any number of factors, such as over-hiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company or phasing out of a service activity priorly undertaken by the business. Under these conditions, the employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business.[24] Contrary to the petitioner s claim, the employer must comply with the following requisites to ensure the validity of the implementation of a redundancy program: (1) a written notice served on both the employees and the Department of Labor and Employment at least one month prior to the intended date of retrenchment; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.[25] The Court emphasized in the earlier case of Panlilio v. National Labor Relations Commission[26] that it is imperative for the employer to have fair and reasonable criteria in implementing its redundancy program, such as but not limited to (a) preferred status; (b) efficiency; and (c) seniority.[27] The general rule is that the characterization by an employer of an employee s services as no longer necessary or sustainable is an exercise of business judgment on the part of the employer. The wisdom or soundness of such characterization or decision is not, as a general rule, subject to discretionary review on the part of the Labor Arbiter, the NLRC and the CA.[28] Such characterization may, however, be rejected if the same is found to be in violation of the law or is arbitrary or malicious.[29] In Dangan v. National Labor Relations Commission,[30] the Court ruled that the hiring, firing or demotion of employees is a management prerogative, but is subject to limitations stated in the collective bargaining agreement, if any, or general principles of fair play and justice. Indeed, the Court will not hesitate to strike down a redundancy program structured by a corporation to downsize its personnel, solely for the purpose of weakening the union leadership, thereby preventing it from securing reasonable terms and conditions of employment in their CBA with the employer. In this case, we agree with the ruling of the CA that the petitioner illegally dismissed the private respondents from their employment by including them in its special retirement program, thus, debilitating the union, rendering it pliant by decapacitating its leadership. As such, the so-called downsizing of the Cane Marketing Department and SMSD based on the SGV Study Report was a farce capricious and arbitrary. The Court agrees with the private respondents averments in their position paper, as follows:

Complainants are not in a position to anticipate how respondent will present its case for redundancy particular[ly] because no standard, criteria or guidelines for the selection of dismissed employees was made known to them, and all that they were told was that you were selected as among those who will be separated from the service; nonetheless, this early, it is possible to point out certain facts which throw light on the plausibility or want of it, of the ground relied upon. 1. No contingency has occurred, of the kind mentioned by the Supreme Court in the Wiltshire case, (over-hiring of workers, decreased volume of business or dropping of a particular service line) which would explain the dismissal on the ground of redundancy; over-hiring of workers cannot conceivably occur in the level of the supervisors; on the other hand, it would have required an event of cataclysmic proportion to justify the dismissal for redundancy of a full one-third of the supervisors in an establishment, and if such an event were to occur it would have resulted in tremendous losses which is not true here because the dismissal is not on account of or to prevent losses; 2. In no other category of employees did positions suddenly become redundant except among the supervisors who have just organized themselves into a labor union and were working for their first-ever CBA in the establishment; 3. The dismissal came at the precise time when the Lopez Sugar Central Supervisors Association (LSCA) had presented its CBA proposals and was expecting the company s reply as mandated by law; in fact, the reply was overdue, being required to be submitted by management within ten (10) days from receipt of the union proposal; there is no better proof that the dismissals have served their hidden purpose than that the CBA negotiation has ended to all intents and purpose, before management could even present its counterproposal. Certainly, it would be farfetched to say that the remaining union officers and members have abandoned its objective of having a CBA for reasons other than the fear of suffering the fate of those who had been dismissed. The absence of criteria, guidelines, or standard for selection of dismissed employees renders the dismissals whimsical, capricious and vindictive; in the case of the complainants Franco and Pabalan, who are the Union President and Treasurer, respectively, the reason for their inclusion is obvious. Additionally, it must be mentioned that in the case of Pabalan, there were three shift supervisors, one for each 8-hour shift before the program was implemented, namely, Pabalan, Bitera and Lopez; Pabalan and Bitera (a union director) were terminated, leaving Lopez alone, who worked on 12-hour shift duty with Henry Villa, department head who was forced to perform the work of shift supervisor; Pabalan was offered to be rehired as an employee of BUGLAS, a labor-only contractor but he refused; an employee, Eugenio Bolanos was assigned from another department to do the work of shift supervisor and three of them (Lopez, Villa and Bolanos) now divide shift duties among themselves. There is no explanation why among the shift supervisors it was Pabalan and Bitera who were included in the program. In the case of complainants [P]errin and Candelario, both Planter Service Representatives, the manipulation is even more apparent; one year before the program was instituted, two new PSRs were hired (Labrador and Cambate) bringing to six the total number of PSRs; after the termination of [P]errin and Candelario, who have served for nearly 20 years, two new PSRs were hired (Oropel and Jeres) on contractual basis and whose compensation is based on pakiao; additionally, Candelario was hired after his dismissal under the same arrangement as Oropel and Jeres, which lasted only up to January 1996 when management learned of the filing of the first of these cases; [P]errin, on his part, was offered the same arrangement but he refused. 4. The rehiring of dismissed employees through a labor-only contractor exposes the program as a circumvention of the law. This is true in the case of the following supervisors who were terminated with complainant but were subsequently employed to do exactly the same work, but as employees of BUGLAS, a labor-only contractor which supplies laborers to respondent LSC:

A. B. C.

Juanito Lanos, Supervisor, Electrical Department. Raymundo Llenos, Community Development Officer. Joseph Nicolas, Supervisor, Refrigeration and Air Conditioning.

The above re-hiring in addition to other circumstances earlier mentioned, such as the hiring of 2 men PSRs after Candelario and [P]errin were terminated; the short-lived rehiring of the former and the offer to hire the latter which he refused, all indicate that there was no redundancy. None of the work has been phased out or rendered obsolete by any event that took place. As to duplication of functions, it must be mentioned that the positions of complainants have existed for a long time judging from their years of service with respondent; the observation of the Supreme Court in the Wiltshire case to the effect that in a well-organized establishment, duplication of functions is hardly to be expected is pertinent.[31] Foremost, the petitioner failed to formulate fair and reasonable criteria in ascertaining what positions were declared redundant and accordingly obsolete, such as preferred status, efficiency or seniority. It, likewise, failed to formulate fair and reasonable parameters to determine who among the supervisors and middle-level managers should be retired for redundancy. Using the SGV report as anchor, the petitioner came out with a special retirement program for its 108 supervisors and middle-level managers, making it clear that its decision to eliminate them was final and irrevocable. Moreover, the private respondents were not properly apprised of the existence of the special retirement program, as well as the criteria for the selection of the supervisors to be retired, and those to be retained or transferred or demoted. Contrary to its submissions, the petitioner downsized the Cane Marketing Department by eliminating private respondents Perrin and Candelario; and Franco and Candelario from the Sugar and Molasses Storage Department, respectively, without due regard to the SGV report. The following recommendations relating to the Sugar and Molasses Storage Department were made: RECOMMENDATIONS ================= 2.4 Sugar and Molasses Storage

2.4.1 Renovate old bulk warehouse to improve ventilation, lighting and raw sugar handling 2.4.2 Install a conveyor/scale before bag sewing of refined sugar to check weight conformity 2.4.3 Renovate bagging room of refined sugar to enforce strict hygiene/sanitation 2.4.4 Install a marking mechanism that would indicate production date on bagged refined sugar 2.4.5 Conduct weekly checks and adjustment on the bag sewing and conveyor equipment [32] The downsizing of personnel was not among the foregoing recommendations, and yet this was what the petitioner did, through its special retirement program, by including private respondents Franco and Pabalan, thereby terminating their employment. It is too much of a coincidence that the two private respondents were active members of the union.

On the other hand, the following recommendations were made relating to the Cane Marketing Department: CANE MARKETING AND TRANSPORT 1.0 Cane Marketing

1.1.1 Expand SC s farm leasing operations (by 6,292 hectares) 1.1.2 Establish cane supply planning system 1.1.3 Beef up SC s cane marketing efforts by hiring more effective PSRs to replace ineffective PSRs 1.1.4 Acquire 6 motorcycles instead of second-hand jeeps 1.1.5 Apply marketing techniques used by other companies/industries.[33] As can be gleaned from the above, the report recommended the beefing up of the petitioner s planter service representative force, while eliminating those who were ineffective. There is no showing in the record that respondents Perrin and Candelario were eliminated solely because they were inefficient. Neither is there any substantial evidence on record that the private respondents performance had been deteriorating; on the contrary, they had been so far so efficient that they had been given promotions from time to time during their employment. Yet, the petitioner eliminated private respondents Perrin and Candelario and retained three PSRs, namely, Danilo Villanueva, Roberto Combate and Danilo Labrador, who were employed with the petitioner from one to three years and transferred Raymundo de la Rosa, who had been working there for only six years.[34] Again, it is too much of a coincidence that Franco and Pabalan, the President and Treasurer, respectively, of the union, were included in the special retirement program. We agree with the findings of the CA that the private respondents were unilaterally included in the said program for the following reasons: As evidenced by various documents attached to the affidavit of Leonito Franco and Rogelio Pabalan, as well as supporting affidavits of complainants, the supervisory employees of LSC organized a labor union called Lopez Sugar Corporation Supervisor s Associations which was issued a certificate of registration by the DOLE Regional Office No. VI, Iloilo City on December 29, 1994. Complainant Franco was elected President and complainant, Pabalan, Treasurer, during the organizational meeting. Complainants [P]errin and Candelario are active union members. Management was duly informed about this fact and in January 1995 a conference was conducted between the union and management where the status of the union was clarified and some problems in the workplace were discussed. The management was also informed subsequently that 105 out of 108 supervisory employees have joined the union and authorized check-off of the union dues starting March 1995. The check-off was effected. On July 24, 1995, the union formally submitted its CBA proposal to respondent with request for a reply in ten (10) days pursuant to the Labor Code. The management in a letter expressed willingness to meet the union panel on August 30, 1995, which the latter understood to mean that the management would present its counter-proposal during the said conference. To the surprise of the complainants, they received instead on August 26, 1995 a letter of termination stating that, in accordance with the special retirement program of respondent, their services will be terminated effective September 27, 1995. The letter also stated that according to a study conducted by

the respondent of its organizational set-up, it is over-staffed and there are duplications of functions which left it no choice but to reduce personnel. As to the CBA counter-proposal, the management wrote the union on August 31, 1995 that the matter was referred to its external counsel for appropriate disposition in the light of the recent development in this company. The special retirement program affected 32 employees or roughly one-third of the supervisory personnel. They included the union President and Treasurer and majority of the Board of Directors and active union members. No clarification was made as to how the terminated employees were chosen, and no guidelines, criteria or standard was shown to lend coherence to the program. As may be expected, the dismissals generated a general perception that management was sending a strong message that all employees hold their position at its pleasure, and that it was within its power to dismiss anyone anytime. With the dismissal of the union officers and with the membership now effectively threatened, the union virtually collapsed as an organization. Out of fear, no one would even assume the position of union President. An indication of this sad state of affairs into which the union has fallen is that nothing came out of its CBA proposal. It has been a year and three months as of this writing since the respondent informed the union that its proposal had been referred to the company s external counsel, but no counter-proposal has been submitted and no single conference has been held since then.[35] While it may be true that the private respondents signed separate Deeds of Release Waiver and Quitclaim and received separation pay, nonetheless, we find and so hold that the NLRC did not err in nullifying the decision of the Labor Arbiter, thus: The Release Waiver and Quitclaim were not verified by the complainants. Under prevailing jurisprudence, the fact that an employee has signed a satisfaction receipt of his claims does not necessarily result in the waiver thereof. The law does not consider as valid any agreement whereby a worker agrees to receive less compensation than what he is entitled to recover. A deed of release or quitclaim cannot bar an employee from demanding benefits to which he is legally entitled. We have herefore (sic) explained that the reason why quitclaims are commonly frowned upon as contrary to public policy and why they are held to be ineffective to bar claims for the full measures of the workers legal rights is the fact the employer and the employee obviously do not stand on the same footing. The employer drove the employees to the wall. The latter must have to get hold of the money. Because out of job, they had to face the harsh necessities of life. x x x (Marcos vs. NLRC, G.R. No. 111744, September 8, 1995)[36] Private respondents Franco and Pabalan protested the termination of their employment. Private respondents Candelario and Perrin were shocked when, although they were on leave, they were invited to the Northeast Beach Resort by Juan Masa, Jr., the head of the Cane Marketing Department, on August 25, 1996, only to be told that, after spending a considerable number of years under the petitioner s employ, they were suddenly out of jobs. The private respondents had no other recourse but to execute the said Release Waiver and Quitclaim because the petitioner made it clear in its Memorandum dated August 8, 1995 that it had the final say on who would be included in its special retirement program. Their dismissal from the petitioner corporation was a fait accompli, solely because they organized a union that would bargain for reasonable terms and conditions of employment sought to be included in a CBA. In fine, the private respondents were left to fend for themselves, with no source of income from then on; prospects for new jobs were dim. Their backs against the wall, the private respondents were forced to sign the said documents and receive their separation pay. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.

SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

[G.R. No. 131108. March 25, 1999] ASIAN ALCOHOL CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, FOURTH DIVISION, CEBU CITY and ERNESTO A. CARIAS, ROBERTO C.

MARTINEZ, RAFAEL H. SENDON, CARLOS A. AMACIO, LEANDRO O. VERAYO and ERENEO S. TORMO, respondents.

SYNOPSIS Private respondents filed complaints for illegal dismissal with prayer for reinstatement with backwages, moral damages and attorney s 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. The Labor Arbiter found petitioner s claim that it incurred substantial losses in its business operations prior to the implementation of its retrenchment program as supported by documents such as audited Balance Sheet and Statement of Income and Deficit as well as Income Tax Return indicating an accumulated deficit. Private respondents appealed to the NLRC. The NLRC, in its decision, rejected the evidence offered by petitioner to prove its business reversals. It faulted petitioner for retrenching private respondents on the ground of mere possible future losses. Moreover, the NLRC ruled that the positions of private respondents were not redundant for the simple reason that they were casuals. Thus, the NLRC declared that private respondents were illegally dismissed and directed their reinstatement with full backwages, and attorney s fees. Petitioner s motion for reconsideration was denied. Hence, this petition. 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 petitioner s 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 employer s 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. SYLLABUS 1. LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS; TERMINATION OF EMPLOYMENT; RETRENCHMENT; REQUISITES FOR VALIDITY THEREOF, ENUMERATED. -Out of its concern for those with less privilege in life, this Court has inclined towards the worker and upheld his cause in his conflicts with the employer. This favored treatment is directed by the social justice policy of the Constitution. But while tilting the scales of justice in favor of workers, the fundamental law also guarantees the right of the employer to reasonable returns from his investments. Corollarily, the law allows an employer to downsize his business to meet clear and continuing economic threats. Thus, this Court has upheld reductions in the work force to forestall business losses or stop the

hemorrhaging of capital. The right of management to dismiss workers during periods of business recession and to install labor saving devices to prevent losses is governed by Art. 283 of the Labor Code, as amended. Under this provisions, retrenchment and redundancy are just causes for the employer to terminate the services of workers to preserve the viability of the business. In exercising its right, however, management must faithfully comply with the substantive and procedural requirements laid down by law and jurisprudence. The requirements for valid retrenchment which must be proved by clear and convincing evidence are: (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 1/2 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 (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. 2. ID.; ID.; ID.; ID.; EMPLOYER MUST SHOW THAT BUSINESS LOSSES CANNOT BE ABATED IN THE NEAR FUTURE. - The condition of business losses is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns. It is our ruling that financial statements must be prepared and signed by independent auditors. Unless duly audited, they can be assailed as self-serving documents. But it is not enough that only the financial statements for the year during which retrenchment was undertaken, are presented in evidence. For it may happen that while the company has indeed been losing, its losses may be on a downward trend, indicating that business is picking up and retrenchment, being a drastic move, should no longer be resorted to. Thus, the failure of the employer to show its income or loss for the immediately preceding year or to prove that it expected no abatement of such losses in the coming years, may bespeak the weakness of its cause. It is necessary that the employer also show that its losses increased through a period of time and that the condition of the company is not likely to improve in the near future. In the instant case, private respondents never contested the veracity of the audited financial documents proffered by Asian Alcohol before the Executive Labor Arbiter. Neither did they object their admissibility. They show that petitioner has accumulated losses amounting to P306,764,349.00 and showing nary a sign of abating in the near future. 3. ID.; ID.; ID.; ID.; PHRASE RETRENCHMENT TO PREVENT LOSSES, CONSTRUED; NEW MANAGEMENT GIVEN THE RIGHT TO UNDERTAKE MEASURES TO SAVE THE COMPANY FROM BANKRUPTCY. - It should be observed that Article 283 of the Labor Code uses the phrase retrenchment to prevent losses. In its ordinary connotation, this phrase means that retrenchment must be undertaken by the employer before losses are actually sustained. We have, however, interpreted the law to mean that the employer need not keep all his employees until after his losses shall have materialized. Otherwise, the law could be vulnerable to attack as undue taking of property for the benefit of another. In the case at bar, Prior Holdings took over the operations of Asian Alcohol in October 1991. Plain to see, the last quarter losses in 1991 were already incurred under the new management. There were no signs that these losses would abate. Irrefutable was the fact that losses have bled Asian Alcohol incessantly over a span of several years. They were incurred under the management of the Parsons family and continued to be suffered under the new management of Prior Holdings. Ultimately, it is Prior Holding that will absorb all the losses, including those incurred under the former owners of the company. The law gives the new management every right to undertake measures to save the company from bankruptcy.

4. ID.; ID.; ID.; ID.; REORGANIZATIONAL PLAN AND COMPREHENSIVE COST-SAVING PROGRAM CONSIDERED AS RETRENCHMENT MEASURES TO CUT LOSSES IN CASE AT BAR. - We find that the reorganizational plan and comprehensive cost-saving program to turn the business around were not designed to bust the union of the private respondents. Retrenched were one hundred seventeen (117) employees. Seventy two (72) of them including private respondents were separated because their positions had become redundant. In this context, what may technically be considered as redundancy may verily be considered as retrenchment measures. Their positions had to be declared redundant to cut losses. 5. ID.; ID.; ID.; REDUNDANCY; WHEN IT EXISTS. - Redundancy exist when the service capability of the work is in excess of what is reasonably needed to meet the demands on the enterprise. A redundant position is one rendered superfluous by any number of factors, such as overhiring of workers, decreased volume of business, dropping of a particular line previously manufactured by the company or phasing out of a service activity priorly undertaken by the business. Under these conditions, the employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business. 6. ID.; ID.; ID.; ID.; REQUISITES FOR VALIDITY THEREOF, ENUMERATED. - For the implementation of a redundancy program to be valid, the employer must comply with the following requisites: (1) written notice served on both the employees and the Department of Labor and Employment at least one month prior to the intended date of retrenchment; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished. 7. ID.; ID.; ID.; ID.; CHARACTERIZATION OF POSITIONS AS REDUNDANT CONSIDERED AS EMPLOYER'S EXERCISE OF BUSINESS JUDGMENT. - Not one of the private respondents refuted the foregoing facts. They only contend that the new management should have followed the policy of first in, last out in choosing which positions to declare as redundant or whom to retrench to prevent further business losses. No law mandates such a policy. And the reason is simple enough. A host of relevant factors come into play in determining cost efficient measures and in choosing the employees who will be retained or separated to save the company from closing shop. In determining these issues, management has to enjoy a pre-eminent role. The characterization of positions as redundant is an exercise of business judgment on the part of the employer. It will be upheld as long as it passes the test of arbitrariness. 8. ID.; ID.; ID.; ID.; GOOD FAITH IN IMPLEMENTING A REDUNDANCY PROGRAM NOT DESTROYED BY EMPLOYERS AVAILMENT OF THE SERVICES OF INDEPENDENT CONTRACTOR. - We have held that an employer's 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. We have previously ruled that 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. In the case at bar, private respondent failed to proffer any proof that the management acted in a malicious or arbitrary manner in engaging the services of an independent contractor to operate the Laura wells. Absent such proof, the Court has no basis to intefere with the bona fide decision of management to effect more economic and efficient methods of production. 9. CIVIL LAW; QUITCLAIMS AND RELEASES; GENERALLY CONSIDERED VOID; EXCEPTION. It is true that this Court has generally held that quitclaims and releases are contrary to public policy and therefore, void. Nonetheless, voluntary agreements that represents a reasonable settlement are binding on the parties and should not later be disowned. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are

unconscionable, that the law will step in to bail out the employees. While it is our duty to prevent the exploitation of employees, it is also behooves us to protect the sanctity of contracts that do not contravene our laws. 10. ID.; ID.; ABSENCE OF FORCE OR DURESS IN THE EXECUTION THEREOF IN CASE AT BAR. - There is no showing that the quitclaims, waivers and voluntary resignation letters were executed by the private respondents under force or duress. In truth, the documents embodied separation benefits that were well beyond what the company was legally required to give private respondents. We note that out of more than one hundred workers that were retrenched by Asian Alcohol, only these six (6) private respondents were not impressed by the generosity of their employer. Their late complaints have no basis and deserve our scant consideration.

DECISION PUNO, J.: Contending that the dismissal of private respondents Ernesto A. Carias, Roberto C. Martinez, Rafael H. Sendon, Carlos A. Amacio, Leandro O. Verayo and Ereneo S. Tormo, was valid on the twin grounds of redundancy and retrenchment to prevent business losses, petitioner Asian Alcohol Corporation (hereinafter referred to as Asian Alcohol) filed this petition for certiorari. Asian Alcohol ascribes grave abuse of discretion to public respondents National Labor Relations Commission[1](hereinafter referred to as NLRC) when, on May 30, 1997, it set aside[2] the decision[3] of the Executive Labor Arbiter dismissing the illegal termination complaints filed by private respondents. We first unfurl the facts. In September, 1991, the Parsons family, who originally owned the controlling stocks in Asian Alcohol, were driven by mounting business losses to sell their majority rights to prior Holdings, Inc. (hereinafter referred to as Prior Holdings). The next month, Prior Holdings took over its management and operation.[4] To thwart further losses, Prior Holdings implemented a reorganizational plan and other cost-saving measures. Some one hundred seventeen (117) employees out of a total workforce of three hundred sixty (360) were separated. Seventy two (72) of them occupied redundant positions that were abolished. Of these positions, twenty one (21) were held by union members and fifty one (51) by nonunion members. The six (6) private respondents are among those union members[5] whose positions were abolished due to redundancy. Private respondents Carias, Martinez, and Sendon were water pump tenders; Amacio was a machine shop mechanic; Verayo was a briquetting plant operator while Tormo was a plant helper under him. They were all assigned at the Repair and Maintenance Section of the Pulupandan plant.[6] In October, 1992, they received individual notices of termination effective November 30, 1992.[7] They were paid the equivalent of one month salary for every year of service as separation pay, the money value of their unused sick, vacation, emergency and seniority leave credits, thirteenth (13th) month pay for the year 1992, medicine allowance, tax refunds, and goodwill cash bonuses for those with at least ten (10) years of service.[8] All of them executed sworn releases, waivers and quitclaims.[9] Except for Verayo and Tormo, they all signed sworn statements of conformity to the company retrenchment program.[10] And except for Martinez, they all tendered letters of resignation.[11] On December 18, 1992, the six (6) private respondents files with the NLRC Regional Arbitration Branch VI, Bacolod City, complaints for illegal dismissal with a prayer for reinstatement with backwages, moral damages and attorney s fees. They alleged that Asian Alcohol used the retrenchment program as a subterfuge for the union busting. They claimed that they were singled out for separation by reason for

their active participation in the union. They also asseverated that Asian Alcohol was not bankrupt as it has engaged in an aggressive scheme of contractual hiring. The Executive Labor Arbiter dismissed the complaints. He explained, thus: The fact that respondents AAC incurred losses in its business operations was not seriously challenged by the complainants. The fact that it incurred substantial losses in its business operations prior to the implementation of its retrenchment program is amply supported by the documents on records, (sic) namely: (1) Balance Sheet of AAC as of December 31, 1991 x x x, (2) Statement of Income and Deficit for the year ended December 31, 1991 x x x, (3) Income Tax Return for Fiscal Year ending September 30, 1989 x x x, (4) Income Tax Return for the Fiscal Year ending December 31, 1989 x x x, (5) Income Tax Return for Fiscal Year ending December 31, 1990 x x x, and (6) Income Tax Return for the Fiscal Year ending December 31, 1991 x x x, indicating an accumulated deficit of P26,117,889.00. It has to be emphasized that the law allows an employer to retrench some of its employees to prevent losses. In the case of respondent AAC, it implemented its retrenchment program not only to prevent losses but to prevent further losses as it was then incurring huge losses in its operations. Complainants would want us to believe that their positions were abolished because they are union members, and that they were replaced by casual employees. Complainants pretense is rather untenable. For one thing, the retrenchment program of AAC affected not only union members but also the non-union members. As earlier said, there were 117 employees of AAC who were affected by the reorganization. Of the 117 positions, 72 positions were abolished due to redundancy, 21 of which were occupied by union members, while 51 were held by non-union members. Thus, the theory of complainants that they were terminated from work on ground of their union membership is far from the truth. On the contrary, we find that complainants Ernesto Carias, Roberto Martinez and Rafael Sendon who were all Water Pump Tenders assigned to AAC s water wells in Ubay, Pulupandan, Negros Occidental which were drilled and operated before under the old management by virtue of right-of-way with the landowner, were retrenched as an offshoot to the termination of the lease agreement as the water thereunder had become salty due to extensive prawn farming nearby, so that AAC could no longer use the water for its purpose. As a consequence, the services of Ernesto Carias, Roberto Martinez and Rafael Sendon had become unnecessary, redundant and superfluous. As regards complainants Leandro Verayo and Ereneo Tormo, the grounds cited by respondent AAC in support of its decision to retrench them are too convincing to be ignored. Accordingly to respondent AAC, its boiler before was 100% coal fired. The boiler was manned by a briquetting plant operator in the person of Leandro Verayo and three (3) briquetting helpers, namely, Ereneo Tormo, Eriberto Songaling, Jr. and Rudy Javier, Jr. Since AAC had shifted to the use of bunker fuel by about 70% to fire its boiler, its usage of coal had been drastically reduced to only 30% of its total fuel usage in its production plant, thereby saving on fuel cost. For this reason, there was no more need for the position of briquetting plant operator and the services for only two briquetting helpers were determined to be adequate for the job of briquetting coal. Of the three (3) briquetting helpers, Ereneo Tormo was the oldest, being already 41 years old, the other two, Javier and Songaling, being only 28 and 35 respectively. Considering the manual nature of the work of coal briquetting, younger workers are always preferred for reasons of efficiency [sic]. Hence the abolition of the position of Ereneo Tormo. We have to stress that Eriberto Songaling, Jr. and Rudy Javier, Jr. are also union members. x x x With respect to Carlos Amacio, he was retrenched not because of his being a union member but because of his poor health condition which greatly affect[ed] his work efficiency. Records show that Carlos Amacio was among the ten machine shop mechanics employed by respondent AAC. Under AAC s reorganization plan, it needs only nine mechanics.

xxx On the whole, therefore, the dismissal of complainants on ground of redundancy/retrenchment was perfectly valid or legal. [12] Private respondents appealed to the NLRC. On May 30, 1997, the NLRC rendered the challenged decision. It rejected the evidence proffered by Asian Alcohol to prove its business reversals. It ruled that the positions of private respondents were not redundant for the simple reason that they were replaced by casuals. The NLRC essayed this explanation: In this case, [that] the respondent terminated complainants to protect the company from future losses, does not create an impression of imminent loss. The company at the time of retrenchment was not then in the state of business reverses. There is therefore no reason to retrench. x x x The alleged deficits of the corporations did not prove anything for the respondent. The financial status as shown in the Statement of Income and Deficits and Income Tax Returns from 1989 to 1991, submitted by respondent was before the respondent, new management of Prior Holdings, Inc., took over the operation and management of the corporation in October, 199[1]. This is no proof that on November 30, 1992 when the termination of complainant[s] took effect the company was experiencing losses or at least imminent losses. Possible future losses do not authorize retrenchment. Secondly in the case of REDUNDANCY. Redundancy exist where the service[s] of x x x employee[s] are in excess of what is reasonably demanded by the actual requirements of the enterprise. The evidence, however, proved that, in truth and in fact, the positions of the complainants were not redundant for the simple reason that they were replaced by casuals. xxx Admittedly, from the testimonies of Engr. Palmares, the wells of the respondent were operated by contractors. Otherwise stated, complainant[s] who are regular workers of the respondent, performing jobs necessary and desirable to the business of the company, were eased out in the guise of retrenchment or redundancy [so that] their jobs [will] be performed by workers belonging to a contractor. In summation, retrenchment and/or redundancy not having been proved, complainants, therefore, were illegally dismissed. [13] The dispositive portion of the decision of the NLRC provides as follows: WHEREFORE, premises considered, the Decision appealed from is hereby ordered SET ASIDE and VACATED and in lieu thereof, the respondent Asian Alcohol Corporation is hereby ordered to reinstate complainants with full backwages from the time they were dismissed on November 30, 1992 and up to actual reinstatement. Plus 10% attorney s fees. SO ORDERED.
[14]

On July 2, 1997, Asian Alcohol moved for reconsideration of the foregoing decision. On September 25, 1997, the NLRC denied the motion.[15]

On January 12, 1998, Asian Alcohol filed in this Court a petition for certiorari assailing both the decision of the NLRC and the resolution denying its reconsideration. It invoked the following grounds: 6. GROUNDS FOR THE PETITION 6.1 Public respondent has committed, as hereinafter shown, a manifest grave abuse of discretion amounting to lack or excess of jurisdiction in declaring in its assailed Decision x x x and Resolution x x x that the termination of the employment of private respondents by the petitioner herein is illegal and ordering their reinstatement with full backwages from the time they were dismissed on November 30, 1992 up to their actual reinstatement, plus 10% attorney s fees, said Decision and Resolution of the public respondents being contrary to the established facts of the case, well-settled jurisprudence and the law on the matter. 6.2 Public respondent has likewise committed, as hereinafter shown, a manifest grave abuse of discretion amounting to lack or excess of jurisdiction by totally disregarding and refusing to consider the factual findings of the Executive Labor Arbiter with respect to the circumstances which rendered the positions of the private respondents unnecessary, redundant and superfluous, thereby justifying the termination of their employment. 6.3 Public respondents has furthermore committed, as hereinafter shown, a manifest grave abuse of discretion amounting to lack or excess of jurisdiction in giving full credit to the oral testimonies quoted in its assailed Decision x x x and taking them as conclusive proof of the alleged replacement of the private respondents with casual workers despite the fact that said quoted testimonies clearly amount to nothing but speculations, surmises and conjectures. [16] On March 25, 1998, we issued a Temporary Restraining Order[17] enjoining the NLRC from enforcing its Decision and Resolution dated May 30, 1997 and September 25, 1997, respectively. We find the petition meritorious. Out of its concern for those with less privilege in life, this Court has inclined towards the worker and upheld his cause in his conflicts with the employer.[18] This favored treatment is directed by the social justice policy of the Constitution.[19] But while tilting the scales of justice in favor of workers, the fundamental law also guarantees the right of the employer to reasonable returns from his investments.[20] Corollarily, the law allows an employer to downsize his business to meet clear and continuing economic threats.[21] Thus, this Court has upheld reductions in the work force to forestall business losses or stop the hemorrhaging of capital.[22] The right of management to dismiss workers during periods of business recession and to install labor saving devices to prevent losses is governed by Art. 283 of the Labor Code, as amended. It provides, viz.: 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 case 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. [emphasis ours] Under the foregoing provisions, retrenchment and redundancy are just causes for the employer to terminate the services of workers to preserve the viability of the business. In exercising its right, however, management must faithfully comply with the substantive and procedural requirements laid down by law and jurisprudence.[23] The requirements for valid retrenchment which must be proved by clear and convincing evidence are: (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;[24] (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;[25] (3) that the employer pays the retrenched employees separation pay equivalent to one month pay or at least month pay for every year of service, whichever is higher;[26] (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;[27] and (5) that the employer used fair and reasonable criteria[28] 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,[29] physical fitness, age, and financial hardship for certain workers.[30] The condition of business losses is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns.[31] It is our ruling that financial statements must be prepared and signed by independent auditors.[32] Unless duly audited, they can be assailed as self-serving documents.[33] But it is not enough that only the financial statements for the year during which retrenchment was undertaken, are presented in evidence. For it may happen that while the company has indeed been losing, its losses may be on a downward trend, indicating that business is picking up and retrenchment, being a drastic move, should no longer be resorted to.[34] Thus, the failure of the employer to show its income or loss for the immediately preceding year or to prove that it expected no abatement of such losses in the coming years, may bespeak the weakness of its cause.[35] It is necessary that the employer also show that its losses increased through a period of time and that the condition of the company is not likely to improve in the near future.[36] In the instant case, private respondents never contested the veracity of the audited financial documents proffered by Asian Alcohol before the Executive Labor Arbiter. Neither did they object their admissibility. They show that petitioner has accumulated losses amounting to P306,764,349.00 and showing nary sign of abating in the near future. The allegation of union busting is bereft of proof. Union and non-union members were treated alike. The records show that the positions of fifty one (51) other non-union members were abolished due to business losses. In rejecting petitioner s claim of business losses, the NLRC stated that the alleged deficits of the corporation did not prove anything for the [petitioners] [37] since they were incurred before the take over of Prior Holdings. Theorizing that proof of losses before the take over is no proof of losses after the take over, it faulted Asian Alcohol for retrenching private respondent on the ground of mere possible future losses [38]. We do not agree. It should be observed that Article 283 of the Labor Code uses the phrase retrenchment to prevent losses . In its ordinary connotation, this phrase means that retrenchment must be undertaken by the employer before losses are actually sustained.[39] We have, however, interpreted the law to mean that the employer need not keep all his employees until after his losses shall have materialized.[40] Otherwise, the law could be vulnerable to attack as undue taking of property for the benefit of another.[41]

In the case at bar, Prior Holdings took over the operations of Asian Alcohol in October 1991. Plain to see, the last quarter losses in 1991 were already incurred under the new management. There were no signs that these losses would abate. Irrefutable was the fact that losses have bled Asian Alcohol incessantly over a span of several years. They were incurred under the management of the Parsons family and continued to be suffered under the new management of Prior Holdings. Ultimately, it is Prior Holding that will absorb all the losses, including those incurred under the former owners of the company. The law gives the new management every right to undertake measures to save the company from bankruptcy. We find that the reorganizational plan and comprehensive cost-saving program to turn the business around were nor designed to bust the union of the private respondent. Retrenched were one hundred seventeen (117) employees. Seventy two (72) of them including private respondent were separated because their positions had become redundant. In this context, what may technically be considered as redundancy may verily be considered as retrenchment measures.[42] Their positions had to be declared redundant to cut losses. Redundancy exist when the service capability of the work is in excess of what is reasonably needed to meet the demands on the enterprise. A redundant position is one rendered superfluous by any number of factors, such as overhiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company or phasing out of a service activity priorly undertaken by the business.[43] Under these conditions, the employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business.[44] For the implementation of a redundancy program to be valid, the employer must comply with the following requisites: (1) written notice served on both the employees and the Department of Labor and Employment at least one moth prior to the intended date of retrenchment;[45] (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service whichever is higher; (3) good faith in abolishing the redundant positions;[46] and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.[47] In the case at bar, private respondent Carias, Martinez and Sendon were water pump tenders. They tended the water wells of Asian Alcohol located in Ubay, Pulupandan, Negros Occidental. However, Asian Alcohol did not own the land where the wells stood. It only leased them. In 1992, the lease contract which also provided for a right of way leading to the site of the wells, was terminated. Also, the water from the wells had become salty due to extensive prawn farming nearby and could no longer be used by Asian Alcohol for its purpose. The wells had to be closed and needless to say, the services of Carias, Martinez and Sendon had to be terminated on the twin grounds of redundancy and retrenchment. Private respondent Verayo was the briquetting plant operator in charge of the coal-fired boiler. Private respondent Tormo was one of the three briquetting helpers. To enhance production efficiency, the new management team shifted to the use of bunker fuel by about seventy percent (70%) to fire its boiler. The shift meant substantial fuel cost savings. In the process, however the need for a briquetting plant operator ceased as the services of only two (2) helpers were all that was necessary to attend to the much lesser amount of coal required to run the boiler. Thus, the positions of private respondent Verayo had to be abolished. Of the three (3) briquetting helpers, Tormo, was the oldest, being already 41 years old. The other two, Rudy Javier Jr. and Eriberto Songaling, Jr., were younger, being only 28 and 35, respectively. Age, with the physical strength that comes with it, was particularly taken into consideration by the management team in deciding whom to separate. Hence, it was private respondent Tormo who was separated from service. The management choice rested on a rational basis. Private respondent Amacio was among the ten (10) mechanics who manned the machine shop at the plant site. At their current production level, the new management found that it was more cost efficient to maintain only nine (9) mechanics. In choosing whom to separate among the ten (10) mechanics, the management examined employment records and reports to determine the least efficient

among them. It was private respondent Amacio who appeared the least efficient because of his poor health conditions. Not one of the private respondents refuted the foregoing facts. They only contend that the new management should have followed the policy of first in, last out in choosing which positions to declare as redundant or whom to retrench to prevent further business losses. No law mandates such a policy. And the reason is simple enough. A host of relevant factors come into play in determining cost efficient measures and in choosing the employees who will be retained or separated to save the company from closing shop. In determining these issues, management has to enjoy a pre-eminent role. The characterization of positions as redundant is an exercise of business judgment on the part of the employer.[48] It will be upheld as long as it passes the test of arbitrariness.[49] Private respondents call our attention to their allegation that casuals were hired to replace Carias, Martinez and Sendon as water pump tenders at the Ubay wells. They rely on the testimony of Engr. Federico Palmares, Jr., the head of the Mechanical Engineering Department who admitted the engagement of independent contractors to operate the wells. A reading of the testimony of Engr. Palmares, however, will reveal that he referred not to the Ubay wells which were tended by private respondents Carias, Martinez and Sendon, but to the Laura wells. Thus, he declared in cross examinations: ATTY. YMBALLA: (cross-examination of respondent witness, Federico Palmares) Q But in the Laura well?

WITNESS: A Mansteel was hired as contractor.

ATTY. YMBALLA: Q In other words, the persons mentioned are all workers of independent contractors?

WITNESS: A I am not sure, maybe.

[50]

In any event, we have held that an employer s 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. We have previously ruled that 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.[51] In the case at bar, private respondent failed to proffer any proof that the management acted in a malicious or arbitrary manner in engaging the services of an independent contractor to operate the Laura wells. Absent such proof, the Court has no basis to interfere with the bona fide decision of management to effect more economic and efficient methods of production. Finally, private respondents now claim that they signed the quitclaims, waivers and voluntary resignation letters only to get their separation package. They maintain that in principle, they did not believe that their dismissal was valid. It is true that this court has generally held that quitclaims and releases are contrary to public policy and therefore, void. Nonetheless, voluntary agreements that represents a reasonable settlement are binding on the parties and should not later be disowned. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable, that the law will step in to bail out the employees. While it is our duty to prevent the exploitation of employees, it is also behooves us to protect the sanctity of contracts that do not contravene our laws.

In the case at bar, there is no showing that the quitclaims, waivers and voluntary resignation letters were executed by the private respondents under force or duress. In truth, the documents embodied separation benefits that were well beyond what the company was legally required to give private respondents. We note that out of more than one hundred workers that were retrenched by Asian Alcohol, only these six (6) private respondents were not impressed by the generosity of their employer. Their late complaints have no basis and deserve our scant consideration. IN VIEW WHEREOF, the petition is GRANTED. The Decision of the National Labor Relations Commission dated May 30, 1997 and its Resolution dated September 25, 1997 are ANNULED AND SET ASIDE. The Decision of the Executive Labor Arbiter dated January 10, 1996 in RAB Case No. 06-1210893-92 is ORDERED REINSTATED. The complaints for illegal dismissal filed by private respondents against Asian Alcohol Corporation are hereby ORDERED DISMISSED FOR LACK OF MERIT. No cost. SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena , JJ., concur.

[G.R. No. 108259. November 29, 1996]

AG&P UNITED RANK AND FILE ASSOCIATION (AG&P URFA) REYNALDO V. REYES, MARCELINO ADLIT, QUINTIN ONG III, TEOFILO C. RAMOS, FELIMON R. VALIENTE, MA. MAGDALENA MAGALONG, TORIBIO B. DE LEON, SEVERO C. BALBASTRO, JULIO F. MONTANO, CONRADO D. MANGARAN, JESUS M. CANONIGO, SARAH S. DELA PENA, ANITA A. CAINTIC, ASUNCION L. CORDERO, JAIME B. SANDOVAL, OSCAR O. GOMEZ, BONIFACIO A. ESPIRITU, JESUS E. AMARANTE, RICARDO M. LANDAYAN, FAUSTINO C. SAN ESTEBAN, FRANCISCO M. MANALO, ROLAND C. TUPALAR, IRENEO T. ANDAN, MARIA G. GUEVARRA, ERLINA B. SANCHEZ, SATURNINO C. QUINTO, DEOGENES F. SENORIN, OSCAR B. PALATTAO, AUGUSTO A. RIUS, ANNIE J. NAPICOL, CECILIA D. FORNALIZA, ANANIAS S. CAHILIG, CONSTANCIO R. PELIAS, JUANITO A. PIMENTEL, ROLANDO L. HOLGADO, RAMON M. PERMICILLO,petitioners, vs. NLRC (First Division) and ATLANTIC GULF and PACIFIC COMPANY OF MANILA, INC.,respondents.

SYLLABUS 1. LABOR AND SOCIAL LEGISLATION; THE NLRC HAS THE POWER TO ADMIT ON APPEAL ADDITIONAL EVIDENCE TO SHOW LAWFUL CAUSE FOR DISMISSAL, PROVIDED THAT THE DELAY IN THE SUBMISSION THEREOF IS EXPLAINED AND THE SAME CLEARLY PROVES THE EMPLOYER'S ALLEGATION OF VALID CAUSE FOR DISMISSING HIS EMPLOYEES; CASE AT BAR. - It is now settled that the NLRC has the power to admit on appeal additional evidence to show lawful cause for dismissal, provided that the delay in the submission of said evidence is explained and the same clearly proves the employer's allegation of a valid cause for dismissing his employees. In the case at bar, evidence of losses for the years 1987 up to 1990 was belatedly introduced in the NLRC. But the delay was satisfactorily explained by respondent company, as the audit conducted on its financial report by Sycip Gorres Velayo and Co., was completed only in 1991. The additional evidence presented confirmed private respondent's allegation that the losses expected by the company were substantial and reasonably imminent justify the layoff of the individual petitioners. 2. ID.; TERMINATION OF EMPLOYMENT; AUTHORIZED CAUSES; REDUNDANCY DISTINGUISHED FROM RETRENCHMENT. - At this point, it is necessary to distinguish "redundancy" from "retrenchment." Both are mentioned in Art. 283 of the Labor Code as just causes for the closing of establishments or reduction of personnel. "Redundancy" exists when the services of an employee are in excess of what is required by an enterprise. "Retrenchment," on the other hand, is one of the economic grounds for dismissing employees and is resorted to primarily to avoid or minimize business losses. Private respondent's "redundancy program," while denominated as such, is more precisely termed "retrenchment" because it is primarily intended to prevent serious business losses. 3. ID.; ID.; RETRENCHMENT, AS AN AUTHORIZED CAUSE FOR TERMINATING ONE'S EMPLOYMENT; AN EXERCISE OF MANAGEMENT PREROGATIVE. - The Labor Code recognizes retrenchment as one of the authorized causes for terminating the employer-employee relationship and the decision to retrench or not to retrench is a management prerogative. In the case at bar, the company losses were duly established by the financial statements presented by both parties. 4. CIVIL LAW; EFFECT AND APPLICATION OF LAWS; NOT ALL QUITCLAIMS AND RELEASES ARE CONTRARY TO PUBLIC POLICY; DOCUMENTS OF WAIVER VOLUNTARILY EXECUTED ARE VALID AND BINDING; CASE AT BAR. - Petitioners insist that the documents of waiver are without any effect because quitclaims and releases are contrary to public policy and therefore, null and void. Not

all quitclaims and releases are, however, contrary to public policy. As we have stated: Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction. But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking. In the case at bar, the documents of waiver were executed by the affected employees without any force or duress used against them by private respondent or its representatives. To the contrary, the employees waived their claims because of awareness of the precarious financial condition of the company as shown by a steady decline in its income. The documents embodied reasonable settlements of the parties' claim. As matter of fact, the employees received separation pay equivalent to one month pay for every year of service, which was more than what they were entitled to receive under the law which provides for separation pay equivalent to one month pay or one-half (1/2) month pay for every year of service, whichever is higher.

DECISION MENDOZA, J.: This is a special civil action for certiorari to set aside the resolution, dated May 29, 1992, of the First Division of the NLRC and its resolution promulgated on October 29, 1992, reconsidering the decision of the Third Division of the same body and reinstating that of Labor Arbiter Quintin Mendoza who dismissed petitioners complaint for illegal dismissal and unfair labor practice. The facts are as follows: Petitioner union is the duly certified bargaining agent of the rank and file employees of the respondent corporation. The individual complainants are officers and members of petitioner. As a result of a deadlock in the negotiations for a collective bargaining agreement, the union declared a strike on September 22, 1987. Less than a month later, the Department of Labor and Employment assumed jurisdiction over the dispute. Then Secretary Franklin Drilon rendered a decision onFebruary 10, 1988 from which both parties appealed. On January 11, 1988, prior to the rendition of the decision of the Secretary of Labor and Employment, the president of respondent company announced the adoption by the company of several cost-cutting measures to forestall impending financial losses. Among these was a socalled redundancy program, which, as implemented onMarch 1, 1988, resulted in the layoff of around 177 employees, some of whom were officers and members of the petitioner union. The affected employees were given separation pay equivalent to one month pay for every year of service, for which they signed documents of waiver. On March 14, 1988, however, petitioners filed a complaint for unfair labor practice and illegal dismissal. After trial, Labor Arbiter Mendoza found the complaint to be without merit and accordingly dismissed it. He found the redundancy program necessary for the company s existence and considered private respondent s practice of rehiring of reemploying dismissed employees under the said program as managerial prerogative, made not only in pursuance of the company s policy of giving preference to its dismissed workers, but actually beneficial to the workers as well. Moreover, he held that petitioners

acceptance of termination pay and other benefits constituted a waiver of their right to question their dismissal. On appeal, the Third Division of the National Labor Relations Commission reversed the labor arbiter s ruling. It found that the company did not incur losses but instead made substantial profits from 1983 to 1986. Consequently it held private respondents guilty of unfair labor practice and illegal dismissal of petitioners and ordered it to reinstate the individual petitioner to their former positions without loss of seniority rights and to pay them full back wages, plus ten percent (10%) of the total award as attorney s fees.[1] The company moved for a consideration. On May 29, 1992, the First Division, to which the case was reassigned after the reorganization of the NLRC under R.A. No. 6715, reconsidered the decision of the Third Division and reinstated the decision of the labor arbiter. It admitted on appeal evidence of losses sustained by the company from 1987 up to 1990. The admission of the evidence strengthened private respondent s claim that the petitioners had not been illegally dismissed but had been separated from employment as a result of the redundancy program implemented in accordance with the conditions for retrenching, to wit: (1) (2) (3) The losses expected should be substantial and not merely de minimis in extent. The substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. The retrenchment must be reasonably necessary and likely to effectively prevent the expected losses.[2]

Petitioners filed a motion for reconsideration but their motion was denied in a resolution promulgated on October 29, 1992. Hence, this petition. Petitioner contend that the NLRC gravely abused its discretion by: (1) admitting evidence of losses, which was not introduced in the proceedings before the labor arbiter; (2) declaring the legality of the redundancy program implemented by private respondent on March 31, 1988; (3) (4) not declaring the private respondent guilty of illegal dismissal and unfair labor practice; not declaring as null and void the quitclaims and releases issued by petitioners.

The petition has no merit. It is now settled that the NLRC has the power to admit on appeal additional evidence to show lawful cause for dismissal, provided that the delay in the submission of said evidence is explained and the same clearly proves the employer s allegation of a valid cause for dismissing his employees.[3] In the case at bar, evidence of losses for the years 1987 up to 1990 was belatedly introduced in the NLRC. But the delay was satisfactorily explained by respondent company, as the audit conducted on its financial report by Sycip Gorres Velayo and Co. was completed only in 1991. The additional evidence presented confirmed private respondent s allegation that the losses expected by the company were substantial and reasonably imminent to justify the layoff of the individual petitioners. At this point, it is necessary to distinguish redundancy from retrenchment. Both are mentioned in Art. 283 of the Labor Code as just causes for the closing of establishments or reduction of personnel. Redundancy exists when the services of an employee are in excess of what is required by an enterprise.[4] Retrenchment on the other hand, is one of the economic grounds for dismissing employees and is resorted to primarily to avoid or minimize business losses.[5] Private respondent s

redundancy program, while denominated as such, is more precisely termed retrenchment because it is primarily intended to prevent serious business losses. As already stated, the Labor Code recognizes retrenchment as one of the authorized causes for terminating the employer-employee relationship and the decision to retrench or not to retrench is a management prerogative.[6] In the case at bar, the company losses were duly established by the financial statements presented by both parties. As the NLRC (First Division) noted: In the case at bar, there is no question that respondent s income had been continously decreasing P205 million in 1984; P175 million in 1985 and P101 million in 1986. In 1987, however, it declared a loss of P34 million. The declining trend in respondent income and losses in 1987, confirms its allegation that respondent is predicting a bleak future considering the slump not only in foreign contracts but with respect to domestic contracts as well. True enough, respondent incurred further tremendous losses in 1990 in the amount of P176,181,505.00. In other words, the losses or abrupt down fall in income which respondent wanted to abate by resorting to the reduction in the number of employees was imminent and real. Indeed, the records show that aside from its redundancy program, respondent company had to resort to other cost-cutting measures inorder to stave off impending losses.[7] Petitioners contend that the redundancy program was actually a union-busting scheme of management, aimed at removing union officers who had declared a strike. This contention cannot stand in the face of evidence of substantial losses suffered by the company. Moreover, while it is true that the company rehired or reemployed some of the dismissed workers, it has been shown that such action was made only as company projects became available and that this was done in pursuance of the company s policy of giving preference to its former workers in the hiring of project employees. The rehiring or reemployment does not negate the imminence of losses, which prompted private respondent to retrench. Lastly, it is not disputed that petitioners signed documents of waiver which, in part, read: I do hereby further acknowledge and declare that I have been paid by the Atlantic Gulf & Pacific Company of Manila, Inc. all amounts due me by way of compensation arising out and in the course of my employment; and that this separation from the service has no relations whatsoever with my union affiliations or activities; that I admit the regularity of my separation and that I signed these presents after having fully understood its contents. Petitioners insist that the documents are without any effect because quitclaims and releases are contrary to public policy and therefore, null and void.[8] Not all quitclaims and releases are however, contrary to public policy. As we have stated: Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction. But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking.[9] In the case at bar, the documents of waiver were executed by the affected employees without any force or duress used against them by private respondent or its representatives. To the contrary, the employees waived their claims because of awareness of the precarious financial condition of the company as shown by a steady decline in its income. The documents embodied reasonable settlement of the parties claims. As a matter of fact, the employees received separation pay equivalent to one month pay for every year of service, which was more than what they were entitled to receive under the law[10] which

provides for separation pay equivalent to one month pay or one half (1/2) month pay for every year of service, whichever is higher. In sum, there is substantial evidence supporting the decision of both the labor arbiter and the NLRC, consisting of the company s audited financial reports, its policy of preferring former workers in the recruitment of project employees and the documents of waiver voluntarily executed, which negates petitioners charge of grave abuse of discretion. WHEREFORE, the petition is DISMISSED. SO ORDERED. Regalado, (Chairman), Romero, Puno, and Torres, Jr., JJ., concur.

[G.R. No. 148340. January 26, 2004]

J.A.T. GENERAL SERVICES and JESUSA ADLAWAN TOROBU, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and JOSE F. MASCARINAS, respondents. DECISION QUISUMBING, J.: For review are the Decision[1] dated February 27, 2001 of the Court of Appeals in CA-G.R. SP No. 60337, and its Resolution[2] dated May 28, 2001, denying the motion for reconsideration. The Court of Appeals dismissed the petition for certiorari filed by petitioners and affirmed the Resolution[3] of the National Labor Relations Commission (NLRC), Third Division, which affirmed the Decision[4] of Labor Arbiter Jose G. De Vera in NLRC-NCR Case No. 00-03-02279-98, which found petitioners liable for illegal dismissal and ordered petitioners to pay private respondent Jose Mascarinas separation pay, backwages, legal holiday pay, service incentive leave pay and 13th month pay in the aggregate sum ofP85,871.00. The facts, as culled from the records, are as follows: Petitioner Jesusa Adlawan Trading & General Services (JAT) is a single proprietorship engaged in the business of selling second-hand heavy equipment. JAT is owned by its namesake, co-petitioner Jesusa Adlawan Torobu. Sometime in April 1997, JAT hired private respondent Jose F. Mascarinas 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 its 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, private respondent filed a case for illegal dismissal and underpayment of wages against petitioners before the NLRC. In his Complaint, private respondent alleged that he started as helper mechanic of JAT on January 6, 1997 with an initial salary rate ofP165.00 per day, which was increased to P180.00 per day after six (6) months in employment. He related that he was one of those retrenched from employment by JAT and was allegedly required to sign a piece of paper which he refused, causing his termination from employment. On December 14, 1998, JAT filed an Establishment Termination Report with the Department of Labor and Employment (DOLE), notifying the latter of its decision to close its business operations due to business losses and financial reverses. After due proceedings, the Labor Arbiter rendered a decision on March 25, 1999, finding the dismissal of herein private respondent unjustified and ordering JAT to pay private respondent separation pay and backwages, among others. The decretal portion of the decision reads as follows: WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered ordering the respondents [herein petitioners] to pay complainant the aggregate sum of P85,871.00. SO ORDERED.[5]

The Labor Arbiter ruled that (1) private respondent Jose F. Mascarinas dismissal was unjustified because of petitioners failure to serve upon the private respondent and the DOLE the required written notice of termination at least one month prior to the effectivity thereof and to submit proof showing that petitioners suffered a business slowdown in operations and sales effective January 1998; (2) private respondent may recover backwages from March 1, 1998 up to March 1, 1999 or P66,924.00[6] and separation pay, in lieu of reinstatement, at the rate of one (1) month pay for every year of service, or P10,296.00;[7] (3) the payrolls submitted by JAT showed that effective May 1, 1997, private respondent s wages did not conform to the prevailing minimum wage, hence, private respondent is entitled to salary differentials from May 1, 1997 to January 6, 1998, in the amount of P1,066.00;[8] (4) that private respondent be awarded legal holiday pay in the amount of P1,850.00,[9] service incentive leave pay in the amount of P925.00[10] and 13th month pay for 1997 in the amount of P4,810.00.[11] On appeal, the NLRC affirmed the decision of the labor arbiter.[12] The NLRC found that the financial statements submitted on appeal were questionable, unreliable and inconsistent with petitioners allegations in the pleadings, particularly as to the date of the alleged closure of operation; hence, they cannot be used to support private respondent s dismissal. The NLRC also affirmed the monetary awards because petitioners failed to prove the payment of benefits claimed by private respondent. Dissatisfied, petitioners filed a Petition for Certiorari under Rule 65 before the Court of Appeals, which the latter dismissed. The decretal portion of the decision reads as follows: WHEREFORE, foregoing premises considered, the instant petition, having no merit in fact and in law, is hereby DENIED DUE COURSE, and ordered DISMISSED, and the assailed decision of the National Labor Relations Commission AFFIRMED, with costs to petitioners. SO ORDERED.[13] The Court of Appeals affirmed the findings of the NLRC, particularly on the illegal dismissal of the private respondent. The appellate court held that the petitioners failed to prove by clear and convincing evidence their compliance with the requirements for valid retrenchment. It cited the findings of the NLRC on the belated submission of the financial statements during appeal that could not be given sufficient weight, and that the petitioners late submission of notice of closure is indicative of their bad faith. Petitioners filed a Motion of Reconsideration, which was denied by the Court of Appeals. Hence, the present petition alleging that the: A. THE LOWER COURT (sic) ERRED IN RULING THAT A NOTICE TO THE DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE) IS NECESSARY IN CASE OF TEMPORARY SUSPENSION OF BUSINESS; B. THE LOWER COURT (sic) ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO BACKWAGES DESPITE THE FACT THAT PRIVATE RESPONDENT WAS NOT DISMISSED FROM SERVICE AT THE TIME THE COMPLAINT WAS FILED; C. THE LOWER COURT (sic) ERRED IN RULING THAT THE EMPLOYER HAS THE BURDEN OF PROVING THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES; D. ASSUMING ARGUENDO THAT THE NOTICE TO THE LABOR DEPARTMENT FAILED TO COMPLY WITH THE ONE-MONTH PERIOD, THE LOWER COURT (sic) ERRED IN AWARDING BACKWAGES AND/OR SEPARATION PAY TO PRIVATE RESPONDENT EVEN FOR PERIOD AFTER PETITIONERS FILED A NOTICE OF ACTUAL CLOSURE OF THE COMPANY BEFORE THE LABOR DEPARTMENT.[14]

The relevant issues for our resolution are: (a) whether or not private respondent was illegally dismissed from employment due to closure of petitioners business, and (b) whether or not private respondent is entitled to separation pay, backwages and other monetary awards. On the first issue, the petitioners claim that the Court of Appeals erroneously concluded that they are liable for illegal dismissal because of non-compliance of the procedural and substantive requirements of terminating employment due to retrenchment and cessation of business. They argued that there was no closure but only suspension of operation in good faith in March 1998, when private respondent claimed to have been illegally dismissed, due to the decline in sales and heavy losses incurred in its business arising from the 1997 Asian financial crisis. Petitioners assert that under Article 286 of the Labor Code, a bona fide suspension of the operation of a business for a period not exceeding six (6) months shall not terminate employment and no notice to an employee is required. However, petitioners relate that JAT was compelled to permanently close its operation eight (8) months later or on November 1998, when the hope of recovery became nil but only after sending notices to all its workers and DOLE. Thus, petitioners argue that it cannot be held liable for illegal dismissal in March 1998 since there was no termination of employment during suspension of operations and a notice to employee is not required, unlike in the case of permanent closure of business operation. We need not belabor the issue of notice requirement for a suspension of operation of business under Article 286[15] of the Labor Code. This matter is not pertinent to, much less determinative of, the disposition of this case. Suffice it to state that there is no termination of employment during the period of suspension, thus the procedural requirement for terminating an employee does not come into play yet. Rather, the issue demanding a sharpened focus here concerns the validity of dismissal resulting from the closure of JAT. A brief discussion on the difference between retrenchment and closure of business as grounds for terminating an employee is necessary. While the Court of Appeals defined the issue to be the validity of dismissal due to alleged closure of business, it cited jurisprudence relating toretrenchment to support its resolution and conclusion. While the two are often used interchangeably and are interrelated, they are actually two separate and independent authorized causes for termination of employment. Termination of an employment may be predicated on one without 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 is sometimes also referred to as down-sizing. 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.[16] In the present case, we find the issues and contentions more centered on closure of business operation rather than retrenchment. Closure or cessation of operation of the establishment is an authorized cause for terminating an employee under Article 283 of the Labor Code, to wit: 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 Department of Labor and Employment at least one (1) month before the intended date thereof. 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 to 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. However, the burden of proving that such closure is bona fide falls upon the employer.[17] In the present case, JAT justifies its closure of business due to heavy losses caused by declining sales. It belatedly submitted its 1997 Income Statement[18] and Comparative Statement of Income and Capital for 1997 and 1998[19] to the NLRC to prove that JAT suffered losses starting 1997. However, as noted earlier, these were not given much evidentiary weight by the NLRC as well as the Court of Appeals, to wit: The financial statements submitted by the respondents on appeal are questionable for the following reasons: (1) the figures in Annexes D-2 and E of the appeal memorandum (which both refer to 1997) do not tally; (2) they (the respondents) allegedly closed on March 1, 1998. Yet, their 1998 financial statement (Annex E ) indicates operations up to and ending December 31, 1998. In view of the foregoing, the above-mentioned financial statements do not justify the complainant s dismissal. [20] The foregoing findings of the Court of Appeals is conclusive on us. We see no cogent reason to set it aside. While business reverses or losses are recognized by law as an authorized cause for terminating employment, it is an essential requirement that alleged losses in business operations must be proven convincingly. Otherwise, said ground for termination would be susceptible to abuse by scheming employers, who might be merely feigning business losses or reverses in their business ventures in order to ease out employees.[21] In this case, the financial statements were not only belatedly submitted but were also bereft of necessary details on the extent of the alleged losses incurred, if any. The income statements only indicated a decline in sales in 1998 as compared to 1997. These fell short of the stringent requirement of the law that the employer prove sufficiently and convincingly its allegation of substantial losses. While the comparative income statement shows a net loss ofP207,091 in 1998, the income statement of 1997 still shows JAT posting a net income of P19,361. Both statements need interpretation as to their impact on the company s termination of certain personnel as well as business closure. Having concluded that private respondent was not validly dismissed resulting from closure of business operations due to substantial losses, we now proceed to determine whether or not private respondent was validly dismissed on the ground of closure or cessation of operations for reasons other than substantial business losses. A careful examination of Article 283 of the Labor Code shows that closure or cessation of business operation as a valid and authorized ground of terminating employment is not limited to those resulting from business losses or reverses. Said provision in fact provides for the payment of separation pay to employees terminated because of closure of business not due to losses, thus implying that termination of employees other than closure of business due to losses may be valid. Hence, in one case,[22] we emphasized that: 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 x x x. 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. There is no need to belabor this point. Even the public respondents, in their Comment filed by the Solicitor General, impliedly concede this point. In another case,[23] we held more emphatically that:

In any case, 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 management s prerogative to close or cease its business operations just because said business operation or undertaking is not suffering from any loss. In the present case, while petitioners did not sufficiently establish substantial losses to justify closure of the business, its income statement shows declining sales in 1998, prompting the petitioners to suspend its business operations sometime in March 1998, eventually leading to its permanent closure in December 1998. Apparently, the petitioners saw the declining sales figures and the unsustainable business environment with no hope of recovery during the period of suspension as indicative of bleak business prospects, justifying a permanent closure of operation to save its business from further collapse. On this score, we agree that undue interference with an employer s judgment in the conduct of his business is uncalled for. Even as the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what is clearly a management prerogatives. As long as the company s exercise of the same is in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement such exercise will be upheld.[24] In the event, under Article 283 of the Labor Code, three requirements are necessary for a valid cessation of business operations, namely: (a) service of a written notice to the employees and to the DOLE at least one (1) month before the intended date thereof; (b) the cessation of business must be bona fide in character; and (c) payment to the employees of termination pay amounting to at least one-half (1/2) month pay for every year of service, or one (1) month pay, whichever is higher.[25] The closure of business operation by petitioners, in our view, is not tainted with bad faith or other circumstance that arouses undue suspicion of malicious intent. The decision to permanently close business operations was arrived at after a suspension of operation for several months precipitated by a slowdown in sales without any prospects of improving. There were no indications that an impending strike or any labor-related union activities precipitated the sudden closure of business. Further, contrary to the findings of the Labor Arbiter, petitioners had notified private respondent[26] and all other workers through written letters dated November 25, 1998 of its decision to permanently close its business and had submitted a termination report to the DOLE.[27] Generally, review of labor cases elevated to this Court on a petition for review on certiorari is confined merely to questions of law. But in certain cases, we are constrained to analyze or weigh the evidence again if the findings of fact of the labor tribunals and the appellate court are in conflict, or not supported by evidence on record or the judgment is based on a misapprehension of facts.[28] In this case, we are persuaded that the closure of JAT s business is not unjustified. Further we hold that private respondent was validly terminated, because the closure of business operations is justified. Nevertheless in this case, we must stress that the closure of business operation is allowed under the Labor Code, provided separation pay be paid to the terminated employee. It is settled that in case of closure or cessation of operation of a business establishment not due to serious business losses or financial reverses, the employees are always given separation benefits.[29] The amount of separation pay must be computed from the time private respondent commenced employment with petitioners until the time the latter ceased operations.[30] Considering that private respondent was not illegally dismissed, however, no backwages need to be awarded. Backwages in general are granted on grounds of equity for earnings which a worker or employee has lost due to illegal dismissal.[31] It is well settled that backwages may be granted only when there is a finding of illegal dismissal.[32]

The other monetary awards to private respondent are undisputed by petitioners and unrefuted by any contrary evidence. These awards, namely legal holiday pay, service incentive leave pay and 13th month pay, should be maintained. WHEREFORE, the petition is given due course. The assailed Resolutions of the Court of Appeals in CA-G.R. SP No. 60337 are AFFIRMED with the MODIFICATION that the award of P66,924.00 as backwages is deleted. The award of separation pay amounting to P10,296.00 and the other monetary awards, namely salary differentials in the amount of P1,066.00, legal holiday pay in the amount of P1,850.00, service incentive leave pay in the amount of P925.00 and 13th month pay in the amount of P4,910, or a total of P29,047.00 are maintained. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

G.R. No. 115394 September 27, 1995 FE S. SEBUGUERO, CARLOS ONG, NENE MANAOG, JUANITO CUSTODIO, CRISANTA LACSAM, SATURNINO GURAL, WILMA BALDERA, LEONILA VALDEZ, FATIMA POTESTAD, EVANGELINE AGNADO, RESTITUTO GLORIOSO, JANESE DE LOS REYES, RODOLFO SANCHEZ, WILMA ORBELLO, DAISY PASCUA, and ALEX MASAYA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, G.T.I. SPORTSWEAR CORPORATION and/or BENEDICTO YUJUICO, respondents.

DAVIDE, JR., J.: This is a special civil action for certiorari under Rule 65 of the Rules of Court to set aside for having been rendered with grave abuse of discretion the decision of 29 November 1993 1 and resolution of 9 February 1994 2of public respondent National Labor Relations Commission (NLRC) in NLRC NCR CA Case No. 004673-93. The former modified the decision of 26 February 1993 of the Labor Arbiter 3 by setting aside the award of back wages, proportionate 13th month pay for 1991 and attorney's fees, while the latter denied the motion to reconsider the former. The antecedent facts as disclosed by the decisions of the Labor Arbiter and the NLRC, as well as by the pleadings of the parties, are not complicated. The petitioners were among the thirty-eight (38) regular employees of private respondent GTI Sportswear Corporation (hereinafter GTI), a corporation engaged in the manufacture and export of ready-to-wear garments, who were given "temporary lay-off" notices by the latter on 22 January 1991 due to alleged lack of work and heavy losses caused by the cancellation of orders from abroad and by the garments embargo of 1990. Believing that their "temporary lay-off" was a ploy to dismiss them, resorted to because of their union activities and was in violation of their right to security of tenure since there was no valid ground therefor, the 38 laid-off employees filed with the Labor Arbiter's office in the National Capital Region complaints for illegal dismissal, unfair labor practice, underpayment of wages under Wage Orders Nos. 01 and 02, and non-payment of overtime pay and 13th month pay. 4 Private respondent GTI denied the claim of illegal dismissal and asserted that it was its prerogative to layoff its employees temporarily for a period not exceeding six months to prevent losses due to lack of work or job orders from abroad, and that the lay-off affected both union and non-union members. It justified its failure to recall the 38 laid-off employees after the lapse of six months because of the subsequent cancellations of job orders made by its foreign principals, a fact which was communicated to the petitioners and the other complainants who were all offered severance pay. Twenty-two (22) of the 38 complainants accepted the separation pay. The petitioners herein did not. The cases then involving those who accepted the separation pay were pro tanto dismissed with prejudice. In his decision of 26 February 1993 with respect to the claims of the petitioners, Labor Arbiter Pablo C. Espiritu, Jr. found for them and disposed as follows: WHEREFORE, above premises considered, judgment is hereby rendered finding Respondent, G.T.I. Sportswear Corporation, liable for constructive dismissal,

underpayment of wages under NCR 01 and 02, and 13th-month pay differentials and concomitantly, Respondent corporation is hereby ordered: a. To pay the following complainants backwages from the time of their constructive dismissal (July 22, 1991) till promulgation considering that reinstatement is no longer decreed: . . . b. To pay complainants separation pay of 1/2 month for every year of service in lieu of reinstatement in the following amounts: . . . c. To pay complainants 13th-month pay differentials arising out of underpayment of wages and proportionate 13th-month pay for 1991 in the following amounts: . . . d. To pay complainants underpayment of wages under NCR Wage 01 and NCR Wage 02 in the following amounts: . . . e. To pay complainants the amount of P120,618.87 representing 10% attorney's fees based on the total judgment award of P1,326,807.63. The claims for unfair labor practice, nonpayment of overtime pay, moral damages, and exemplary damages are hereby denied for lack of merit. SO ORDERED. 5 In support of the disposition, the Labor Arbiter made the following ratiocinations: On the validity of the temporary lay-off, this Arbitration Branch finds that there was ample justification on the part of Respondent company to lay-off temporarily some of its employees to prevent losses as a result of the reduction of the garment quota allocated to Respondent company due to the garment embargo of 1990. In fact, in the months of March, April, and May of 1991 respondent company received several messages/correspondence from its foreign principals informing them (Respondent) that they are canceling/transferring some of their quotas/orders to other countries. The evidence presented by Respondent company proves this fact (Exhibits "12", "13", "14", "15", "15-A", "16", "17" and Annexes "5", "6", "7", showing the different documentary evidence on cancellation of orders and forced leave schedules of workers due to lack of work). This is sustainable, as in this case, where the Respondent found it unnecessary to continue employing some of its workers because of business recession, lack of materials to work on due to government controls (garments embargo) and due to the lack of the demand for export quota from its principal foreign buyers. Although, as a general rule, Respondent company has the prerogative and right to resort to temporary lay-off, such right is likewise limited to a period of six (6) months applying Art. 286 of the Labor Code on suspension of employer-employee relationship not exceeding six (6) months. In this case, respondent company was justified in the temporary lay-off of some of its employees. However, Respondent company should have recalled them after the end of the six month period or at the least reasonably informed them (complainants) that the Respondent company is still not in a position to recall them due to the continuous drop of

demand in the export market (locally or internationally), thereby extending the temporary lay-off with a definite period of recall and if the same cannot be met, then the company should implement retrenchment and pay its employees separation pay. Failing in this regard, respondent company chose not to recall nor send notice to the complainants after the lapse of the six (6) month period. Hence, there is in this complaint a clear case of constructive dismissal. While there is a valid reason for the temporary layoff, the same is also limited to a duration of six months. Thereafter the employees, complainants herein, are entitled under the law (Art. 286) to be recalled back to work. As result thereof, the temporary lay-off of the complainants from January 22, 1991 (date of lay-off) to July 22, 1991 is valid, however, thereafter complainants are already entitled to backwages, in view of constructive dismissal, due to the fact that they were no longer recalled back to work. Complainants cannot be placed on temporary lay-off forever. The limited period of six (6) months is based provisionally too prevent circumvention on the right to security of tenure and to prevent grave abuse of discretion on the part of the employer. However, since during the trial it was proven, as testified by the Vice-President for marketing and personnel manager, that the lack of work and selection of personnel continued to persist and considering the antagonism and hostility displayed by both litigants, as observed by this Arbiter, during the trial of this case and in view of the strained relations between the parties, reinstatement of the complainants would not be prudent. (Divine Word High School vs. NLRC, G.R. 72207, 6 Aug. 1986; Esmalin vs. NLRC, G.R. 67880, 15 Sept. 1989; Hernandez vs. NLRC, G.R. 34302, 10 Aug. 1989). Hence, separation pay of 1/2 month for every year of service in lieu of reinstatement is in order. . . . On the issue of monetary claims this Arbitration Branch finds that Respondent is liable for underpayment of wages under NCR Wage Order 01 and 02 considering that respondent failed to rebut the claims of the complainants. Respondent failed to show proof by means of payrolls to disprove the claim of the complainants. Complainants are also entitled to their proportionate 13th-month pay differentials as a result of the underpayment of wages under NCR-01 and 02 and likewise to their proportionate 13th-month pay for 1991 for the month of January 1991. . . . However, complainants are entitled to reasonable attorney's fees considering they were forced to engage the services of counsel in order to fully ventilate their rights and grievances in accordance with the Labor Code as amended. 6 The Labor Arbiter found no sufficient evidence to prove the petitioners' charges of unfair labor practice, overtime pay, and for moral and exemplary damages. Private respondent GTI seasonably appealed the aforesaid decision to the NLRC, which docketed the appeal as NLRC NCR CA Case No. 004673-93. In its challenged decision, the NLRC concurred with the findings of the Labor Arbiter that there was a valid lay-off of the petitioners due to lack of work, but disagreed with the latter's ruling granting back wages after 22 July 1991. The NLRC justified its postulation as follows: However, we cannot sustain the findings of the Labor Arbiter in awarding the complainants backwages after July 22, 1991 in view of constructive dismissal, it being acknowledged by him that ". . . during the trial it was proven, as testified by the VicePresident for marketing and personnel manager, that the lack of work and selection of personnel continued to persist . . ." Besides, it was not denied by the complainants that during the proceeding of the case, the respondents conveyed to the complainants the

impossibility of having them recalled in view of the continued unavailability of work as the economic recession of the respondent's principal market persisted. In fact, the respondent company offered to complainants payment of their separation pay which offer [w]as accepted by 22 out of 38 complainants. Having established lack of work, it necessarily follow[s] that retrenchment did take place and not constructive dismissal. Dismissal by its term, presuppose that there was still work available and that the employer terminated the services of the employee therefrom. The same cannot be said of the case at bar. The complainants did not question the evidence of lack of work on account of reduction of government quota or cancellation of orders. Art. 286 of the Labor Code is precised [sic] in this regards when it provided that: 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, . . . shall not terminate employment . . . . It is only after the six months period that an employee can be presumed to have been terminated. 7 It thus set aside the awards for back wages, proportionate 13th month pay for 1991, and for attorney's fees which it found to be without basis, and disposed as follows: WHEREFORE, premises considered the decision of the Labor Arbiter dated February 26, 1993 is hereby modified by deleting the award of backwages, the proportionate 13th month pay for 1991 and attorney's fees for lack of legal basis and direct, the payment of separation pay equal to one-half month salary for every year of service as of July 22, 1991. 8 Unable to accept the NLRC judgment, the petitioners filed this special civil action for certiorari. They contend that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it: (a) ruled that there was a valid and legal reduction of business and in sustaining the theory of redundancy in justifying the dismissal of the petitioners; (b) failed to apply in full the provisions of law and of jurisprudence as to the full payment of back wages in cases of illegal dismissal; and (c) deleted the award of attorney's fees. We gave due course to this petition after the filing of the separate comments to the petition by the public and private respondents and the petitioners' reply to the public respondent's comment. The petitioners' first contention is based on a wrong premise or on a miscomprehension of the statement of the NLRC. What the NLRC sustained and affirmed is not redundancy, but retrenchment as a ground for termination of employment. They are not synonymous but distinct and separate grounds under Article 283 of the Labor Code, as amended. 9 Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. A position is redundant where it 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. 10

Retrenchment, on the other hand, 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. 11 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.12 Article 283 of the Labor code which covers retrenchment, reads as follows: 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 servicing 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 closure 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. This provision, however, speaks of a permanent retrenchment as opposed to a temporary lay-off as is the case here. There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a period or duration therefor. These employees cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 may be applied but only by analogy to set a specific period that employees may remain temporarily laid-off or in floating status. 13 Six months is the period set by law that the operation of a business or undertaking may be suspended thereby suspending the employment of the employees concerned. The temporary lay-off wherein the employees likewise cease to work should also not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched following the requirements of the law, and that failing to comply with this would be tantamount to dismissing the employees and the employer would thus be liable for such dismissal. To determine, therefore, whether the petitioners were validly retrenched or were illegally dismissed, we must determine whether there was compliance with the law regarding a valid retrenchment at anytime within the six month-period that they were temporarily laid-off. Under the aforequoted Article 283 of the Labor Code, there are three basic requisites for a valid retrenchment: (1) the retrenchment is necessary to prevent losses and such losses are proven; (2) written notice to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment; and

(3) payment of separation pay equivalent to one month pay or at least 1/2 month pay for every year of service, whichever is higher. As for the first requisite, whether or not an employer would imminently suffer serious or substantial losses for economic reasons is essentially a question of fact for the Labor Arbiter and the NLRC to determine. 14 Here, both the Labor Arbiter and the NLRC found that the private respondent was suffering and would continue to suffer serious losses, thereby justifying the retrenchment of some of its employees, including the petitioners. We are not prepared to disregard this finding of fact. It is settled that findings of quasi-judicial agencies which have acquired expertise in the matters entrusted to their jurisdiction are accorded by this Court not only with respect but with finality if they are supported by substantial evidence. 15 The latter means that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. 16 In the instant case, no claim was made by any of the parties that such a finding was not supported by substantial evidence. Furthermore, the petitioners did not appeal the finding of the Labor Arbiter that their temporary lay-off to prevent losses was amply justified. They cannot now question this finding that there is a valid ground to lay-off or retrench them. The requirement of notice to both the employees concerned and the Department of Labor and Employment (DOLE) is mandatory and must be written and given at least one month before the intended date of retrenchment. In this case, it is undisputed that the petitioners were given notice of the temporary lay-off. There is, however, no evidence that any written notice to permanently retrench them was given at least one month prior to the date of the intended retrenchment. The NLRC found that GTI conveyed to the petitioners the impossibility of recalling them due to the continued unavailability of work. 17 But what the law requires is a written notice to the employees concerned and that requirement is mandatory. 18 The notice must also be given at least one month in advance of the intended date of retrenchment to enable the employees to look for other means of employment and therefore to ease the impact of the loss of their jobs and the corresponding income. 19 That they were already on temporary lay-off at the time notice should have been given to them is not an excuse to forego the one-month written notice because by this time, their lay-off is to become permanent and they were definitely losing their employment. There is also nothing in the records to prove that a written notice was ever given to the DOLE as required by law. GTI's position paper, 20 offer of exhibits, 21 Comment to the Petition, 22 and Memorandum 23 in this case do not mention of any such written notice. The law requires two notices one to the employee/s concerned and another to the DOLE not just one. The notice to the DOLE is essential because the right to retrench is not an absolute prerogative of an employer but is subject to the requirement of law that retrenchment be done to prevent losses. The DOLE is the agency that will determine whether the planned retrenchment is justified and adequately supported by facts. 24 With respect to the payment of separation pay, the NLRC found that GTI offered to give the petitioners their separation pay but that the latter rejected such offer which was accepted only by 22 out of the 38 original complainants in this case. 25 As to when this offer was made was not, however, proven. All that the parties, the Labor Arbiter and the NLRC stated in their respective pleadings and decisions was that the offer and payment were made during the pendency of the illegal dismissal case with the Labor Arbiter. But with or without this offer of separation pay, our conclusion would remain the same: that the retrenchment of the petitioners is defective in the face of our finding that the required notices to both the petitioners and the DOLE were not given. The lack of written notice to the petitioners and to the DOLE does not, however, make the petitioners' retrenchment illegal such that they are entitled to the payment of back wages and separation pay in lieu of reinstatement as they contend. Their retrenchment, for not having been effected with the required notices, is merely defective. In those cases where we found the retrenchment to be illegal and ordered the employees' reinstatement and the payment of back wages, the validity of the cause for retrenchment,

that is the existence of imminent or actual serious or substantial losses, was not proven. 26 But here, such a cause is present as found by both the Labor Arbiter and the NLRC. There is only a violation by GTI of the procedure prescribed in Article 283 of the Labor Code in effecting the retrenchment of the petitioners. It is now settled that where the dismissal of an employee is in fact for a just and valid cause and is so proven to be but he is not accorded his right to due process, i.e., he was not furnished the twin requirements of notice and the opportunity to be heard, the dismissal shall be upheld but the employer must be sanctioned for non-compliance with the requirements of or for failure to observe due process. The sanction, in the nature of indemnification or penalty, depends on the facts of each case and the gravity of the omission committed by the employer and has ranged from P1,000.00 as in the cases of Wenphil vs. National Labor Relations Commission, 27 Seahorse Maritime Corp. vs. National Labor Relations Commission, 28 Shoemart, Inc. vs. National Labor Relations Commission, 29 Rubberworld (Phils.), Inc. vs. National Labor Relations Commission, 30 Pacific Mills, Inc. vs.Alonzo, 31 and Aurelio vs. National Labor Relations Commission 32 to P10,000.00 in Reta vs. National Labor Relations Commission 33 and Alhambra Industries, Inc. vs. National Labor Relations Commission. 34 More recently, in Worldwide Papermills, Inc. vs. National Labor Relations Commission, 35 the sum of P5,000.00 was awarded to the employee as indemnification for the employer's failure to comply with the requirements of procedural due process. Accordingly, we affirm the deletion by the NLRC of the award of back wages. But because the required notices of the petitioners' retrenchment were not served upon the petitioners and the DOLE, GTI must be sanctioned for such failure and thereby required to indemnify each of the petitioners the sum of P2,000.00 which we find to be just and reasonable under the circumstances of this case. As for the award of the 13th-month pay made by the Labor Arbiter and deleted by the NLRC, we do not find anything in the decision of the NLRC to support the deletion of this award other than its opinion that there is lack of legal basis to support such an award, without, however, furnishing any explanation for this finding. Thus, the award of the 13th-month pay made and sufficiently justified by the Labor Arbiter must be reinstated as prayed for by the petitioners. Also, the petitioners are entitled to an award for attorney's fees pursuant to paragraph 7, Article 2208 of the Civil Code which must, however, be reasonable. The award of P120,618.87, which is equivalent to ten percent (10%) of the amounts recovered, as attorney's fees should be reduced to P25,000.00, an amount we find to be reasonable. The ten percent (10%) attorney's fees provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book III of the Implementing Rules is the maximum; hence, any amount less than that may be awarded as the circumstances of the case may warrant. WHEREFORE, the instant petition is partially GRANTED and the challenged decision of public respondent National Labor Relations Commission in NLRC NCR CA Case No. 004673-93 is modified by reversing and setting aside its deletion of the awards in the Labor Arbiter's decision of proportionate 13th month pay for 1991 and attorney's fees, the latter being reduced to P25,000.00. Separation pay equivalent to one-half (1/2) month pay for every year of service shall be computed from the dates of the commencement of the petitioners' respective employment until the end of their six-month temporary lay-off which is 22 July 1991. In addition, private respondent G.T.I. Sportswear Corporation is ordered to pay each of the petitioners the sum of P2,000.00 as indemnification for its failure to observe due process in effecting the retrenchment. Costs against the private respondent. SO ORDERED. [G.R. No. 116805. June 22, 2000]

MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and RENE G. DIAZ, respondents. batas DECISION PARDO, J.: The case before the Court is an appeal from a decision of the Court of Appeals[1] reversing that of the Regional Trial Court, Antipolo, Rizal,[2]affirming in all respects the decision of the Municipal Trial Court, Antipolo, Rizal,[3] ordering respondent Rene G. Diaz to vacate the condominium unit owned by petitioner and to pay back current rentals, attorney's fees and costs. The facts, as found by the Court of Appeals, are as follows: "Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by Condominium Certificate of Title No. N-10 (p. 31, Rollo). "On November 29, 1991, Mario S. Espina, the private respondent as seller, and Rene G. Diaz, the petitioner as buyer, executed a Provisional Deed of Sale, whereby the former sold to the latter the aforesaid condominium unit for the amount of P100,000.00 to be paid upon the execution of the contract and the balance to be paid through PCI Bank postdated checks as follows: "1...........P400,000.00 ..............Check No. 301245 ..............January 15, 1992 "2...........P200,000.00 ..............Check No. 301246 ..............February 1, 1992 "3...........P200,000.00 ..............Check No. 301247 ..............February 22, 1992 "4...........P200,000.00 ..............Check No. 301248 ..............March 14, 1992 haideem "5...........P200,000.00 ..............Check No. 301249 ..............April 4, 1992 "6...........P200,000.00 ..............Check No. 301250 ..............April 25, 1992 .............................(pp. 59-61, Rollo).

"Subsequently, in a letter dated January 22, 1992, petitioner informed private respondent that his checking account with PCI Bank has been closed and a new checking account with the same drawee bank is opened for practical purposes. The letter further stated that the postdated checks issued will be replaced with new ones in the same drawee bank (p. 63, Rollo). "On January 25, 1992, petitioner through Ms. Socorro Diaz, wife of petitioner, paid private respondent Mario Espina P200,000.00, acknowledged by him as partial payment for the condominium unit subject of this controversy (p.64, Rollo). "On July 26, 1992, private respondent sent petitioner a "Notice of Cancellation" of the Provisional Deed of Sale (p. 48, Rollo). "However, despite the Notice of Cancellation from private respondent, the latter accepted payment from petitioner per Metrobank Check No. 395694 dated and encashed on October 28, 1992 in the amount of P 100,000.00 (p. 64, Rollo). "On February 24, 1993, private respondent filed a complaint docketed as Civil Case No. 2104 for Unlawful Detainer against petitioner before the Municipal Trial Court of Antipolo, Branch 1. "On November 12, 1993, the trial court rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered ordering the defendant and all persons claiming rights under him to vacate unit 403 of the Victoria Golf Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal; to pay the total arrears of P126,000.00, covering the period July 1991 up to the filing (sic) complaint, and to pay P7,000.00 every month thereafter as rentals unit (sic) he vacates the premises; to pay the amount of P5,000.00 as and attorney's fees; the amount of P300.00 per appearance, and costs of suit. Chiefx However, the plaintiff may refund to the defendant the balance from (sic) P400,000.00 after deducting all the total obligations of the defendant as specified in the decision from receipt of said decision. SO ORDERED.' (Decision, Annex "B"; p. 27, Rollo) "From the said decision, petitioner appealed to the Regional Trial Court Branch 71, Antipolo, Rizal. On April 29, 1994, said appellate court affirmed in all respects the decision of the trial court."[4] On June 14, 1994, petitioner filed with the Court of Appeals a petition for review. On July 20, 1994, the Court of Appeals promulgated its decision reversing the appealed decision and dismissing the complaint for unlawful detainer with costs against petitioner Espina. On August 8, 1994, petitioner filed a motion for reconsideration of the decision of the Court of Appeals.[5] On August 19, 1994, the Court of Appeals denied the motion.[6]

Hence, this appeal via petition for review on certiorari.[7] The basic issue raised is whether the Court of Appeals erred in ruling that the provisional deed of sale novated the existing contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz. We resolve the issue in favor of petitioner. According to respondent Diaz, the provisional deed of sale that was subsequently executed by the parties novated the original existing contract of lease. The contention cannot be sustained. Respondent originally occupied the condominium unit in question in 1987 as a lessee.[8] While he occupied the premises as lessee, petitioner agreed to sell the condominium unit to respondent by installments.[9] The agreement to sell was provisional as the consideration was payable in installments. Esmsc The question is, did the provisional deed of sale novate the existing lease contract? The answer is no. The novation must be clearly proved since its existence is not presumed.[10] "In this light, novation is never presumed; it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and new obligations or contracts."[11] Novation takes place only if the parties expressly so provide, otherwise, the original contract remains in force. In other words, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one.[12] Where there is no clear agreement to create a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms of the new contract are fully incompatible with the former agreement on every point.[13] Thus, a deed of cession of the right to repurchase a piece of land does not supersede a contract of lease over the same property.[14] In the provisional deed of sale in this case, after the initial down payment, respondent's checks in payment of six installments all bounced and were dishonored upon presentment for the reason that the bank account was closed.[15] Consequently, on July 26, 1992, petitioner terminated the provisional deed of sale by a notarial notice of cancellation.[16] Nonetheless, respondent Diaz continued to occupy the premises, as lessee, but failed to pay the rentals due. On October 28, 1992, respondent made a payment of P100,000.00 that may be applied either to the back rentals or for the purchase of the condominium unit. On February 13, 1993, petitioner gave respondent a notice to vacate the premises and to pay his back rentals.[17] Failing to do so, respondent's possession became unlawful and his eviction was proper. Hence, on February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal, Branch 01 an action for unlawful detainer against respondent Diaz.[18] Now respondent contends that the petitioner's subsequent acceptance of such payment effectively withdrew the cancellation of the provisional sale. We do not agree. Unless the application of payment is expressly indicated, the payment shall be applied to the obligation most onerous to the debtor.[19] In this case, the unpaid rentals constituted the more onerous obligation of the respondent to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action for ejectment survives. Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the purchase of the property. WHEREFORE, the Court GRANTS the petition for review on certiorari, and REVERSES the decision of the Court of Appeals.[20] Consequently, the Court REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch 71,[21] affirming in toto the decision of the Municipal Trial Court, Antipolo, Rizal, Branch 01.[22] No costs. SO ORDERED.

[G.R. No. 122876. February 17, 2000] CHENIVER DECO PRINT TECHNICS CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), CFW-MAGKAKAISANG LAKAS NG MGA MANGGAGAWA SA CHENIVER DECO PRINT TECHNIC CORPORATION, EDGARDO VIGUESILLA, respondents. DECISION QUISUMBING, J.: This special civil action for certiorari seeks to annul the resolution of public respondent promulgated on May 31, 1995, in NLRC NCR CA 007946-94, and its resolution dated August 14, 1995, which denied petitioner s motion for reconsideration. Petitioner is a duly organized corporation operating its printing business in Visita St., Barangay Sta. Cruz, Makati. Private respondent CFW-Magkakaisang Lakas ng mga Manggagawa sa Cheniver Deco Print Technic Corporation is a registered labor union affiliated with the Confederation of Free Workers (CFW). Private respondent Edgardo Viguesilla and twenty-two (22) others are members of aforesaid union and former employees of petitioner. The records disclose that on June 5, 1992, petitioner informed its workers about the transfer of the company from its site in Makati to Sto. Tomas, Batangas. Petitioner decided to relocate its business in view of the expiration of the lease contract on the premises it occupied in Makati and the refusal of the lessor to renew the same. Earlier, the local authorities also took action to force out petitioner from Makati because of the alleged hazards petitioner s plant posed to the residents nearby. In view of the impending transfer, petitioner gave its employees up to the end of June 1992 to inform management of their willingness to go with petitioner, otherwise, it would hire replacements. On June 27, 1992, petitioner reminded its workers of the following schedule to be followed: June 29, 1992 July 1-31, 1992 August 1, 1992 last day of operation in Makati temporary shutdown to give way to transfer of operation start of operation at new site in Sto. Tomas, Batangas.

On August 4, 1992, petitioner wrote its employees to report to the new location within seven days, otherwise, they would be considered to have lost interest in their work and would be replaced. Five days later, the union advised petitioner that its members are not willing to go along with the transfer to the new site. Nonetheless, petitioner gave its workers additional time within which to report to the new work place. Later on, the labor federation informed petitioner that the employees decided to continue working for petitioner. However, not one reported for work at petitioner s new site. It appears that several employees namely, Edgar Paquit, Dexter Mitschek, Nicanor Quebec, Maricris Polvorosa, Vicente Solis, Eugene De la Cruz, Rodel Gomez, Marylin Macaraig, Diomedis Poblio, Albert Pimentel, Marieta Ramos, Gilbert Saquibal, Marlon Tafalla, Eduardo Jolbitado, Solitario Andres, Maria Cecilia Perez and Wilfredo Flores, decided not to work at the new site but just opted to be paid financial assistance offered by petitioner. On the other hand, the remaining workers (private respondents herein) filed a complaint against petitioner for unfair labor practice, illegal dismissal, underpayment of wages, non-payment of legal

holiday pay, 13th month pay, incentive leave pay and separation pay. On October 27, 1994, the labor arbiter rendered a decision declaring the transfer of petitioner s operation valid and absolving petitioner of the charges of unfair labor practice and illegal dismissal. However, the labor arbiter directed petitioner to pay private respondents their separation pay and other money claims as well as attorney s fees, decreeing as follows: "WHEREFORE, premises considered, judgment is hereby rendered: 1. Declaring respondent company not guilty of unfair labor practice. (ULP); 2. Declaring respondent company not guilty of illegal dismissal and illegal lay-off but directing it to pay the individual complaints their separation pay, to wit: a) Adeser, Tarcisio b) Albino, Silveria c) Arizala, Imelda d) Canares, Danilo e) Carin, Elena f) Cabanatan, Lourdes g) Dizon, Juanito h) Domingo, Salome i) Esguerra, Bonifacio j) Famillaran, Benjamin k) Gabucan, Amelia l) Ibardolaza, Hadjie m) Jores, Nelita n) Largadas, Mario o) Mitschek, Dexter p) Paquit, Edgar q) Panotes, Roel r) Pedrigosa, Lerma s) Pedrigosa, Liza ----------------------------------------P 20,280.00 36,816.00 18,408.00 36,816.00 12,272.00 9,204.00

-------------------------------------

12,272.00 24,544.00

-------------------------------------------------------------------------------------------------------------------------------

21,476.00

27,612.00 15,340.00 21,476.00 18,408.00 9,204.00 33,748.00 15,340.00 12,272.00 18,408.00 18,408.00

t) Ulzoron, Yolanda u) Viguesilla, Edgardo v) Viray, Ruel

-------------

9,204.00 21,476.00

------------

---------------- 9,204.00 _____________ P 422,188.00

3. Directing respondent company to pay complainants the sum of P280,010.00 as to their other money claims aforestated, distributed as follows: a) Adeser, Tarcisio b) Albino, Silveria c) Arizala, Imelda d) Canares, Danilo e) Carin, Elena f) Cabanatan, Lourdes g) Dizon, Juanito h) Domingo, Salome i) Esguerra, Bonifacio j) Famillaran, Benjamin k) Gabucan, Amelia l) Ibardolaza, Hadjie m) Jores, Nelita n) Largadas, Mario o) Mitschek, Dexter p) Paquit, Edgar q) Panotes, Roel r) Pedrigosa, Lerma ---------------- P 5,330.00 ---------------------------------------13,080.00 13,080.00 13,080.00 13,080.00 13,080.00

----------------------------------------------------

13,080.00 13,080.00 13,080.00

-------------------------------------------------------------------------------------------------------------------------------

13,080.00 13,080.00 13,080.00 13,080.00 13,080.00 13,080.00 13,080.00 13,080.00 13,080.00

s) Pedrigosa, Liza t) Ulzoron, Yolanda u) Viguesilla, Edgardo v) Viray, Ruel

---------------------------

13,080.00 13,080.00 13,080.00

-------------------------

13,080.00 ______________ P 280,010.00

4. Directing respondent company to pay complainants attorney s fees of ten (10%) percent based on the totality of the monetary award. Other claims are hereby dismissed for lack of factual and legal basis. SO ORDERED."[1] On appeal, respondent NLRC affirmed with modification the decision of the labor arbiter by deleting the award of attorney s fees, thus: "For all of the foregoing the decision appealed from is hereby AFFIRMED with modification that the award of attorney s fees be deleted for lack of legal and factual basis. SO ORDERED."[2] Its motion for reconsideration having been denied, petitioner filed the instant petition alleging that public respondent committed grave abuse of discretion in: "I AFFIRMING THE LABOR ARBITER S AWARD OF SEPARATION PAY TO PRIVATE RESPONDENTS; II AFFIRMING THE AWARD OF OTHER MONEY CLAIMS TO PRIVATE RESPONDENTS WITHOUT BASIS IN FACT AND [IN] LAW AS SHOWN BY LACK OF COMPUTATION OF THE SAME."[3] Petitioner contends that the transfer of its business is neither a closure nor retrenchment, hence, separation pay should not be awarded to the private respondents. It also avers that private respondents were not terminated from the service but they resigned from their job because they find the new work site too far from their residences. The foregoing contention lacks factual and legal basis, hence, bereft of merit.

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.[4] In Philippine Tobacco Flue-Curing & Redrying Corp. vs. NLRC,[5] 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,[6] 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 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. Petitioner s contention that private respondents resigned from their jobs, does not appear convincing. As public respondent observed, the subsequent transfer of petitioner to another place hardly accessible to its workers resulted in the latter s untimely separation from the service not to their own liking, hence, not construable as resignation.[7] Resignation must be voluntary and made with the intention of relinquishing the office, accompanied with an act of relinquishment.[8] Indeed, it would have been illogical for private respondents herein to resign and then file a complaint for illegal dismissal. Resignation is inconsistent with the filing of the said complaint.[9]

As to petitioner s assertion that private respondents resorted to forum shopping, the same deserves scant consideration. As noted by the Solicitor General, private respondents claims in this case are based on underpayment of wages, legal holiday pay, service incentive leave pay and 13thmonth pay. On the other hand, the other cases separately filed in different fora by Danilo Canares, Aurelia Gabucan, Dexter Mitschek and Ruel Viray involved different issues which are distinct and have no bearing on the case at bar.[10] The case pursued by Canares is for diminution of salary on account of his demotion which was decided in his favor with finality by this Court;[11] Gabucan s case involves reinstatement to her job; Mitschek s case pertains to diminution of his salary; and Viray s complaint was dismissed without prejudice for failure to prosecute. Thus, there is no basis for petitioner s forum shopping charge as the instant case and the others do not raise identical causes of action, subject matter and issues.[12] Lastly, petitioner alleges that claims of other private respondents have already been paid upon the enforcement of the order dated February 26, 1992 in case number NRC-00-9112-CI-001. This is not correct. As correctly pointed out by the Solicitor General, the aforesaid order refers to the enforcement of Wage Order No. NCR-02 mandating P2.00 wage increase.[13] Certainly, the wage differential received by private respondents by virtue of the mandated wage increase is different from the monetary benefits herein being claimed by private respondents. Hence, public respondent cannot be faulted for grave abuse of discretion on this score. WHEREFORE, the instant petition is DENIED, and the assailed RESOLUTIONS of public respondent are AFFIRMED. Costs against petitioner. SO ORDERED.

[G.R. No. 104624. October 11, 1996]

SAN PEDRO HOSPITAL OF DIGOS, INC., petitioner, vs. SECRETARY OF LABOR, THE SAN PEDRO HOSPITAL EMPLOYEES UNION NATIONAL FEDERATION OF LABOR, respondents.

SYLLABUS 1. LABOR LAW; LABOR RELATIONS; TEMPORARY SUSPENSION OF OPERATIONS; WHEN VALID AS A MANAGEMENT PREROGATIVE.- Temporary suspension of operations is recognized as a valid exercise of management prerogative provided it is not carried out in order to circumvent the provisions of the Labor Code or to defeat the rights of the employees under the Code. The determination to cease or suspend operations is a prerogative of management that the State usually does not interfere with, as no business can be required to continue operating at a loss simply to maintain the workers in employment . Such an act would be tantamount to a taking of property without due process of law, which the employer has a right to resist. But where it is shown that the closure is motivated not by a desire to prevent further losses, but to discourage the workers from organizing themselves into a union for more effective negotiations with management, the State is bound to intervene. 2. ID.; THE BURDEN OF PROVING THAT THE SUSPENSION IS BONA FIDE FALLS UPON THE EMPLOYER.The burden of proving that such a temporary suspension is bona fide falls upon the employer. In this instance, petitioner had to establish the fact of its precarious financial health, that its cessation of operations was really necessitated by its financial condition, and that said condition would probably be alleviated or improved, or its losses abated, by undertaking such suspension of operation. Petitioner could have at least partly met the foregoing requirements by submitting its financial statements or records as proof of its financial crisis, since the purported financial hemorrhage would definitely have been reflected therein. Thus, petitioner's unexplained and continued failure to submit its financial statements could not but raise grave doubts as to the truth of the claimed financial crisis and the real purpose of the suspension of operations. It is not enough to merely raise this issue nor to discuss it only in passing. The precarious financial condition must be established by evidence, e.g., balance sheets and income statements, and the figures therein must be interpreted and discussed at length. Petitioner was recklessly pushing its luck when it believed that the Secretary could be convicted without first obtaining and examining petitioner's financial statements and the notes thereto. The fact that the conciliator never asked for them is no sufficient excuse for not presenting the same, as such was petitioner's duty. Neither is it acceptable for petitioner to allege that the latest financial statements (for the year 1991) were still being prepared by its accountants and not yet ready for submission, since the financial statements for the prior years 1989 and 1990 would have sufficed. 3. ID.; THE SECRETARY OF LABOR AND EMPLOYMENT DID NOT ACT WITH GRAVE ABUSE OF DISCRETION IN FINDING THE TEMPORARY SUSPENSION OF OPERATION ILLEGAL; REASON.- It is a hornbook rule that employers who contemplate terminating the services of their workers must base their decisions on more than just flimsy excuses, considering that the dismissal of an employee from work involves not only the loss of his position but, what is more important, his means of livelihood. The same principle applies in temporary suspension of operations, as in this case, considering that it involves laying off employees for a period of six months. Petitioner, having wretchedly failed to justify by even the most rudimentary proof its temporary suspension of

operations, must bear the consequences thereof. We thus hold that the Secretary of Labor and Employment did not act with grave abuse of discretion in finding the temporary suspension unjustified and illegal. 4. ID.; THE SECRETARY OF LABOR, LIKEWISE, DID NOT ACT WITH GRAVE ABUSE OF DISCRETION IN ORDERING THE PARTIES TO ENTER INTO A NEW CBA WHILE PETITIONER WAS UNDER TEMPORARY SUSPENSION OF OPERATION; REASON.- Art. 286 of the Labor Code provides: "The bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months x x x shall not terminate employment." Section 12, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code provides that the employer-employee relationship shall be deemed suspended in case of the suspension of operation referred to above, it being implicitly assumed that once operations are resumed, the employer-employee relationship is revived and restored. If a legitimate, valid and legal suspension of operations does not terminate but merely suspends the employee-employer relationship, with more reason will an invalid and illegal suspension of operations, as in this case, not affect the employment relationship. The foregoing premises considered, it is clear that there is no basis for petitioner to claim that a new CBA should not be entered into or that collective bargaining should not be conducted during the effectivity of a temporary suspension of operations. In this instance, petitioner expressly represented that the suspension was to be for six months only. In the absence of any other information , the plain and natural presumption will be that petitioner would resume operations after six months, and therefore, it follows that a new CBA will be needed to govern the employment relations of the parties, the old one having already expired. Clearly then, under the circumstances, the respondent Secretary cannot be faulted nor considered to have gravely abused his discretion for ordering the parties to enter into a new CBA. 5. ID.; THE SECRETARY OF LABOR'S ORDER OR PETITIONER TO PAY BACKWAGES IS NOT ADJUDICATION ON THE LEGALITY OF THE STRIKE OF RESPONDENT UNION.- As pointed out by the Solicitor General, the case of Philippine Airlines vs. Secretary of Labor and Employment, 193 SCRA 223, 228-230, January 23, 1991, is not in point because in this case the Secretary did not rule on the legality of the strike. Respondent union struck before the Secretary of Labor assumed jurisdiction over the dispute. Thus, at first glance, the grant of backwages was not only dependent on the legality of the temporary suspension of operations by petitioner but also on the legality of the strike of respondent union. However, it is undisputed that petitioner never questioned the legality of the strike. When Secretary Confessor assumed jurisdiction over the labor dispute, she ordered the immediate return to work of the striking employees in order to restore the conditions of employment prior to the strike. The legality of the strike was not in question as far as Secretary Torres was concerned, when he assumed the office, and was not within the ambit of the jurisdiction conferred upon him by law. His concern was the labor dispute, i.e., the deadlock and the temporary suspension of operations. Thus, he ruled only on these matters, and not, as claimed by petitioner, on the legality or illegality of the strike. On the other hand, the grant of backwages was due to the illegality of the temporary suspension, not the illegality of the strike. Under Article 263 (g) of the Labor Code, the Secretary is authorized to penalize an erring employer who refuses to accept returning employees by ordering such employer to pay backwages. This is within his jurisdiction and is warranted by his finding as to the invalidity of the temporary suspension. In fine, the respondent Secretary of Labor did not act with grave abuse of discretion in ordering petitioner to pay backwages because it is not an adjudication on the legality of the strike. 6. ID.; DESPITE THE ABSENCE OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT SECRETARY, THIS COURT CANNOT COMPEL THE PETITIONER TO ENTER INTO A NEW CBA WITH THE UNION; REASON.- The losses registered in 1989, 1990 and 1991 cannot be deemed "paltry." Consider also the loss of doctors and patients prior to the temporary suspension. It is beyond the cavil then that petitioner sufferred serious and actual business reverses. In such a case, Management has the final say as to whether it will continue to risk its capital in its business or not. This is properly its prerogative. Since there is basis for the permanent closure of the business, we

cannot read into it any attempt to defeat the rights of its employees under the law, nor any oppressive and high-handed motives. Thus, despite the absence of grave abuse of discretion on the part of the respondent Secretary, this Court cannot impose upon petitioner the directive to enter into a new CBA with the union for the very simple reason that to do so would be to compel petitioner to contnue its business when it had already decided to close shop, and that would be judicial tyranny on our part.

DECISION PANGANIBAN, J.: When is temporary suspension of business considered not done in good faith? Can the Secretary of Labor compel management to enter into a new collective bargaining agreement with the union while the business enterprise is undergoing a temporary suspension of operations? Can the Secretary grant backwages without deciding the legality of a strike? These questions are addressed by the Court in resolving this Petition for Certiorari, which seeks nullification of the Orders dated October 16, 1991[1] and January 31, 1992[2] of the Secretary of Labor and Employment[3] rendered in DOLE Case No. NCMB-RBXI-NS-03-017-91 entitled "In Re: Labor Dispute at San Pedro Hospital of Digos". Said orders directed herein petitioner hospital to pay backwages for the period from June 21, 1991, to December 15, 1991 to returning workers who are members of San Pedro Hospital Employees Union and to enter into a new collective bargaining agreement with the union.

The Facts Petitioner San Pedro Hospital of Digos, Inc. is a charitable, non-stock, non-profit medical and educational training corporation. Petitioner had a three-year collective bargaining agreement (CBA) covering the period December 15, 1987 until December 15, 1990,[4] with herein private respondent, Nagkahiusang Mamumuo sa San Pedro Hospital of Digos - National Federation of Labor (NAMASAP-NFL), the exclusive bargaining agent of the hospital's rank-and-file workers. On February 12, 1991, the parties formally commenced negotiations for the renewal of their CBA, and presented their respective proposals. The union's demands included wage increases and inclusion in the CBA of a provision for union shop.[5] Respondent union proposed a cumulative salary increase of sixty pesos per day for three years, broken down as follows: (a) thirty pesos per day for the first year; (b) twenty pesos per day for the second year; and (c) ten pesos per day for the third year. Petitioner, claiming it was incurring losses on account of a serious financial crisis, counter-offered an increase of two pesos per day for each of the three years of the new CBA, with a wage reopening clause. Petitioner also adamantly opposed the proposal for a union security clause. After the parties failed to reach agreement on the issues, the union during the meeting of February 19, 1991 declared a deadlock. On February 20, 1991, respondent union saturated petitioner's premises with streamers and picketed the hospital. The operations of the hospital having come to a grinding halt, the hospital management considered the union actions as tantamount to a strike. However, it was only onMarch 4, 1991 that respondent union filed a Notice of Strike with the National Conciliation and Mediation Board (NCMB). On April 10, 11, and 18, 1991, the NCMB held conciliation conferences but failed to settle the deadlock, as the parties remained adamant in their positions.[6]

On May 28, 1991, respondent union struck. Despite the NCMB's call for a conciliation conference, nurses and nurse aides who were members of the union abandoned their respective departments and joined the picket line a week later. Doctors began leaving the hospital and the number of patients dwindled. The last patient was discharged on June 10, 1991. On June 12, 1991, a "Notice of Temporary Suspension of Operations" was issued by petitioner hospital and submitted to the local office of the NCMB on June 14, 1991. Similar notices were individually delivered to union members, but only fourteen out of the seventy-four rank-and-file employees/union members acknowledged receipt thereof. Petitioner also alleged that on June 13, 1991, the resident/consultant physicians abandoned the hospital because there were no more patients.[7] On the same day, June 13, 1991, then Secretary of Labor Nieves Confesor assumed jurisdiction over the labor dispute and issued an order[8]providing that: "WHEREFORE, ABOVE PREMISES CONSIDERED, this Office hereby assumes jurisdiction over the entire labor dispute at the San Pedro Hospital of Digos. Accordingly, all striking workers are hereby directed to return to work within twenty-four (24) hours from receipt of a copy of this Order and for the Hospital to accept all returning workers under the same terms and conditions of employment existing prior to the work stoppage. The parties are likewise directed to cease and desist from committing any act that may aggravate the prevailing precarious situation. To expedite the resolution of this dispute, the partes are directed to submit their respective position papers and evidence within ten (10) days from receipt of this Order." However, this order was received by petitioner only on June 20, 1991. In the meantime, it had already notified the DOLE via its letter datedJune 13, 1991, which was received by the DOLE on June 14, 1991, that it would temporarily suspend operations for six (6) months effective June 15, 1991, or up to December 15, 1991. Petitioner thus refused the return of its striking workers on account of such suspension of operations. Several conferences were held by the NCMB Conciliator where petitioner stated it would submit the necessary documents showing its serious financial condition "should the need be in earnest".[9] On June 24, 1991, respondent union through its legal counsel wrote the Executive conciliator/Mediator of the NCMB in Davao City informing the latter that the union members were willing to return to their former work assignments at the hospital in compliance with the June 13, 1991 order of the Labor Secretary. On June 27, 1991, petitioner filed its position paper in which it maintained that the aforementioned order to accept all returning workers had become moot and academic in view of the suspension of its operations. Moreover, said order could not substitute for (and override) the decision of the petitioner hospital's Board of Trustees to suspend operations for six months, such decision being purely a management prerogative.[10] Respondent union filed its own position paper on July 13, 1991 alleging that its very existence was threatened because management was convincing new employees not to join respondent union; that the union shop provision was necessitated precisely because of management's actuations; that petitioner was not in serious financial condition; and that petitioner acted in bad faith and circumvented the return-towork order when it suspended operations.[11]

On October 11, 1991, DOLE Secretary Ruben D. Torres went to Digos, Davao del Sur and met respondent union's officers and members in a restaurant; petitioner was not represented in that meeting. The Secretary also visited the hospital without notice to petitioner. Shortly thereafter, on October 16, 1991, Secretary Torres resolved the labor dispute and issued the questioned Order, wherein he ruled that the suspension of operations was not for a valid or justifiable cause but was actually for the purpose of defeating the worker's right to self-organization. But because the hospital had actually ceased operations, he held that it would be unjust and a sheer abuse of discretion to compel the hospital to continue operations and accept the returning workers, as it would infringe on petitioner's inherent right to manage and conduct its own business affairs. He thus decided to grant, by way of penalty, backwages for the workers from June 21, 1991, the date they were refused admittance by petitioner, until December 15, 1991, the expiration of the temporary suspension of the hospital's operation.[12] Sec. Torres also enjoined petitioner to enter into a new CBA with respondent union and to adopt and incorporate therein a union shop provision because it was proven that petitioner had intervened in the workers' right to join or not to join a labor organization of their own choosing.[13] Petitioner was also directed to grant a wage increase of P3.00 each for the first three years of the new CBA. This last directive was prompted by the finding that petitioner's Financial Statements for the years 1989 and 1990 (copies of which, incidentally, were submitted not by petitioner but by respondent union) showed that although petitioner incurred a loss of some P200,000 in 1990, its Balance Sheet revealed that it had a Fund Balance (Retained Earnings) of P3,159,791.00 as of year-end 1990, and therefore, it was financially capable of granting an increase in its employees' wages.[14] The dispositive portion of Secretary Torres' Order reads:[15] "WHEREFORE, judgment is hereby rendered: 1. Ordering the hospital to pay the wages of the returning workers who are members of the Union covering the period 21 June 1991 to 15 December 1991; and, 2. Ordering the parties to enter and formalize a new collective bargaining agreement (CBA) embodying therein the dispositions hereinabove set forth as well as the provisions of the old CBA not otherwise touched upon by this Order." On November 4, 1991, petitioner filed a Motion for Reconsideration of the abovequoted Order alleging that: (1) the Office of the Secretary of Labor had no jurisdiction to resolve the issue of the legality or illegality of the union's strike [since, in ordering the payment of backwages, he in effect ruled on the legality of the strike, which he was not authorized to do, jurisdiction therefor pertaining only to labor arbiters]; (2) the union members were not entitled to backwages because the temporary cessation of petitioner's operation suspended the employer-employee relationship between the union members and petitioner; and (3) petitioner could not be obligated to enter into a new CBA because said employeremployee relationship no longer existed. On December 15, 1991, petitioner formally ceased operations. Notices of its permanent closure were sent to NCMB and individual rank-and-file employees. On January 31, 1992, the Secretary denied the Motion for Reconsideration, holding among other things that his Order of October 16, 1991 did not rule on the legality of the strike. Hence, this petition filed under Rule 65 of the Revised Rules of Court.

The Issues Petitioner alleges that the Secretary of Labor gravely abused his discretion thus:[16]

"1. xxx when he issued the two orders, subject of this case, without affording the hospital the opportunity to present evidence on its behalf. 2. xxx in ordering the hospital to execute a new collective bargaining agreement with the union knowing fully well, as he himself conceded, that the hospital had actually ceased operations. 3. xxx in ordering the hospital to pay backwages to the members of the union; for in doing so, said public respondent to all intents and purposes ruled that the strike staged by the union was legal." The main question is whether the Secretary of Labor and Employment acted correctly in issuing the Orders of October 16, 1991 and January 31, 1992.

The Court's Ruling First issue: Petitioner Was Afforded Opportunity to Present Evidence Petitioner alleges that it was never given an opportunity to present its evidence, and that the Order of October 16, 1991 was influenced by the Secretary of Labor's meeting with the officers and members of respondent union when the former went to Digos, Davao del Sur on October 11, 1991. Admittedly, Secretary Torres did visit petitioner's premises without notice to see for himself the actual situation therein obtaining. However, the evidence on record clearly shows that, contrary to petitioner's allegation, it was afforded opportunity to present its evidence, and that the Secretary's visit and meeting were not the reasons for the ruling in favor of respondent union, nor did they affect said Order. One, the assumption order of Secretary Confessor inter alia directed the parties to submit their respective position papers and evidence to enable the Secretary to resolve the dispute.[17] Two, petitioner submitted its position paper where it questioned the authenticity of the said order claiming that it (petitioner) received only an uncertified photocopy, and informed the Secretary of its suspension of operations.[18] It did not bother to prove its serious financial condition and thereby justify its suspension of operations and its refusal to accede to the demanded wage increases. Respondent union, on the other hand, attached a copy of petitioner's financial statements to its position paper to show that petitioner was not in dire financial straits as it had a significant fund balance in 1990. Respondent union further alleged that petitioner could have afforded the wage increases since it had previously proposed an increase of P2.00 every year for each year of the new CBA which it later reduced to just P2.00 for three years. Also attached were the affidavits of Armand Anthony Gallardo, staff nurse, and Evangeline Montues, pharmacist, to show that petitioner had been persuading the new regular workers not to join respondent union.[19] (In its Supplemental Position Paper, respondent union also alleged that when it struck, it complied fully with the law on strikes because a skeletal force was left to man the hospital and the gate was left open and not barricaded, and that it was petitioner that refused to admit patients and hired replacements for the strikers. It also alleged that the doctors did not withdraw from the hospital because it happened to be the best equipped in the locality.[20]) Three, based on these pleadings and supporting papers, the Secretary noted that petitioner hospital did not discuss and support its claim of serious financial crisis on account of losses incurred, necessitating temporary suspension of operations. He thus found that the temporary suspension was to avoid compliance with the return-to-work order, and not due to the supposed financial hemorrhage. His October 16, 1991 Order stated as follows:[21] "In the case under consideration, the Hospital failed to meet the conditional requirements that would justify the temporary cessation of its operations. To be sure, the facts and circumstances attendant to

this case do not warrant a finding that the temporary suspension of the hospital's operations was for a valid or justifiable cause, and not for the purpose of defeating the rights of the workers to selforganization. This conclusion finds support from the following undisputed facts: First, during the CBA negotiation and immediately prior to the closure, the Hospital never brought the issue of its alleged financial losses necessitating the temporary suspension of its operations; Secondly, the notice of temporary suspension dated 13 June 1991 filed by the Hospital made mention of its intention to submit the necessary documents of its alleged financial losses (Annex "A", Hospital's position paper). Until the present, however, the Hospital has not submitted these documents thereby creating serious doubts on the validity of the suspension of its operations. Be that as it may, a copy of the Financial Statements of the Hospital for the years 1989 and 1990, submitted by the Union, reveals that it (hospital) was not actually losing in its operations. While the Hospital may have incurred losses of P200,942.00 in 1990, its Balance Sheet reveals a Fund Balance (Retained Earnings) of P3, 159, 791.00 for the year 1990 (Annex "G-2" Union's Position Paper dated 4 July 1991); and, Thirdly, the Union was not furnished a copy of the notice of temporary suspension. Worse still, the notice was filed on 14 June 1991 and was made effective the following day or on 15 June 1991, leaving the Union without sufficient time to adjust to the sudden and unexpected cessation of the hospital's operations, much less the opportunity to controvert the same. In the light of the undisputed facts narrated above, we are more inclined to sustain the view that the temporary suspension of the hospital's operations (was done) by the hospital, not because it is in financial crisis, but merely for the purpose of avoiding compliance with our Order dated 13 June 1991, directing it to accept all returning workers under the same terms and conditions of employment existing prior to the work stoppage. This being the case, we cannot give imprimatur to the actuation exhibited herein by the Hospital. For indeed, the Hospital had shown scant regard to the constitutional right of the members of the Union to self-organization and to negotiate for better terms and conditions of employment." The foregoing excerpt clearly shows that Secretary Torres' visit was not the turning point insofar as his Order was concerned. On the contrary, said Order is clearly based on substantial evidence on record. Petitioner also attacks Secretary Torres' conclusion that its temporary cessation of operations was not legitimate but for the purpose of circumventing the return-to-work order previously issued. We are not persuaded. Temporary suspension of operations is reorganized as a valid exercise of management prerogative provided it is not carried out in order to circumvent provisions of the Labor Code or to defeat the rights of the employees under the Code.[22] The determination to cease or suspend operations is a prerogative of management that the State usually does not interfere with, as no business can be required to continue operating at a loss simply to maintain the workers in employment. Such an act would be tantamount to a taking of property without due process of law, which the employer has a right to resist. But where it is shown that the closure is motivated not by a desire to prevent further losses, but to discourage the workers from organizing themselves into a union for more effective negotiations with management, the State is bound to intervene.[23] The burden of proving that such a temporary suspension is bona fide falls upon the employer. In this instance, petitioner had to establish the fact of its precarious financial health, that its cessation of operations was really necessitated by its financial condition, and that said condition would probably be alleviated or improved, or its losses abated, by undertaking such suspension of operation. Petitioner could have at least partly met the foregoing requirements by submitting its financial statements or records as proof of its financial crisis, since the purported financial hemorrhage would definitely have been reflected therein. Thus, petitioner's unexplained and continued failure to submit its financial statements could not but raise grave doubts as to the truth of the claimed financial crisis and the real

purpose of the suspension of operations. It is not enough to merely raise this issue nor to discuss it only in passing. The precarious financial condition must be established by evidence, e.g., balance sheets and income statements, and the figures therein must be interpreted and discussed at length. Petitioner was recklessly pushing its luck when it believed that the Secretary could be convinced without first obtaining and examining petitioner's financial statements and the notes thereto. The fact that the conciliator never asked for them is no sufficient excuse for not presenting the same, as such was petitioner's duty. Neither is it acceptable for petitioner to allege that the latest financial statements (for the year 1991) were still being prepared by its accountants and not yet ready for submission, since the financial statements for the prior years 1989 and 1990 would have sufficed. It is a hornbook rule that employers who contemplate terminating the services of their workers must base their decisions on more than just flimsy excuses,[24] considering that the dismissal of an employee from work involves not only the loss of his position but, what is more important, his means of livelihood. The same principle applies in temporary suspension of operations, as in this case, considering that it involves laying off employees for a period of six months. Petitioner, having wretchedly failed to justify by even the most rudimentary proof its temporary suspension of operations, must bear the consequences thereof. We thus hold that the Secretary of Labor and Employment did not act with grave abuse of discretion in finding the temporary suspension unjustified and illegal.

Second Issue: New CBA Despite Temporary Suspension? Petitioner alleges that respondent Secretary acted in grave abuse of discretion when he ordered petitioner to enter into a new CBA despite his knowledge that it had actually ceased operations. As proof thereof, petitioner cites the portion of the assailed Order which reads that: "It must be noted, however, that the hospital had actually ceased operations. It would thus be sheer abuse of discretion on our part to compel the hospital to continue its operations and admit the returning workers, xxx." We disagree. Clearly, the respondent Secretary was of the impression that petitioner would operate again after the lapse of the six- month suspension of operations on December 16, 1991, and so ordered the parties to enter into and formalize a new CBA to govern their relations upon resumption of operations. On the other hand, the aforequoted portion of the Order must be understood in the context of the Secretary's finding that the temporary suspension was only for circumventing the return-to-work order, but in spite of which he held that he could not order petitioner to continue operations as "this would infringe on its inherent right to manage and conduct its own business affairs"; he thus ordered instead the payment of backwages to the returning workers who were refused admittance by petitioner on June 21, 1991. And as above adverted to, he also ordered the parties to execute a new CBA to govern their relations upon the expiry of the period of suspension and the resumption of normal operations. Art. 286 of the Labor code provides: "The bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months x x x shal not terminate employment." Section 12, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code provides thatthe employer-employee relationship shall be deemed suspended in case of the suspension of operation referred to above; it being implicitly assumed that once operations are resumed, the employer-employee relationship is revived and restored.

If a legitimate, valid and legal suspension of operations does not terminate but merely suspends the employee-employer relationship, with more reason will an invalid and illegal suspension of operations, as in this case, not affect the employment relationship. The foregoing premises considered, it is clear that there is no basis for petitioner to claim that a new CBA should not be entered into or that collective bargaining should not be conducted during the effectivity of a temporary suspension of operations. In this instance, petitioner expressly represented that the suspension was to be for six months only. In the absence of any other information, the plain and natural presumption will be that petitioner would resume operations after six months, and therefore, it follows that a new CBA will be needed to govern the employment relations of the parties, the old one having already expired. Clearly then, under the circumstances, the respondent Secretary cannot be faulted nor considered to have gravely abused his discretion for ordering the parties to enter into a new CBA. Did the Secretary act in excess of jurisdiction in imposing the wage increases and union shop provision on the petitioner? We hold that he did not. While petitioner cannot be forced to abandon its suspension of operations even if said suspension be declared unjustified, illegal and invalid, neither can petitioner evade its obligation to bargain with the union, using the cessation of its business as reason therefor. For, as already indicated above, the employer-employee relationship was merely suspended (and not terminated) for the duration of the temporary suspension. Using the suspension as an excuse to evade the duty to bargain is further proof of its illegality. It shows abuse of this option and bad faith on the part of petitioner. And since it refused to bargain, without valid and sufficient cause, the Secretary in the exercise of his powers under Article 263(i) of the Labor Code to decide and resolve labor disputes, properly granted the wage increase and imposed the union shop provision. Considering that after the lapse of the six-month period on December 16, 1991, petitioner did not resume operations, it would border on the ridiculous to still try to enforce the October 16, 1991 Order and require the parties to negotiate the terms and conditions of employment. It goes without saying that the said Order directing the parties to enter into a new CBA is already moot and academic. We shall delve more into the complete cessation of business when discussing the fourth issue below.

Third Issue: Grant of Backwages Is Not An Adjudication on the Legality of the Strike Petitioner charges the respondent Secretary with having gravely abused his discretion in ordering it to pay backwages to the union members because it is tantamount to ruling that the union's strike was legal -- jurisdiction over which question pertains to the labor arbiter. As support, petitioner cites Philippine Airlines, Inc. vs. Secretary of Labor and Employment,[25] where this Court ruled that: "Under Art. 263 of the Labor Code, the Labor Secretary's authority to resolve a labor dispute within 30 days from the date of assumption of jurisdiction, encompasses only the issues in the dispute, not the legality or illegality of any strike that may have been resorted to in the meantime (Binamira vs. OganOccena, 148 SCRA 677, 685 [1987]). xxx xxx xxx

In ruling on the legality of the PALEA strike, the Secretary of Labor acted without or in excess of his jurisdiction.

There is merit in PAL's contention that the Labor Secretary erred in declaring the strike valid and in prohibiting PAL from taking retaliatory or disciplinary action against the strikers for the damages suffered by the Airline as a result of the illegal work stoppage. xxx xxx xxx

The Labor Secretary exceeded his jurisdiction when he restrained PAL from taking disciplinary action against its guilty employees, for, under Art. 263 of the Labor Code, all that the Secretary may enjoin is the holding of the strike, but not the company's right to take action against union officers who participated in the illegal strike and committed illegal acts. The prohibition which the Seretary issued to PAL constitutes an unlawful deprivation of property and denial of due process for it prevents PAL from seeking redress for the huge property losses that it suffered as a result of the union's illegal mass action." We disagree. As pointed out by the Solicitor General, the said case is not in point because in this case the Secretary did not rule on the legality of the strike. Respondent union struck before the Secretary of Labor assumed jurisdiction over the dispute. Thus, at first glance, the grant of backwages was not only dependent on the legality of the temporary suspension of operations by petitioner but also on the legality of the strike of respondent union. However, it is undisputed that petitioner never questioned the legality of the strike. When Secretary Confessor assumed jurisdiction over the labor dispute, she ordered the immediate return to work of the striking employees in order to restore the conditions of employment prior to the strike. The legality of the strike was not in question as far as Secretary Torres was concerned, when he assumed the office, and was not within the ambit of the jurisdiction conferred upon by him by law. His concern was the the labor dispute, i.e., the deadlock and the temporary suspension of operations. Thus, he ruled only on these matters, and not, as claimed by petitioner, on the legality or illegality of the strike. On the other hand, the grant of backwages was due to the illegality of the temporary suspension, not the illegality of the strike. Under Article 263 (g) of the Labor Code, the Secretary is authorized to penalize an erring employer who refuses to accept returning employees by ordering such employer to pay backwages. This is within his jurisdiction and is warranted by his finding as to the invalidity of the temporary suspension. In fine, the respondent Secretary of Labor did not act with grave abuse of discretion in ordering petitioner to pay backwages because it is not an adjudication on the legality of the strike.

Fourth Issue: Supervening Event Notwithstanding that respondent Secretary did not act with grave abuse of discretion in issuing the challenged Orders, we cannot ignore the supervening event which occurred after December 15, 1991, i.e., the subsequent permanent cessation of operation of petitioner on account of losses. Business reverses or losses are recognized by law as a just cause for terminating employment. This Court held in Columbia Development Corporation vs. Minister of Labor and Employment[26] that: "Precisely because reverses in a business venture are expected, the law recognizes the same as a just cause for terminating an employment [Art. 283(a) of the Labor Code] and in many instances, this Court has 'affirmed the right of an employer to lay off or dismiss employees because of losses in the operation of its business, lack of work and considerable reduction in the volume of his business.' [LVN Pictures and Workers Asso. vs. LVN Pictures, Inc., 35 SCRA 147 and the cases cited therein]."

Since this ground can be abused by scheming employers feigning business losses to ease out employees, substantive and procedural requirements are imposed before it can be resorted to. The Labor Code provides that: "Art. 283. Closure of establishment and reduction of personnel. -- The employer may also terminate the employment of any employee due to the x x x 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 Department of Labor and Employment at least one (1) month before the intended date thereof. x x x." Further, it is necessary that business reverses or losses be serious, actual and real.[27] The burden of establishing the truth as to these losses or reverses falls upon the employer. Petitioner finally submitted its financial statements for 1990 as an annex to its petition.[28] And attached to its Reply to Comment were its financial statements for 1991.[29] The Statements of Revenues and Expenses revealed that in 1989, petitioner had a net profit of P106,102.00, but this was due to other income of P202,772.00, which offset losses from operations of P96, 670.00.[30] In the following years, operating losses could not be offset by other income. In 1990, petitioner sustained a net loss of P200,942.00 despite other income of P203,092.00. In 1991, net loss mounted to P3,180,268.00,[31] completely wiping out its entire Fund Balance (retained earnings) of P3,159,791.00 from the previous year, and leaving a negative figure of P20,477.00. This means that nothing was left of the entire capital of petitioner, which is why petitioner contends that it is not in any position to resume operations. Furthermore, petitioner's external auditors reported that the 1991 financial statements have not yet made any provisions for petitioner's liability resulting from this and other labor disputes.[32] In both 1989 and 1990, the hospital's costs and operating expenses exceeded gross revenues, signaling serious financial trouble. When petitioner suspended operations in the second half of 1991, its gross revenues covered only 56% of operating expenses. The decrease in expenses to about half the prior years' was still too small to offset the revenues fore-gone. It seems that the temporary suspension turned out to have been more costly rather than beneficial. Eventually, its financial troubles resulted in the demise of petitioner as a going concern. Petitioner's total assets in 1991 registered a drop of about P2.5 million from the previous year's P7.8 million, a staggering decline.[33] it had exhausted its Fund Balance completely. Considering that it had been operating mainly on the revenues it generated, the high risks of continuing operations were enough to make petitioner bail out. We should mention that his case is different from Union of Filipino Workers vs. National Labor Relations Commission[34] because in the case at bar, financial trouble is reflected in petitioner's financial statements since 1989 and the cessation of operations was total. The losses registered in 1989, 1990 and 1991 cannot be deemed paltry. [35] Consider also the loss of doctors and patients prior to the temporary suspension. It is beyond cavil then that petitioner suffered serious and actual business reverses. In such a case, management has the final say as to whether it will continue to risk its capital in its business or not. This is properly its prerogative. Since there is basis for the permanent closure of the business, we cannot read into it any attempt to defeat the rights of its employees under the law, nor any oppressive and high-handed motives. Thus, despite the absence of grave abuse of discretion on the part of the respondent Secretary, this Court cannot impose upon petitioner the directive to enter into a new CBA with the union for the very simple reason that to do so would be to compel petitioner to continue its business when it had already decided to close shop, and that would be judicial tyranny on our part.

Epilogue It will be noted that while the Court ruled as improper the temporary suspension of petitioner s operation, it nonetheless sustained its permanent closure thereafter. To resolve this seeming contradiction, we repeat: we found no arbitrariness in the ruling of the then Secretary of Labor finding the suspension of operations as unwarranted because petitioner failed to adduce evidence before the conciliator to show that the hospital s financial condition at that time justified such suspension. On the other hand, before us, by presenting its later financial statements, petitioner was able to prove conclusively a supervening event, i.e., that its financial health had deteriorated to such an extent as to justify the complete cessation of its operations, and its permanent closure. Ironically, it was petitioner s temporary suspension of operations that made inevitable and irreversible (as well as legally tenable) its subsequent permanent closure. The Court is grieved by the closure of the petitioner hospital, and what such closure meant, not only to petitioner, but to the public and especially patients and those in need of medical attention. It is even more sad that, by reason of such closure, petitioner s employees and staff, including doctors, nurses and other hospital workers, have had to be laid off. We would have wanted to see the parties amicably settle their differences and patch things up, in view of the crucial public service they rendered, particularly since, up to the time of its suspension of operation, the hospital was the best equipped in the locality . However, all that is water under the bridge now, and there is really not much that this Court can do in the premises and at this time except to decide the instant case on the basis of the legal issues raised. WHEREFORE, the petition is partially GRANTED. The assailed Orders, insofar as they grant backwages from June 21, 1991 until December 15, 1991, are AFFIRMED. However, they are MODIFIED insofar as they directed the parties to enter into a new collective bargaining agreement, which directives are hereby SET ASIDE for being moot and academic. SO ORDERED.

G.R. No. 82341 December 6, 1989 SUNDOWNER DEVELOPMENT CORPORATION, petitioner, vs. HON. FRANKLIN M. DRILON, in his capacity as Secretary of the Department of Labor and Employment, NATIONAL UNION OF WORKERS IN HOTEL, RESTAURANT AND ALLIED INDUSTRIES, (NUWHRAIN), HOTEL MABUHAY CHAPTER, THE CHAPTER OFFICERS AND MEMBERS, HOTEL MABUHAY, INC. and MR. MARIANO PENANO, President of Hotel Mabuhay, Inc., respondents. Carmelita S. Bautista-Lozada for petitioner. Paterno D. Menzon Law Office for private respondent NUWHRAIN.

GANCAYCO, J.: The principal issue in this case is whether or not the purchaser of the assets of an employer corporation can be considered a successor employer of the latter's employees. Private respondent Hotel Mabuhay, Inc. (Mabuhay for short,) leased the premises belonging to Santiago Syjuco, Inc. (Syjuco for short) located at 1430 A. Mabini St., Ermita, Manila. However, due to nonpayment of rentals, a case for ejectment was filed by Syjuco against Mabuhay in the Metropolitan Trial Court of Manila. Mabuhay offered to amicably settle the case by surrendering the premises to Syjuco and to sell its assets and personal property to any interested party. Syjuco offered the said premises for lease to petitioner. The negotiation culminated with the execution of the lease agreement on April 16, 1987 to commence on May 1, 1987 and to expire on April 30,1992. 1 Mabuhay offered to sell its assets and personal properties in the premises to petitioner to which petitioner agreed. A deed of assignment of said assets and personal properties was executed by Mabuhay on April 29,1987 in favor of petitioner. 2 On same date Syjuco formally turned over the possession of the leased premises to petitioner who actually took possession and occupied the same on May 1, 1987. On May 4, 1987, respondent National Union of Workers in Hotel, Restaurant and Allied Services (NUWHRAIN for short) picketed the leased premises, barricaded the entrance to the leased premises and denied petitioner's officers, employees and guests free access to and egress from said premises. Thus, petitioner wrote a letter-complaint to Syjuco. A complaint for damages with preliminary injunction and/or temporary restraining order was filed by petitioner on May 7, 1987 with the Regional Trial Court of Manila docketed as Civil Case No. 87-40436. On the same day, the Executive Judge of said court issued a restraining order against respondent NUWHRAIN and its officers and members as prayed for in the petition. Nevertheless, NUWHRAIN maintained their strike on the subject premises but filed an answer to the complaint. On May 14, 1987, an order was issued by public respondent Secretary of Labor assuming jurisdiction over the labor dispute pursuant to Article 263(g) of the Labor Code as amended and in the interim, requiring all striking employees to return to work and for respondent Mabuhay to accept all returning employees pending final determination of the issue of the absorption of the former employees of Mabuhay. The

parties were also directed to submit their respective position papers within ten (10) days from receipt of the order. On May 25, 1987, Mabuhay submitted its position paper alleging among others that it had sold all its assets and personal properties to petitioner and that there was no sale or transfer of its shares whatsoever and that Mabuhay completely ceased operation effective April 28,1987 and surrendered the premises to petitioner so that there exists a legal and physical impossibility on its part to comply with the return to work order specifically on absorption. On June 26, 1987, petitioner in order to commence its operation, signed a tri-partite agreement so the workers may lift their strike, by and among petitioner, respondents NUWHRAIN and Mabuhay whereby the latter paid to respondent NUWHRAIN the sum of P 638,000.00 in addition to the first payment in the sum of P 386,447.11, for which reason respondent NUWHRAIN agreed to lift the picket . 3 Respondent NUWHRAIN on July 13, 1987 filed its position paper alleging connivance between Mabuhay and petitioner in selling the assets and closing the hotel to escape its obligations to the employees of Mabuhay and so it prays that petitioner accept the workforce of Mabuhay and pay backwages from April 15,1986 to April 28,1987, the day Mabuhay stopped operation. On the other hand, petitioner filed a "Partial Motion for Reconsideration and Position Paper," alleging that it was denied due process; that there were serious errors in the findings of fact which would cause grave and irreparable damage to its interest; as well as on questions of law. On January 20, 1988, the public respondent issued an order requiring petitioner to absorb the members of the union and to pay backwages from the time it started operations up to the date of the order. 4 Petitioner filed on January 27,1988 a motion for reconsideration of the aforesaid order alleging that the theory of implied acceptance and assumption of statutory wrong does not apply in the instant case; that the prevailing doctrine that there is no law requiring bona fide purchasers of the assets of an on-going concern to absorb in its employ the employees of the latter should be applied in this case; that the order for absorption of the employees of Mabuhay as well as the payment of their backwages is contrary to law. Respondent NUWHRAIN also filed a motion for clarification of the aforesaid order. On March 8, 1988, the public respondent denied said motion for reconsideration and motion for clarification for lack of merit. Hence, this petition for review by certiorari with prayer for preliminary injunction and/or temporary restraining order filed by petitioner in this Court. Petitioner presents seven issues for resolution which all revolve about the singular issue of whether or not under the circumstances of this case the petitioner may be compelled to absorb the employees of respondent Mabuhay. On March 23, 1988, this Court, without giving due course to the petition, required respondents to comment thereon within ten (10) days from notice and issued a temporary restraining order enjoining public respondent or his duly authorized representatives from executing and implementing the orders dated January 20, 1988 and March 8, 1988. The petition is impressed with merit. The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the parties .5 A labor contract merely creates an action in personally and does not create any real right which should be respected by third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them

as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power. 6 As a general rule, there is no law requiring a bona fide purchaser of assets of an on-going concern to absorb in its employ the employees of the latter. 7 However, although the purchaser of the assets or enterprise is not legally bound to absorb in its employ the employers of the seller of such assets or enterprise, the parties are liable to the employees if the transaction between the parties is colored or clothed with bad faith. 8 In the case at bar, contrary to the claim of the public respondent that the transaction between petitioner and Mabuhay was attended with bad faith, the court finds no cogent basis for such contention. Thus, the absorption of the employees of Mabuhay may not be imposed on petitioner. It is undisputed that when Mabuhay surrendered the leased premises to Syjuco and asked Syjuco to offer same to other lessees it was Syjuco who found petitioner and persuaded petitioner to lease said premises. Mabuhay had nothing to do with the negotiation and consummation of the lease contract between petitioner and Syjuco. It was only when Mabuhay offered to sell its assets and personal properties in the premises to petitioner that they came to deal with each other. It appears that petitioner agreed to purchase said assets of respondent Mabuhay to enable Mabuhay to pay its obligations to its striking employees and to Syjuco. Indeed, in the deed of assignment that was executed by Mabuhay in favor of petitioner on April 14, 1 987 for and in consideration of P2,500,000.00, it is specifically provided therein that the same is "purely for and in consideration of the sale/transfer and assignment of the personal properties and assets of Hotel Mabuhay, Inc. listed . . . " and "in no way involves any assumption or undertaking on the part of Second Party (petitioner) of any debts or liabilities whatsoever of Hotel Mabuhay, Inc." 9 The liabilities alluded to in this agreement should be interpreted to mean not only any monetary liability of Mabuhay but any other liability or obligation arising from the operation of its business including its liability to its employees. Moreover, in the tripartite agreement that was entered into by petitioner with respondents NUWHRAIN and Mabuhay, it is clearly stipulated as follows: 8. That, immediately after the execution of this Agreement, the FIRST PARTY shall give a list of its members to the THIRD PARTY that it desires to recommend for employment so that the latter can consider them for employment, with no commitment whatsoever on the part of the THIRD PARTY to hire them in the business that it will operate in the premises formerly occupied by the Hotel Mabuhay; 10 From the foregoing, it is clear that petitioner has no liability whatsoever to the employees of Mabuhay And its responsibility if at all, is only to consider them for re-employment in the operation of the business in the same premises. There can be no implied acceptance of the employees of Mabuhay by petitioner and acceptance of statutory wrong as it is expressly provided in the agreement that petitioner has no commitment or duty to absorb them. Moreover, the court does not subscribe to the theory of public respondent that petitioner should have informed NUWHRAIN of its lease of the premises and its purchase of the assets and personal properties of Mabuhay therein so that said employees could have taken steps to protect their interest. The court finds no such duty on the part of petitioner and its failure to notify said employees cannot be an indicium of bad faith.

Much less is there any evidence that petitioner and respondent Mabuhay are joint tortfeasors as found by public respondent. While it is true that petitioner is using the leased property for the same type of business as that of respondent Mabuhay, there can be no continuity of the business operations of the predecessor employer by the successor employer as respondent Mabuhay had not retained control of the business. Petitioner is a corporation entirely different from Mabuhay. It has no controlling interest whatever in respondent Mabuhay. Petitioner and Mabuhay have no privity and are strangers to each other. What is obvious is that the petitioner, by purchasing the assets of respondent Mabuhay in the hotel premises, enabled Mabuhay to pay its obligations to its employees. There being no employer-employee relationship between the petitioner and the Mabuhay employees, the petition must fail. Petitioner can not be compelled to absorb the employees of Mabuhay and to pay them backwages. WHEREFORE, the petition is GRANTED and the questioned orders of public respondent Secretary of Labor and Employment dated January 20, 1988 and March 8, 1988 are reversed and set aside. The restraining order that this Court issued on March 20,1988 is hereby made permanent. No pronouncement as to costs. SO ORDERED. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. 80587 February 8, 1989 WENPHIL CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION AND ROBERTO MALLARE, respondents.

GANCAYCO, J.: Once again the dismissal of an employee without affording him due process is brought to the attention of this Court by this petition. Private respondent was hired by petitioner on January 18, 1984 as a crew member at its Cubao Branch. He thereafter became the assistant head of the Backroom department of the same branch. At about 2:30 P.M. on May 20, 1985 private respondent had an altercation with a co-employee, Job Barrameda, as a result of which he and Barrameda were suspended on the following morning and in the afternoon of the same day a memorandum was issued by the Operations Manager advising private respondent of his dismissal from the service in accordance with their Personnel Manual. The notice of dismissal was served on private respondent on May 25, 1985. Thus private respondent filed a complaint against petitioner for unfair labor practice, illegal suspension and illegal dismissal. After submitting their respective position papers to the Labor Arbiter and as the hearing could not be conducted due to repeated absence of counsel for respondent, the case was submitted for resolution. Thereafter a decision was rendered by the Labor Arbiter on December 3, 1986 dismissing the complaint for lack of merit. Private respondent appealed to the National Labor Relations Commission (NLRC) wherein in due course a decision was rendered on October 16, 1987 setting aside the appealed decision and ordering the reinstatement of private respondent to his former position without loss of seniority and other related benefits and one (1) year backwages without qualification and deduction. Hence the herein petition for certiorari with preliminary injunction and/or restraining order wherein petitioner alleges that the public respondent NLRC committed a grave abuse of discretion in rendering its decision contrary to the evidence on record. On December 2, 1987, the court issued a restraining order as prayed for in the petition enjoining the enforcement of the decision dated October 16, 1987 of public respondent NLRC upon petitioner posting a bond of P20,000.00. The theory of the petitioner is that on the aforesaid date, May 20, 1985, when private respondent and Barrameda had a misunderstanding about tending the Salad Bar, private respondent slapped Barrameda's cap, stepped on his foot and picked up the ice scooper and brandished it against the latter. Marijo B. Kolimlim who was a management trainee tried to pacify private respondent but he defied her so Kolimlim reported the incident to the assistant manager, Delilah C. Hermosura, who immediately asked private respondent to see her. Private respondent refused to see Hermosura and it took the security guard to bring him to her. Private respondent then shouted and uttered profane words instead of making an explanation before her. He stated the matter should be settled only by him and Barrameda. The following day Kolimlim and Hermosura submitted a report on the incident and recommended the imposition of the appropriate penalties on both. It was the store manager who issued a report meting out the penalty of suspension on the two until further notice in the following morning. Later that day the Operations

Manager issued a memorandum advising Barrameda of one (1) week suspension and the dismissal of private respondent from the service. The main thrust of the petition is that under the Personnel Manual of petitioner which had been read and understood by private respondent, private respondent waived his right to the investigation. It is provided therein that INVESTIGATION If the offense is punishable with a penalty higher than suspension for fifteen (15) days, upon the request of the erring employee, there shall be convened an investigation board composed of the following 1. The Parlor Manager or Supervisor on duty when the incident occurred. 2. The General Manager or the Assistant Manager. The investigation board shall discuss the merits of the case and shall issue a ruling, which shall be final and conclusive. (p. 3, Personnel Manual: Emphasis supplied). From the foregoing it appears that an investigation shall only be conducted if the offense committed by the employee is punishable with the penalty higher than suspension of fifteen (15) days and the erring employee requests for an investigation of the incident. Petitioner alleges that private respondent not having asked for an investigation he is thus deemed to have waived his right to the same. Petitioner avers that immediately after the incident when private respondent was asked to see Hermosura, he was defiant and showed that he was not interested to avail of an investigation. The contention of petitioner is untenable. The incident happened on May 20, 1985 and right then and there as afore repeated on the following day private respondent was suspended in the morning and was dismissed from the service in the afternoon. He received an official notice of his termination four (4) days later. The defiant attitude of private respondent immediately after the incident amounted to insubordination. Nevertheless his refusal to explain his side under the circumstances cannot be considered as a waiver of his right to an investigation. Although in the Personnel Manual of the petitioner, it states that an erring employee must request for an investigation it does not thereby mean that petitioner is thereby relieved of the duty to conduct an investigation before dismissing private respondent. Indeed said provision of the Personnel Manual of petitioner which may effectively deprive its employees of the right to due process is clearly against the law and hence null and void. The security of tenure of a laborer or employee is enshrined in the Constitution, the Labor Code and other related laws. 1 Under Section 1, Rule XIV of the Implementing Regulations of the Labor Code, it is provided that "No worker shall be dismissed except for just or authorized cause provided by law and after due process." Sections 2, 5, 6, and 7 of the same rules require that before an employer may dismiss an employee the latter must be given a written notice stating the particular act or omission constituting the grounds thereof; that the employee may answer the allegations within a reasonable period; that the employer shall afford him ample opportunity to be heard and to defend himself with the assistance of his representative, if he so desires; and that it is only then that the employer may dismiss the employee by

notifying him of the decision in writing stating clearly the reasons therefor. Such dismissal is without prejudice to the right of the employee to contest its validity in the Regional Branch of the NLRC. Petitioner insists that private respondent was afforded due process but he refused to avail of his right to the same; that when the matter was brought to the labor arbiter he was able to submit his position papers although the hearing cannot proceed due to the non-appearance of his counsel; and that the private respondent is guilty of serious misconduct in threatening or coercing a co-employee which is a ground for dismissal under Article 283 of the Labor Code. 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. 2 The standards of due process in judicial as well as administrative proceedings have long been established. In its bare minimum due process of law simply means giving notice and opportunity to be heard before judgment is rendered. 3 The claim of petitioner that a formal investigation was not necessary because the incident which gave rise to the termination of private respondent was witnessed by his co- employees and supervisors is without merit. The basic requirement of due process is that which hears before it condemns, which proceeds upon inquiry and renders judgment only after trial. 4 However, it is a matter of fact that when the private respondent filed a complaint against petitioner he was afforded the right to an investigation by the labor arbiter. He presented his position paper as did the petitioner. If no hearing was had, it was the fault of private respondent as his counsel failed to appear at the scheduled hearings. The labor arbiter concluded that the dismissal of private respondent was for just cause. He was found guilty of grave misconduct and insubordination. This is borne by the sworn statements of witnesses. The Court is bound by this finding of the labor arbiter. By the same token, the conclusion of the public respondent NLRC on appeal that private respondent was not afforded due process before he was dismissed is binding on this Court. Indeed, it is well taken and supported by the records. However, it can not justify a ruling that private respondent should be reinstated with back wages as the public respondent NLRC so decreed. Although belatedly, private respondent was afforded due process before the labor arbiter wherein the just cause of his dismissal bad been established. With such finding, it would be arbitrary and unfair to order his reinstatement with back wages. The Court holds that the policy of ordering the reinstatement to the service of an employee without loss of seniority and the payment of his wages during the period of his separation until his actual reinstatement but not exceeding three (3) years without qualification or deduction, when it appears he was not afforded due process, although his dismissal was found to be for just and authorized cause in an appropriate proceeding in the Ministry of Labor and Employment, should be re-examined. It will be highly prejudicial to the interests of the employer to impose on him the services of an employee who has been shown to be guilty of the charges that warranted his dismissal from employment. Indeed, it will demoralize the rank and file if the undeserving, if not undesirable, remains in the service. 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 re-employment and back wages. It may encourage him to do even worse and will render a mockery of the rules of discipline that employees are required to observe. Under the circumstances the dismissal of the private respondent for just cause should be maintained. He has no right to return to his former employer.

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 rule is explicit as above discussed. The dismissal of an employee must be for just or authorized cause and after due process. 5 Petitioner committed an infraction of the second requirement. Thus, it must be imposed a sanction for its failure to give a formal notice and conduct an investigation as required by law before dismissing petitioner from employment. Considering the circumstances of this case petitioner must indemnify the private respondent the amount of P1,000.00. The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer. WHEREFORE, the petition is GRANTED. The questioned decision of the public respondent NLRC dated October 16, 1987 for the reinstatement with back wages of private respondent is REVERSED AND SET ASIDE, and the decision of the labor arbiter dated December 3, 1986 dismissing the complaint is revived and affirmed, but with the modification that petitioner is ordered to indemnify private respondent in the amount of P1,000.00. The restraining order issued by this Court on December 2, 1987 is hereby made permanent and the bond posted by petitioner is cancelled. This decision is immediately executory. SO ORDERED.

[G.R. No. 117040. January 27, 2000] RUBEN SERRANO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and ISETANN DEPARTMENT STORE,respondents. DECISION MENDOZA, J.: This is a petition seeking review of the resolutions, dated March 30, 1994 and August 26, 1994, of the National Labor Relations Commission (NLRC) which reversed the decision of the Labor Arbiter and dismissed petitioner Ruben Serrano s complaint for illegal dismissal and denied his motion for reconsideration. The facts are as follows: Petitioner was hired by private respondent Isetann Department Store as a security checker to apprehend shoplifters and prevent pilferage of merchandise.[1] Initially hired on October 4, 1984 on contractual basis, petitioner eventually became a regular employee on April 4, 1985. In 1988, he became head of the Security Checkers Section of private respondent.[2] Sometime in 1991, as a cost-cutting measure, private respondent decided to phase out its entire security section and engage the services of an independent security agency. For this reason, it wrote petitioner the following memorandum:[3] October 11, 1991 MR. RUBEN SERRANO PRESENT Dear Mr. Serrano, ......In view of the retrenchment program of the company, we hereby reiterate our verbal notice to you of your termination as Security Section Head effective October 11, 1991. ......Please secure your clearance from this office. Very truly yours, [Sgd.] TERESITA A. VILLANUEVA Human Resources Division Manager The loss of his employment prompted petitioner to file a complaint on December 3, 1991 for illegal dismissal, illegal layoff, unfair labor practice, underpayment of wages, and nonpayment of salary and overtime pay.[4] The parties were required to submit their position papers, on the basis of which the Labor Arbiter defined the issues as follows:[5] Whether or not there is a valid ground for the dismissal of the complainant.

Whether or not complainant is entitled to his monetary claims for underpayment of wages, nonpayment of salaries, 13th month pay for 1991 and overtime pay. Whether or not Respondent is guilty of unfair labor practice. Thereafter, the case was heard. On April 30, 1993, the Labor Arbiter rendered a decision finding petitioner to have been illegally dismissed. He ruled that private respondent failed to establish that it had retrenched its security section to prevent or minimize losses to its business; that private respondent failed to accord due process to petitioner; that private respondent failed to use reasonable standards in selecting employees whose employment would be terminated; that private respondent had not shown that petitioner and other employees in the security section were so inefficient so as to justify their replacement by a security agency, or that "cost-saving devices [such as] secret video cameras (to monitor and prevent shoplifting) and secret code tags on the merchandise" could not have been employed; instead, the day after petitioner s dismissal, private respondent employed a safety and security supervisor with duties and functions similar to those of petitioner. Accordingly, the Labor Arbiter ordered:[6] WHEREFORE, above premises considered, judgment is hereby decreed: (a)......Finding the dismissal of the complainant to be illegal and concomitantly, Respondent is ordered to pay complainant full backwages without qualification or deduction in the amount of P74,740.00 from the time of his dismissal until reinstatement (computed till promulgation only) based on his monthly salary of P4,040.00/month at the time of his termination but limited to (3) three years; (b)......Ordering the Respondent to immediately reinstate the complainant to his former position as security section head or to a reasonably equivalent supervisorial position in charges of security without loss of seniority rights, privileges and benefits. This order is immediately executory even pending appeal; (c)......Ordering the Respondent to pay complainant unpaid wages in the amount of P2,020.73 and proportionate 13th month pay in the amount of P3,198.30; (d)......Ordering the Respondent to pay complainant the amount of P7,995.91, representing 10% attorney s fees based on the total judgment award of P79,959.12. All other claims of the complainant whether monetary or otherwise is hereby dismissed for lack of merit. SO ORDERED. Private respondent appealed to the NLRC which, in its resolution of March 30, 1994, reversed the decision of the Labor Arbiter and ordered petitioner to be given separation pay equivalent to one month pay for every year of service, unpaid salary, and proportionate 13th month pay. Petitioner filed a motion for reconsideration, but his motion was denied.

The NLRC held that the phase-out of private respondent s security section and the hiring of an independent security agency constituted an exercise by private respondent of "[a] legitimate business decision whose wisdom we do not intend to inquire into and for which we cannot substitute our judgment"; that the distinction made by the Labor Arbiter between "retrenchment" and the employment of "cost-saving devices" under Art. 283 of the Labor Code was insignificant because the company official who wrote the dismissal letter apparently used the term "retrenchment" in its "plain and ordinary sense: to layoff or remove from one s job, regardless of the reason therefor"; that the rule of "reasonable criteria" in the selection of the employees to be retrenched did not apply because all positions in the security section had been abolished; and that the appointment of a safety and security supervisor referred to by petitioner to prove bad faith on private respondent s part was of no moment because the position had long been in existence and was separate from petitioner s position as head of the Security Checkers Section. Hence this petition. Petitioner raises the following issue: IS THE HIRING OF AN INDEPENDENT SECURITY AGENCY BY THE PRIVATE RESPONDENT TO REPLACE ITS CURRENT SECURITY SECTION A VALID GROUND FOR THE DISMISSAL OF THE EMPLOYEES CLASSED UNDER THE LATTER?[7] Petitioner contends that abolition of private respondent s Security Checkers Section and the employment of an independent security agency do not fall under any of the authorized causes for dismissal under Art. 283 of the Labor Code. Petitioner Laid Off for Cause Petitioner s contention has no merit. Art. 283 provides: 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 operations 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 Department 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 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 closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to at least 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 as one (1) whole year. In De Ocampo v. National Labor Relations Commission,[8] this Court upheld the termination of employment of three mechanics in a transportation company and their replacement by a company rendering maintenance and repair services. It held: 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.[9]

In Asian Alcohol Corporation v. National Labor Relations Commission,[10] the Court likewise upheld the termination of employment of water pump tenders and their replacement by independent contractors. It ruled that an employer s good faith in implementing a redundancy program is not necessarily put in doubt by the availment of the services of an independent contractor to replace the services of the terminated employees to promote economy and efficiency. Indeed, as we pointed out in another case, the "[management of a company] cannot be denied the faculty of promoting efficiency and attaining economy by a study of what units are essential for its operation. To it belongs the ultimate determination of whether services should be performed by its personnel or contracted to outside agencies . . . [While there] should be mutual consultation, eventually deference is to be paid to what management decides."[11] Consequently, absent proof that management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer.[12] In the case at bar, we have only the bare assertion of petitioner that, in abolishing the security section, private respondent s real purpose was to avoid payment to the security checkers of the wage increases provided in the collective bargaining agreement approved in 1990.[13] Such an assertion is not a sufficient basis for concluding that the termination of petitioner s employment was not a bona fide decision of management to obtain reasonable return from its investment, which is a right guaranteed to employers under the Constitution.[14] Indeed, that the phase-out of the security section constituted a "legitimate business decision" is a factual finding of an administrative agency which must be accorded respect and even finality by this Court since nothing can be found in the record which fairly detracts from such finding.[15] Accordingly, we hold that the termination of petitioner s services was for an authorized cause, i.e., redundancy. Hence, pursuant to Art. 283 of the Labor Code, petitioner should be given separation pay at the rate of one month pay for every year of service. Sanctions for Violations of the Notice Requirement 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, and the question is the appropriate sanction for the violation of petitioner s right. To be sure, this is not the first time this question has arisen. In Sebuguero v. NLRC,[16] workers in a garment factory were temporarily laid off due to the cancellation of orders and a garment embargo. The Labor Arbiter found that the workers had been illegally dismissed and ordered the company to pay separation pay and backwages. The NLRC, on the other hand, found that this was a case of retrenchment due to business losses and ordered the payment of separation pay without backwages. This Court sustained the NLRC s finding. However, as the company did not comply with the 30-day written notice in Art. 283 of the Labor Code, the Court ordered the employer to pay the workers P2,000.00 each as indemnity. The decision followed the ruling in several cases involving dismissals which, although based on any of the just causes under Art. 282,[17] were effected without notice and hearing to the employee as required by the implementing rules.[18] As this Court said: "It is now settled that where the dismissal of one employee is in fact for a just and valid cause and is so proven to be but he is not accorded his right to due process, i.e., he was not furnished the twin requirements of notice and opportunity to be heard, the

dismissal shall be upheld but the employer must be sanctioned for non-compliance with the requirements of, or for failure to observe, due process."[19] The rule reversed a long standing policy theretofore followed that even though the dismissal is based on a just cause or the termination of employment is for an authorized cause, the dismissal or termination is illegal if effected without notice to the employee. The shift in doctrine took place in 1989 in Wenphil Corp. v. NLRC.[20] In announcing the change, this Court said:[21] The Court holds that the policy of ordering the reinstatement to the service of an employee without loss of seniority and the payment of his wages during the period of his separation until his actual reinstatement but not exceeding three (3) years without qualification or deduction, when it appears he was not afforded due process, although his dismissal was found to be for just and authorized cause in an appropriate proceeding in the Ministry of Labor and Employment, should be re-examined. It will be highly prejudicial to the interests of the employer to impose on him the services of an employee who has been shown to be guilty of the charges that warranted his dismissal from employment. Indeed, it will demoralize the rank and file if the undeserving, if not undesirable, remains in the service. .... 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 rule is explicit as above discussed. The dismissal of an employee must be for just or authorized cause and after due process. Petitioner committed an infraction of the second requirement. Thus, it must be imposed a sanction for its failure to give a formal notice and conduct an investigation as required by law before dismissing petitioner from employment. Considering the circumstances of this case petitioner must indemnify the private respondent the amount of P1,000.00. The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer. The fines imposed for violations of the notice requirement have varied from P1,000.00[22] to P2,000.00[23] to P5,000.00[24] to P10,000.00.[25] Need for Reexamining the Wenphil Doctrine Today, we once again consider the question of appropriate sanctions for violations of the notice requirement in light of our experience during the last decade or so with the Wenphil doctrine. The number of cases involving dismissals without the requisite notice to the employee, although effected for just or authorized causes, suggests that the imposition of fine for violation of the notice requirement has not been effective in deterring violations of the notice requirement. Justice Panganiban finds the monetary sanctions "too insignificant, too niggardly, and sometimes even too late." On the other hand, Justice Puno says there has in effect been fostered a policy of "dismiss now, pay later" which moneyed employers find more convenient to comply with than the requirement to serve a 30-day written notice (in the case of termination of employment for an authorized cause under Arts. 283-284) or to give notice and hearing (in the case of dismissals for just causes under Art. 282). For this reason, they regard any dismissal or layoff without the requisite notice to be null and void even though there are just or authorized causes for such dismissal or layoff. Consequently, in their view, the employee concerned should be reinstated and paid backwages. Validity of Petitioner s Layoff Not Affected by Lack of Notice

We agree with our esteemed colleagues, Justices Puno and Panganiban, that we should rethink the sanction of fine for an employer s disregard of the notice requirement. We do not agree, however, that disregard of this requirement by an employer renders the dismissal or termination of employment null and void. Such a stance is actually a reversion to the discredited pre-Wenphil rule of ordering an employee to be reinstated and paid backwages when it is shown that he has not been given notice and hearing although his dismissal or layoff is later found to be for a just or authorized cause. Such rule was abandoned in Wenphil because it is really unjust to require an employer to keep in his service one who is guilty, for example, of an attempt on the life of the employer or the latter s family, or when the employer is precisely retrenching in order to prevent losses. The need is for a rule which, while recognizing the employee s right to notice before he is dismissed or laid off, at the same time acknowledges the right of the employer to dismiss for any of the just causes enumerated in Art. 282 or to terminate employment for any of the authorized causes mentioned in Arts. 283-284. If the Wenphilrule imposing a fine on an employer who is found to have dismissed an employee for cause without prior notice is deemed ineffective in deterring employer violations of the notice requirement, the remedy is not to declare the dismissal void if there are just or valid grounds for such dismissal or if the termination is for an authorized cause. That would be to uphold the right of the employee but deny the right of the employer to dismiss for cause. Rather, the remedy is to order the payment to the employee of full backwages from the time of his dismissal until the court finds that the dismissal was for a just cause. But, otherwise, his dismissal must be upheld and he should not be reinstated. This is because his dismissal is ineffectual. For the same reason, if an employee is laid off for any of the causes in Arts. 283-284, i.e., installation of a labor-saving device, but the employer did not give him and the DOLE a 30-day written notice of termination in advance, then the termination of his employment should be considered ineffectual and he should be paid backwages. However, the termination of his employment should not be considered void but he should simply be paid separation pay as provided in Art. 283 in addition to backwages. Justice Puno argues that an employer s failure to comply with the notice requirement constitutes a denial of the employee s right to due process. Prescinding from this premise, he quotes the statement of Chief Justice Concepcion in Vda. de Cuaycong v. Vda. de Sengbengco[26] that "acts of Congress, as well as of the Executive, can deny due process only under the pain of nullity, and judicial proceedings suffering from the same flaw are subject to the same sanction, any statutory provision to the contrary notwithstanding." Justice Puno concludes that the dismissal of an employee without notice and hearing, even if for a just cause, as provided in Art. 282, or for an authorized cause, as provided in Arts. 283-284, is a nullity. Hence, even if just or authorized causes exist, the employee should be reinstated with full back pay. On the other hand, Justice Panganiban quotes from the statement in People v. Bocar[27] that "[w]here the denial of the fundamental right of due process is apparent, a decision rendered in disregard of that right is void for lack of jurisdiction." Violation of Notice Requirement Not a Denial of Due Process The cases cited by both Justices Puno and Panganiban refer, however, to the denial of due process by the State, which is not the case here. There are three reasons why, on the other hand, violation by the employer of the notice requirement cannot be considered a denial of due process resulting in the nullity of the employee s dismissal or layoff. The first is that the Due Process Clause of the Constitution is a limitation on governmental powers. It does not apply to the exercise of private power, such as the termination of employment under the Labor Code. This is plain from the text of Art. III, 1 of the Constitution, viz.: "No person shall be deprived of life, liberty, or property without due process of law. . . ." The reason is simple: Only the State has

authority to take the life, liberty, or property of the individual. The purpose of the Due Process Clause is to ensure that the exercise of this power is consistent with what are considered civilized methods. The second reason is that notice and hearing are required under the Due Process Clause before the power of organized society are brought to bear upon the individual. This is obviously not the case of termination of employment under Art. 283. Here the employee is not faced with an aspect of the adversary system. The purpose for requiring a 30-day written notice before an employee is laid off is not to afford him an opportunity to be heard on any charge against him, for there is none. The purpose rather is to give him time to prepare for the eventual loss of his job and the DOLE an opportunity to determine whether economic causes do exist justifying the termination of his employment. Even in cases of dismissal under Art. 282, the purpose for the requirement of notice and hearing is not to comply with Due Process Clause of the Constitution. The time for notice and hearing is at the trial stage. Then that is the time we speak of notice and hearing as the essence of procedural due process. Thus, compliance by the employer with the notice requirement before he dismisses an employee does not foreclose the right of the latter to question the legality of his dismissal. As Art. 277(b) provides, "Any decision taken by the employer shall be without prejudice to the right of the worker to contest the validity or legality of his dismissal by filing a complaint with the regional branch of the National Labor Relations Commission." Indeed, to contend that the notice requirement in the Labor Code is an aspect of due process is to overlook the fact that Art. 283 had its origin in Art. 302 of the Spanish Code of Commerce of 1882 which gave either party to the employer-employee relationship the right to terminate their relationship by giving notice to the other one month in advance. In lieu of notice, an employee could be laid off by paying him a mesada equivalent to his salary for one month.[28] This provision was repealed by Art. 2270 of the Civil Code, which took effect on August 30, 1950. But on June 12, 1954, R.A. No. 1052, otherwise known as the Termination Pay Law, was enacted reviving the mesada. On June 21, 1957, the law was amended by R.A. No. 1787 providing for the giving of advance notice or the payment of compensation at the rate of one-half month for every year of service.[29] The Termination Pay Law was held not to be a substantive law but a regulatory measure, the purpose of which was to give the employer the opportunity to find a replacement or substitute, and the employee the equal opportunity to look for another job or source of employment. Where the termination of employment was for a just cause, no notice was required to be given to the employee.[30] It was only on September 4, 1981 that notice was required to be given even where the dismissal or termination of an employee was for cause. This was made in the rules issued by the then Minister of Labor and Employment to implement B.P. Blg. 130 which amended the Labor Code. And it was still much later when the notice requirement was embodied in the law with the amendment of Art. 277(b) by R.A. No. 6715 on March 2, 1989. It cannot be that the former regime denied due process to the employee. Otherwise, there should now likewise be a rule that, in case an employee leaves his job without cause and without prior notice to his employer, his act should be void instead of simply making him liable for damages. The third reason why the notice requirement under Art. 283 can not be considered a requirement of the Due Process Clause is that the employer cannot really be expected to be entirely an impartial judge of his own cause. This is also the case in termination of employment for a just cause under Art. 282 (i.e., serious misconduct or willful disobedience by the employee of the lawful orders of the employer, gross and habitual neglect of duties, fraud or willful breach of trust of the employer, commission of crime against the employer or the latter s immediate family or duly authorized representatives, or other analogous cases). Justice Puno disputes this. He says that "statistics in the DOLE will prove that many cases have been won by employees before the grievance committees manned by impartial judges of the company." The

grievance machinery is, however, different because it is established by agreement of the employer and the employees and composed of representatives from both sides. That is why, in Batangas Laguna Tayabas Bus Co. v. Court of Appeals,[31] which Justice Puno cites, it was held that "Since the right of [an employee] to his labor is in itself a property and that the labor agreement between him and [his employer] is the law between the parties, his summary and arbitrary dismissal amounted to deprivation of his property without due process of law." But here we are dealing with dismissals and layoffs by employers alone, without the intervention of any grievance machinery. Accordingly in Montemayor v. Araneta University Foundation,[32] although a professor was dismissed without a hearing by his university, his dismissal for having made homosexual advances on a student was sustained, it appearing that in the NLRC, the employee was fully heard in his defense. Lack of Notice Only Makes Termination Ineffectual Not all notice requirements are requirements of due process. Some are simply part of a procedure to be followed before a right granted to a party can be exercised. Others are simply an application of the Justinian precept, embodied in the Civil Code,[33] to act with justice, give everyone his due, and observe honesty and good faith toward one s fellowmen. Such is the notice requirement in Arts. 282-283. The consequence of the failure either of the employer or the employee to live up to this precept is to make him liable in damages, not to render his act (dismissal or resignation, as the case may be) void. The measure of damages is the amount of wages the employee should have received were it not for the termination of his employment without prior notice. If warranted, nominal and moral damages may also be awarded. We hold, therefore, that, with respect to Art. 283 of the Labor Code, the employer s 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. It is similar to the failure to observe the provisions of Art. 1592, in relation to Art. 1191, of the Civil Code[34] in rescinding a contract for the sale of immovable property. Under these provisions, while the power of a party to rescind a contract is implied in reciprocal obligations, nonetheless, in cases involving the sale of immovable property, the vendor cannot exercise this power even though the vendee defaults in the payment of the price, except by bringing an action in court or giving notice of rescission by means of a notarial demand.[35] Consequently, a notice of rescission given in the letter of an attorney has no legal effect, and the vendee can make payment even after the due date since no valid notice of rescission has been given.[36] Indeed, under the Labor Code, only the absence of a just cause for the termination of employment can make the dismissal of an employee illegal. This is clear from Art. 279 which provides: 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.[37] Thus, only if the termination of employment is not for any of the causes provided by law is it illegal and, therefore, the employee should be reinstated and paid backwages. To contend, as Justices Puno and Panganiban do, that even if the termination is for a just or authorized cause the employee concerned should be reinstated and paid backwages would be to amend Art. 279 by adding another ground for considering a dismissal illegal. What is more, it would ignore the fact that under Art. 285, if it is the employee who fails to give a written notice to the employer that he is leaving the service of the latter, at

least one month in advance, his failure to comply with the legal requirement does not result in making his resignation void but only in making him liable for damages.[38] This disparity in legal treatment, which would result from the adoption of the theory of the minority cannot simply be explained by invoking President Ramon Magsaysay s motto that "he who has less in life should have more in law." That would be a misapplication of this noble phrase originally from Professor Thomas Reed Powell of the Harvard Law School. Justice Panganiban cites Pepsi-Cola Bottling Co. v. NLRC,[39] in support of his view that an illegal dismissal results not only from want of legal cause but also from the failure to observe "due process." The PepsiCola case actually involved a dismissal for an alleged loss of trust and confidence which, as found by the Court, was not proven. The dismissal was, therefore, illegal, not because there was a denial of due process, but because the dismissal was without cause. The statement that the failure of management to comply with the notice requirement "taints the dismissal with illegality" was merely a dictum thrown in as additional grounds for holding the dismissal to be illegal. Given the nature of the violation, therefore, the appropriate sanction for the failure to give notice is the payment of backwages for the period when the employee is considered not to have been effectively dismissed or his employment terminated. The sanction is not the payment alone of nominal damages as Justice Vitug contends. Unjust Results of Considering Dismissals/Layoffs Without Prior Notice As Illegal The refusal to look beyond the validity of the initial action taken by the employer to terminate employment either for an authorized or just cause can result in an injustice to the employer. For not giving notice and hearing before dismissing an employee, who is otherwise guilty of, say, theft, or even of an attempt against the life of the employer, an employer will be forced to keep in his employ such guilty employee. This is unjust. It is true the Constitution regards labor as "a primary social economic force."[40] But so does it declare that it "recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investment."[41] The Constitution bids the State to "afford full protection to labor."[42] But it is equally true that "the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer."[43] And it is oppression to compel the employer to continue in employment one who is guilty or to force the employer to remain in operation when it is not economically in his interest to do so. In sum, we hold that if in proceedings for reinstatement under Art. 283, it is shown that the termination of employment was due to an authorized cause, then the employee concerned should not be ordered reinstated even though there is failure to comply with the 30-day notice requirement. Instead, he must be granted separation pay in accordance with Art. 283, to wit: 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 month 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 months shall be considered one (1) whole year.

If the employee s separation is without cause, instead of being given separation pay, he should be reinstated. In either case, whether he 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. On the other hand, with respect to dismissals for cause under Art. 282, if it is shown that the employee was dismissed for any of the just causes mentioned in said Art. 282, then, in accordance with that article, he should not be reinstated. However, he must be paid backwages from the time his employment was terminated until it is determined that the termination of employment is for a just cause because the failure to hear him before he is dismissed renders the termination of his employment without legal effect. WHEREFORE, the petition is GRANTED and the resolution of the National Labor Relations Commission is MODIFIED by ordering private respondent Isetann Department Store, Inc. to pay petitioner separation pay equivalent to one (1) month pay for every year of service, his unpaid salary, and his proportionate 13th month pay and, in addition, full backwages from the time his employment was terminated on October 11, 1991 up to the time the decision herein becomes final. For this purpose, this case is REMANDED to the Labor Arbiter for computation of the separation pay, backwages, and other monetary awards to petitioner. SO ORDERED.

EN BANC

JENNY M. AGABON and VIRGILIO C. AGABON, Petitioners,

G.R. No. 158693 Present: Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ.

- versus -

NATIONAL LABOR RELATIONS COMMISSION (NLRC), RIVIERA HOME IMPROVEMENTS, INC. and VICENTE ANGELES, Respondents.

Promulgated: November 17, 2004

x ---------------------------------------------------------------------------------------- x DECISION

YNARES-SANTIAGO, J.: This petition for review seeks to reverse the decision[1] of the Court of Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, modifying the decision of National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 023442-00. Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling and installing ornamental and construction materials. It employed petitioners Virgilio Agabon and Jenny Agabon as gypsum board and cornice installers on January 2, 1992[2] until February 23, 1999 when they were dismissed for abandonment of work. Petitioners then filed a complaint for illegal dismissal and payment of money claims[3] and on December 28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal and ordered private respondent to pay the monetary claims. The dispositive portion of the decision states: WHEREFORE, premises considered, We find the termination of the complainants illegal. Accordingly, respondent is hereby ordered to pay them their backwages up to November 29, 1999 in the sum of:

1. 2.

Jenny M. Agabon Virgilio C. Agabon

P56, 231.93 56, 231.93

and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year of service from date of hiring up to November 29, 1999. Respondent is further ordered to pay the complainants their holiday pay and service incentive leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and rest days and Virgilio Agabon s 13th month pay differential amounting to TWO THOUSAND ONE HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED TWENTY ONE THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for Jenny Agabon, and ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per attached computation of Julieta C. Nicolas, OIC, Research and Computation Unit, NCR. SO ORDERED.[4]

On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had abandoned their work, and were not entitled to backwages and separation pay. The other money claims awarded by the Labor Arbiter were also denied for lack of evidence.[5]

Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with the Court of Appeals.

The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because they had abandoned their employment but ordered the payment of money claims. The dispositive portion of the decision reads: WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only insofar as it dismissed petitioner s money claims. Private respondents are ordered to pay petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their service incentive leave pay for said years, and to pay the balance of petitioner Virgilio Agabon s 13th month pay for 1998 in the amount of P2,150.00. SO ORDERED.[6] Hence, this petition for review on the sole issue of whether petitioners were illegally dismissed.[7]

Petitioners assert that they were dismissed because the private respondent refused to give them assignments unless they agreed to work on a pakyaw basis when they reported for duty on February

23, 1999. They did not agree on this arrangement because it would mean losing benefits as Social Security System (SSS) members. Petitioners also claim that private respondent did not comply with the twin requirements of notice and hearing.[8]

Private respondent, on the other hand, maintained that petitioners were not dismissed but had abandoned their work.[9] In fact, private respondent sent two letters to the last known addresses of the petitioners advising them to report for work. Private respondent s manager even talked to petitioner Virgilio Agabon by telephone sometime in June 1999 to tell him about the new assignment at Pacific Plaza Towers involving 40,000 square meters of cornice installation work. However, petitioners did not report for work because they had subcontracted to perform installation work for another company. Petitioners also demanded for an increase in their wage to P280.00 per day. When this was not granted, petitioners stopped reporting for work and filed the illegal dismissal case.[10]

It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not only respect but even finality if the findings are supported by substantial evidence. This is especially so when such findings were affirmed by the Court of Appeals.[11] However, if the factual findings of the NLRC and the Labor Arbiter are conflicting, as in this case, the reviewing court may delve into the records and examine for itself the questioned findings.[12]

Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners dismissal was for a just cause. They had abandoned their employment and were already working for another employer.

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.[13] Article 282 of the Labor Code enumerates the just causes for termination by the employer: (a) serious misconduct or willful disobedience by the employee of the lawful orders of his employer or the latter s representative in connection with the employee s work; (b) gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by his employer or his duly authorized representative; (d) commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and (e) other causes analogous to the foregoing.

Abandonment is the deliberate and unjustified refusal of an employee to resume his employment.[14] It is a form of neglect of duty, hence, a just cause for termination of employment by the employer.[15] 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 employeremployee 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 no more intention to work. The intent to discontinue the employment must be shown by clear proof that it was deliberate and unjustified.[16]

In February 1999, petitioners were frequently absent having subcontracted for an installation work for another company. Subcontracting for another company clearly showed the intention to sever the employer-employee relationship with private respondent. This was not the first time they did this. In January 1996, they did not report for work because they were working for another company. Private respondent at that time warned petitioners that they would be dismissed if this happened again. Petitioners disregarded the warning and exhibited a clear intention to sever their employer-employee relationship. The record of an employee is a relevant consideration in determining the penalty that should be meted out to him.[17] In Sandoval Shipyard v. Clave,[18] we held that an employee who deliberately absented from work without leave or permission from his employer, for the purpose of looking for a job elsewhere, is considered to have abandoned his job. We should apply that rule with more reason here where petitioners were absent because they were already working in another company.

The law imposes many obligations on the employer such as providing just compensation to workers, observance of the procedural requirements of notice and hearing in the termination of employment. On the other hand, the law also recognizes the right of the employer to expect from its workers not only good performance, adequate work and diligence, but also good conduct[19] and loyalty. The employer may not be compelled to continue to employ such persons whose continuance in the service will patently be inimical to his interests.[20]

After establishing that the terminations were for a just and valid cause, we now determine if the procedures for dismissal were observed.

The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of the Omnibus Rules Implementing the Labor Code: Standards of due process: requirements of notice. In all cases of termination of employment, the following standards of due process shall be substantially observed: I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to explain his side; (b) A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him; and (c) A written notice of termination served on the employee indicating that upon due consideration of all the circumstances, grounds have been established to justify his termination. In case of termination, the foregoing notices shall be served on the employee s last known address.

Dismissals based on just causes contemplate acts or omissions attributable to the employee while dismissals based on authorized causes involve grounds under the Labor Code which allow the employer to terminate employees. A termination for an authorized cause requires payment of separation pay. When the termination of employment is declared illegal, reinstatement and full backwages are mandated under Article 279. If reinstatement is no longer possible where the dismissal was unjust, separation pay may be granted.

Procedurally, (1) if the dismissal is based on a just cause under Article 282, 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: a notice specifying the grounds for which dismissal is sought a hearing or an opportunity to be heard and after hearing or opportunity to be heard, a notice of the decision to dismiss; 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.

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; (2) the dismissal is without just or authorized cause but due process was observed; (3) the dismissal is without just or authorized cause and there was no due process; and (4) the dismissal is for just or authorized cause but due process was not observed.

In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any liability.

In the second and third situations where the dismissals are illegal, 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.

In the fourth situation, 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 noncompliance with the procedural requirements of due process.

The present case squarely falls under the fourth situation. The dismissal should be upheld because it was established that the petitioners abandoned their jobs to work for another company. Private respondent, however, did not follow the notice requirements and instead argued that sending notices to the last known addresses would have been useless because they did not reside there anymore. Unfortunately for the private respondent, this is not a valid excuse because the law mandates the twin notice requirements to the employee s last known address.[21] Thus, it should be held liable for noncompliance with the procedural requirements of due process.

A review and re-examination of the relevant legal principles is appropriate and timely to clarify the various rulings on employment termination in the light of Serrano v. National Labor Relations Commission.[22] Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not given any notice. In the 1989 case ofWenphil Corp. v. National Labor Relations Commission,[23] we reversed this long-standing rule and held that the dismissed employee, although not given any notice and hearing, was not entitled to reinstatement and backwages because the dismissal was for grave misconduct and insubordination, a just ground for termination under Article 282. The employee had a violent temper and caused trouble during office hours, defying superiors who tried to pacify him. We concluded that reinstating the employee and awarding backwages may encourage him to do even worse and will render a mockery of the rules of discipline that employees are required to observe.
[24]

We further held that:

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 rule is explicit as above discussed. The dismissal of an employee must be for just or authorized cause and after due process. Petitioner committed an infraction of the second requirement. Thus, it must be imposed a sanction for its failure to give a formal notice and conduct an investigation as required by law before dismissing petitioner from

employment. Considering the circumstances of this case petitioner must indemnify the private respondent the amount of P1,000.00. The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer.[25] The rule thus evolved: where the employer had a valid reason to dismiss an employee but did not follow the due process requirement, the dismissal may be upheld but the employer will be penalized to pay an indemnity to the employee. This became known as the Wenphil or Belated Due Process Rule. On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We held that the violation by the employer of the notice requirement in termination for just or authorized causes was not a denial of due process that will nullify the termination. However, the dismissal is ineffectual and the employer must pay full backwages from the time of termination until it is judicially declared that the dismissal was for a just or authorized cause. The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant number of cases involving dismissals without requisite notices. We concluded that the imposition of penalty by way of damages for violation of the notice requirement was not serving as a deterrent. Hence, we now required payment of full backwages from the time of dismissal until the time the Court finds the dismissal was for a just or authorized cause. Serrano was confronting the practice of employers to dismiss now and pay later by imposing full backwages. We believe, however, that the ruling in Serrano did not consider the full meaning of Article 279 of the Labor Code which states: 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.

This means that the termination is illegal only if it is not for any of the justified or authorized causes provided by law. Payment of backwages and other benefits, including reinstatement, is justified only if the employee was unjustly dismissed. The fact that the Serrano ruling can cause unfairness and injustice which elicited strong dissent has prompted us to revisit the doctrine. To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a system of rights based on moral principles so deeply imbedded in the traditions and feelings of our people as to be deemed fundamental to a civilized society as conceived by our entire history. Due process is that

which comports with the deepest notions of what is fair and right and just.[26] It is a constitutional restraint on the legislative as well as on the executive and judicial powers of the government provided by the Bill of Rights. Due process under the Labor Code, like Constitutional due process, has two aspects: substantive, i.e., the valid and authorized causes of employment termination under the Labor Code; and procedural, i.e., the manner of dismissal. Procedural due process requirements for dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as the Labor Code of the Philippines in Book VI, Rule I, Sec. 2, as amended by Department Order Nos. 9 and 10.[27] Breaches of these due processrequirements violate the Labor Code. Therefore statutory due process should be differentiated from failure to comply withconstitutional due process. Constitutional due process protects the individual from the government and assures him of his rights in criminal, civil or administrative proceedings; while statutory due process found in the Labor Code and Implementing Rules protects employees from being unjustly terminated without just cause after notice and hearing. In Sebuguero v. National Labor Relations Commission,[28] the dismissal was for a just and valid cause but the employee was not accorded due process. The dismissal was upheld by the Court but the employer was sanctioned. The sanction should be in the nature of indemnification or penalty, and depends on the facts of each case and the gravity of the omission committed by the employer. In Nath v. National Labor Relations Commission,[29] it was ruled that even if the employee was not given due process, the failure did not operate to eradicate the just causes for dismissal. The dismissal being for just cause, albeit without due process, did not entitle the employee to reinstatement, backwages, damages and attorney s fees. Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National Labor Relations Commission,[30]which opinion he reiterated in Serrano, stated: C. 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 loquiturrule and award, in lieu of separation pay, nominal damages to the employee. x x x.[31] After carefully analyzing the consequences of the divergent doctrines in the law on employment termination, we believe that in cases involving dismissals for cause but without observance of the twin

requirements of notice and hearing, the better rule is to abandon the Serrano doctrine and to follow Wenphil by holding that the dismissal was for just cause but imposing sanctions on the employer. Such sanctions, however, must be stiffer than that imposed in Wenphil. By doing so, this Court would be able to achieve a fair result by dispensing justice not just to employees, but to employers as well. The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but not complying with statutory due process may have far-reaching consequences. This would encourage frivolous suits, where even the most notorious violators of company policy are rewarded by invoking due process. This also creates absurd situations where there is a just or authorized cause for dismissal but a procedural infirmity invalidates the termination. Let us take for example a case where the employee is caught stealing or threatens the lives of his co-employees or has become a criminal, who has fled and cannot be found, or where serious business losses demand that operations be ceased in less than a month. Invalidating the dismissal would not serve public interest. It could also discourage investments that can generate employment in the local economy. The constitutional policy to provide full protection to labor is not meant to be a sword to oppress employers. The commitment of this Court to the cause of labor does not prevent us from sustaining the employer when it is in the right, as in this case.[32] Certainly, an employer should not be compelled to pay employees for work not actually performed and in fact abandoned. The employer should not be compelled to continue employing a person who is admittedly guilty of misfeasance or malfeasance and whose continued employment is patently inimical to the employer. The law protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer.[33] It must be stressed that in the present case, the petitioners committed a grave offense, i.e., abandonment, which, if the requirements of due process were complied with, would undoubtedly result in a valid dismissal. An employee who is clearly guilty of conduct violative of Article 282 should not be protected by the Social Justice Clause of the Constitution. Social justice, as the term suggests, should be used only to correct an injustice. As the eminent Justice Jose P. Laurel observed, social justice must be founded on the recognition of the necessity of interdependence among diverse units of a society and of the protection that should be equally and evenly extended to all groups as a combined force in our social and economic life, consistent with the fundamental and paramount objective of the state of promoting the health, comfort, and quiet of all persons, and of bringing about the greatest good to the greatest number. [34]

This is not to say that the Court was wrong when it ruled the way it did in Wenphil, Serrano and related cases. Social justice is not based on rigid formulas set in stone. It has to allow for changing times and circumstances.

Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labormanagement relations and dispense justice with an even hand in every case: We have repeatedly stressed that social justice or any justice for that matter is for the deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that, in case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the Constitution fittingly extends its sympathy and compassion. But never is it justified to give preference to the poor simply because they are poor, or reject the rich simply because they are rich, for justice must always be served for the poor and the rich alike, according to the mandate of the law.[35] Justice in every case should only be for the deserving party. It should not be presumed that every case of illegal dismissal would automatically be decided in favor of labor, as management has rights that should be fully respected and enforced by this Court. As interdependent and indispensable partners in nation-building, labor and management need each other to foster productivity and economic growth; hence, the need to weigh and balance the rights and welfare of both the employee and employer. Where the dismissal is for a just cause, as in the instant case, the lack of statutory due process should not nullify the dismissal, or render it illegal, or ineffectual. However, the employer should indemnify the employee for the violation of his statutory rights, as ruled in Reta v. National Labor Relations Commission.[36] The indemnity to be imposed should be stiffer to discourage the abhorrent practice of dismiss now, pay later, which we sought to deter in the Serrano ruling. The sanction should be in the nature of indemnification or penalty and should depend on the facts of each case, taking into special consideration the gravity of the due process violation of the employer. Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[37] As enunciated by this Court in Viernes v. National Labor Relations Commissions,[38] an employer is liable to pay indemnity in the form of nominal damages to an employee who has been dismissed if, in effecting such dismissal, the employer fails to comply with the requirements of due process. The Court, after considering the circumstances therein, fixed the indemnity at P2,590.50, which was equivalent to the employee s one month salary. This indemnity is intended not to penalize the employer but to vindicate or recognize the employee s right to statutory due process which was violated by the employer.[39] The violation of the petitioners right to statutory due process by the private respondent warrants the payment of indemnity in the form of nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances.[40] Considering the prevailing circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We believe this form of damages would serve to deter employers from future violations of the statutory due

process rights of employees. At the very least, it provides a vindication or recognition of this fundamental right granted to the latter under the Labor Code and its Implementing Rules. Private respondent claims that the Court of Appeals erred in holding that it failed to pay petitioners holiday pay, service incentive leave pay and 13th month pay. We are not persuaded. We affirm the ruling of the appellate court on petitioners money claims. Private respondent is liable for petitioners holiday pay, service incentive leave pay and 13th month pay without deductions. As a general rule, one who pleads payment has the burden of proving it. Even where the employee must allege non-payment, the general rule is that the burden rests on the employer to prove payment, rather than on the employee to prove non-payment. The reason for the rule is that the pertinent personnel files, payrolls, records, remittances and other similar documents which will show that overtime, differentials, service incentive leave and other claims of workers have been paid are not in the possession of the worker but in the custody and absolute control of the employer.[41] In the case at bar, if private respondent indeed paid petitioners holiday pay and service incentive leave pay, it could have easily presented documentary proofs of such monetary benefits to disprove the claims of the petitioners. But it did not, except with respect to the 13th month pay wherein it presented cash vouchers showing payments of the benefit in the years disputed.[42] Allegations by private respondent that it does not operate during holidays and that it allows its employees 10 days leave with pay, other than being self-serving, do not constitute proof of payment. Consequently, it failed to discharge the onus probandi thereby making it liable for such claims to the petitioners. Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabon s 13 month pay, we find the same to be unauthorized. The evident intention of Presidential Decree No. 851 is to grant an additional income in the form of the 13thmonth pay to employees not already receiving the same[43] so as to further protect the level of real wages from the ravages of world-wide inflation. [44] Clearly, as additional income, the 13th month pay is included in the definition of wage under Article 97(f) of the Labor Code, to wit:
th

(f) Wage paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece , or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee from which an employer is prohibited under Article 113[45] of the same Code from making any deductions without the employee s knowledge and consent. In the instant case, private respondent failed to show that the deduction of the SSS loan and the value of the shoes from petitioner Virgilio Agabon s 13th month pay was authorized by the latter. The lack of authority to deduct is further bolstered by the

fact that petitioner Virgilio Agabon included the same as one of his money claims against private respondent. The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter ordering the private respondent to pay each of the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and the balance of Virgilio Agabon s thirteenth month pay for 1998 in the amount of P2,150.00. WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners Jenny and Virgilio Agabon abandoned their work, and ordering private respondent to pay each of the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and the balance of Virgilio Agabon s thirteenth month pay for 1998 in the amount of P2,150.00 is AFFIRMED with the MODIFICATION that private respondent Riviera Home Improvements, Inc. is further ORDERED to pay each of the petitioners the amount of P30,000.00 as nominal damages for non-compliance with statutory due process. No costs. SO ORDERED.

C.F. SHARP & CO., INC., Petitioner,

G.R. No. 157619

Present:

QUISUMBING, J., Chairperson, CARPIO,* - versus CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

RENATO ZIALCITA,** Respondent.

Promulgated:

July 17, 2006 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

The petitioner seeks the reversal of the Decision[1] dated December 12, 2002, of the Court of Appeals in CA-G.R. SP No. 62578, dismissing its petition for certiorari against the National Labor Relations Commission, as well as the Resolution[2] dated March 11, 2003, denying its motion for reconsideration.

Petitioner C.F. Sharp & Co., Inc. deploys Filipino seamen to foreign ship owners. On May 15, 1989, it hired respondent Renato Zialcita as a clerk in its Crewing Department. On February 17, 1992, it promoted him as Assistant Crewing Manager and was tasked to handle the Texaco Marine Account and process shipping papers of the petitioner s seamen.

The petitioner alleged that on May 18, 1993, seaman Marcial Tanoy returned to the country bringing with him US$1,000 from another seaman, Fernando Guerrero. On May 27, 1993, Tanoy gave the

money to respondent Zialcita. On June 14, 1993, when Guerrero s father and sister came to the petitioner s office to get the money, the respondent denied he had it. On June 25, 1993, the Guerreros came back together with Tanoy. This time, the respondent acknowledged he had the money but could not give it to them then. On June 29, 1993, he returned US$800 to Guerrero s father who issued a receipt. The respondent also issued a promissory note on the US$200 balance due on July 2, 1993. When the day came, the Guerreros reported[3] the matter to the Senior Crewing Manager, Paquito Apolonio,*** who immediately paid the deficiency. Respondent was served with a notice[4] giving him seventy-two hours to respond to the Guerreros complaint, and placed on preventive suspension immediately. Under the date July 2, 1993, the respondent submitted his reply.[5]

Respondent averred that Tanoy had approached him on May 28, 1993, but he refused to accept the money due to the petitioner s policy against unauthorized handling of remittances from its seamen. According to respondent, when the Guerreros went to the petitioner s office, he informed them that he did not have the money, and on June 23, 1993, Tanoy returned and begged him to accept the money since he was leaving for the Visayas and Guerrero s wife would pick it up the following day. However, Guerrero s wife did not come so he brought the money home. He added that on June 25, 1993, the Guerreros went to his office but he advised them to come back since the money was in his house. The respondent then brought back the money to his office and placed it inside his drawer. When the Guerreros returned on June 29, 1993, he discovered that US$200 was missing. He gave them the US$800 and promised to return the US$200 on July 2, 1993. The respondent later learned that the Guerreros submitted to Paquito Apolonio, the petitioner s Senior Crewing Manager, a statement/complaint against him. On July 2, 1993, he reimbursed the petitioner the balance of US$200.

Not finding the explanation credible, much less acceptable, the petitioner [6] Thus, respondent filed a complaint for illegal dismissal with money dismissed Zialcita on July 6, 1993. claims and damages before the Arbitration Branch of the National Labor Relations Commission (NLRC).

On February 22, 1996, the NLRC through Labor Arbiter Sampang held: WHEREFORE, judgment is hereby rendered ordering respondent C.F. Shar[p] and Co., Inc., to reinstate the complainant to his former position or equivalent position of equal rank with full backwages including benefits and other privileges from his dismissal up to the time this decision is rendered which, as of 21 February 1996, already amounts to P217[,]350.00. Complainant is directed to report to this Arbitration Branch for the implementation of the reinstatement aspect by the Sheriff. SO ORDERED.[7]

On October 30, 1996, the NLRC vacated the decision on the ground that the case was decided prematurely without affording the petitioner the opportunity to present rebuttal evidence.[8] Upon remand, the Labor Arbiter rendered a Decision on September 14, 1998, to wit: WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered dismissing the complaint for lack of merit. SO ORDERED.[9]

On September 29, 2000, the NLRC reversed the Arbiter s decision: WHEREFORE, premises considered, the Decision dated September 14, 1998 is hereby SET ASIDE. The decision of Labor Arbiter Sampang dated February 22, 1996 is reinstated with modification in that a penalty of one (1) month suspension is imposed upon complainant. The rest of the Decision dated February 22, 1996 is AFFIRMED. SO ORDERED.[10]

On appeal, the Court of Appeals affirmed the NLRC: IN VIEW OF THE FOREGOING, the assailed decision of the NLRC is AFFIRMED, and the petition DISMISSED. SO ORDERED.[11]

The appellate court sustained the NLRC finding that the date when the respondent received the money from Tanoy was pivotal. If he received it on May 27, 1993, he would be guilty of gross misconduct for giving the Guerreros a run-around on June 14, 1993. But if he received it only on June 23, 1993, the charge of gross misconduct against him would fail. The appellate court noted that the only evidence on record that the respondent received the money on May 27, 1993 was Tanoy s affidavit and his wife s letter datedJune 18, 1993 informing the Guerreros that the money was with the respondent already. Yet, these are insufficient to overcome the respondent s testimony that he received the money only on June 23, 1993.

It will be noted that Tanoy and his wife failed to testify regarding their allegations. Nevertheless, the appellate court affirmed that the respondent indeed received the money. However, since the petitioner failed to show what sanction is imposed in accordance with its policies for the cited violation, the appellate court upheld the NLRC ruling that the respondent should be reinstated and punished only with one (1) month suspension.

Hence, this petition where the petitioner alleges that the appellate court erred: I [IN GIVING] CREDENCE ON THE FINDINGS OF THE NLRC THAT THE AFFIDAVIT EXECUTED BY MARCIAL TANOY CANNOT BE GIVEN WEIGHT ON THE GROUND THAT HE WAS NOT SUBJECTED TO CROSS-EXAMINATION AND THAT THE SAME IS SELFSERVING, NOTWITHSTANDING THAT THE PRESENT [PROCEEDING] IS A LABOR CASE. II IN AFFIRMING THE RULING OF THE NLRC WHEN THE EVIDENCE ON RECORD SHOWS THAT THERE IS JUST CAUSE FOR THE DISMISSAL OF RESPONDENT.[12]

In essence, the issues are: (1) Should Tanoy s affidavit be given credence although he was not cross-examined? and (2) Is there just cause to dismiss respondent?

On the first issue, the petitioner contends that Tanoy s affidavit should be given probative value although he was not presented as witness and cross-examined. We agree. In labor cases the rules of evidence prevailing in courts of law or equity are not always controlling.[13] Trial-type hearings are not required in labor cases and these may be decided on verified position papers, with supporting documents and their affidavits.[14] It is not necessary for the affiants to appear and testify and be cross-examined by the counsel for the adverse party.[15] It is sufficient that the documents submitted by the parties have a bearing on the issue at hand and support the positions taken by them.[16]

Be that as it may, Tanoy s affidavit is still insufficient to establish that the respondent was guilty of gross misconduct. Both the NLRC and the appellate court opined that the date when the respondent received the money from Tanoy was pivotal. If he received it on May 27, he would be guilty of gross misconduct for giving the Guerreros a run-around on June 14. If he received it only on June 23, the charge of gross misconduct against him would fail.

We have examined the affidavit carefully and found that Tanoy failed to allege the specific date when he gave the money to the respondent, to wit: xxxx 5. Nang dumating ako sa Maynila, pumunta ako sa opisina ng C.F. Sharp at sinabi ko [kay] Rene Zialcita tungkol sa padala ni Mr. Guerrero. Sinabihan ako ni Zialcita na dalhin ang pera sa mga babae sa likod ng desk niya dahil sila ang tumatanggap ng mga perang padala ng mga seamen; 6. Nang lumapit naman ako sa babaeng tinuro ni Zialcita, sinabi niya sa akin na hindi sila tumatanggap ng padalang pera dahil marami na ang nawawala;

7. Bumalik ako kay Zialcita at sinabi ko na ang pera ay naka- care of sa kanya, at ako ay tagadala lamang nito. Sinabi ko rin sa kanya na ayon kay Guerrero, siya na ang bahalang magpadala ng telegrama sa kanyang kapatid o magulang; 8. Nag-isip muna siya. Pagkatapos sinabi niya, O sige, dito na muna sa akin iyan. Ilan ba iyan, bilangin mo muna sa harapan ko . Ginawa ko naman ito. Pagkatapos kong bilangin, sinara ko uli ang sobre, at binigay ko ito sa kanya. Hindi ko na siya pinapirma ng resibo dahil baka mainsulto siya; x x x x (Emphasis supplied.)[17]

Thus, the NLRC and the appellate court properly ruled that the respondent was not guilty of gross misconduct. For there is no indubitable proof that as of June 14, 1993, he already had the money.

On the second issue, the petitioner argues that the respondent s violation of its company policy warranted his dismissal from the service under Article 282(c) of the Labor Code which governs termination of employment by reason of loss of confidence.

As Assistant Crewing Manager, the respondent occupied a position of responsibility, imbued with trust and confidence. To be a valid ground for dismissal, however, loss of trust and confidence must be based on a willful breach of trust and founded on clearly established facts. A breach is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. It must rest on substantial grounds and not on the employer s arbitrariness, whims, caprices or suspicion. Further, the act complained of must be workrelated and shows that the employee concerned is unfit to continue working for the employer.[18] It must be premised on the fact that the employee concerned is invested with delicate matters, such as the handling or care and protection of the property and assets of the employer.[19]

After considering the records, we found insufficient reason to dismiss the respondent. Other than processing the shipping papers of the petitioner s seamen, it was not shown that he handled company property and assets. The petitioner merely alleged that the respondent occupied a sensitive position and dealt with both the principal and the seamen. There is no definite showing of what delicate matters , if any, have been entrusted to him by petitioner.

To be sure, respondent was remiss in his duties when he received the money, failed to turn it over to the proper custodians per petitioner s Memorandum dated February 24, 1993, and failed to produce the entire amount when it was finally claimed. However, we disagree that dismissal is the proper sanction. It is incommensurate, or out of proportion, to the offense committed, especially in the absence of any malicious intent or fraud on the respondent s part. Also, there has been no allegation of any

aggravating circumstance. For instance, there is no showing that he had been previously found guilty of accepting remittances and misappropriating them.

It bears stressing that in termination cases, the employer bears the onus of proving that the dismissal was for just cause. Indeed, a condemnation of dishonesty and disloyalty cannot arise from suspicions spawned by speculative inferences. Because of its subjective nature, this Court has been strictly scrutinizing the allegations and the evidence in cases of dismissal based on loss of trust and confidence because they can easily be concocted by an abusive employer. Thus, when the breach of trust or loss of confidence alleged is not borne by clearly established facts, as in this case, such dismissal on the cited grounds cannot be allowed. The fact that respondent is a managerial employee does not by itself exclude him from the protection of the constitutional guarantee of security of tenure.[20] We agree with the NLRC and the CA that one month suspension, and not dismissal, is the proper sanction against respondent under the circumstances of this case.

WHEREFORE, the petition is DENIED. The assailed Decision dated December 12, 2002, of the Court of Appeals in CA-G.R. SP No. 62578, and the Resolution dated March 11, 2003, are AFFIRMED.

Costs against petitioner.

SO ORDERED.