G.R. No. 188753 October 1, 2014
AM-PHIL FOOD CONCEPTS, INC., Petitioner,
vs. PAOLO JESUS T. PADILLA, Respondent.
vs. PAOLO JESUS T. PADILLA, Respondent.
"x x x.
Article 283 of the Labor Code recognizes retrenchment as an authorized cause for terminating employment. It states:
Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
In Sebuguero v. National Labor Relations Commission,48 this court explained the concept of retrenchment as follows:
Retrenchment . . . is used interchangeably with the term "lay-off." It is the termination of employment initiated by the employer through no fault of the employee's and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation.
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.49
As correctly pointed out by Am-Phil, retrenchment entails an exercise of management prerogative. In Andrada v. National Labor Relations Commission,50 this court stated:
Retrenchment is an exercise of management’s prerogative to terminate the employment of its employees en masse, to either minimize or prevent losses, or when the company is about to close or cease operations for causes not due to business losses.51
Nevertheless, as has also been emphasized in Andrada, the exercise of management prerogative is not absolute:
A company’s exercise of its management prerogatives is not absolute. It cannot exercise its prerogative in a cruel, repressive, or despotic manner. We held in F.F. Marine Corp. v. NLRC:
This Court is not oblivious of the significant role played by the corporate sector in the country’s economic and social progress. Implicit in turn in the success of the corporate form in doing business is the ethos of business autonomy which allows freedom of business determination with minimal governmental intrusion to ensure economic independence and development in terms defined by businessmen. Yet, this vast expanse of management choices cannot be an unbridled prerogative that can rise above the constitutional protection to labor. Employment is not merely a lifestyle choice to stave off boredom. Employment to the common man is his very life and blood, which must be protected against concocted causes to legitimize an otherwise irregular termination of employment. Imagined or undocumented business losses present the least propitious scenario to justify retrenchment.52(Underscoring supplied, citation omitted)
Thus, retrenchment has been described as "a measure of last resort when other less drastic means have been tried and found to be inadequate."53
Retrenchment is, therefore, not a tool to be wielded and used nonchalantly. To justify retrenchment, it "must be due to business losses or reverses which are serious, actual and real."54
There are substantive requirements relating to the losses or reverses that must underlie a retrenchment.
That these losses are serious relates to their gravity and that they are actual and real relates to their veracity and verifiability. Likewise, that a retrenchment is anchored on serious, actual, and real losses or reverses is to say that the retrenchment is done in good faith and not merely as a veneer to disguise the illicit termination of employees. Equally significant is an employer’s basis for determining who among its employees shall be retrenched. Apart from these substantive requirements are the procedural requirements imposed by Article 283 of the Labor Code.
Thus, this court has outlined the requirements for a valid retrenchment, each of which must be shown by clear and convincing evidence, as follows:
(1) that the retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;
(2) that the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;
(3) that the employer pays the retrenched employees separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher;
(4) that the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and
(5) that the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status (i.e., whether they are temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and financial hardship for certain workers.55 (Citations omitted)
Am-Phil failed to establish compliance with the requisites for a valid retrenchment
Am-Phil’s 2001 to 2004 audited financial statements, the sole proof upon which Am-Phil relies on to establish its claim that it suffered business losses, have been deemed unworthy of consideration. These audited financial statements were mere annexes to the motion for leave to admit supplemental rejoinder which Labor Arbiter Chuanico validly disregarded. No credible explanation was offered as to why these statements were not presented when the evidence-in-chief was being considered by the labor arbiter. It follows that there is no clear and convincing evidence to sustain the substantive ground on which the supposed validity of Padilla’s retrenchment rests.
Moreover, it is admitted that Am-Phil did not serve a written notice to the Department of Labor and Employment one (1) month before the intended date of Padilla’s retrenchment, as required by Article 283 of the Labor Code.56
While it is true that Am-Phil gave Padilla separation pay, compliance with none but one (1) of the many requisites for a valid retrenchment does not absolve Am-Phil of liability.
x x x."
