Section 19

Grounds for Employee Termination

A. Grounds for Termination

 Termination-at-will
 Employer-initiated termination

B. Blameworthy Acts ("Just Causes")

 Labor Code provision

 Work Relation
 Offended Party
 Material Damage
 Misconduct
o Elements
o illustrative cases
o Sexual harassment
o Drug use
o Illustrative cases
(not sufficiently serious)
 Insubordination / willful disobedience
o Elements
o Illustrative cases (insubordination)
o Illustrative cases (no insubordination)
o Compliance before protest
o Reasonableness of rule/order
o Legality of rule / order
 Fraud & Brach of trust
o Elements
o Managerial & fiduciary rank and file employees
o Examples of fiduciary positions
o Examples of non-fiduciary positions
o Examples of valid dismissal for loss of trust
 Gross & Habitual Neglect of Duty
o Neglect defined
o Habituality as condition
o Gross & habitual neglect found
o Gross & habitual neglect not found
o Gross inefficiency / incompetence
o Elements of inefficiency
o Valid dismissal for proven gross inefficiency
o Invalid dismissal for alleged inefficiency
o Abandonment (elements and illustrative cases)
o Commission of a crime
o Analogous cases (examples)
o Multiple offenses (examples)

 Employee Defenses
o Absence of elements
o Absence of evidence
o Lawful conduct/protected speech
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 o Illustrative cases
o Mitigating circumstances

C. Economic Reasons ("Authorized Causes")

 Labor Code provision

 Retrenchment
o Definition
o Elements
o Existing losses
o Imminent losses
o Proof of losses
o Judicial notice
o Illustrative cases (losses proven)
o Illustrative cases (losses not proven)
o Prior "less drastic measures"
 Redundancy
o Definition
o Causes of redundancy
o Elements
o Proof of redundancy
o Reasonable criteria
o Installation of labor-saving devices
(elements & illustrative cases)

 Closure of Business Operations

o Due to business losses
o Not due to business losses
o Acts of State
o Permanent & temporary closure
o Judicial scrutiny

 Disease
o Elements
o Coverage
o Medical certification
o Six-month period

 Other Lawful Causes ( Employer-initiated)

o Probationary
o Defiance of RTW Order
o Illegal Strike
o Union security Clause

 Limited Term Employment

o Casual
o Project
o Seasonal
o Fixed term
 Other Events

D. Employee Initiated Termination

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  Resignation
 AOWL/Abandonment
 Retirement

Section 19

NOTES ON
GROUNDS FOR EMPLOYEE TERMINATION

A. Grounds for Termination

Termination-at-will is considered anathema to the public policies on labor protection

espoused by the Philippine Constitution and laws, and contractual stipulations providing
for such convenient dismissal of employees are not upheld by Philippine courts
(Dagasdas vs Grand Placement & Services Agency , GR No. 205727, 18 January 2017).

Termination at-will was not allowed in the case of the General Manager of the Philippine
branch of a foreign airline ( Basso vs Continental Micronesia, GR Nos. 178382-83, 23
September). A POEA-approved contract stipulating a mutual pre-termination clause
provided a 3-month notice is given was nonetheless upheld in a case involving a
college teacher deployed in Ethiopia (GBMLT Manpower vs Malinao, GR No. 189262, 06
July 2015).

Termination-at-will by the employee however, i.e., resignation, is an absolute legal right.

Employer-initiated Termination

The main grounds for employer-initiated termination under the Labor Code are
classified into two (2) main causes (Arts. 297 & 298, Labor Code) :

(i) just causes, and

(ii) authorized causes.

The third ground stated in the Labor Code is disease (Art. 299, Labor Code).

There are other lawful grounds that the employer may cite, to be discussed
subsequently.

B. Blameworthy Acts ("Just Causes")

Labor Code provision

Art. 297 of the Labor Code lists the blameworthy acts or omission ( "just causes"):

 Serious misconduct or willful disobedience by the employee of the lawful

orders of his employer or representative in connection with his work;
 Gross and habitual neglect by the employee of his duties;
 Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;

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  Commission of a crime or offense by the employee against the person of
his employer or any immediate member of his family or his duly
authorized representatives; and
 Other causes analogous to the foregoing (e.g., violation of company rules
and regulations; sexual harassment as defined by law)

In a lot of cases, a single act or omission could fit into the several classification of just
causes under the law. A violation of company rule (like accurate keeping and
submission of financial records) may constitute, at the same time, a serious misconduct
or an act of fraud. A manager's gross neglect of duty or incompetence (e.g., an in-house
lawyer losing a case for the company by failing to attend hearings) may also be a
violation of company rules and a breach of trust. An assault on a co-employee, despite
a superior's order to stop the fighting, would both be a serious misconduct and
insubordination. An employer is not precluded by the law from justifying an employee's
dismissal on any of the applicable just causes category.

Likewise, an employee's main offense may involve or produce several offenses. The
unauthorized use of company vehicle will be a violation of company regulation, and its
subsequent involvement in an accident would be another offense of gross neglect
resulting in damage to company property or even the commission of a crime (see Family
Planning Organization vs NLRC, GR No. 75907, 23 March 1992; Raza vs Daikoku Electronics
Phil, GR No. 188464, 29 July 2015). Engaging in personal business, whether competitive
or not with the employer but in violation of company rules, may involve use of the
employer's property and equipment not to mention doing it on company time ( Zenco
Sales Inc. vs NLRC, GR No. 111110, 02 August 1994). The employer would be justified in
utilizing all applicable offenses to justify the dismissal.

Work-relation

For blameworthy conduct to be a ground for dismissal, the conduct must have work-
relation. An imputed offense must prejudice an employer’s legitimate interest , such as
its disruption in its operations or breakdown in discipline in the work place.

Work-relation could be shown by such circumstances as the offense being committed

within company premises or during office hours and official company events, against the
employer’s representatives or co-employees, on matters related to work (and not simply
personal transactions between employees), or against company regulations which is
harmful to company interest and reputation.

If the misconduct has its roots in work place dynamics and, even if it happened
outside company premises and working hours, the same could be valid ground for
dismissal when it would have deleterious effect on work discipline ( Technol Eight Phil
vs Amular, GR No. 187605, 13 April 2010; Stanfilco vs Tequillo, GR No. 209735, 17 July
2019). An employee was deemed lawfully dismissed for sexually harassing a co-
employee in the company's ladies' dormitory notwithstanding that the misconduct was
committed outside of working hours ( Navarro II v Damasco, GR No. 101875, 14 July
1995).

Offended party

A misconduct need not be committed only against the employer or co-employees to be

work-related; it could also be committed against company suppliers (Warefront Cebu
City casino Hotel vs Ledesma, GR No. 19756, 25 March 2015) or company clients or
customers (Panuncillo vs CAP, G.R. No. 161305, 09 February 2009; PLDT vs Hinrado, GR
No. 189366, 13 December 2010).

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Material damage

Material damage ( loss of company property and funds, or business opportunity ) is

not an indispensable requirement for an employee offense to be subject to discipline
particularly for violation of company rules management order.

Thus, a "deliberate disregard or disobedience of company rules could not be

countenanced, and any justification that the disobedient employee might put forth would
be deemed inconsequential" (Glaxo Wellcome Philippines, Inc. v. Nagkakaisang
Empleyado ng Wellcome-DFA (NEW-DFA),GR No. 167385, 03 December . Damage
aggravates the charge but its absence does not mitigate nor negate the employee’s
liability. Thus, the termination by a water company of the services of a team for
unauthorized work for a fee was upheld ( Lopez vs NLRC, G.R. No. 167385, 13 December
2005).

Damage would not also be a prerequisite for gross neglect of duty or violation of
company, when such neglect exposes the company to serious risk ( such as a driver
neglecting to check on the vehicle's brakes , a pilot drinking liquor prior to assuming
flying duties, or an employee smoking in a danger zone).In such cases, the violations
exposes not only the company but even the general public to serious harm and the
company would be justified to discipline (even terminate the employee) before the
impending harm occurs.

Damage nonetheless aggravates an offense. The extent of damage may also mitigate
an employee's liability, and is a factor in determining the proper penalty.

Damage need not always be strictly in monetary terms. Loss of company goodwill and
reputation is also relevant ( Cosmos Bottling Corporation vs NLRC, GR No. 111155, 23
October 1997), and so does exposure to potential lawsuits from third parties (Panuncillo
vs CAP Philippines, GR No. 161305, 09 February 2007).

Misconduct

Misconduct is defined as an improper or wrong conduct. It is a transgression of some

established and definite rule of action, a forbidden act, a dereliction of duty, willful in
character, and implies wrongful intent and not mere error in judgment.

For misconduct or improper behavior to be a just cause for dismissal, the following
elements must concur ( Sterling Paper Products vs KMM-Katipunan, GR No. 221493, 02
August 2017):

(i) the misconduct must be serious, and not merely trivial ;

(ii) it must relate to the performance of the employee's duties showing that the
employee has become unfit to continue working for the employer; and,
(iii) it must have been performed with wrongful intent

Examples of serious misconduct which the Supreme Court have held to be lawful
grounds for dismissal are:

 Assault on co-employee and destruction of company property while drunk (Singa

Ship Management vs NLRC, GR No. 120278, 24 July 1997).
 Libel or slander on the company (Iso vs Salcon Power, GR No. 219059,12
February 2020);St. Mary"s College vs NLRC, GR No. 76752, 12 January 1990) or use

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 of obscene, insulting, or offensive words against a superior ( Sterling Paper
Prodcuts vs KMM-Katipunan, GR No. 221493, 02 August 2017).
 Fighting within company premises ( Royo vs NLRC, GR No., 109609, 08 May 1996)
 Engaging in extramarital affair, committed by a teacher and creating scandal
within the school community ( Santos vs NLRC & Hagonoy Institute, G.R., No.
12115795, 06 March 1998)
 Maintaining a concubine and abandoning the legitimate family, committed by a
supervisor who was supposed to be a role model ( Sanchez vs Ang Tibay, GR No54
O.G., 4515)
 Sexual intercourse inside company premises (Imasen Philippines v Alcon, GR No.
1948884, 22 October 2014).
 Pressuring a teacher-colleague to change the failing grade of a student to a
passing one ( Padilla vs NLRC & San Beda College, GR No. 114764, 13 June 1997)
 Leaking test questions ( Chiang Kai Shek College vs Torres, G.R. No, 189456, 02
April 2014)
 Tampering of school records on grades to favor one student over another
( Colegio De San Juan De Letran vs Dela-Rosa Meris, GR No. 178837, 01 September
2014
 Possession and use of illegal drugs ( Roquero vs Philippine Airlines, G.R. No.
152329, 22 April 2003)
 Violating an airline's drinking ban on pilots prior to taking flight (Philippine Airlines
vs NLRC, GR No. L-062961, 02 September 1983).
 Sending a demand letter to the company asking for P2 million in damages for
alleged violation of her rights and reading the confidential letter of the company's
external counsel, committed by an Administration Manager ( Tirazona as
Philippine EDS , GR No. 169712, 14 March 2008 and 20 January 2009).

Sexual harassment

Sexual harassment is a serious misconduct (Villarama vs NLRC, GR No. 106341, 02

September 1994), and governed by a special law with a particular set of procedures (RA
No. 7877). But even if the misconduct does not squarely fall into the technical definition
of sexual harassment ( e.g. lack of superior-insubordinate relations between the
perpetrator and the victim), a company may still validly dismiss an employee for serious
misconduct (Libres vs NLRC, GR No. 123737, 28 May 1999).

The usual complainant in a labor case for illegal dismissal is the perpetrator who denies
wrongdoing. A rare case of the complainant being the victim is when the employee was
forced to resign because of the employer's ' failure to immediately and adequately act
on her complaint. The employee was held constructively dismissed ( LBC Express vs
Palco, GR No. 217101, 12 February 2020).

Drug Use

Being tested positive for drug use in the work place is also governed by special
regulations particularly the need for DOH-accredited drug testing center and two sets of
tests consisting of initial screening and a confirmatory tests (Nacague vs. Sulpicio Lines,
Inc. G.R. No. 172589, 08 August 2010). The penalty could be suspension or termination
(DOLE D.O. No. 147-015, Section 6).

Not sufficiently serious misconduct

Examples of employee conduct which the Supreme Court has ruled to be not
sufficiently serious to merit termination ( suspension may instead be imposed) or
any disciplinary action at all are the following:
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  Sending of an e-mail message as an expression of sympathy to the plight of a
superior ( Fujitsu vs Court of Appeals, GR No. 158232, 08 April 2005)
 Writing a memo calling the attention of management on the problems besetting
the company and furnishing a copy to the Office of the President ( Trans-Orient
Overseas Contractors vs LNRC, GR No. 75602, 29 December 1989)
 Borrowing money from a patient, due to economic necessity ( Medical Doctors
Inc. vs NLRC, GR No. 56633, 24 April 1985)
 Failure to obtain prior permission from the school before engaging in external
teaching engagements, when there are extenuating circumstances ( Moreno vs
San Sebastian College Recoletos, Manila, GR No. 175283, 28 March 2008)
 A 30-year old teacher female teacher marrying a 16-year old grade 6 student in
her remedial class , there being no evince that she took advantage of her moral
ascendancy or of any indecent acts committed in the classroom ( Chua-Qua vs
Clave, GR No. 49549, 30 August 1990)
 A teacher getting pregnant out of wedlock, when there was no legal impediment
of her marrying the father , and despite the school being a Catholic institution
which considers such act immoral according to its creed (Leus vs St. Scholastica's
College Westgrove, GR No. 187226, 28 January 2015).
 When the employee circulated an open letter questioning the bank's suspension
of an area manager, but without laying any material claim on the bank nor
threaten any sanction ( Cosep vs NLRC, GR No. 124966, 16 June 1998).

Insubordination / willful disobedience

Insubordination in the workplace refers to an employee's intentional refusal to obey

an employer's lawful and reasonable orders.

The disobedience may refer to a violation of company rules, or defiance of a

superior's order. In case of the latter situation, it is not required that the officer giving
the order must be the immediate superior of the employee. It is sufficient that the officer
is the alter ego of the employer with regard to the order and the order relates to the duty
of the employee (Nuez vs NLRC, GR No. 107574, 28 December 1994).

For insubordination or willful disobedience of the employer's lawful orders, two

requisites must concur (Coca Cola vs Alejandrino, G.R. No. 169967, 23 Nov 2016):

(i) the employee's assailed conduct must have been willful, that is, characterized
by a wrongful and perverse attitude; and,
(ii) the order violated must have been reasonable and lawful, made known to the
employee, and must pertain to the duties which he had been engaged
to discharge.

To sanction the disregard or disobedience by employees of a reasonable rule or order

laid down by management would be disastrous to the discipline within the enterprise. It
is in the interest of both the employer and the employee to observe and maintain order
and discipline in the work environment (Westin Philippine Plaza vs NLRC, GR No, 121621,
03 May 1999).

Some examples of insubordination or willful disobedience which justified the

employee's dismissal are:

 Refusal of a Senior Training Manager to head the directive of the Senior Vice
President to postpone the implementation of the new raining program ( ePacific
Global Contract Center vs Cabansay, GR No. 167345, 23 November 2007)

7
  Violation of hospital rule prohibiting staff from taking out medical items that were
left unused by patients ( St. Luke's Medical Center vs Sanchez, GR No.212054, 11
March 2015)
 Refusal to comply with a valid transfer directive ( San Miguel Corporation vs
Pontillas, GR No. 155178, 07 May 2008)
 Refusal to render overtime work, when overtime work is justified and the
employee had been frequently absent ( Realda vs New Age Graohics, GR No.
192190, 25 April 2012).
 Violations of the company's Procurement Manuals ( Mirant Phil vs Sario, GR No.
197598, 21 November 2012)
 Violation by a salesman of the company's sales distribution policy ( Filipro vs
NLRC, GR No,. 70546, 16 October 1986)
 Violation of the rule against unauthorized use of company vehicle, in defiance of
a previous warnings ( Family Planning Organization vs NLRC, GR No. 75907, 23
March 1992)
 Violation of company policy prohibiting marrying an employee in a competitor
company (Duncan Association of Detailman-PTGWO vas Glaxco Welcome
Philippines, GR No.162994, 17 September 2004)
 Violation of rule prohibiting non-members of the club from signing restaurant and
bar grill bills or chits chargeable to the patronage fees of club members ( Aguilar
vs NLRC, GR No. 100878, 02 December 1992)
 Violation of safety rules, like smoking in the painting booth ( Northern Motors Inc
vs NLRC, GR No, L-10022, 31 January 1958)

But there could be no insubordination in the following cases:

 When of workers refused to work jobs outside of what they had been hired to do
(Tierra International Construction Corp vs NLRC, GR No.101825, 02 April 1996; see
also, Orient Express Placement Phil vs NLRC, GR No. 113713,11 June 1997)
 Refusal to perform a new/additional activity, on a single occasion ( Coca Cola
Bottlers vs IBM Local I, GR No. 169967, 23 November 2016)
 When the order is unreasonable or not connected with one's duties, as when the
union representative was about to attend a scheduled grievance meeting was
suddenly required to see the company president in a venue 50 kilometers away
for a vague purpose (Manebo vs NLRC, GR No. 107721, 10 January 1994).
 Refusal to be transferred, when the transfer amounts to promotion (Echo 2000
Corp vs Obrero,-Filipino Echo GR No. 214092, 11 January 2016)
 Refusal to apologize to the superior, on the honest belief that such apology
would incriminate him in the attendant criminal case ( Montallana vs La
Consolacion Collge, GR No. 208890, 08 December 2014)
 When the re-assignment to Manila from Tarlac was not prompted by business
reasons ( the company could have hired in Manila), the timing was ]suspicious ( it
was the height of union concerted activities) and would disrupt the schooling of
the two employees who were working students ( Yuco Chemical Industries vs
MOLE, GR No. 76656, 28 May 1990).

It was also held that there was also no ground for termination for violation of a
company policy:

 When the unwritten policy was not sufficiently made known to the employee
(Manila Broadcasting Co, vs NLRC, GR No. 1219755, 20 August 1998)
 When the employee was never made aware of the particular security policy and
procedure ( Philippine Airlines vs NLRC, GR No. 106274, 14 June 1993)

8
  When the employee was merely following the instructions of his supervisor and
his compliance was done in good faith (Coca Cola Bottlers Phil vs Vital, GR No.
154384,13 September 2004)
 When the violation of company rule was not strictly or consistently enforced, or
else tolerated or its implementation oftentimes relaxed (Llosa Tan vs Silahis
International Hotel ,GR No. 7757, 05 February 1990; Conti vs NLRC, GR No.
119253, 10 April 1997)
 When the employee (whose job was to load and unload goods to the company
trucks) lent his company ID to the driver in order to secure the release of the
goods at the warehouse for the benefit of the company (Dongon vs Rapid Movers
and Forwarders, GR No. 163431, 28 August 2013).
 When subordinates employees merely implemented the scheme of reflecting in
the original receipt of the branch the purchases made by customers in other
branches, the scheme having been introduced by the former branch manager
and not corrected by the next branch manager ( Mercury Drug vs NLRC, GR No.
96525, 26 June 1992).
 when the seaman was supposedly drunk but then was already off duty ( Evic
Hunan Resource Mgt vs Pahanon, GR No. 206890, 31 July 2017)

Employees must be discerning enough in evaluating the reasonableness of a company

rule. The rule is to comply first before questioning its validity:

To sanction disregard or disobedience by employees of a rule or order laid

down by management, on the pleaded theory that the rule or order is
unreasonable, illegal, or otherwise irregular for one reason or another,
would be disastrous to the discipline and order that it is in the interest of
both the employer and his employees to preserve and maintain in the
working establishment and without which no meaningful operation and
progress is possible. Deliberate disregard or disobedience of rules,
defiance of management authority cannot be countenanced. This is not to
say that the employees have no remedy against rules or orders they regard
as unjust or illegal. They may object thereto, ask to negotiate thereon, bring
proceedings for redress against the employer before the Ministry of Labor.
But until and unless the rules or orders are declared to be illegal or
improper by competent authority, the employees ignore or disobey
them at their peril. It is impermissible to reverse the process: suspend
enforcement of the orders or rules until their legality or propriety shall
have been subject of negotiation, conciliation, or arbitration (GTE
Directories Corporation vs Sanchez , GR No. 76219, 27 May 1991)

Reasonable & lawful rule or order

The reasonableness and lawfulness of a rule, order or instruction depend on the

circumstances availing in each case. Reasonableness pertains to the kind or
character of directives and commands and to the manner in which they are made
(Escobin vs NLRC, GR No. 118159, 15 April 1998).

A specific protection to employees is provided by RA No. 11058 ("An Act Strengthening

Compliance with Occupational Safety and Health Standards and Providing Penalties for
Violations Thereof" ) which states that "the worker has the right of refusal to work
without threat or reprisal from the employer if, as determined by the DOLE, an imminent
danger situation exists in the workplace that may result in illness, injury or death, and
corrective actions to eliminate the danger have not been undertaken by the
employer"( Sec.6, RA 11058).

9
Similarly, an employee who refuses to be vaccinated with covid-19 shot may not be
sanctioned or discriminated against by the employer ( DOLE Advisory No. 03 , S. 2021).

Policies or orders which contravene the laws cannot be the basis of disciplinary
sanction. An example is a company policy of not accepting or considering a disqualified
from work any woman employee who contracts marriage, which policy violates the
Constitution and the Labor Code (PT & T vs NLRC, GR NO. 118978, 23 May 1997).
Another would be a requiring employees to sign an agreement that they would not
organize a union, as pre-condition for the company's resumption of operations ( Me-
Shurn Corp. vs Me-Shurn Workers Unio (GR No. 156292, 11 January 2005).

Fraud & breach of trust

Fraud refers to any act , omission, or concealment which involves a breach of legal duty
of trust or confidence justly reposed and is injurious to another ( D.O. No. 147-15, S. 2015,
Section 4 [i]) citing jurisprudence). Loss of trust refers to a condition arising from fraud
or willful breach of trust by the employee of the trust reposed in him by his employer or
authorized representative (ibid,. Section 4 [n]).

For fraud and loss of trust and confidence, the employer must satisfy two
conditions (Distribution & Control Products vs Santos, GR No. 212616, 10 July 2017):

(i) The employer must show that the employee concerned holds a position of
trust and confidence. 

Jurisprudence provides for two classes of positions of trust. The first class

consists of managerial employees, or those who, by the nature of their position, are
entrusted with confidential and delicate matters and from whom greater fidelity to duty is
correspondingly expected. The second class includes "cashiers, auditors, property
custodians, or those who, in the normal and routine exercise of their functions,
regularly handle significant amounts of the employer's money or property" ( PJ
Lhuiller vs Camacho, GR No. 223073, 22 February 2017).

(ii) The employer must establish the existence of an act justifying the loss of
trust and confidence. 

To be a valid cause for dismissal, the act that betrays the employer's trust must
be real, i.e., founded on clearly established facts, and the employee's breach of the
trust must be willful, i.e., it was done intentionally, knowingly and purposely, without
justifiable excuse. Moreover, with respect to rank-and-file personnel, loss of trust and
confidence, as ground for valid dismissal, requires proof of involvement in the alleged
events in question, and that mere uncorroborated assertions and accusations by the
employer will not be sufficient.

Different rules apply in determining whether loss of trust and confidence may validly be
used as a justification in termination cases. Managerial employees are treated
differently than fiduciary rank-and-file employees. The employer must adduce proof of
actual involvement in the alleged misconduct for loss of trust and confidence to warrant
the dismissal of fiduciary rank-and-file employees. However, "mere existence of a
basis for believing that [the] employee has breached the trust [and confidence] of [the]
employer" is sufficient for managerial employees (Bravo vs Orios College, GR No.
1980066, 07 June 2017).

Examples of fiduciary positions include:

10
  Accountant ( Inter-Capitol Marketing vs NLRC, GR No. 90745, 10 October 1991)
 Miner ( Patna-an vs NLRC, GR No. 92878, 06 March 1992)
 Cashier ( San Miguel Corp. vs NLRC, GR No. 88262, 02 June 1992).
 Bank teller ( PCIB vs NLRC, GR No. 114920, 23 August 1995)
 Bank branch manager ( Dela Cruz vs NLRC, GR No. 96745, 02 July 1992).
 Accountant-bookkeeper (National Sugar Refineries Corp vs NLRC, GR No. 122277,
24 February 1998).
 Bus conductor ( Caraan vs NLRC, GR No. 106454, 21 October 1993)
 Head Supervisor ( Top Form Manufacturing Co vs NLRC, GR No. 65706,11
December 1992).
 Salesman-collector ( Mapalo vs NLRC, GR No. 107940, 17 June 1994)
 Engineer supervising a construction project ( Almoite vs Pacific Architects, GR No.
73680, 10 July 1986)
 Security guard ( Nasipit Lumber Company vs NLRC, GR No.54424m 31 August
1989).
 Roomboy ( Manila Midtown vs NUWHRAIN, GR No. 57268, 25 March 1988)

Cases in which the positions were deemed not fiduciary include :

 Systems analyst, which was very far removed from operations involving
procurement of supplies ( Globe-Mackay Cable vs NLRC, GR No. 82511, 03 March
1992)
 Reviser /trimmer ( Pioneer Texturizing Corp vs NLRC, GR No. 118651, 16 October
1997).
 Chambermaid ( Mabeza vs NLRC and Hotel Supreme, GR No. 118506, 18 April
1997).

Titles however are not conclusive indicators of fiduciary functions. The actual
duties discharged by the employees are more decisive in determining if they occupy
trust-and-confidence positions. Moreover, the offense attributed to the employee must
relate to loss of trust for this legal cause to be relevant. Absenteeism for example,
would not be a trust issue and loss of and would may not be the proper charge against
a chronic absentee.

Examples of cases of fraud and loss of trust and confidence cases include:

 Pilferage of equipment, goods, and products ( Meralco vs NLRC, GR No. 600054,

02 July 1991)
 Cheating a customer ( PLDT vs NLRC, GR No. 74562, 31 July 1987)
 Unauthorized contracting of work for a fee ( Lopez vs NLRC, G.R. No. 167385, 13
December 2005)
 Swindling and misappropriation against clients ( Panuncillo vs CAP Phil. , GR No.
161305, 09 February 2007).
 Falsification of time cards ( Felix vs Enertech , GR No. 14207, 28 March 2001).
 Frequent absences and repeated refusal to render overtime work when overtime
work is justified (Realda vs New Age Graohics, GR No. 192190, 25 April 2012)
 Unliquidated cash advances, unauthorized expenses, and falsification of receipts
in support of liquidation of cash advances ( Baguio Country Club vs NLRC, GR No.
102397, 04 September 1992)

11
  Maneuvers to conceal and gloss over the bank's shortage and fraudulent
alteration of due dates of time deposit certificates ( Dela Cruz vs NLRC, GR No.
96745, 02 July 1992)
 Complicity in the attempt to cover up the pilferage in toll collections ( CDCP
Tollways Operations Employees and Workers Union vs NLRC, GR No. 100168, 08
July 1992).
 Inflating the gross revenues to make up for the shortfall in the target revenues, by
manufacturing fictitious invoices ( Nokom vs NLRC, GR No. 140043, 18 July 2000)
 Accepting a job with a competing company while still on vacation leave from his
job with the old company, and recruiting clients for his new employer ( Solid
Engineering & Machine Works vs NLRC, GR No. 79496, 19 November 1991)
 Rendition of services to a business rival ( ABS CBN Employees Union vs NLRC, GR
No. 111211, 24 July 1997)
 Selling the products of a competitor (Elizalde International vs CA, GR No. L-40553,
26 February 1981)
 Sabotage of operations by initiating and leading a boycott, committed by a Head
Supervisor ( Top Form Manufacturing Co vs NLRC, GR No. 65706,11 December
1992).

Gross and habitual neglect of duty

Definition

Gross neglect is the want or absence of or failure to exercise slight care or diligence,
or the entire absence of care. It evinces a thoughtless disregard of consequences
without exerting any effort to avoid them ( Citibank vs Gatchalian, GR No. 111222, 18
January 1995).

Gross negligence is characterized by want of even a slight care, acting or omitting to

act in a situation where there is a duty to act, not inadvertently but willfully and
intentionally with a conscious indifference to consequences insofar as other persons
may be affected. (LBC Express vs. Mateo, G.R. 168215, 09 June 2009).

Habituality required

Habitual neglect imparts repeated failure to perform one’s duties for a period of time,
depending on the circumstances (Cavite Apparel v s Marquez, GR No. 172044, 06
February 2003). The single or isolated act of negligence does not constitute a just cause
for the dismissal of the employee (Premiere Development Bank v. Mantal, G.R. No.
167716, 23 March 2006).

The neglect , to be a ground for dismissal, must not only be gross but also habitual.
Otherwise, the dismissal may be invalidated (St. Luke's Medical Center vs Notario, GR
No. 152166, 20 October 2010 Cavite Apparel vs Marquez, GR No. 172044, 16 February
2013).

But habituality may not be required if the company suffered substantial loss as
result of the employee's neglect , like the loss of a motorcycle worth P46,000.00 in
2001 (LBC Express vs. Mateo, G.R. 168215, 09 June 2009). The Supreme Court
ratiocinated that the employee's gross negligence "should not allow him to walk away

12
from the incident as if nothing happened and, worse, to be rewarded with backwages to
boot".

This justification is misplaced, because the Supreme Court could have ordered his
reinstatement without back wages plus restitution of value of the motorcycle . The
Supreme Court seemed to put more premium in this case on the employer's loss (which
could be compensated though insurance claim or restitution ) over the employee's
property right to his job which is his means of livelihood for his family . It did not heed its
own advice that the magnitude of the infraction must be weighed and equated with the
penalty prescribed and must be commensurate thereto, in view of the gravity of the
penalty of dismissal or termination from the service. What is at stake here is not simply
the job itself of the employee but also his regular income therefrom which is the means
of livelihood of his family (AMA Computer College vs Ignacio, GR No, 178520, 23 June
2009).

The loss of a motorcycle pales in comparison to the security guard's gross neglect in
not monitoring the CCTV camera which allowed the theft of a patient's valuables to go
unrecorded. Yet the security guard's dismissal for gross neglect of his job was
invalidated by the Supreme Court (St. Luke's Medical Center vs Notario, GR No. 152166,
20 October 2010) despite such neglect being a ground also for loss of trust and
confidence as the security guard's functions requires such trust to be reposed.

The accumulation of numerous infractions, which do not seem to need to be gross in

all cases, would be sufficient to terminate an employee for gross and habitual neglect
This usually involve habitual absences and habitual tardiness, which also constitute
violation of company regulations ( Meralco vs NLRC, GR No. 114129, 24 October 1996).

Examples of gross and habitual neglect cases include:

 Chronic tardiness and habitual absenteeism ( Mansion Printing Center vs Bitara,

GR No. 168120, 25 January 2012) coupled with malingering in order to drive a
pedicab ( Worldwide Paper Mills vs NLRC, GR No. 113081, 12 May 1995)
 Failure to regularly pre-audit the school's cashier report check the entries
therein, and keep the custody of the petty ]cash fund which neglect allowed the
school's cashier to misappropriate school funds and the students' tuition fees
( Immaculate Concepcion Academy vs Camilon, GR No. 188035, 02 July 2014).
 Failure to prepare the payroll , resulting in delay which angered the employees
(Nissan Motors Phil vs Angelo, GR No. 164181, 14 September 2011).
 Failure of the General Manager to oversee that all financial reports submitted
are accurate, resulting in the inflation of revenues through fictitious invoices
( Nokom vs NLRC, GR No. 140043, 18 July 2000).
 Handing newly-approved credit cards by a bank employee to a person she has
not meet before and not asking for acknowledgment receipts, enabling fictitious
persons to use those cards causing P740ko loss to the bank (Citibank vs
Gatchalian, GR No. 111222, 18 January 1995).
 Failure of a credit investigator functioning as an appraiser to submit an accurate
report, as he merely went one time to the property to ask the people residing
thereat for the land valuation without confirming his findings with the City
Assessor's office resulting in gross undervaluation which proved prejudicial to the
bank (Associated Bank vs NLRC, GR No. 86023, 19 June 1989)
 Failure to check the colors that would be printed to make sure they are in
accordance with the client's specifications and failure to consult the General
Manager and the prescribed color guide, resulting to delays and inferior work

13
 output which earned the client's ire ( Realda v New Age Graphics , GR No,.192190,
25 April 2012).
 Failure of the part-time school physician to conduct medical examination for two
(2) to five (5) consecutive years and failure to set up and maintain a proper
system for recording and updating the students medical records ( Rio vs Colegio
de Sta Rosa-Makati, GR No. 189629, 06 August 2014).
 Loss of a firearm by a security guard, which is also a violation of company
rules(DI Security & General Services vs NLRC, GR No. 124134, 20 November 1996).

Examples of cases when the employee was held not guilty of gross and neglect of
duties are the following:

 When the employee has occasional lapses in punctuality and attendance yet also
consistently receives promotions in rank and salary ( Rizal Empire Insurance vs
NLRC, GR No. 73140, 29 May 1989) since perfection cannot be demanded
 When the absences were either justified and authorized (the wife gave birth); not
authorized but not unjustified ( his children were confined to a clinic); and the
unauthorized and unjustified absences ( to prolong the payment of loan which
has become due and demandable ) would result in dismissal being too harsh a
penalty ( PLDT vs Teves, GR No. 143511, 15 November 2010).
 When the absences were pregnancy- related ,and thus justified ( Del Monte vs
Velasco, GR No. 153477, 06 March 2007)
 4-day absence for alleged LBM, dismissal being deemed too harsh a penalty
( UBix Corporation vs Hollero, GR NO,. 177647, 3 1 October 2008).

Gross inefficiency & incompetence

Gross inefficiency" falls within the purview of "other causes analogous to the
foregoing," and constitutes just cause to terminate an employee under Article 297 of the
Labor Code. One is analogous to another if it is susceptible of comparison with the
latter either in general or in some specific detail; or has a close relationship with the
latter. "Gross inefficiency" is closely related to "gross neglect," for both involve specific
acts of omission on the part of the employee resulting in damage to the employer
(Telephilippines Inc vs Jacolbe, GR No. 233999, 18 February 2019).

Inefficiency, incompetence, and failure to attain work quotas could also be lawful
grounds for termination. Such inefficiency is understood to mean failure to attain work
goals or work quotas, either by failing to complete the same within the allotted
reasonable period, or by producing unsatisfactory results ( Evic Human Resource Mgt Inc
vs Panahon, GR No, 206890, 31 July 2017). An employer is entitled to prescribe
reasonable work standards, rules, and regulations necessary for the conduct of its
business, to provide certain disciplinary measures in order to implement them, and to
assure that the same would be complied with. This management prerogative of
requiring performance standards ( Telephilippines Inc vs Jacolbe, GR No. 233999, 18
February 2019).

To show that dismissal resulting from inefficiency in work is valid, it must be shown
that:

(i) The employer has set standards of conduct and workmanship against which
the employee will be judged;
(ii) The standards of conduct and workmanship must have been communicated
to the employee; and

14
 (iii) The communication was made at a reasonable time prior to the employee’s
performance (Sameer Overseas Placement vs Cabiles, GR No.170139, 05
August 2014).

It must also be emphasized that the performance or work standards should be

reasonable (Telephilippines vs Jacolbe , supra ), attainable ( East Cam Tech vs
Fernandez, GR No. 222289, 08 June 2020), must apply to all similarly-situated employees
(Telephilippines vs Jacolbe , supra ) and not discriminatory (AHS Phil vs NLRC, GR No.
73721, 30 March 1987).

On the one hand, gross incompetence and inefficiency were upheld in the following
cases:

 When the sewers ( who had been reinstated after winning their illegal dismissal
case against the company) were assigned to work on new products (requiring
different set skills and machines) and the production quotas given them were
designed to be unattainable ( East Cam Tech vs Fernandez, GR No. 222289, 08 June
2020) albeit in this case it is not exactly clear how the Supreme Court ( a non-
expert on the subject ) arrived at the conclusion that the quotas s were
unattainable ( if other similarly-situated employees could meet the quota, then
the court's premise would not be valid)
 Incompetence of an engineer who badly mishandled the problem of leaking
airhandling unit of the airconditioning ( Puerto Azul Beach Hotel vs Sisayan, GR No.
93965,11 March 1991).
 Incompetence of a Leasing Director, whose 14 of 24 lease agreements turned
out to be bad accounts and bought various types of machinery and equipment
represented to be brand new but turned out to be second hand ( Pepsico vs NLRC,
GR No. 51632, 07 September 1989).
 When the Customer Service Representative's metric scores for 62 consecutive
weeks were well above the threshold 7 minute or lower mark) despite the
employee's insistence that his Top Agent award for December 2012 contradicts
the charge of inefficiency and poor performance as the Supreme Court held that
the Top Agent award is not a sufficient measure of an employee's overall work
performance since it proceeded solely from a single customer's feedback in one
call on one given day while the 7-minute AHT metric is a key performance metric
which measures the effectivity and efficiency of a CSR in handling customer's
concerns in each call and it applies to all employees assigned to the Priceline
account ( Telephilippines vs Jacolbe, supra).

On the other hand, the charges of gross incompetence or inefficiency were not
sustained in the following cases:

 When the union president and vice president were given a 400% and 300%
increase in their respective sales quotas , the other field representatives were
merely given an average of 98% increase in quotas and no valid explanation
was advanced by the company for such marked difference (AHS Phil vs NLRC, GR
No. 73721, 30 March 1987).
 When the standards were not made known to the probationary employee at the
time of engagement ( Aliling vs Feliciano, GR No,. 185829, 25 April 2012).
 When the employer failed to prove the existence of the work standards, failed to
prove that the standards were communicated to the employee, and failed to
prove the employee failed those standards ( Sameer Overseas Placement vs
Cabiles, GR No.170139, 05 August 2014).

15
Violation of safety procedures which results in damage to company property may
constitute incompetence, provided substantial evidence is shown of the employee's fault
(see Gimalay vs Court of Appeal, GR N0.240123/240125, 17 June 2020). It may also be
characterized as violation of company regulations.

Abandonment

Jurisprudence has also recognized abandonment as a form of or akin to neglect of

duty.
Abandonment of work has been construed as "a clear and deliberate intent to
discontinue one's employment without any intention of returning back." To justify the
dismissal of an employee on this ground, two (2) elements must concur, namely:

(i) The failure to report for work or absence without valid or justifiable reason;
and,
(ii) A clear intention to sever the employer-employee relationship.

Mere failure to report to work is insufficient to support a charge of abandonment.

The employer must adduce clear evidence of the employee's "deliberate, unjustified
refusal... to resume his [or her] employment,'' which is manifested through the
employee's overt acts (Demex Rattancraft vs Leron, GR No. 204288, 08 November
2017).The immediate filing of a complaint for illegal dismissal, with prayer for
reinstatement, would often refute the notion of abandonment . Note that this is not an
absolute rule and the Supreme Court has cautioned labor tribunals in the "overreliance"
tendency on this doctrine .

Commission of a crime

The Labor Code also provides that "commission of a crime against the person of his
employer or any immediate member of his family or his duly authorized
representatives". Note that the offense must be "against the person" ( not property or
honor ), thus limiting the offense to employers who are natural persons ( which is
consistent with the other limitation: "to any immediate member of his family"). A
company representative who is victim of an employee's crime must therefore also have
a natural person as employer.

How different then is this just cause compared to the commission of a crime against
co-workers or company guests? This kind of just cause does not require work-relation;
the nature of the offense itself makes it work related. In crimes against co-employees,
the offense must be work-related (e.g., the theft was perpetrated inside company
premises, or the assault arose from work-related dispute). In D.O. No. 147-15, the
DOLE cites as example the act of "illegally diverting employer's products" ( M.F. Violago
Oiler Tanks vs NLRC. GR No.L-56950-051, 30 September 1982) This is not a good
example, since the crime is not against "the person of the employer" but against
property.

It is settled that for commission of a crime to be a valid ground for disciplinary action,
conviction by final judgement or filing of information in court is not required ( Starlite
Plastic vs NLRC, GR No. 78491, 16 March 1989). The employer may also characterize the
commission of a crime as serious misconduct, fraud, or violation of company rule thus
precluding any necessity of filing a criminal complaint at all. Thus, slandering and bad
mouthing Japanese executives during a strike are illegal acts which justify termination
(Toyota Motor Phil. Workers Assn. vs NLRC, GR No. 158786 & 158789, 19 October 2007).

16
The last item listed as just cause in the Labor Code is "other causes analogous to the
foregoing". D. O.No.147-15 lists the requisites as follows:

(i) There must be an act or omission similar to those specified just causes;
and
(ii) The act or omission must be voluntary and/or willful on the part of the
employees.

D.O. No. 147015 further adds that " no act or omission shall be considered as
analogous cause unless expressly specified in the company rules and regulations or
policies."

Since the "just cause" grounds are sufficiently broad to cover innumerable offenses,
there is hardly any need to cite analogous causes. The cases which commentators
have cited as "analogous", if examined carefully, would turn out not be to employer-
initiated but result from causes attributable to third parties (e.g., act of State like
prohibiting a certain activity during the pandemic, or a fuel depot prohibiting entry to an
employee of a delivery truck suspected of theft). These are not analogous causes , as
they are not employer-initiated termination.

Better examples of analogous causes would be defiance of the DOLE Secretary's

return-to-work order (St. Scholastica's College vs Torres, GR No. 100158, 29 June 1992),
being analogous to insubordination , and throwing a stone on a running company
vehicle during a strike (Chua vs NLRC, GR No. 105775, 08 February 1993), being
analogous to serious misconduct. A related ground would be non-compliance with
the union security clause mandated by the CBA (Tanduay Distillery Labor Union vs
NLRC, GR No. L-75037, 30 April 1987) which is analogous to willful disobedience to
management order.

Other examples would be refusal or failure to secure legal or professional permit like an
alien employment permit (WPP Communications vs Galera, supra), driver's or security
guard license ( Salvaloza vs NLRC, GR No. 182086, 24 November 2010; Aparente vs NLRC,
GR No. 117652, 27 April 2000) or a master's degree necessary in an academic position,
which would all be analogous to either insubordination , gross neglect of duty , or
violation of law and company rules.

Multiple offenses

In case of multiple offenses, employers invariably would cite the totality of

infractions doctrine and argue that the offenses singly and in combination
demonstrate that the employee has become unfit for continued employment. The
doctrine is often expressed in the words that "fitness for continued employment cannot
be compartmentalized into tight little cubicles of aspects of character, conduct, and
ability separate and independent of each other " ( Alvarez vs Golden Tri Bloc, GR No.
202158, 25 September 2013).

Some cases illustrating this principle involve:

 Assault on superior, repeated insubordination, habitual tardiness, wasting time,

not wearing the prescribed uniform ( Pacific Mils vs Alonzo, GR No. 78090, 26 July
1991).
 Destroying company properties and assaulting the company's house officer
while under the influence of alcohol ( Club Filipino vs VA Sebastian, GR No. 85490,
23 Jukly 1992).

17
  High grading and multiple absences without official leave (Palagpag vs NLRC, GR
No. 966446, 08 February 1993).
 Insubordination ( since there were previous warnings) and unauthorized use of
while under the influence of alcohol which resulted in a vehicular accident
( Family Planning Organization of the Phil. vs NLRC, GR No.,75907, 23 March 1992)
 Negligence in payroll preparation coupled with manifest refusal to cooperate with
company officers in rectifying the shortcomings as manifested by his letter-
explanation which smacks of outright disrespect and willful defiance of authority
and insubordination ( Nissan Motors vs Angelo, GR No. 164181, 14 September
2011).
 Repeated violations of company rules regarding the sale and transfer of
assignment of educational plans (Panucillo vs CAP Philippines, GR No. 161305, 09
February 2007)
 Habitual tardiness, product shortages, inconsistences in inventory, requesting
another employee to punch his time card (Alvarez vs Golden Tri Bloc, GR No.
202158, 25 September 2013).

Employee Defenses

In all these grounds anchored on blameworthy conduct, the employee may raise
defenses.

The employee may cite the absence of any of the elements of the particular just
cause (e.g., lack of work-connection ; the misconduct is merely trivial a and not
serious; the company regulation was not disseminated; the management order is not
lawful; the employee does not occupy a position of trust). These defenses could be
discerned from the jurisprudence cited in the preceding paragraphs.

The employee's defense may be evidentiary , as when employee questions the

absence of admissible and relevant evidence of the imputed blameworthy conduct. The
employee may also opt to raise a legal defense, admitting the act but arguing it is
lawful ( e.g. , the management order was unlawful, the employee's utterance is
protected speech, or the act was not immoral for purposes of employment law).

A sampling of specific employee defenses which have been sustained include:

 Lack of evidence that there was in fact a policy prohibiting sales ladies from
storing sales proceeds in the cash register machines (FLP Enterprises vs Dela
Cruz, GR No, 198093, 28 July 2014)
 Lack of evidence that the rule was violated ( Tan vs Lagrama, GR No., 151228, 15
August 2002)
 Employee's act of disrespect was provoked by the superior or the employer
(Golden Thread Knitting Industries vs NLRC, GR No. 119157, 11 March 1999).
 The employee acted in self-defense ( Garcia vs NLRC, GR No. 116568,
03Septemeber 1999).
 Dismissal is too harsh a penalty for the offense under the circumstances (
Tanduay Distillery Labor Union vs NLRC, GR No. 73352, 06 December 1995)
 When the employee was already ordered reinstated pursuant to the resolution of
the Grievance Committee, such charges may no longer be considered in any
subsequent dispute between the employee and the company ( Manebo vs NLRC,
GR No. 107721, 10 January 1994)
 When offense committed by a first-time violator (vending soliciting, engaging in
usurious activities) is sanctioned by the code of conduct with the penalties of
reprimand for the first offense and 6 days suspension for the second offense
18
 (Pacific Product Employees Association vs Pacific Products Inc., R No,. 51592, 18
September 1987)
 Non-compliance with mandated legal procedures, like the requirement for an
accredited drug testing center in drug offenses (Jeffrey Nacague vs. Sulpicio Lines,
Inc. G.R. No. 172589, 08 August 2010)
 In the absence of independent evidence and only on the confession of a
conspirator, the existence of conspiracy was not substantially proven ( PASAR v
NLRC, GR No. 82866-67, 29 June 1989)
 where a violation of company policy or breach of company rules and regulations
was found to have been tolerated by management, then the same could not
serve as a basis for termination (Permex vs NLRC GR No., 12503, 24 January 2000).

At times, an employee may successfully show that his dismissal is arbitrary by pointing
out that other employees participated in the questioned transactions yet were
inexplicably never investigated for their involvement ( see Temic Automotive Phil. vs
Cantos, .G.R. No. 200729, 29 September 2014).

Mitigating circumstances

The employee sometime may offer mitigating circumstances, which at times may result t
in the Supreme Court holding the termination as too harsh a penalty. Citing mitigating
circumstances essentially banks on the rule of proportionality (Gold City Integrated
Port Services vs NLRC GR NO. 860000, 21 September 1990) which enunciates that the
penalty imposed must be commensurate to the offenses involved and to the degree of
its infraction (Magnolia Corporation vs NLRC, GR No. 116813, 24 November 1995).

These mitigating circumstances include:

 Lack of malicious intent or fraud (Lourdes School of Quezon City vs Garcia, supra)
 Ready admission of guilt and lack of indication that the employee had become a
permanent threat to the safety if his co-workers ( Gold City Integrated Port
Services vs NLRC, GR No,. 86000, 21 September1990).
 Fighting outside the company premises, when the altercation did not result in any
disruption of work or created hostile work environment ( Solvic Industriual Corp v
NLRC, GR No. 125548, 25 September 1998)
 The slapping a canteen helper and shouting invectives at her . but the incident
happened not in work premises but in the canteen and did not disrupt work
operations (Aris Philippines vs NLRC, GR No. 97817 10 November 1994)
 The fisticuffs between two employees over a private matter and which had no
apparent deleterious effect on the substantial interest of the company ( North
Camarinez Lumber vs Barrameda, GR No, 75436, 21 August 1987).
 Where there was no, strictly speaking , violation of the company rule on drinking
as the employees drunk beer outside company premises and after their tour of
duty, though they subsequently went back into the compound to eat lunch at the
company canteen and slept in the employees' quarters ( Catalan vs Genilo, GR No.
62391, 08 June 1992).

In all cases of termination due to blameworthy conduct, separation pay is not

mandatory. Nonetheless, the Supreme Court sometimes direct the payment of
financial assistance when the ground for the termination doe snot reflect ion the
employee's moral character ( like the case of the overweigh flight attendant who failed
to comply with the airline's continuing requirement of maintaining a certain weight
level).

19
C. Economic reasons ( "authorized causes")

Labor Code provision

These are the so-called authorized causes (Art. 298, Labor Code) , which are employer
-initiated termination (except for some closures which are a result of act of third parties
or other external factors).

 Retrenchment to prevent losses

 Redundancy and installation of labor-saving devices
 Closure of operations due to business losses
 Closure of operations not due to business losses.

Unlike the just causes, the payment of separation benefits is mandatory for
termination due to authorized causes.

DOLE D.O. No 147-15 lists the elements for each of these modes of authorized causes,
culled from jurisprudence. The listing of elements however do not cover all scenarios of
termination for economic causes, as will be discussed. One may also take exception to
the mandatory preference given to seniority as a standard for retaining employees.

Retrenchment

Definition

Retrenchment , or lay off in layman's parlance has been defined , as the termination of
employment initiated by the employer through no fault of the employees and without
prejudice to the latter, resorted to by management during periods of business recession,
industrial depression, or seasonal fluctuations or during lulls occasioned by lack of
orders, shortage of materials, conversion of the plant for a new production program or
the introduction of new methods or more efficient machinery, or of automation. Simply
put, it is an act of the employer of dismissing employees because of losses in the
operation of a business, lack of work, and considerable reduction on the volume of his
business (F.F.Marine Corporation vs NLRC, GR No. 152039, 08 April 2005).

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.. The purpose of retrenchment
is to save a financially ailing business establishment from eventually collapsing.

Elements

DOLE D.O. No 147-15 lists the elements of a valid retrenchment:

(i) The retrenchment must be reasonably necessary and likely to prevent

business losses
(ii) The losses, if already incurred, are not merely de minimis but substantial,
serious, actual, and real , or if only expected, are reasonably
imminent.
(iii) The expected or actual losses must be proved by sufficient and convincing
evidence,
(iv) The retrenchment must be in good faith for the advancement of its interest
and not to defeat or circumvent the employees' right to security of tenure
(v) There must be a fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as

20
 status, efficiency, seniority, physical fitness, age, and financial
hardship for certain workers. The "Last in, First Out" Rule shall apply except
when an employee volunteers to be separated from employment.

This list misses one element that jurisprudence further requires: that retrenchment
should be " a measure of last resort when other less drastic means have been tried
and found to be inadequate" (Edge Apparel, Inc. vs. NLRC, G.R. No. 121314, February 12,
1998).

Existence of losses

It is now a well-entrenched principle that "not every loss incurred or expected to be

incurred by a company will justify retrenchment since, in the nature of things, the
possibility of incurring losses is constantly present, in greater or lesser degree, in
carrying on the business operations." (Edge Apparel vs NLRC, supra). Rather, the losses
must be substantial and the retrenchment must be reasonably necessary to avert
such losses.

A summary of this concept of busines losses was made by the Supreme Court:

Firstly, the losses expected should be substantial and not merely de

minimis in extent. If the loss purportedly sought to be forestalled by
retrenchment is clearly shown to be insubstantial and inconsequential in
character, the bonafide nature of the retrenchment would appear to be
seriously in question. Secondly, the substantial loss apprehended must
be reasonably imminent, as such imminence can be perceived
objectively and in good faith by the employer. There should, in other
words, be a certain degree of urgency for the retrenchment, which is after
all a drastic recourse with serious consequences for the livelihood of the
employees retired or otherwise laid-off. Because of the consequential
nature of retrenchment, it must, thirdly, be reasonably necessary and
likely to effectively prevent the expected losses. The employer should
have taken other measures prior or parallel to retrenchment to
forestall losses, i.e., cut other costs other than labor costs. An
employer who, for instance, lays off substantial numbers of workers while
continuing to dispense fat executive bonuses and perquisites or so-called
"golden parachutes," can scarcely claim to be retrenching in good faith to
avoid losses. To impart operational meaning to the constitutional policy of
providing "full protection" to labor, the employer’s prerogative to bring down
labor costs by retrenching must be exercised essentially as a measure of
last resort, after less drastic means—e.g., reduction of both management
and rank-and-file bonuses and salaries, going on reduced time, improving
manufacturing efficiencies, trimming of marketing and advertising
costs, etc.—have been tried and found wanting.

Lastly, but certainly not the least important, alleged losses if already

realized, and the expected imminent losses sought to be forestalled, must
be proved by sufficient and convincing evidence. The reason for
requiring this quantum of proof is readily apparent: any less exacting
standard of proof would render too easy the abuse of this ground for
termination of services of employees (Oriental Petroleum and Minerals vs
Fuentes, GR No. 151818 , 14 October 2005).

Retrenchment could be resorted to reduce or prevent existing busines losses, or to in

order to prevent imminent losses. (Blue Eagle Management v Inc. vs Naval.GR
No.192488, 19 April 2016).

In this kind of retrenchment, audited financial statements is not indispensable proof. In

one case, besides proof of losses, the company also presented evidence that its

21
ongoing projects had dwindled from a high of 67 in 1987 to only 17 in 1991 of which
13 were carry overs (Revidad vs NLRC, GR No. 111105, 27 June 1995). A lull in
production caused by lack of orders or shortage of materials must be of such nature
as would severely affect the continued business operations of the employer to the
detriment of all and sundry if not properly addressed (Edge Apparel vs NLRC, supra).

If a company suffers a drastic decline in orders from customers, , losses may

reasonably be asserted as inevitable and retrenchment may be implemented.

The covid-19 crisis temporarily forced plant closures in China, which necessarily
affected global supply chain resulting in drastic production cuts in companies in other
countries. The closure of borders to Chinese mainland tourists definitely has led to loss
of business for airlines, travel agencies, and hotels which could all cite this reason as
ground for retrenchment.

Judicial notice may be taken than certain industries ( public transportation, restaurants,
cinemas, ) were ordered closed during the covid-19 pandemic and certainly could
reasonably argue loss of revenues. Nonetheless, while judicial notice may be taken of
the pandemic and the effects of quarantine, it is still best to submit documentary and
testimonial proof of the decrease in orders, production output , and deliveries and the
impact on the company's revenues.

Furthermore, the institution of "new methods or more efficient machinery, or of

automation" is technically a ground for termination of employment by reason of
installation of labor-saving devices but where the introduction of these methods is
resorted to not merely to effect greater efficiency in the operations of the business but
principally because of serious business reverses and to avert further losses, the device
could then verily be considered one of retrenchment (Edge Apparel vs NLRC, supra). This
is important, because the mandated separation pay for retrenchment is lower compared
to redundancy and installation of labor saving devices.

Proof of losses

The vast majority of retrenchment cases justify undertaking it for business losses.

The audited financial statements by independent auditors, as well as the income tax
returns, constitute the normal method of substantiating the claimed losses ( Asian
Alcohol vs NLRC GR No. 131108, 25 March 1999). For government-owned and controlled
corporations, the financial statements are done by the Commission on Audit ( NDC-
Guthrie Plantations, GR No. 110740, 09 August 2001).

In most cases, it has been held that it is not enough that a company presents its
audited financial statement for the year that retrenchment was undertaken for
even as it may be incurring losses for that year, its overall financial status may already
be improving. Thus, it must "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"
(Emco Plywood vs Abelgas, GR No. 1485323, 14 April 2004) .For while it may happen that
while the company has indeed been losing , its losses may be on the downward trend
indicating that business is picking up and retrenchment should no longer be resorted to
( PSBA vs NLRC, GR No. 106621, 008 June 1993).

This reasoning is unduly skeptic of an employer's claim of losses. That the company
continues to incur losses , albeit on levels lower than prior years, does not readily
indicate the previous retrenchment programs had sufficiently worked . For it may just be

22
equally possible that the previous retrenchment program was not even enough to stem
the losses. The objective, after all, is not merely to reduce losses but to return to
profitability.

It seems unreasonable for to require the employer to wait for several years of increasing
losses before it could implement a retrenchment, when both the law and jurisprudence
allow an employer to declare a retrenchment for imminent future losses. Any delay in
the implementation of a retrenchment may in fact result in more losses, to the detriment
not only of the company and its employees but the economy as a whole. But in general,
the courts are likely to upheld the retrenchment if the losses could be shown to have
been incurred over the years:

 Losses have accumulated over the years to P20 billion, leading to the eventual
closure (North Davao Mining Corp vs NLRC, GR No. 112546, 13 March 1996)
 Losses were incurred for 5 straight years, resulting in deficit of P1.2 billion on the
5th year (Manatad vs PT and T, GR No. 172363, 07 March 2008)
 Hundred of millions of losses over the years, due to the Asian financial crisisd
and leading to the airline’s going into corporate rehabilitation ( FASAP v Philipine
Airlines, GR No. 178053, 13 March 2018)

The Supreme Court adopted the judicial notice rule in this FASAP vs PAL case, as did
the Labor Arbiter, the NLRC, and the Court of Appeals in previous stages of the
litigation. It pronounced that in this case the presentation of the audited financial
statements should not the sole means by which to establish the employer's
serious financial losses. The evidence required for each case of retrenchment
depends on the particular circumstances obtaining.

The FASAP vs PAL case should be understood in the context of its uniqueness. The
financial troubles of PAL are widely publicized, even just by reading Supreme Court
decision. The have been numerous cases before involving the airline and its various
unions, and the propriety of retrenchment is hardly disputed. The cases center more on
other issues, like the selection process.

Losses not proven

In another case, a manufacturing company claimed that it suffered huge financial losses
in 1992 due to unsold inventories of finished products amounting to P6 million
compounded by continuous and long brownouts, as shown in an affidavit  executed by
the assistant to the General Manager. The Supreme Court considered such affidavit of -
serving evidence. The company was called to task for not at the very least presenting
financial statements by independent auditors on the possible business reverses as
basis for terminating the employees which is reasonably necessary to forestall the
expected losses (Polymart Paper Industries vs NLRC, GR No. 118973, 12 August 1998)).

The Supreme Court held that the bare assertion that the company suffered total
shutdown hours of 45.16% for a 10 month period, would not constitute sufficient and
convincing evidence in the absence of any proof to that effect. Besides, it failed to show
that cost reduction measures were taken before retrenchment was effected. It further
added, as if an expert on manufacturing, that it should have adjusted its work schedule
in response to the energy crises (ibid.).

In still another case, the Supreme Court was remained unimpressed with the company's
proof of busines losses:

23
 Petitioner presented its audited financial statements for the years 1992 and
1993 to demonstrate that retrenchment was necessary to put a stop to its
actual losses and prevent further losses. The financial statements show
that petitioner’s total current assets dipped from P325,167,148.00 in 1992
to P221,001,191.00 in 1993. Its total current liabilities, on the other hand,
swelled from P373,571,128.00 in 1992 to P517,301,874.00 in 1993. Its
costs likewise increased from P262,698,049.00 in 1992 to P456,507,065.00
in 1993. The financial statements reflect that petitioner suffered a net
loss of P107,812,816.00 in 1993 contrasted with its net earnings
of P148,229,404.00 in 1992. 

These figures do not bode well for petitioner’s financial future. However,
while it is true that the Court has ruled that financial statements audited by
independent external auditors constitute the normal method of proof of the
profit and loss performance of a Company, financial statements, in
themselves, do not suffice to meet the stringent requirement of the law that
the losses must be substantial, continuing and without any immediate
prospect of abating.

Retrenchment being a measure of last resort, petitioner should have

been able to demonstrate that it expected no abatement of its losses
in the coming years. Petitioner having failed in this regard, we find that
the Court of Appeals did not err in dismissing as unimpressive and
insufficient petitioner’s audited financial statements (Oriental Petroleum and
Minerals vs Fuentes, GR No. 151818 , 14 October 2005).

And in a retrenchment case anchored on cancelled orders, the Supreme Court held:

Sanoh asserts that cancelled orders of wire condensers led to the

phasing out of the Wire Condenser Department which triggered
retrenchment. Sanoh presented the letters of cancellation given by
Matsushita and Sanyo as evidence of cancelled orders.The evidence
presented by Sanoh barely established the connection between the
cancelled orders and the projected business losses that may be incurred by
Sanoh. Sanoh failed to prove that these cancelled orders would
severely impact on their production of wire condensers (Sanoh Fulton
Phil vs NLRC, GR No. 187214, 14 August 2013)

In one case ( Intec Cebu vs Court of Appeals, GR No. 189951, 22 June 2016) , the
employees alleged that their working days were reduced from 6 days to 2-4 days. The
company explained that reduction in working days was due to lack of job orders. It
claimed that the reduction of the number of working days was undertaken to forestall
business losses as proven by the audited financial statements of Intec for the years
2001-2006.

Examining the company's financial statements for 2005-2006, the Supreme Court
observed that while this showed that the company suffered a net loss of P9,240,929.00
in 2005, it earned a net income of P9,568,674.00 in 2006. The period covered in the
financial statement of 2006 was from May 2005-April 2006. It was only on the 9 th month
of operation or in January 2006 did the company decide to carry out the reduced work
day scheme. The Supreme Court held that unless evidence is shown by the company
that the income for 2006 was earned only between the months of January to April, it
was safe to presume that at the time the reduced work day scheme was being
implemented the company was still benefiting from its gains as shown in the numbers
for 2006.
And the loss incurred in 2005 may be attributed to the acquisition of property and
equipment amounting to P9,218,967.00 in 2005. There was no indication in the financial
statements, much less an observation made by the independent auditor, that a

24
reduction in demand would necessitate a reduction in the employees' work days ( Intec
Cebu, ibid.).

The Supreme Court did not give weight to the evidence presented by the company to
prove the slump in demand. First, the two-page delivery data were lacking in specifics.
The report did not indicate when it was prepared. Second, the report was prepared by
Intec employees and approved by their President. Third, the report appeared to be mere
projections because it was not supported by corresponding sales or delivery receipts.
The actual sales may vary from the projected demand, thus, the report cannot be made
as basis of a slump in demand or a slow-down .And yet, the company hired additional
188 employees

The unilateral and arbitrary reduction of the work day scheme greatly reduced the
employees' salaries thereby rendering the company liable for constructive dismissal
(ibid).

Prior “less drastic measures”

How the company is supposed to prove that it could not expect abatement in its losses
is not however explained by the Supreme Court. What kind of proof is acceptable?
What is more perplexing in this case is that the Supreme Court conceded that prior to
implementing a retrenchment, the company resorted to “less drastic measures":

Nonetheless, we disagree with the appellate court’s ruling that petitioner

was not able to prove that retrenchment was resorted to only after less
drastic means have been tried and found wanting. 

According to the labor arbiter and the Court of Appeals, petitioner failed to
show that it adopted other cost-cutting measures short of retrenchment.
However, both failed to appreciate the significance of petitioner’s assertion
borne out by the records that it took several measures prior or parallel
to retrenchment, such as: (1) the sale of its shareholdings in Magellan
Capital Holdings Corporation to raise money to pay off the oil drilling
operator to avoid being declared in default; (2) the sale of several of
its assets consisting of cars, townhouse unit, and office condominium
unit (where petitioner holds office), and equipment like jaw crushers
and other scrap materials in the company’s Sabina Mines in
Mindanao; (3) the sale of the land, building and other assets of its
wholly-owned subsidiary, Oriental Mahogany and Woodworks, Inc.;
and (4) the call to its various stockholders to pay all of their unpaid
subscriptions to petitioner’s capital stock and offer of pre-emptive
rights to its stockholders for the sale of its Class B Common Stocks
to raise capital to meet its various obligations.

Even the OSG concedes that petitioner did take remedial measures to
forestall losses. Further, the allegations regarding the foregoing measures
taken by petitioner as prior and parallel solutions were never disputed by
respondents(Oriental Petroleum and Minerals vs Fuentes, GR No. 151818 , 14
October 2005).

The Supreme Court mantra then is "cut costs other than labor costs" (Lopez Sugar
Corporation vs FFW , GR No. 75700-01, 30 August 1990). In short, no short cuts through
job cuts. Thus, it suggested in said case 'less drastic means" like reduction of salaries
and bonuses ( which of course is subject to the non-diminution principle), going on
reduced working time ( which however would result in lower production), improving
manufacturing efficiencies ( which presumes without proof that the losses are

25
attributable to manufacturing inefficiencies), or trimming of marketing and advertising
costs ( which may backfire on the company, however, if its business depends on
marketing its products and services ). Cutting non-labor costs may not be the best
solution, for it may also hinder growth. But for compliance sake, companies may heed
this injunction and adopt cosmetic measures.

An example of how a company presented its prior resort to “less drastic measures” and
why they are not sufficient to stem losses is as follows:
A perusal of the financial statements show that the company incurred
recreation and entertainment expenses as follows: 1988 - P385,711;
1989 - P561,816; 1990 - P261,120; 1991 - P327,081; and 1992
- P374,290 for a total of P1,910,018 in five (5) years or at an average
of P382,003.60 per year.
"These 27 retrenched employees received a daily wage of P105 in 1992.
Multiplying this daily wage by 314 days will result in a yearly income
of P32,970 per retrenched worker. To retain the services of these 27
workers would cost the company P964,372.50 per annum just to pay
their basic wages & 13th month pay.
It is therefore very clear, that the deletion of this annual
entertainment & representation expense of P382,003.60 and
reallocate it for the budget on salaries and wages would not be
sufficient to pay the salaries of the 27 retrenched workers
amounting to P964,372.50 as of 1992. (Edge Apparel vs NLRC, GR No.
121314, 12 February 1990)wvirtualibräry

In a case involving a school, the Supreme Court ruled that the school was able to
substantiate its claim that its suffered business losses in the back drop of "sharp spike
in enrollment of students in its College of Nursing in 2008, only for "[t]he nursing bubble
[to] burst.". It found convincing the school's explanation "how its comprehensive income
nosedived by 96%” (La Consolacion College vs Padua, GR No. 214744, 14 March 2018).

In this case, petitioners acted in response to an actual drop in enrollment

as shown by their documentary attachments. The drop in enrollment
and corresponding drop in income to cover basic operating
expenses was not a mere figment of the imagination of the
administration. Attached as Annex "C" of the Appeal at the NLRC
which is Annex "I" of the Petition was a summary of the audited
financial statements from 2006 to 2011 that show very clearly the
deterioration of income due to decline in enrollment in a long period of
time. Also attached were copies of the audited financial statements of
the school from 2008-2012 Annexes "D", "E" and "F" . . . The 2010
audited financial report of SGV (2010 vs. 2009) clearly showed the
decline in total tuition fee revenue from Php 210,355,192 million to Php
155,823,959 million or by a drop of Php 54,531,233 million or twenty-six
[percent] (26%). Moreover the decline in comprehensive income from
Php 19,133,158 to [Php] 738,671 or Php 18,394,487 or ninety-six
percent (96%) was very alarming indeed.

Reasonable criteria

The Supreme Court however invalidated the dismissal of the full-time school physician.
It faulted the school for supposedly ignoring her seniority and selected her because
of her high salary as honestly admitted by the school.
As early as 1987, this Court in Asia World Publishing House, Inc. v. Ople
considered seniority, along with efficiency rating and less-preferred
status, as a crucial facet of a fair and reasonable criterion for effecting

26
retrenchment. Emcor, Inc. v. Sienes was categorical, a "[r]etrenchment
scheme without taking seniority into account rendered the retrenchment
invalid":

Records do not show any criterion adopted or used by petitioner in

dismissing respondent. Respondent was terminated without considering
her seniority. Retrenchment scheme without taking seniority into account
rendered the retrenchment invalid. While respondent was the third most
senior employee among the seven (7) employees in petitioner's personnel
department, she was retrenched while her other co-employees junior than
her were either retained in the Personnel Department or were transferred to
other positions in the company. There was no showing that respondent was
offered to be transferred to other positions.(Citations omitted)

In Philippine Tuberculosis Society, Inc. v. National Labor Union, this Court

quoted with approval the following discussion by the National Labor
Relations Commission:

We noted with concern that the criteria used by the Society failed to
consider the seniority factor in choosing those to be retrenched, a failure
which, to our mind, should invalidate the retrenchment, as the omission
immediately makes the selection process unfair and unreasonable. Things
being equal, retaining a newly hired employee and dismissing one
who had occupied the position for years, even if the scheme should
result in savings for the employer, since he would be paying the
newcomer a relatively smaller wage, is simply unconscionable and
violative of the senior employee's tenurial rights. In Villena vs. NLRC,
193 SCRA 686. February 7, 1991, the Supreme Court considered the
seniority factor an important ingredient for the validity of a retrenchment
program.

There is no dispute here about respondent's seniority and preferred status.

Petitioners acknowledge that she had been employed by La Consolacion
since January 2000, initially as a part-time physician then serving full-time
beginning 2008. It is also not disputed that while respondent was a full-time
physician, La Consolacion had another physician, Dr. Dimagmaliw, who
served part-time. Precisely, respondent's preeminence is a necessary
implication of the very criteria used by La Consolacion in retrenching her,
i.e., that she was the highest paid employee in health services division.

La Consolacion's disregard of respondent's seniority and preferred status

relative to a part-time employee indicates its resort to an unfair and
unreasonable criterion for retrenchment.

Indeed, it may have made mathematical sense to dismiss the highest paid
employee first. However, appraising the propriety of retrenchment is
not merely a matter of enabling an employer to augment financial
prospects. It is as much a matter of giving employees their just due.
Employees who have earned their keep0 by demonstrating exemplary
performance and securing roles in their respective organizations cannot be
summarily disregarded by nakedly pecuniary considerations. The Labor
Code's permissiveness towards retrenchments aims to strike a balance
between legitimate management prerogatives and the demands of social
justice. Concern for the employer cannot mean a disregard for employees
who have shown not only their capacity, but even loyalty. La Consolacion's
pressing financial condition may invite commiseration, but its flawed
standard for retrenchment constrains this Court to maintain that respondent
was illegally dismissed.

Besides, La Consolacion could have also modified respondent's status from

full-time to part-time. When retrenchment becomes necessary, the

27
 employer may, in the exercise of its business judgment, implement cost-
saving measures, but at the same time, should respect labor rights.

The Supreme Court did not exactly state that seniority should be the only factor, but its
preference for seniority as the overriding criterion is unmistakable. While the Supreme
Court in La Consolacion can cite precedents as authority for preferring seniority over
comparative salary levels as the deciding factor in employee selection for
retrenchment , seniority itself not mandated by the Labor Code.There is jurisprudence to
the contrary.

In one case, the company was allowed to utilize the criteria of "the nature of the work of
each assistant superintendent " and "experience" over mere seniority in deciding
which of the two assistant superintendents would be retained ( Maya Farms Employees
Organization vs NLRC, GR No. 106256, 28 December 1994). It has also been held that in
termination due to redundancy, the law does not require that junior employees should
first be terminated( Tierra International Construction Corporation vs NLRC, GR No. 88912,
03 July 1992). Thus, the union in its bargaining negotiations could not insist that the
"last in first out " (LIFO) rule be stipulated under the CBA (De La Salle University vs De
la Salle University Employees Association GR No. 109002, 12 April 2000).

Indeed, the use of the comparative salary levels is the "monetarily logical" criterion
( to use the Supreme Court's words). The Supreme Court's characterization of such
criterion as "legally faulty" is dubious, given that the no case law prohibits such criterion.
Its aversion to the use of economic factor in employee selection is quite irrational.

Seniority, in some instances, is an over rated criterion. Taken as an objective measure

of an employee's loyalty ( though it could simply be an indication of an employee's
unemployability outside the company), it is indeed relevant for certain purposes where
experience is an advantage like promotions and transfers. But its mandated preferred
use in retrenchments , when the long-serving employee is already highly-paid but his
performance has diminished , should probably not be insisted by the courts when
employers think otherwise. This is basically a business decision, best left to the
management. If the courts could insist that companies should resort to "less drastic
measures" first like cutting down or withdrawing benefits of high-earning employees,
there is no compelling reason to prohibit high salaries as a valid criterion for
retrenchment.

To assert that giving less preference to seniority violates tenurial rights fails to take into
account the compelling right of the business to survive. A junior employee is likely to
cost less, in terms of salaries and benefits, and this gives the company a better chance
at survival. This redounds to the benefit not only of the company, but also of the
remaining employees. If the company survives the financial crisis, the employees keep
their jobs., The same cannot be said when the company, forced by judicial rulings to
maintain senior employees with high salaries, eventually flounders.

Junior employees have the same rights as senior employees. Seniority does not confer
superior rights under the law. The grip of seniority as criterion works to the extreme
disadvantage of junior employees whose virtues (from the point of view of
management) are not limited to their relatively lower cost but also to their flexibility and
adaptability to new skills as well as willingness to work long hours. These virtues may
or may not exist in every junior employee, but the company should not be deprived of
this right to select the employees its retains based on these factors notwithstanding that
seniority is not given a high preference.

Nor is retrenching the senior and higher paying employee disadvantageous to him. Due
to their longer service, senior employees would be paid higher separation benefits in

28
terms of absolute monetary value. Junior employees, in contrast, would be receiving
lesser amounts. Junior employees will likely need their jobs more than their
retrenchment pay, while senior employees may treat their retrenchment benefits as
their retirement benefits.

The more important aspect of the La Consolacion College ruling may be less its stress on
seniority than on the part-time status which the Supreme Court also appreciated. The
retrenchment of the part-time physician may have less impact on her than on the full-
time physician. The part-time physician may have other sources of income, and would
not be rendered jobless unlike the full-time physician. The school, besides the
comparative salary levels, may have also thought that with the dwindling enrollment it
no longer needs a full-time physician as required by the Labor Code or the Manual of
Regulations for Private Schools. This is somewhat acknowledged by the Supreme Court
, when it decided to order the reinstatement of the full-time physician but only to part-
time status. This extraordinary directive ( the employee herself may not wish a part-time
status) ,while seemingly an excessive intrusion into management prerogatives ( if not
constituting constructive dismissal, from the point of view of the employee) , ironically
may be an equitable conclusion to the case.

Redundancy

Redundancy exists when "the services of an employee are in excess of what is

reasonably demanded by the actual requirements of the enterprise." An employer is not
obligated to keep in its payroll more employees than are needed for its day to-day
operations (Dusit Hotel Nikko vs NUHRWAIN GR No. 160391, 09 August 2005).
Jurisprudence has said that superfluity of positions may result from:

 over-hiring of workers
 overlapping of functions
 decreased volume or scope of business
 dropping of a particular product line or activity

Redundancy may be validly resorted to as a cost cutting measure and to streamline

operations so as to make them more viable ( Maya Farms Employees Organization vs
NLRC, GR No. 106256, 28 December 1994). Redundancy may be motivated by the desire
to save on labor costs( Dole Phil vs NLRC , GR No. 1200009, 13 September 2001).

Redundancy may be effected through re-organization of positions( CAFFCO

International Ltd. vs MOLE (, GR No. 76966, 07 August 1992);abolition of unnecessary
positions (Aurelio v NLRC, GR No. 99034, 12 April 1993),and outsourcing using
independent contractors (Serrano vs NLRC, R No. 117040, 27 January 2000) It is
management prerogative for a company to outsource any of its activities, regardless of whether
such activity is peripheral or core in nature provided   it is be made to an independent
contractor and not to a labor-only contractor (Alviado vs Procter & Gamble, G.R. No. 160506, 09
March 2010).

The company's characterization of a service or function as redundant is viewed basically as a

busines judgment, subject only to judicial review when the same is in violation of the law or
attended with arbitrary and malicious action. The Supreme Court has cautioned that it is not
difficult for employers to abolish positions in the guise of cost cutting measure (Palmeira vs
NLRC, GR No. s 113290-91, 03 August 1995).

D.O No. 147-15 lists the elements of a valid redundancy:

(i) There must be superfluous positions or services of employees;

29
 (ii) The positions or services are in excess of what is reasonably demanded by
the actual requirements of the enterprise to operate in an economical and efficient
manner;
(iii) There must be good faith in abolishing redundant positions;
(iv) There must be . fair and reasonable criteria in selecting the employees to be
terminated. The "Last in , First Out " Rule shall apply except when an employee
volunteers to be separated from employment.
(v) There must be an adequate proof of redundancy such as but not limited to the
new staffing pattern; feasibility studies/proposal on the viability of the newly
created positions, job descriptions and the approval by the management
of the restructuring.

Proof of redundancy

This element of redundancy is taken from jurisprudence which mandates:

It is however not enough for a company to merely declare that positions have
become redundant. It must produce adequate proof of such redundancy to
justify the dismissal of the affected employees. In Panlilio v. NLRC, we said
that the following evidence may be proffered to substantiate redundancy:
"the new staffing pattern, feasibility studies/proposal, on the viability of
the newly created positions, job description and the approval by the
management of the restructuring." In another case, it was held that the
company sufficiently established the fact of redundancy through "affidavits
executed by the officers of the respondent PLDT, explaining the
reasons and necessities for the implementation of the redundancy
program "(Andrada vs NLRC, GR No. 173231, 28 December 2007).

In the same case, the Supreme Court ruled that the necessity for redundancy was not
proven:

According to the CA, Legend proved the existence of redundancy when it

submitted a status review of its project division where it reported that the 78-
man personnel exceeded the needs of the company. The report further
stated that there was duplication of functions and positions, or an over supply
of employees, especially among architects, engineers, draftsmen, and
interior designers.

We cannot agree with the conclusion of the CA.

The pieces of evidence submitted by Legend are mere allegations and

conclusions not supported by other evidence. Legend did not even
bother to illustrate or explain in detail how and why it considered
petitioners’ positions superfluous or unnecessary. The CA puts too
much weight on petitioners’ failure to refute Legend’s allegations contained in
the document it submitted. However, it must be remembered that the
employer bears the burden of proving the cause or causes for termination . Its
failure to do so would necessarily lead to a judgment of illegal dismissal
(Andrada vs NLRCD, ibid.).

Reasonable criteria

Similar to retrenchment, jurisprudence imposes the use of fair and reasonable criteria in
selecting employees for redundancy program. This element however would not be
necessary if an entire department or section is closed, or a particular service is
outsourced, and all the employees in such department, section, or services are all
terminated.

30
Installation of labor saving devices

Installation of labor saving devices is a variant of redundancy, since machines would

eliminate the need for personnel.

For installation of labor saving devices, the elements cited by DO. No. 147015 are:

(i) There must be introduction of machinery, equipment, or other devices;

(ii). The introduction must be done in good faith;

(iii) The purpose for such introduction must be valid such as to save on cost,
enhance efficiency, and other justifiable economic reasons;

(iv) There is no other option available to the employer than the introduction of
machinery , equipment, or device and the subsequent termination of employment
of those affected thereby; and

(v) There must be fair and reasonable criteria in selecting the employees to be
terminated. The "Last in , First Out " Rule shall apply except when an employee
volunteers to be separated from employment.

In the following cases, installation of labor-saving devices resulted in redundancy:

 The functions of a Cost Accounting Manager became dispensable when a cost

accounting system was installed (Almodiel vs NLRC, GR No. 1006412, 14 June
1993).
 The functions of Switchmen Helpers were rendered unnecessary by
"technological changes where new technologies necessitate reduction in
workforce, e.g., conversion of electro-mechanical switches; outmoded electronic
switches to modern digital switches" (Soriano vs NLRC & PLDT, GR No. 165594, 23
April 2007)
 The work of agency employees whose functions were to : (i) to remove bulgings
(damaged goods) from dilapidated cartons; (ii) to replace damaged goods and
re-paste the carton thereof; (iii) to dispose the damaged goods or returned goods
from Magnolia’s warehouse to avoid bad odors; and (iv) to clean leftovers of
leaking tetra pack by mopping or washing the contaminated premises
were .rendered dispensable with the introduction of automated machines
(Magnolia Dairy Products vs NLRC ( GR No. 114952, 29 January 1996)
 The introduction of high-speed machines in manufacturing beer rendered some
functions in the bottling lines redundant( Abapo vs CA, GR No. q142405, 30
September 2004)

There does not seem to be too many cases on installation of labor-saving devices,
probably because this is a variant of redundancy. The same issues which arise in
redundancy and retrenchment, like the use of reasonable and fair criteria for selection,
would also apply to installation of labor-saving devices.

The increasing use of computers, robotics, and artificial intelligence would invariably
result in more jobs being handled by machines across all industries including
professional services.,

Closure of business operations

31
Instead of merely implementing job cuts through retrenchment , a company suffering
from serious business losses may permanently close its operation.

The employer has the absolute right to close its business, whether it is losing or
not. The Labor Code speaks of "closure not due to serious business losses".

The authorized closure or cessation of operation of an establishment or undertaking not

due to serious business losses or financial reverses include both the complete
cessation of operation and the cessation of only a part of a company activities
(Coca Cola Bottlers vs NRC , GR No,. 935530-36, 27 February 1991).The sale of a the
company's only Cessna plane, which rendered the pilot jobless, and the termination of
the service contract are examples of partial closure or cessation of operations
(Canlubang Sugar Estate vs NLRC, GR No, L-52325, 15 November 1982 and Rabago vs
NLRC, GR No. 82868, 05 August 1991). Closure of outlets, or branches only is also a
partial closure of business (Cama vs Joni's Food, GR No. 153021, 10 March 2004).

A company may decide to close business, for reasons other than financial losses,
subject to the payment of separation benefits at one half (1/2) month salary for every
year of service. To put a stamp to its validity, the closure/cessation of business must be
bona fide, i.e., its purpose is to advance the legitimate interest of the employer and not
to defeat or circumvent the rights of employees under the law or a valid agreement
(e.g., bust the union).

Closure of business may take the form of sale of all its assets to another company
(San Felipe Neri School of Mandaluyong vs NLRC, R No. 78350, 11 September 1991; ALU vs
NLRC & Mobil Oil, GR No. 74841, 20 December 1991))or merger with another company
(Cardona vs NLRC, GR No. 89007, 11 March 1991) , in the process of which the closing
company ceases its legal personality.

The merger of a corporation with another does not operate to dismiss the
employees of the corporation absorbed by the surviving corporation. This is in
keeping with the nature and effects of a merger as provided under law and the
constitutional policy protecting the rights of labor. The employment of the absorbed
employees subsists. Necessarily, these absorbed employees are not entitled to
separation pay on account of such merger in the absence of any other ground for its
award (Philippine Geothermal Employees Union vs UNOCAL Phil., GR No.190187, 28
September 2016).

As a general rule, there is no law requiring a bona fide purchaser of the assets of

an on-going concern to absorb in its employ the employees of the latter.(ALU-
Vincontu vs NLRC, GR No. 74841, 20 December 1991). That being the case, the
employees of the selling corporation are considered terminated and must be paid by the
latter with separation benefits.   However, although the purchaser of the assets or
enterprise is not legally bound to absorb in its employ the employees of the seller of
such assets or enterprise, the parties are reliable to the employees if the transaction
between the parties is colored or clothed with bad faith (ibid).

The merger of a corporation with another does not operate to dismiss the
employees of the corporation absorbed by the surviving corporation. This is in
keeping with the nature and effects of a merger as provided under law and the
constitutional policy protecting the rights of labor. The employment of the absorbed
employees subsists. Necessarily, these absorbed employees are not entitled to
separation pay on account of such merger in the absence of any other ground for its

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award (Philippine Geothermal Employees Union vs UNOCAL Phil., GR No.190187, 28
September 2016).

For closure or cessation of operation , the DOLE enumerates the following elements:

(i) There must be a decision to close or cease operation of the enterprise by the
management.
(ii) The decision was made in good faith, and,
(iii) There is no other option available to the employer except to close .

The third element cited by the DOLE is dubious, as it does not cite the jurisprudence
supporting this element. A company has the right to effect ]closure not due to business
losses; thus, the notion of "no other option available to the employer" is meaningless in
this situation.

Likewise, the elements of closure listed by the DOLE fails to take into account force
majeure closures particularly acts of State in which the decision to close operations is
wrested by the government. Examples include:

 Foreclosure of a bank's assets and properties ( DBP vs NLRC, GR No. 100264-81,

29 January 1993)
 Cancellation of government franchise ( Razon vs Secretary of Labor , GR NO.
85867, 13 May 1993)
 Closure due to CARP( Manaban vs Sarphil , GR No. 150916, 11 April 2005)
 Closure due to company relocation , which made the transfer of employees to the
new site highly inconvenient (Chevenir Deco Print vs MNLRC, GR No. 122876, 17
February 2000; Philippine Tobacco Flue Curing and Redrying Corporation, GR
No.127395, 10 December 1998)
 Non-renewal of franchise ( ABS CBN case)

A closure of business may be permanent or temporary. A business establishment may

temporarily close due to order of government (e.g., covid restrictions), force majeure
(e.g., fire which gutted a factory), or other third party acts ( e.g., non-renewal of
lease). Temporary closures should not exceed six(6) months. Once it exceeds six (6)
months, the employees would be deemed constructively dismissed.

Feigned closure

Like retrenchment to prevent losses, closure due to serious business losses are subject
to judicial scrutiny. There have been cases in which closure is feigned on business
losses, but is actually done to achieve an illegitimate purpose like union busting and
other unfair labor practices ( Me-Shurn Corp vs Me-shurn Workers Union, GR No. 156292,
11 January 2005).

C. Disease

The remaining ground of employer-initiated termination listed in the Labor Code is

disease (Art. 299, Labor Code).

Like in the case of economic causes, termination due to disease entitles the employee
to separation benefits of one half (1/2) month salary for every year of service.

For disease to be a valid ground for termination, DO. No 147-15 provides that the
following must be present:

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 (i) The employee must be suffering from any disease;

(ii) The continued employment of the employee is prohibited by law or prejudicial

to his health as well as to the health of his co-employees;

(iii) There must be a certification by a competent public health authority that the
disease is incurable within a period of six (6) months even with proper medical
treatment.

If the foregoing elements are not complied with, the employer cannot dismiss the
employee but must place him on extended medical leave. Payment for sick leave would
depend on whether the employee has leave credits.

D.O. 147-15 also states that an employee shall not be terminated from work based on
actual, perceived, or suspected HIV status ( DOLE DO. No. 102, S. 2010) and Hepatitis
B status ( Dept. Advisory No. 5, S. 2010). And an employee who has or had
tuberculosis shall not be discriminated . He shall be entitled to work as long as he is
certified by the company's accredited health provider as medically fit and shall be
restored to work as soon as his illness is controlled. (D.O. No. 75, S. 2005).

The provision is not limited to contagious diseases. Thus, it has applied it to non-
contagious disease such as stroke (Baby Bus, Inc. v. Minister of Labor, GR No. L-54223,
26 February 1988).  

Other Medical Cases

Does it however apply to "injury" which renders a person disabled? An "injury" is

different from a "disease". If the employee was injured in the course of the
performance of his work and continued employment would be prejudicial to his health, a
good case could be made to include such situation under Art. 299 of the Labor Code
since such interpretation would be in favor of labor ( see Phil. Employ Services and
Resources vs Paramio, GR No. 144786, 15 April 2004).

In another case, separation benefits was not awarded to an employee who died
because this was not an employer-initiated termination Gomez vs Central Vegetable
Oil, GR No. L-22702, 28 July 1969 ). If it is the employee who resigned due to ill health,
Art. 299 does not apply albeit financial assistance may be awarded by the courts
( Padillo vs RRural Bank of Nabunturan, GR No. 199338, 21 January 2013). In an earlier
case however, the Supreme Court decided to grant separation benefits to an ailing
security guard (Abaquin Security & Detective Agency vs Atienza, G.R. No. 72971, 15
October 1990).

Medical Certification

The burden is on the employer to prove that the employee is suffering from a disease
that is prohibited by law or prejudicial to his health as well as to the health of his co-
employees. Basically this means the employer has to submit the certification of a
competent public health authority ( Crayons Processing vs Pula, GR No. 167727, 30
July 2007).

The certification of a competent public health authority applies to OFW cases, since the
law does not require that it be issued by a Philippine public health authority could be

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issued by a competent public health authority in the foreign jurisdiction(Triple 8
Integrated Services vs NLRC, GR No. 129584, 03 December 1998).

A company doctor is not a competent public health authority. The absence of the
mandatory certification of a competent public health authority is not a mere
procedural lapse. It would render the dismissal illegal , for lack of valid cause. (Manly
Express, Inc. v. Payong, Jr., GR No. 167462, 25 October 2002).

But a psychiatric report from a consultant who works for the Philippine General
Hospital, a government institution, was deemed substantial evidence that the employee
was suffering from schizophrenia, that his disease was not curable within a period of six
(6) months even with proper medical treatment, and that his continued employment
would be prejudicial to his mental health. Under civil service regulations, a "consultant "
for the government is not an government employee. This particular aspect however
was not tackled in this case (Deoferio vs Intel, GR No. 202996, 18 June 2014)

Six-month period

Does the employee have to wait for the end of the six (6) months before it could
terminate an employee on the ground of disease? If all the requirements are complied
with particularly the certification, the employer does not have to wait for the lapse of six
(6) months.

If the employee has been on sick leave for six (6) months and is still unable to report for
work, may the employer consider such circumstance as confirmation that the former
could not recover from his illness and therefore the medical certification is no longer
necessary?

If the illness is attributable to the employee’s act or omission (e.g., he was reckless and
was infected with a contagious disease), may the employer decline to pay him
separation benefits in the same way that an employee guilty of “notorious negligence”
may be denied his claim for employee compensation?

D. Other Lawful Causes

Other employer-initiated termination causes which are justified in specific provisions of

the Labor Code include:

 Termination of probationary status

 Refusal to comply with DOLE's return-to-work order
 Illegal strike and Illegal acts committed during a strike
 Violation of the union security clause

Probationary employment

The grounds listed in the Labor Code (just causes, authorized causes, disease), as well
as the grounds allowed by jurisprudence, also apply to probationary employees. The
matter is extensively discussed in the section on Probation.

In addition, the law explicitly provides that the services of the probationary employee
may be terminated when he fails to qualify as a regular employee in accordance
with reasonable standards made known by the employer to the employee at the
time of his engagement.

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The grounds are not exclusive but may overlap. A ground may constitute both a just
cause and a failure to qualify (e.g., incompetence and gross neglect).

Despite the language of Art. 294 of the Labor Code that security of tenure applies to
“regular employment”, the Rules Implementing the Labor Code provides that it also
applies to probationary employees ( Book VI, Rule 1, Sec. 2, par. 2). This is the prevailing
jurisprudence. The doctrine is correct, because probationary employment is a species of
regular employment (i.e., the position is regular, only that the employee is on trial
period).

It has been pronounced the power of the employer to terminate an employee on

probation is subject to the following conditions:

(i) it must be exercised in accordance with the specific requirements of the

contract (like prescribed period and frequency of evaluation);
(ii) the dissatisfaction on the part of the employer must be real and in good faith,
not prejudicial so as to violate the contract or the law; and,
(ii) there must be no unlawful discrimination in the dismissal (Cathay Pacific
Airways vs. Marin, G.R. No. 148937, 12 September 2006).

The termination of a lead gardener (ostensibly for retrenchment) by a hotel was held
discriminatory and thus illegal, considering that three (3) other gardeners with inferior
qualifications were retained (Manila Hotel Co vs. NLRC G.R. No. L-53453, 22 January 1986

Limited Term Employment

There are other valid reasons for severance of employer-employee relationship that are
sanctioned in scattered provisions of the Labor Code , which could be traced to the
employer's decision to chose the nature of the employment. These grounds, which are
tackled in other sections primarily the Notes on Employee Classification include :

 End of casual, non-regular task

 Completion of project or a phase thereof
 End of season
 Expiry of fixed term contract

Other grounds which are found not mentioned in the Labor Code but the occurrence of
which sever the employment by its very nature or as recognized by jurisprudence
include:

 Death
 Mandatory retirement
 Disability (mental & physical)
 Acts of State (Boracay closure; phase out of PUVs)
 Legal disqualification (loss of professional license, loss of alien work permit,
running for public office, non-renewal of business permit)
 Force majeure or third party act (closure due to war, calamity, denial of access to
work site by third party, non-renewal of lease of business establishment )

E. Employee-initiated Termination

Termination of employment may also be employee-initiated. These include :

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  Resignation
 Optional retirement
 AWOL/abandonment

These issues are tackled in the sections on Resignation and Retirement.

In security agencies and other industries in which the employer depends on contracts
with clients for deployment of its workers, the employer is allowed to place the
employee on floating status for a period not exceeding six (6) months while waiting
for new assignment opportunity. This merely suspends, and does not yet terminate, the
employment relationship. Therefore, a security guard's employer must give a new
assignment to the employee within six (6) months. This assignment must be to a
specific or particular client. A general return-to-work order does not suffice." Once the 6-
month period expires without a new assignment for the employee, the latter is deemed
terminated for redundancy and will be entitled to separation benefits (Padilla vs Airborne
Security Services, GR No. 210080,22 November 2017).

The legal grounds for termination cover both local employment and overseas
employment, albeit the relief available to the latter case is necessarily limited by the
fixed term nature of the engagement. Reinstatement is not a relief available to illegally
dismissed OFWs. Nor to domestic helpers and family drivers.

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