G.R. No. 187214, August 14, 2013 - SANOH FULTON PHILS., INC. AND MR. EDDIE JOSE, Petitioners, v. EMMANUEL BERNARDO AND SAMUEL TAGHOY, Respondents.
G.R. No. 187214, August 14, 2013
SANOH FULTON PHILS., INC. AND MR. EDDIE JOSE, Petitioners, v. EMMANUEL BERNARDO AND SAMUEL TAGHOY, Respondents.
D E C I S I O N
1) Lack of local market.Two succeeding conciliation conferences were likewise held but the parties failed to reach an amicable settlement. Thus, two (2) separate complaints for illegal dismissal, docketed as NLRC Case No. RAB-IV-1-18788-04-C and NLRC Case No. RAB-IV-02-18844-04-C, were filed by the following complainants:
2) Competition from imported products.
3) Phasing out of Wire Condenser Department.3
1. Rene DascoSanoh on its part, filed a petition for declaration of the partial closure of its Wire Condenser Department and valid retrenchment of the 17 employees, docketed as NLRC Case No. RAB-IV-01-18762-04-C.
2. Reynaldo Chavez
3. Joey MaQuillao
4. Jerson Mendoza
5. David Almeron
6. Nicanor Malubay
7. Alejandro Hontanosas
8. Reynaldo Abayon
9. Gerome Glor
10. Edralin Descalzota
11. Isagani Reginaldo
12. Ruelito Magtibay
13. Adonis Noo
14. Armando Nobleza
15. Emmanuel Bernardo
16. Samuel Taghoy
17. Manny Santos4
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the complaint of RENE DASCO, ADONIS NOO, ARMANDO NOBLEZA, ISAGANI REGINALDO, JOEY MAQUILLAO, NICANOR MALUBAY, JEROME GLOR, REYNALDO ABAYON, DAVID ALMERON, RUELITO MAGTIBAY, EDRALIN DESCALZOTA, ALEJANDRO HONTANOSAS, REYNALDO CHAVES and JERSON MENDOZA. Respondent company however is ordered to pay the separation pay of the following:On appeal, the National Labor Relations Commission (NLRC) affirmed in toto the decision of the Labor Arbiter in its Resolution7 dated 23 May 2006. The NLRC held that “the retrenchment x x x was a valid exercise of management prerogative, more so, since the said decision was premised on the ‘permanent lack of orders from major clients.’”8 The NLRC found no violation of the company’s LIFO policy because the employees involved were bound under a training agreement to render three (3) years of continuous service. The NLRC also sustained the award of separation pay to the three (3) employees.
EMMANUEL BERNARDO - P53,339.52 SAMUEL TAGHOY - 58,968.00 MANNY SANTOS - 69,120.68 GRAND TOTAL P181,428.206
On 23 January 2008, the Court of Appeals overturned the findings of the Labor Arbiter and the NLRC, and ruled that Sanoh failed to prove the existence of substantial losses that would justify a valid retrenchment. The Court of Appeals also upheld the quitclaim executed by complainant Manny Santos, thus he was deemed to have released Sanoh from his monetary claims. The appellate court disposed as follows:
(a) Their dismissal was without just cause and retrenchment was unjustified; (b) There was no justifiable ground to retrench the employees because the retrenchment was intended to prevent losses and the company was not losing; (c) After the retrenchment, the Wire Condenser Department was not phased out and there was no need to reduce or retrench the personnel; (d) There has been no closure of the Wire Condenser Department and no redundancy of work.10
ART. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (½) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.Retrenchment to prevent losses and closure not due to serious business losses are two separate authorized causes for terminating the services of an employee. In J.A.T. General Services v. NLRC,13 the Court took the occasion to draw the distinction between retrenchment and closure, to wit:
Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company. It is sometimes also referred to as down-sizing. Retrenchment is an authorized cause for termination of employment which the law accords an employer who is not making good in its operations in order to cut back on expenses for salaries and wages by laying off some employees. The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing.16The respective requirements to sustain their validity are likewise different.
(1) the losses incurred are substantial and not de minimis; (2) the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to be effective in preventing the expected losses; and (4) the alleged losses, if already incurred, or the expected imminent losses sought to be forestalled, are proven by sufficient and convincing evidence.15Upon the other hand, in termination, the law authorizes termination of employment due to business closure, regardless of the underlying reasons and motivations therefor, be it financial losses or not. However, to put a stamp to its validity, the closure/cessation of business must be bona fide, i.e., its purpose is to advance the interest of the employer and not to defeat or circumvent the rights of employees under the law or a valid agreement.16
1 Penned by Associate Justice Sixto C. Marella, Jr. with Associate Justices Mario L. Guariña III and Japar B. Dimaampao, concurring. Rollo, pp. 40-53.
2 Id. at 55-56.
3 Records, Vol. I, p. 112.
4Rollo, pp. 68-69.
5 Penned by Labor Arbiter Renell Joseph R. Dela Cruz. Id. at 67-74.
6 Id. at 74.
7 Penned by Presiding Commissioner Raul T. Aquino with Commissioners Victoriano R. Calaycay and Angelita A. Gacutan, concurring. Id. at 76-84.
8 Id. at 82.
9 Id. at 86-88.
10 Id. at 46.
11 Id. at 52-53.
12 Id. at 82.
13 465 Phil. 785, 794 (2004).
14Genuino Ice Company, Inc. v. Lava, G.R. No. 190001, 23 March 2 011, 646 SCRA 385, 389; Manatad v. Philippine Telegraph and Telephone Corporation, G.R. No. 172363, 7 March 2008, 548 SCRA 64, 80-81.
15Shimizu Phils. Contractors Inc. v. Callanta, G.R. No. 165923, 29 September 2010, 631 SCRA 529, 540; Alabang Country Club Inc. v. NLRC, 503 Phil. 937, 949 (2005).
16Eastridge Golf Club, Inc. v. Eastridge Golf Club, Inc., Labor Union-Super, G.R. No. 166760, 22 August 2008, 563 SCRA 93, 106.
17Aliviado v. Procter and Gamble Phils., Inc., G.R. No. 160506, 9 March 2010, 614 SCRA 563, 587; Exodus International Construction Corporation v. Biscocho, G.R. No. 166109, 23 February 2011, 644 SCRA 76, 86-88.
18Legend Hotel (Manila) v. Realuyo, G.R. No. 153511, 18 July 2012, 677 SCRA 10, 26.
19Edge Apparel, Inc. v. NLRC, Fourth Division, G.R. No. 121314, 12 February 1998, 286 SCRA 302, 311-312.
20 G.R. No. 170464, 12 July 2010, 624 SCRA 705.
21 Id. at 716.
22 Records, Vol. II, p. 147.
23 Id. at 148.
24 Id. at 149.
25 Records, Vol. 1, pp. 126-138 and 165-173.
26 411 Phil. 730, 739-740 (2001) citing Bustamante v. NLRC, G.R. No. 111651, 28 November 1996, 265 SCRA 61, 69-70.
Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Emphasis supplied)There are three requisites for a valid retrenchment. In Genuino Ice Company, Inc. v. Lava,1 the Court held that:
x x x [T]here are three (3) basic requisites for a valid retrenchment, namely: (a) proof that the retrenchment is necessary to prevent losses or impending losses; (b) service of written notices to the employees and to the [Department of Labor and Employment] at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation pay equivalent to one (1) month pay, or at least one-half (1/2) month pay for every year of service, whichever is higher.2 (Emphasis supplied)Under the first requisite, there are two kinds of losses which can justify retrenchment, namely, incurred losses and impending losses. Incurred losses refer to losses that have already occurred. Since they have already occurred, they should be reflected in the financial statements. On the other hand, impending losses refer to losses that have not yet occurred. They are also termed as future or expected losses. Since they have not yet occurred, they are not reflected in the financial statements. Thus, in Waterfront Cebu City Hotel v. Jimenez,3 the Court held that retrenchment must be “reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer.”4 The Court recognizes two kinds of losses which can justify retrenchment — incurred losses which are substantial, serious, actual and real, and expected losses which are reasonably imminent.
In view of job order cancellations relating to the manufacture of wire condensers by Matsushita, Sanyo and National Panasonic, Sanoh decided to phase out the Wire Condenser Department. On 22 December 2003, the Human Resources Manager of Sanoh informed the 17 employees, 16 of whom belonged to the Wire Condenser Department, of retrenchment effective 22 January 2004. All 17 employees are union members.Justice Perez then stated that, even if the retrenchment was conducted for the pupose of preventing impending losses, the retrenchment conducted by Sanoh was invalid because it failed to present financial statements. Justice Perez stated that:
x x x x
Sanoh insists that it is the prerogative of management to effect retrenchment as long as it is done in good faith. Sanoh relies on letters from its customers showing cancellation of job orders to prove that it is suffering from serious losses. In addition, Sanoh claims that it had, in fact, closed down the Wire Condenser Department in view of serious business losses.
x x x x
Sanoh asserts that cancelled orders of wire condensers led to the phasing out of the Wire Condenser Department which triggered retrenchment. Sanoh presented the letters of cancellation given by Matsushita and Sanyo as evidence of cancelled orders.
We held in Lambert Pawnbrokers and Jewelry Corporation v. Binamira, that the losses must be supported by sufficient and convincing evidence and the normal method of discharging this is by the submission of financial statements duly audited by independent external auditors. It was aptly observed by the appellate court that no financial statements x x x were presented to substantiate Sanoh’s claim of loss of P7 million per month.I disagree. Again, impending, expected or future losses which employers seek to prevent through retrenchment could not yet be reflected in the financial statements because they have not yet occurred. In fact, if the retrenchment does indeed prevent the impending losses as it is supposed to do, then such losses would never be reflected in the financial statements. It would be unreasonable and unfair to require employers conducting retrenchment to prevent impending, expected or future losses to submit as proof of such losses financial statements.
In their Position Paper, petitioners asserted that they had no choice but to retrench respondent due to economic reverses. The corporation suffered a marked decline in profits as well as substantial and persistent increase in losses. In its Statement of Income and Expenses, its gross income for 1998 dropped P1 million to P665,000.00.Sanoh is liable for illegal dismissal not because it failed to present its financial statements but because the surrounding circumstances show that there were no impending losses which were “reasonably imminent as perceived objectively and in good faith by the employer.” Sanoh failed to discharge its burden to prove with substantial and convincing evidence that the impending losses it expected to incur were imminent and that the retrenchment it conducted was necessary to prevent such losses.
x x x x
The losses must be supported by sufficient and convincing evidence. The normal method of discharging this is by the submission of financial statements duly audited by independent external auditors. In this case, however, the Statement of Income and Expenses for the yeat 1997-1998 submitted by the petitioners was prepared only on January 12, 1999. Thus, it is highly improbable that the management already knew on September 14, 1998, the date of Helen’s retrenchment, that they would be incurring substantial losses.10
1G.R. No. 190001, 23 March 2011, 646 SCRA 385.
2 Id. at 389.
3 G.R. No. 174214, 13 June 2012, 672 SCRA 185.
4 Id. at 197 citing Shimizu Phils. Contractors, Inc. v. Callanta, G.R. No. 165923, 29 September 2010, 631 SCRA 529; Lambert Pawnbrokers and Jewelry Corporation v. Binamira, G.R. No. 170464, 12 July 2010, 624 SCRA 705; Bio Quest Marketing, Inc. v. Rey, G.R. No. 181503, 18 September 2009, 600 SCRA 721; Flight Attendants and Stewards Association of the Philippines v. Philippine Airlines, Inc., 581 Phil. 228 (2008); Casimiro v. Stern Real Estate Inc. Rembrandt Hotel and/or Meehan, 519 Phil. 438 (2006); Philippine Carpet Employees Association v. Sto. Tomas, 518 Phil. 299 (2006); Ariola v. Philex Mining Corp., 503 Phil. 765 (2005); Asian Alcohol Corporation v. National Labor Relations Commission, 364 Phil. 912 (1999).
5 G.R. No. 178083, 22 July 2008, 559 SCRA 252.
6 Id. at 273.
7G.R. No. 183233, 23 December 2009, 609 SCRA 213.
8 Id. at 219.
9 G.R. No. 170464, 12 July 2010, 624 SCRA 705.
10 Id. at 709-716.