IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

LABOR STANDARDS AND SOCIAL LEGISTLATION

A SUMMARY REPORT

ON

POST EMPLOYMENT,

LAW ON TERMINATION,

RETIREMENT,

AND RELATED LAWS

SUBMITTED BY:

De Jesus, Justine

Mangune, Jeffrey

Mateo, Almond

Pabilona, Jocet Consisa

Quinto, Vinilla Germina

Salgado, Mary Antonnete

SUBMITTED TO:

ATTY. PORFIRIO DG. PANGANIBAN, J.R.

LAW ON TERMINATION OF EMPLOYMENT

i. SECURITY OF TENURE

1. The Policy of the state is to assure the right of workers to security

of tenure. The guaranty is an act of social justice. Security of

tenure is one of the cardinal rights of workers guaranteed by the

constitution under Sec 3, Art. 13 of the 1987 Constitution to wit;

Section 3. The State shall afford full protection to

labor, local and overseas, organized and

unorganized, and promote full employment and

equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-

organization, collective bargaining and

negotiations, and peaceful concerted activities,

including the right to strike in accordance with law.

They shall be entitled to security of tenure,

humane conditions of work, and a living wage. They

shall also participate in policy and decision-making

processes affecting their rights and benefits as may

be provided by law.

The State shall promote the principle of shared

responsibility between workers and employers and

the preferential use of voluntary modes in settling

disputes, including conciliation, and shall enforce

their mutual compliance therewith to foster

industrial peace.

The State shall regulate the relations between

workers and employers, recognizing the right of

labor to its just share in the fruits of production and

the right of enterprises to reasonable returns to

investments, and to expansion and growth.

Moreover this right is also guaranteed in the Declaration of

Basic Policy (Art. 3) under PD 442 otherwise known as the Labor

Code of the Philippines provising;

“The State shall afford protection to labor, promote

full employment, ensure equal work opportunities

regardless of sex, race or creed and regulate the

relations between workers and employers. The

State shall assure the rights of workers to self-

organization, collective bargaining, security of

tenure, and just and humane conditions of work.”

The great mass of the population is almost wholly dependent on

their employment for their livelihood. The alternative of returning or

turning to farming as a secondary occupation is no longer feasible.

When a worker losses his job, his family faces deprivation, if not

starvation. Hence, the demand for job security (Azucena, 2010).

Both the Constitution and the Labor Code enunciate this right

as available to an employee. In a host of cases, the Court has upheld

the employee's right to security of tenure in the face of oppressive

management behaviors and management prerogatives. Security of

tenure is a right which may nor be denied on mere speculation of any

unequivocal and nebulous basis.

When a person has no property, his job may possibly be his only

possession or means of livelihood and those of his dependents. When

a person loses his job, his dependents suffer as well.(Philips

Semiconductors [Phils.] v. Fadriquela, G.R. No. 141717, April 14,

2004) Therefore, he should be protected against any arbitrary

deprivation of his job. Article 279 of the Labor Code has Construed

security of tenu8re as;

In cases of regular employment, the

employer shall not terminate the services of an

employee except for a just cause or when

authorized by this Title. An employee who is

unjustly dismissed from work shall be entitled to

reinstatement without loss of seniority rights and

other privileges and to his full backwages, inclusive

of allowances, and to his other benefits or their

monetary equivalent computed from the time his

compensation was withheld from him up to the time

of his actual reinstatement.

1. Concept of Security of tenure:

Management and labor, or the employer and employee, are

more often not situated on the same level of playing field, so speak.

Recognizing this reality, the state has seen fir to adopt measures

envisaged to give this who have less in life more in law. Article 279

which grants security of tenure to employees, is one playing field

levelling measures. (Philippine Daily Inquirer, Inc. v. Magtibay, Jr.,

G.R. No. 164532, July 24. 2007)

Security of tenure is a paramount right of every employee that

is held sacred by the constitution. The reason for this is that labor is

deemed to be “property” within the meaning of constitutional

guarantees (Art3, Sec. 1, 1987 Constitution). Indeed, as it is the

policy of the State to guarantee the right of every worker to security

of tenure as an act of social justice.

Schemes which preclude acquisition of tenurial security should

be struck down and condemned as contrary to public policy, public

morals, good customs or public order. No member of the workforce

should be allowed to be taken advantage of by the employer (Sevidad

v. NLRC, G.R. No. 128682, March 18, 1999)

In the case of Baguio Country Club Corporation vs. NLRC G. R.

No. 71664, Feb. 28, 1992, it was held that;

“A contract which states that the employment of the

worker “shall be on a day-to-day basis for a

temporary period” and that the same may be

terminated at any time without liability to the

employer other than for salary actually earned up to

and including the date of last service, is a contract

which has the purpose of circumventing the

employee’s security of tenure. The court

rigorously disapproves such contracts which

demonstrate a clear attempt to exploit the employee

and deprive him of the protection sanctioned by the

Labor Code. Owing to the worker’s length of service

with the company and considering that the nature of

his work is usually necessary or desirable in the

usual trade or business of the company, he became a

regular employee, by operation of law, one year

after he was employed.”

In the 2003 case of Magsalin & Coca-Cola Bottlers Phils.,

Inc. vs. National Organization of Working Men (N.O.W.M.), [G.

R. No. 148492, May 9, 2003], Coca-Cola Bottlers Phils., Inc.,

engaged the services of respondent workers as “sales route helpers”

for a limited period of five months. After five months, respondent

workers were employed by petitioner company on a day-to-day basis.

According to petitioner company, respondent workers were hired to

substitute for regular sales route helpers whenever the latter would

be unavailable or when there would be an unexpected shortage of

manpower in any of its work places or an unusually high volume of

work. The practice was for the workers to wait every morning

outside the gates of the sales office of petitioner company. If thus

hired, the workers would then be paid their wages at the end of the

day. Ultimately, respondent workers asked petitioner company to

extend to them regular appointments. Petitioner company refused. In

declaring that the workers have become regular employees, the

Supreme Court reasoned that the repeated rehiring of respondent

workers and the continuing need for their services clearly attest to

the necessity or desirability of their services in the regular conduct

of the business or trade of petitioner company. More so here where

the Court of Appeals has found each of respondents to have worked

for at least one year with petitioner company. The pernicious

practice of having employees, workers and laborers, engaged for a

fixed period of few months, short of the normal six-month

probationary period of employment, and, thereafter, to be hired on a

day-to-day basis, mocks the law. Any obvious circumvention of the

law cannot be countenanced. The fact that respondent workers have

agreed to be employed on such basis and to forego the protection

given to them on their security of tenure, demonstrate nothing more

than the serious problem of impoverishment of so many of our people

and the resulting unevenness between labor and capital.

Such schemes are anathema to the underlying principles which

give life to our Labor statutes because it would be tantamount to

likening an employer-employee relationship to a salesman and a

purchaser of a commodity. It is an archaic abolition. To quote what

has been aptly stated by former Governor General Leonard Wood in

his inaugural message before the 6th Philippine Legislature on

October 27, 1922 “labor is neither chattel nor a commodity, but

human and must be dealt with from the standpoint of human

interest. (Cited in the dissenting opinion of Chief Justice Reynato

Puno in Serrano v. NLRC, G.R. No. 117040, Jan. 27, 2000)

iii. Application of security of tenure:

Article 279 itself is defective because it recognizes security of

tenure only “in cases of regular employment”. Such specification is

not found in the constitution which entitles “all workers” to the right

to security of tenure. Moreover, the Code itself and the court ruling

do not limit security of tenure to regular employees. Clearly, the

Court said: “As probationary and contractual employees, private

respondents [complainant employees] enjoyed security of tenure but

only to limited extent – i.e., they remained secure in their

employment during the period of time their respective contracts of

employment remained in effect. Indeed, security of tenure – the right

not to be removed from one's job without valid cause and valid

procedure – is so fundamental it extends to regular as well as non-

regular employment.

Generally, employer's are allowed a wider latitude of discretion

in terminating the employment of managerial personnel or those

who, while not of similar rank, perform functions which by their

nature require the employer's full trust and confidence. This should

be distinguished from the case of ordinary ran-and-file employees,

whose termination on the basis of the same grounds require a higher

proof of involvement in the events in question.

But while managerial employee may be dismissed merely on the

ground of loss of confidence, the matter of determining whether the

cause for dismissing an employee is justified on ground of loss of

confidence, cannot be left entirely to the employer. The fact that one

is a managerial employee does not by itself exclude him from the

protection of the constitutional guaranty of security of tenure

(Maglutac vs. NLRC, Commart [Phil] Inc., G.R. No. 78345,

September 21, 1990).

Managerial employees also enjoy security of tenure. The

principle of security of tenure applies not only to rank-and-file

employees but also to managerial employees. (PLDT vs. Tolentino, G.

R. No. 143171, Sept. 21, 2004).

The right to security of tenure cannot be blotted out by an

employment contract.

In trying to justify the employee's dismissal, the employer did

not cite any of the just or authorized causes. Instead, it merely

insisted that the dismissal was authorized in the employment

contract that the employee had voluntarily signed. Through Justice

Panganiban, The Court responded:

“Truly, the contracting parties may establish such

stipulations, clauses, terms and conditions as they

want, and their agreement would have the force of

law between them. However, petitioner [employer]

overlooks the qualification that those terms and

conditions agreed upon must not be contrary to law,

morals, customs, public policy or public order. As

explained earlier, the employment contract between

employer and employee is governed by the

Philippine labor laws. Hence, the stipulations,

clauses and terms and conditions of the contract

must not contravene our labor law. (Philippine

national Bank vs. Cabansag, G.R. No. 157010, June

21, 2005.”

Moreover, a contract of employment is imbued with

public interest. The court has time and time again

reminded parties that they “are not at liberty to

insulate themselves and their relationships from the

impact of labor laws and regulations by simply

contracting with each other.” Also, law that regulate

such contracts are deemed included and shall limit

and govern the relations between the parties. (ibid)

ii. MANAGEMENT RIGHTS AND PREROGATIVES

While the constitution is committed to the policy of social justice

and the protection of the working class, it should not be supposed

that every labor disputes will be automatically decided in favor for

labor. Management also has its own rights which, as such, are

entitled to respect and enforcement in the interest of simple fair

play. Out of its concern for those with less privileges in life, the

Supreme Court has inclined more often than not toward the worker

and upheld his cause in his conflict with employer. Such favoritism,

however, has not blinded the Court to the rule that justice is in every

case for the deserving, to be dispensed with in the light of the

established facts and the applicable law and doctrine.

The Secreatary of Labor is duly mandated to equally protect and

respect not only the laborer or worker's side but also the

management and/or employer's side. The law, in protecting the

rights of the laborer, authorizes neither oppression nor self-

destruction of the employer. Management prerogatives, however are

subject to limitations provided by (1) law, (2) contract or collective

bargaining agreement, (3) general principles of fair play and justice.

The following are the most fundamental of the management

rights:

1. Right to Return of Investment

2. Right to prescribe rules e.g., management's

prerogative to prescribe working method, time, place,

manner and other aspects of work.

3. Right to select employees

4. Right to transfer or discharge employees e.g.,

reorganize, promote & demote

For purposes of discussion of post-employment particularly the

law on termination, the second and fourth right only will be further

elucidated.

Our laws recognize and respect the exercise by management of

certain rights and prerogatives. For this reason, courts often decline

to interfere in legitimate business decisions of employers. In fact,

labor laws discourage interference in employers’ judgment

concerning the conduct of their business. (Philippine Industrial

Security Agency Corporation vs. Aguinaldo, G. R. No. 149974, June

15, 2005; Mendoza vs. Rural Bank of Lucban, G.R. No. 155421, July

7, 2004).

An employer can regulate, generally without restraint,

according to its own discretion and judgment, every aspect of its

business. (Deles, Jr. vs. NLRC, G. R. No. 121348, March 9, 2000).

This privilege is inherent in the right of employers to control and

manage their enterprise effectively. (Mendoza vs. Rural Bank of

Lucban, G.R. No. 155421, 07 July 2004).

The right to prescribe rules

Employers have the right to make reasonable rules and

regulations for the government of their employees, and when

employees, with knowledge of an established ru8le, enter the service,

the rule becomes part of the contract of employment. Company

policies and regulations are, unless shown to be grossly oppressive or

contrary to law, generally binding and valid on the parties.

Employers have the freedom and prerogative, according to their

discretion and best judgment, to regulate and control all aspects of

employment in their business organizations. Such aspects of

employment include hiring, work assignments, working methods,

time, place and manner of work, tools to be used, processes to be

followed, supervision of workers, working regulations, transfer of

employees, work supervision, lay-off of workers and the discipline,

dismissal and recall of workers. (Philippine Airlines, Inc. vs. NLRC,

G. R. No. 115785, Aug. 4, 2000).

Thus, as held in one case, management retains the prerogative,

whenever exigencies of the service so require, to change the working

hours of its employees. (Sime Darby Pilipinas, Inc. vs. NLRC, G.R.

No. 119205, 15 April 1998, 289 SCRA 86).

Right to transfer or discharge employees

An employer has the perfect right to transfer, reduce or lay-off

personnel in order to minimize expenses and to insure the stability of

the business, and even close to the business, and this right has been

consistently upheld even in the present era of multifarious reforms in

the relationship of capital and labor, provided the transfer or

dismissal us not abused but is done in good faith and is due course

beyond control. To hols otherwise would be oppressive and inhuman.

A. Transfer; Concept and meaning;

A transfer means a movement (1) from one position to another

of equivalent rank, level or salary, without a break in the service; or

(2) from one office to another within the same business

establishment. (Sentinel Security Agency, Inc. vs. NLRC, G. R. No.

122468, Sept. 3, 1998).

The Supreme Court has recognized and upheld the prerogative

of management to transfer an employee from one office to another

within the business establishment, provided there is no demotion in

rank or diminution of salary, benefits, and other privileges; and the

action is not motivated by discrimination, made in bad faith, or

effected as a form of punishment or demotion without sufficient

cause. This is a privilege inherent in the employer’s right to control

and manage its enterprise effectively. (Mendoza vs. Rural Bank of

Lucban, G. R. No. 155421, July 7, 2004; Benguet Electric Cooperative

vs. Fianza, G. R. No. 158606, March 9, 2004).

B. Test to determine the validity of transfer;

But like all other rights, there are limits. The managerial

prerogative to transfer personnel must be exercised without grave

abuse of discretion and putting to mind the basic elements of justice

and fair play. Having the right should not be confused with the

manner that right is exercised. Thus, it cannot be used as a

subterfuge by the employer to rid himself of an undesirable worker.

In particular, the employer must be able to show that the transfer is

not unreasonable, inconvenient or prejudicial to the employee.

Should the employer fail to overcome this burden of proof, the

employee’s transfer is tantamount to constructive dismissal. (The

Philippine American Life and General Insurance Co. vs. Gramaje, G.

R. No. 156963, Nov. 11, 2004; Globe Telecom, Inc. vs. Florendo-

Flores, G. R. No. 150092, Sept. 27, 2002).

In Dusit Hotel Nikko vs. NUWHRAIN – Dusit Hotel Nikko

Chapter, [G. R. No. 160391, August 9, 2005], it was held that the

several offers made by the employer to transfer an employee was

indicative of bad faith. More so when the contemplated transfer was

from a higher position to a much lower one. Further, the offers were

made after said employee was dismissed due to redundancy under a

Special Early Retirement Program (SERP). The employer tried to

recall the termination when it was learned that she was going to file

a complaint with the NLRC for illegal dismissal. As a ploy to stave off

the filing of said case, the offers were made to the employee but she

had not been transferred to another position at all. Six months from

the time the employer made the offers to her, the latter never heard

from the former again. Certainly, good faith cannot be attributed on

the part of the hotel. More importantly, the offers made could not

have the effect of validating an otherwise arbitrary dismissal.

But, in the case of Zafra vs. Hon. CA, [G. R. No. 139013,

September 17, 2002], despite the petitioner-employees’ agreement in

their application for employment to be transferred or assigned to any

branch, their refusal to be transferred from Cebu to Manila which

was made a condition for their training abroad (Germany) was held

valid. According to the High Court, the fact that petitioners, in their

application for employment, agreed to be transferred or assigned to

any branch should not be taken in isolation, but rather in conjunction

with the established company practice in PLDT (the respondent

employer) of disseminating a notice of transfer to employees before

sending them abroad for training. This should be deemed necessary

and later to have ripened into a company practice or policy that could

no longer be peremptorily withdrawn, discontinued, or eliminated by

the employer. Fairness at the workplace and settled expectations

among employees require that this practice be honored and this

policy commended. Despite their knowledge that the lone operations

and maintenance center of the 33 ALCATEL 1000 S12 Exchanges for

which they trained abroad would be “homed” in Sampaloc, Manila,

PLDT officials neglected to disclose this vital piece of information to

petitioners before they acceded to be trained abroad. On arriving

home, they did not give complaining workers any other option but

placed them in an either/or straightjacket that appeared too

oppressive for those concerned. Needless to say, had they known

about their pre-planned reassignments, petitioners could have

declined the foreign training intended for personnel assigned to the

Manila office. The lure of a foreign trip is fleeting while a

reassignment from Cebu to Manila entails major and permanent

readjustments for petitioners and their families.

While transfer of an employee ordinarily lies within the ambit of

management prerogatives, however, a transfer amounts to

constructive dismissal when the transfer is unreasonable,

inconvenient, or prejudicial to the employee, and involves a demotion

in rank or diminution of salaries, benefits, and other privileges. In the

present case, petitioners were unceremoniously transferred,

necessitating their families’ relocation from Cebu to Manila. This act

of management appears to be arbitrary without the usual notice that

should have been done even prior to their training abroad. From the

employees’ viewpoint, such action affecting their families are

burdensome, economically and emotionally. It is no exaggeration to

say that their forced transfer is not only unreasonable, inconvenient,

and prejudicial, but also in defiance of basic due process and fair play

in employment relations.

C. Constructive Dismissal

The transfer of an employee may constitute constructive

dismissal when it amounts to “an involuntary resignation resorted to

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.” (Floren Hotel vs.

NLRC, G. R. No. 155264, May 6, 2005; Mendoza vs. Rural Bank of

Lucban, G.R. No. 155421, July 7, 2004).

As the High Court explained in Globe Telecom, Inc. vs.

Florendo-Flores, [G. R. No. 150092, September 27, 2002, 390 SCRA

201] and in Philippine Industrial Security Agency Corporation vs.

Aguinaldo, [G. R. No. 149974, June 15, 2005]:

“In constructive dismissal, the employer has the

burden of proving that the transfer and demotion of

an employee are for just and valid grounds such as

genuine business necessity. The employer must be

able to show that the transfer is not unreasonable,

inconvenient, or prejudicial to the employee. It must

not involve a demotion in rank or a diminution of

salary and other benefits. If the employer cannot

overcome this burden of proof, the employee’s

demotion shall be tantamount to unlawful

constructive dismissal.”

D. Prerogative to reorganize

The Supreme Court, in a number of cases, has recognized and

affirmed the prerogative of management to implement a job

evaluation program or a reorganization for as long as it is not

contrary to law, morals or public policy. (Hongkong and Shanghai

Banking Corporation Employees Union vs. NLRC, G. R. No. 125038,

Nov. 6, 1997).

If the purpose of a reorganization is to be achieved, changes in

the positions and rankings of the employees should be expected. To

insist on one’s old position and ranking after are organization would

render such endeavor ineffectual. (Arrieta vs. NLRC, G. R. No.

126230, Sept. 18, 1997, 279 SCRA 326).

It is hard to accept the claim that an employer would go through

all the expenditure and effort incidental and necessary to a

reorganization just to dismiss a single employee whom they no longer

deem desirable. (Ibid.).

E. Promotion and demotion

Promotion is the advancement from one position to another

involving increase in duties and responsibilities as authorized by law,

and increase in compensation and benefits. (Millares vs. Subido, 20

SCRA 954).

Apparently, the indispensable element for there to be a

promotion is that there must be an “advancement from one position

to another” or an upward vertical movement of the employee’s rank

or position. Any increase in salary should only be considered

incidental but never determinative of whether or not a promotion is

bestowed upon an employee. This can be likened to the upgrading of

salaries of government employees without conferring upon them, the

concomitant elevation to the higher positions.

There is demotion where there is reduction in position, rank or

salary as a result of a transfer. (Philippine Wireless, Inc. [Pocketbell]

vs. NLRC, G. R. No. 112963, July 20, 1999).

There is demotion when an employee occupying a highly

technical position requiring the use of an employee’s mental faculty,

is transferred to another position where she performed mere

mechanical work - virtually a transfer from a position of dignity to a

servile or menial job. (Blue Dairy Corporation vs. NLRC, G. R. No.

129843, Sept. 14, 1999).

In addition to the comparison involving nature of work, another

aspect of comparison to determine the existence of demotion is the

workplaces themselves. Hence, there is also demotion if there is a

change in the workplace such as in the case of transfer of an

employee from the laboratory - the most expensive work area, on a

per square-meter basis in the company’s premises - to the vegetable

processing section which involves processing of vegetables alone.

Definitely, a transfer from a workplace where only highly trusted

authorized personnel are allowed to access to a workplace that is

not as critical is another reason enough for the employee to howl a

protest. (Blue Dairy Corporation vs. NLRC).

F. Right to discipline.

The employer’s right to conduct the affairs of his business,

according to its own discretion and judgment, includes the

prerogative to instill discipline in its employees and to impose

penalties, including dismissal, upon erring employees. This is a

management prerogative where the free will of management to

conduct its own affairs to achieve its purpose takes form. The only

criterion to guide the exercise of its management prerogative is that

the policies, rules and regulations on work-related activities of the

employees must always be fair and reasonable and the

corresponding penalties, when prescribed, commensurate to the

offense involved and to the degree of the infraction. (St. Michael’s

Institute vs. Santos, G. R. No. 145280, Dec. 4, 2001; Consolidated

Food Corporation vs. NRLC, 315 SCRA 129, 139 [1999]).

Instilling discipline among its employees is a basic management

right and prerogative. Management may lawfully impose reasonable

penalties such as dismissal upon an employee who transgresses the

company rules and regulations. (Deles, Jr. vs. NLRC, G. R. No.

121348, March 9, 2000).

The employer cannot be compelled to maintain in his employ the

undeserving, if not undesirable, employees. (Shoemart, Inc. vs.

NLRC, G. R. No. 74229, Aug. 11, 1989).

G. Right to dismiss.

The right of the employer to dismiss its erring employees is a

measure of self-protection. (Reyes vs. Minister of Labor, G. R. No.

48705, Feb. 9, 1989).

The law, in protecting the rights of the laborer, authorizes

neither oppression nor self-destruction of the employer. While the

constitution is committed to the policy of social justice and the

protection of the working class, it should not be supposed that every

labor dispute will be automatically decided in favor of labor.

Management also has its own rights which, as such, are entitled to

respect and enforcement in the interest of simple fair play. Out of its

concern for those with less privileges in life, the Supreme Court has

inclined more often than not towards the worker and upheld his

cause with his conflicts with the employer. Such favoritism, however,

has not blinded the Court to rule that justice is, in every case, for the

deserving, to be dispensed in the light of the established facts and

applicable law and doctrine. (Sime Darby Pilipinas, Inc. vs. NLRC,

119205, April 15, 1998).

C. DUE PROCESS

Contrary to the time-honored principle that the right to due

process of law is a constitutionally-guaranteed right, it being a basic

constitutional tenet that “no person shall be deprived of life, liberty

or property without due process of law, nor shall any person be

denied the equal protection of the laws” (Section 1, Article III [Bill of

Rights], 1987 Constitution), however, the 2004 case of Agabon vs.

NLRC, [G. R. No. 158693 November 17, 2004], distinguished

constitutional due process and statutory due process, to wit:

“To be sure, the Due Process Clause in Article III, Section 1 of the

Constitution embodies a system of rights based on moral principles

so deeply imbedded in the traditions and feelings of our people as to

be deemed fundamental to a civilized society as conceived by our

entire history. Due process is that which comports with the deepest

notions of what is fair and right and just. It is a constitutional

restraint on the legislative as well as on the executive and judicial

powers of the government provided by the Bill of Rights.

“Due process under the Labor Code, like

Constitutional due process, has two aspects:

substantive, i.e., the valid and authorized causes of

employment termination under the Labor Code;

and procedural, i.e., the manner of dismissal.

Procedural due process requirements for dismissal

are found in the Implementing Rules of P.D. 442, as

amended, otherwise known as the Labor Code of

the Philippines in Book VI, Rule I, Sec. 2, as

amended by Department Order Nos. 9 and 10.

(Department Order No. 9 took effect on 21 June

1997. Department Order No. 10 took effect on 22

June 1997). Breaches of these due process

requirements violate the Labor Code. Therefore,

statutory due process should be differentiated from

failure to comply with constitutional due process.

“Constitutional due process protects the individual

from the government and assures him of his rights in

criminal, civil or administrative proceedings; while

statutory due process found in the Labor Code and

Implementing Rules protects employees from being

unjustly terminated without just cause after notice

and hearing.”

REGULAR AND CASUAL EMPLOYMENT

ARTICLE 280 of the Labor Code of the Philippines provides –

The provisions of written agreement to the contrary

notwithstanding and regardless of the oral agreement of the parties,

an employment shall be deemed to be regular where the employee

has been engaged to perform activities which are usually necessary

or desirable in the usual business or trade of the employer, except

where the employment has been fixed for specific project or

undertaking the completion or termination of which has been

determined at the time of the engagement of the employee or where

the work or services to be performed is seasonal in nature and the

employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered

by the preceding paragraph. Provided, That, any employee who has

rendered at least one year of service, whether such service is

continuous or broken, shall be considered a regular employee with

respect to the activity in which he is employed and his employment

shall continue while such activity exists.

This provision of law tackles about different kinds of employment or

employees. The first paragraph discusses about the “regular” employment

and the exception which are project and seasonal employees. The second

paragraph is regarding the law on casual employment. Other kinds of

employment may be classified as fixed period and part-time employment.

Article 281 – Probationary Employment, will be later on discussed in the

paper, which is also another type of employment.

REGULAR EMPLOYEES

A regular employee or permanent employee is a person who passed

through a probationary period of employment. Regular employee is placed

on the regular rolls/activity of the company or one who is assigned to

perform work directly related to the regular operations of the firm. A

regular employee is employed without a definite period and the employer

may not terminate his services except for a just cause or when authorized

by law. And they even receive benefits like healthcare, holidays, sick leave,

etc.

The first paragraph of Article 280 defines the regular employment. In

the case of De Leon vs. NLRC (G.R. 70705, August 21, 1989), wherein

Moises was employed by La Tondeña as a maintenance personnel whose

work consisted mainly of painting the company building and equipment and

other odd jobs relating to maintenance. He was compensated on a daily

basis through petty cash vouchers. After a year of service, he requested that

he be included in the payroll. But the response of La Tondeña was the

dismissal of Moises and claimed that Moises was contracted on a casual

basis. The NLRC ruled that “painting the factory building is not part of La

Tondeña’s manufacturing or distilling process of wines.”

The court granted the petition and it was held that it is not tenable to

argue that the painting and maintenance work of Moises are not necessary

in La Tondeña’s business of manufacturing liquors; otherwise, there would

be no need for the regular maintenance section of the company’s

engineering department.

It is of no moment that Moises was told when he was hired that his

employment would only be casual, that he was paid through cash vouchers,

and that he did not comply with regular employment procedure.

It was stated that the primary standard to determine a regular

employment is the reasonable connection between the particular activity

performed by the employee in relation to the usual business or trade of the

employer. The test is whether the former is usually necessary or desirable

in the usual business or trade of the employer.

Also, the case laid down the following basis for regular employment:

a. The employee has been engaged to perform activities which are

usually necessary or desirable in the usual business or trade of the

employer.

b. The employee has rendered at least one year of service, whether

such service is continuous or broken, with respect to the activity in

which he is employed and his employment shall continue while

such activity exists.

c. The employee is allowed to work after probationary period.

Another determination on whether an employment is regular or casual

in not the will and word of the employer, to which the worker often accedes,

much less the procedure in hiring the employee or the manner of paying his

salary. It is the nature of the activities performed in relation to the

particular business or trade considering all circumstances, and in some

cases the length of time of its performance and its continued existence.

A casual employee, project employee, fixed term or probationary

employment could be regular employment, provided that such instance may

fall within the definition of regularity of such employment.

PROJECT EMPLOYMENT

Based on Article 280, a project employee is one whose employment

has been fixed for a specific project or undertaking, the completion or

termination of which has been determined at the time of the engagement of

the employee or where the work or service to be performed is seasonal in

nature and the employment is for the duration of the season. The project

undertaking may or may not have an ordinary or normal relationship to the

usual business of the employer. Also, “project employees” are distinguished

with “regular employees” so long as the duration and scope of the project

were determined or specified at the time of the engagement of the “project

employees.”

An employee hired to perform work in a specific project, job, or

period, upon completion of which the worker’s employment is terminated.

Failure to terminate the employee on or before the expiration of the period

of contract or completion of the job, in the case of temporary or casual

employment, or of a probationary employment may qualify the employee for

regular or permanent employment.

The principal test on whether or not it is a project employment is

whether or not the “project employees” were assigned to carry out “specific

project or undertaking,” the duration (and scope) of which were specified at

the time the employees were engagned in the project. (ALU-TUCP, et al. vs.

NLRC, August 2, 1994).

A project employee, according to Maraguinot Jr., vs. NLRC (284 SCRA

539, 556, 1998) may acquire the status of a regular employee when the

following factors concur:

a) There is a continuous (as opposed to intermittent) rehiring of

project employees even cessation of a project for the same tasks or

nature of tasks;

b) The task performed by the alleged, “project employee” are vital,

necessary and indispensible to usual business or trade of the em-

ployer.

To be exempted from the presumption of regularity of employment,

therefore, the agreement between a project employee and his employer

must strictly conform with the requirements and conditions provided in

Article 280. It is not enough that an employee is hired for a specific project

or phase of work. There must be a determination of or a clear agreement on

the completion or termination of the project at the time the employee is

engaged if the objective of Article 280 is to be achieved.

Department Order No. 19

This department order is about the Project Employees in the

Construction Industry. The Policy Instruction also requires an employer

company to report to the nearest Public Employment Office the fact of

termination of a project employee as result of the completion of the project

or any phase thereof in which he is employed. Department Order No. 19,

issued on April 1, 1993, superseded D.O. No. 20 of 1977. It does not totally

dispense with the notice of requirement but, instead, makes provisions

therefore and considers it one of the “indicators” that a worker is a project

employee. (Samson vs. NLRC and AG&P Co., G.R. No. 113166, February 1,

1996)

Section 2.2 of Department Order No. 19 States:

“Either one or more the following circumstances , among others, may

be considered as indicators that an employee in of that an employee is

a project employee;

a) The duration of the specific/identified undertaking for which the

worker is engaged is reasonably determinable;

b) Such duration, as well as the specific work/ service to be per-

formed, is defined in an employment agreement and is made clear

to the employee at the time of hiring;

c) The work/service performed by the employee is in connection with

the particular project/undertaking for which he is engaged;

d) The employee, while not employed and waiting engagement, is free

to offer his services to any other employer’

e) The termination of his employment in the particular project/under-

taking is reported to the Department of Labor and Employment

(DOLE) Regional Office having jurisdiction over the workplace

within 30 days following the date of his separation from work, us-

ing the prescribed form on employees’ terminations/dismissals/sus-

pensions;

f) An undertaking employment contract by the employer to pay com-

pletion bonus to the project employee as practice by most construc-

tion companies.”

SEASONAL EMPLOYMENT

Seasonal employment is where the employment has been fixed for a

specific period or undertaking the completion or termination of which has

been determined at the time of the engagement of the employee. Seasonal

employees are considered regular employees. Regular seasonal employees

are those called to work from time to time. The nature of their relationship

with the employer is such that during off season they are temporarily laid

off during summer season they are reemployed, or when their services are

need. They are not, strictly speaking, separated from the service but are

merely considered as on leave of absence without pay until they are

reemployed. Their employment relationship is never severed but only

suspended. As such those employees can be considered as in regular

employment of the employer. (Manila Hotel Co. vs. CIR, et al. G.R. No. L-

18875, September 30, 1963).

In the celebrated case of Hacienda Fatima vs. National Federation of

Sugarcane Workers-Food and General Trade (G.R. No. 149440, January 28,

2003), reiterated the rule on seasonal employment. The respondent-workers

were excluded from those classified as regular employees, it is not enough

that they perform work or services that are seasonal in nature. They must

have been employed only for the duration of one season. If the evidence

proves the existence of the first, but not the second, condition, then, the

workers have become regular employees. The fact that the employees

repeatedly worked as sugarcane workers for petitioner-employer for several

years is not denied by the petitioners. Evidently, petitioners employed

respondents for more than one season. Therefore, the general rule of

regular employment is applicable.

The refusal of the employer to furnish work to regular seasonal

workers would amount to illegal dismissal. Where there is no showing of

clear, valid and legal cause for the termination of employment, the law

considered the matter a case of illegal dismissal and the burden to prove

that the termination was for a valid and authorized cause.

CASUAL EMPLOYMENT

A casual employment is also defined in Article 280 of the Labor Code

of the Philippines and in Section 5 (b), Book VI of the Of the Omnibus Rule

Implementing the Labor Code, as “employment shall be deemed as

casual in nature if it is not covered by the preceding paragraph;

Provided, That any employee who has rendered at least one year of

service, whether such service is continuous or not, shall be

considered a regular employee with respect to the activity in which

he is employed and his employment shall continue while such

activity exists.”

Casual employment which is not in the nature of a regular, project or

seasonal employment as these kinds of employment defined under Article

280 of the Labor Code. There is casual employment where an employee is

engaged to perform a job, work or service which is merely incidental to the

business of the employer, and such job, work or service is for a definite

period made known to the employee at the time of the engagement;

provided, that any employee who has rendered at least one year of service,

whether such service is continuous or not, shall be considered a regular

employee with respect to the activity in which he is employed and his

employment shall continue while such activity exists.

It is another type of regular employee, who, after one year of service,

becomes regular. But he is “regular” only for that work activity for which he

was hired. His employment may be on and off, but every time the particular

work activity occurs, he is one to be rehired. In this sense he is a “regular

casual.” A casual may become regular even it he is not issued a “regular”

appointment.

An employee hired for only a few days or few months at a time to

work/perform a unit of work or to fill a gap in the absence of another

employee, or a worker who is hired occasionally and intermittently

especially during peak production periods. Casual employees may or may

not possess special trade skills or qualifications; they are not in the

permanent payroll of the same employer.

FIXED PERIOD /CONTRACTUAL EMPLOYMENT

These contracts are not limited to those by nature, seasonal, or for

specific projects with pre-determined dates of completion, provided under

the Labor Code. They also include contracts to which the parties by free

choice, have assigned a specific date of termination. A contractual employee

is hired on an individual employment contract basis to perform work on a

specific project. The duration of such employment is indicated in the

employment contract, which may not exceed six months. It is an

employment based on contract.

In the case of Philips Semiconductors [Phils.], Inc. vs. Fadriquela

(G.R. No. 141717, April 14, 2004) The criteria for fixed contracts of

employment was set down by the Supreme Court set down two (2) criteria

under which fixed contracts of employment cannot be said to be in

circumvention of security of tenure, and if the foregoing criteria are not

present, the contract should be struck down for being illegal. Such criteria

are as follows:

1) The fixed period of employment was knowingly and voluntarily agreed

upon by the parties, without any force, duress or improper pressure

being brought to bear upon the employee and absent any other cir-

cumstances vitiating his consent; or

2) It satisfactorily appears that the employer and employee dealt with

each other on more or less equal terms with no moral dominance

whatever being exercised by the former on the latter.

In a fixed-period employment, lack of notice of termination is of no

consequence because when the contract specifies the period of its duration,

it terminates on the expiration of such period. A contract for employment

for a definite period terminates by its own term at the end of such period.

Thus, notice to terminate is not necessary in fixed term employment.

PART TIME EMPLOYMENT

Part time employment is a single, regular or voluntary form of

employment with hours of work substantially shorter than those considered

as normal in the establishment. Using the legal principle enunciated in

Article 281 of the Labor Code on probationary employment vis-à-vis Article

13 of the Civil Code on the proper reckoning of periods, a part-time

employee shall become regular in status after working for such number of

hours or days which equates to or completes a six-month probationary

period in the same establishment doing the same job under the employment

contract.

If the part-time employee becomes a regular employee, he is entitled

to security of tenure under the law and he can only be separated for a just

authorized cause and after due process.

One may know if a part-time worker is a regular employee if any of

the following conditions exists:

a. The terms of his employment show that he is engaged as a regular or

permanent employee;

b. The terms of his employment indicate that he is employed for an in-

definite period;

c. He has been engaged for a probationary period and has continued in

his employment even after the expiration of the probationary period;

or

d. The employee perform activities which are usually necessary or desir-

able in the usual business or trade of the employer.

On the other hand, where the employment

PROBATIONARY EMPLOYMENT

Art. 281 of the Labor Code of the Philippines provides -

Probationary employment shall not exceed six (6) months from

the date the employee started working, unless it is covered by an

apprenticeship agreement stipulating a longer period. The services

of an employee who has been engaged on a probationary basis may

be terminated for a just cause or when he fails to qualify as a regular

employee in accordance with reasonable standards made known by

the employer to the employee at the time of his engagement. An

employee who is allowed to work after a probationary period shall be

considered a regular employee.

Also, Section 6.Book VI Of the Omnibus Rule Implementing the

Labor Code, wherein there is probationary employment where the

employee upon his engagement, is made to undergo trial period

during which the employer determines his fitness to qualify for

regular employment based on “reasonable standards” made known

to him at the time of the engagement.

Probationary employment shall be governed by the following rules:

(a) Where the work for which an employee has been engaged is

learnable or apprenticeable in accordance with the standards

prescribed by the Department of Labor, the probationary

employment period of the employee shall be limited to the

authorized learnership or apprenticeship period, whichever is

applicable.

(b) Where the work is neither learnable nor apprenticeable, the

probationary employment period shall not exceed six (6)

months reckoned from the date the employee actually started

working.

(c) The services of an employee who has been engaged on

probationary basis may be terminated only for a just cause or

when authorized by existing laws, or when he fails to qualify as

a regular employee in accordance with reasonable standards

prescribed by the employer.

(d) In all cases involving employees engaged on probationary

basis, the employer shall make known to the employee the

standards under which he will qualify as a regular employee at

the time of his engagement.

A probationary employee is one who, for a given period of time, is on

observation, evaluation and trial by an employer during which the employer

determines whether or not he is qualified for permanent employment.

During the probationary period, the employer is given the opportunity to

observe the skill, competence, attitude and fitness of the employee, while

the latter seeks to probe to the employer that he has the qualifications to

meet the reasonable standards for permanent employment. (De la

Cruz, Jr. vs. NLRC, G.R. No. 145417, Dec. 11, 2003).

A probationary employee or worker is a person hired to occupy

permanent or regular position in the company for a specified trial period to

prove if he is acceptable for the job. The probationary period is usually from

three to six months or even a year. This period is important to determine

employee’s fitness for the job or for learning the job.

The probationary period is a span/period of time during which the

employee is under observation on his actual job. It aims to help the new

employee learn valuable concepts and to prove or show his potential on the

company’s job or for regularization during his first several months of work

experience.  Probationary Employee could be dismissed without a probable

cause. Also, the employer and the employee should agree or there will be an

agreement between the two regarding the probationary period.

As a general rule, probationary period should not exceed six(6)

months from the date the employee started working. One becomes a regular

employee upon completion of his six (6) month period of probation.

Exceptions to the six (6) month period provided in the law such as:

1) When the employer and the employee mutually agree on a shorter or

longer period;

2) When the nature of work to be performed by the employee requires a

longer period;

3) When a longer period is required and established by company policy.

This indicates that also an employer can also extend the probationary

period. In the case of Busier vs. Leogardo, the Supreme Court considered

the probationary period of employment of eighteen (18) months as valid

since it was shown that the company needs at least 18 months to determine

the character and selling capabilities of the employees as sales

representatives.

However, if there is not stipulation on probationary period, employee

is deemed regular. It was ruled that in the absence of any evidence that

there is no provision in the employment contract providing for a

probationary status and the requirements that they should comply with in

order to qualify as regular employees, no other conclusion can be drawn but

that they were regular employees at the time they were dismissed. (ATCI

Overseas Corporation vs. C.A. (G.R. No. 143949, August 9, 2001).

Regarding the “reasonable standards,” it should be made known to

the employee at the start of the engagement. It is in the rudiments of due

process to demand that an employee should be appraised beforehand of the

conditions of his employment and the basis for his advancement. (Servidad

vs. NLRC, G.R. No. 128682, March 18, 1999).

There are limitations in the power of the employer to terminate a

probationary employment. The following are:

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

the contract;

2) if a particular time is prescribed, the termination must be within such

time and if formal notice is required, then that from must be used;

3) the employer’s dissatisfaction must be real and in good faith not

feigned so as to circumvent the contract or the law;

4) there must be no unlawful discrimination in the dismissal.

Termination by Employer

Under Article 282, an employer may terminate an employment for any of the following jus causes:

A. Serious misconduct or wilful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

For serious misconduct to be a just cause for dismissal the following requisites must concur:

i. It must be serious; ii. It must relate to the performance of the employee’s duties; andiii. It must show that the employee has become unfit to continue working for the employer.

Roquero vs. PAL, Inc. G.R. No. 152329, April 22, 2003PAL’s two ground equipment mechanics, Alejandro Roquero and

Rene Pabayo were caught red-handed possessing and using Methampethamine Hydrochloride or shabu in a raid conducted by PAL security officers and NARCOM personnel. The two alleged that they did not voluntarily indulge in the said act but were instigated. Both were dismissed by PAL. The Supreme Court affirmed the validity of the dismissal. “Serious misconduct is defined as "the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, willful in character, and implies wrongful intent

and not mere error in judgment." For serious misconduct to warrant the dismissal of an employee, it (1) must be serious; (2) must relate to the performance of the employee's duty; and (3) must show that the employee has become unit to continue working for the employer.

It is of public knowledge that drugs can damage the mental faculties of the user. Roquero was tasked with the repair and maintenance of PAL's airplanes. He cannot discharge that duty if he is a drug user. His failure to do his job can mean great loss of lives and properties. Hence, even if he was instigated to take drugs he has no right to be reinstated to his position. He took the drugs fully knowing that he was on duty and more so that it is prohibited by company rules. Instigation is only a defense against criminal liability. It cannot be used as a shield against dismissal from employment especially when the position involves the safety of human lives.”

Chua – Cua vs. Clave G.R. No. L-49549 August 30, 1990Evelyn Chua was a teacher in Tay Tung High School, Bacolod

City. She was the teacher of Bobby Qua, the one she fell in love with and married, the latter being at that time sixteen (16) years old and the former thirty (30) years old. The school terminated Chua’s employment for an allegedly abusive and unethical conduct unbecoming of a dignified school teacher and that her continued employment is inimical to the best interest, and would downgrade the high moral values, of the school.

The issue of the case is whether the act of Chua being a teacher, falling in love with her student constitutes serious misconduct that is substantial to terminate her employment.

The court held that there is no substantial evidence of the imputed immoral acts; it follows that the alleged violation of the Code of Ethics governing school teachers would have no basis. The school utterly failed to show that petitioner took advantage of her position to court her student. If the two eventually fell in love, despite the disparity in their ages and academic levels, this only lends substance to the truism that the heart has reasons of its own which reason does not know. But, definitely, yielding to this gentle and universal emotion is not to be so casually equated with immorality. The deviation of the circumstances of their marriage from the usual societal pattern cannot be considered as a defiance of contemporary social mores. The charge against petitioner not having been substantiated, the court declared her dismissal as unwarranted and illegal.

The requisites to validly invoke willful disobedience are:

i. The employee’s assailed conduct must have been wilful or intentional, the wilfulness being characterized by a “wrongful and perverse attitude;” and

ii. The order violated must have been reasonable and lawful and made known to the employee and must pertain to the duties which he had been engaged to discharge.

In order that wilful disobedience by the employee of the orders, regulations or instructions of the employer may constitute a just cause for terminating his employment, said orders, regulations, or instructions must be:

i. Lawful and reasonable;ii. Sufficiently known to the employee; andiii. In connection with the duties which the employee has been

engaged to discharge.

Coca – Cola Bottlers Philippines, Inc, vs. VitalDominic E. Vital, respondent, was employed by Coca-Cola

Bottlers Philippines, Inc., petitioner, as route driver/helper at its Antipolo Plant, and was also assigned to perform the duties of a salesman. Sometime in October, 1995, petitioner, intending to increase the sale of its products, implemented "Operation Rurok," a local marketing campaign that allows its trusted wholesaler outlets to retrieve foreign empties and/or bottles of petitioner’s competitors, such as Pepsi Cola and Cosmos, from regular customer outlets, in exchange for Coca-Cola containers and products. Respondent admitted that on three separate incidents his supervisor, Lagula instructed him to deliver the Coca-Cola products to other outlets. Eventually, his service was terminated for loss of trust and confidence. Petitioner Coca – Cola Bottlers contends that his termination is lawful since he admitted that he wilfully defied or violated the company disciplinary rules and regulations.

The court has to say that respondent’s delivery of the products of petitioner to other places not indicated in the orders was actually done in good faith, being in compliance with the instructions of his supervisor. Where a violation of company policy or breach of company rules and regulations was found to have been tolerated by management, as in the instant case, then the same could not serve as a basis for termination.6 Clearly, the dismissal of respondent from the service on the ground of willful disobedience or violation of company rules and regulations is not justified.

B. Gross and habitual neglect by the employee of his duties;

The ground of gross and habitual neglect of duties by the employee must constitute the following:

i. Element of habituality may be disregarded where loss is substantial.

ii. Element of habituality may be disregarded if totality of evidence justifies dismissal.

iii. Element of actual loss or damage, not an essential requisite.iv. Habitual tardiness or habitual absenteeism may be a ground for

termination.

Reyes vs. maxim’s tea house G. R. No. 140853, February 27, 2003Ariel Tres Reyes, petitioner was an employee of Maxim’s Tea

House, respondent. Allegedly, petitioner was temporarily suspended due to his involvement in a vehicular accident on board the company vehicle with a ten – wheeler truck where in several were physically injured. However, he was terminated for a cause almost one month after suspension.

The issue of the case is whether or not the petitioner’s dismissal from employment is valid and legal?

The Court said the test to determine the existence of negligence is as follows: Did petitioner in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would use in the same situation? It is not disputed that petitioner tried to turn left to avoid a collision. To put it otherwise, petitioner did not insist on his right of way, notwithstanding the green light in his lane. Still, the collision took place as the ten-wheeler careened on the wrong lane. Clearly, petitioner exerted reasonable effort under the circumstances to avoid injury not only to himself but also to his passengers and the van he was driving. To hold that petitioner was grossly negligent under the circumstances goes against the factual circumstances shown. It appears to us he was more a victim of a vehicular accident rather than its cause. There being no clear showing that petitioner was culpable for gross negligence, petitioner’s dismissal is illegal.”

Under this cause one ground for validly terminating an employee would be to invoke abandonment of work which has two requisites namely:

i. The failure to report for work or absence without valid or justifiable reason; and

ii. A clear intention to sever the employer – employee relationship.In order to invoke the above ground validly, the employer is required to

send to the employee’s last known address a notice which consists of (1) notice to apprise the employee of the particular acts or omissions for which his dismissal is sought; and (2) subsequent notice to inform him of the employer’s decision to dismiss him.

As in the case of Agabon vs. NLRC, [G.R. No. 158693, November 17, 2004], while the validity of the dismissal based on abandonment was upheld, however, the employer was deemed to have violated due process when it did not follow the notice requirements and instead argued that sending notices to the last known addresses would have been useless because they did not reside there anymore. Unfortunately for the employer, this is not a valid excuse because the law mandates the twin notice requirements be sent to the employee’s last known address. Thus, it should be held liable for non – compliance with procedural requirements of due process.

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

De la Cruz, Jr. vs. NLRC G. R. No. 145417, December 11, 2003

Petitioner Florencio M. de la Cruz, Jr. was allegedly illegally dismissed by the Shemberg Marketing Corporation (Shemberg), respondent. Shemberg claim that petitioner failed to meet the required company standards and for loss of trust and confidence because of the unauthorized reimbursement of the plane tickets of his wife and child. The issue raised by the petitioner is whether his act constituted fraud or deceit enough to cause the company to lose trust and confidence in him.

The Court held that Petitioner was holding a managerial position in which he was tasked to perform key functions in accordance with an exacting work ethic.  His position required the full trust and confidence of his employer.  While petitioner could exercise some discretion, this obviously did not cover acts for his own personal benefit.  As found by the court aquo, he committed a transgression that betrayed   the trust and confidence of his employer — reimbursing his family's personal travel expenses out of company

funds. Petitioner failed to present any persuasive evidence or argument to prove otherwise. His act amounted to fraud or deceit which led to the loss of trust and confidence of his employer.

Charles Joseph U. Ramos vs. The Honorable Court of Appeals and the Union Bank of the Philippines G. R. No. 145405, June 29, 2004

Petitioner Ramos was an employee of respondent Bank. He started out as a post audit clerk and eventually became branch manager of respondent’s J.P. Rizal Branch, Makati City. In October 1993, Area Head, verbally designated petitioner as the OIC branch manager of the J.P. Rizal Branch and assigned Mr. Rudy Paras from the reserve pool took over petitioner’s previous position as branch cashier. On March 15, 1994, petitioner was formally appointed as branch manager through a notice of personnel movement dated March 9, 1994.

On August 21, 1995, the Central Accounting Division of the Bank reported certain unreconciled statements of cash deliveries from the Central Cash Unit to the J.P. Rizal Branch. Based on the bank’s investigation, branch cashier Paras was found accountable for the alleged loss of P10.1 million. However, by the time the act was discovered, Paras had long resigned from respondent Bank and could no longer be found by the National Bureau of Investigation (NBI). On August 29, 1995, petitioner was appointed as Area Operations Officer of Legaspi Village, Makati and Quezon City while the investigation was going on. On April 12, 1996, petitioner was dismissed due to gross negligence/serious dereliction of duty resulting in loss of trust and confidence by management.

The issue was whether petitioner was functioning as the branch manager of the branch during the time scam was perpetrated.

The Court held that to validly dismiss an employee on the ground of loss of trust and confidence, the following guidelines must be followed:

1. The loss of confidence must not be simulated;2. It should not be used as a subterfuge for causes which

are illegal, improper or unjustified;3. It may not be arbitrarily asserted in the face of

overwhelming evidence to the contrary;

4. It must be genuine, not a mere afterthought, to justify earlier action taken in bad faith; and

5. The employee involved holds a position of trust and confidence.

In the case at bar, petitioner held a position of trust and confidence as the regular branch cashier and acting branch manager of respondent’s J.P. Rizal branch. Petitioner was utterly negligent in performing his duties as acting branch manager.

D. Commission of a crime or offense by the employee against the

person of his employer or any immediate member of his family or his duly authorized representatives;

The commission of a crime or offense by the employee may justify the termination of his employment, if such crime or offense is committed against any of the following persons:

i. His employer;ii. Any immediate member of his employer’s family; oriii. His employer’s duly authorized representatives.

E. Other causes analogous to the foregoing.

The following are the instances considered to be analogous causes:

1. The ground of inefficiency2. Violation of safety rules3. Ban on one’s employees imposed by another company4. Violation of the company code of conduct or company rules and

regulations

Authorized causes for termination of employment

Articles 283 and 284 provides the following:

a. Installation of labor – saving devices;

Requisites:i. The introduction of the machinery, equipment or other devices

must be in good faith;ii. The purpose for such introduction must be valid such as to save on

cost, enhance efficiency and other justifiable economic reasons;iii. There is no other option available to the employer than the

introduction of those machinery, equipment or device and the consequent termination of employment of those affected thereby;

iv. The 30 – day notice requirement under Article 283 should be complied with;

v. There should be reasonable and fair standards or criteria in selecting who to terminate such as nature of work, status of the employee (whether casual, temporary, or regular), experience, efficiency rating and seniority, among other considerations; and

vi. Separation pay under the law or company policy or Collective Bargaining Agreement or similar contract, when appropriate, must be paid to the affected employees.

In the case of Abapo vs. CA G. R. No. 142405, September 30, 2004, Respondent SMC conducted a viability study of its business operations and adopted a modernization program. Respondent then brought into the Mandaue plant high-speed machines to be used in the manufacture of its beer.The Supreme Court held that the installation of labor-saving devices by SMC at the Mandaue plant was a proper ground for terminating employment.

b. Redundancy;

Requisites:iii. Written notice served on both the affected employees and the

Department of Labor and Employment at least one (1) month prior to the intended date of termination;

iv. Payment of separation pay equivalent to at least one (1) month pay for every year of service, whichever is higher;

v. Good faith in abolishing the redundant positions; andvi. Fair and reasonable criteria in ascertaining what positions are to be

declared redundant and accordingly abolished.

In the case of Santos vs. Pepsi – Cola Products Phils., Inc., G.R. No. 141947, July 5, 2001, respondent Pepsi, based on the fact that its Metro Manila Sales Operations were not meeting its sales targets, and on the fact that there were new positions created, wanted to restructure its organization in order to include more complex positions that would either absorb or render completely unnecessary the positions it had previously declared redundant. The soundness of this judgment has been assailed by petitioners, arguing that it is more logical to implement new procedures in physical distribution, sales quotas, and other policies aimed at improving the performance of the division rather than to reduce the number of employees and create new positions.

The Court, however, said that this argument cannot be accepted. While it is true that management may not, under the guise of invoking its prerogative, ease out employees and defeat their constitutional right to security of tenure, the same must be respected if clearly undertaken in good faith and if no arbitrary or malicious action is shown.

c. Retrenchment;

Requisites:i. That the retrenchment is reasonably necessary and likely to prevent

business losses which, if already incurred, are not merely de minimis but substantial, serious, actual and real or, if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

ii. That the employer serves a written notice both to the employees and to the Department of labor and Employment at least one (1) month prior to the intended date of retrenchment;

iii. That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one – half (1/2) month’s pay for every year of service, whichever is higher;

iv. That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employee’s right to security of tenure; and

v. That the employer uses 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.

Standards to be observed in retrenchment:1. The losses expected should be substantial and not merely de

minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona – fide nature of the retrenchment would appear to be seriously in question.

2. The substantial loss apprehended must be reasonably imminent, as much imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment which is, after all, a drastic recourse with serious consequences for the livelihood of the employees retrenched or otherwise laid off.

3. Retrenchment, because of its consequential nature, must be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses.

4. But certainly not the least important, the alleged losses, if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is apparent; any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees.

Philippine Tuberculosis Society vs. NLRC G.R. No. 115414, August 25, 1998

Due to worsening financial difficulties The Philippine Tuberculosis Society, Inc., a non-stock and non-profit domestic corporation implemented the retrenchment of one hundred sixteen (116) employees. The issue is whether the retrenchment was validly invoked.

The Court invalidated the retrenchment program for its improper implementation despite proof of financial losses. It had said that retrenchment is the termination of employment initiated by the employer through no fault of the employees and without prejudice to the latter, resorted to by management during periods of business

recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery or of automation. Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court.

Petitioner claims that the retrenchment of employees was based on a number of criteria, to wit: 1) whether the positions of the employees are to be retained or abolished; 2) the qualifications required by the positions to be retained, modified, or created; and 3) the attitude, discipline, efficiency, flexibility, and trainability of the employees. Petitioner has not shown however, that the four employees were selected for retrenchment because they did not meet these criteria. Petitioner has not explained why the said employees had to be laid off without considering their many years of service to the Society. The fact that these employees had accumulated seniority credits indicates that they had been retained in the employ of the Society because of loyal and efficient service. The burden of proving the contrary is on petitioner.

d. Closure or cessation of business;

Requisites:i. The decision to close or cease operations should be made in good

faith;ii. The purpose should not be to circumvent the provisions of Title I

Book Six of the Labor Code;(Note: If the ground is serious business losses or financial reverses, there should be clear proof thereof since no separation pay to the employees is required to be paid under the law, if such is the cause invoked. If not due to serious business losses, this requisite becomes relevant.)iii. There is no other option available to the employer except to close

or cease operations;iv. The notice requirement under article 283 should be complied with,

whether or not the closure or cessation of operations is due to serious business losses or financial reverses; and

v. Separation pay under the law. When not due to serious business losses or company policy or Collective Bargaining Agreement or similar contract, when appropriate, must be paid to the affected employees.

J.A.T. General Services vs. NLRC G.R. No. 148340, January 26, 2004

Petitioner Jesusa Adlawan Trading & General Services (JAT) is a single proprietorship engaged in the business of selling second-hand heavy equipment. In October 1997, the sales of heavy equipment declined because of the Asian currency crisis. Consequently, JAT temporarily suspended its operations. It advised its employees, including private respondent, not to report for work starting on the first week of March 1998. JAT indefinitely closed shop effective May 1998.

Whether or not private respondent was illegally dismissed from employment due to closure of petitioners’ business

The Court distinguished retrenchment from closure of business. Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is sometimes also referred to as down-sizing. Retrenchment is an authorized cause for termination of employment which the law accords an employer who is not making good in its operations in order to cut back on expenses for salaries and wages by laying off some employees. The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing.

In this case, the Court is persuaded that the issues and contentions are more centered on closure of business operation rather than retrenchment. Closure or cessation of operation of the establishment

is an authorized cause for terminating an employee under Article 283 of the Labor Code the closure of JAT’s business is not unjustified. Further we hold that private respondent was validly terminated, because the closure of business operations is justified.

e. Disease.

Requisites: ii. The employee is suffering from a disease;iii. His continued employment is either:

a. Prohibited by law;b. Prejudicial to his health; orc. Prejudicial to the health of his co-employers.

iv. There is a certification by a competent public health authority that the disease is of such nature or at such stage that it cannot be cured within a period of six months even with proper medical treatment.

v. Notice of termination based on this ground should be served to the employee; and

vi. Separation pay shall be paid to him in the amount equivalent to at least one (1) month salary or one – half (1/2) month’s salary for every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year;

In invoking the ground of disease in terminating the employment of an employee the burden of proof rets on the employer, the company physician is not a competent public health authority and medical certificates issued by company doctor is not sufficient. In addition, said medical certificate is an indispensable requisite.

Sy vs. CA G.R. No. 142293, February 27, 2003Private respondent, Jaime Sahot, continuously served the

trucking business of petitioner Vicente Sy for 36 years. Sahot had been incurring absences as he was suffering from various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II HPM, UTI, Osteoarthritis and heart enlargement. Sahot applied for extension of his leave for the whole month of June, 1994. Petitioner dismissed him

from work, effective June 30, 1994. The issue to be answered is whether or not there was valid dismissal.

In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for lawful cause and validly made. Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease. However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code requires:

Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his employment unless there is a certification by competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such employee to his former position immediately upon the restoration of his normal health.

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC, the requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employee’s illness and thus defeat the public policy in the protection of labor. In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahot’s dismissal was effected

Termination by employee under Article 285 provides that:

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

Termination of employment by employee, or otherwise understood as the resignation, requires the employee to comply with the requisites namely: written notice of the termination or resignation letter and the service of such notice to the employer at least one (1) month in advance. As per the case of Shie Jie Corp. vs. National Federation of Labor, the acceptance of the resignation letter is necessary to make the resignation effective. On the other hand, in the case of Philippine National Construction Corporation vs. NLRC, once resignation is accepted, the employee no longer has any right to the job. Resignation terminates the employer – employee relationship.

It is a well settled rule that a resignation tendered by an employee may still be withdrawn anytime before its acceptance by the employer. Once accepted, withdrawal can no longer be made by the resigning employee, except with the consent of the employer. A resigned employee who wishes to have his previous job has to reapply therefor.

1. An employee may put an end to the relationship without serving any notice on the employer for any of the following just causes:2. Serious insult by the employer or his representative on the honor and

person of the employee;

Requisites:

ii. The insult must be serious in character;iii. It must be committed by the employer or his representative; andiv. It must injure the honor and person of the employer.

3. Inhuman and unbearable treatment accorded the employee by the employer or his representative;

Requisites:

i. The treatment is inhumane and unbearable in nature; andii. It is perpetrated by the employer or his representative.

4. Commission of a crime or offense by the employer or his representative against the person of the employee or any of the immediate members of his family;

Requisites:

i. A crime or offense is committed;

ii. It was committed by the employer or his representative; andiii. It was perpetrated against the person of the employee or any of

the immediate members of his family

5. Other causes analogous to any of the foregoing.

Constructive dismissal Forced resignation

Situations and Remedies in Termination Disputes

The rules on termination disputes are applicable to the following scenarios:

1. The dismissal is for a just cause under Article 282, for an authorized cause under Article 283, or for health reasons under Article 284, and due process was observed – the dismissal is legal.

2. The dismissal is without just or authorized cause but due process was observed – THE DISMISSAL IS ILLEGAL.

3. The dismissal is without just or authorized cause and there was no due process – THE DISMISSAL IS ILLEGAL.

4. The dismissal is for just or authorized cause but due process was not observed – THE DISMISSAL IS LEGAL BUT THE EMPLOYER IS LIABLE TO PAY INDEMNITY IN THE FORM OF NOMINAL DAMAGES (PER AGABON CASE). THE AMOUNT OF NOMINAL DAMAGES VARY FROM CASE TO CASE.

5. The dismissal is for a cause which later on is proven to be non-existent – THE DISMISSAL IS NOT EFFECTIVE, HENCE, THE EMPLOYEE SHOULD BE REINSTATED. THE EMPLOYER IS NOT LIABLE TO PAY ANY BACKWAGES OR DAMAGES.

6. The dismissal is not supported by evidence – NO DISMISSAL TO SPEAK OF; SO EMPLOYEE SHOULD BE REINSTATED (BUT NOT AS A RELIEF). THE EMPLOYER IS NOT LIABLE TO PAY ANY BACKWAGES OR DAMAGES.

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

From the above provision the following instances are found:

i. Bona-fide suspension by the employer of the operation of business or undertaking for a period not exceeding six (6) months;

ii. Fulfillment by the employee of a military duty; oriii. Fulfillment by the employee of civic duty.

The following are the essential requisites for the valid suspension of the operation of a business or undertaking:

a. The suspension of the operation of the business should be made in good faith;

b. The period of such suspension should not exceed six (6) months;c. The employer should resume operations on or before the lapse of said

six months period;d. Upon resumption of operations, the employer should reinstate the

employees to their former position without loss of seniority rights if the employees indicate their desire to resume their work not later than one (1) month from the said resumption of operations;

e. In the event that the employer, instead of resuming its operations, decides to retrench or close or cease its business before the lapse of the six-month period, it shall fully comply with the requirements of the retrenchment or closure or cessation of business operations, as the case may be, under Article 283 to wit:

i. Service of written notice of termination on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof; and

ii. Payment to the affected employees of separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considred one (1) whole year.

According to De Guzman vs. NLRC G.R. No. 167701, December 12, 2007, when the bona-fide suspension of the operation of business or undertaking exceeds six (6) months, the employment of the affected employees is deemed terminated. By the same token and applying said rule by analogy, if the employee was forced to remain without work or assignment for a period exceeding six (6) months, he is then in effect constructively dismissed.

SEPARATION PAY AND BACKWAGES

Separation pay is intended to provide the employee with the wherewithal

during the period he is looking for another employment. (See Gabuay v.

Oversea Paper Supply, G.R. No. 148837, August 13, 2004.)

Instances when Separation Pay is due to Employee

1. The first is provided under Article 283 of the Labor Code.

Separation pay is due when the termination of employment is based

on causes authorized by law, such as installation of labor-saving

devices, redundancy, retrenchment to prevent losses or the closing

or cessation of operation of the establishment

The installation of labor-saving devices contemplates the installation of

machinery to effect economy and efficiency in the method of production.

The case of General Milling Corporation vs. Violeta L. Viajar.  G.R. No.

181738. January 30, 2013 enumerated the requisites of a valid redundancy

program: 

(a) the employer must serve a written notice to the affected employees and

to the Department of Labor and Employment (DOLE) at least one month

before the intended date of termination;

(b) the employer must pay the employees separation pay equivalent to at

least one month pay or at least one month pay for every year of service,

whichever is higher;

(c) the employer must abolish the redundant positions in good faith; and

(d) the employer must set fair and reasonable criteria in ascertaining which

positions are redundant and may be abolished. 

The Supreme Court has also held that a company cannot simply declare

redundancy without basis.  To exhibit its good faith and to show that there

were fair and reasonable criteria in ascertaining redundant positions, a

company claiming to be over manned must produce adequate proof of the

same.

Retrenchment is the termination of employment initiated by the employer

through no fault of and without prejudice to the employees. It is resorted to

during periods of business recession, industrial depression, or seasonal

fluctuations or during lulls occasioned by lack of orders, shortage of

materials, conversion of the plant for a new production program or the

introduction of new methods or more efficient machinery or of automation.

It is an act of the employer of dismissing employees because of losses in the

operation of a business, lack of work, and considerable reduction on the

volume of his business. In this case, the closure of a department or division

of a company constitutes retrenchment by, and not closure of, the company

itself. Petitioner has not totally ceased its business operations.  It merely

ceased operations of a department. Waterfront Cebu City Hotel vs. Ma.

Melanie P. Jimenez, et al. G.R. No. 174214, June 13, 2012.

2. Article 284 mandates that when the severance of employment is

caused by a disease, particularly when the employee is found to be

suffering from any disease and whose continued employment is

prohibited by law or is prejudicial to his health as well as the health

of his co-employees.

Section 8, Title I, Book VI, Implementing Rules ans Regulation provides the

requisites for termination on the ground of disease:

1. The employee suffers from a disease;

2. His continued employment is prohibited by law or prejudicial to his

health or to the health of his co-employees; and

3. The disease is of such nature and at such a stage that it cannot be cured

within a period of six months even with proper medical treatment as

certified by competent public health authority.

The recently decided case of Eleazar S. Padillo vs. Rural Bank of

Nabunturan, Inc., et al.  (G.R. No. 199338. January 21, 2013) held that it

must be the employer who initiates the termination of the employee’s

services.  The aforementioned provision cannot be applied in this case,

considering that it was the late petitioner Padillo, and not the Rural Bank of

Nabunturan, Inc. (Bank), who severed the employment relations.  With his

memory impaired after suffering a mild stroke due to hypertension, Padillo

wrote a letter to the Bank, expressing his intention to avail of an early

retirement package.  The clear import of Padillo’s letter and the fact that he

had stopped reporting for work even before sending the said letter shows

that he voluntarily retired.  Given the inapplicability of the Labor Code

provision on disease as a ground for termination, it necessarily follows that

Padillo’s claim for separation pay must be denied.

3. Termination from service of the employee has been declared

illegal, but his reinstatement to his former position is no longer

feasible for some valid reason such as closure of business, or when

the relationship between employer and employee has become

strained. (doctrine of strained relations)

The case of Apo Chemical Manufacturing and Michael Cheng vs. Ronaldo A.

Bides. G.R. No. 186002. September 19, 2012 emphasized the doctrine of

strained relation:

Reinstatement is the rule and, for the exception of “strained relations” to

apply, it should be proved that it is likely that, if reinstated, an atmosphere

of antipathy and antagonism would be generated as to adversely affect the

efficiency and productivity of the employee concerned. 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.  Moreover, the

doctrine of strained relations has been made applicable to cases where the

employee decides not to be reinstated and demands for separation pay.

Bides has consistently maintained, from the proceedings in the Labor

Arbiter up to the Court of Appeas, his refusal to be reinstated due to his

fear of reprisal which he could experience as a consequence of his return. 

By doing so, Bides unequivocally foreclosed reinstatement as a relief.

4. In case of pre-termination of employment contract in job-

contracting arrangement. ( Department Order 18-02, Rules Implementing

Article 106 to 109 of the Labor Code.)

Section 10 of the Department Ordeebprovides the effect of Termination of

Contractual Employment:

 In cases of termination of employment prior to the expiration of the

contract between the principal and the contractor or subcontractor, the

right of the contractual employee to separation pay or other related benefits

shall be governed by the applicable laws and jurisprudence on termination

of employment. Where the termination results from the expiration of the

contract between the principal and the contractor or subcontractor, or from

the completion of the phase of the job, work or service for which the

contractual employee is engaged, the latter shall not be entitled to

separation pay. However, this shall be without prejudice to completion

bonuses or other emoluments, including retirement pay as may be provided

by law or in the contract between the principal and the contractor or

subcontractor.

5. In exceptional cases, where separation pay is awarded as a measure of

social or compassionate justice.

The case of PCIB vs Abad (G.R. No. 158045.  February 28, 2005) reiterated

that:

As an exception, allowing the grant of separation pay or some other

financial assistance to an employee dismissed for just causes is based on

equity. The Court has granted separation pay as a measure of social justice

even when an employee has been validly dismissed, as long as the dismissal

was not due to serious misconduct or reflective of personal integrity or

morality.

This equitable principle was explained in San Miguel Corporation v. Lao as

follows:

“In Soco vs. Mercantile Corporation of Davao [148 SCRA 526,

March 16, 1987], separation pay was granted to an employee who

had been dismissed for using the company vehicle for a private

purpose. In Tanala vs. National Labor Relations Commission [322

Phil. 342, January 24, 1996] the payment of separation pay to an

employee who had been dismissed for quarreling with a fellow

worker outside the company premises was sustained. Likewise,

in Filipro, Inc. vs. NLRC [229 Phil. 150, October 16, 1999], an

award of separation pay was decreed in favor of an employee who

had been validly dismissed for preferring certain dealers in

violation of company policy. The Court, however, disallowed the

grant of separation pay to employees dismissed for serious

misconduct or for some other causes reflecting on his moral

character. In the case of Philippine Long Distance Telephone Co.

(PLDT) vs. NLRC and Abucay [164 SCRA 671, 682, August 23,

1988], the Court clarified a perceived incongruence in its several

pronouncements by stating thusly:‘We hold that henceforth

separation pay shall be allowed as a measure of social justice only

in those instances where the employee is validly dismissed for

causes other than serious misconduct or those reflecting on his

moral character. Where the reason for the valid dismissal is, for

example, habitual intoxication or an offense involving moral

turpitude, like theft or illicit sexual relations with a fellow worker,

the employer may not be required to give the dismissed employee

separation pay, or financial assistance, or whatever other name it

is called, on the ground of social justice.

‘The policy of social justice is not intended to countenance

wrongdoing simply because it is committed by the underprivileged.

At best it may mitigate the penalty but it certainly will not condone

the offense.’The dictum was followed in Philippine National

Construction Corporation vs. NLRC [170 SCRA 207, February 9,

1989], where the Court deleted an award of separation pay to an

employee who had been found guilty of dishonesty for having stolen

company property. Cosmopolitan Funeral Homes, Inc. vs.

Maalat [187 SCRA 108, July 2, 1990] disallowed the grant of

separation pay to an employee who was dismissed for dishonesty

for an understatement of reported contract price against the actual

contract price charged to and paid by the customers and for

misappropriation of funds or collections.  A similar holding was

reached in Zenco Sales, Inc. vs. NLRC [234 SCRA 689, August 3,

1994], where the dismissed employee was found guilty of gross

misconduct for having used his employer's property, equipment and

personnel in his personal business. The Court reversed the decision

of the NLRC in San Miguel Corporation vs. NLRC [325 Phil. 940,

March 29, 1996], granting an employee, dismissed for dishonesty,

the privilege to retire from the company with a right to avail himself

of 100% of the benefits the company had offered to retiring

employees. Quite recently, in Edge Apparel, Inc. vs. NLRC [349

Phil. 972, February 12, 1998], the Court, categorizing the two

causes for the dismissal of an employee — ‘just causes’ under

Article 282 of the Labor Code and ‘authorized causes’ under Article

283 and 284 of the same code — reiterated that an employee whose

employment was terminated for a just cause would not be so

entitled as a matter of right to the payment of separation benefits.”

In line with San Miguel, separation pay depends on the cause of the

dismissal and the circumstances of each case.  The dismissal should not be

due to serious misconduct or to causes reflective of moral character. 

Notwithstanding a valid dismissal, an employee’s lack of moral depravity

could evoke compassion and thereby compel an award of separation pay.

Computation of Separation Pay

Separation pay may be computed based on the terms provided in the

employment contract, company policy, or collective bargaining agreement.

Company practice may likewise be used as basis for computation, if such

practice has been established for years and has already ripened into a

demandable right. In the absence of contract or agreement, or when the

existing agreement or policy provides for a lower benefit, separation pay

shall be computed based on the provision of the Labor Code.

The amount of separation pay under the Labor Code depends on the

following factors:

1. The employee’s last salary

2. The employee’s length of service

3. The reason for employee’s separation from service.

Employee’s last salary

The employee’s last salary refers to the salary rate of the employee at the

time of his termination from service. It determines the based to be used in

the computation of separation pay.

When there is a reduction of the employee’s salary prior to his termination,

e.g., the employee has been demoted resulting to a reduction of salary, such

reduced salary rate, which is his ‘last salary’ shall be the basis of the

computation. But, if the reduction of salary was made to circumvent the

provision of the Labor Code, that is, to avoid payment of higher separation

pay, the salary rate before the reduction shall be used in the computation of

separation pay.

For employee’s receiving salary below the minimum wage, the separation

pay shall be computed based on the minimum wage in effect at the time of

separation from service. In addition, the employee affected is also entitled

to payment of salary differential equivalent to the difference between the

employees actual salary and applicable minimum wage.

Employee’s length of service

Employee’s length of service refers to the duration of time that the

employee has been under the employ of the same employer or company. It

is computed beginning from the time of his engagement up to the date of

his termination. A fraction of at least 6 months shall be considered as one

whole year. However, only the employee’s last continuous years of service

should be considered in the computation (Phil. Tobacco Flue-Curing vs.

NLRC.)

The reason for the employee’s separation from service

The reason for the employee’s separation from service is an important

factor in the computation of separation pay. The amount of separation pay

may vary depending on the specific ground relied upon for the

termination.An employee terminated based on installation of labor-saving

devices or redundancy is entitled to at least one-month salary or to at least

one-month salary for every year of service, whichever is higher. (Article

283, Labor Code)

For termination based on retrenchment to prevent losses and closure

of business, the employee affected is entitled to at least one month salary

or 1/2 month salary for every year of service, whichever is higher. (Article

283, Labor Code).)

An employee terminated for health reasons (disease) under Article

284 should be paid separation pay equivalent to at least one-month salary

or to at least one-month salary for every year of service, whichever is

higher.

In case of illegal termination, separation pay in lieu of reinstatement has

been consistently computed at one month salary for every year of service.

The phrase “at least one month salary or 1/2 month salary for every year of

service, whichever is higher”, means that the employee is entitled

whichever is higher of the employee’s:one month salary; or1/2 month salary

for every year of service.

Example: If the retrenched employee’s salary is P8,000, and he has been

working for 3 years, he is entitled to separation pay equivalent to whichever

is higher of his:

one month salary = P8,000; or

1/2 month salary for every year of service = (1/2) x P8,000 x 3 years =

P12,000

Here, the employee is entitled to P12,000, which is the higher amount.

Following the same rule, if the length of service is only one year, his

separation would be whichever is higher of the following:

one month salary = P8,000; or

1/2 month salary for every year of service = (1/2) x P8,000 x 1 year =

P4,000

Here, separation pay is P8,000 or one month salary, the higher amount.

Actually, we will arrive at the same result even if the length of service is

only 10 months or 7 1/2 months, etc., as long as it is 6 months or more. This

is because a fraction of at least 6-months is considered as 1 whole year.

If the employee has served for less than 6 months:

one month salary = P8,000; or

1/2 month salary for every year of service = (1/2) x P8,000 x 0 year = 0.

So, it’s still P8,000 or one month salary.

Minimum Separation Pay is equivalent to one month salary. This is

actually consistent with the phrase “at least one month salary”, which

simply means that the separation must not be less than the employee’s one

month salary.

in a recently decided case of Radio Mindanao Network, Inc. and Eric S.

Canoy vs. Domingo Z. Ybarola, et al. G.R. No. 198662. September 12, 2012,

the release/quitclaim affidavits are deemed invalid for being against public

policy for two reasons:

(1) petitioners are given only half of the amount they were legally entitled

to; and

(2) where there is an absence of voluntariness when the employees signed

the document, a settlement under these terms is not and cannot be a

reasonable one, given especially the respondent’s length of service – 25

years for Ybarola and 19 years for Rivera.  

When Separation Pay is Tax Exempt

Under Section 32(B)(6)(b) of the 1997 Tax Code, any amount received by an

official or employee or by his heirs from the employer as a consequence of

separation of such official or employee from the service of the employer due

to death, sickness or other physical disability or for any cause beyond the

control of the said official or employee is exempt from taxes regardless of

age or length of service.

BIR Ruling No. 131-10, December 1, 2010 reiterated the requisites in

order that the employee benefits may be granted tax exemption, namely:

(1) the employee is separated from the service of the employer due to death,

sickness or other physical disability or for any cause beyond the control of

the said official or employee; and

(2) the employer pays benefits to the official or employee or his heirs as a

consequence of such separation.

Backwages

An employee who is unjustly dismissed from work shall be entitled 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.

Backwages is the restitution of earnings unduly withheld from the

employee because of illegal termination. It partakes the nature of a penalty

the employer has to pay for illegally dismissing an employee.

Computation of Backwages.

Full backwages is to be computed from the time compensation was

withheld from the employee up to the time of his actual reinstatement.Base

figure. The computation shall include not just the basic salary, but also

regular allowances and other benefits or their monetary equivalent, i.e.,

transportation, emergency living allowance, 13th-month pay, etc.

 It may be based either on the current wage rate or the wage rate at the

time of the dismissal. If current wage rate is awarded, it must be expressly

stated in the decision. If not expressly stated, the wage rate at the time of

the dismissal should be used. (Paramount Vinyl vs. NLRC, G.R. No. 81200,

October 17, 1990.)

Methods of Computing Backwages.

The rule now is that the employees are entitled to full backwages

without deduction or qualification.

Illegal Dismissal without Backwages

As a general rule, an employee who is dismissed due to the unlawful act

of the employer or to the latter’s bad faith is entitled to backwages as a

matter of right, backwages being a direct and necessary consequence of

finding of illegal dismissal. However, there are instances where despite

illegal dismissal, the illegally dismissed employee is not entitled to

backwages. This happens in cases where good faith is evident on the part of

the employer in dismissing the employee, i.e., there is just cause to dismiss

employee, but the dismissal is found by the court to be too harsh a penalty.

Effect of Failure to Claim Backwages.

The award of backwages resulting from illegal dismissal of employee is a

substantive right. Thus, it has been held that the employee does not forfeit

his right to claim backwages even if he failed to claim for the same in his

complaint.

The case of Golden Ace Builders and Arnold Azul vs. Jose A. Talde, G.R. No.

187200; 5 May 2010 provides an instance where an employee is enitled to

both backwages and seaoration pay. The case noted that an illegally

dismissed employee is entitled to two reliefs: backwages and

reinstatement.  The two reliefs are separate and distinct.  When

reinstatement is no longer feasible because of strained relations between

the employee and the employer, 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.  In

effect, an illegally dismissed employee is entitled to either reinstatement, if

viable, or separation pay if reinstatement is no longer

viable, andbackwages.  Strained relations must be demonstrated as a fact

and must be supported by substantial evidence showing that the

relationship between the employer and the employee is indeed strained as a

necessary consequence of the judicial controversy.

Backwages are taxable per Revenue Memorandum Circular No. 39-

2012.

The back wages, allowances and benefits received by an employee from

a labor dispute as remunerations for services by the employee during the

period of his dismissal from service; these remunerations are subject to

income tax, and consequently, to withholding tax. For income tax and

withholding purposes, the employee is required to report as income and pay

the corresponding income taxes by allocating or spreading the back wages,

allowances and benefits through the years from his separation up to the

final decision of the court awarding the back wages.

Title II

RETIREMENT FROM THE SERVICE

Article 287. Retirement. Any employee may be retired upon reaching the

retirement age established in the collective bargaining agreement or other

applicable employment contract.

In case of retirement, the employee shall be entitled to receive such

retirement benefits as he may have earned under existing laws and any

collective bargaining agreement and other agreements: Provided, however,

that an employee’s retirement benefits under any collective bargaining and

other agreements shall not be less than those provided therein.

In the absence of a retirement plan or agreement providing for retirement

benefits of employees in the establishment, an employee upon reaching the

age of sixty (60) years or more, but not beyond sixty-five (65) years which is

hereby declared the compulsory retirement age, who has served at least

five (5) years in the said establishment, may retire and shall be entitled to

retirement pay equivalent to at least one-half (1/2) month salary for every

year of service, a fraction of at least six (6) months being considered as one

whole year.

Unless the parties provide for broader inclusions, the term ‘one-half (1/2)

month salary’ shall mean fifteen (15) days plus one-twelfth (1/12) of the

13th month pay and the cash equivalent of not more than five (5) days of

service incentive leaves.

An underground mining employee upon reaching the age of fifty (50) years

or more, but not beyond sixty (60) years which is hereby declared the

compulsory retirement age for underground mine workers, who has served

at least five (5) years as underground mine workers, may retire and shall be

entitled to all the retirement benefits provided for in this Article. (R.A. No.

8558, approved on February 26, 1998.)

Retail, service and agricultural establishments or operations employing not

more than ten (10) employees or workers are exempted from the coverage

of this provision.

Violation of this provision is hereby declared unlawful and subject to the

penal provisions under Article 288 of this Code.

PREVIOUS LAW AND ITS AMENDMENTS

Article 287 was previously worded as:

Article 287. Retirement. Any employee may be retired upon reaching the

retirement age established in the collective bargaining agreement or other

applicable employment contract.

In case of retirement, the employee shall be entitled to receive such

retirement benefits as he may have earned under existing laws and any

collective bargaining agreement and other agreements.

In the case of Llora Motors, Inc. vs. Drilon, the Supreme Court

declared that “under Article 287 [before amendment by R.A. 7641]

entitlement to retirement benefits may accrue either (a) under existing laws

or (b) under a collective bargaining agreement or other employment

contract. It is at once apparent that Article 287 does not itself purport to

impose any obligation upon employers to set up a retirement scheme for

their employees over and above that already established under existing

laws. In other words, Article 287 recognizes that existing laws already

provide for a scheme by which retirement benefits may be earned or accrue

in favor of employees, as part of a broader social security system that

provides not only for retirement benefits but also death and funeral

benefits, permanent disability benefits, sickness benefits and maternity

leave benefits.”

The Supreme Court deemed the old provision as not a source of

retirement benefit if there was (1) no collective bargaining agreement or (2)

voluntary company policy granting such benefit.

To overturn the effect of the Llora Motors ruling, R.A. No. 7641, “An

act amending Article 287 of Presidential Decree. 422, as amended,

otherwise known as the Labor Code of the Philippines, by providing for

retirement pay to qualified private sector employees in the absence of any

retirement plan in the establishment” or the “Retirement Pay Law” which

took effect on January 7, 1993.

The provision was further amended by R.A. No. 8558, lowering the

retirement age of mine workers to 50, approved on February 26, 1998.

This article applies to private sector employees who have served the

employer establishment for at least five years and reached age sixty or

sixty-five. It covers:

1. Full time of part-time employees

2. Regular or non-regular employees

RETIREMENT DEFINED

Retirement is the withdrawal from office, public station, business,

occupation, or public duty. It is the result of a bilateral act of the parties, a

voluntary agreement between the employer and the employee whereby the

latter, after reaching a certain age, agrees and/or consents to sever his

employment with the former.

Pension schemes while initially humanitarian in nature, now

concomitantly serve to secure loyalty and efficacy on the part of employees,

and to increase continuity og service and decrease the labor turnover, by

giving to the employees some assurance of security as they approach and

reach the age at which earning ability and earnings are materially impaired

or at an end.

The employer and employee are free to stipulate on the retirement

benefits, as long as these do not fall below the floor limits provided by law.

(Brion vs. South Philippine Union Mission of the Seventh Day Adventist

Church)

Coverage of the Retirement Pay Law

The Retirement Pay Law applies to all employees in the private sector,

regardless of their position, designation, or status and irrespective of the

method by which their wages are paid, except those specifically exempted.

It also includes and covers part-time employees of service and other job

contractors and domestic helpers persons in the personal service of

another.

Employees not covered by the Retirement Pay Law

1. Employees of the National Government and its political subdivisions,

including government-owned and/or controlled corporations, if they

are covered by the Civil Service Law and its regulations.

2. Employees of retail, service and agricultural establishments or opera-

tions regularly employing not more than ten employees.

Conditions for Entitlement to Retirement, Not Continuing

Because retirement ends employment, the employer cannot demand

continuing service from the retiree as a condition to the receipt and

enjoyment of the retirement benefit.

Retirement means to withdraw from one’s office, occupation, or duty.

It is an oxymoron to retire an employee and yet require him to continue

working for the same employer.

TWO TYPES OF RETIREMENT

1. Compulsory Retirement – takes places when the employee reaches

the age of 65.

2. Optional Retirement – primarily determined by the collective bar-

gaining agreement or other employment contract or employer’s retire-

ment plan.

An employee may optionally retire upon reaching the age of 60 years

or more, but not beyond 65 years, provided he has served at least five years

in the establishment concerned. The option to retire at age below 65 is

given to the employee, not to the employer.

Minimum 5-year Service Requirement

The minimum 5-year service requirement includes the following:

1. Authorized absences, vacations, regular holidays included.

2. Only actual services included.

Employees Retiring Under the CBA or Employment Contract

Any employee may retire or be retired by his employer upon reaching

the retirement age established in the CBA or other applicable employment

contract and he shall be entitled to the benefits thereunder. Provided that

the amount is not less than those provided by law, otherwise, the employer

shall pay the difference.

Option to Retire

In the absence of any provision on optional retirement in a CBA, other

employment contract, or employer’s retirement plan, an employee may

optionally retire upon reaching the age of 60 years or more, but not beyond

65 years, provided he has served at least five (5) years in the establishment

concerned. That prerogative is exclusively lodged in the employee.

Employer’s Option

The law recognizes as valid any retirement plan, agreement or

management policy regarding retirement at an earlier or older age.

Where the CBA itself gives the option to retire to either the employer

of the employee, such provision is valid, and the employer’s act of retiring

an employee who is of retirable age as defined in the CBA is a valid exercise

of the option. It is not illegal dismissal and not union busting.

The Court ruled that Article 287 of the Labor Code as worded permits

employers and employees to fix the applicable retirement age at below 60

years.

A non-contributory retirement plan under which the employer may

retire an employee, regardless of age, with twenty years of service is

similarly valid. Such retirement plan, made known to the employees and

accepted by them, forms part of the employment contract.

Effect of Employee’s Assent to the Retirement Plan

If the employer can prove that the employee has freely assented to the

retirement plan, said employee may be compelled to retire before reaching

sixty or sixty-five years of age, upon reaching the stipulated years of service

to be automatically retired.

NEW RETIREMENT LAW GIVEN RETROACTIVE EFFECT

R.A. 7641 has been enacted as a labor protection measure and as a

curative statute that – absent a retirement plan devised by, an agreement

with or a voluntary grant, an employer – can respond, in part at least, to the

financial well-being of workers during their twilight years soon following

their life in labor. The law can apply to labor contracts still existing at the

time the statute has taken effect, and that its benefits can be reckoned not

only from the date of the law’s enactment but retroactively to the time said

employment contracts have started.

Thus, the Retirement Pay Law is applicable to services rendered prior

to January 7, 1993.

Conditions for Retroactive Application of R.A. 7641:

1. The claimant for retirement benefits was still the employee of the em-

ployer at the time the statute took effect.

2. The claimant was in compliance with the requirements for eligibility

under the statute for such retirement benefits.

AMOUNT OF RETIREMENT PAY

Retirement pay is equal to half-month’s pay per year of service.

“Half-month’s pay” is “expanded” because it means not just the salary

for 15 days but also one-twelfth of the 13th-month pay and the cash value of

five-day service incentive leave, totalling 22.5 days. This is the minimum.

The retirement pay package may be improved upon by:

1. Voluntary company policy

2. Particular agreement with the employee

3. Collective bargaining agreement

The basis of the computation of the retirement amount should be the

CBA between the parties where such CBA or the company’s retirement plan

provides for retirement benefit greater than that under the Labor Code.

On the other hand, the basis of the computation of the salary for

fifteen days for covered workers who are paid by results and do not have a

fixed monthly salary rate shall be their average daily salary (ADS). The

ADS can be derived by dividing the total salary or earnings for the twelve

months reckoned from the date of retirement by the number of actual

working days in the particular period, provided that the determination of

rates of payment by results is in accordance with the regulations.

Should 1/12 of 13th month pay and 5 days of service incentive leave

be included if the employees are not entitled thereto?

A question may be posed. Supposing the retiring employee, by reason

of the nature of his work, was not entitled to 13th month pay or to the

service incentive leave pay pursuant to the exceptions mentioned in the 13th

-Month Pay Law and the Labor Code, should he be paid upon retirement, in

addition to the salary equivalent to fifteen (15) days, the additional 2.5 day

representing one-twelfth [1/12] of the 13th month pay as well as the five (5)

days representing the service incentive leave for a total of 22.5 days?

This question was answered in the negative in the 2004 case of R & E

Transport, Inc. vs. Latag, [G. R. No. 155214, February 13, 2004]. The

Supreme Court ruled that employees who are not entitled to 13th month pay

and service incentive leave pay while still working should not be paid the

entire “22.5 days” but only the fifteen (15) days salary. In other words, the

additional 2.5 days representing one-twelfth [1/12] of the 13th month pay

and the five (5) days of service incentive leave should not be included as

part of the retirement benefits.

Interruption in the Service, Effect

The decision of the Supreme Court in the 2003 case of Sta. Catalina

College vs. NLRC, [G. R. No. 144483, November 19, 2003] is instructive on

the issue of interruption in the service. In this case, the teacher was hired

by the Sta. Catalina College in June 1955 as an elementary school teacher.

In 1970, she applied for and was granted a one-year leave of absence

without pay on account of the illness of her mother. After the expiration in

1971 of her leave of absence, she had not been heard from by petitioner

school. In the meantime, she was employed as a teacher in another school -

the San Pedro Parochial School during school year 1980-1981 and later, at

the Liceo de San Pedro, Biñan, Laguna during school year 1981-1982. In

1982, she applied anew at petitioner school which hired her. In 1997, the

teacher reached compulsory retirement age. The threshold issue is whether

the teacher’s services for petitioner school during the period from 1955 to

1970 should be factored in the computation of her retirement benefits.

The Supreme Court ruled that she cannot be credited for her services

in 1955-1970 in the determination of her retirement benefits. For, after her

one year leave of absence expired in 1971 without her requesting for

extension thereof as in fact she had not been heard from until she

resurfaced in 1982 when she reapplied with petitioner school, she

abandoned her teaching position as in fact she was employed elsewhere in

the interim and effectively relinquished the retirement benefits accumulated

during the said period. As the teacher was considered a new employee

when she rejoined petitioner school upon re-applying in 1982, her

retirement benefits should thus be computed only on the basis of her years

of service from 1982 to 1997.

Service in another Firm, Excluded in the Computation of Retirement

Benefits

In the 2002 case of Gamogamo vs. PNOC Shipping and Transport

Corp., it was held that since the retirement pay solely comes from the

employer company’s funds, it is but natural that the employee’s length of

service in another company be disregarded in the computation of his

retirement benefits.

FORCED RETIREMENT

If the intention to retire is not clearly established or if the retirement

is involuntary, it is to be treated as a discharged.

PAG-IBIG AS A SUBSTITUTE RETIREMENT PLAN

As provided in R.A. 7742, a private employer shall have the option to

treat the coverage of the Pag-IBIG Fund as a substitute retirement benefit,

provided such option does not contravene an existing collective bargaining

agreement or other employment agreement.

SSS, SEPARATE AND DISTINCT FROM RETIREMENT PAY

The employee’s retirement pay under Article 287 of the Labor Code or

under a unilateral promulgated retirement policy or plan of the employer or

under a Collective Bargaining Agreement, is separate and distinct from the

retirement benefits granted under R.A. No. 8282, otherwise known as the

Social Security Act of 1997.

RETIREMENT BENEFITS ASIDE FROM SEPARATION PAY;

DISTINCTION

May an employee claim retirement benefits and separation pay

simultaneously?

The Supreme Court ruled in the affirmative in the case of University

of the East vs. UE Faculty Association. The award for retirement benefits

was ordered pursuant to the CBA provisions regardless of the cause of

separation.

The employer has the right to recover from the employer whatever

benefits he is entitled to under the Termination Pay Law in addition to other

benefits conferred upon him by the aforesaid labor agreement.

DISTINCTION BETWEEN RETIREMENT BENEFITS

AND SEPARATION PAY

RETIREMENT BENEFITS SEPARATION PAY

A contractual right due to many

years of faithful service.

Arises from forced termination.

Where not mandated by law, may be

granted by agreement on the part of

the employees and their employer or

as a voluntary act on the part of the

employer.

Required in the cases enumerated in

Articles 283 and 284 of the Labor

Code, which include retrenchment,

and is computed at least one month

salary or at the rate of one-half

month salary for every year of

service, whichever is higher.

Intended to help the employee enjoy

the remaining years of his life,

lessening the burden of worrying for

his financial support, and are a form

of reward for his loyalty and service

to the employer.

A statutory right designed to provide

the employee with the wherewithal

during the period that he is looking

for another employment.

Gratuity Pay Distinguished From Retirement benefits

Gratuity pay, also called (voluntary) resignation pay, is separate and

distinct from retirement benefits. It is paid purely out of generosity.

Gratuity pay is paid to the beneficiary for the past services or favour

rendered purely out of the generousity of the giver or grantor to reward

employees who have rendered satisfactory services to the company.

Retirement benefits, on the other hand, are intended to help the

employee enjoy the remaining years of his life, releasing him from the

burden of worrying for his financial support, and are a form of reward for

his loyalty to the employer.

UNJUSTIFIED DENIAL OF RETIREMENT BENEFIT

Facts: In the case of E. Razon, Jr., et. al. vs. NLRC, when Razon discovered

the loss of vital books of account and found employee “guilty of breach of

trust,” he claims to have a valid ground to terminate Garzota’s services

without retirement benefits.

Contention: Whether the management is vested with discretion to approve

or disapprove an employee’s claim for retirement under the Retirement

Plan, which states that “any official and employee who is 65 years old and

upon discretion of the management, shall be qualified to compulsory

retirement from the company with benefits as provided for in this plan.”

Ruling: The words “upon discretion of the management” are not

synonymous with absolute or unlimited discretion. Management discretion

may not be exercised arbitrarily or capriciously especially with regard to

the implementation of the retirement plan.

Having rendered 20 years of services, Garzota acquired a vested right

to the retirement fund, and a right which can only be withheld upon clear

showing of good and compelling reasons. Petitioners found Garzota no

longer worthy of trust and confidence and abruptly dismissed him without

giving him a chance to explain his side. Had petitioners conducted an

investigation, they would have found that in 1982 a fire gutted a portion of

Razon’s warehouse destroying books, records and vouchers.

Razon then argued that the discharged employee impliedly withdrew

his intention to retire when he joined Marina Port Services, Inc. But the fact

that he sought employment elsewhere should not hinder him from claiming

his retirement services.

Separation Disguised as Retirement

In S. Villena vs. NLRC and Batangas, Laguna, Tayabas Bus Co., the

Court ruled: “having been illegally dismissed, employee is entitled to

receive full compensation for the remaining three years of his work life.

Upon reaching age sixty (60), he may be retired and shall be entitled to

receive the normal retirement benefits under the company’s applicable

bona fide retirement plan or established company policy or as provided in

Section 14, Book IV [now] of the Implementing Regulations of the Labor

Code.

Dismissal to Avoid Retirement Benefits

If it is wrong to obstensibly retire an employee who actually is

retrenched, it is likewise wrong, and probably more reprehensible, to

dismiss an employee to avoid paying his retirement benefits.

EXTENTION OF SERVICE OF RETIREE

Upon the compulsory retirement of an employee or official in the

public or private service, his employment is deemed terminated. The

manner of extension of service is addressed to the sound discretion of the

employer. It is a privilege only the employer can grant. The employer would

be the best judge as to the grounds that may warrant a grant or denial of

the extension of services of an employee or official.

CASE:

Obusan V. Philippine National Bank G.R. No. 181178

Facts: In 1979, petitioner Amelia R. Obusan (Obusan), was hired by PNB . During this time, PNB is still a government owned or controlled corporation. Its retirement benefit is governed by the Government Insurance Service System pursuant to the Revised Government Service Insur-ance Act of 1977 (Presidential Decree No. 1146).

On May 27, 1996, PNB was privatized. Consequent to the privatization, all PNB employees, in-cluding Obusan, were deemed retired from the government service.Obusan continued to be an employee of PNB.Later, the PNB Board of Directors, through Resolution No. 30 dated Decem-ber 22, 2000, as amended, approved the PNB Regular Retirement Plan (PNB-RRP). It provides that the retirement date of a member shall be 60 years of age or if the employee has rendered 30 years of service, regardless of age, whichever of the said conditions comes first and shall be au-tomatically entitled to receive the retirement benefits under the Plan.

On February 11, 2002, PNB informed Obusan that her last day of employment would be on March 3, 2002, as she would reach the mandatory retirement age of 60 years on March 4, 2002.   Obusan questioned her compulsory retirement. She contended that PNB could not compulsorily retire her at the age of 60 years, with her having a vested right to be retired only at 65 years old pursuant to civil service regulations.

Issue: Whether or not Obusan shall be governed under the retirement system provided by GSIS or by the Labor Code.

Ruling:As a result of the privatization of PNB, all of its officers and employees were deemed retired from the government service. As such, they are now covered by the provisions of the Labor Code.

“..Retirement plans allowing employers to retire employees who have not yet reached the

compulsory retirement age of 65 years are not per se repugnant to the constitutional guaranty of

security of tenure. By its express language, the Labor Code permits employers and employees to

fix the applicable retirement age at 60 years or below, provided that the employees’ retirement

benefits under any CBA and other agreements shall not be less than those provided therein.[25]   By this yardstick, the PNB-RRP complies.

 

However, company retirement plans must not only comply with the standards set by

existing labor laws, but they should also be accepted by the employees to be commensurate to

their faithful service to the employer within the requisite period.”

SOURCES:

Azucena, Cesario Alvero, Jr. Labor Code with Comments and Cases

Volume II.

Chan, Joselito Guianan. Labor Relations