B. Termination by employer

Frequency: ★★★★★

1. 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)

a. Just causes

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)

Just causes 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 for serious misconduct:
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 for willful disobedience:
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 for gross and habitual neglect of duty:
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 for fraud:

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 for willful breach of trust:
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 for commission of a crime or offense:
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 for analogous causes:
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.

•••••

BAR EXAM QUESTION

(Question A.1[a], Part I, Labor Law, 2019 Bar Exam)

Define, explain or distinguish the following terms:

(a) Just and authorized causes (2%)

SUGGESTED ANSWER:

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.

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.

•••••

BAR EXAM QUESTION

(Question XIII, Labor Law, 2018 Bar Exam)

Nicodemus was employed as a computer programmer by Network Corporation, a telecommunications firm. He has been coming to work in shorts and sneakers, in violation of the “prescribed uniform policy” based on company rules and regulations. The company human resources manager wrote him a letter, giving him 10 days to comply with the company uniform policy. Nicodemus asserted that wearing shorts and sneakers made him more productive, and cited his above-average output. When he came to work still in violation of the uniform policy, the company sent him a letter of termination of employment. Nicodemus filed an illegal dismissal case. The Labor Arbiter ruled in favor of Nicodemus and ordered his reinstatement with backwages. Network Corporation, however, refused to reinstate him. The NLRC 1st Division sustained the Labor Arbiter’s judgment. Network Corporation still refused to reinstate Nicodemus. Eventually, the Court of Appeals reversed the decision of the NLRC and ruled that the dismissal was valid. Despite the reversal, Nicodemus still filed a motion for execution with respect to his accrued backwages.

(a) Were there valid legal grounds to dismiss Nicodemus from his employment? (2.5%)

SUGGESTED ANSWER:

Yes.

Under the Labor Code, serious misconduct and willful disobedience of a lawful order of the employer are just causes for terminating the employment of an employee.

In the case at bar, Nicodemus coming to work in shorts and sneakers in in violation of the prescribed uniform policy based on company rules and regulations, constitute willful disobedience of a lawful order of the employer. After being issued a memo reminder, he continued to commit the violation showing his disregard for the authority of the human resources manager, and thus constituting serious misconduct.

Thus, there were valid legal grounds to dismiss Nicodemus from his employment.

•••••

BAR EXAM QUESTION

(Question Part X[B], Labor Law, 2017 Bar Exam)

What are the grounds for validly terminating the services of an employee based on a just cause? (5%)

SUGGESTED ANSWER:

The grounds for just cause termination are as follows:

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.

•••••

b. Authorized causes

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:
1) Installation of labor-saving devices;
2) Redundancy;
3) Retrenchment;
4) Closure or cessation of business; and
5) Disease

(b) Jurisprudence authorized causes

Jurisprudence authorized causes:
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 for installation of labor-saving devices:
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 for redundancy:
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 for retrenchment:
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 for closure or cessation of business:
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 for disease:
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.

•••••

BAR EXAM QUESTION

(Question A.1[a], Part I, Labor Law, 2019 Bar Exam)

Define, explain or distinguish the following terms:

(a) Just and authorized causes (2%)

SUGGESTED ANSWER:

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.

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.

•••••

BAR EXAM QUESTION

(Question B.19[b], Part II, Labor Law, 2019 Bar Exam)

Because of dwindling sales and the consequent limitation of productions, rumors were rife that XYZ, Inc. would reduce its employee force. The next day, the employees of XYZ, Inc. received a notice that the company will have a winding down period of 10 days, after which there will be a six (6)-month suspension of operations to allow the company to address its precarious financial position.

On the fourth (4th) month of suspension of its operations XYZ, Inc. posted announcement that it will resume its operations in 60 days but at the same time announced that instead of closing down due to financial losses, it will retrench 50% of the work force.

(a) Is the announcement that there would be retrenchment affecting 50% of the work force sufficient compliance with the legal requirements for retrenchment? Explain. (2.5%)

(b) Assuming that XYZ, Inc., instead of retrenchment, extended the suspension of its operations from six (6) months to eight (8) months, would the same be legally permissible? If not, what are the consequences? (2.5%)

SUGGESTED ANSWER:

(a) No. Answer

Under the Labor Code, retrenchment requires two notices to be sent, to wit: (a) a 30-day advance notice to DOLE; and (b) a 30-day advance notice to the employees. Rule

In the case at bar, the Company did not send a 30-day advance notice to DOLE and to the employees in violation of the Labor Code. Apply

Thus, the announcement is not sufficient to comply with the legal requirements for retrenchment. Conclusion

(b) No. Under the Labor Code, an employer is allowed to undergo a bona fide suspension of business operations for a period not exceeding six (6) months. On/before the expiration of the last day of the 6-month period, the employer may either re-admit the employees back to work or to permanently retrenched them subject to payment of separation pay. If no action is taken by the employer before the lapse of the period, the employer may be held liable for constructive dismissal.

•••••

2. Procedural due process

a. Two-notice rule

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)

•••••

BAR EXAM QUESTION

(Question B.17[b], Part II, Labor Law, 2019 Bar Exam)

Ms. A is a volleyball coach with five (5) years of experience in her field. Before the start of the volleyball season of 2015, she was hired for the sole purpose of overseeing the training and coaching of the University’s volleyball team. During her hiring, the Vice-President for Sports expressed to Ms. A the University’s expectation that she would bring the University a championship at the end of the year.

In her first volleyball season, the University placed ninth (9th) out of 10 participating teams. Soon after the end of the season, the Vice-president for Sports informed Ms. A that she was a mere probationary employee and hence, she need not come back for the next season because of the poor performance of the team.

In any case, the Vice-President for Sports claimed that Ms. A was a fixed-term employee whose contract had ended at the close of the year.

(b) Assuming that Ms. A was dismissed by the University for serious misconduct but was never given a notice to explain, what is the consequence of a procedurally infirm dismissal from service under our labor law and jurisprudence? Explain. (2%)

SUGGESTED ANSWER:

Under labor law jurisprudence, an employer who terminates an employee for a valid cause but does so through invalid procedure is liable to pay the latter nominal damages.

•••••

BAR EXAM QUESTION

(Question X[C], Labor Law, 2017 Bar Exam)

Give the procedure to be observed for validly terminating the services of an employee based on a just cause? (4%)

SUGGESTED ANSWER:

The following is the procedure for just cause termination:

Step 1: Issuance of 1st Written Notice

Step 2: Observance of Ample Opportunity to Explain

Step 3: Issuance of 2nd Written Notice

For Step 1, the 1st Written Notice to the employee 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.

For Step 2, the ample opportunity to explain is satisfied by either giving the employee the chance to defend himself/herself via: (a) a written explanation; or (b) a formal administrative hearing.

For Step 3, 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. 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.

•••••

3. Illegal dismissal, reliefs therefrom

a. Illegal dismissal

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.)

b. 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)

a. 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.)

2 kinds of reinstatement pending appeal:
1) Actual reinstatement; or
2) Payroll reinstatement

Immediate 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.)

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.)

b. 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.)

1) 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.)

c. Separation pay, doctrine of strained relations

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)

Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust. (Ibid.)

Strained relations must be demonstrated as a fact, however, to be adequately supported by evidence — substantial evidence to show that the relationship between the employer and the employee is indeed strained as a necessary consequence of the judicial controversy. (Ibid.)

Golden Ace Builders v. Talde (May 2010)
By Decision2 of January 10, 2001, the Labor Arbiter ruled in favor of respondent and ordered his immediate reinstatement without loss of seniority rights and other privileges, and with payment of full backwages, which at that time was computed at ₱144,382.23, and the amount of ₱3,236.37 representing premium pay for rest days, service incentive leave pay and 13th month pay.
Pending their appeal to the National Labor Relations Commission (NLRC) and in compliance with the Labor Arbiter’s Decision, petitioners, through counsel, advised respondent to report for work in the construction site within 10 days from receipt thereof. Respondent submitted, however, on May 16, 2001 a manifestation3 to the Labor Arbiter that actual animosities existed between him and petitioners and there had been threats to his life and his family’s safety, hence, he opted for the payment of separation pay. Petitioners denied the existence of any such animosity.
[HELD: The employee was awarded separation pay due to strained relations.]
In the present case, the Labor Arbiter found that actual animosity existed between petitioner Azul and respondent as a result of the filing of the illegal dismissal case.
x x x
Clearly then, respondent is entitled to backwages and separation pay as his reinstatement has been rendered impossible due to strained relations. As correctly held by the appellate court, the backwages due respondent must be computed from the time he was unjustly dismissed until his actual reinstatement, or from February 1999 until June 30, 2005 when his reinstatement was rendered impossible without fault on his part.

d. Damages

1) 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)

2) 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.)

•••••

BAR EXAM QUESTION

(Question A.9[a], Part I, Labor Law, 2019 Bar Exam)

After due proceedings, the Labor Arbiter (LA) declared Mr. K to have been illegally dismissed by his former employer, AB, Inc. As a consequence, the LA directed ABC, Inc. to pay Mr. K separation pay in lieu of reinstatement as well as his full backwages.

While ABC, Inc. accepted the finding of illegal dismissal, it nevertheless filed a motion for reconsideration, claiming that the LA erred in awarding both separation pay and full backwages, and instead, should have ordered Mr. K’s reinstatement to his former position without loss of seniority rights and other privileges, but without payment of backwages. In this regard, ABC, Inc. pointed out that the LA’s ruling did not contain any finding of strained relations or that reinstatement was no longer feasible. In any case, it appears that no evidence was presented on this score.

(a) Is ABC, Inc.’s contention to delete the separation pay, and instead, order reinstatement without backwages correct? Explain. (3%)

SUGGESTED ANSWER:

(a) Yes. Answer

Under the Labor Code, 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. By way of exception to the reinstatement, labor law jurisprudence allows separation pay in lieu of reinstatement where reinstatement is no longer viable as an option or there is strained relations between the employer and the employee. Rule

In the case at bar, the Labor Arbiter should have ordered for reinstatement in compliance with the Labor Code. There is no finding that reinstatement is no longer viable as an option or there is strained relations between the employer and the employee. There is no basis for separation pay in lieu of reinstatement. Apply

Thus, ABC Inc.’s contention to delete the separation pay, and instead, order reinstatement without backwages, is correct. Conclusion

•••••

BAR EXAM QUESTION

(Question XIII, Labor Law, 2018 Bar Exam)

Nicodemus was employed as a computer programmer by Network Corporation, a telecommunications firm. He has been coming to work in shorts and sneakers, in violation of the “prescribed uniform policy” based on company rules and regulations. The company human resources manager wrote him a letter, giving him 10 days to comply with the company uniform policy. Nicodemus asserted that wearing shorts and sneakers made him more productive, and cited his above-average output. When he came to work still in violation of the uniform policy, the company sent him a letter of termination of employment. Nicodemus filed an illegal dismissal case. The Labor Arbiter ruled in favor of Nicodemus and ordered his reinstatement with backwages. Network Corporation, however, refused to reinstate him. The NLRC 1st Division sustained the Labor Arbiter’s judgment. Network Corporation still refused to reinstate Nicodemus. Eventually, the Court of Appeals reversed the decision of the NLRC and ruled that the dismissal was valid. Despite the reversal, Nicodemus still filed a motion for execution with respect to his accrued backwages.

(b) Should Nicodemus’ motion for execution be granted? (2.5%)

SUGGESTED ANSWER:

Yes. Answer

Under Labor Code, the Labor Arbiter’s order of reinstatement is immediately executory. The employer may choose actual reinstatement or payroll reinstatement in case of and pending appeal. Whichever the employer chooses, the employee is entitled to his compensation from the time of the order of reinstatement by the Labor Arbiter, until reversal by an appellate court. Rule

In the case at bar, the Labor Arbiter ordered the reinstatement of Nicodemus. This was immediately executory. Nicodemus became entitled to his compensation whether the employer chose actual reinstatement or payroll reinstatement. That the order of reinstatement would eventually be reversed by the Court of Appeals does not invalidate the employer’s obligation to pay the compensation during the period when reinstatement was ordered. Apply

Thus, Nicodemus’ motion for execution should be granted. Conclusion

•••••

BAR EXAM QUESTION

(Question XX, Labor Law, 2018 Bar Exam)

In Northern Lights Corporation, union members Nad, Ned, and Nod sought permission from the company to distribute flyers with respect to a weekend union activity. The company HR manager granted the request through a text message sent to another union member, Norlyn.

While Nad, Ned, and Nod were distributing the flyers at the company assembly plant, a company supervisor barged in and demanded that they cease from distributing the flyers, stating that the assembly line employees were trying to beat a production deadline and were thoroughly distracted. Norlyn tried to show the HR manager’s text message authorizing flyer distribution during work hours, but the supervisor brushed it aside.

As a result, Nad, Ned, and Nod were suspended for violating company rules on trespass and highly-limited union activities during work hours. The Union filed an unfair labor practice (ULP) case before the NLRC for union discrimination.

b) Assume the NLRC ruled in favor of the Union. The Labor Arbiter’s judgment included, among others, an award for moral and exemplary damages at PhP50,000.00 each for Nad, Ned, and Nod. Northern Lights Corporation argued that any award of damages should be given to the Union, and not individually to its member. Is Northern Lights Corporation correct? (2.5%)

SUGGESTED ANSWER:

No. Answer

Under labor law jurisprudence, when due, moral and exemplary damages are awarded to employees, who were the receiving end of the unlawful acts of the employer. The union simply represents the employees in the labor case. Rule

In the case at bar, Nad, Ned, and Nod, were the ones suspended by the employer. As a consequence of this unlawful act by the employer, it was penalized and made to pay moral damages and exemplary damages to the ones who were affected, which were the suspended employees, and not the union. Apply

Thus, Northern Lights Corporation is not correct. Conclusion

•••••

BAR EXAM QUESTION

(Question XII[A], Labor Law, 2017 Bar Exam)

Juanito initiated a case for illegal dismissal against Mandarin Company. The Labor Arbiter decided in his favor, and ordered his immediate reinstatement with full backwages and without loss of seniority and other benefits. Mandarin Company did not like to allow him back in its premises to prevent him from influencing his co-workers to move against the interest of the company; hence, it directed his payroll reinstatement and paid his full backwages and other benefits even as it appealed to the NLRC.

A few months later, the NLRC reversed the ruling of the Labor Arbiter and declared that Juanito’s dismissal was valid. The reversal ultimately became final.

May Mandarin Company recover the backwages and other benefits paid to Juanito pursuant to the decision of the Labor Arbiter in view of the reversal by the NLRC? Rule, with reasons. (2.5%)

SUGGESTED ANSWER:

No. Answer

Under labor law jurisprudence, 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. Rule

In the case at bar, the Labor Arbiter ordered reinstatement. Instead of actual reinstatement, Mandarin Company chose payroll reinstatement. Notwithstanding the reversal by the NLRC of the decision of the Labor Arbiter, Juanito has no duty to return or reimburse the salary he received during the period that the Labor Arbiter’s decision applies or governs. Apply

Thus, Mandaring Company cannot recover the backwages and other benefits paid to Juanito. Conclusion

3) Nominal Damages

N0ominal damages “may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him. Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right.” The amount of nominal damages to be awarded the employee is addressed to the sound discretion of the court, taking into consideration the relevant circumstances. (Libcap Marketing Corp. v. Baquial, G.R. No. 192011, 30 June 2014)

Nominal damages are “adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.” Jurisprudence holds that such indemnity to be imposed should be stiffer to discourage the abhorrent practice of “dismiss now, pay later.” The sanction should be in the nature of indemnification or penalty and should depend on the facts of each case, taking into special consideration the gravity of the due process violation of the employer. (Sy v. Neat, Inc., G.R. No. 213748, 02 November 2017)

Nominal DamagesFinancial Assistance
Nominal damages is awarded in favor of an employee in a case where a valid cause for dismissal exists but the employer fails to observe due process in dismissing the employee.Financial assistance is granted to a dismissed employee as a measure of equity or social justice, and is in the nature or takes the place of severance compensation. (Libcap Marketing Corp. v. Baquial, supra.)

e. Attorneys’ 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], Labor Code)

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)

f. Liabilities of corporate officers

General Rule: 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)
Exception: 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.)

Malice, bad faith. 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)

Same; Bad faith. 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)

Ever Electrical Manufacturing, Inc. v. Samahang Manggagawa ng Ever Electrical / NAMAWU Local 224 (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.)

g. Burden of proof

Notably, in determining the employee’s entitlement to monetary claims, the burden of proof is shifted from the employer or the employee, depending on the monetary claim sought. (Minsola v. New City Builders, Inc., G.R. No. 207613, 31 January 2018)

1) When on the employee

Burden of proof is on the employee:
1) For monetary claims: if the amount due is not regularly received by the employee in the ordinary course of business of the employer;
2) For illegal dismissal: the fact of dismissal.

Monetary claims – when burden is on the employee. On the other hand, for overtime pay, premium pays for holidays and rest days, the burden is shifted on the employee, as these monetary claims are not incurred in the normal course of business. It is thus incumbent upon the employee to first prove that he actually rendered service in excess of the regular eight working hours a day, and that he in fact worked on holidays and rest days. (Minsola v. New City Builders, Inc., supra.)

Illegal dismissal – when burden is on the employee. 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) When on the employer

Burden of proof is on the employer:
1) For monetary claims: if the amount due regularly received by the employee in the ordinary course of business of the employer;
2) For illegal dismissal: the validity of the dismissal.

Monetary claims – when burden is on the employer. In claims for payment of salary differential, service incentive leave, holiday pay and 13th month pay, the burden rests on the employer to prove payment. This likewise stems from the fact that all pertinent personnel files, payrolls, records, remittances and other similar documents – which will show that the differentials, service incentive leave and other claims of workers have been paid – are not in the possession of the worker but are in the custody and control of the employer. (Minsola v. New City Builders, Inc., supra.)

Illegal dismissal – when burden is on the employer. 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)

Disclaimer: All information herein is for educational and general information only intended for those preparing for the bar exam. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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