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B. Termination by employer

1. Requisites for validity

a. Substantive due process

Dismissal from employment has two facets: first, the legality of the act of dismissal, which constitutes substantive due process; and, second, the legality of the manner of dismissal, which constitutes procedural due process. (Princess Talent Center Production, Inc. v. Masagca, G.R. No. 191310, 11 April 2018)

i. Just causes

(1) Concept

Just causes refer to grounds or causes under the Labor Code when an employer may validly terminate the employment of an employee for cause directly attributable to the fault or negligence of the employee. (Article 297, Labor Code; Section 4[a], DOLE D.O. 147, Series of 2015)

These include:

1) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

2) Gross and habitual neglect by the employee of his duties;

3) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

4) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and

5) Other causes analogous to the foregoing.

(2) Standards for Just Causes

(a) Serious misconduct

(Article 297[a], Ibid.)

Standards:

1) There must be a misconduct;

2) The misconduct must be of such grave and aggravated character;

3) It must relate to the performance of the employee’s duties; and

4) There must be showing that the employee becomes unfit to continue working for the employer. (Section 5.2[a], DOLE D.O. 147, Series of 2015)

(b) Willful disobedience

Willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work (Article 297[a], Labor Code)

Standards:

1) There must be disobedience or insubordination;

2) The disobedience or insubordination must be willful or intentional characterized by a wrongful and perverse attitude;

3) The order violated must be reasonable, lawful, and made known to the employee; and

4) The order must pertain to the duties which he has been engaged to discharge. (Section 5.2[b], DOLE D.O. 147, Series of 2015)

(c) Gross and habitual neglect

Gross and habitual neglect by the employee of his duties (Article 297[b], Labor Code)

Standards:

1) There must be a neglect of duty; and

2) The negligence must be both gross and habitual in character. (Section 5.2[c], DOLE D.O. 147, Series of 2015)

(d) Fraud

(Article 297[c], Labor Code)

Standards:

1) There must be an act, omission, or concealment;

2) The act, omission, or concealment involves a breach of legal duty, trust, or confidence justly reposed;

3) It must be committed against the employer or his/her representative; and

4) It must be in connection with the employee’s work. (Section 5.2[d], DOLE D.O. 147, Series of 2015)

(e) Willful breach of trust

Willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; (Article 297[c], Labor Code)

Standards:

1) There must be an act, omission or concealment;

2) The act, omission, or concealment justifies the loss of trust and confidence of the employer to the employee;

3) The employee concerned must be holding a position of trust and confidence;

4) The loss of trust and confidence should not be simulated;

5) It should not be used as a subterfuge for causes which are improper, illegal, or unjustified; and

6) It must be genuine and not a mere afterthought to justify an earlier action taken in bad faith. (Section 5.2[e], DOLE D.O. 147, Series of 2015)

(f) Commission of a crime or offense

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; (Article 297[d], Ibid.)

Standards:

1) There must be an act or omission punishable/prohibited by law; and

2) The act or omission was committed by the employee against the person of his employer, any immediate member of his/her family, or his/her duly authorized representative. (Section 5.2[f], DOLE D.O. 147, Series of 2015)

(g) Analogous causes

Other causes analogous to the foregoing. (Article 297[e], Ibid.)

Standards:

1) There must be an act or omission similar to those specified just causes; and

2) The act or omission must be voluntary and/or willful on the part of the employees. (Section 5.2[g], DOLE D.O. 147, Series of 2015)

DO-147 requires that an analogous cause should be expressly specified in the company rules and regulations or policies, to be valid.

(3) No just cause, illegal dismissal

If there is no just cause for terminating the employment of an employee, it consistutes an illegal dismissal.

ii. Authorized causes

(1) Concept

Authorized causes refer to grounds or causes when an employer may validly separate an employment of an employee under the Labor Code brought about by the necessity and exigencies of business, changing economic conditions, and disease or illness of an employee. (Article 298 and 299, Labor Code; Section 4[a], DOLE D.O. 147, Series of 2015)

(a) Labor Code authorized causes

Labor Code authorized causes are as follows:

1) Installation of labor-saving devices

2) Redundancy

3) Retrenchment

4) Closure or cessation of business

5) Disease

(b) Jurisprudence authorized causes

Jurisprudence authorized causes are as follows:

1) Reinstatement is no longer feasible to a former position or to a substantially equivalent position for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be implemented due to closure or cessation of operations of the establishment/employer, or the position to which he or she is to be reinstated no longer exists and there is no substantially equivalent position in the establishment to which he or she can be assigned (Gaco v. NLRC, G.R. No. 104690, 23 February 1994); and

2) Strained relations.

(2) Standards for Authorized Causes

(a) Installation of labor-saving devices

(Article 298, Labor Code)

Standards:

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

2) The introduction must be done in good faith;

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

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

5) There must be fair and reasonable criteria in selecting employees to be terminated. (Section 5.4[a], DOLE D.O. 147, Series of 2015)

(b) Redundancy

(Article 298, Labor Code)

Standards:

1) There must be superfluous positions or services of employees;

2) 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;

3) There must be good faith in abolishing redundant positions;

4) There must be fair and reasonable criteria in selecting the employees to be terminated;

5) There must be an adequate proof of such redundancy such as but not limited to 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. (Section 5.4[b], DOLE D.O. 147, Series of 2015)

(c) Retrenchment

(Article 298, Labor Code)

Standards:

1) The retrenchment must be reasonably necessary and likely to prevent business losses;

2) The losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent;

3) The expected or actual losses must be proved sufficient and convincing evidence;

4) 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; and

5) There must be fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers. (Section 5.4[c], DOLE D.O. 147, Series of 2015)

(d) Closure or cessation of business

(Article 298, Labor Code)

Standards:

1) There must be a decision to close or cease operation of the enterprise by the management;

2) The decision was made in good faith; and

3) There is no other option available to the employer except to close or cease operations. (Section 5.4[d], DOLE D.O. 147, Series of 2015)

(e) Disease

(Article 299, Labor Code)

Standards:

1) The employee must be suffering from any disease;

2) The continued employment of the employee is prohibited by law or prejudicial to his/her health as well as to the health of his/her co-employees; and

3) 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. (Section 5.4[e], DOLE D.O. 147, Series of 2015)

(3) No authorized cause, illegal dismissal

If there is no authorized cause for the separation of employment of an employee, it consistutes an illegal dismissal.

b. Procedural due process

1) Just cause procedure

Step 1: Issuance of 1st Written Notice

Step 2: Observance of Ample Opportunity to Explain

Step 3: Issuance of 2nd Written Notice

Step 1: Issuance of 1st Written Notice

The employer is required to issue a 1st Written Notice to the employee.

It should contain the following:

1) The specific causes or grounds for termination as provided for under the Labor Code, as amended, employment contract, and company policies, if any.

2) Detailed narration of facts and circumstances that will serve as basis for the charge against the employee. A general description of the charge will not suffice.

3) A directive that the employee is given opportunity to submit a written explanation within a reasonable period, which should be at least (5) calendar days. (Section 5.1, DOLE D.O. 147, Series of 2015)

NB: The 1st Written Notice, otherwise known as the Notice to Explain, may also contain a directive for the employee to appear at a scheduled formal administrative hearing, at the discretion of the employer or when necessary as provided for by law. (See discussions below.)

Step 2: Observance of Ample Opportunity to Explain

The ample opportunity to explain is satisfied by either giving the employee the chance to defend himself/herself via:

1) A written explanation; or

2) A formal administrative hearing.

Both of which should be at least five (5) calendar days from receipt of the 1st written notice in order for the employee to study the accusations, consult or be represented by a lawyer or union officer, gather data and evidence, and decide on the defenses against the charges/complaint.

As a general rule, a formal administrative hearing is optional or at the discretion of the employer. By way of exceptions, the employer is required to conduct a formal administrative hearing when requested in writing by the employee, substantial evidentiary disputes exist, or a company rule or practice requires it, or when similar circumstances justify it.

The employee waives his/her right for an opportunity to explain if he/she does not submit a written explanation or does not attend the scheduled formal administrative hearing.

Step 3: Issuance of 2nd Written Notice

The employer shall issue a 2nd Written Notice to the employee after evaluating all available pieces of evidence and the explanation of the employee, if any.

The results may either be that the employee is innocent or guilty.

If the employee is innocent, the 2nd written notice will indicate so. This is often referred to as a Notice of Results.

If the employee is guilty, the 2nd written notice shall state that all circumstances involving the charge against him/her have been considered and grounds have been established to justify the imposition of a penalty. This is often referred to as a Termination Notice.

The penalty may either one of the following: verbal reprimand, written warning, suspension, dismissal.

a) Non-compliance with procedurefor just cause, nominal damages

An employer who terminates an employee for a valid cause but does so through invalid procedure is liable to pay the latter nominal damages. (Abbott Laboratories v. Alcaraz, G.R. En Banc, G.R. No. 192571, 23 July 2013)

2) Authorized cause procedure

Step 1: Issuance of 30-day advance notice to DOLE

Step 2: Issuance of 30-day advance notice to employee

Step 3: Payment of Separation Pay (subject to an exception)

Step 1: Issuance of 30-day advance notice to DOLE

The employer is required to issue a 30-day advance notice to the DOLE Regional Office which has jurisdiction over the establishment. This is usually accomplished through the RKS Form 5.

This advanced notice is designed to give the concerned office an opportunity to confirm/verify the existence of authorized causes by means of either calling for a hearing/conference or an inspection.

Step 2: Issuance of 30-day advance notice to employee

The employer is required to issue a 30-day advance notice to the employee informing the latter of the circumstances in relation to his/her being separated from employment due to an authorized cause.

The advanced notice is designed to give the employee the opportunity to start looking for his/her next gainful employment. This is without prejudice to him/her completing the 30-day period for transition and turn-over.

Step 3: Payment of Separation Pay

The affected employee is entitled to separation pay. This may be given together with his/her final pay or within a reasonable period of time, subject to completion of clearance, turn-over, and other exit documents or procedures.

a) Non-compliance with procedurefor authorized cause, nominal damages

If a company separates an employee for an authorized cause but does so through invalid procedure, the employ is liable to pay nominal damages to the affected employees. (Jaka Food Processing Corporation v. Picot, En Banc, G.R. No. 151378, 28 March 2005)

2. Preventive suspension

a. Concept

The employer may place the worker concerned under preventive suspension if his continued employment poses a serious and imminent threat to the life or property of the employer or of his co-workers. (Section 3, Rule XIV, Book V, Omnibus Rules Implementing the Labor Code)

b. Period of suspension

No preventive suspension shall last longer than 30 days. The employer shall thereafter reinstate the worker in his former or in a substantially equivalent position or the employer may extend the period of suspension provided that during the period of extension, he pays the wages and other benefits due to the worker. In such case, the worker shall not be bound to reimburse the amount paid to him during the extension if the employer decides, after completion of the hearing, to dismiss the worker. (Section 4, Rule XIV, Book V, Ibid.)

c. Included in suspension as penalty

If the employee is liable and the penalty calls for suspension, the period served under the preventive suspension is included in the counting of the suspension as penalty.

3. Illegal dismissal

a. Kinds

i. No just or authorized cause

(1) No substantive due process

The employer has the burden of proving that an employee’s dismissal from service was for a just or authorized cause. (Demex Rattancraft, Inc. v. Leron, G.R. No. 204288, 08 November 2017)

In our jurisdiction, the right of an employer to terminate employment is regulated by law. Both the Constitution and our laws guarantee security of tenure to labor and, thus, an employee can only be validly dismissed from work if the dismissal is predicated upon any of the just or authorized causes allowed under the Labor Code. Correspondingly, a dismissal that is not based on either of the said causes is regarded as illegal and entitles the dismissed employee to the payment of backwages and, in most cases, to reinstatement. (Veterans Federation of the Philippines v. Montenejo, G.R. No. 184819, 29 November 2017)

Under Philippine law, workers are entitled to substantive and procedural due process before the termination of their employment. They may not be removed from employment without a valid or just cause as determined by law, and without going through the proper procedure. The purpose of these two-pronged qualifications is to protect the working class from the employer’s arbitrary and unreasonable exercise of its right to dismiss. (Cuartocruz v. Active Works, Inc., G.R. No. 209072, 24 July 2019)

In determining whether an employee’s dismissal had been legal, the inquiry focuses on whether the dismissal violated his right to substantial and procedural due process. An employee’s right not to be dismissed without just or authorized cause as provided by law, is covered by his right to substantial due process. Compliance with procedure provided in the Labor Code, on the other hand, constitutes the procedural due process right of an employee. (Brown Madonna Press Inc. v. Casas, G.R. No. 200898, 15 June 2015)

The violation of either the substantial due process right or the procedural due process right of an employee produces different results. Termination without a just or authorized cause renders the dismissal invalid, and entitles the employee to reinstatement without loss of seniority rights and other privileges and full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time the compensation was not paid up to the time of actual reinstatement. (Brown Madonna Press Inc. v. Casas, supra.)

(2) With substantive due process, but no procedural due process

An employee’s removal for just or authorized cause but without complying with the proper procedure, on the other hand, does not invalidate the dismissal. It obligates the erring employer to pay nominal damages to the employee, as penalty for not complying with the procedural requirements of due process. (Brown Madonna Press Inc. v. Casas, supra.)

Thus, two separate inquiries must be made in resolving illegal dismissal cases: first, whether the dismissal had been made in accordance with the procedure set in the Labor Code; and second, whether the dismissal had been for just or authorized cause. (Brown Madonna Press Inc. v. Casas, supra.)

ii. Constructive dismissal

Constructive dismissal arises “when continued employment is rendered impossible, unreasonable or unlikely; when there is a demotion in rank and/or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the employee.” In such cases, the impossibility, unreasonableness, or unlikelihood of continued employment leaves an employee with no other viable recourse but to terminate his or her employment. (St. Paul College, Pasig v. Mancol, G.R. No. 222317, 24 January 2018)

By definition, constructive dismissal can happen in any number of ways. At its core, however, is the gratuitous, unjustified, or unwarranted nature of the employer’s action. As it is a question of whether an employer acted fairly, it is inexorable that any allegation of constructive dismissal be contrasted with the validity of exercising management prerogative. (Ibid.)

There is constructive dismissal when an employee is compelled by the employer to resign or is placed in a situation where there would be no other choice but to resign. (Pascua v. Bank Wise Inc., G.R. No. 191460, 31 January 2018)

(1) The test of constructive dismissal

The test of constructive dismissal is whether a reasonable person in the employee’s position would have felt compelled to give up his position under the circumstances. It is an act amounting to dismissal but made to appear as if it were not. Constructive dismissal is, therefore, a dismissal in disguise. As such, the law recognizes and resolves this situation in favor of employees in order to protect their rights and interests from the coercive acts of the employer. In fact, the employee who is constructively dismissed may be allowed to keep on coming to work. (MCMER Corporation, Inc. v. NLRC, Libunao, Jr., G.R. No. 193421)

(2) Not every convenience

“Not every inconvenience, disruption, difficulty, or disadvantage that an employee must endure sustains a finding of constructive dismissal.” It is an employer’s right to investigate acts of wrongdoing by employees. Employees involved in such investigations cannot ipso facto claim that employers are out to get them. Their involvement in investigations will naturally entail some inconvenience, stress, and difficulty. However, even if they might be burdened – and, in some cases, rather heavily so – it does not necessarily mean that an employer has embarked on their constructive dismissal. (Philippine Span Asia Carriers Corporation v. Pelayo, G.R. No. 212003, 28 February 2018)

(3) Unconditional and categorical letter of resignation

An unconditional and categorical letter of resignation cannot be considered indicative of constructive dismissal if it is submitted by an employee fully aware of its effects and implications. (Pascua v. Bank Wise Inc., supra.)

(a) Burden of proof

(1) On the employee: fact of dismissal

There are cases wherein the facts and the evidence do not establish prima facie that the employee was dismissed from employment. Before the employer must bear the burden of proving that the dismissal was legal, the employee must first establish by substantial evidence the fact of his dismissal from service. If there is no dismissal, then there can be no question as to the legality or illegality thereof. (Doctor v. NII Enterprises, G.R. No. 194001, 22 November 2017)

The burden of proof is on the one who declares, not on one who denies. A party alleging a critical fact must support his allegation with substantial evidence, for any decision based on unsubstantiated allegation cannot stand without offending due process. And in illegal termination cases, jurisprudence had underscored that the fact of dismissal must be established by positive and overt acts of an employer indicating the intention to dismiss18 before the burden is shifted to the employer that the dismissal was legal. (Mehitabel Inc. v. Alcuizar, G.R. No. 228701-02, 13 December 2017)

Since the fact of dismissal had not been satisfactorily established by the employees, then the burden of proving that the dismissal was legal, i.e., that it was for just and authorized cause/s and in accordance with due process, did not shift to the employer. (Doctor v. NII Enterprises, supra.)

The evidence to prove the fact of dismissal must be clear, positive and convincing. (Pu-od v. Ablaze Builders, Inc., G.R. No. 230791, 20 November 2017)

(2) On the employer: validity of dismissal

In illegal dismissal cases, the employer bears the burden of proving that the termination was for a valid or authorized cause. (Doctor v. NII Enterprises, supra.)

In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause; failure to do so would necessarily mean that the dismissal was illegal. The employer’s case succeeds or fails on the strength of its evidence and not on the weakness of the employee’s defense. If doubt exists between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter. Moreover, the quantum of proof required in determining the legality of an employee’s dismissal is only substantial evidence. Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise. (Distribution & Control Products, Inc. v. Santos, G.R. No. 212616, 10 July 2017)

In termination disputes or illegal dismissal cases, it has been established by Philippine law and jurisprudence that the employer has the burden of proving that the dismissal is for just and valid causes; and failure to do so would necessarily mean that the dismissal was not justified and is, therefore, illegal. (Gopio v. Bautista, G.R. No. 205953, 06 June 2018)

(b) Liability of officers

(1) General rule: not liable

A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their personal liability but the direct responsibility of the corporation they represent. As a rule, they are only solidarily liable with the corporation for the illegal termination of services of employees if they acted with malice or bad faith. (Polymer Rubber Corporation v. Salamuding, G.R. No. 185160, 24 July 2013)

(b) Exception: when liable

To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must be proof that the officer acted in bad faith. (Ibid.)

In labor cases, it has been held that corporate directors and officers solidarily may be liable with the corporation for the termination of employment of employees done with malice or in bad faith. (MAM Realty Development Corporation v. NLRC, Balbastro, G.R. No. 114787, 02 June 1995)

Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud. (Ever Electrical Manufacturing, Inc. v. Samahang Manggagawa ng Ever Electrical / NAMAWU Local 224, G.R. No. 194795, 13 June 2012)

In the present case, Go may have acted in behalf of EEMI but the company’s failure to operate cannot be equated to bad faith. Cessation of business operation is brought about by various causes like mismanagement, lack of demand, negligence, or lack of business foresight. Unless it can be shown that the closure was deliberate, malicious and in bad faith, the Court must apply the general rule that a corporation has, by law, a personality separate and distinct from that of its owners. As there is no evidence that Go, as EEMI’s President, acted maliciously or in bad faith in handling their business affairs and in eventually implementing the closure of its business, he cannot be held jointly and solidarily liable with EEMI. (Ibid.)

(c) Reliefs from illegal dismissal

An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. (Article 294, Labor Code)

An illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. The two reliefs provided are separate and distinct. (Golden Ace Builders v. Talde, G.R. No. 187200, 05 May 2010)

Reinstatement restores the employee who was unjustly dismissed to the position from which he was removed, that is, to his status quo ante dismissal, while the grant of backwages allows the same employee to recover from the employer that which he had lost by way of wages as a result of his dismissal. These twin remedies reinstatement and payment of backwages – make the dismissed employee whole who can then look forward to continued employment. Thus do these two remedies give meaning and substance to the constitutional right of labor to security of tenure. The two forms of relief are distinct and separate, one from the other. Though the grant of reinstatement commonly carries with it an award of backwages, the inappropriateness or non-availability of one does not carry with it the inappropriateness or non-availability of the other. (Tomas Claudio Memorial College, Inc. v. CA, G.R. No. 152568, 16 February 2004)

(1) Reinstatement

An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. (Article 294 [279], Labor Code)

The normal consequences of illegal dismissal is reinstatement without loss of seniority rights, and payment of backwages computed from the time compensation was withheld up to the date of actual reinstatement. (Tomas Claudio Memorial College, Inc. v. CA, supra.)

(a) 2 kinds of reinstatement pending appeal

1) Actual reinstatement

2) Payroll reinstatement

Since the decision is immediately executory, it is the duty of the employer to comply with the order of reinstatement, which can be done either actually or through payroll reinstatement. As provided under Article 223 of the Labor Code, this immediately executory nature of an order of reinstatement is not affected by the existence of an ongoing appeal. The employer has the duty to reinstate the employee in the interim period until a reversal is decreed by a higher court or tribunal. (Wenphil v. Abing, G.R. No. 207983, 07 April 2014)

Non-recovery of amounts paid in payroll reinstatement in case of reversal

In the case of payroll reinstatement, even if the employer’s appeal turns the tide in its favor, the reinstated employee has no duty to return or reimburse the salary he received during the period that the lower court or tribunal’s governing decision was for the employee’s illegal dismissal. (Ibid.)

(b) When separation pay in lieu of reinstatement applies

In instances where reinstatement is no longer feasible because of strained relations between the employee and the employer, separation pay is granted. (Golden Ace Builders v. Talde, G.R. No. 187200, 05 May 2010)

Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month salary for every year of service should be awarded as an alternative. The payment of separation pay is in addition to payment of backwages. (Tomas Claudio Memorial College, Inc. v. CA, supra.)

(2) Full Backwages

Where there is no dismissal, there is no backwages. The Labor Code provides for the payment of full backwages, among others, to unjustly dismissed employees. The grant of backwages allows the employee to recover from the employer that which he had lost by way of wages as a result of his dismissal. Where the employee’s failure to work was occasioned neither by his abandonment nor by a termination, the burden of economic loss is not rightfully shifted to the employer. Each party must bear his own loss. (Rodriguez v. Sintron Systems, Inc., G.R. No. 240254, 24 July 2019)

The payment of backwages is generally granted on the ground of equity. It is a form of relief that restores the income that was lost by reason of the unlawful dismissal; the grant thereof is intended to restore the earnings that would have accrued to the dismissed employee during the period of dismissal until it is determined that the termination of employment is for a just cause. It is not private compensation or damages but is awarded in furtherance and effectuation of the public objective of the Labor Code. Nor is it a redress of a private right but rather in the nature of a command to the employer to make public reparation for dismissing an employee either due to the former’s unlawful act or bad faith. (Tomas Claudio Memorial College, Inc. v. CA, supra.)

The award of backwages is not conditioned on the employee’s ability or inability to, in the interim, earn any income. (Ibid.)

(a) Full Backwages v. Separation Pay

The basis for the payment of backwages is different from that for the award of separation pay. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Backwages represent compensation that should have been earned but were not collected because of the unjust dismissal. The basis for computing backwages is usually the length of the employee’s service while that for separation pay is the actual period when the employee was unlawfully prevented from working. (Golden Ace Builders v. Talde, supra.)

(3) Damages, Attorney’s Fees, Annual Interest

(a) Moral Damages

Moral damages are recoverable where the dismissal of the employee was attended by bad faith or fraud or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. (Cosue v. Ferritz Integrated Development Corporation, G.R. No. 230664, 24 July 2017)

Where an employee failed to sufficiently establish that he had been dismissed, let alone in bad faith or in an oppressive or malevolent manner, he cannot rightfully claim moral and exemplary damages. (Ibid.)

A dismissal may be contrary to law but by itself alone, it does not establish bad faith to entitle the dismissed employee to moral damages. The award of moral and exemplary damages cannot be justified solely upon the premise that the employer dismissed his employee without just or authorized cause. (Echo 2000 Commercial Corporation v. Orbero Filipino-Echo 2000 Chapter-CLO, G.R. No. 214092, 11 January 2016)

(b) Exemplary Damages

On the other hand, exemplary damages are proper when the dismissal was e:ff ected in a wanton, oppressive or malevolent manner, and public policy requires that these acts must be suppressed and discouraged. (Cosue v. Ferritz Integrated Development Corporation, supra.)

(c) Attorney’s Fees

In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the amount of wages recovered. (Article 111 [a], Ibid.)

Attorney’s fees may be recovered by an employee whose wages have been unlawfully withheld. There need not even be any showing that the employer acted maliciously or in bad faith; there need only be a showing that lawful wages were not paid accordingly, as in this case. (Cosue v. Ferritz Integrated Development Corporation, supra.)

Further, Article 2208 of the Civil Code enumerates the instances when attorney’s fees can be awarded:

ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation,other than judicialcosts, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted ingross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. (Civil Code)

10% limitation

It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered. (Article 111 [b], Ibid.)

When any contract or arrangement between a seafarer or his/her heirs, and a person who appears for or represents them in any case for recovery of monetary claim or benefit, including legal interest, arising from accident, illness or death before the National Labor Relations Commission (NLRC) or any labor arbiter, the National Conciliation and Mediation Board (NCMB), the Philippine Overseas Employment Administration (POEA), the Department of Labor and Employment (DOLE) or its regional offices, or other quasi-judicial bodies handling labor disputes stipulates that the person who appears for or represents them shall be entitled to fees, such fees shall not exceed ten percent (10%) of the compensation or benefit awarded to the seafarer or his/her heirs. (Section 4, R.A. 10706)

(d) 6% annual interest

An annual interest of six percent (6%) is imposed on the monetary award. (Echo 2000 Commercial Corporation v. Orbero Filipino-Echo 2000 Chapter-CLO, supra.)

4. Money claims arising from employer-employee relationship

a. Compensation

1) Salary differential

b. Benefits

1) Legally mandated benefits

1) Holiday pay

2) Premium pay

3) Overtime pay

4) Night shift differential

5) Service charges

6) Service incentive leave

7) Maternity leave

8) 13th month pay

9) Separation pay

10) Retirement pay

2) Company-provided benefits

NB: If the company provides for additional benefits, these may be the subject of monetary claims.

5. When not deemed dismissed; employee on floating status

a. Temporary work suspension up to 6 months

The bona fide suspension of the operation of a business or undertaking for a period not exceeding six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment. (Article 301, Labor Code)

Closure or suspension of operations for economic reasons is, therefore, recognized as a valid exercise of management prerogative. The determination to cease or suspend operations is a prerogative of management, which the State does not usually interfere with, as no business or undertaking is required to continue operating at a loss simply because it has to maintain its workers in employment. Such an act would be tantamount to a taking of property without due process of law. (Lopez v. Irvine Construction Corp., G.R. No. 207253, 20 August 2014)

1)No termination of employment, only displacement

An employer may validly put its employees on forced leave or floating status upon bona fide suspension of the operation of its business for a period not exceeding six (6) months. In such a case, there is no termination of the employment of the employees, but only a temporary displacement. When the suspension of the business operations, however, exceeds six (6) months, then the employment of the employees would be deemed terminated, and the employer would be held liable for the same. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)

2)Notice requirement; DOLE and employee

In implementing this measure, jurisprudence has set that the employer should notify the Department of Labor and Employment (DOLE) and the affected employee, at least one month prior to the intended date of suspension of business operations. (Airborne  Maintenance and Allied Services, Inc. v. Egos, G.R. No. 222748, 03 April 2019)

3) Bona fide (food faith)

Lay-off, being an exercise of the employer’s management prerogative, must be exercised in good faith – that is, one which is intended for the advancement of employers’ interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements. (Lopez v. Irvine Construction Corp., supra.)

a) Legitimate business or economic reason

An employer must also prove the existence of a clear and compelling economic reason for the temporary shutdown of its business or undertaking and that there were no available posts to which the affected employee could be assigned. (Ibid.)

The paramount consideration should be the dire exigency of the business of the employer that compels it to put some of its employees temporarily out of work. This means that the employer should be able to prove that it is faced with a clear and compelling economic reason which reasonably forces it to temporarily shut down its business operations or a particular undertaking, incidentally resulting to the temporary lay-off of its employees. (Ibid.)

b) Burden of proof on employer

Closure or suspension of operations for economic reasons is recognized as a valid exercise of management prerogative. But the burden of proving, with sufficient and convincing evidence, that said closure or suspension is bona fide falls upon the employer. (Innodata Knowledge Services, Inc. v. Inting, supra.)

4) 6-month limitation

The temporary lay-off wherein the employees likewise cease to work should also not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched following the requirements of the law, and that failing to comply with this would be tantamount to dismissing the employees and the employer would thus be liable for such dismissal. (PT&T v. NLRC, G.R. No. 147002, 15 April 2005)

a) Constructive dismissal after 6 months

Within this six-month period, the employee should either be recalled or permanently retrenched. Otherwise, the employee would be deemed to have been dismissed, and the employer held liable therefor. (Lopez v. Irvine Construction Corp., supra.)

The law set six (6) months as the period where the operation of a business or undertaking may be suspended, thereby also suspending the employment of the employees concerned. The resulting temporary lay-off, wherein the employees likewise cease to work, should also not last longer than six (6) months. After the period of six (6) months, the employees should either then be recalled to work or permanently retrenched following the requirements of the law. Failure to comply with this requirement would be tantamount to dismissing the employees, making the employer responsible for such dismissal. (Innodata Knowledge Services, Inc. v. Inting, supra.)

5) Exhaustion of possible re-assignment

Due to the grim economic consequences to the employee, case law states that the employer should also bear the burden of proving that there are no posts available to which the employee temporarily out of work can be assigned. (Airborne  Maintenance and Allied Services, Inc. v. Egos, supra.)

6) Permanent retrenchment

a) Notice requirement; DOLE and employee

Notably, in both a permanent and temporary lay-off, jurisprudence dictates that the one-month notice rule to both the DOLE and the employee under Article 283 of the Labor Code, as above cited, is mandatory. (Lopez v. Irvine Construction Corp., supra.)

The requirement of notice to both the employees concerned and the Department of Labor and Employment (DOLE) is mandatory and must be written and given at least one month before the intended date of retrenchment. In this case, it is undisputed that the petitioners were given notice of the temporary lay-off. There is, however, no evidence that any written notice to permanently retrench them was given at least one month prior to the date of the intended retrenchment. The NLRC found that GTI conveyed to the petitioners the impossibility of recalling them due to the continued unavailability of work. But what the law requires is a written notice to the employees concerned and that requirement is mandatory. (Sebuguero v. NLRC, G.R. No. 115394, 27 September 1995)

The notice must also be given at least one month in advance of the intended date of retrenchment to enable the employees to look for other means of employment and therefore to ease the impact of the loss of their jobs and the corresponding income. That they were already on temporary lay-off at the time notice should have been given to them is not an excuse to forego the one-month written notice because by this time, their lay-off is to become permanent and they were definitely losing their employment. (Sebuguero v. NLRC, Ibid.)

b. Reinstatement without loss of seniority

In all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one (1) month from the resumption of operations of his employer or from his relief from the military or civic duty. (Article 301, Ibid.)

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