VI.

MANAGEMENT PREROGATIVE
The term “prerogative” is misleading/self-defeating as it suggests something that is
so exclusive and absolute that it is beyond sharing or scrutiny. Such notion neither
inheres or adheres to management “rights”. The prerogatives accorded to
management cannot defeat the very purpose for which labor law exists: to balance
the conflicting interests of labor and management, not to tilt the scale in favor of one
over the other.
While the Constitution is committed to the policy of social justice and the protection
of the working class, it should not be supposed that every labor dispute will be
automatically decided in favor of labor. Management also has its own rights which,
as such, are entitled to respect and enforcement in the interest of simple fair play.
Management prerogative is the inherent right of the employer to regulate all aspects
of employment. It refers to the employer’s bundle of rights in relation to all aspects of
employment, from pre-employment to post-employment, and everything in between.
The law in protecting the rights of the employees authorizes neither oppression nor
self-destruction of the employer. It should be made clear that when the law tilts the
scale of justice in favor of labor, it is but a recognition of the inherent economic
inequality between labor and management. Never should the scale be so tilted if the
result is an injustice to the employer.
General Rule

An employer is free to regulate, according to his own discretion and judgment, all
aspects of employment, including hiring, work assignments, working methods, time,
place and manner of work, tools to be used, processes to be followed, supervision of
workers, working regulations, transfer of employees, work supervision, lay-off of
workers and the discipline, dismissal and recall of workers. It presupposes the
existence of an Er-EE relationship.

Business Judgment Rule

The Supreme Court “is mindful that every business strives to keep afloat during
these times when prevailing economic situations turns such endeavor into a near
struggle. With as much latitude as our laws would allow, the Court has always
respected a company’s exercise of its prerogative to devise means to improve its
operations. Thus, we have held that 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.
Further, management retains the prerogative, whenever exigencies of the service so
require, to change the working hours of its employees.” (Unicorn Safety Glass, Inc. v.
Basarte)
Restrictions to Management Rights
The Secretary of Labor is duly mandated to equally protect and respect not only the
laborer or worker's side but also the management and/or employer's side. The law,
in protecting the rights of the laborer, authorizes neither oppression nor self-
destruction of the employer. Management rights, like other rights, are not absolute.
Not to abuse of rights is itself a law as expressed in Art. 19 of the Civil Code. A right,
if abused, becomes a legal wrong. The right to own and operate economic
enterprises is “subject to the duty of the State to promote distributive justice and to
intervene when the common good so demands”. Management prerogatives are
subject to limitations provided by (1) law, (2) contract, whether individual or
collective, and (3) general principles of fair play and justice. Policies or practices
established by the employer can serve as restrictions to policy changes if and when
Art. 100, regarding non-diminution of benefits, is applicable. Laws, whether
general/particular (special), prescribe rules of conduct that result in liability when
transgressed. Whenever a person signs a contract, he in effect is signing a law. In
the absence of violation of law or contract, fundamental principles of justice and fair
play apply.
A. Occupational Qualifications
An employer has a right to select his employees and to decide when to engage
them. He has a right under the law to full freedom in employing any person free to
accept employment from him, and this, except as restricted by valid statute or valid
contract, at a wage and under conditions agreeable to them. On the one hand, he
may refuse to employ whomever he may wish, irrespective of his motive, and on the
other hand, he has the right to prescribe the terms upon which he will consent to the
relationship, and to have them fairly understood and expressed in advance. The
state has no right to interfere in a private employment and stipulate the terms of the
services to be rendered; it cannot interfere with the liberty of contract with respect to
labor except in the exercise of the police power. If the employer can compel the
employee to work against the latter's will, this is servitude. If the employee can
compel the employer to give him work against the employer's will, this is
oppression."
Bona Fide Occupational Qualification Rule
Employment in particular jobs may not be limited to persons of a particular sex,
religion, or national origin UNLESS, the employer can show that sex, religion, or
national origin is an actual qualification for performing the job. The qualification is
called a bona fide occupational qualification (BFOQ). Where the job itself necessarily
requires a particular question qualification, then the job applicant or worker who does
not possess it may be disqualified on that basis. This will not be unlawful
discrimination. BFOQ is valid "provided it reflects an inherent quality reasonably
necessary for satisfactory job performance."
2 Factors that Employer needs to Prove for BFOQ
(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.
Meiorin Test
The following conditions must be complied with to justify a BFOQ:
1. The employer must show that it adopted the standard for a purpose rationally
connected to the performance of the job;
2. The employer must establish that the standard is reasonably necessary to the
accomplishment of that work-related purpose; and
3. The employer must establish that the standard is reasonably necessary in order to
accomplish the legitimate work-related purpose
Instances of a valid exercise of BFOQ:
a. Mandatory retirement ages for bus drivers and airplane pilots for safety reasons;
b. Churches requiring members of its clergy to be of a certain denomination and may
lawfully bar from employment anyone who is not a member;
c. Use of models and actors for the purpose of authenticity or genuineness;
d. Requirement of emergency personnel to be bilingual, judged on the language
competency (Chan, Bar Reviewer on Labor Law, 2019, p.813).
e. On account of physical appearance.
Weight standards of PAL show its effort to comply with the exacting obligations
imposed upon it by law by virtue of being a common carrier. On board an aircraft, the
body weight and size of a cabin attendant are important factors to consider in case of
emergency. The job of a cabin attendant during emergencies is to speedily get the
passengers out of the aircraft safely. Being overweight necessarily impedes mobility.
Indeed, in an emergency situation, seconds are what cabin attendants are dealing
with, not minutes. Hence, separation from service for failure to meet weight
standards of PAL is justified. (Yrasuegi v. PAL)
f. On account of civil status
A company policy which prohibits its employees from marrying employees of a rival
company. The company policy is reasonable considering that its purpose is the
protection of the interests of the company against possible competitor infiltration on
its trade secrets and procedures. The company has a right to guard its trade secrets
and marital or personal relationships might compromise the interests of said
company.
Marriage Between Employees of Competitor Employers
It is unlawful for an employer to require as a condition of employment or continuation
of employment that: (1) A woman employee shall not get married, or (2) To stipulate
expressly or tacitly that upon getting married a woman employee shall be deemed
resigned or separated; or (3) To actually dismiss, discharge, discriminate or
otherwise prejudice a woman employee merely by reason of her marriage. The
company policy of not accepting or considering as disqualified from work any woman
worker who contracts marriage runs afoul of the test of, and the right against,
discrimination afforded all women workers by our labor laws and by no less than the
Constitution.
Reasonable Business Necessity Rule
There must be business necessity for Employer to require certain attributes
possessed by a person in relation to the job it is to be done or performed. The
following policies were struck down as invalid for violating the standard of
reasonableness which is being followed in our jurisdiction:
1. New applicants will not be allowed to be hired if in case he/she has a relative, up
to 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (both singles, 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.”
Prohibition against Pregnancy
Respondents were constructively dismissed. Hence, their termination was illegal.
The termination of respondents' employment happened when they were pregnant
and expecting to incur costs on account of child delivery and infant rearing.
Pregnancy is a time when they need employment to sustain their families. Indeed, it
goes against normal and reasonable human behavior to abandon one's livelihood in
a time of great financial need. It is clear that respondents intended to remain
employed with Saudia. All they did was avail of their maternity leaves. Evidently, the
very nature of a maternity leave means that a pregnant employee will not report for
work only temporarily and that she will resume the performance of her duties as
soon as the leave allowance expires. (Saudia v. Rebesencio)
B. Productivity Standards
The employer has the right to demote and transfer an employee who has failed to
observe proper diligence in his work and incurred habitual tardiness and absences
and indolence in his assigned work. As a general concept, “poor performance” is
equivalent to inefficiency and incompetence in the performance of official duties.
Under Art. 282 of the Labor Code, an unsatisfactory rating can be a just cause for
dismissal only if it amounts to gross and habitual neglect of duties. Thus, the fact that
an employee’s performance is found to be poor or unsatisfactory does not
necessarily mean that the employee is grossly and habitually negligent of his duties.
Gross negligence implies a want or absence of or failure to exercise slight care of
diligence, or the entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.
The imposition of productivity standards is an allowable exercise of company rights.
An employer is entitled to impose productivity standards for its workers and non-
compliance may be visited with a penalty even more severe than demotion. 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.
C. Change of Working Hours
The right to fix the work schedules of the employees rests principally on their
employer. 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 agreements, the Court will uphold such exercise.
Except as limited by special laws, an employer is free to regulate, according to his
own discretion and judgment, all aspects of employment, including hiring, work
assignments, working methods, time, place and manner of work, tools to be used,
processes to be followed, supervision of workers, working regulations, transfer of
employees, work supervision, lay-off of workers and discipline, dismissal and recall
of workers. The working hours may be changed, at the discretion of the company,
should such change be necessary for its operations, and that employees shall
observe such rules as have been laid down by the company.
D. Transfer of Employees
An employee’s right to security of tenure does not give him such a vested right in his
position as would deprive the company of its prerogative to change his assignment
or transfer him where he will be most useful. “Transfer” may be the lateral movement
from one position to another of equivalent rank, level, or salary without break of
service, and can also be the transfer from one office to another within the same
business establishment. The transfer should: (1) Not be unreasonable, inconvenient,
or prejudicial to the employee; and (2) Not involve a demotion in rank, diminution in
salaries, benefits and other privileges concerning the transfer.
The employer has the right to transfer or assign employees from one area of
operation to another, or one office to another or in pursuit of its legitimate business
interest, Provided there is no demotion in rank or diminution of salary, benefits and
other privileges and not motivated by discrimination or made in bad faith, or effected
as a form of punishment or demotion without sufficient cause. An employer has the
perfect right to transfer, reduce or lay off personnel in order to minimize expenses
and to insure the stability of the business, and even to close the business, and this
right has been consistently upheld even in the present era of multifarious reforms in
the relationship of capital and labor, provided the transfer or dismissal is not abused
but is done in good faith and is due to causes beyond control. To hold otherwise
would be oppressive and inhuman.
When the transfer is not unreasonable, or inconvenient, or prejudicial to the
employee, and it does not involve a demotion in rank or diminution of salaries,
benefits, and other privileges, the employee may not complain that it amounts to a
constructive dismissal. (Bisig ng Manggagawa sa TRYCO v. NLRC)
Instances of a Valid Transfer:
a. Consensual transfer anywhere in the Philippines - The employee consented to be
transferred anywhere in the Philippines in his employee’s employment application
and contract of employment. This consent is binding to him. Thus, the transfer is
valid
b. Transfer to avoid conflict of interest - Tecson was transferred to another sales
area by Glaxo, a pharmaceutical company with trade secrets, when the former
married an employee of the competitor company, in accordance with the policy
which prohibits the same. Considering that Glaxo has trade secrets to protect from
competitor company, the transfer of Tecson should not be considered as a
constructive dismissal.
c. Reassignments pending investigation - Reassignments made pending
investigation of irregularities allegedly committed by an employee fall within the
ambit of management prerogative. The transfer, while incidental to the pending
charges, was not meant to be a penalty, but rather a preventive measure to avoid
further damage to the company.
d. Transfer due to business transition or corporate reorganization - The transfer was
valid since the integration and transfer was a necessary consequence of the
business transition or corporation reorganization that had been undertaken, which
had the characteristics of a corporate spin-off. The spin-off and the attendant transfer
of employees are legitimate business interests. The transfer/absorption of
employees from one company to another, as successor employer, was valid as long
as the transferor was not in bad faith and the employees absorbed by a
successoremployer enjoy the continuity of their employment status and their rights
and privileges with their former employer.
e. In cases when an employee’s position is abolished due to corporate restructuring -
The employee’s transfer from her old position to the new one is a valid management
prerogative exercised in the exigency of service since there is no significant disparity
between the former position to that of the new one that amounts to a demotion
f. Transfer as a standard practice - Change of assignment by rotation from one shift
to another as a standard practice is a valid transfer especially if it is adopted
precisely to avoid any discrimination among the employees
g. Transfer based on breach of trust and confidence - Breach of trust and confidence
as a ground for reassignment must be related to the performance of the duties of the
employee such as would show him to be thereby unfit to discharge the same task.
The employee having lost the employer’s trust and confidence, the company had the
right to transfer the former to ensure that she would no longer have access to the
company’s confidential files.
Burden of Proving that the Transfer was Reasonable
In cases of a transfer of an employee, the employer is charged with the burden of
proving that its conduct and action are for valid and legitimate grounds such as
genuine business necessity and that the transfer is not unreasonable, inconvenient
or prejudicial to the employee. If the employer cannot overcome this burden of proof,
the employee’s transfer shall be tantamount to unlawful constructive dismissal.
Willful disobedience of a lawful order of an employer
Refusal to obey a valid transfer order constitutes willful disobedience of a lawful
order of an employer. Refusal to comply with such orders on the ground of parental
obligations, additional expenses, and the anguish one would suffer if assigned away
from his family is invalid. However, this management prerogative cannot be used as
a subterfuge by the employer to rid himself of an undesirable worker.
Instances wherein transfer may be validly refused:
a. If the transfer is consequential to a promotion
b. If the transfer is an overseas assignment
E. Discipline of Employees
Management has the prerogative to discipline its employees and to impose
appropriate penalties on erring workers, pursuant to company rules and regulations.
Although the right of employers to shape their own work force is recognized, this
management prerogative must not curtail the basic right of employees to security of
tenure.
Limitation
While management has the prerogative to discipline its Employees and to impose
appropriate penalties on erring workers, pursuant to company rules and regulations,
however, such management prerogative must be 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 Ees under special laws and valid agreements. (PLDT
v. Teves)
Discipline Must be Fair and Reasonable
The policies, rules and regulations on work related activities of the employees must
always be fair and reasonable and the corresponding penalties, when prescribed,
commensurate to the offense involved and to the degree of the infraction.
Quantum of Proof Required to Impose Disciplinary Action
Substantial proof is a sufficient basis for the imposition of any disciplinary action
upon the employee. The standard of substantial evidence is satisfied where the
employer has reasonable ground to believe that the employee is responsible for the
misconduct that renders the latter unworthy of the trust and confidence demanded by
his or her position.
F. Grant of Bonuses and Other Benefits
The granting of bonuses is a management prerogative, which, whenever
management sees necessary, may be withdrawn, unless they have been made a
part of the wage or salary or compensation of the employees. A bonus is "gratuity or
act of liberality of the giver which the recipient has no right to demand as a matter of
right." It is something given in addition to what is ordinarily received by or strictly due
to the recipient. The granting of 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”.
The granting of bonus is a management prerogative, something given in addition to
what is ordinarily received by or strictly due the recipient. (Producers Bank of the
Philippines v. NLRC)
Unfair and unjust discrimination in the granting of salary adjustments
(1) The management paid the employees of the unionized branch; (2) Salary
adjustments were granted to employees of one of its non - unionized branches
although it was losing in its operations; and (3) The total salary adjustments given
every ten of its unionized employees would not even equal to the salary adjustments
given to one employee in the non – unionized branch. (Manila Hotel Company v.
Pines Hotel Employees Association and CIR)
When bonus becomes demandable:
1. When it emanates from a contract or CBA
Generally, a bonus is not a demandable and enforceable obligation. For a bonus to
be enforceable, it must have been promised by the employer and expressly agreed
upon by the parties. Given that the bonus in this case is integrated in the CBA, the
same partakes the nature of a demandable obligation. Verily, by virtue of its
incorporation in the CBA, the Christmas bonus due to respondent Association has
become more than just an act of generosity on the part of the petitioner but a
contractual obligation it has undertaken. (Lepanto Ceramics v. Lepanto Ceramics
Employees Association)
A bonus, however, becomes a demandable or enforceable obligation when it is
made part of the wage or salary or compensation of the employee. In the case at
bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a provision for
the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side
Agreement. (Eastern Telecoms v. Eastern Telecoms Employees Union)
2. When it is given on account of company policy or practice
To be considered “regular practice,” the giving of the bonus should have been done
over a long period of time and must be shown to have been consistent and
deliberate. The test or rationale of this rule on long practice requires an indubitable
showing that the employer agreed to continue giving the benefits knowing fully well
that said employees are not covered by the law requiring payment thereof.
3. When it is made part of the wages; if given without any condition, whether or
not profits are realized
When the employer promises and agrees to give bonus without any conditions
imposed for its payment, such as success of business or greater production or
output, it becomes part of the wage. However, if the bonus is paid only if profits are
realized or a certain amount of productivity achieved, it cannot be considered part of
wages.
4. When the grant is mandated by law
The 13th month pay is a form of monetary benefit equivalent to the monthly basic
compensation received by an employee, computed pro rata according to the number
of months within a year that the employee has rendered service to the employer. All
employers are required to pay their rank-and-file employees the 13th month pay not
later than December 24 of every year.
G. Clearance Process
Requiring clearance before the release of last payments to the employee is a
standard procedure among employers, whether public or private. Clearance
procedures are instituted to ensure that the properties, real or personal, belonging to
the employer but are in the possession of the separated employee, are returned to
the employer before the employee’s departure.
Employers are prohibited from withholding wages from employees. However,
Employers may institute clearance procedures before the release of wages as
authorized by law or regulations issued by the SOLE. Withholding of payment by the
employer does not mean that the employer may renege on its obligation to pay
employees their wages, termination payments, and due benefits. The employees’
benefits are also not being reduced. It is only subjected to the condition that the
employees return properties properly belonging to the employer. This is only
consistent with the equitable principle that “no one shall be unjustly enriched or
benefited at the expense of another.”
Payment of Final Pay and Issuance of Certificate of Employment
1. An employee’s final pay must be released within thirty (30) days from the date of
separation or termination of employment, unless there is a more favorable company
policy, individual or collective agreement thereto; and
2. a Certificate of Employment be released by the employer within three (3) days
from the time it was requested by the employee. (D.O. 06-20)
Final Pay
Final pay refers to the sum or totality of all the wages or monetary benefits due the
employee, regardless of the cause of separation from employment, including but not
limited to:
1. Unpaid earned salary of the employee;
2. Cash conversion of unused Service Incentive Leave (SIL) pursuant to Art. 95, LC;
3. Cash conversions of remaining unused vacation, sick, or other leaves pursuant to
company policy or individual or collective agreement, if applicable;
4. Pro-rated 13th month pay (Pursuant to PD 851);
5. Separation pay (Art. 298-299, LC);
6. Retirement pay (Art. 302, LC);
7. Income Tax claim for the excess taxes withheld;
8. Other types of compensation stipulated in an individual or collective bargaining
agreement, if any; and
9. Cash Bond/s or any kind of deposit/s due for return to the employee, if any.
Certificate of Employment
Certificate of Employment refers to a certificate specifying the dates of an
employee’s engagement and the termination of his/her employment and the type or
types of work in which he/she is employed. The certificate of employment shall be
issued by the employer within three (3) days from the time of request by the
employee.
Enforcement Mechanism
Any issue or dispute arising out of the payment of final pay or the issuance of
certificate of employment shall be filed before the nearest DOLE Regional/Provincial/
Field Office which has jurisdiction over the workplace for conciliation and subject to
DOLE’s existing enforcement mechanism
H. Post-Employment Restrictions
Types of Restrictive Covenants
1. Non-compete clause: When the employee is prevented from directly competing or
working for a competitor of his former employer, or when the employee is prevented
from setting up a competing business.
2. Non-solicitation clause: When a duty is imposed on the employee not to approach
his former employer’s customers or prospective customers, or when the employee is
prevented from taking customers/clients of his former employer.
3. Non-poaching clause: When the employee is prevented from enticing his former
employer’s staff away from the business, the aim is to prevent the employee from
taking key employees with him to his new employment or business.
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. (Rivera v. Solidbank)
Petitioner retired under the Special Retirement Program and received
P963,619.28 from respondent. However, petitioner is not proscribed, by waiver or
estoppel, from assailing the postretirement competitive employment ban since under
Article 1409 of the New Civil Code, those contracts whose cause, object or purpose
is contrary to law, morals, good customs, public order or public policy are inexistent
or void from the beginning. Estoppel cannot give validity to an act that is prohibited
by law or to one that is against public policy. (Rivera v. Solidbank)
Respondent, as employer, is burdened to establish that a restrictive covenant barring
an employee from accepting a competitive employment after retirement or
resignation is not unreasonable or oppressive, or not an undue or unreasonable
restraint of trade, thus, unenforceable for being repugnant to public policy. (Rivera v.
Solidbank)
Two principal grounds on which the doctrine is founded that a contract in restraint of
trade is void as against public policy:
1. The injury to the public by being deprived of the restricted party’s industry; and
2. The injury to the party himself by being precluded from pursuing his occupation,
and thus being prevented from supporting himself and his family.
 In cases where an employee assails a contract containing a provision
prohibiting him or her from accepting competitive employment as against public
policy, the employer has to adduce evidence to prove that the restriction is
reasonable and not greater than necessary to protect the employer’s legitimate
business interests. The restraint may not be unduly harsh or oppressive in curtailing
the employee’s legitimate efforts to earn a livelihood and must be reasonable in light
of sound public policy.
Factors to consider to enforce a restrictive covenant:
1. Whether the covenant protects a legitimate business interest of the employer;
2. Whether the covenant creates an undue burden on the employee;
3. Whether the covenant is injurious to the public welfare;
4. Whether the time and territorial limitations contained in the covenant are
reasonable; and
5. Whether the restraint is reasonable from the standpoint of public policy.
Non-Compete or Non-Involvement Clause
The employer and the employee are free to stipulate in an employment contract
prohibiting the employee within a certain period from and after the termination of his
employment, from:
a. Starting a similar business, profession or trade; or
b. Working in an entity that is engaged in a similar business that might compete with
the employer.
A non-involvement clause is not necessarily void for being in restraint of trade if
there are reasonable limitations as to time, trade, and place. It was also stated in this
case that the Labor Law validity of a non-involvement clause depends upon the
nature of work of the subject employee.