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MANAGEMENT PREROGATIVES AND

TERMINATION OF EMPLOYMENT
By:
ATTY. VOLTAIRE T. DUANO*
Concept of management prerogatives
The Supreme defined management prerogatives in SHS Perforated Materials, Inc. v. Diaz, G.R. No.
185814, October 13, 2010: which refers “to the right of an employer to regulate all aspects of
employment, such as the freedom to prescribe work assignments, working methods, processes to be
followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline,
and dismissal and recall of work.” (Baybay Water District v. Commission on Audit, G.R. Nos. 147248-
49, January 23, 2002)

Criterion to guide in the exercise of management prerogatives

In Gemina, Jr. v. Bankwise, Inc. (Thrift Bank) G.R. No. 175365, October 23, 2013, it was held: The
employer’s right to conduct the affairs of its business, according to its own discretion and judgment, is
well-recognized. An employer has a free reign and enjoys wide latitude of discretion to regulate all
aspects of employment and 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. (The Coca-Cola Export Corporation v. Gacayan, G.R. No. 149433, December 15, 2010,
638 SCRA 377, 398-399)
xxx
As respondent’s employer, petitioner has the right to regulate, according to its discretion and best
judgment, work assignments, work methods, work supervision, and work regulations, including the
hiring, firing and discipline of its employees. Indeed, petitioner has the management prerogative to
discipline its employees, like herein respondent, and to impose appropriate penalties on erring workers
pursuant to company rules and regulations. (Deles, Jr. v. National Labor Relations Commission, G.R. No.
121348, March 9, 2000) This Court upholds these management prerogatives so long as they are
exercised in good faith for the advancement of the employer’s interest and not for the purpose of
defeating or circumventing the rights of the employees under special laws and valid agreements.
(Challenge Socks Corporation v. Court of Appeals, G.R. No. 165268, November 8, 2005, 474 SCRA 356,
362-363)

Aspects of management prerogatives

The exercise of management prerogatives involves the following aspects: 1. Employee selection; 2.
Discipline; 3. Transfer/promote employees; 4. Productivity standard; 5. Grant of bonus; 6. Change of
working hours; 7. Post-employment ban; 8. Marital discrimination

1. Employee selection
In the exercise of its prerogative to select his employees, the employer can not be compelled to
hire somebody against its will. In this regard, the Supreme Court declared that since the employer is
generally responsible for the damages caused by his employees it is logical and just that he be the one
exclusively entitled to freely select them. (Manila Chauffeurs’ League vs. Bachrach Motor Co., Inc., 40
OG No. 11, p. 159) Furthermore, the Supreme Court remarked that to compel an employer to hire
employees from a specific source to the exclusion of others coming from another source not only would
tend to promote sectionalism and disunity but also would interfere with the citizens right to freedom of
contract (Davao Stevedors Benefit Ass’n. vs. Compañia Maritima, et al., L-3871, Feb. 29, 1952) and
such interference of the employer’s will in the selection of his employees is oppression. (Pampanga Bus
Co., Inc. vs. Pambusco Employees Union, Inc., 38 OG 984)

2. To discipline
Industrial & Transport Equipment, Inc. v. Tugade, G.R. No. 158539, January 15, 2009, is
instructing on how the Supreme Court sustained the right of employers to exercise their management
prerogative to discipline erring employees, thus: However, petitioner loses sight off the fact that the
right of an employer to regulate all aspects of employment is well settled. This right, aptly called
management prerogative, gives employers the freedom to regulate, according to their discretion and
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best judgment, all aspects of employment, including work assignment, working methods, processes to
be followed, working regulations, transfer of employees, work supervision, lay-off of workers and the
discipline, dismissal and recall of workers. In general, management has the prerogative to discipline its
employees and to impose appropriate penalties on erring workers pursuant to company rules and
regulations. (Deles, Jr. v. National Labor Relations Commission, G.R. No. 121348, March 9, 2000, 327
SCRA 540, 547-548)

3. To prescribe reasonable rules and regulations

It is axiomatic that appropriate disciplinary sanction is within the purview of management
imposition. (San Miguel Corporation v. National Labor Relations Commission, G.R. Nos. 146121-22,
April 16, 2008, 551 SCRA 410, 426) What should not be overlooked is the prerogative of an employer
company to prescribe reasonable rules and regulations necessary for the proper conduct of its business
and to provide certain disciplinary measures in order to implement said rules to assure that the same
would be complied with. (Soco v. Mercantile Corporation of Davao, G.R. Nos. L-53364-65, March 16,
1987)

4. Security of tenure
In United Laboratories, Inc. v. Domingo, G.R. No. 186209, September 21, 2011, where it was
held that security of tenure is correlative to the right to reasonable returns on investments and does not
give them vested rights to their positions to the extent of depriving management of its prerogative to
change their assignments or to transfer them. Thus, the Court said:

It should be remembered, however, that the entitlement of workers to security of tenure is

correlative to the right of enterprises to reasonable returns on investments. (Article XIII, Sec. 3,
paragraph 4 of the Constitution) The rights are measured each in relation to the other.
In one section under the same title of Article XIII, the Constitution mandates that “all workers
shall be entitled to security of tenure” and commands at the same time in the same way, that the
State shall recognize the right of enterprises to reasonable returns on investments, and to
expansion and growth. Such that, in this jurisdiction, we recognize that management has a wide
latitude to regulate, according to his own discretion and judgment, all aspects of employment,
including the freedom to transfer and reassign employees according to the requirements of its
business. The right of employees to security of tenure does not give them vested rights to their
positions to the extent of depriving management of its prerogative to change their assignments or
to transfer them. (Philippine Japan Active Carbon Corporation v. National Labor Relations
Commission, 253 Phil. 149, 153 [1989]) Managerial prerogatives, on the other hand, are subject to
limitations provided by law, collective bargaining agreements, and general principles of fair play
and justice. (Norkis Trading Co., Inc. v. Gnilo, G.R. No. 159730, 11 February 2008, 544 SCRA 279,
290)

5. To dismiss an employee
In Sutherland Global Services (Philippines), Inc. v. Labrador, G.R. No. 193107, March 24, 2014,
the Supreme Court said: We have consistently ruled that the power to dismiss an employee is a
recognized prerogative inherent in the employer’s right to freely manage and regulate his business. The
law, however, in protecting the rights of the laborers, authorizes neither oppression nor self–destruction
of the employer. The worker’s right to security of tenure is not an absolute right, for the law provides
that he may be dismissed for cause. (Molina v. Pacific Plans, Inc., 519 Phil. 475, 497 [2006]) The power
of dismissal is a measure of self-protection. As held in the case of Piedad v. Lanao del Norte Electric
Cooperative, Inc., 153 SCRA 500, 509 [1987]:

6. To characterize employment as no longer necessary and to hire

In Arabit v. Jardine Pacific Finance, Inc. (formerly MB Finance), G.R. 181719, April 21, 2014: We
recognize that management has the prerogative to characterize an employee’s services as no longer
necessary or sustainable, and therefore properly terminable. (Golden Thread Knitting Industries, Inc. v.
NLRC, supra at 228)

7. Transfer and promotion of employees

In Echo 2000 Commercial Corporation v. Obrero Filipino-Echo 2000 Chapter-CLO, G.R. No.
214092, January 11, 2016 it was held: As to the extent of management prerogative to transfer/promote
employees, and the differences between transfer on one hand, and promotion, on the other, Coca-Cola
Bottlers Philippines, Inc. v. Del Villar, 646 Phil. 587(2010) is instructive, viz: [L]abor laws discourage
interference in employers" judgment concerning the conduct of their business.In the pursuit of its
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legitimate business interest, management has the prerogative to transfer or assign employees from one
office or area of operation to another - 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. x x x. In the case of Blue Dairy
Corporation v. National Labor Relations Commission, we described in more detail the limitations on the
right of management to transfer employees: x x x [l]t 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; nor does it involve a demotion in rank
or a diminution of his salaries, privileges and other benefits, xxx.A transfer is a movement from one
position to another which is of equivalent rank, level or salary, without break in service. Promotion, on
the other hand, is the advancement from one position to another with an increase in duties and
responsibilities as authorized by law, and usually accompanied by an increase in salary. Conversely,
demotion involves a situation where an employee is relegated to a subordinate or less important
position constituting a reduction to a lower grade or rank, with a corresponding decrease in duties and
responsibilities, and usually accompanied by a decrease in salary.( Id. at 607-611) (Citations omitted and
emphasis and underscoring ours)

8. Outsourcing of business activities

In BPI-Employees Union-Davao City FUBU (BPIEU-Davao City-FUBU) v. Bank of the Philippine
Islands, 174912, July 24, 2013, on the issue of outsourcing as a management prerogative, the Supreme
Court held: In one case, the Court held that it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature. (Alviado v. Procter &
Gamble Phils., Inc, G.R. No. 160506, March 9, 2010, 614 SCRA 563, 577) What is of primordial
importance is that the service agreement does not violate the employee’s right to security of tenure and
payment of benefits to which he is entitled under the law. Furthermore, the outsourcing must not
squarely fall under labor-only contracting where the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal xxx.”

9. Productivity standards
The right of the employer to set productivity standards was upheld by the Supreme Court in
Leonardo v. NLRC, G.R. No. 125303 and Fuerte vs. Aquino, G.R. No. 126937, June 16, 2000. Thus, in
sustaining the employer’s claim that the employee was demoted for failure to meet the company policy
on sales quota the Supreme Court held: This arrangement appears to us to be an allowable exercise of
company rights. An employer is entitled to impose productivity standards for its workers, and in fact,
non-compliance may be visited with a penalty even more severe than demotion. Thus:

[t]he practice of a company in laying off workers because they failed to make the work quota
has been recognized in this jurisdiction. (Philippine American Embroideries vs. Embroidery and
Garment Workers, 26 SCRA 634, 639). In the case at bar, the petitioners’ failure to meet the sales
quota assigned to each of them constitute a just cause of their dismissal, regardless of the
permanent or probationary status of their employment. Failure to observe prescribed standards of
work, or to fulfill reasonable work assignments due to inefficiency may constitute just cause for
dismissal. Such inefficiency is understood to mean failure to attain work goals or work quotas,
either by failing to complete the same within the allotted reasonable period, or by producing
unsatisfactory results. This management prerogative of requiring standards may be availed of so
long as they are exercised in good faith for the advancement of the employer’s interest. (Buiser v.
Leogardo, Jr., 131 SCRA 151, 158 [1984])

10. Right to demote

There is no demotion where there is no reduction in position, rank or salary as a result of such
transfer. (Juliana Brillantes vs. Guevarra, 27 SCRA 138; Fernando vs. Patricia Sto. Tomas, 234 SCRA
546) Thus, demotion is said to exist when there is a reduction in position, rank or salary. Generally,
demotion is allowed as a valid exercise of management prerogative, often as a consequence of an
employee’s failure to comply with company productivity standards. (Leonardo vs. NLRC, and Fuerte vs.
Aquino, supra)

11. The right to demote is subject to due process requirement

Even the employer’s right to demote an employee requires the observance of the twin-notice
requirement. (Jarcia Machine Shop and Auto Supply, Inc. v. NLRC, G.R. No. 118045, 2 January 1997, 266
SCRA 97, 109-110) In Gaco v. National Labor Relations Commission, G.R. No. 104690, 23 February 1994,
230 SCRA 260, it was noted that: “While due process required by law is applied on dismissals, the same

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is also applicable to demotions as demotions likewise affect the employment of a worker whose right to
continued employment, under the same terms and conditions, is also protected by law. Moreover,
considering that demotion is, like dismissal, also a punitive action, the employee being demoted should
as in cases of dismissals, be given a chance to contest the same.”

12. Grant of bonus

From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the
recipient has no right to demand as a matter of right. (Philippine National Construction Corp. v.
National Labor Relations Commission, G.R. No. 117240, October 2, 1997) The grant of a bonus is
basically a management prerogative which cannot be forced upon the employer who may not be
obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee’s
basic salaries or wages. (Traders Royal Bank v. National Labor Relations Commission, G.R. No.
88168, August 30, 1990, 189 SCRA 274, 277)
A bonus, however, becomes a demandable or enforceable obligation when it is made part of the
wage or salary or compensation of the employee. (Philippine National Construction Corp. v. National
Labor Relations Commission, 366 Phil. 678 [1999]; Philippine Duplicators, Inc. v. National Labor
Relations Commission, 311 Phil. 407, 419 [1995]) Particularly instructive is the ruling of the Court
in Metro Transit Organization, Inc. v. National Labor Relations Commission, 315 Phil. 860, 871
(1995), where it was written:

Whether or not a bonus forms part of wages depends upon the circumstances and conditions
for its payment. If it is additional compensation which the employer promised and agreed to give
without any conditions imposed for its payment, such as success of business or greater production
or output, then it is part of the wage. But if it is paid only if profits are realized or if a certain level
of productivity is achieved, it cannot be considered part of the wage. Where it is not payable to all
but only to some employees and only when their labor becomes more efficient or more
productive, it is only an inducement for efficiency, a prize therefore, not a part of the wage.

While in Producers Bank of the Philippines v. NLRC, G.R. No. 100701, March 28, 2001, it was held:
A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to
the success of the employer’s business and made possible the realization of profits. It is an act of
generosity granted by an enlightened employer to spur the employee to greater efforts for the success
of the business and realization of bigger profits. (Luzon Stevedoring Corp. v. Court of Industrial
Relations, 15 SCRA 660 [1965]) The granting of a bonus is a management prerogative, something given
in addition to what is ordinarily received by or strictly due the recipient. (Traders Royal Bank v. NLRC,
189 SCRA 274 [1990]) Thus, a bonus is not a demandable and enforceable obligation, (Luzon
Stevedoring Corp. v. Court of Industrial Relations, supra) except when it is made part of the wage,
salary or compensation of the employee. (Philippine National Construction Corporation v. NLRC, 307
SCRA 218 (1999); Atok-Big Wedge Mutual Benefit Association v. Atok-Big Wedge Mining Co., 92 Phil.
754 [1953]) However, an employer cannot be forced to distribute bonuses which it can no longer afford
to pay. To hold otherwise would be to penalize the employer for his past generosity. Thus, in Traders
Royal Bank v. NLRC,(supra) we held that

It is clear x x x that the petitioner may not be obliged to pay bonuses to its employees. The
matter of giving them bonuses over and above their lawful salaries and allowances is entirely
dependent on the profits, if any, realized by the Bank from its operations during the past year.

13. Change of working hours

Every business enterprise endeavors to increase its profits. In the process, it may devise means
to attain that goal. Even as the law is solicitous of the welfare of the employees, it must also protect the
right of an employer to exercise what are clearly management prerogatives. (San Miguel Brewery Sales
Force v. Ople, G.R. No. 53515. 8 February 1989, 170 SCRA 25; Abbot Laboratories v. NLRC, 154 SCRA
713) Thus, management is free to regulate, according to its own discretion and judgment, all aspects of
employment, including hiring, work assignments, working methods, time, place and manner of work,
processes to be followed, supervision of workers, working regulations, transfer of employees, work
supervision, lay off of workers and discipline, dismissal and recall of workers. (NLU v. Insular Yebana
Co., L-15363, 31 July 1961, 2 SCRA 924) Further, management retains the prerogative, whenever
exigencies of the service so require, to change the working hours of its employees. So long as such
prerogative is exercised in good faith for the advancement of the employer’s interest and not for the
purpose of defeating or circumventing the rights of the employees under special laws or under valid

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agreements, this Court will uphold such exercise. (Union Carbide Labor Union v. Union Carbide Phils.,
Inc., G.R. No. 41314, 13 November 1992, 215 SCRA 554)

Management prerogatives and those which affect the rights of the employees
1994 Bar Examinations
In Philippine Airlines, Inc. v. National Labor Relations Commission, et al, G.R No. 85985, August
13, 1993, the principal issue is whether management may be compelled to share with the union or its
employees its prerogative of formulating a code of discipline. The provisions in question are as follows:

Articles IV and I of Chapter II

Section 2. Non-exclusivity. — This Code does not contain the entirety of the rules and
regulations of the company. Every employee is bound to comply with all applicable
rules, regulations, policies, procedures and standards, including standards of quality,
productivity, and behaviour, as issued and promulgated by the company through its duly
authorized officials. Any violations thereof shall be punishable with a penalty to be
determined by the gravity and/or frequency of the offense.

Section 7. Cumulative Record. — An employee’s record of offenses shall be cumulative.

The penalty for an offense shall be determined on the basis of his past record of
offenses of any nature or the absence thereof. The more habitual an offender has been,
the greater shall be the penalty for the latest offense. Thus, an employee may be
dismissed if the number of his past offenses warrants such penalty in the judgment of
management even if each offense considered separately may not warrant dismissal.
Habitual offenders or recidivists have no place in PAL. On the other hand, due regard
shall be given to the length of time between commission of individual offenses to
determine whether the employee’s conduct may indicate occasional lapses (which may
nevertheless require sterner disciplinary action) or a pattern of incorrigibility.

In resolving the issue, the Supreme Court said:

Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715, amending
Article 211 of the Labor Code, that the law explicitly considered it a State policy" (t)o ensure the
participation of workers in decision and policy-making processes affecting their rights, duties
and welfare." However, even in the absence of said clear provision of law, the exercise of
management prerogatives was never considered boundless. Thus, in Cruz v. Medina (177 SCRA
565 [1989]), it was held that management’s prerogatives must be without abuse of discretion.

In San Miguel Brewery Sales Force Union (PTGWO) v. Ople (170 SCRA 25 [1989], we upheld
the company’s right to implement a new system of distributing its products, but gave the
following caveat:
s virtual 1aw library
So long as a company’s management prerogatives are exercised in good faith for the
advancement of the employer’s interest and not for the purpose of defeating or
circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them. (at p. 28.)

All this points to the conclusion that the exercise of managerial prerogatives is not
unlimited. It is circumscribed by limitations found in law, a collective bargaining
agreement, or the general principles of fair play and justice (University of Sto. Tomas v.
NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott Laboratories (Phil.),
Inc. v. NLRC (154 SCRA 713 [1987], it must be duly established that the prerogative
being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not purely
business-oriented nor do they concern the management aspect of the business of the company
as in the San Miguel case. The provisions of the Code clearly have repercusions on the
employees’ right to security of tenure. The implementation of the provisions may result in the
deprivation of an employee’s means of livelihood which, as correctly pointed out by the NLRC, is
a property right (Callanta v. Carnation Philippines, Inc., 145 SCRA 268 [1986]). In view of these
aspects of the case which border on infringement of constitutional rights, we must uphold the
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 constitutional requirements for the protection of labor and the promotion of social justice, for
these factors, according to Justice Isagani Cruz, tilt "the scales of justice when there is doubt, in
favor of the worker." (Employees association of the Philippine American Life Insurance
Company v. NLRC, 199 SCRA 628 [1991] 635)

Verily, a line must be drawn between management prerogatives regarding business

operations per se and those which affect the rights of the employees.

Post-employment ban, non-involvement clause or non-compete clause

On validity of post-retirement competitive employment ban

In Rivera v. Solidbank Corporation, G.R. No. 163269, April 19, 2006, the issue of whether a post-
retirement competitive employment ban incorporated in the Undertaking that the employee will not
seek employment with any competitor bank or financial institution within one (1) year from its
execution is against public policy was resolved as follows:
We are not impervious of the distinction between restrictive covenants barring an employee to
accept a post-employment competitive employment or restraint on trade in employment contracts and
restraints on post-retirement competitive employment in pension and retirement plans either
incorporated in employment contracts or in collective bargaining agreements between the employer
and the union of employees, or separate from said contracts or collective bargaining agreements which
provide that an employee who accepts post retirement competitive employment will forfeit retirement
and other benefits or will be obliged to restitute the same to the employer. The strong weight of
authority is that forfeitures for engaging in subsequent competitive employment included in pension and
retirement plans are valid even though unrestricted in time or geography. The raison d’etre is explained
by the United States Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester, Jr. 450 F.2d
118 (1971):

x x x The authorities, though, generally draw a clear and obvious distinction between
restraints on competitive employment in employment contracts and in pension plans. The strong
weight of authority holds that forfeitures for engaging in subsequent competitive employment,
included in pension retirement plans, are valid, even though unrestricted in time or geography. The
reasoning behind this conclusion is that the forfeiture, unlike the restraint included in the
employment contract, is not a prohibition on the employee’s engaging in competitive work but is
merely a denial of the right to participate in the retirement plan if he does so engage. A leading
case on this point is Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at p. 865, where, in passing on a
forfeiture provision similar to that here, the Court said:
“A restriction in the contract which does not preclude the employee from
engaging in competitive activity, but simply provides for the loss of rights or privileges if
he does so is not in restraint of trade.” (emphasis added) (Id., at 123)

A post-retirement competitive employment restriction is designed to protect the employer against

competition by former employees who may retire and obtain retirement or pension benefits and, at the
same time, engage in competitive employment. (Van Pelt v. Berefco, Inc., 208 N.E.2d 858, 865 [1965])
We have reviewed the Undertaking which respondent impelled petitioner to sign, and find that in
case of failure to comply with the promise not to accept competitive employment within one year from
February 28, 1995, respondent will have a cause of action against petitioner for “protection in the courts
of law.” The words “cause of action for protection in the courts of law” are so broad and
comprehensive, that they may also include a cause of action for prohibitory and mandatory injunction
against petitioner, specific performance plus damages, or a damage suit (for actual, moral and/or
exemplary damages), all inclusive of the restitution of the P963,619.28 which petitioner received from
respondent. The Undertaking and the Release, Waiver and Quitclaim do not provide for the automatic
forfeiture of the benefits petitioner received under the SRP upon his breach of said deeds. Thus, the post-
retirement competitive employment ban incorporated in the Undertaking of respondent does not, on its
face, appear to be of the same class or genre as that contemplated in Rochester.

Non-involvement clause is subject to limitations as to time, trade, and place

In Tiu v. Platinum Plans Phil, Inc., G.R. No. 163512, February 28, 2007, the core issue is the validity
of a non-involvement clause providing as follows:

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 8. NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes that during
his/her engagement with EMPLOYER and in case of separation from the Company, whether
voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or
be involved with any corporation, association or entity, whether directly or indirectly,
engaged in the same business or belonging to the same pre-need industry as the EMPLOYER.
Any breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in
the amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages.
xxx

As early as 1916, we already had the occasion to discuss the validity of a non-involvement clause.
In Ferrazzini v. Gsell, 34 Phil. 697, 714 (1916) we said that such clause was unreasonable restraint of
trade and therefore against public policy. In Ferrazzini, the employee was prohibited from engaging in
any business or occupation in the Philippines for a period of five years after the termination of his
employment contract and must first get the written permission of his employer if he were to do so. The
Court ruled that while the stipulation was indeed limited as to time and space, it was not limited as to
trade. Such prohibition, in effect, forces an employee to leave the Philippines to work should his
employer refuse to give a written permission.
In G. Martini, Ltd. v. Glaiserman, 39 Phil. 120, 125 (1918), we also declared a similar stipulation as
void for being an unreasonable restraint of trade. There, the employee was prohibited from engaging in
any business similar to that of his employer for a period of one year. Since the employee was employed
only in connection with the purchase and export of abaca, among the many businesses of the employer,
the Court considered the restraint too broad since it effectively prevented the employee from working
in any other business similar to his employer even if his employment was limited only to one of its
multifarious business activities.
However, in Del Castillo v. Richmond, 45 Phil. 679, 683 (1924) we upheld a similar stipulation as
legal, reasonable, and not contrary to public policy. In the said case, the employee was restricted from
opening, owning or having any connection with any other drugstore within a radius of four miles from
the employer’s place of business during the time the employer was operating his drugstore. We said
that a contract in restraint of trade is valid provided there is a limitation upon either time or place and
the restraint upon one party is not greater than the protection the other party requires.
Finally, in Consulta v. Court of Appeals, G.R. No. 145443, March 18, 2005, 453 SCRA 732, 745 we
considered a non-involvement clause in accordance with Article 1306 of the Civil Code. While the
complainant in that case was an independent agent and not an employee, she was prohibited for one
year from engaging directly or indirectly in activities of other companies that compete with the business
of her principal. We noted therein that the restriction did not prohibit the agent from engaging in any
other business, or from being connected with any other company, for as long as the business or
company did not compete with the principal’s business. Further, the prohibition applied only for one
year after the termination of the agent’s contract and was therefore a reasonable restriction designed to
prevent acts prejudicial to the employer.
Conformably then with the aforementioned pronouncements, a non-involvement clause is not
necessarily void for being in restraint of trade as long as there are reasonable limitations as to time,
trade, and place.
In this case, the non-involvement clause has a time limit: two years from the time petitioner’s
employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from
engaging in any pre-need business akin to respondent’s.

Non-compete clause (Good Will Clause), a post-employment civil law matter

In Portillo v. Rudolf Leitz, Inc., G.R. No. 196539, October 10, 2012, it was ruled that a non-compete
clause is a post-employment civil law matter. Thus, the High Court elucidated:

That the “Goodwill Clause” in this case is likewise a postemployment issue should brook no
argument. There is no dispute as to the cessation of Portillo’s employment with Lietz Inc. She
simply claims her unpaid salaries and commissions, which Lietz Inc. does not contest. At that
juncture, Portillo was no longer an employee of Lietz Inc. (See Article 212, paragraph (f) of the
Labor Code) The “Goodwill Clause” or the “Non-Compete Clause” is a contractual undertaking
effective after the cessation of the employment relationship between the parties. In accordance
with jurisprudence, breach of the undertaking is a civil law dispute, not a labor law case.

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Policy on marital discrimination

Validity of policy prohibiting relationship with competitior’s employee

In Duncan Association of Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc., G.R. No. 162994,
September 17, 2004, the Supreme Court did not find a reversible error that can be ascribed to the Court
of Appeals when it ruled that Glaxo’s policy prohibiting an employee from having a relationship with an
employee of a competitor company is a valid exercise of management prerogative. The Court said:
Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and
other confidential programs and information from competitors, especially so that it and Astra are rival
companies in the highly competitive pharmaceutical industry.
The prohibition against personal or marital relationships with employees of competitor companies
upon Glaxo’s employees is reasonable under the circumstances because relationships of that nature
might compromise the interests of the company. In laying down the assailed company policy, Glaxo only
aims to protect its interests against the possibility that a competitor company will gain access to its
secrets and procedures.
That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the
Constitution recognizes the right of enterprises to adopt and enforce such a policy to protect its right to
reasonable returns on investments and to expansion and growth. (Section 3, Article XIII of the
Constitution) Indeed, while our laws endeavor to give life to the constitutional policy on social justice
and the protection of labor, it does not mean that every labor dispute will be decided in favor of the
workers. The law also recognizes that management has rights which are also entitled to respect and
enforcement in the interest of fair play. (Sta. Catalina College v. National Labor Relations Commission,
G.R. No. 144483, November 19, 2003)
As held in a Georgia, U.S.A case, (Emory v. Georgia Hospital Service Association (1971), DC Ga., 4
CCH EPD ¶ 7785, 4 BNA FEP Cas 891, affd (CA5) 446 F2d 897, 4 CCH EPD ¶ 7786; Cited 45 Am Jr 2d Sec.
469), it is a legitimate business practice to guard business confidentiality and protect a competitive
position by even-handedly disqualifying from jobs male and female applicants or employees who are
married to a competitor. Consequently, the court ruled that an employer that discharged an employee
who was married to an employee of an active competitor did not violate Title VII of the Civil Rights Act
of 1964. (42 USCS §§2000e–2002e-17. Title VII prohibits certain employers, employment agencies, labor
organizations, and joint labor-management training committees from discriminating against applicants
and employees on the basis of race or color, religion, sex, national origin, or opposition to discriminatory
practices) The Court pointed out that the policy was applied to men and women equally, and noted that
the employer’s business was highly competitive and that gaining inside information would constitute a
competitive advantage.
The challenged company policy does not violate the equal protection clause of the Constitution as
petitioners erroneously suggest. It is a settled principle that the commands of the equal protection
clause are addressed only to the state or those acting under color of its authority. (Avery v. Midland
County, 390 US 474, 20 L. Ed 2d 45, 88 S Ct 1114, on remand (Tex) 430 SW2d 487; Cooper v. Aaron, 358
US 1, 3 L Ed 2d 5, 78 S Ct 1401) xxx.
In any event, from the wordings of the contractual provision and the policy in its employee
handbook, it is clear that Glaxo does not impose an absolute prohibition against relationships between
its employees and those of competitor companies. Its employees are free to cultivate relationships with
and marry persons of their own choosing. What the company merely seeks to avoid is a conflict of
interest between the employee and the company that may arise out of such relationships. As succinctly
explained by the appellate court, thus:

The policy being questioned is not a policy against marriage. An employee of the company
remains free to marry anyone of his or her choosing. The policy is not aimed at restricting a
personal prerogative that belongs only to the individual. However, an employee’s personal
decision does not detract the employer from exercising management prerogatives to ensure
maximum profit and business success. . .

Test on validity of company policy on marital discrimination

In Star Paper Corporation v. Simbol, G.R. No. 164774, April 12, 2006, the validity of a company
policy, was assailed, which provides the following:

8|Page34
 1. New applicants will not be allowed to be hired if in case he/she has [a] relative, up
to [the] 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (both singles [sic], one male and another female)
developed a friendly relationship during the course of their employment and then decided to
get married, one of them should resign to preserve the policy stated above.

With more women entering the workforce, employers are also enacting employment policies
specifically prohibiting spouses from working for the same company. We note that two types of
employment policies involve spouses: policies banning only spouses from working in the same company
(no-spouse employment policies), and those banning all immediate family members, including spouses,
from working in the same company (anti-nepotism employment policies). (Ibid.)
xxx
In challenging the anti-nepotism employment policies in the United States, complainants utilize
two theories of employment discrimination: the disparate treatment and the disparate impact. Under
the disparate treatment analysis, the plaintiff must prove that an employment policy is discriminatory
on its face. No-spouse employment policies requiring an employee of a particular sex to either quit,
transfer, or be fired are facially discriminatory. For example, an employment policy prohibiting the
employer from hiring wives of male employees, but not husbands of female employees, is
discriminatory on its face.
On the other hand, to establish disparate impact, the complainants must prove that a facially
neutral policy has a disproportionate effect on a particular class. For example, although most
employment policies do not expressly indicate which spouse will be required to transfer or leave the
company, the policy often disproportionately affects one sex.
xxx
The courts narrowly (Whirlpool Corp. v. Michigan Civil Rights Comm’n, 425 Mich. 527, 390
N.W.2d 625 (1986); Maryland Comm’n on Human Relations v. Greenbelt Homes, Inc., 300 Md. 75, 475
A.2d 1192 (1984); Manhattan Pizza Hut, Inc. v. New York State Human Rights Appeal Bd., 51 N.Y.2d
506, 434 N.Y.S.2d 961, 415 N.E.2d 950 (1980); Thompson v. Sanborn’s Motor Express Inc., 154 N.J.
Super. 555, 382 A.2d 53 [1977]) interpreting marital status to refer only to a person’s status as married,
single, divorced, or widowed reason that if the legislature intended a broader definition it would have
either chosen different language or specified its intent. They hold that the relevant inquiry is if one is
married rather than to whom one is married. They construe marital status discrimination to include only
whether a person is single, married, divorced, or widowed and not the “identity, occupation, and place
of employment of one’s spouse.” These courts have upheld the questioned policies and ruled that they
did not violate the marital status discrimination provision of their respective state statutes.
The courts that have broadly (Ross v. Stouffer Hotel Co., 72 Haw. 350, 816 P.2d 302 (1991);
Thompson v. Board of Trustees, 192 Mont. 266, 627 P.2d 1229 (1981); Kraft, Inc. v. State, 284 N.W.2d
386 (Minn.1979); Washington Water Power Co. v. Washington State Human Rights Comm’n, 91
Wash.2d 62, 586 P.2d 1149 [1978]) construed the term “marital status” rule that it encompassed the
identity, occupation and employment of one’s spouse. They strike down the no-spouse employment
policies based on the broad legislative intent of the state statute. They reason that the no-spouse
employment policy violate the marital status provision because it arbitrarily discriminates against all
spouses of present employees without regard to the actual effect on the individual’s qualifications or
work performance. (See note 55, A. Giattina, supra) These courts also find the no-spouse employment
policy invalid for failure of the employer to present any evidence of business necessity other than the
general perception that spouses in the same workplace might adversely affect the business. (Ibid) They
hold that the absence of such a bona fide occupational qualification (Also referred to as BFOQ)
invalidates a rule denying employment to one spouse due to the current employment of the other
spouse in the same office. (See note 67, A. Giattina, supra) Thus, they rule that unless the employer can
prove that the reasonable demands of the business require a distinction based on marital status and
there is no better available or acceptable policy which would better accomplish the business purpose, an
employer may not discriminate against an employee based on the identity of the employee’s spouse.
(See Mullerv. BP Exploration (Alaska) Inc., 923 P.2d 783, 73 Fair Empl. Prac. Cas. (BNA) 579, 69) This is
known as the bona fide occupational qualification exception.
We note that since the finding of a bona fide occupational qualification justifies an employer’s no-
spouse rule, the exception is interpreted strictly and narrowly by these state courts. There must be a
compelling business necessity for which no alternative exists other than the discriminatory practice. (See
note 117, A. Giattina, supra) To justify a bona fide occupational qualification, the employer must prove
9|Page34
two factors: (1) that the employment qualification is reasonably related to the essential operation of the
job involved; and, (2) that there is a factual basis for believing that all or substantially all persons
meeting the qualification would be unable to properly perform the duties of the job. (Richard G. Flood
and Kelly A. Cahill, The River Bend Decision and How It Affects Municipalities’ Personnel Rule and
Regulations, Illinois Municipal Review, June 1993, p. 7)
The concept of a bona fide occupational qualification is not foreign in our jurisdiction. We employ
the standard of reasonableness of the company policy which is parallel to the bona fide occupational
qualification requirement. In the recent case of Duncan Association of Detailman-PTGWO and Pedro
Tecson v. Glaxo Wellcome Philippines, Inc., G.R. No. 162994, September 17, 2004, we passed on the
validity of the policy of a pharmaceutical company prohibiting its employees from marrying employees
of any competitor company. We held that Glaxo has a right to guard its trade secrets, manufacturing
formulas, marketing strategies and other confidential programs and information from competitors. We
considered the prohibition against personal or marital relationships with employees of competitor
companies upon Glaxo’s employees reasonable under the circumstances because relationships of that
nature might compromise the interests of Glaxo. In laying down the assailed company policy, we
recognized that Glaxo only aims to protect its interests against the possibility that a competitor
company will gain access to its secrets and procedures. (Ibid.)
The requirement that a company policy must be reasonable under the circumstances to qualify as
a valid exercise of management prerogative was also at issue in the 1997 case of Philippine Telegraph
and Telephone Company v. NLRC, G.R. No. 118978, May 23, 1997. In said case, the employee was
dismissed in violation of petitioner’s policy of disqualifying from work any woman worker who contracts
marriage. We held that the company policy violates the right againstdiscrimination afforded all women
workers under Article 136 of the Labor Code, but established a permissible exception, viz.:

[A] requirement that a woman employee must remain unmarried could be justified as a
“bona fide occupational qualification,” or BFOQ, where the particular requirements of the job
would justify the same, but not on the ground of a general principle, such as the desirability of
spreading work in the workplace. A requirement of that nature would be valid provided it reflects
an inherent quality reasonably necessary for satisfactory job performance. (Emphases supplied.)

The cases of Duncan and PT&T instruct us that the requirement of reasonableness must be clearly
established to uphold the questioned employment policy. The employer has the burden to prove the
existence of a reasonable business necessity. The burden was successfully discharged in Duncan but not
in PT&T.
We do not find a reasonable business necessity in the case at bar.
Petitioners’ sole contention that “the company did not just want to have two (2) or more of its
employees related between the third degree by affinity and/or consanguinity” is lame. That the second
paragraph was meant to give teeth to the first paragraph of the questioned rule is evidently not the
valid reasonable business necessity required by the law.
xxx
xxx. The policy is premised on the mere fear that employees married to each other will be less
efficient. If we uphold the questioned rule without valid justification, the employer can create policies
based on an unproven presumption of a perceived danger at the expense of an employee’s right to
security of tenure.
Petitioners contend that their policy will apply only when one employee marries a co-employee,
but they are free to marry persons other than co-employees. The questioned policy may not facially
violate Article 136 of the Labor Code but it creates a disproportionate effect and under the disparate
impact theory, the only way it could pass judicial scrutiny is a showing that it is reasonable despite the
discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business
concern in imposing the questioned policy cannot prejudice the employee’s right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in one company.
(See A, Giattina, supra)
xxx
discrimination afforded all women workers under Article 136 of the Labor Code, but established a
permissible exception, viz.:

10 | P a g e 3 4
 [A] requirement that a woman employee must remain unmarried could be justified as a
“bona fide occupational qualification,” or BFOQ, where the particular requirements of the job
would justify the same, but not on the ground of a general principle, such as the desirability of
spreading work in the workplace. A requirement of that nature would be valid provided it reflects
an inherent quality reasonably necessary for satisfactory job performance. (Emphases supplied.)

The cases of Duncan and PT&T instruct us that the requirement of reasonableness must be clearly
established to uphold the questioned employment policy. The employer has the burden to prove the
existence of a reasonable business necessity. The burden was successfully discharged in Duncan but not
in PT&T.
We do not find a reasonable business necessity in the case at bar.
Petitioners’ sole contention that “the company did not just want to have two (2) or more of its
employees related between the third degree by affinity and/or consanguinity” is lame. That the second
paragraph was meant to give teeth to the first paragraph of the questioned rule is evidently not the
valid reasonable business necessity required by the law.
xxx
xxx. The policy is premised on the mere fear that employees married to each other will be less
efficient. If we uphold the questioned rule without valid justification, the employer can create policies
based on an unproven presumption of a perceived danger at the expense of an employee’s right to
security of tenure.
Petitioners contend that their policy will apply only when one employee marries a co-employee,
but they are free to marry persons other than co-employees. The questioned policy may not facially
violate Article 136 of the Labor Code but it creates a disproportionate effect and under the disparate
impact theory, the only way it could pass judicial scrutiny is a showing that it is reasonable despite the
discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business
concern in imposing the questioned policy cannot prejudice the employee’s right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in one company.
(See A, Giattina, supra)
xxx
xxx. Thus, for failure of petitioners to present undisputed proof of a reasonable business necessity,
we rule that the questioned policy is an invalid exercise of management prerogative.

Due process in employment termination

2012, 2009, 2006, 2004, 1999, 1998 and 1994 Bar Examinations

The due process referred in employment termination is statutory due process. (Agabon v.
NLRC G.R. No. 158693, November 17,2004)

Two aspects of due process according to Agabon doctrine

The two aspects of due process are the following:

1. Substantive, i.e., the valid and authorized causes of employment termination under the
Labor Code; and procedural, i.e., the manner of dismissal;

2. 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. (Agabon v. NLRC G.R. No. 158693, November 17,2004)

Requirements for validity of dismissal

For a worker’s dismissal to be considered valid, it must comply with both procedural and
substantive due process. The legality of the manner of dismissal constitutes procedural due process,

11 | P a g e 3 4
while the legality of the act of dismissal constitutes substantive due process. (Quirico Lopez v. Alturas
Group of Companies and/or Marlito
Uy, G.R. No. 191008, 11 April 2011, citing Tirazona v. Court of Appeals, G.R. No. 169712, 14
March 2008, 548 SCRA 560)

Procedural requirements of due process in termination disputes

In King of Kings Transport, Inc. v. Mamac, G.R. No. 166208, June 29, 2007, the Supreme Court
laid down the manner by which the procedural due process can be satisfied:

To clarify, the following should be considered in terminating the services of employees:

(1) The first written notice to be served on the employees should contain the specific
causes or grounds for termination against them, and a directive that the employees are given
the opportunity to submit their written explanation within a reasonable period. ”Reasonable
opportunity” under the Omnibus Rules means every kind of assistance that management must
accord to the employees to enable them to prepare adequately for their defense. This should
be construed as a period of at least five (5) calendar days from receipt of the notice to give the
employees an opportunity to study the accusation against them, consult a union official or
lawyer, gather data and evidence, and decide on the defenses they will raise against the
complaint. Moreover, in order to enable the employees to intelligently prepare their
explanation and defenses, the notice should contain a detailed narration of the facts and
circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which
company rules, if any, are violated and/or which among the grounds under Art. 282 is being
charged against the employees.

(2) After serving the first notice, the employers should schedule and conduct
a hearing or conference wherein the employees will be given the opportunity to: (1) explain and
clarify their defenses to the charge against them; (2) present evidence in support of their
defenses; and (3) rebut the evidence presented against them by the management. During the
hearing or conference, the employees are given the chance to defend themselves personally,
with the assistance of a representative or counsel of their choice. Moreover, this conference or
hearing could be used by the parties as an opportunity to come to an amicable settlement.

(3) After determining that termination of employment is justified, the employers shall
serve the employees a written notice of termination indicating that: (1) all circumstances
involving the charge against the employees have been considered; and (2) grounds have been
established to justify the severance of their employment.

No violation of due process when a party was given opportunity to explain

In case a party was informed of the charge against him and required to submit his written
explanation with which he complied there is no violation of due process. That there might have been no
hearing is of no moment for as Autobus Workers’ Union v. NLRC, G.R. No. 117453, June 26, 1998,
holds:

This Court has held that there is no violation of due process even if no hearing was
conducted, where the party was given a chance to explain his side of the
controversy. What is frowned upon is the denial of the opportunity to be
heard. (emphasis supplied)

When hearing is mandatory

In Perez v. Philippine Telegraph and Telephone Company, G.R. No. 152048, April 7, 2009, the
Supreme Court noted the marked difference in the standards of due process to be followed as
prescribed in the Labor Code and its implementing rules in termination of employment. Article 277(b) of
the Labor Code, on one hand, provides that an employer must provide the employee ample opportunity
to be heard and to defend himself with the assistance of his representative if he so desires while Section
2(d), Rule I of the Implementing Rules of Book VI of the Labor Code, on the other hand, require a hearing
12 | P a g e 3 4
and conference during which the employee concerned is given the opportunity to respond to the
charge, present his evidence or rebut the evidence presented against him. Which one should be
followed? Is a hearing (or conference) mandatory in cases involving the dismissal of an employee? Can
the apparent conflict between the law and its IRR be reconciled? In resolving the issues, the High Court
declared:

In sum, the following are the guiding principles in connection with the hearing requirement
in dismissal cases:

(a) ample opportunity to be heard means any meaningful opportunity (verbal or written)
given to the employee to answer the charges against him and submit evidence in support of his
defense, whether in a hearing, conference or some other fair, just and reasonable way.
(b) a formal hearing or conference becomes mandatory only when requested by the
employee in writing or substantial evidentiary disputes exist or a company rule or practice
requires it, or when similar circumstances justify it.

(c) the ample opportunity to be heard standard in the Labor Code prevails over the hearing
or conference requirement in the implementing rules and regulations.

Effect of violation of company procedure on termination

The Supreme Court explained the effect of employer’s breach of its own company procedure on
termination in the case of Surigao del Norte Electric Cooperative, Inc. v. Gonzaga, G.R. No.187722, June
10, 2013, as follows:

Records reveal that while Gonzaga was given an ample opportunity to be heard within the
purview of the foregoing principles, SURNECO, however, failed to show that it followed its own
rules which mandate that the employee who is sought to be terminated be afforded a formal
hearing or conference. Accordingly, since only an informal inquiry was conducted in
investigating Gonzaga’s alleged cash shortages, SURNECO failed to comply with its own
company policy, violating the proper termination procedure altogether. Thus, the Supreme
Court justified the application by analogy the principle of Agabon regarding the award of
nominal damages in the amount of P30,000.00 by stating that: xxx “for the reason that an
employer’s breach of its own company procedure is equally violative of the laborer’s rights,
albeit not statutory in source.” Although the dismissal stands, the Supreme Court deems it
appropriate to award Gonzaga nominal damages in the amount of P30,000.00. [Italics supplied]

Also in the subsequent ruling in Abbot Laboratories, Philippines v. Alcaraz, G.R. No. 192571,
July 23, 2013, petitioners contend that Alcaraz was terminated because she failed to qualify as a regular
employee according to Abbott’s standards which were made known to her at the time of her
engagement. Contrarily, Alcaraz claims that Abbott never apprised her of these standards and thus,
maintains that she is a regular and not a mere probationary employee. While sustaining the termination,
the High Court explained the effect of the employer’s contractual breach of its own company procedure
as follows:

Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz’s

employment and Abbott’s compliance with the Labor Code termination procedure, it is readily
apparent that Abbott breached its contractual obligation to Alcaraz when it failed to abide by its
own procedure in evaluating the performance of a probationary employee.

Veritably, a company policy partakes of the nature of an implied contract between the employer
and employee.

xxx

In this case, it is apparent that Abbott failed to follow the above-stated procedure in
evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcaraz’s PPSE
form was submitted to the HRD. It was not even shown that a PPSE form was completed to
formally assess her performance. Neither was the performance evaluation discussed with her
during the third and fifth months of her employment. Nor did Abbott come up with the
13 | P a g e 3 4
 necessary Performance Improvement Plan to properly gauge Alcaraz’s performance with the set
company standards.

xxx

In this light, while there lies due cause to terminate Alcaraz’s probationary employment for
her failure to meet the standards required for her regularization, and while it must be further
pointed out that Abbott had satisfied its statutory duty to serve a written notice of termination,
the fact that it violated its own company procedure renders the termination of Alcaraz’s
employment procedurally infirm, warranting the payment of nominal damages. A further
exposition is apropos.

Case law has settled that an employer who terminates an employee for a valid cause but
does so through invalid procedure is liable to pay the latter nominal damages.

In Agabon v. NLRC, G.R. No. 158693, November 17, 2004, 442 SCRA 573 the Court
pronounced that where the dismissal is for a just cause, the lack of statutory due process should
not nullify the dismissal, or render it illegal, or ineffectual. However, the employer should
indemnify the employee for the violation of his statutory rights. (Id at 616) Thus, in Agabon, the
employer was ordered to pay the employee nominal damages in the amount of P30,000.00. (Id
at 620)

Proceeding from the same ratio, the Court modified Agabon in the case of Jaka Food
Processing Corporation v. Pacot (Jaka) 494 Phil. 114, 119-121 (2005) where it created a
distinction between procedurally defective dismissals due to a just cause, on one hand, and
those due to an authorized cause, on the other.

It was explained that if the dismissal is based on a just cause under Article 282 of the Labor
Code (now Article 296) but the employer failed to comply with the notice requirement, the
sanction to be imposed upon him should be tempered because the dismissal process was, in
effect, initiated by an act imputable to the employee; if the dismissal is based on an authorized
cause under Article 283 (now Article 297) but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated by the
employer’s exercise of his management prerogative. (Id at 121) Hence, in Jaka, where the
employee was dismissed for an authorized cause of retrenchment (Id at 122) – as
contradistinguished from the employee in Agabon who was dismissed for a just cause of neglect
of duty – the Court ordered the employer to pay the employee nominal damages at the higher
amount of P50,000.00.

Evidently, the sanctions imposed in both Agabon and Jaka proceed from the necessity to
deter employers from future violations of the statutory due process rights of employees. In
similar regard, the Court deems it proper to apply the same principle to the case at bar for the
reason that an employer’s contractual breach of its own company procedure – albeit not
statutory in source – has the parallel effect of violating the laborer’s rights. Suffice it to state,
the contract is the law between the parties and thus, breaches of the same impel recompense
to vindicate a right that has been violated. Consequently, while the Court is wont to uphold the
dismissal of Alcaraz because a valid cause exists, the payment of nominal damages on account of
Abbott’s contractual breach is warranted in accordance with Article 2221 of the Civil Code.

Effect of failure to comply with procedural due process by the employer

In Agabon v. NLRC, G.R. No. 158693, November 17, 2004 the Supreme Court held:

Where the dismissal is for a just cause, as in the instant case, the lack of statutory due
process should not nullify the dismissal, or render it illegal, or ineffectual. However, the
employer should indemnify the employee for the violation of his statutory rights, as ruled
in Reta v. National Labor Relations Commission, G.R. No. 112100, 27 May 1994, 232 SCRA 613,
618. The indemnity to be imposed should be stiffer to discourage the abhorrent practice of
“dismiss now, pay later,” which we sought to deter in the Serrano ruling. The sanction should be

14 | P a g e 3 4
 in the nature of indemnification or penalty and should depend on the facts of each case, taking
into special consideration the gravity of the due process violation of the employer.

Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him. (Art. 2221, Civil Code)

As enunciated in Viernes v. National Labor Relations Commissions, G.R. No. 108405, April
4, 2003 citing Kwikway Engineering Works v. NLRC, G.R. No. 85014, 22 March 1991, 195 SCRA
526, 532; Aurelio v. NLRC, G.R. No. 99034, 12 April 1993, 221 SCRA 432, 443 and Sampaguita
Garments Corporation v. NLRC, G.R. No. 102406, 17 June 1994, 233 SCRA 260, 265 an employer
is liable to pay indemnity in the form of nominal damages to an employee who has been
dismissed if, in effecting such dismissal, the employer fails to comply with the requirements of
due process. The Supreme Court, after considering the circumstances therein, fixed the
indemnity at P2,590.50, which was equivalent to the employee’s one month salary. This
indemnity is intended not to penalize the employer but to vindicate or recognize the employee’s
right to statutory due process which was violated by the employer. (Id. citing Better Buildings,
Inc. v. NLRC, G.R. No. 109714, 15 December 1997, 283 SCRA 242, 251 Iran v. NLRC, G.R. No.
121927, 22 April 1998, 289 SCRA 433, 442)

The violation of the petitioners’ right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances. (Savellano v. Northwest Airlines, G.R. No. 151783, 8 July 2003) Considering the
prevailing circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We
believe this form of damages would serve to deter employers from future violations of the
statutory due process rights of employees. At the very least, it provides a vindication or
recognition of this fundamental right granted to the latter under the Labor Code and its
Implementing Rules.”

Effects of the following possible situations in termination disputes

2012 and 2011 Bar Examinations

According to Agabon v. NLRC, G. R. No. 158693, November 17, 2004, the procedure for
terminating an employee has the effects on the following situation. Thus, the High Court explained:

From the foregoing rules four possible situations may be derived:

(1) the dismissal is for a just cause under Article 282 of the Labor Code, for an authorized
cause under Article 283, or for health reasons under Article 284, and due process was observed;
(2) the dismissal is without just or authorized cause but due process was observed;
(3) the dismissal is without just or authorized cause and there was no due process; and (4)
the dismissal is for just or authorized cause but due process was not observed.

In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any
liability.

In the second and third situations where the dismissals are illegal, Article 279 mandates
that the employee is entitled to reinstatement without loss of seniority rights and other
privileges and full backwages, inclusive of allowances, and other benefits or their monetary
equivalent computed from the time the compensation was not paid up to the time of actual
reinstatement.

In the fourth situation, the dismissal should be upheld. While the procedural infirmity
cannot be cured, it should not invalidate the dismissal. However, the employer should be held

15 | P a g e 3 4
 liable for non-compliance with the procedural requirements of due process. (Emphasis
supplied)

Effect of non-existence cause for termination

2009 Bar Examination

In Standard Electric Manufacturing Corporation v. Standard Electric Employees Union-NAFLU-

KMU, G. R. No. G. R. No. 166111, August 25, 2005 the petitioner maintains that the mere filing of the
Information for the crime of rape against respondent Javier rendered its Rules and Regulations
operational, particularly Serious Offense No. 7. It avers that substantial proof, not clear and convincing
evidence or proof beyond reasonable doubt, is sufficient basis for the imposition of any disciplinary
action over an erring employee. Respondent Javier was dismissed by the petitioner effective February 5,
1996 for (a) being AWOL from July 31, 1995 up to January 30, 1996; and (b) committing rape. However,
on demurrer to evidence, respondent Javier was acquitted of the charge. With respondent Javiers
acquittal, the cause of his dismissal from his employment turned out to be non-existent. In deciding the
case, the Supreme Court discussed the effect of the cause of dismissal from employment that turned
out to be non-existent as follows:

In the Magtoto case, Alejandro Jonas Magtoto was arrested by virtue of an Arrest, Search
and Seizure Order dated September 1, 1980. He was charged with violation of Article 136
(Conspiracy and Proposal to Commit Rebellion) and Article 138 (Inciting to Rebellion or
Insurrection) of the Revised Penal Code (RPC). Although Magtoto informed his employer and
pleaded that he be considered as on leave until released, his employer denied the request. On
April 10, 1981, or about seven (7) months after his arrest, Magtoto was released after the City
Fiscal dismissed the criminal charges for lack of evidence. On the same date, he informed his
employer of his intent to start working again, but the employer rejected the offer. In ruling that
his termination was illegal, the Supreme Court ruled as follows:

The employer tries to distance itself from the detention by stressing that the
petitioner was dismissed due to prolonged absence. However, Mr. Magtoto could not
report for work because he was in a prison cell. The detention cannot be divorced from
prolonged absence. One caused the other. Since the causes for the detention, which in
turn gave the employer a ground to dismiss the petitioner, proved to be non-existent,
we rule that the termination was illegal and reinstatement is warranted. A non-existent
cause for dismissal was explained in Pepito v. Secretary of Labor (96 SCRA 454).

... A distinction, however, should be made between a dismissal without cause and a
dismissal for a false or non-existent cause. In the former, it is the intention of the
employer to dismiss his employee for no cause whatsoever, in which case the
Termination Pay Law would apply. In the latter case, the employer does not intend to
dismiss the employee but for a specific cause which turns out to be false or non-
existent. Hence, absent the reason which gave rise to his separation from employment,
there is no intention on the part of the employer to dismiss the employee concerned.
Consequently, reinstatement is in order. And this is the situation here. Petitioner was
separated because of his alleged involvement in the pilferage in question. However, he
was absolved from any responsibility therefor by the court. The cause for his dismissal
having been proved non-existent or false, his reinstatement is warranted. It would be
unjust and unreasonable for the Company to dismiss petitioner after the latter had
proven himself innocent of the cause for which he was dismissed. (Magtoto v. NLRC,
supra, pp. 64-65)

The facts in Pedroso v. Castro, No. L-70361, 30 January 1986, 141 SCRA 252 are similar to
the set of facts in the present case. The petitioners therein were arrested and detained by the
military authorities by virtue of a Presidential Commitment Order allegedly for the commission
of Conspiracy to Commit Rebellion under Article 136 of the RPC. As a result, their employer
hired substitute workers to avoid disruption of work and business operations. They were
released when the charges against them were not proven. After incarceration, they reported
back to work, but were refused admission by their employer. The Labor Arbiter and the NLRC
sustained the validity of their dismissal. Nevertheless, this Court again held that the dismissed
16 | P a g e 3 4
 employees should be reinstated to their former positions, since their separation from
employment was founded on a false or non-existent cause; hence, illegal.

Respondent Javier’s absence from August 9, 1995 cannot be deemed as an abandonment of

his work. Abandonment is a matter of intention and cannot lightly be inferred or legally
presumed from certain equivocal acts. To constitute as such, two requisites must concur: first,
the employee must have failed to report for work or must have been absent without valid or
justifiable reason; and second, there must have been a clear intention on the part of the
employee to sever the employer-employee relationship as manifested by some overt acts, with
the second element being the more determinative factor. Abandonment as a just ground for
dismissal requires clear, willful, deliberate, and unjustified refusal of the employee to resume his
employment. Mere absence or failure to report for work, even after notice to return, is not
tantamount to abandonment. (R.P. Dinglasan Construction, Inc. v. Atienza, G.R. No. 156104, 29
June 2004, 433 SCRA 263; Hantex Trading Co., Inc. v. Court of Appeals, G.R. No. 148241, 27
September 2002, 390 SCRA 181; Del Monte Philippines v. NLRC, G.R. No. 126688, 5 March
1998, 287 SCRA 71; and Labor v. NLRC, G.R. No. 110388, 14 September 1995, 248 SCRA 183)

Moreover, respondent Javiers acquittal for rape makes it more compelling to view the
illegality of his dismissal. The trial court dismissed the case for insufficiency of evidence, and
such ruling is tantamount to an acquittal of the crime charged, and proof that respondent
Javiers arrest and detention were without factual and legal basis in the first place.

The petitioner acted with precipitate haste in terminating respondent Javiers employment
on January 30, 1996, on the ground that he had raped the complainant therein. Respondent
Javier had yet to be tried for the said charge. In fine, the petitioner prejudged him, and
preempted the ruling of the RTC. The petitioner had, in effect, adjudged respondent Javier guilty
without due process of law. While it may be true that after the preliminary investigation of the
complaint, probable cause for rape was found and respondent Javier had to be detained, these
cannot be made as legal bases for the immediate termination of his employment.

Effect when there was no dismissal

In Exodus International Construction Corporation v. Bischocho, G.R. No. 166109, February 23, 2011, the
Supreme Court resolved that when there was no dismissal there is no question that can be entertained regarding
its legality or illegality. Thus, the Court said:

“[T]his Court is not unmindful of the rule that in cases of illegal dismissal, the employer
bears the burden of proof to prove that the termination was for a valid or authorized cause.”
(Ledesma, Jr. v. National Labor Relations Commission, G.R. No. 174585, October 19, 2007, 537
SCRA 358, 370) But “[b]efore the [petitioners] must bear the burden of proving that the
dismissal was legal, [the respondents] must first establish by substantial evidence” that indeed
they were dismissed. ”[I]f there is no dismissal, then there can be no question as to the legality
or illegality thereof.” Further, the Supreme Court noted that: “As found by the Labor Arbiter,
there was no evidence that respondents were dismissed nor were they prevented from
returning to their work. It was only respondents’ unsubstantiated conclusion that they were
dismissed. As a matter of fact, respondents could not name the particular person who effected
their dismissal and under what particular circumstances. In short, the employers were able to
show that they never dismissed the employees concerned. Thus, citing Machica v. Roosevelt
Services Center, Inc., G.R. No. 168664, May 4, 2006, 489 SCRA 534, 544-545, the Supreme Court
sustained the employer’s denial as against the employees’ categorical assertion of illegal
dismissal. In so ruling, the Supreme Court held that:

The rule is that one who alleges a fact has the burden of proving it; thus, petitioners
were burdened to prove their allegation that respondents dismissed them from their
employment. It must be stressed that the evidence to prove this fact must be clear,
positive and convincing. The rule that the employer bears the burden of proof in illegal
dismissal cases finds no application here because the respondents deny having
dismissed the petitioners.

17 | P a g e 3 4
Constitutional provision on security of tenure

No less than the Constitution under Article XIII, Section 3 recognizes and guarantees the labor's
right to security of tenure as follows:

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.

xxx.” (Underscore supplied)

Labor Code’s concept of security of tenure

Under the Labor Code of the Philippines, as amended, specifically, Article 279 of the said Code,
the security of tenure has been construed to mean as that "the employer shall not terminate the
services of an employee except for a just cause or when authorized" by the Code. (Philippine
Geothermal, Inc. v. NLRC, et. al., G.R. No. 82643-67, August 30, 1990)

Employees entitled to the right of security of tenure

2012 Bar Examination

In Rivera v. Genesis Transport Service , Inc., G.R. No. 215568, August 03, 2015 it was ruled:
Article XIII, Section 3 of the 1987 Constitution guarantees the right of workers to security of
tenure. "One's employment, profession, trade or calling is a 'property right,'"(Callanta v. Carnation
Phil., Inc., 229 Phil. 279, 288-189 (1986) [Per J. Fernan, Second Division]) of which a worker may be
deprived only upon compliance with due process requirements:

It is the policy of the state to assure the right of workers to "security of tenure" (Article XIII,
Sec. 3 of the New Constitution, Section 9, Article II of the 1973 Constitution). The guarantee is an
act of social justice. When a person has no property, his job may possibly be his only possession
or means of livelihood. Therefore, he should be protected against any arbitrary deprivation of his
job. Article 280 of the Labor Code has construed security of tenure as meaning that "the
employer shall not terminate the services of an employee except for a just cause or when
authorized by" the code. Dismissal is not justified for being arbitrary where the workers were
denied due process and a clear denial of due process, or constitutional right must be safeguarded
against at all times. (Rance v. National Labor Relations Commission, 246 Phil. 287, 292-293
(1988) [Per J. Paras, Second Division]) (Citations omitted)

From the foregoing doctrinal rule, it is clear that the Constitution did not limit the right to
security of tenure to regular employees. It applies to all workers whether, rank and file, managerial,
regular, casual, probationary, seasonal, project, fixed period and other forms of employment. They
enjoy the protection of the right to security during their term of employment.

Reliefs of illegal dismissal

2002 Bar Examination

The two reliefs to illegally dismissed employee: backwages and reinstatement

In Reyes v. RP Guardians Security Agency, Inc., G. R. No. 193756, April 10, 2013, the Supreme
Court on the basis of Aliling v. Feliciano, G. R. No. 185829, April 25, 2012, 671 SCRA 186 citing Golden
Ace Builders v. Talde, G.R. No. 187200, May 5, 2010, 620 SCRA 283, 289-290, citing Macasero v.
Southern Industrial Gases Philippines, G. R. No. 178524, January 30, 2009, 577 SCRA 500, explained the
reliefs granted to illegally dismissed employee as follows:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement. The two reliefs provided are separate and distinct. In instances where
18 | P a g e 3 4
 reinstatement is no longer feasible because of strained relations between the employee and the
employer, separation pay is granted. In effect, an illegally dismissed employee is entitled to
either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and
backwages.

The normal consequences of respondents’ illegal dismissal, then, are reinstatement

without loss of seniority rights, and payment of backwages computed from the time
compensation was withheld up to the date of actual reinstatement. Where reinstatement is
no longer viable as an option, separation pay equivalent to one (1) month salary for every
year of service should be awarded as an alternative. The payment of separation pay is in
addition to payment of backwages. [Emphasis Supplied]

Triad Security & Allied Services, Inc., v. Ortega, Jr., G. R. No. 160871, February 8, 2006

Backwages and separation pay are, therefore, distinct reliefs granted to one who was
illegally dismissed from employment. The award of one does not preclude that of the other as
this court had, in proper cases, ordered the payment of both. (Air Services Cooperative v. Court
of Appeals, supra)

In this case, the labor arbiter ordered the reinstatement of respondents and the payment of
their backwages until their actual reinstatement and in case reinstatement is no longer viable,
the payment of separation pay. Under Article 223 of the Labor Code, the decision of the Labor
Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is
concerned, shall be immediately executory, even pending appeal. The same provision of the law
gives the employer the option of either admitting the employee back to work under the same
terms and conditions prevailing before his dismissal or separation from employment or the
employer may choose to merely reinstate the employee to the payroll. It bears emphasizing that
the law mandates the prompt reinstatement of the dismissed or separated employee. This, the
petitioners failed to heed. They are now before this Court insisting that they have fully disposed
of their legal obligation to respondents when they paid the latters separation pay. We do not
agree.

It should be pointed out that an order of reinstatement by the labor arbiter is not the same
as actual reinstatement of a dismissed or separated employee. Thus, until the employer
continuously fails to actually implement the reinstatement aspect of the decision of the labor
arbiter, their obligation to respondents, insofar as accrued backwages and other benefits are
concerned, continues to accumulate. It is only when the illegally dismissed employee receives
the separation pay that it could be claimed with certainty that the employer-employee
relationship has formally ceased thereby precluding the possibility of reinstatement. In the
meantime, the illegally dismissed employees entitlement to backwages, 13th month pay, and
other benefits subsists. Until the payment of separation pay is carried out, the employer should
not be allowed to remain unpunished for the delay, if not outright refusal, to immediately
execute the reinstatement aspect of the labor arbiters decision.

Reasons for denying reinstatement

2007 and 1995 Bar Examination

In Globe-Mackay Cable and Radio Corporation v. NLRC G.R. No. 82511 March 3, 1992: Over
time, the following reasons have been advanced by the Court for denying reinstatement under the facts
of the case and the law applicable thereto; that reinstatement can no longer be effected in view of the
long passage of time (22 years of litigation) or because of the realities of the situation; (Balaquezon
EWTU v. Zamora, Nos. L-46766-7, April 1, 1980, 97 SCRA 5) or that it would be "inimical to the
employer's interest; " (San Miguel Corporation v. Deputy Minister of Labor and Employmet, No. 58927,
October 27, 1986, 145 SCRA 204) or that reinstatement may no longer be feasible; (Hydro Resources
Contractors Corporation v. Pagalibuan, G.R. 62909, April 18, 1989, 172 SCRA 404) or, that it will not
serve the best interests of the parties involved; (Century Textile Mills, Inc. v. NLRC, No. 77859, May 25,
1988, 161 SCRA 528) or that the company would be prejudiced by the workers' continued employment;
(Gubac v. NLRC, G.R. No. 81946, July 13, 1990, 187 SCRA 412) or that it will not serve any prudent
purpose as when supervening facts have transpired which make execution on that score unjust or
19 | P a g e 3 4
inequitable (Sealand Service, Inc. v. NLRC, G.R. No. 90500, Occtober 5, 1990, 190 SCRA 347) or, to an
increasing extent, due to the resultant atmosphere of "antipathy and antagonism" or "strained
relations" or "irretrievable estrangement" between the employer and the employee. (Commercial
Motors Corporation v. Commissioners, G.R. No. 74762, December 10, 1990, 192 SCRA 191; DeVera v.
NLRC, G.R. No. 93212, November 22, 1990, 191 SCRA 632; Orcino v. Civil Service Commission, G.R. No.
92864, October 18, 1990, 190 SCRA 815; Maglutac v. NLRC/ Conmart v. NLRC,G.R. No. 78637,
September 21, 1990,189 SCRA 767; Carandang v. Dulay, G.R. No. 90942, August 20, 1990, 188 SC RA
792; Esmalin v. NLRC, G.R. No. 67880, September 15,1989, 177 SCRA 537; Fernandez v. NLRC, G.R. No.
84302, August 10, 1989, 176 SCRA 269; Quezon Electric Cooperative v. NLRC, G.R. Nos. 79718-22, April
12,1989, 172 SCRA 88, Bautista v. Inciong, No. 52824, March 16, 1988, 158 SCRA 665; Citytrust Finance
Corp. v. NLRC, No.75740, January 15, 1988, 157 SCRA 87; Asiaworld Publishing House, Inc. v. Ople No.
56398, July 23, 1987, 152 SCRA 219; and Divine Word High School v. NLRC, No. 72207, August 6, 1986,
143 SCRA 346)

Instances of separation pay

On account of an authorized causes

The payment of separation pay would be due when a dismissal is on account of an authorized
causes under Articles 298 [283] and 299 [284) of the Labor Code.

Separation pay in lieu of reinstatement

2009 Bar Examination

Indeed, separation pay is made an alternative relief in lieu of reinstatement in certain

circumstances, such as: (1) when reinstatement can no longer be effected in view of the passage of a
long period of time or because of the realities of the situation; (2) reinstatement is inimical to the
employer’s interest; (3) reinstatement is no longer feasible; (4) reinstatement does not serve the best
interests of the parties involved; (5) the employer is prejudiced by the workers’ continued employment;
(6) facts that make execution unjust or inequitable have supervened; or (7) strained relations between
the employer and the employee. (Abaria v. NLRC, G.R. No. 154113, December 7, 2011, 661 SCRA 686,
715; citing Escario v. NLRC (Third Division), G.R. No. 160302, September 27, 2010, 631 SCRA 261, 275)

Separation pay as an act “social justice” or based on “equity”

Exceptionally, separation pay is granted to a legally dismissed employee as an act “social

justice,” (San Miguel Corporation v. Lao, 433 Phil. 890, 898 (2002); Philippine Long Distance Telephone
Company v. National Labor Relations Commission, G.R. No. L-80609, August 23, 1988, 164 SCRA 671,
682) or based on “equity.” (Aparente, Sr. v. National Labor Relations Commission, 387 Phil. 96, 107
[2000]) In both instances, it is required that the dismissal (1) was not for serious misconduct; and (2)
does not reflect on the moral character of the employee. (San Miguel Corporation v. Lao, supra at
898; Aparente, Sr. v. National Labor Relations Commission, id.; Philippine Long Distance Telephone
Company v. National Labor Relations Commission, supra at 682)

Separation pay is not allowed if terminated under Article 297 [282]

2011 Bar Examination

In International School Manila v. International School Alliance of Educators (ISAE), G.R. No.
167286, February 5, 2014, the Supreme Court explained that in Toyota Motors Phils Corp. case it
modified the PLDT ruling (which refers to award of separation pay 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) by stating that in addition to serious misconduct in dismissals
based on other grounds under Art. 282 (now 297), separation pay should not be conceded to the
dismissed employee. Thus, the High Court said:

In view of the finding that Santos was validly dismissed from employment, she would not
ordinarily be entitled to separation pay. An exception to this rule is when the court finds
justification in applying the principle of social justice according to the equities of the case. The
20 | P a g e 3 4
 Court explained in Philippine Long Distance Telephone Co. (PLDT) v. National Labor Relations
Commission 247 Phil. 641, 649-650 (1988) that:

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.

xxxx

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. Compassion for the poor is an imperative of every humane society but
only when the recipient is not a rascal claiming an undeserved privilege. Social justice cannot be
permitted to be refuge of scoundrels any more than can equity be an impediment to the
punishment of the guilty. Those who invoke social justice may do so only if their hands are clean
and their motives blameless and not simply because they happen to be poor. This great policy of
our Constitution is not meant for the protection of those who have proved they are not worthy
of it, like the workers who have tainted the cause of labor with the blemishes of their own
character.

In Toyota Motor Phils. Corp. Workers Association v. National Labor Relations Commission,
562 Phil. 759, 812 (2007) we modified our ruling in PLDT in this wise:

In all of the foregoing situations, the Court declined to grant termination pay
because the causes for dismissal recognized under Art. 282 of the Labor Code were
serious or grave in nature and attended by willful or wrongful intent or they reflected
adversely on the moral character of the employees. We therefore find that in addition
to serious misconduct, in dismissals based on other grounds under Art. 282 like willful
disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, and
commission of a crime against the employer or his family, separation pay should not be
conceded to the dismissed employee. (Underscore supplied)

In analogous causes for termination like inefficiency, drug use, and others, the
NLRC or the courts may opt to grant separation pay anchored on social justice in
consideration of the length of service of the employee, the amount involved, whether
the act is the first offense, the performance of the employee and the like, using the
guideposts enunciated in PLDT on the propriety of the award of separation pay.
(Emphasis ours.)

When employment shall be deemed regular

2013 and 2006 Bar Examinations

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. (Article 295 [280], Labor Code)

Three types of employees under Article 295 [280] of the Labor Code

In Paz v. Northern Tobacco Redrying Co., Inc., G. R. No. 199554, February 18, 2015, the
Supreme Court discussed that jurisprudence identified three types of employees as follows:

Article 280 of the Labor Code and jurisprudence identified three types of employees,
namely: "(1) regular employees or those who have been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer; (2) project
21 | P a g e 3 4
 employees or those 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; and (3) casual employees or those who are
neither regular nor project employees." (Benares v. Pancho, 497 Phil. 181, 189–190 (2005) [Per
J. Tinga, Second Division],citing Perpetual Help Credit Cooperative, Inc. v. Faburada, 419 Phil.
147, 155 (2001) [Per J. Sandoval-Gutierrez, Third Division]. See also Gapayao v. Fulo, G.R. No.
193493, June 13, 2013, 698 SCRA 485, 498–499 [Per C.J. Sereno, First Division])

Classifications of regular employees

2013 and 2008 Bar Examinations

Regular employees are further classified into: (1) regular employees by nature of work; and (2)
regular employees by years of service. (E. Ganzon, Inc. vs. National Labor Relations Commission, G.R.
No. 123769, 22 December 1999, 321 SCRA 434, 440) The former refers to those employees who perform
a particular activity which is necessary or desirable in the usual business or trade of the employer,
regardless of their length of service; while the latter refers to those employees who have been
performing the job, regardless of the nature thereof, for at least a year. (Pangilinan vs. General Milling
Corporation, G.R. No. 149329, 12 July 2004)

Interpretation of restrictive clause under Article 295 [280]

In Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, January 15, 2014 the
Supreme Court discussed the interpretation of the restrictive clause (“The provisions of written
agreement to the contrary notwithstanding and regardless of the oral agreement of the parties”) under
Article 280 (now 295) as ruled in Brent School, Inc. v. Zamora as follows:

In Brent School, Inc. v. Zamora, 260 Phil. 747 (1990) the Court, for the first time, recognized
and resolved the anomaly created by a narrow and literal interpretation of Article 280 of the
Labor Code that appears to restrict the employee’s right to freely stipulate with his employer on
the duration of his engagement. In this case, the Court upheld the validity of the fixed–term
employment agreed upon by the employer, Brent School, Inc., and the employee, Dorotio
Alegre, declaring that the restrictive clause in Article 280 “should be construed to refer to the
substantive evil that the Code itself x x x singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where [the] fixed
period of employment was agreed upon knowingly and voluntarily by the parties x x x absent
any x x x circumstances vitiating [the employee’s] consent, or where [the facts satisfactorily
show] that the employer and [the] employee dealt with each other on more or less equal
terms[.]” (Id. at 763) The indispensability or desirability of the activity performed by the
employee will not preclude the parties from entering into an otherwise valid fixed term
employment agreement; a definite period of employment does not essentially contradict the
nature of the employees duties (See St. Theresa’s School of Novaliches Foundation v. NLRC, 351
Phil. 1038, 1043 (1998); Pure Foods Corp. v. NLRC, 347 Phil. 434, 443 (1997); and Philips
Semiconductors (Phils.), Inc. v. Fadriquela, G.R. No. 141717, April 14, 2004, 427 SCRA 408, 421–
422) as necessary and desirable to the usual business or trade of the employer.
Criteria of a valid fixed-term employment

In Convoy Marketing Corporation v. Albia, G. R. No. 194969, October 7, 2015, the criteria for a
valid fixed period employment was explained as follows:

Considered to be legitimate under the Labor Code, (AMA Computer College Paraniaque
and/or Amable C. Aguiluz IX v. Austria, 563 Phil. 745, 757 (2007); Brent School, Inc. v.
Zamora,260 Phil.747 [1990]) fixed-term employment contracts terminate by their own terms at
the end of a definite period. (Brent School, Inc. v. Zamora,supra, at 755) The fact that the
service rendered by the employees is usually necessary and desirable in the business operations
of the employer will not impair the validity of such contracts.(Palomares v. NLRC,
343,Phil.213,223 [1997]) For, the decisive determinant in the term employment is not the
activities that the employee is called to perform, but the day certain agreed upon by the
parties for the commencement and termination of their employment relationship. (Brent
22 | P a g e 3 4
 School, Inc. v. Zamora, supra note 25, at 757) Aware of the possible abuse of fixed-term
employment contracts, the Court stressed in Brent School, Inc. v. Zamora that where from the
circumstances it is apparent that the periods have been imposed to preclude acquisition of
tenurial security by the employee, they should be struck down as contrary to public policy or
morals. (GMA Network, Inc. v. Pabriga, G.R. No. 176419, November 27, 2013,710 SCRA 690,
700)

The Court thus laid down indications or criteria under which the term "employment" cannot
be said to be in circumvention of the law on security of tenure, namely:

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 employeeand absent any other circumstances vitiating his consent; or

2) It Satisfactorily appears that the employer and the employee dealt with each other
on more or less equal terms with no moral dominance exercised by the former or
the latter. (Id., citing Romares v. National Labor Relations Commission, 355 Phil.
835, 847 (1998) and Philips Semiconductors (Phils.).Inc. v. Fadriquela, 471 Phil.
355, 372-373 [2004])

In GMA Network, Inc. v. Pabriga, (supra) the Court stated that "these indications, which
must be read together, make the Brent doctrine applicable only in a few special cases wherein
the employer and employee are on more or less in equal footing in entering into the contract.
The reason for this is evident: when a prospective employee, on account of special skills or
market forces, is in a position to make demands upon the prospective employer, such
prospective employee needs less protection than the ordinary worker. Lesser limitations on the
paiiies' freedom of contract are thus required for the protection of the employee." (GMA
Network,Inc. v.Pabriga,supra at710)
Probationary employment

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. (Article 296
[281], Labor Code) There is probationary employ ent where the employee, upon his engagement, is
made to undergo a trial period during which the employer determiones his fitness to qualify for regular
employment based on the reasonable standards made known to him at the time of engagement.
(Section 6, Rule 1, Book VI, Omnibus Rules Implementing the Labor Code)

Grounds to terminate probationary employment

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. (Article 296
[281], Labor Code)

Grounds for termination under the Labor Code

Under the Labor Code, an employee may be validly terminated on the following grounds:

(1) Just causes under Art. 297 [282];

(2) Authorized causes under Art. 298 [283];
(3) Termination due to disease under Art. 299 [284];
(4) Termination by the employee or resignation under Art. 300 [285];
(5) Dismissal from employment due to the enforcement of the union security clause in the CBA.
(Alabang Country Club, Inc. v. National Labor Relations Commission, G.R. No. 170287, February 14,
2008)
(6) Defiance of the assumption or certification order under Article 278 (g) [263 (g)]; and
(7) For participation in illegal strike (in case of union officers and commission of illegal acts
during a strike under Article 279 par. 3 [264];

23 | P a g e 3 4
Other cases for termination

Termination due to union security clause

In PICOP Resources, Incorporated (PRI) v. Dequila, G.R. No. 172666, December 7, 2011, it was
held: When an employer exercises its power to terminate an employee by enforcing the union security
clause, it needs to determine and prove the following: (1) the union security clause is applicable; (2) the
union is requesting for the enforcement of the union security provision in the CBA; and (3) there is
sufficient evidence to support the decision of the union to expel the employee from the union.

Due process is required in termination pursuant to a union security clause

In Bank of the Philippines Islands v. BPI Employees Union-Davao Chapter-Federation of Unions
in BPI Unibank, G.R. No. 164301, October 19, 2011, it was explained that in termination of employment
by virtue of a union security clause embodied in a CBA due process must be observed. Thus. the Court
said:

We have also previously held that the fundamental guarantee of security of tenure and due
process dictates that no worker shall be dismissed except for a just and authorized cause
provided by law and after due process is observed. (Cosep v. National Labor Relations
Commission, 353 Phil. 148, 157 (1998); Archbuild Masters and Construction, Inc. v. National
Labor Relations Commission, 321 Phil. 869, 877 [1995]) Even as we now recognize the right to
continuous, unbroken employment of workers who are absorbed into a new company pursuant
to a merger, it is but logical that their employment may be terminated for any causes provided
for under the law or in jurisprudence without violating their right to security of tenure. As
Justice Carpio discussed in his dissenting opinion, it is well-settled that termination of
employment by virtue of a union security clause embodied in a CBA is recognized in our
jurisdiction. (Justice Carpios Dissenting Opinion, Bank of the Philippine Islands v. BPI
Employees Union-Davao Chapter-Federation of Unions in BPI Unibank, supra note 3 at 667,
citing Alabang Country Club, Inc. v. National Labor Relations Commission, G.R. No. 170287,
February 14, 2008, 545 SCRA 351, 361) In Del Monte Philippines, Inc. v. Saldivar, G.R. No.
158620, October 11, 2006, 504 SCRA 192 we explained the rationale for this policy in this wise:

Article 279 of the Labor Code ordains that “in cases of regular employment, the
employer shall not terminate the services of an employee except for a just cause or
when authorized by [Title I, Book Six of the Labor Code].” Admittedly, the enforcement
of a closed-shop or union security provision in the CBA as a ground for termination
finds no extension within any of the provisions under Title I, Book Six of the Labor
Code. Yet jurisprudence has consistently recognized, thus: “It is State policy to
promote unionism to enable workers to negotiate with management on an even playing
field and with more persuasiveness than if they were to individually and separately
bargain with the employer. For this reason, the law has allowed stipulations for ‘union
shop’ and ‘closed shop’ as means of encouraging workers to join and support the union
of their choice in the protection of their rights and interests vis-a-vis the employer.” (Id.
at 203-204) (Emphasis supplied.)

Although it is accepted that non-compliance with a union security clause is a valid ground
for an employee’s dismissal, jurisprudence dictates that such a dismissal must still be done in
accordance with due process. This much we decreed in General Milling Corporation v. Casio,
G.R. No. 149552, March 10, 2010, 615 SCRA 13 to wit:

The Court reiterated in Malayang Samahan ng mga Manggagawa sa M.

Greenfield v. Ramos that:

While respondent company may validly dismiss the employees expelled by

the union for disloyalty under the union security clause of the collective
bargaining agreement upon the recommendation by the union, this dismissal
should not be done hastily and summarily thereby eroding the employees’ right
to due process, self-organization and security of tenure. The enforcement of
union security clauses is authorized by law provided such enforcement is not
characterized by arbitrariness, and always with due process. Even on the
assumption that the federation had valid grounds to expel the union officers,
24 | P a g e 3 4
 due process requires that these union officers be accorded a separate hearing
by respondent company.
The twin requirements of notice and hearing constitute the essential elements of procedural
due process. The law requires the employer to furnish the employee sought to be dismissed
with two written notices before termination of employment can be legally effected: (1) a
written notice apprising the employee of the particular acts or omissions for which his dismissal
is sought in order to afford him an opportunity to be heard and to defend himself with the
assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the
employer’s decision to dismiss him. This procedure is mandatory and its absence taints the
dismissal with illegality.

Irrefragably, GMC cannot dispense with the requirements of notice and hearing before
dismissing Casio, et al. even when said dismissal is pursuant to the closed shop provision in
the CBA. The rights of an employee to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the company or his own union are
not wiped away by a union security clause or a union shop clause in a collective bargaining
agreement. x x x (Id. at 34-35)

Effect of change of business ownership done in bad faith

In Penafrancia Tours and Travel Transport, Inc. v. Sarmiento, G.R. No. 178397, October 20,
2010, the Supreme Court explained the effect of change of business ownership in bad faith as follows:
On this ground, petitioner terminated the employment of respondents. However, what petitioner
apparently made was a transfer of ownership. It is true that, as invoked by petitioner, in Manlimos, et
al. v. NLRC, et al., 312 Phil. 178, 190 (1995) we held that a change of ownership in a business concern is
not proscribed by law. Lest petitioner forget, however, we also held therein that the sale or disposition
must be motivated by good faith as a condition for exemption from liability. (Id. at 191) Thus, where the
charge of ownership is done in bad faith, or is used to defeat the rights of labor, the successor-employer
is deemed to have absorbed the employees and is held liable for the transgressions of his or her
predecessor. (Philippine Airlines, Inc. v. NLRC, 358 Phil. 919, 938 [1998])

Legal consequences of voluntary mergers

In Bank of the Philippine Islands v. BPI Employees Union Davao Chapter-Federation of Union in
BPI Unibank, G.R. No. 164301, August 10, 2010, the Supreme Court explained the legal consequences of
voluntary mergers or whether the absorption of the dissolved corporations employees or the
recognition of the absorbed employees service with their previous employer may be demanded from
the surviving corporation as follows:

Although not binding on this Court, American jurisprudence on the consequences of

voluntary mergers on the right to employment and seniority rights is persuasive and
illuminating. We quote the following pertinent discussion from the American Law Reports:

Several cases have involved the situation where as a result of mergers,

consolidations, or shutdowns, one group of employees, who had accumulated seniority
at one plant or for one employer, finds that their jobs have been discontinued except to
the extent that they are offered employment at the place or by the employer where the
work is to be carried on in the future. Such cases have involved the question whether
such transferring employees should be entitled to carry with them their accumulated
seniority or whether they are to be compelled to start over at the bottom of the seniority
list in the “new” job. It has been recognized in some cases that the accumulated seniority
does not survive and cannot be transferred to the “new” job.

In Carver v. Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three
formerly separate railroad corporations, which had previously operated separate
facilities, was consolidated in the shops of one of the roads. Displaced employees of the
other two roads were given preference for the new jobs created in the shops of the
railroad which took over the work. A controversy arose between the employees as to
whether the displaced employees were entitled to carry with them to the new jobs the
seniority rights they had accumulated with their prior employers, that is, whether the

25 | P a g e 3 4
 rosters of the three corporations, for seniority purposes, should be “dovetailed” or
whether the transferring employees should go to the bottom of the roster of their new
employer. Labor representatives of the various systems involved attempted to work out
an agreement which, in effect, preserved the seniority status obtained in the prior
employment on other roads, and the action was for specific performance of this
agreement against a demurring group of the original employees of the railroad which
was operating the consolidated shops. The relief sought was denied, the court saying
that, absent some specific contract provision otherwise, seniority rights were ordinarily
limited to the employment in which they were earned, and concluding that the contract
for which specific performance was sought was not such a completed and binding
agreement as would support such equitable relief, since the railroad, whose
concurrence in the arrangements made was essential to their effectuation, was not a
party to the agreement.

Where the provisions of a labor contract provided that in the event that a trucker
absorbed the business of another private contractor or common carrier, or was a party
to a merger of lines, the seniority of the employees absorbed or affected thereby should
be determined by mutual agreement between the trucker and the unions involved, it was
held in Moore v International Brotherhood of Teamsters, etc. (1962, Ky) 356 SW2d 241,
that the trucker was not required to absorb the affected employees as well as the
business, the court saying that they could find no such meaning in the above clause,
stating that it dealt only with seniority, and not with initial employment. Unless and until
the absorbing company agreed to take the employees of the company whose business
was being absorbed, no seniority problem was created, said the court, hence the
provision of the contract could have no application. Furthermore, said the court, it did
not require that the absorbing company take these employees, but only that if it did
take them the question of seniority between the old and new employees would be
worked out by agreement or else be submitted to the grievance procedure. (90 ALR 2D
975, 983-984) (Emphasis ours.)

Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of
the dissolved corporations employees or the recognition of the absorbed employees service
with their previous employer may be demanded from the surviving corporation if required by
provision of law or contract.

Effect of corporate acquisitions on employment

In SME Bank, Inc. v. De Guzman, G.R. No. 184517, October 8, 2013, the Supreme Court ruled on
the effects of transfer of the business establishment and a change in the new majority shareholders of
the corporation by explaining the two types of corporate acquisitions: asset sales and stock sales. This is
because the petitioner bank also argues that, there being a transfer of the business establishment, the
innocent transferees no longer have any obligation to continue employing respondent employees, and
that the most that they can do is to give preference to the qualified separated employees; hence, the
employees were validly dismissed. In resolving the issue, the High Court said:

The argument is misleading and unmeritorious. Contrary to petitioner bank’s argument,

there was no transfer of the business establishment to speak of, but merely a change in the
new majority shareholders of the corporation.

There are two types of corporate acquisitions: asset sales and stock sales. (DALE A.
OESTERLE, THE LAW OF MERGERS, ACQUISITIONS AND REORGANIZATIONS, 35 [1991]) In asset
sales, the corporate entity (Id.) sells all or substantially all of its assets (Id. at 39) to another
entity. In stock sales, the individual or corporate shareholders (Id. at 35) sell a controlling block
of stock (Id. at 39) to new or existing shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected
employees, but is liable for the payment of separation pay under the law. (Central Azucarera del
Danao v. Court of Appeals, 221 Phil. 647 [1985]) The buyer in good faith, on the other hand, is
not obliged to absorb the employees affected by the sale, nor is it liable for the payment of their

26 | P a g e 3 4
 claims. (Id.) The most that it may do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling firm. (Id.)

In contrast with asset sales, in which the assets of the selling corporation are transferred to
another entity, the transaction in stock sales takes place at the shareholder level. Because the
corporation possesses a personality separate and distinct from that of its shareholders, a shift in
the composition of its shareholders will not affect its existence and continuity. Thus,
notwithstanding the stock sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims. Furthermore, the corporation or its
new majority shareholders are not entitled to lawfully dismiss corporate employees absent a
just or authorized cause.

Termination for just and authorized cause

Department Order No. 147-15 Series of 2015

(Rules governing application of Articles 297 [282]-299 [284] of the Labor Code)

Pursuant to Article 5 of the Labor Code of the Philippines, as amended, on the rule-making
power of the Secretary of Labor and Employment, Department Order No. 147-15 Series of 2015 was
issued on September 7, 2015, amending the Implementing Rules and Regulations of Book VI of the Labor
Code of the Philippines. Thus, the following are the Rules governing the application of the just and
authorized causes of termination of employment under Articles 297-299 of the Labor Code:

RULE I-A
APPLICATION OF JUST AND AUTHORIZED CAUSES OF TERMINATION

1. Guiding Principles

The workers’ right to security of tenure is guaranteed under the Philippine Constitution and
other laws and regulations. No employee shall be terminated from work except for just or authorized
cause and upon observance of due process. (Section 1, Rule I-A, Rules to Implement the Labor Code)

2. Coverage

This Rules shall apply to all parties of work arrangements where employer-employee
relationship exists. It shall also apply to all parties of legitimate contracting subcontracting arrangements
with existing employer- employee relationships. (Section 2, Rule I-A, Rules to Implement the Labor
Code)

3. Employer-Employee Relationship

To ascertain the existence of an employer-employee relationship, the four-fold test shall apply,
to wit: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct, or the so-called "control test." The so-
called "control test" is commonly regarded as the most crucial and determinative indicator of the
presence or absence of an employer-employee relationship. Under the control test, an employer-
employee relationship exists where the person for whom the services are performed reserves the right
to control not only the end achieved, but also the manner and means used to achieve that end. (Section
3, Rule I-A, Rules to Implement the Labor Code)

4. Definition of Terms

The following terms as used in this Rules, shall mean:

(a) “Authorized Causes” refer to those instances enumerated under Articles 298 [Closure of
Establishment and Reduction of Personnel] and 299 [Disease as a Ground for Termination] of the Labor
Code, as amended. These are causes brought (David vs. Macasio, G. R. No. 1954661, July 2, 2014) by the
necessity and exigencies of business, changing economic conditions and illness of the employee.
(Exigency of the business of the employer (Lopez v. Irvin Construction Corp, GR. No. 207253, August 20,
2014), changing economic conditions (Cajucom v. TPI Philippines Cement Corp, GR. No. 149090,
27 | P a g e 3 4
February 11, 2005) and illness of the employee (Reyes v. RP Guardians Security Agency Inc., GR. No.
193756, April 10, 2013)

(b) “Just Causes” refer to those instances enumerated under Article 297 [Termination by
Employer] of the Labor Code, as amended. These are causes directly attributable to the fault or
negligence of the employee. (www.laborlaw.usc—Iaw.org)

(c) “Closure or Cessation of Business.” refers to the complete or partial cessation of the
Operations and/or shut—down of the establishment of the employer. (“Espina v. Court of Appeals, GR.
No. 164582, March 28, 2007)

(d) “Commission of a Crime or Offense” refers to an offense by the employee against the person
of his/her employer or any member of his/her family or his/her duly authorized representative.( JISSCOR
Independent Union v. Hon. Torres, 221 SCRA 699)

(e) "Contractor” refers to any person or entity, including cooperative, engaged in a legitimate
contracting or subcontracting arrangement providing either services, skilled workers, temporary
workers, or a combination of services to a principal under a Service Agreement. (Section 3(d) DOLE
Department Order 18-A, Series of 2011)
(f) "Contractor’s Employee" refers to one employed by a contractor to perform or complete a
job, work, or service pursuant to a Service Agreement with a principal. It shall also refer to regular
employees of the contractor whose functions are not dependent on the performance or completion of a
specific job, work or service within a definite period of time, i.e. administrative staff.
(g) "Employee" refers to any person in the employ of an employer. It shall include any individual
whose work has ceased as a result of or in connection with any current labor dispute or because of any
unfair labor practice. (Article 219 [212] (f) of the Labor Code of the Philippines, as amended)
(h) “Employer” refers to any person acting in the interest of an employer, directly or indirectly.
(Article 219 [212] (e) of the Labor Code ofthe Philippines, as amended). It shall include corporation,
partnership, sole proprietorship and cooperative.

(i) “Fraud” refers to any act, omission, or concealment which involves a breach of legal duty,
trust or confidence justly reposed, and is injurious to another. (Phil. Education Co. v. Union of the Phil.
Education Employees, GR. No. L-13778, 29 April 1960; Lepanto Consolidated Mining v. CA, GR. No. L—
15171,April29, 1961)

(j) “Gross Neglect” refers to the absence of that diligence that an ordinary prudent man would
use in his/her own affairs. (Reyes vs. Maxim’s Tea House, G.R. 140853, February 27, 2003)

(k) “Habitual Neglect“ refers to repeated failure to perform one’s duties over a period of time,
depending upon the circumstances. (JGB Associates, inc. v. NLRC, G.R. No. 10939, March 7,1996)

(I) “Insubordination” refers to the refusal to obey some order, which a superior is entitled to
give and have obeyed. It is a willful or intentional disregard of the lawful and reasonable instructions of
the employer. (Civil Service Commission v. Arandia, G.R. No. 199549, April 7, 2014)

(m) “Installation of Labor-saving Devices” refers to the reduction of the number of workers in
any workplace made necessary by the introduction of labor-saving machinery or devices. (Philippine
Sheet Metal Workers’ Union v, cm, 83 Phil 433)

(n) “Loss of Confidence” refers to a condition arising from fraud or willful breach of trust by
employee of the trust reposed in him/her by his/her employer or his/her duly authorized
representative. There are two (2) classes of positions of trust. The first class consists of managerial
employees, or those vested with the power to lay down management policies; and the second class
consists of cashiers, auditors, property custodians or those who, in the normal and routine exercise of
their functions, regularly handle significant amounts of money or property. (Esguerra v. Valle Verde
Country Club, Inc. and Ernesto Villaluna, G.R. No. 173012, June 13, 2012)

(o) "Misconduct” refers to 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. (Department of Labor Manual, Section 4343.01)
28 | P a g e 3 4
 (p) “Principal” refers to any employer, whether a person or entity including government
agencies and government owned and controlled corporation, who/which puts out or farms out a job,
service or work to a contractor.

(q) “Redundancy” refers to the condition when the services of an employee are in excess of
what is reasonably demanded by the actual requirements of the enterprise or superfluous. (Wiltshire
File Co., Inc. v. NLRC, G.R. No. 82249, February 7,1991)

(r) “Retrenchment” refers to the economic ground for dismissing employees and is resorted to
primarily to avoid or minimize business losses. (Atlantic Gulf and Pacific Company of Manila, Inc. [AG &
P], v. NLRC, G.R. No. 127516, May 23, 1999) (Section 4, Rule I-A, Rules to Implement the Labor Code)

5. Due Process of Termination of Employment

In all cases of termination of employment, the standards of due process laid down in Article 299
(b) of the Labor Code, as amended, and settled jurisprudence on the matter, must be observed as
follows:

5.1 Termination of Employment Based on Just Causes

As defined in Article 297 of the Labor Code, as amended, the requirement of two written notices
served on the employee shall observe the following:
(a) The first written notice should contain:

1. The specific causes or grounds for termination as provided for under Article 297 Of the Labor
Code, as amended, and company policies, if any;

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

3. A directive that the employee is given opportunity to submit a written explanation within a
reasonable period.

“Reasonable period” should be construed as a period of at least five (5) calendar days from
receipt of the notice to give the employee an opportunity to study the accusation, consult or be
represented by a lawyer or union officer, gather data and evidence, and decide on the
defenses against the complaint. (Unilever v. Rivera G.R. No. 201701, June 3, 2013; Section 12, DOLE
Department Order 18-A)

(b) After serving the first notice, the employer should afford the employee ample opportunity to
be heard and to defend himself/herself with the assistance of his/her representative if he/she so
desires, as provided in Article 299 (b) Of the Labor Code, as amended.

“Ample opportunity to be heard” means any meaningful opportunity (verbal or written) given to
the employee tO answer the charges against him/her and submit evidence in support of his/her
defense, whether in a hearing, conference or some other fair, just and reasonable way. A formal hearing
or conference becomes mandatory only when requested by the employee in writing or substantial
evidentiary disputes exist or a company rule or practice requires it, or when similar circumstances justify
it. (Perez v. PTI'C, GR. No. 152048, April 7, 2009,- Section 12, DOLE Department Order 18-A)

(c) After determining that termination of employment is justified, the employer shall serve the
employee a written notice of termination indicating that: (1) all circumstances involving the charge
against the employee have been considered; and (2) the grounds have been established to justify the
severance of their employment.

The foregoing notices shall be served personally to the employee or to the employee’s last
known address. (Section 5, 5.1, Rule I-A, Rules to Implement the Labor Code)

29 | P a g e 3 4
 5.2 Standards on Just Causes

An employer may terminate an employee for any of the following grounds:

(a) Serious Misconduct

To be a valid ground for termination, the following must be present: (Fighting within company
premises (Technol Eight Philippines Corporation v. NLRC and Denis Amular, G.R. No. 187605, April 13,
2010), uttering obscene, insulting or offensive words against a superior (Autobus Workers Union, et al.
v. NLRC, et. al., G.R. No. 117453, July 1, 1998), fabrication of time records (Manuel C. Felix v. Enertech
Systems Industries, Inc. G.R. No. 142007, March 28, 2001), and using employer’s property equipment
and personnel in the personal business of the employee (Zenco Sales, int. y. NLRC, G.R. NO. 111110,
August 2, 1994)

1.There must be misconduct;

2.The misconduct must be of such grave and aggravated character;
3. It must relate to the performance of the employee’s duties; and
4. There must be showing that the employee becomes unfit to continue working for the
employer.

(b) Willful Disobedience or Insubordination

To be a valid ground for termination, the following must be present: (Refusal to transfer
{Sentinel Security Agency, Inc. v. NLRC, G.R. No. 1222468, September 3, 1998) and refusal to report to
new work assignment [Westin Philippine Plaza Hotel v. NLRC, G.R. No. 121621, May 3, 1999])
1. There must be disobedience or insubordination;
2. The disobedience or insubordination must be willful or intentional characterized by a
wrongful and perverse attitude;
3. The order violated must be reasonable, lawful, and made known to the employee; and
4. The order must pertain to the duties which he has been engaged to discharge.

(c) Gross and Habitual Neglect of Duties

To be a valid ground for termination, the following must be present: (Habitual tardiness,
absenteeism and abandonment [Labor et. a]. v. NLRC, G.R. No. 110388, September 14,1995])

1. There must be neglect of duty; and

2. The negligence must be both gross and habitual in character.

(d) Fraud or Wiiiful Breach of Trust

To be a valid ground for termination, the following must be present: (Head supervisor initiating
and leading a boycott (Top Form Mfg. Co., lnc. v. NLRC, G.R. 65706, December 11, 1992), habitual
absence of managerial employee (GT Printers v. NLRC, G.R. No. 100749, April 24, 1992), failure of cashier
to account for the shortage of company funds (San Miguel Corp. v. NLRC, G.R. No. 88268), June 2, 1992),
complicity in the attempt to cover up pilferage of the company‘s toll collections (CDCP Tollways
Operation Employees and Workers Union v. NLRC, G.R. Nos. 7618—19, July 3, 1992), stealing company
property [Zamboanga Water District v. Bartolome, 140 SCRA 432), and using double or fictitious
requisition slips in order to withdraw company materials (PLDT v. NLRC, 129 SCRA 163])

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

2. The act, omission or concealment involves a breach of legal duty, trust, or confidence justly
reposed;
3. It must be committed against the employer or his/her representative; and
4. it must be in connection with the employees’ work.

(e) Loss of Confidence

To be a valid ground for termination, the following must be present: (China City Restaurant
Corp. v. NLRC, 217 SCRA 443; Midas Touch v. NLRC, G. R. No. 111639, July 29, 1996)

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

30 | P a g e 3 4
 2. The act, omission or concealment justifies the loss of trust and confidence of the employer to
the employee;
3. The employee concerned must be holding a position of trust and confidence;
4. The loss of trust and confidence should not be simulated;
5. It should not be used as a subterfuge for causes which are improper, illegal, or unjustified;
and
6. It must be genuine and not a mere afterthought to justify an earlier action taken in bad faith.

(f) Commission of a Crime or Offense

To be a valid ground for termination, the following must be present: (Illegally diverting
employer’s products, violation of company rules and regulations, drunkenness, gross inefficiency (MP.
Violago OiIer Tank Trucks v. NLRC, 117 SCRA 544 [1982])

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

2. The act or omission was committed by the employee against the person of employer, any
immediate member of his/her family, or his/her duly authorized representative.

(g) Analogous Causes

To be valid ground for termination, the following must be present:

1. There must be act or omission similar to those specified just causes; and
2. The act or omission must be voluntary and/or willful on the part of the employees.
No act or omission shall be considered as analogous cause unless expressly specified in the
company rules and regulations or policies. (Section 5, 5.2, Rule I-A, Rules to Implement the Labor Code)

5.3 Termination of Employment Based on Authorized Causes

As defined in Articles 298 and 299 of the Labor Code, as amended, the requirements of due
process shall be deemed complied with upon service of a written notice to the employee and the
appropriate Regional Office of the Department of Labor and Employment at least thirty days (30) before
effectivity of the termination, specifying the ground or grounds for termination. (Section 5.3, Rule I-A,
Rules to Implement the Labor Code)

5.4 Standards on Authorized Causes

An employer may terminate an employee for any of the following grounds:

(a) Installation of Labor-saving Devices

To be a valid ground for termination, the following must be present: (Automation (Philippine
Sheet Metal Workers‘ Union v. CIR, 33 Phil 433)

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

2. The introduction must be done in good faith;
3. The purpose for such introduction must be valid such as to save on cost, enhance efficiency
and other justifiable economic reasons;
4. There is no other option available to the employer than the introduction of machinery,
equipment or device and the consequent termination of employment of those affected thereby; and
5. There must be fair and reasonable criteria in selecting employees to be terminated.

(b) Redundancy

To be a valid ground for termination, the following must be present: (Reorganization (Dole
Philippines Inc. et al. v. NLRC et. al.) and duplication of work [Wiltshire File Co., Inc. v. NLRC, supra])

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

2. The positions or services are in excess of what is reasonably demanded by the actual
requirements of the enterprise to operate in an economical and efficient manner;
31 | P a g e 3 4
 3. There must be good faith in abolishing redundant positions;
4. There must be fair and reasonable criteria in selecting the employees to be terminated; (Asian
Alcohol Corporation v. NLRC, G.R. No. 131108, March 25, 1999) and
5. There must be an adequate proof of redundancy such as but not limited to the new staffing
pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and
the approval by the management of the restructuring. (General Milling Corporation v. Violeta L. Viajar,
G.R. No. 181738)

(c) Retrenchment or Downsizing

To be a valid ground for termination, the following must be present: (Abolition of departments
or positions in a company [San Miguel Corporation v. NLRC, G.R. No. 99266, March 2, 1999])

1. The retrenchment must be reasonably necessary and likely to prevent business losses;
2. The losses, if already incurred, are not merely de minimis, but substantial, serious, actual and
real, or if only expected, are reasonably imminent;
3. The expected or actual losses must be proved by sufficient and convincing evidence;
(Balasabas v. NLRC, G.R. No. 85286, August 24, 1992; Central Azucarerra dela Carlota v. NLRC, G.R. No.
100092, December 29, 1995)
4. The retrenchment must be in good faith for the advancement of its interest and not to defeat
or circumvent the employees' right to security of tenure; and
5. There must be fair and reasonable criteria in ascertaining who would be dismissed and who
would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and
financial hardship for certain workers.
(d) Closure or Cessation of Operation

To be a valid ground for termination, the following must be present: (Relocation of business
[Cheniver Deco Print Technics Corporation v. NLRC, [G.R. No. 122876, February 17, 2000], sale in good
faith (Lucena Oil factory lnc. v. NLRC, G.R. No. 7840, November 17, 1986; Second Division, Minute
Resolution]

1. There must be a decision to close or cease operation of the enterprise by the management;
2. The decision was made in good faith; and
3 There is no other option available to the employer except to close or cease operations.

(e) Disease

To be a valid ground for termination, the following must be present:

1. The employee must be suffering from any disease;

2. The continued employment of the employee is prohibited by law or prejudicial to his/her
health as well as to the health of his/her co-employees; and
3. There must be certification by a competent public health authority that the disease is
incurable within a period of six (6) months even with proper medical treatment.

In cases of installation of labor-saving devices, redundancy and retrenchment, the “Last-In, Firs-
Out Ftule” ((When there are two employees occupying the same position in the company affected by
the retrenchment program, the last one employed will necessarily be the first to go [Maya Farms
Employees Organization v. NLRC, G.R. No. 106256, December 28, 1994])) shall apply except when an
employee voiunteers to be separated from employment. (Section 5.4, Rule I-A, Rules to Implement the
Labor Code)

5.5 Payment of Separation Pay

Separation pay shall be paid by the employer to an employee terminated due to installation of
labor—saving devices, redundancy, retrenchment, closure or cessation of operations not due to serious
business losses or financial reverses, and disease.

An employee terminated due to installation of labor-saving devices or redundancy shall be paid

by the employer a separation pay equivalent to at least one (1) month pay or at least one (1) month pay
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for every year of service, whichever is higher, a fraction of six (6) months service is considered as one (1)
whole year.

An employee terminated due to retrenchment shall be paid by the employer a 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 six (6) months service is considered as one (1) whole year.

An employee terminated due to closure or cessation of business operation not due to serious
business losses shall be paid by the employer a separation pay equivalent to one (1) month pay or at
least one—half (112) month pay for every year of service, whichever is higher, a fraction of six (6)
months service is considered as one (1) whole year. Where closure is due to serious business losses or
financial reverses, no separation pay is required.

An employee terminated due to disease shall be paid by the employer a separation pay
equivalent to at least one (1) month salary or one—half (112) month salary for every year of service,
whichever is higher, a fraction of six (6) months service is considered as one (1) whole year.

An employee whose employment is terminated by reason of '|ust causes is not entitled to

separation pay except as expressly provided for in the company policy or Collective Bargaining
Agreement (CBA). (Section 5.5, Rule I-A, Rules to Implement the Labor Code)

6. Other Causes of Termination

In addition to Section 4, the employer may also terminate an employee based on reasonable
and lawful grounds specified under its company policies.

An employee found positive for use of dangerous drugs shall be dealt with administratively
which shall be a ground for suspension or termination. (DOLE Department Order No. 53, Series of 2003
in relation to the IRR of RA. 9165)

An employee shall not be terminated from work based on actual, perceived or suspected HIV
status. (DOLE Department Order No. 102, Series of 2010)

An employee shall not be terminated on basis of actual, perceived or suspected Hepatitis B

status. (DOLE Department Advisory No. 5, Series of 2010 Part III C1. par. c)

An employee who has or had Tuberculosis shall not be discriminated against. He/she shall be
entitled to work for as long as they are certified by the company's accredited health provider as
medically fit and shall be restored to work as soon as his/her illness is controlled. (DOLE Department
Order No. 75, Series of 2005)

Sexual harassment ([Fondling the hands, massaging the shoulder and caressing the nape] [Libres
v. NLRC, National Steel Corp., et. a., G. R. No. 123737, May 28, 1999 is considered a serious misconduct.
It is reprehensible enough but more so when inflicted by those with moral ascendancy over their victim.
(Section 6, Rule I-A, Rules to Implement the Labor Code)

7. Causes of Termination Under the Collective Bargaining Agreement (CBA)

An employee may also be terminated based on the grounds provided for under the CBA.
(Section 7, Rule I-A, Rules to Implement the Labor Code)

8. Mandatory Conciliation-Mediation on Termination Disputes

All disputes arising out of termination of employment shall be subject to mandatory conciliation-
mediation pursuant to Republic Act No. 10396 and its Implementing Rules and Regulations.

Request for assistance involving issues arising out of termination of employment based on just
or authorized cause shall be lodged before the Single Entry Assistance Desk Officers (SEADOs) at the
RegionaI/Provincial/Filed Offices of DOLE or its attached agencies in the region pursuant to the
Implementing Rules and Regulations of Republic Act No. 10396. in case of settlement, the Desk Officer
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shall reduce the agreement into writing, have the parties understand the contents therefor, sign the
same in his/her presence, and attest the document to be the true and voluntary act of the parties.

For organized establishment, all disputes shall undergo grievance machinery under the CBA. In
case of failure to reach an agreement, the parties may refer the same to conciliation-mediation under
the Single Entry Approach (SEnA) or agree to submit it for voluntary arbitration in accordance with
Articles 274 and 275 of the Labor Code, as amended. (Section 8, Rule I-A, Rules to Implement the Labor
Code)

9. Settlement Agreement

Any settlement agreement reached by the parties before the Desk Officer shall be final and
binding.

In case of failure to reach an agreement during the conciliation-mediation period, the request
shall be referred to compulsory arbitration, or if both parties so agree, to voluntary arbitration. (Section
9, Rule I-A, Rules to Implement the Labor Code)

10. Condition Precedent to Compulsory Arbitration

No Labor Arbiter shall take cognizance of the complaint for illegal dismissal unless there is a
referral from the Desk Officer pursuant to the Implementing Rules and Regulations of Republic Act No.
10396. (Section 10, Rule I-A, Rules to Implement the Labor Code)

11. Non-compliance with Settlement Agreement; Execution

In case of non-compliance by the employer or employee, the terms of the settlement

agreement may be enforced by requesting the Desk Officer to refer the same to the proper Regional
Arbitration Branch (RAB) of the National Labor Relations Commission (NLRC) for enforcement of the
agreement pursuant to Rule V, Section 1 (i) of the 2005 Revised NLRC Rules, as amended. The same shall
be docketed by the RAB as arbitration case for enforcement of the settlement agreement. The
employee or employer may also disregard the settlement agreement and file an appropriate case before
the appropriate forum. (Section 11, Rule I-A, Rules to Implement the Labor Code)

12. Repealing clause

Section 2(4), Section 7, Section 8, Section 9, Section 10 and Section 11 of Rule I, Book VI of the
Implementing Rules and Regulations of the Labor Code of the Philippines, as amended, are hereby
repealed. All other rules and regulations issued by the Secretary of Labor and Employment inconsistent
with the provision of this Rules are hereby superseded.

13. Separability Clause

If any provision or portion of this Rules is declared void or unconstitutional, the remaining
portions or provisions hereof shall continue to be valid and effective.

14. Effectivity

This Order shall be effective fifteen (15) days after completion of its publication in at least two
(2) newspapers of general circulation.

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