G.R. No. 189851, June 22, 2016 25.

Elsie Alcos
INTEC CEBU INC., AKIHIKO KAMBAYASHI AND WATARU SATO, Petitioners, v. HON. COURT OF APPEALS,
ROWENA REYES, ROWENA ODIONG, HYDEE AYUDA, TERESITA BERIDO, CRISTINA LABAPIZ, GEMMA JUMAO-AS, 26. Lydialyn B. Godinez
SIGMARINGA BAROLO, LIGAYA B. ANADON, DONALINE DELA TORRE, JOY P. LOMOD, JACQUELINE A. FLORES, 27. Myrna S. Logaos
SUSAN T. ALIÑO, ANALYN P. ABALLE, CAROLINE A. LABATOS, LENITH F. ROMANO, LEONILA B. FLORES, CECILIA 28. Jenife Espinosa
G. PAPELLERO, AGNES C. CASIO, VIOLETA O. MATCHETE, CANDIDA I. CRUJIDO, CLAUDIA B. CUTAMORA, 29. Maria Fe Tomo
ROSALIE R. POLICIOS, GENELYN C. MUÑEZ, ALOME MIGUE, ELSIE ALCOS, LYDIALYN B. GODINEZ AND MYRNA 30. Jocelyn Casiban
S. LOGAOS, Respondents. 31. Ailyn Bagyao
32. Josephine Casino
DECISION 33. Pilar Batajoy
PEREZ, J.: 34. Juliet Teofilo
For our resolution is this Petition for Certiorari under Rule 65 of the Rules of Court assailing the 35. Cheryl Sugarol
Decision1 dated 22 April 2009 and Resolution2 dated 31 July 2009 of the Court of Appeals in CA-G.R. SP No. 36. Rechel Daitol
03471. The challenged decision reversed the judgment3 of the National Labor Relations Commission (NLRC) 37. Janette Quidong5
and reinstatement of the Decision4 of the Labor Arbiter. The Labor Arbiter ruled that respondent employees Respondents alleged that in 2005, their working days were reduced from 6 to 2-4 days. Intec apparently
were constructively dismissed. explained that reduction in working days was due to lack of job orders. However, respondents discovered
that Intec hired around 188 contractual employees tasked to perform tasks which respondents were
As culled from the records of the case, the following antecedent facts appear: regularly doing. On 17 May 2006, private respondents claimed that they were effectively terminated from
employment as shown in the Establishment Termination Report6 submitted to the Department of Labor and
chanRoblesvirtualLawlibraryPetitioner Intec Cebu Inc. (Intec) is engaged in the manufacture and assembly Employment (DOLE). Two (2) days later, respondents filed a complaint for illegal dismissal.
of mechanical system and printed circuit board for cassette tape recorder, CD and CD ROM player while
the following respondents were hired by Intec in 1997 and 1998, respectively, as production Intec, for its part, claimed that the company was established to supply the required materials of Kenwood
workers:ChanRoblesVirtualawlibrary Precision Corporation (Kenwood). When Kenwood stopped its operations in the Philippines, Intec's business
operations were severely affected, prompting Intec to set up a new product line exclusively for Pentax
1. Rowena Reyes
Cebu Phils. Corporation (Pentax). In December 2005, Intec's job orders from Pentax declined. On 4 January
2. Rowena R. Odiong
2006, a memorandum was issued informing the employees that the working days would be reduced to 3-4
3. Hydee P. Ayuda
days from the normal 6 day-work week. The reduced work week policy was extended from April to June
4. Teresita C. Berido
2006. A corresponding memorandum was issued and a copy thereof was submitted to the DOLE.
5. Cristina S. Labapiz
6. Gemma T. Jumao-as
7. Sigmaringa B. Barolo
8. Ligaya B. Anadon On 17 May 2007, Labor Arbiter Jermelina Pasignajen Ay-ad declared that respondents were illegally
9. Donaline dela Torre dismissed and adjudged Intec and its officials liable for payment of separation pay and backwages. Labor
10. Joy P. Lomod Arbiter Ay-ad found that Intec hired casual employees to replace respondents. As regards the other
11. Jacqueline A. Flores monetary claims of respondents, Labor Arbiter Ay-ad ruled that Intec was able to prove, by presenting
12. Susan T. Alino copies of the payroll, that private respondents were properly paid. The dispositive portion of the Labor
13. Analyn P. Aballe Arbiter's Decision reads:ChanRoblesVirtualawlibrary
14. Caroline A. Labatos WHEREFORE, judgment is hereby rendered declaring complainants to have been illegally (constructively)
15. Lenith F. Romano dismissed from their employment. Consequently, the respondents INTEC CEBU, INC., WATARU SATO AND
16. Leonila B. Flores AKIHIRO KAMBAYASHI, are hereby directed to PAY jointly and severally the following complainants of the
17. Cecilia G. Papellero amounts indicated opposite their names as appearing in the attached Computation sheet consisting of
18. Agnes C. Casio two (2) pages, in concept of separation pay and backwages in the total amount of SIX MILLION NINE
19. Violeta O. Matchete HUNDRED SIXTY-SEVEN THOUSAND NINE HUNDRED TWENTY-FOUR PESOS (P6,967,924.00), in cash or in check
payable to NLRC-RAB VII, Cebu City, through the Cashier of this Arbitration Branch within ten (10) days
20. Candida I. Crujido from receipt of this Decision.

21. Claudia B. Cutamora All other claims are DISMISSED for insufficiency of evidence and for lack of jurisdiction. The claims and the
case against respondents Feliciana Tero and Cheryl Inso are DISMISSED for lack of
22. Rosalie R. Policios merit.7chanroblesvirtuallawlibrary
On 14 December 2007, the NLRC set aside the Decision of the Labor Arbiter and held that Intec suffered
23. Genelyn C. Muñez tremendous financial losses which justified the reduction of working days. The dispositive portion of the
decision reads:ChanRoblesVirtualawlibrary
24. Alome Migue,
WHEREFORE, the assailed decision is SET ASIDE and a new one entered declaring that complainants were
not dismissed either actually or constructively. Considering, however, all attendant factors as discussed,
respondent Intec Cebu, Inc. is hereby directed to give all thirty-seven (37) complainants their respective The charge of constructive dismissal is predicated on the claim that the implementation of the reduced
separation pay based on one-half month salary per year of service, or the grand total amount of ONE work week is illegal.
MILLION ONE HUNDRED TWENTY-FIVE THOUSAND SEVEN HUNDRED THIRTY-FIVE PESOS (P1,125,735.00) as
earlier computed per assailed decision. The Court has 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
Complainants are NOT entitled to backwages.8chanroblesvirtuallawlibrary work, processes to be followed, supervision of workers, working regulations, transfer of employees, work
Intec elevated the matter to the Court of Appeals. In a Decision dated 22 April 2009, the Court of Appeals supervision, lay-off of workers, and discipline, dismissal and recall of workers. The exercise of management
reversed the NLRC and reinstated the Decision of the Labor Arbiter with respect to respondents herein. As prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the
for Jenife Espinosa, Maria Fe Tomo, Jocelyn Casiban, Ailyn Bagyao, Josephine Casino, Pilar Batajoy, Juliet rights of labor.10chanrobleslaw
Teofilo, Cheryl Sugarol, Rechel Daitol and Janette Quidong, the case was dismissed for their failure to sign
the verification of certification of non-forum shopping in their petition. Thus, it was incumbent upon Intec to prove that that the implementation of the reduced working days is
valid and done in good faith. Intec claims that it implemented a reduction of work days scheme to
The instant petition is one for certiorari with Intec attributing grave abuse of discretion on the part of the forestall its losses.
Court of Appeals for the following acts:ChanRoblesVirtualawlibrary
Two memoranda were allegedly sent to the affected employees informing them of the reduction of work
FIRST: BY OVERTURNING ITS OWN RESOLUTION DISMISSING OUTRIGHT THE PRIVATE RESPONDENTS' PETITION days. The first memorandum was dated 4 January 2006 and submitted to the DOLE only on 9 January 2006.
FOR CERTIORARI, AND THEREBY GIVING DUE COURSE TO THEIR MOTION FOR RECONSIDERATION, WITH THE In 2006, there was no specific rule or guideline covering the reduction of workdays. It was only in January
MANIFEST ADVANCE PRONOUNCEMENT THAT THE SAID MOTION WOULD EVENTUALLY BE GRANTED. 2009 where the DOLE issued Department Advisory No. 2, Series of 2009 which requires the employer to
notify DOLE of the reduction of work days prior to its implementation. If the reportorial requirement in
SECOND: BY DISREGARDING THE FACTUAL FINDINGS OF THE HONORABLE NATIONAL LABOR RELATIONS retrenchment under Article 283 is to be followed, the DOLE should be notified at least one month prior to
COMMISSION, 4th DIVISION, CEBU CITY, THAT THE PRIVATE RESPONDENTS "WERE NOT DISMISSED EITHER the intended date of retrenchment. Be that as it may, Intec submitted its report after the reduction of
ACTUALLY OR CONSTRUCTIVELY." workdays was implemented. Moreover, there is nothing on the records which show that a second notice
was sent to the employees informing them of the extension of the reduced work days to June 2006.
THIRD: BY CAPRICIOUSLY ASSERTING THAT THE FINANCIAL STATEMENTS OF THE PETITIONERS ARE SELF-SERVING
AND OF DOUBTFUL VERACITY AS THEY WERE NOT PREPARED BY AN INDEPENDENT AUDITOR, WHICH Intec presented its financial statements from the years 2001-2006 to prove that the company was suffering
ASSERTION IS IN EFFECT AN ASSAULT UPON THE INTEGRITY AND HONESTY OF THE AUDITOR. from financial losses owing to the decline of its job orders. The summary of Intec's net income/loss for the
years 2001-2006 is illustrated below:ChanRoblesVirtualawlibrary
FOURTH: BY CIRCUMVENTING THE DOCTRINE LAID DOWN BY THIS HONORABLE COURT IN THE CASE OF
"JARDINE DAVIS, INC. vs. THE NLRC, ET AL.", G.R. 26272, JULY 28, 1999, THAT RESORT TO JUDICIAL REVIEW OF SUMMARY OF INTEC'S NET INCOME (LOSS) 31 APRIL 2001-2006
THE DECISION OF THE NLRC BY WAY OF SPECIAL CIVIL ACTION FOR CERTIORARI UNDER RULE 65 OF THE
RULES OF COURT IS CONFINED ONLY TO ISSUES OF WANT OF JURISDICTION AND GRAVE ABUSE OF
DISCRETION ON THE PART OF THE LABOR TRIBUNAL, BARRING AN INQUIRY AS TO THE CORRECTNESS OF THE Net Income Net Loss Totals
EVALUATION OF EVIDENCE WHICH HAS THE BASIS OF LABOR AGENCY IN REACHING A CONCLUSION;
April 30, 2001 (9,708,820.00) (9,708,820.00)
FIFTH: ASSUMING, WITHOUT HOWEVER ADMITTING, THAT THE PRIVATE RESPONDENTS ARE ENTITLED TO
SEPARATION PAY AND BACKWAGES, AS DETERMINED BY THE LABOR ARBITER, THE COMPUTATION OF
BENEFITS RECEIVEABLE - WHICH CONTAINS GLARING SERIOUS ERROR, IF REINSTATED, AS THE COURT OF April 30, 2002 (5,928,636.00) (5,928,636.00)
APPEALS, 18th DIVISION, WANTED IT TO BE.9chanroblesvirtuallawlibrary
Intec claims that the reduction of the number of working days was undertaken to forestall business losses April 30, 2003 4,669,180.00 4,669,180.00
as proven by the audited financial statements of Intec for the years 2001-2006. Intec insists that the workers
they employed from TESDA and Sisters of Mary were on-the-job trainees and they were already employed
April 30, 2004 4,726,326.00 4,726,326.00
prior to the implementation of the reduced working days policy of the company. Moreover, Intec stresses
that these workers were retained to enable the company to comply with the urgent off-and-on job orders
of Pentax which could not be accomplished by the regular employees. April 30, 2005 (9,240,929.00) (9,240,929.00)

Intec reiterates that respondents voluntarily resigned or abandoned their work when they filed their
April 30, 2006 9,568,674.00 9,568,674.00
application for leave following the issuance of the second memorandum extending the implementation of
the reduced number of working days. According to Intec, respondents had categorically declared that
they would no longer report for work. TOTAL 18,964,180.00 (24,878,385.00) (5,914,205.00)11

Respondents urge this Court to affirm the findings of the Labor Arbiter and the Court of Appeals that they
were constructively dismissed. Respondents refutes Intec's claim that it is suffering from business reverses
when it just hired additional workers from TESDA and Sisters of Mary despite the fact that respondents were
under reduced work days.
An examination of Intec's financial statements for 2005-2006 shows that while Intec suffered a net loss of
P9,240,929.00 in 2005, it earned a net income of P9,568,674.00 in 2006. The period covered in the financial
statement of 2006 is from May 2005-April 2006. It was only on the 9th month of operation did Intec decide to
carry out the reduced work day scheme. Note that the reduced work day scheme was implemented only
in January 2006. Unless evidence is shown by the company that the income for 2006 was earned only
between the months of January to April, it is safe to presume that at the time the reduced work day judgment so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform
scheme was being implemented, the company was still benefiting from its gains as shown in the numbers a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner because of
for 2006. passion or hostility.16chanrobleslaw

Furthermore, the loss incurred in 2005 may be attributed to the acquisition of property and equipment A writ of certiorari will not issue where the remedy of appeal is available to the aggrieved party.17 In this
amounting to P9,218,967.0012 in 2005. There is also no indication in the financial statements, much less an case, appeal under Rule 45 of the Rules of Court was clearly available to Intec.
observation made by the independent auditor, that a reduction in demand would necessitate a
reduction in the employees' work days. Finding no grave abuse of discretion in this case, the certiorari petition should be dismissed.

We cannot give weight to the evidence presented by Intec to prove the slump in demand. First, the two- WHEREFORE, the instant petition is DISMISSED and the Decision dated 22 April 2009 and Resolution dated 31
page delivery data are lacking in specifics. The report did not indicate when it was prepared. Second, the July 2009 of the Court of Appeals in CA-G.R. SP No. 03471 are AFFIRMED.
report was prepared by Intec employees and approved by their President. Third, the report appeared to
be mere projections because it was not supported by corresponding sales or delivery receipts. The actual SO ORDERED.
sales may vary from the projected demand, thus, the report cannot be made as basis of a slump in
demand or a slow-down.

In addition, the hiring of 188 workers, whether they be trainees or casual employees, necessarily incurred
cost to the company. No proof was submitted that these newly-hired employees were performing work
different from the regular workers.

In sum, there is no reason to implement a cost-cutting measure in the form of reducing the employees'
working days.

Intec committed illegal reduction of work hours. Constructive dismissal occurs when there is cessation of
work because continued employment is rendered impossible, unreasonable or unlikely; when there is a
demotion in rank or diminution in pay or both; or when a clear discrimination, insensibility, or disdain by an
employer becomes unbearable to the employee.13chanrobleslaw

Intec's unilateral and arbitrary reduction of the work day scheme had significantly greatly reduced
respondents' salaries thereby rendering it liable for constructive dismissal.

There is no merit to Intec's charge of abandonment against respondents. To constitute abandonment,

there must be clear proof of deliberate and unjustified intent to sever the employer-employee relationship.
Clearly, the operative act is still the employee's ultimate act of putting an end to his employment.
Furthermore, it is a settled doctrine that the filing of a complaint for illegal dismissal is inconsistent with
abandonment of employment. An employee who takes steps to protest his dismissal cannot logically be
said to have abandoned his work. The filing of such complaint is proof enough of his desire to return to
work, thus negating any suggestion of abandonment.14chanrobleslaw

We affirm the Court of Appeals' finding that there is no proof that respondents committed unauthorized
absences or had otherwise refused to work. The complaint for constructive dismissal is the best evidence
against abandonment because the filing of a complaint for illegal dismissal is incompatible to
abandonment.

Lastly, we note that Intec availed of the wrong mode of appeal. For certiorari to prosper, the following
requisites must concur: (1) the writ is directed against a tribunal, a board or any officer exercising judicial or
quasi-judicial functions; (2) such tribunal, board or officer has acted without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of law.15chanrobleslaw

Well-settled is the rule that a petition for certiorari against a court which has jurisdiction over a case will
prosper only if grave abuse of discretion is manifested. The burden is on the part of the petitioner to prove
not merely reversible error, but grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the public respondent issuing the impugned order. Mere abuse of discretion is not enough; it must
be grave. The term grave abuse of discretion is defined as a capricious and whimsical exercise of
G.R. No. 187417
CHRISTINE JOY CAPIN-CADIZ, Petitioner,
vs.
BRENT HOSPITAL AND COLLEGES, INC., Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court assailing the Resolutions dated
July 22, 20082 and February 24, 20093 of the Court of Appeals (CA) in CA-GR. SP No. 02373-MIN, which
dismissed the petition filed by petitioner Christine Joy Capin-Cadiz (Cadiz) on the following grounds: (1)
incomplete statement of material dates; (2) failure to attach registry receipts; and (3) failure to indicate
the place of issue of counsel's Professional Tax Receipt (PTR) and Integrated Bar of the Philippines (IBP)
official receipts.
Antecedent Facts
Cadiz was the Human Resource Officer of respondent Brent Hospital and Colleges, Inc. (Brent) at the time
of her indefinite suspension from employment in 2006. The cause of suspension was Cadiz's
Unprofessionalism and Unethical Behavior Resulting to Unwed Pregnancy. It appears that Cadiz became
pregnant out of wedlock, and Brent imposed the suspension until such time that she marries her boyfriend
in accordance with law.
Cadiz then filed with the Labor Arbiter (LA) a complaint for Unfair Labor Practice, Constructive Dismissal,
Non-Payment of Wages and Damages with prayer for Reinstatement.4
Ruling of the Labor Tribunals
In its Decision5 dated April 12, 2007, the LA found that Cadiz's indefinite suspension amounted to a
constructive dismissal; nevertheless, the LA ruled that Cadiz was not illegally dismissed as there was just
cause for her dismissal, that is, she engaged in premarital sexual relations with her boyfriend resulting in a
pregnancy out of wedlock. 6 The LA further stated that her "immoral conduct x x x [was] magnified as
serious misconduct not only by her getting pregnant as a result thereof before and without marriage, but
more than that, also by the fact that Brent is an institution of the Episcopal Church in the Philippines
operating both a hospital and college where [Cadiz] was employed."7 The LA also ruled that she was not
entitled to reinstatement "at least until she marries her boyfriend," to backwages and vacation/sick leave
pay. Brent, however, manifested that it was willing to pay her 13th month pay. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered, ordering [Brent] to pay [Cadiz] 13th month pay in the sum of
Seven Thousand Nine Hundred Seventy & 11/100 Pesos (P7,970.11).
All other charges and claims are hereby dismissed for lack of merit.
SO ORDERED.8
Cadiz appealed to the National Labor Relations Commission (NLRC), which affirmed the LA decision in its
Resolution9 dated December 10, 2007. Her motion for reconsideration having been denied by the NLRC in
its Resolution10 dated February 29, 2008, Cadiz elevated her case to the CA on petition for certiorari under
Rule 65.
Ruling of the CA
The CA, however, dismissed her petition outright due to technical defects in the petition: (1) incomplete
statement of material dates; (2) failure to attach registry receipts; and (3) failure to indicate the place of
issue of counsel's PTR and IBP official receipts. 11 Cadiz sought reconsideration of the assailed CA Resolution
dated July 22, 2008 but it was denied in the assailed Resolution dated February 24, 2009. 12 The CA further
ruled that "a perusal of the petition will reveal that public respondent NLRC committed no grave abuse of
discretion amounting to lack or excess of jurisdiction x x x holding [Cadiz's] dismissal from employment
valid." 13
Hence, the present petition.
Cadiz argues that -
I
THE HONORABLE [NLRC] GRAVELY ABUSED ITS DISCRETION WHEN IT HELD THAT [CADIZ'S] IMPREGNATION
OUTSIDE OF WEDLOCK IS A GROUND FOR THE TERMINATION OF [CADIZ'S] EMPLOYMENT 14
II
THE [NLRC] COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT UPHELD THE DISMISSAL OF [CADIZ] ON THE
GROUND THAT THE INDEFINITE SUSPENSION WAS VALID AND REQUIRED [CADIZ] TO FIRST ENTER INTO
MARRIAGE BEFORE SHE CAN BE ADMITTED BACK TO HER EMPLOYMENT 15
III
RESPONDENT [NLRC] GRAVELY ABUSED ITS DISCRETION WHEN IT DENIED [CADIZ'S] CLAIM FOR BACKWAGES,
ALLOWANCES, SICK LEAVE PAY, MATERNITY PAY AND MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S
FEES 16
IV
THE [CA] MISPLACED APPLICATION OF THE MATERIAL DATA RULE RESULTING TO GRAVE ABUSE OF
DISCRETION WHEN IT DISMISSED THE APPEAL17
Cadiz contends, among others, that getting pregnant outside of wedlock is not grossly immoral, especially
when both partners do not have any legal impediment to marry. Cadiz surmises that the reason for her
suspension was not because of her relationship with her then boyfriend but because of the resulting
pregnancy. Cadiz also lambasts Brent's condition for her reinstatement - that she gets married to her
boyfriend - saying that this violates the stipulation against marriage under Article 136 of the Labor Code.
Finally, Cadiz contends that there was substantial compliance with the rules of procedure, and the CA
should not have dismissed the petition. 18
Brent, meanwhile, adopts and reiterates its position before the LA and the NLRC that Cadiz's arguments
are irrational and out of context. Brent argues, among others, that for Cadiz to limit acts of immorality only
to extra-marital affairs is to "change the norms, beliefs, teachings and practices of BRENT as a Church
institution of the x x x Episcopal Church in the Philippines." 19
Ruling of the Court
Ordinarily, the Court will simply gloss over the arguments raised by Cadiz, given that the main matter dealt
with by the CA were the infirmities found in the petition and which caused the dismissal of her case before
it. In view, however, of the significance of the issues involved in Cadiz's dismissal from employment, the
Court will resolve the petition including the substantial grounds raised herein.
The issue to be resolved is whether the CA committed a reversible error in ruling that: (1) Cadiz's petition is
dismissible on ground of technical deficiencies; and (2) the NLRC did not commit grave abuse of discretion
in upholding her dismissal from employment.
Rules of procedure are mere tools
designed to facilitate the attainment
of justice
In dismissing outright Cadiz's petition, the CA found the following defects: (1) incomplete statement of
material dates; (2) failure to attach registry receipts; and (3) failure to indicate the place of issue of
counsel's PTR and IBP official receipts.
Rule 46, Section 3 of the Rules of Court states the contents of a petition filed with the CA under Rule
65, viz, "the petition shall x x x indicate the material dates showing when notice of the judgment or final
order or resolution subject thereof was received, when a motion for new trial or reconsideration, if any, was
filed and when notice of the denial thereof was received." The rationale for this is to enable the CA to
determine whether the petition was filed within the period fixed in the rules. 20 Cadiz's failure to state the
date of receipt of the copy of the NLRC decision, however, is not fatal to her case since the more
important material date which must be duly alleged in a petition is the date of receipt of the resolution of
denial of the motion for reconsideration,21 which she has duly complied with. 22
The CA also dismissed the petition for failure to attach the registry receipt in the affidavit of service. 23 Cadiz
points out, on the other hand, that the registry receipt number was indicated in the petition and this
constitutes substantial compliance with the requirement. What the rule requires, however, is that the
registry receipt must be appended to the paper being served.24 Clearly, mere indication of the registry
receipt numbers will not suffice. In fact, the absence of the registry receipts amounts to lack of proof of
service.25 Nevertheless, despite this defect, the Court finds that the ends of substantial justice would be
better served by relaxing the application of technical rules of procedure. 26 With regard to counsel's failure
to indicate the place where the IBP and PTR receipts were issued, there was substantial compliance with
the requirement since it was indicated in the verification and certification of non-forum shopping, as
correctly argued by Cadiz's lawyer. 27
Time and again, the Court has emphasized that rules of procedure are designed to secure substantial
justice. These are mere tools to expedite the decision or resolution of cases and if their strict and rigid
application would frustrate rather than promote substantial justice, then it must be avoided.28
Immorality as a just cause for
termination of employment
Both the LA and the NLRC upheld Cadiz's dismissal as one attended with just cause. The LA, while ruling
that Cadiz's indefinite suspension was tantamount to a constructive dismissal, nevertheless found that there
was just cause for her dismissal. According to the LA, "there was just cause therefor, consisting in her
engaging in premarital sexual relations with Carl Cadiz, allegedly her boyfriend, resulting in her becoming
pregnant out of wedlock."29 The LA deemed said act to be immoral, which was punishable by dismissal
under Brent's rules and which likewise constituted serious misconduct under Article 282(a) of the Labor
Code. The LA also opined that since Cadiz was Brent's Human Resource Officer in charge of implementing
its rules against immoral conduct, she should have been the "epitome of proper conduct."30 The LA ruled:
[Cadiz's] immoral conduct by having premarital sexual relations with her alleged boy friend, a former Brent
worker and her co-employee, is magnified as serious misconduct not only by her getting pregnant as a
result thereof before and without marriage, but more than that, also by the fact that Brent is an institution
of the Episcopal Church in the Philippines x x x committed to "developing competent and dedicated
professionals x x x and in providing excellent medical and other health services to the community for the
Glory of God and Service to Humanity." x x x As if these were not enough, [Cadiz] was Brent's Human
Resource Officer charged with, among others, implementing the rules of Brent against immoral conduct,
including premarital sexual relations, or fornication x x x. She should have been the epitome of proper
conduct, but miserably failed. She herself engaged in premarital sexual relations, which surely scandalized
the Brent community.xx x.31
The NLRC, for its part, sustained the LA's conclusion.
The Court, however, cannot subscribe to the labor tribunals' conclusions.
Admittedly, one of the grounds for disciplinary action under Brent's policies is immorality, which is
punishable by dismissal at first offense.32 Brent's Policy Manual provides:
CATEGORY IV
In accordance with Republic Act No. 1052,33 the following are just cause for terminating an employment of
an employee without a definite period:
xxxx
2. Serious misconduct or willful disobedience by the employee of the orders of his employer or
representative in connection with his work, such as, but not limited to the following:
xxxx
b. Commission of immoral conduct or indecency within the company premises, such as an act of
lasciviousness or any act which is sinful and vulgar in nature.
c. Immora1ity, concubinage, bigamy. 34
Its Employee's Manual of Policies, meanwhile, enumerates "[a]cts of immorality such as scandalous
behaviour, acts of lasciviousness against any person (patient, visitors, co-workers) within hospital
premises"35 as a ground for discipline and discharge. Brent also relied on Section 94 of the Manual of
Regulations for Private Schools (MRPS), which lists "disgraceful or immoral conduct" as a cause for
terminating employment. 36
Thus, the question that must be resolved is whether Cadiz's premarital relations with her boyfriend and the
resulting pregnancy out of wedlock constitute immorality. To resolve this, the Court makes reference to the
recently promulgated case of Cheryll Santos Leus v. St. Scholastica’s College Westgrove and/or Sr. Edna
Quiambao, OSB.37
Leus involved the same personal circumstances as the case at bench, albeit the employer was a Catholic
and sectarian educational institution and the petitioner, Cheryll Santos Leus (Leus ), worked as an assistant
to the school's Director of the Lay Apostolate and Community Outreach Directorate. Leus was dismissed
from employment by the school for having borne a child out of wedlock. The Court ruled in Leus that the
determination of whether a conduct is disgraceful or immoral involves a two-step process: first, a
consideration of the totality of the circumstances surrounding the conduct; and second, an assessment of
the said circumstances vis-a-vis the prevailing norms of conduct, i.e., what the society generally considers
moral and respectable.
In this case, the surrounding facts leading to Cadiz's dismissal are straightforward - she was employed as a
human resources officer in an educational and medical institution of the Episcopal Church of the
Philippines; she and her boyfriend at that time were both single; they engaged in premarital sexual
relations, which resulted into pregnancy. The labor tribunals characterized these as constituting disgraceful
or immoral conduct. They also sweepingly concluded that as Human Resource Officer, Cadiz should have
been the epitome of proper conduct and her indiscretion "surely scandalized the Brent community." 38
The foregoing circumstances, however, do not readily equate to disgraceful and immoral conduct. Brent's
Policy Manual and Employee's Manual of Policies do not define what constitutes immorality; it simply
stated immorality as a ground for disciplinary action. Instead, Brent erroneously relied on the standard
dictionary definition of fornication as a form of illicit relation and proceeded to conclude that Cadiz's acts
fell under such classification, thus constituting immorality. 39
Jurisprudence has already set the standard of morality with which an act should be gauged - it is public
and secular, not religious. 40 Whether a conduct is considered disgraceful or immoral should be made in
accordance with the prevailing norms of conduct, which, as stated in Leus, refer to those conducts which
are proscribed because they are detrimental to conditions upon which depend the existence and
progress of human society. The fact that a particular act does not conform to the traditional moral views
of a certain sectarian institution is not sufficient reason to qualify such act as immoral unless it, likewise,
does not conform to public and secular standards. More importantly, there must be substantial
evidence to establish that premarital sexual relations and pregnancy out of wedlock is considered
disgraceful or immoral.41
The totality of the circumstances of this case does not justify the conclusion that Cadiz committed acts of
immorality. Similar to Leus, Cadiz and her boyfriend were both single and had no legal impediment to
marry at the time she committed the alleged immoral conduct. In fact, they eventually married on April 15,
2008.42 Aside from these, the labor tribunals' respective conclusion that Cadiz's "indiscretion" "scandalized
the Brent community" is speculative, at most, and there is no proof adduced by Brent to support such
sweeping conclusion. Even Brent admitted that it came to know of Cadiz's "situation" only when her
pregnancy became manifest.43 Brent also conceded that "[a]t the time [Cadiz] and Carl R. Cadiz were just
carrying on their boyfriend-girlfriend relationship, there was no knowledge or evidence by [Brent] that they
were engaged also in premarital sex."44 This only goes to show that Cadiz did not flaunt her premarital
relations with her boyfriend and it was not carried on under scandalous or disgraceful circumstances. As
declared in Leus, "there is no law which penalizes an unmarried mother by reason of her sexual conduct or
proscribes the consensual sexual activity between two unmarried persons; that neither does such situation
contravene[s] any fundamental state policy enshrined in the Constitution. " 45 The fact that Brent is a
sectarian institution does not automatically subject Cadiz to its religious standard of morality absent an
express statement in its manual of personnel policy and regulations, prescribing such religious standard as
gauge as these regulations create the obligation on both the employee and the employer to abide by the
same. 46
Brent, likewise, cannot resort to the MRPS because the Court already stressed in Leus that "premarital
sexual relations between two consenting adults who have no impediment to marry each other, and,
consequently, conceiving a child out of wedlock, gauged from a purely public and secular view of
morality, does not amount to a disgraceful or immoral conduct under Section 94(e) of the 1992 MRPS."47
Marriage as a condition for
reinstatement
The doctrine of management prerogative gives an employer the right to "regulate, according to his own
discretion and judgment, all aspects of employment, including hiring, work assignments, working methods,
the time, place and manner of work, work supervision, transfer of employees, lay-off of workers, and
discipline, dismissal, and recall of employees."48 In this case, Brent imposed on Cadiz the condition that she
subsequently contract marriage with her then boyfriend for her to be reinstated. According to Brent, this is
"in consonance with the policy against encouraging illicit or common-law relations that would subvert the
sacrament of marriage."49
Statutory law is replete with legislation protecting labor and promoting equal opportunity in employment.
No less than the 1987 Constitution mandates that the "State shall afford full protection to labor, local and
overseas, organized and unorganized, and promote full employment and equality of employment
opportunities for all."50 The Labor Code of the Philippines, meanwhile, provides:
Art. 136. Stipulation against marriage. It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman employee shall not get married, or to stipulate
expressly or tacitly that upon getting married, a woman employee shall be deemed resigned or
separated, or to actually dismiss, discharge, discriminate or otherwise prejudice a woman employee
merely by reason of her marriage.
With particular regard to women, Republic Act No. 9710 or the Magna Carta of Women51 protects women
against discrimination in all matters relating to marriage and family relations, including the right to choose
freely a spouse and to enter into marriage only with their free and full consent.52
Weighed against these safeguards, it becomes apparent that Brent's condition is coercive, oppressive and
discriminatory. There is no rhyme or reason for it.1âwphi1 It forces Cadiz to marry for economic reasons and
deprives her of the freedom to choose her status, which is a privilege that inheres in her as an intangible
and inalienable right. 53 While a marriage or no-marriage qualification may be justified as a "bona fide
occupational qualification," Brent must prove two factors necessitating its imposition, viz: (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.54 Brent has not shown the presence of neither of these
factors. Perforce, the Court cannot uphold the validity of said condition.
Given the foregoing, Cadiz, therefore, is entitled to 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 should be awarded
as an alternative and as a form of financial assistance. 55 In the computation of separation pay, the Court
stresses that it should not go beyond the date an employee was deemed to have been actually separated
from employment, or beyond the date when reinstatement was rendered impossible.56 In this case, the
records do not show whether Cadiz already severed her employment with Brent or whether she is gainfully
employed elsewhere; thus, the computation of separation pay shall be pegged based on the findings that
she was employed on August 16, 2002, on her own admission in her complaint that she was dismissed on
November 17, 2006, and that she was earning a salary of P9,108.70 per month,57 which shall then be
computed at a rate of one (1) month salary for every year of service,58 as follows:
Monthly salary P9,108.70
multiplied by number of years x
in service (Aug 02 to Nov 06) 4
P36,434.80
The Court also finds that Cadiz is only entitled to limited backwages. Generally, the computation of
backwages is reckoned from the date of illegal dismissal until actual reinstatement. 59 In case separation
pay is ordered in lieu of reinstatement or reinstatement is waived by the employee, backwages is
computed from the time of dismissal until the finality of the decision ordering separation
pay. 60 Jurisprudence further clarified that the period for computing the backwages during the period of
appeal should end on the date that a higher court reversed the labor arbitration ruling of illegal
dismissal. 61 If applied in Cadiz's case, then the computation of backwages should be from November 17,
2006, which was the time of her illegal dismissal, until the date of promulgation of this decision.
Nevertheless, the Court has also recognized that the constitutional policy of providing full protection to
labor is not intended to oppress or destroy management. 62 The Court notes that at the time of Cadiz's
indefinite suspension from employment, Leus was yet to be decided by the Court. Moreover, Brent was
acting in good faith and on its honest belief that Cadiz's pregnancy out of wedlock constituted immorality.
Thus, fairness and equity dictate that the award of backwages shall only be equivalent to one (1) year or
P109,304.40, computed as follows:
Monthly salary P9,108.70
multiplied by one year x
or 12 months 12
P109,304.40
Finally, with regard to Cadiz's prayer for moral and exemplary damages, the Court finds the same without
merit. A finding of illegal dismissal, by itself, does not establish bad faith to entitle an employee to moral
damages. 63 Absent clear and convincing evidence showing that Cadiz's dismissal from Brent's employ had
been carried out in an arbitrary, capricious and malicious manner, moral and exemplary damages cannot
be awarded. The Court nevertheless grants the award of attorney's fees in the amount of ten percent
(10%) of the total monetary award, Cadiz having been forced to litigate in order to seek redress of her
grievances.64
WHEREFORE, the petition is GRANTED. The Resolutions dated July 22, 2008 and February 24, 2009 of the
Court of Appeals in CA-G.R. SP No. 02373-MIN are REVERSED and SET ASIDE, and a NEW ONE
ENTERED finding petitioner Christine Joy Capin-Cadiz to have been dismissed without just cause.
Respondent Brent Hospital and Colleges, Inc. is hereby ORDERED TO PAY petitioner Christine Joy Capin-
Cadiz:
(1) One Hundred Nine Thousand Three Hundred Four Pesos and 40/100 (Pl 09,304.40) as
backwages;
(2) Thirty-Six Thousand Four Hundred Thirty-Four Pesos and 80/100 (P36,434.80) as separation pay;
and
(3) Attorney's fees equivalent to ten percent (10%) of the total award.
The monetary awards granted shall earn legal interest at the rate of six percent (6%) per annum from the
date of the finality of this Decision until fully paid.
SO ORDERED.
G.R. No. 187226 January 28, 2015
CHERYLL SANTOS LEUS, Petitioner,
vs.
ST. SCHOLASTICA'S COLLEGE WESTGROVE and/or SR. EDNA QUIAMBAO, OSB, Respondents.
DECISION
REYES, J.:
Cheryll Santos Leus (petitioner) was hired by St. Scholastica's College Westgrove (SSCW), a Catholic
educational institution, as a non-teaching personnel, engaged in pre-marital sexual relations, got pregnant
out of wedlock, married the father of her child, and was dismissed by SSCW, in that order. The question that
has to be resolved is whether the petitioner's conduct constitutes a ground for her dismissal.
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision1 dated September 24, 2008 and Resolution2 dated March 2, 2009 issued by the
Court of Appeals (CA) in CA-G.R. SP No. 100188, which affirmed the Resolutions dated February 28,
20073 and May 21, 20074 of the National Labor Relations Commission (NLRC)in NLRC CA No. 049222-06.
The Facts
SSCW is a catholic and sectarian educational institution in Silang, Cavite. In May 2001, SSCW hired the
petitioner as an Assistant to SSCW’s Director of the Lay Apostolate and Community Outreach Directorate.
Sometime in 2003, the petitioner and her boyfriend conceived a child out of wedlock. When SSCW learned
of the petitioner’s pregnancy, Sr. Edna Quiambao (Sr. Quiambao), SSCW’s Directress, advised her to file a
resignation letter effective June 1, 2003. In response, the petitioner informed Sr. Quiambao that she would
not resign from her employment just because she got pregnant without the benefit of marriage.5
On May 28, 2003, Sr. Quiambao formally directed the petitioner to explain in writing why she should not be
dismissed for engaging in pre-marital sexual relations and getting pregnant as a result thereof, which
amounts to serious misconduct and conduct unbecoming of an employee of a Catholic school.6
In a letter7 dated May 31, 2003, the petitioner explained that her pregnancy out of wedlock does not
amount to serious misconduct or conduct unbecoming of an employee. She averred that she is unaware
of any school policy stating that being pregnant out of wedlock is considered as a serious misconduct
and, thus, a ground for dismissal. Further, the petitioner requested a copy of SSCW’s policy and guidelines
so that she may better respond to the charge against her. On June 2, 2003, Sr. Quiambao informed the
petitioner that, pending the promulgation of a "Support Staff Handbook," SSCW follows the 1992 Manual of
Regulations for Private Schools (1992 MRPS) on the causes for termination of employments; that Section
94(e) of the 1992 MRPS cites "disgraceful or immoral conduct" as a ground for dismissal in addition to the
just causes for termination of employment provided under Article 282 of the Labor Code.8
On June 4, 2003, the petitioner, through counsel, sent Sr. Quiambao a letter,9 which, in part, reads:
To us, pre-marital sex between two consenting adults without legal impediment to marry each other who
later on married each other does not fall within the contemplation of "disgraceful or immoral conduct" and
"serious misconduct" of the Manual of Regulations for Private Schools and the Labor Code of the
Philippines.
Your argument that what happened to our client would set a bad example to the students and other
employees of your school is speculative and is more imaginary than real. To dismiss her on that sole ground
constitutes grave abuse of management prerogatives.
Considering her untarnished service for two years, dismissing her with her present condition would also
mean depriving her to be more secure in terms of financial capacity to sustain maternal needs.10
In a letter11 dated June 6, 2003, SSCW, through counsel, maintained that pre-marital sexual relations, evenif
between two consenting adults without legal impediment to marry, is considered a disgraceful and
immoral conduct or a serious misconduct, which are grounds for the termination of employment under the
1992 MRPS and the Labor Code. That SSCW, as a Catholic institution of learning, has the right to uphold the
teaching of the Catholic Church and expect its employees to abide by the same. They further asserted
that the petitioner’s indiscretion is further aggravated by the fact that she is the Assistant to the Director of
the Lay Apostolate and Community Outreach Directorate, a position of responsibility that the students look
up to as rolemodel. The petitioner was again directed to submit a written explanation on why she should
not be dismissed.
On June 9, 2003, the petitioner informed Sr. Quiambao that she adopts her counsel’s letter dated June 4,
2003 as her written explanation.12
Consequently, in her letter13 dated June 11, 2003, Sr. Quiambao informed the petitioner that her
employment with SSCW is terminated on the ground of serious misconduct. She stressed that pre-marital
sexual relations between two consenting adults with no impediment to marry, even if they subsequently
married, amounts to immoral conduct. She further pointed out that SSCW finds unacceptable the scandal
brought about by the petitioner’s pregnancy out of wedlock as it ran counter to the moral principles that
SSCW stands for and teaches its students.
Thereupon, the petitioner filed a complaint for illegal dismissal with the Regional Arbitration Branch of the
NLRC in Quezon City against SSCW and Sr. Quiambao (respondents). In her position paper,14 the petitioner
claimed that SSCW gravely abused its management prerogative as there was no just cause for her
dismissal. She maintained that her pregnancy out of wedlock cannot be considered as serious misconduct
since the same is a purely private affair and not connected in any way with her duties as an employee of
SSCW. Further, the petitioner averred that she and her boyfriend eventually got married even prior to her
dismissal.
For their part, SSCW claimed that there was just cause to terminate the petitioner’s employment with SSCW
and that the same is a valid exercise of SSCW’s management prerogative. They maintained that engaging
in pre-marital sex, and getting pregnant as a result thereof, amounts to a disgraceful or immoral conduct,
which is a ground for the dismissal of an employee under the 1992 MRPS.
They pointed out that SSCW is a Catholic educational institution, which caters exclusively to young girls;
that SSCW would lose its credibility if it would maintain employees who do not live up to the values and
teachings it inculcates to its students. SSCW further asserted that the petitioner, being an employee of a
Catholic educational institution, should have strived to maintain the honor, dignity and reputation of SSCW
as a Catholic school.15
The Ruling of the Labor Arbiter
On February 28, 2006, the Labor Arbiter (LA) rendered a Decision,16 in NLRC Case No. 6-17657-03-C which
dismissed the complaint filed by the petitioner. The LA found that there was a valid ground for the
petitioner’s dismissal; that her pregnancy out of wedlock is considered as a "disgraceful and immoral
conduct." The LA pointed out that, as an employee of a Catholic educational institution, the petitioner is
expected to live up to the Catholic values taught by SSCW to its students. Likewise, the LA opined that:
Further, a deep analysis of the facts would lead us to disagree with the complainant that she was
dismissed simply because she violate[d] a Catholic [teaching]. It should not be taken in isolation but rather
it should be analyzed in the lightof the surrounding circumstances as a whole. We must also take into
[consideration] the nature of her work and the nature of her employer-school. For us, it is not just an
ordinary violation. It was committed by the complainant in an environment where her strict adherence to
the same is called for and where the reputation of the school is at stake. x x x.17
The LA further held that teachers and school employees, both in their official and personal conduct, must
display exemplary behavior and act in a manner that is beyond reproach.
The petitioner appealed to the NLRC, insisting that there was no valid ground for the termination of her
employment. She maintained that her pregnancy out of wedlock cannot be considered as "serious
misconduct" under Article 282 of the Labor Code since the same was not of such a grave and aggravated
character. She asserted that SSCW did not present any evidence to establish that her pregnancy out of
wedlock indeed eroded the moral principles that it teaches its students.18
The Ruling of the NLRC
On February 28, 2007, the NLRC issued a Resolution,19 which affirmed the LA Decision dated February 28,
2006. The NLRC pointed out that the termination of the employment of the personnel of private schools is
governed by the 1992 MRPS; that Section 94(e) thereof cites "disgraceful or immoral conduct" as a just
cause for dismissal, in addition to the grounds for termination of employment provided for under Article 282
of the Labor Code. The NLRC held that the petitioner’s pregnancy out of wedlock is a "disgraceful or
immoral conduct" within the contemplation of Section 94(e) of the 1992 MRPS and, thus, SSCW had a valid
reason to terminate her employment.
The petitioner sought reconsideration20 of the Resolution dated February 28, 2007 but it was denied by the
NLRC in its Resolution21 dated May 21, 2007.
Unperturbed, the petitioner filed a petition22 for certiorari with the CA, alleging that the NLRC gravely
abused its discretion in ruling that there was a valid ground for her dismissal. She maintained that
pregnancy out of wedlock cannot be considered as a disgraceful or immoral conduct; that SSCW failed
to prove that its students were indeed gravely scandalized by her pregnancy out of wedlock. She likewise
asserted that the NLRC erred in applying Section 94(e) of the 1992 MRPS.
The Ruling of the CA
On September 24, 2008, the CA rendered the herein assailed Decision,23 which denied the petition for
certiorari filed by the petitioner. The CA held that it is the provisions of the 1992 MRPS and not the Labor
Code which governs the termination of employment of teaching and non-teaching personnel of private
schools, explaining that:
It is a principle of statutory construction that where there are two statutes that apply to a particular case,
that which was specially intended for the said case must prevail. Petitioner was employed by respondent
private Catholic institution which undeniably follows the precepts or norms of conduct set forth by the
Catholic Church. Accordingly, the Manual of Regulations for Private Schools followed by it must prevail
over the Labor Code, a general statute. The Manual constitutes the private schools’ Implementing Rules
and Regulations of Batas Pambansa Blg. 232 or the Education Act of 1982. x x x.24
The CA further held that the petitioner’s dismissal was a valid exercise of SSCW’s management prerogative
to discipline and impose penalties on erring employees pursuant toits policies, rules and regulations. The
CA upheld the NLRC’s conclusion that the petitioner’s pregnancy out of wedlock is considered as a
"disgraceful and immoral conduct" and, thus, a ground for dismissal under Section 94(e) of the 1992 MRPS.
The CA likewise opined that the petitioner’s pregnancy out of wedlock is scandalous per segiven the work
environment and social milieu that she was in, viz:
Under Section 94 (e) of the [MRPS], and even under Article 282 (serious misconduct) of the Labor Code,
"disgraceful and immoral conduct" is a basis for termination of employment.
xxxx
Petitioner contends that her pre-marital sexual relations with her boyfriend and her pregnancy prior to
marriage was not disgraceful or immoral conduct sufficient for her dismissal because she was not a
member of the school’s faculty and there is no evidence that her pregnancy scandalized the school
community.
We are not persuaded. Petitioner’s pregnancy prior to marriage is scandalous in itself given the work
environment and social milieu she was in. Respondent school for young ladies precisely seeks to prevent its
students from situations like this, inculcating in them strict moral values and standards. Being part of the
institution, petitioner’sprivate and public life could not be separated. Her admitted pre-marital sexual
relations was a violation of private respondent’s prescribed standards of conduct that views pre-marital
sex as immoral because sex between a man and a woman must only take place within the bounds of
marriage.
Finally, petitioner’s dismissal is a valid exercise of the employer-school’s management prerogative to
discipline and impose penalties on erring employees pursuant to its policies, rules and regulations. x x
x.25 (Citations omitted)
The petitioner moved for reconsideration26 but it was denied by the CA in its Resolution27 dated March 2,
2009.
Hence, the instant petition.
Issues
Essentially, the issues set forth by the petitioner for this Court’s decision are the following: first, whether the
CA committed reversible error in ruling that it is the 1992 MRPS and not the Labor Code that governs the
termination of employment of teaching and non-teaching personnel of private schools; and second,
whether the petitioner’spregnancy out of wedlock constitutes a valid ground to terminate her
employment.
The Ruling of the Court
The Court grants the petition.
First Issue: Applicability of the 1992 MRPS
The petitioner contends that the CA, in ruling that there was a valid ground to dismiss her, erred in applying
Section 94 of the 1992 MRPS. Essentially, she claims that the 1992 MRPS was issued by the Secretary of
Education as the revised implementing rules and regulations of Batas Pambansa Bilang 232 (BP 232) or the
"Education Act of 1982." That there is no provision in BP 232, which provides for the grounds for the
termination of employment of teaching and non-teaching personnel of private schools. Thus, Section 94 of
the 1992 MRPS, which provides for the causes of terminating an employment, isinvalid as it "widened the
scope and coverage" of BP 232.
The Court does not agree.
The Court notes that the argument against the validity of the 1992 MRPS, specifically Section 94 thereof, is
raised by the petitioner for the first time in the instant petition for review. Nowhere in the proceedings
before the LA, the NLRC or the CA did the petitioner assail the validity of the provisions of the 1992 MRPS.
"It is well established that issues raised for the first time on appeal and not raised in the proceedings in the
lower court are barred by estoppel. Points of law, theories, issues, and arguments not brought to the
attention of the trial court ought not to be considered by a reviewing court, as these cannot be raised for
the first time on appeal. To consider the alleged facts and arguments belatedly raised would amount to
trampling on the basic principles of fair play, justice, and due process."28
In any case, even if the Court were to disregard the petitioner’s belated claim of the invalidity of the 1992
MRPS, the Court still finds the same untenable.
The 1992 MRPS, the regulation in force at the time of the instant controversy, was issued by the Secretary of
Education pursuant to BP 232. Section 7029 of BP 232 vests the Secretary of Education with the authority to
issue rules and regulations to implement the provisions of BP 232. Concomitantly, Section 5730 specifically
empowers the Department of Education to promulgate rules and regulations necessary for the
administration, supervision and regulation of the educational system in accordance with the declared
policy of BP 232.
The qualifications of teaching and non-teaching personnel of private schools, as well as the causes for the
termination of their employment, are an integral aspect of the educational system of private schools.
Indubitably, ensuring that the teaching and non-teaching personnel of private schools are not only
qualified, but competent and efficient as well goes hand in hand with the declared objective of BP 232 –
establishing and maintaining relevant quality education.31 It is thus within the authority of the Secretary of
Education to issue a rule, which provides for the dismissal of teaching and non-teaching personnel of
private schools based on their incompetence, inefficiency, or some other disqualification.
Moreover, Section 69 of BP 232 specifically authorizes the Secretary of Education to "prescribe and impose
such administrative sanction as he may deem reasonable and appropriate in the implementing rules and
regulations" for the "[g]ross inefficiency of the teaching or non-teaching personnel" of private
schools.32 Accordingly, contrary to the petitioner’s claim, the Court sees no reason to invalidate the
provisions of the 1992 MRPS, specifically Section 94 thereof. Second Issue: Validity of the Petitioner’s
Dismissal
The validity of the petitioner’s dismissal hinges on the determination of whether pregnancy out of wedlock
by an employee of a catholic educational institution is a cause for the termination of her employment.
In resolving the foregoing question,the Court will assess the matter from a strictly neutral and secular point
of view – the relationship between SSCW as employer and the petitioner as an employee, the causes
provided for by law in the termination of suchrelationship, and the evidence on record. The ground cited
for the petitioner’s dismissal, i.e., pre-marital sexual relations and, consequently, pregnancy outof wedlock,
will be assessed as to whether the same constitutes a valid ground for dismissal pursuant to Section 94(e) of
the 1992 MRPS.
The standard of review in a Rule 45
petition from the CA decision in
labor cases.
In a petition for review under Rule 45 of the Rules of Court, such as the instant petition, where the CA’s
disposition in a labor case is sought to be calibrated, the Court’s review isquite limited. In ruling for legal
correctness, the Court has to view the CA decision in the same context that the petition for certiorari it
ruled upon was presented to it; the Court has to examine the CA decision from the prism of whether it
correctly determined the presence or absence of grave abuse of discretion in the NLRC decision before it,
not on the basis of whether the NLRC decision on the merits of the case was correct.33
The phrase "grave abuse of discretion" is well-defined in the Court’s jurisprudence. It exists where an act of
a court or tribunal is performed with a capricious or whimsical exercise ofjudgment equivalent to lack of
jurisdiction.34 The determination of the presence or absence of grave abuse of discretion does not include
an inquiry into the correctness of the evaluation of evidence, which was the basis of the labor agency in
reaching its conclusion.35
Nevertheless, while a certiorari proceeding does not strictly include an inquiry as to the correctness of the
evaluation of evidence (that was the basis of the labor tribunals in determining their conclusion), the
incorrectness of its evidentiary evaluation should not result in negating the requirement of substantial
evidence. Indeed, when there is a showing that the findings or conclusions, drawn from the same pieces of
evidence, were arrived at arbitrarily or in disregard of the evidence on record, they may be reviewed by
the courts. In particular, the CA can grant the petition for certiorariif it finds that the NLRC, in its assailed
decision or resolution, made a factual finding not supported by substantial evidence. A decision that is not
supported by substantial evidence is definitely a decision tainted with grave abuse of discretion.36
The labor tribunals’ respective
conclusions that the petitioner’s
pregnancy is a "disgraceful or
immoral conduct" were arrived at
arbitrarily.
The CA and the labor tribunals affirmed the validity of the petitioner’s dismissal pursuant to Section 94(e) of
the 1992 MRPS, which provides that:
Sec. 94. Causes of Terminating Employment – In addition to the just causes enumerated in the Labor Code,
the employment of school personnel, including faculty, may be terminated for any of the following causes:
xxxx
e. Disgraceful or immoral conduct;
xxxx
The labor tribunals concluded that the petitioner’s pregnancy out of wedlock, per se, is "disgraceful and
immoral"considering that she is employed in a Catholic educational institution. In arriving at such
conclusion, the labor tribunals merely assessed the fact of the petitioner’s pregnancy vis-à-visthe totality of
the circumstances surrounding the same.
However, the Court finds no substantial evidence to support the aforementioned conclusion arrived at by
the labor tribunals. The fact of the petitioner’s pregnancy out of wedlock, without more, is not enough to
characterize the petitioner’s conduct as disgraceful or immoral. There must be substantial evidence to
establish that pre-marital sexual relations and, consequently, pregnancy outof wedlock, are indeed
considered disgraceful or immoral.
The totality of the circumstances
surrounding the conduct alleged to
be disgraceful or immoral must be
assessed against the prevailing
norms of conduct.
In Chua-Qua v. Clave,37 the Court stressed that to constitute immorality, the circumstances of each
particular case must be holistically considered and evaluated in light of the prevailing norms of
conductand applicable laws.38 Otherwise stated, it is not the totality of the circumstances surrounding the
conduct per se that determines whether the same is disgraceful or immoral, but the conduct that is
generally accepted by society as respectable or moral. If the conduct does not conform to what society
generally views as respectable or moral, then the conduct is considered as disgraceful or immoral. Tersely
put, substantial evidence must be presented, which would establish that a particular conduct, viewed in
light of the prevailing norms of conduct, is considered disgraceful or immoral.
Thus, the determination of whether a conduct is disgraceful or immoral involves a two-step process: first, a
consideration of the totality of the circumstances surrounding the conduct; and second, an assessment of
the said circumstances vis-à-visthe prevailing norms of conduct, i.e., what the society generally considers
moral and respectable.
That the petitioner was employed by a Catholic educational institution per se does not absolutely
determine whether her pregnancy out of wedlock is disgraceful or immoral. There is still a necessity to
determine whether the petitioner’s pregnancy out of wedlock is considered disgraceful or immoral in
accordance with the prevailing norms of conduct.
Public and secular morality should
determine the prevailing norms of
conduct, not religious morality.
However, determining what the prevailing norms of conduct are considered disgraceful or immoral is not
an easy task. An individual’s perception of what is moral or respectable is a confluence of a myriad of
influences, such as religion, family, social status, and a cacophony of others. In this regard, the Court’s
ratiocination in Estrada v. Escritor39 is instructive.
In Estrada, an administrative case against a court interpreter charged with disgraceful and immoral
conduct, the Court stressed that in determining whether a particular conduct can be considered as
disgraceful and immoral, the distinction between public and secular morality on the one hand, and
religious morality, on the other, should be kept in mind.40 That the distinction between public and secular
morality and religious morality is important because the jurisdiction of the Court extends only to public and
secular morality.41 The Court further explained that:
The morality referred to in the law is public and necessarily secular, not religiousx x x. "Religious teachings as
expressed in public debate may influence the civil public order but public moral disputes may be resolved
only on grounds articulable in secular terms." Otherwise, if government relies upon religious beliefs in
formulating public policies and morals, the resulting policies and morals would require conformity to what
some might regard as religious programs or agenda.The non-believers would therefore be compelled to
conform to a standard of conduct buttressed by a religious belief, i.e., to a "compelled religion," anathema
to religious freedom. Likewise, if government based its actions upon religious beliefs, it would tacitly
approve or endorse that belief and thereby also tacitly disapprove contrary religious or non-religious views
that would not support the policy. As a result, government will not provide full religious freedom for all its
citizens, or even make it appear that those whose beliefs are disapproved are second-class citizens.
Expansive religious freedom therefore requires that government be neutral in matters of religion;
governmental reliance upon religious justification is inconsistent with this policy of neutrality.
In other words, government action, including its proscription of immorality as expressed in criminal law like
concubinage, must have a secular purpose. That is, the government proscribes this conduct because it is
"detrimental (or dangerous) to those conditions upon which depend the existence and progress of human
society" and not because the conduct is proscribed by the beliefs of one religion or the other. Although
admittedly, moral judgments based on religion might have a compelling influence on those engaged in
public deliberations over what actions would be considered a moral disapprobation punishable by law.
After all, they might also be adherents of a religion and thus have religious opinions and moral codes with
a compelling influence on them; the human mind endeavors to regulate the temporal and spiritual
institutions of society in a uniform manner, harmonizing earth with heaven. Succinctly put, a law could be
religious or Kantian or Aquinian or utilitarian in its deepest roots, but it must have an articulable and
discernible secular purpose and justification to pass scrutiny of the religion clauses.x x x.42 (Citations omitted
and emphases ours)
Accordingly, when the law speaks of immoral or, necessarily, disgraceful conduct, it pertains to public and
secular morality; it refers to those conducts which are proscribed because they are detrimental to
conditions upon which depend the existence and progress of human society. Thus, in Anonymous v.
Radam,43 an administrative case involving a court utility worker likewise charged with disgraceful and
immoral conduct, applying the doctrines laid down in Estrada, the Court held that:
For a particular conduct to constitute "disgraceful and immoral" behavior under civil service laws, it must
be regulated on account of the concerns of public and secular morality. It cannot be judged based on
personal bias, specifically those colored by particular mores. Nor should it be grounded on "cultural" values
not convincingly demonstrated to have been recognized in the realm of public policy expressed in the
Constitution and the laws. At the same time, the constitutionally guaranteed rights (such as the right to
privacy) should be observed to the extent that they protect behavior that may be frowned upon by the
majority.
Under these tests, two things may be concluded from the fact that an unmarried woman gives birth out of
wedlock:
(1) if the father of the child is himself unmarried, the woman is not ordinarily administratively liable
for disgraceful and immoral conduct.It may be a not-so-ideal situation and may cause
complications for both mother and child but it does not give cause for administrative sanction.
There is no law which penalizes an unmarried mother under those circumstances by reason of her
sexual conduct or proscribes the consensual sexual activity between two unmarried persons.
Neither does the situation contravene any fundamental state policy as expressed in the
Constitution, a document that accommodates various belief systems irrespective of dogmatic
origins.
(2) if the father of the child born out of wedlock is himself married to a woman other thanthe
mother, then there is a cause for administrative sanction against either the father or the mother.
In sucha case, the "disgraceful and immoral conduct" consists of having extramarital relations
with a married person. The sanctity of marriage is constitutionally recognized and likewise
affirmed by our statutes as a special contract of permanent union. Accordingly, judicial
employees have been sanctioned for their dalliances with married persons or for their own
betrayals of the marital vow of fidelity.
In this case, it was not disputed that, like respondent, the father of her child was unmarried. Therefore,
respondent cannot be held liable for disgraceful and immoral conduct simply because she gave birth to
the child Christian Jeon out of wedlock.44 (Citations omitted and emphases ours)
Both Estrada and Radamare administrative cases against employees in the civil service. The Court,
however, sees no reason not to apply the doctrines enunciated in Estrada and Radamin the instant case.
Estrada and Radamalso required the Court to delineate what conducts are considered disgraceful and/or
immoral as would constitute a ground for dismissal. More importantly, as in the said administrative cases,
the instant case involves an employee’s security of tenure; this case likewise concerns employment, which
is not merely a specie of property right, but also the means by which the employee and those who
depend on him live.45
It bears stressing that the right of an employee to security of tenure is protected by the Constitution.
Perfunctorily, a regular employee may not be dismissed unless for cause provided under the Labor Code
and other relevant laws, in this case, the 1992 MRPS. As stated above, when the law refers to morality, it
necessarily pertains to public and secular morality and not religious morality. Thus, the proscription against
"disgraceful or immoral conduct" under Section 94(e) of the 1992 MRPS, which is made as a cause for
dismissal, must necessarily refer to public and secular morality. Accordingly, in order for a conduct tobe
considered as disgraceful or immoral, it must be "‘detrimental (or dangerous) to those conditions upon
which depend the existence and progress of human society’ and not because the conduct is proscribed
by the beliefs of one religion or the other."
Thus, in Santos v. NLRC,46 the Court upheld the dismissal of a teacher who had an extra-marital affair with
his co-teacher, who is likewise married, on the ground of disgraceful and immoral conduct under Section
94(e) of the 1992 MRPS. The Court pointed out that extra-marital affair is considered as a disgraceful and
immoral conduct is an afront to the sanctity of marriage, which is a basic institution of society, viz:
We cannot overemphasize that having an extra-marital affair is an afront to the sanctity of marriage,
which is a basic institution of society. Even our Family Code provides that husband and wife must live
together, observe mutual love, respect and fidelity. This is rooted in the fact that both our Constitution and
our laws cherish the validity of marriage and unity of the family. Our laws, in implementing this
constitutional edict on marriage and the family underscore their permanence, inviolability and solidarity.47
The petitioner’s pregnancy out of
wedlock is not a disgraceful or
immoral conduct since she and the
father of her child have no
impediment to marry each other.
In stark contrast to Santos, the Court does not find any circumstance in this case which would lead the
Court to conclude that the petitioner committed a disgraceful or immoral conduct. It bears stressing that
the petitioner and her boyfriend, at the time they conceived a child, had no legal impediment to marry.
Indeed, even prior to her dismissal, the petitioner married her boyfriend, the father of her child. As the
Court held in Radam, there is no law which penalizes an unmarried mother by reason of her sexual
conduct or proscribes the consensual sexual activity between two unmarried persons; that neither does
such situation contravene any fundamental state policy enshrined in the Constitution.
Admittedly, the petitioner is employed in an educational institution where the teachings and doctrines of
the Catholic Church, including that on pre-marital sexual relations, is strictly upheld and taught to the
students. That her indiscretion, which resulted in her pregnancy out of wedlock, is anathema to the
doctrines of the Catholic Church. However, viewed against the prevailing norms of conduct, the
petitioner’s conduct cannot be considered as disgraceful or immoral; such conduct is not denounced by
public and secular morality. It may be an unusual arrangement, but it certainly is not disgraceful or
immoral within the contemplation of the law.
To stress, pre-marital sexual relations between two consenting adults who have no impediment to marry
each other, and, consequently, conceiving a child out of wedlock, gauged from a purely public and
secular view of morality, does not amount to a disgraceful or immoral conduct under Section 94(e) of the
1992 MRPS.
Accordingly, the labor tribunals erred in upholding the validity of the petitioner’s dismissal. The labor
tribunals arbitrarily relied solely on the circumstances surrounding the petitioner’s pregnancy and its
supposed effect on SSCW and its students without evaluating whether the petitioner’s conduct is indeed
considered disgraceful or immoral in view of the prevailing norms of conduct. In this regard, the labor
tribunals’ respective haphazard evaluation of the evidence amounts to grave abuse of discretion, which
the Court will rectify.
The labor tribunals’ finding that the petitioner’s pregnancy out of wedlock despite the absence of
substantial evidence is not only arbitrary, but a grave abuse of discretion, which should have been set right
by the CA.
There is no substantial evidence to
prove that the petitioner’s pregnancy
out of wedlock caused grave scandal
to SSCW and its students.
SSCW claimed that the petitioner was primarily dismissed because her pregnancy out of wedlock caused
grave scandal to SSCW and its students. That the scandal brought about by the petitioner’s indiscretion
prompted them to dismiss her. The LA upheld the respondents’ claim, stating that:
In this particular case, an "objective" and "rational evaluation" of the facts and circumstances obtaining in
this case would lead us to focus our attention x x x on the impact of the act committed by the
complainant. The act of the complainant x x x eroded the moral principles being taught and project[ed]
by the respondent [C]atholic school to their young lady students.48 (Emphasis in the original)
On the other hand, the NLRC opined that:
In the instant case, when the complainant-appellant was already conceiving a child even before she got
married, such is considered a shameful and scandalous behavior, inimical to public welfare and policy. It
eroded the moral doctrines which the respondent Catholic school, an exclusive school for girls, is teaching
the young girls. Thus, when the respondent-appellee school terminated complainant-appellant’s services,
it was a valid exercise of its management prerogative. Whether or not she was a teacher is of no moment.
There is no separate set of rules for non-teaching personnel. Respondents-appellees uphold the teachings
of the Catholic Church on pre-marital sex and that the complainant-appellant as an employee of the
school was expected to abide by this basic principle and to live up with the standards of their purely
Catholic values. Her subsequent marriage did not take away the fact that she had engaged in pre-marital
sex which the respondent-appellee school denounces as the same is opposed to the teachings and
doctrines it espouses.49 (Emphasis ours)
Contrary to the labor tribunals’ declarations, the Court finds that SSCW failed to adduce substantial
evidence to prove that the petitioner’s indiscretion indeed caused grave scandal to SSCW and its
students. Other than the SSCW’s bare allegation, the records are bereft of any evidence that would
convincingly prove that the petitioner’s conduct indeed adversely affected SSCW’s integrity in teaching
the moral doctrines, which it stands for. The petitioner is only a non-teaching personnel; her interaction with
SSCW’s students is very limited. Itis thus quite impossible that her pregnancy out of wedlock caused such a
grave scandal, as claimed by SSCW, as to warranther dismissal.
Settled is the rule that in termination cases, the burden of proving that the dismissal of the employees was
for a valid and authorized cause rests on the employer. It is incumbent upon the employer to show by
substantial evidence that the termination of the employment of the employees was validly made and
failure to discharge that duty would mean that the dismissal is not justified and therefore
illegal.50 "Substantial evidence is more than a mere scintilla of evidence. It means such relevant evidence
as a reasonable mind might accept as adequateto support a conclusion, even if other minds equally
reasonable mightconceivably opine otherwise."51
Indubitably, bare allegations do not amount to substantial evidence. Considering that the respondents
failed to adduce substantial evidence to prove their asserted cause for the petitioner’s dismissal, the labor
tribunals should not have upheld their allegations hook, line and sinker. The labor tribunals’ respective
findings, which were arrived at sans any substantial evidence, amounts to a grave abuse of discretion,
which the CA should have rectified. "Security of tenure is a right which may not be denied on mere
speculation of any unclearand nebulous basis."52
The petitioner’s dismissal is not a
valid exercise of SSCW’s
management prerogative.
The CA be labored the management prerogative of SSCW to discipline its employees. The CA opined that
the petitioner’s dismissal is a valid exercise of management prerogative to impose penalties on erring
employees pursuant to its policies, rules and regulations.
The Court does not agree.
The Court has 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. The exercise of management
prerogative, however, is not absolute as it must beexercised in good faith and with due regard to the rights
of labor." Management cannot exercise its prerogative in a cruel, repressive, or despotic manner.53
SSCW, as employer, undeniably has the right to discipline its employees and, if need be, dismiss themif
there is a valid cause to do so. However, as already explained, there is no cause to dismiss the petitioner.
Her conduct is not considered by law as disgraceful or immoral. Further, the respondents themselves have
admitted that SSCW, at the time of the controversy, does not have any policy or rule against an employee
who engages in pre-marital sexual relations and conceives a child as a result thereof. There being no valid
basis in law or even in SSCW’s policy and rules, SSCW’s dismissal of the petitioner is despotic and arbitrary
and, thus, not a valid exercise of management prerogative.
In sum, the Court finds that the petitioner was illegally dismissed as there was no just cause for the
termination of her employment. SSCW failed to adduce substantial evidence to establish that the
petitioner’s conduct, i.e., engaging in pre-marital sexual relations and conceiving a child out of wedlock,
assessed in light of the prevailing norms of conduct, is considered disgraceful or immoral. The labor
tribunals gravely abused their discretion in upholding the validity of the petitioner’s dismissal as the charge
against the petitioner lay not on substantial evidence, but on the bare allegations of SSCW. In turn, the CA
committed reversible error in upholding the validity of the petitioner’s dismissal, failing torecognize that the
labor tribunals gravely abused their discretion in ruling for the respondents.
The petitioner is entitled to
separation pay, in lieu of actual
reinstatement, full backwages and
attorney’s fees, but not to moral and
exemplary damages.
Having established that the petitioner was illegally dismissed, the Court now determines the reliefs thatshe
is entitled to and their extent. Under the law and prevailing jurisprudence, "an illegally dismissed employee
is entitled to reinstatement as a matter of right."54 Aside from the instances provided under Articles
28355 and 28456 of the Labor Code, separation pay is, however, granted when reinstatement is no longer
feasible because of strained relations between the employer and the employee. In cases of illegal
dismissal, the accepted doctrine is that separation pay is available in lieu of reinstatement when the latter
recourse is no longer practical or in the best interest of the parties.57
In Divine Word High School v. NLRC,58 the Court ordered the employer Catholic school to pay the illegally
dismissed high school teacher separation pay in lieu of actual reinstatement since her continued presence
as a teacher in the school "may well bemet with antipathy and antagonism by some sectors in the school
community."59
In view of the particular circumstances of this case, it would be more prudent to direct SSCW to pay the
petitioner separation pay inlieu of actual reinstatement. The continued employment of the petitioner with
SSCW would only serve to intensify the atmosphere of antipathy and antagonism between the parties.
Consequently, the Court awards separation pay to the petitioner equivalent to one (1) month pay for
every year of service, with a fraction of at least six (6) months considered as one (1) whole year, from the
time of her illegal dismissal up to the finality of this judgment, as an alternative to reinstatement.
Also, "employees who are illegally dismissed are entitled to full backwages, inclusive of allowances and
other benefits or their monetary equivalent, computed from the time their actual compensation was
withheld from them up to the time of their actual reinstatement but if reinstatement is no longer possible,
the backwages shall be computed from the time of their illegal termination up to the finality of the
decision."60 Accordingly, the petitioner is entitled to an award of full backwages from the time she was
illegally dismissed up to the finality of this decision.
Nevertheless, the petitioner is not entitled to moral and exemplary damages. "A dismissed employee
isentitled to moral damages when the dismissal is attended by bad faith or fraud or constitutes an act
oppressive to labor, or is done in a manner contrary to good morals, good customs or public policy.
Exemplary damages may be awarded if the dismissal is effected in a wanton, oppressive or malevolent
manner."61
"Bad faith, under the law, does not simply connote bad judgment or negligence.1âwphi1 It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, or a breach of a known duty
through some motive or interest or ill will that partakes of the nature of fraud." 62
"It must be noted that the burden of proving bad faith rests on the one alleging it"63 since basic is the
principle that good faith is presumed and he who alleges bad faith has the duty to prove the
same.64 "Allegations of bad faith and fraud must be proved by clear and convincing evidence."65
The records of this case are bereft of any clear and convincing evidence showing that the respondents
acted in bad faith or in a wanton or fraudulent manner in dismissing the petitioner. That the petitioner was
illegally dismissed is insufficient to prove bad faith. A dismissal may be contrary to law but by itself alone, it
does not establish bad faith to entitle the dismissed employee to moral damages. The award of moral and
exemplary damages cannot be justified solely upon the premise that the employer dismissed his employee
without cause.66
However, the petitioner is entitled to attorney’s fees in the amount of 10% of the total monetary award
pursuant to Article 11167 of the Labor Code. "It is settled that where an employee was forced to litigate
and, thus, incur expenses to protect his rights and interest, the award of attorney’s fees is legally and
morally justifiable."68
Finally, legal interest shall be imposed on the monetary awards herein granted at the rate of six percent
(6%) per annumfrom the finality of this judgment until fully paid.69
WHEREFORE, in consideration of the foregoing disquisitions, the petition is GRANTED. The Decision dated
September 24, 2008 and Resolution dated March 2, 2009 of the Court of Appeals in CA-G.R. SP No. 100188
are hereby REVERSED and SET ASIDE.
The respondent, St. Scholastica’s College Westgrove, is hereby declared guilty of illegal dismissal and is
hereby ORDERED to pay the petitioner, Cheryll Santos Leus, the following: (a) separation pay in lieu of
actual reinstatement equivalent to one (1) month pay for every year of service, with a fraction of at least
six (6) months considered as one (1) whole year from the time of her dismissal up to the finality of this
Decision; (b) full backwages from the time of her illegal dismissal up to the finality of this Decision; and (c)
attorney’s fees equivalent to ten percent (10%) of the total monetary award. The monetary awards herein
granted shall earn legal interest at the rate of six percent (6%) per annumfrom the date of the finality of this
Decision untilfully paid. The case is REMANDED to the Labor Arbiter for the computation of petitioner’s
monetary awards.
SO ORDERED.
G.R. No. 164774 April 12, 2006
STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN CHUA, Petitioners,
vs.
RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E. ESTRELLA, Respondents.
DECISION
PUNO, J.:
We are called to decide an issue of first impression: whether the policy of the employer banning spouses
from working in the same company violates the rights of the employee under the Constitution and the
Labor Code or is a valid exercise of management prerogative.
At bar is a Petition for Review on Certiorari of the Decision of the Court of Appeals dated August 3, 2004 in
CA-G.R. SP No. 73477 reversing the decision of the National Labor Relations Commission (NLRC) which
affirmed the ruling of the Labor Arbiter.
Petitioner Star Paper Corporation (the company) is a corporation engaged in trading – principally of paper
products. Josephine Ongsitco is its Manager of the Personnel and Administration Department while
Sebastian Chua is its Managing Director.
The evidence for the petitioners show that respondents Ronaldo D. Simbol (Simbol), Wilfreda N. Comia
(Comia) and Lorna E. Estrella (Estrella) were all regular employees of the company.1
Simbol was employed by the company on October 27, 1993. He met Alma Dayrit, also an employee of the
company, whom he married on June 27, 1998. Prior to the marriage, Ongsitco advised the couple that
should they decide to get married, one of them should resign pursuant to a company policy promulgated
in 1995,2 viz.:
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.3
Simbol resigned on June 20, 1998 pursuant to the company policy.4
Comia was hired by the company on February 5, 1997. She met Howard Comia, a co-employee, whom
she married on June 1, 2000. Ongsitco likewise reminded them that pursuant to company policy, one must
resign should they decide to get married. Comia resigned on June 30, 2000.5
Estrella was hired on July 29, 1994. She met Luisito Zuñiga (Zuñiga), also a co-worker. Petitioners stated that
Zuñiga, a married man, got Estrella pregnant. The company allegedly could have terminated her services
due to immorality but she opted to resign on December 21, 1999.6
The respondents each signed a Release and Confirmation Agreement. They stated therein that they have
no money and property accountabilities in the company and that they release the latter of any claim or
demand of whatever nature.7
Respondents offer a different version of their dismissal. Simbol and Comia allege that they did not resign
voluntarily; they were compelled to resign in view of an illegal company policy. As to respondent Estrella,
she alleges that she had a relationship with co-worker Zuñiga who misrepresented himself as a married but
separated man. After he got her pregnant, she discovered that he was not separated. Thus, she severed
her relationship with him to avoid dismissal due to the company policy. On November 30, 1999, she met an
accident and was advised by the doctor at the Orthopedic Hospital to recuperate for twenty-one (21)
days. She returned to work on December 21, 1999 but she found out that her name was on-hold at the
gate. She was denied entry. She was directed to proceed to the personnel office where one of the staff
handed her a memorandum. The memorandum stated that she was being dismissed for immoral conduct.
She refused to sign the memorandum because she was on leave for twenty-one (21) days and has not
been given a chance to explain. The management asked her to write an explanation. However, after
submission of the explanation, she was nonetheless dismissed by the company. Due to her urgent need for
money, she later submitted a letter of resignation in exchange for her thirteenth month pay.8
Respondents later filed a complaint for unfair labor practice, constructive dismissal, separation pay and
attorney’s fees. They averred that the aforementioned company policy is illegal and contravenes Article
136 of the Labor Code. They also contended that they were dismissed due to their union membership.
On May 31, 2001, Labor Arbiter Melquiades Sol del Rosario dismissed the complaint for lack of merit, viz.:
[T]his company policy was decreed pursuant to what the respondent corporation perceived as
management prerogative. This management prerogative is quite broad and encompassing for it covers
hiring, work assignment, working method, 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. Except as provided for or limited by special law,
an employer is free to regulate, according to his own discretion and judgment all the aspects of
employment.9 (Citations omitted.)
On appeal to the NLRC, the Commission affirmed the decision of the Labor Arbiter on January 11, 2002. 10
Respondents filed a Motion for Reconsideration but was denied by the NLRC in a Resolution11 dated
August 8, 2002. They appealed to respondent court via Petition for Certiorari.
In its assailed Decision dated August 3, 2004, the Court of Appeals reversed the NLRC decision, viz.:
WHEREFORE, premises considered, the May 31, 2002 (sic)12 Decision of the National Labor Relations
Commission is hereby REVERSED and SET ASIDE and a new one is entered as follows:
(1) Declaring illegal, the petitioners’ dismissal from employment and ordering private respondents
to reinstate petitioners to their former positions without loss of seniority rights with full backwages
from the time of their dismissal until actual reinstatement; and
(2) Ordering private respondents to pay petitioners attorney’s fees amounting to 10% of the
award and the cost of this suit.13
On appeal to this Court, petitioners contend that the Court of Appeals erred in holding that:
1. x x x the subject 1995 policy/regulation is violative of the constitutional rights towards marriage
and the family of employees and of Article 136 of the Labor Code; and
2. x x x respondents’ resignations were far from voluntary.14
We affirm.
The 1987 Constitution15 states our policy towards the protection of labor under the following provisions, viz.:
Article II, Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of
workers and promote their welfare.
xxx
Article XIII, Sec. 3. The State shall afford full protection to labor, local and overseas, organized and
unorganized, and promote full employment and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and
peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to
security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and
decision-making processes affecting their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and employers, recognizing
the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns
on investments, and to expansion and growth.
The Civil Code likewise protects labor with the following provisions:
Art. 1700. The relation between capital and labor are not merely contractual. They are so impressed with
public interest that labor contracts must yield to the common good. Therefore, such contracts are subject
to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop, wages,
working conditions, hours of labor and similar subjects.
Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the
safety and decent living for the laborer.
The Labor Code is the most comprehensive piece of legislation protecting labor. The case at bar involves
Article 136 of the Labor Code which provides:
Art. 136. It shall be unlawful for an employer to require as a condition of employment or continuation of
employment that a woman employee shall not get married, or to stipulate expressly or tacitly that upon
getting married a woman employee shall be deemed resigned or separated, or to actually dismiss,
discharge, discriminate or otherwise prejudice a woman employee merely by reason of her marriage.
Respondents submit that their dismissal violates the above provision. Petitioners allege that its policy "may
appear to be contrary to Article 136 of the Labor Code" but it assumes a new meaning if read together
with the first paragraph of the rule. The rule does not require the woman employee to resign. The
employee spouses have the right to choose who between them should resign. Further, they are free to
marry persons other than co-employees. Hence, it is not the marital status of the employee, per se, that is
being discriminated. It is only intended to carry out its no-employment-for-relatives-within-the-third-degree-
policy which is within the ambit of the prerogatives of management.16
It is true that the policy of petitioners prohibiting close relatives from working in the same company takes
the nature of an anti-nepotism employment policy. Companies adopt these policies to prevent the hiring
of unqualified persons based on their status as a relative, rather than upon their ability.17 These policies
focus upon the potential employment problems arising from the perception of favoritism exhibited towards
relatives.
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).18
Unlike in our jurisdiction where there is no express prohibition on marital discrimination,19 there are twenty
state statutes20 in the United States prohibiting marital discrimination. Some state courts21 have been
confronted with the issue of whether no-spouse policies violate their laws prohibiting both marital status
and sex discrimination.
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.22
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.23
The state courts’ rulings on the issue depend on their interpretation of the scope of marital status
discrimination within the meaning of their respective civil rights acts. Though they agree that the term
"marital status" encompasses discrimination based on a person's status as either married, single, divorced,
or widowed, they are divided on whether the term has a broader meaning. Thus, their decisions vary.24
The courts narrowly25 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 broadly26 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.27 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.28 They hold that the absence of such a bona fide
occupational qualification29 invalidates a rule denying employment to one spouse due to the current
employment of the other spouse in the same office.30 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.31 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.32 To justify a bona
fide occupational qualification, the employer must prove 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.33
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.,34 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.35
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.36 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 against discrimination 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.37 (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"38 is lame. That the second paragraph
was meant to give teeth to the first paragraph of the questioned rule39 is evidently not the valid reasonable
business necessity required by the law.
It is significant to note that in the case at bar, respondents were hired after they were found fit for the job,
but were asked to resign when they married a co-employee. Petitioners failed to show how the marriage
of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an employee of the Repacking
Section, could be detrimental to its business operations. Neither did petitioners explain how this detriment
will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting Department, who
married Howard Comia, then a helper in the cutter-machine. 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.40
Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction cannot benefit
the petitioners. The protection given to labor in our jurisdiction is vast and extensive that we cannot
prudently draw inferences from the legislature’s silence41 that married persons are not protected under our
Constitution and declare valid a policy based on a prejudice or stereotype. 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. Corollarily, the issue as to whether respondents Simbol and
Comia resigned voluntarily has become moot and academic.
As to respondent Estrella, the Labor Arbiter and the NLRC based their ruling on the singular fact that her
resignation letter was written in her own handwriting. Both ruled that her resignation was voluntary and thus
valid. The respondent court failed to categorically rule whether Estrella voluntarily resigned but ordered
that she be reinstated along with Simbol and Comia.
Estrella claims that she was pressured to submit a resignation letter because she was in dire need of
money. We examined the records of the case and find Estrella’s contention to be more in accord with the
evidence. While findings of fact by administrative tribunals like the NLRC are generally given not only
respect but, at times, finality, this rule admits of exceptions,42 as in the case at bar.
Estrella avers that she went back to work on December 21, 1999 but was dismissed due to her alleged
immoral conduct. At first, she did not want to sign the termination papers but she was forced to tender her
resignation letter in exchange for her thirteenth month pay.
The contention of petitioners that Estrella was pressured to resign because she got impregnated by a
married man and she could not stand being looked upon or talked about as immoral 43 is incredulous. If she
really wanted to avoid embarrassment and humiliation, she would not have gone back to work at all. Nor
would she have filed a suit for illegal dismissal and pleaded for reinstatement. We have held that in
voluntary resignation, the employee is compelled by personal reason(s) to dissociate himself from
employment. It is done with the intention of relinquishing an office, accompanied by the act of
abandonment. 44 Thus, it is illogical for Estrella to resign and then file a complaint for illegal dismissal. Given
the lack of sufficient evidence on the part of petitioners that the resignation was voluntary, Estrella’s
dismissal is declared illegal.
IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. SP No. 73477 dated August 3, 2004
is AFFIRMED.1avvphil.net
SO ORDERED.
G.R. No. 163269 April 19, 2006
ROLANDO C. RIVERA, Petitioner,
vs.
SOLIDBANK CORPORATION, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 52235 as well as its Resolution2 denying the Motion for Partial Reconsideration of petitioner Rolando C.
Rivera.
Petitioner had been working for Solidbank Corporation since July 1, 1977.3 He was initially employed as an
Audit Clerk, then as Credit Investigator, Senior Clerk, Assistant Accountant, and Assistant Manager. Prior to
his retirement, he became the Manager of the Credit Investigation and Appraisal Division of the
Consumer’s Banking Group. In the meantime, Rivera and his brother-in-law put up a poultry business in
Cavite.
In December 1994, Solidbank offered two retirement programs to its employees: (a) the Ordinary
Retirement Program (ORP), under which an employee would receive 85% of his monthly basic salary
multiplied by the number of years in service; and (b) the Special Retirement Program (SRP), under which a
retiring employee would receive 250% of the gross monthly salary multiplied by the number of years in
service.4 Since Rivera was only 45 years old, he was not qualified for retirement under the ORP. Under the
SRP, he was entitled to receive P1,045,258.95 by way of benefits.5
Deciding to devote his time and attention to his poultry business in Cavite, Rivera applied for retirement
under the SRP. Solidbank approved the application and Rivera was entitled to receive the net amount
of P963,619.28. This amount included his performance incentive award (PIA), and his unearned medical,
dental and optical allowances in the amount of P1,666.67, minus his total accountabilities to Solidbank
amounting to P106,973.00.6 Rivera received the amount and confirmed his separation from Solidbank on
February 25, 1995.7
Subsequently, Solidbank required Rivera to sign an undated Release, Waiver and Quitclaim, which was
notarized on March 1, 1995.8 Rivera acknowledged receipt of the net proceeds of his separation and
retirement benefits and promised that "[he] would not, at any time, in any manner whatsoever, directly or
indirectly engage in any unlawful activity prejudicial to the interest of Solidbank, its parent, affiliate or
subsidiary companies, their stockholders, officers, directors, agents or employees, and their successors-in-
interest and will not disclose any information concerning the business of Solidbank, its manner or operation,
its plans, processes, or data of any kind."9
Aside from acknowledging that he had no cause of action against Solidbank or its affiliate companies,
Rivera agreed that the bank may bring any action to seek an award for damages resulting from his
breach of the Release, Waiver and Quitclaim, and that such award would include the return of whatever
sums paid to him by virtue of his retirement under the SRP.10 Rivera was likewise required to sign an undated
Undertaking as a supplement to the Release, Waiver and Quitclaim in favor of Solidbank in which he
declared that he received in full his entitlement under the law (salaries, benefits, bonuses and other
emoluments), including his separation pay in accordance with the SRP. In this Undertaking, he promised
that "[he] will not seek employment with a competitor bank or financial institution within one (1) year from
February 28, 1995, and that any breach of the Undertaking or the provisions of the Release, Waiver and
Quitclaim would entitle Solidbank to a cause of action against him before the appropriate courts of
law.11 Unlike the Release, Waiver and Quitclaim, the Undertaking was not notarized.
On May 1, 1995, the Equitable Banking Corporation (Equitable) employed Rivera as Manager of its Credit
Investigation and Appraisal Division of its Consumers’ Banking Group.12 Upon discovering this, Solidbank First
Vice-President for Human Resources Division (HRD) Celia J.L. Villarosa wrote a letter dated May 18, 1995,
informing Rivera that he had violated the Undertaking. She likewise demanded the return of all the
monetary benefits he received in consideration of the SRP within five (5) days from receipt; otherwise,
appropriate legal action would be taken against him.13
When Rivera refused to return the amount demanded within the given period, Solidbank filed a complaint
for Sum of Money with Prayer for Writ of Preliminary Attachment14 before the Regional Trial Court (RTC) of
Manila on June 26, 1995. Solidbank, as plaintiff, alleged therein that in accepting employment with a
competitor bank for the same position he held in Solidbank before his retirement, Rivera violated his
Undertaking under the SRP. Considering that Rivera accepted employment with Equitable barely three
months after executing the Undertaking, it was clear that he had no intention of honoring his commitment
under said deed.
Solidbank prayed that Rivera be ordered to return the net amount of P963,619.28 plus interests therein, and
attorney’s fees, thus:
WHEREFORE, it is respectfully prayed that:
1. At the commencement of this action and upon the filing of a bond in such amount as this
Honorable Court may fix, a writ of preliminary attachment be forthwith issued against the
properties of the defendant as satisfaction of any judgment that plaintiff may secure;
2. After trial, judgment be rendered ordering defendant to pay plaintiff the following sums: NINE
HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED NINETEEN AND 28/100 ONLY (P963,619.28) PESOS,
Philippine Currency, as of 23 May 1995, plus legal interest of 12% per annum until fully paid;
3. Such sum equivalent to 10% of plaintiff’s claims plus P2,000.00 for every appearance by way of
attorney’s fees; and
4. Costs of suit.
PLAINTIFF prays for other reliefs just and equitable under the premises.15
Solidbank appended the Affidavit of HRD First Vice-President Celia Villarosa and a copy of the Release,
Waiver and Quitclaim and Undertaking which Rivera executed.16
In an Order dated July 6, 1995, the trial court issued a Writ of Preliminary Attachment17 ordering Deputy
Sheriff Eduardo Centeno to attach all of Rivera’s properties not exempt from execution. Thus, the Sheriff
levied on a parcel of land owned by Rivera.
In his Answer with Affirmative Defenses and Counterclaim, Rivera admitted that he received the net
amount of P963,619.28 as separation pay. However, the employment ban provision in the Undertaking was
never conveyed to him until he was made to sign it on February 28, 1995. He emphasized that, prior to said
date, Solidbank never disclosed any condition to the retirement scheme, nor did it impose such
employment ban on the bank officers and employees who had previously availed of the SRP. He alleged
that the undertaking not to "seek employment with any competitor bank or financial institution within one
(1) year from February 28, 1995" was void for being contrary to the Constitution, the law and public policy,
that it was unreasonable, arbitrary, oppressive, discriminatory, cruel, unjust, inhuman, and violative of his
human rights. He further claimed that the Undertaking was a contract of adhesion because it was
prepared solely by Solidbank without his participation; considering his moral and economic disadvantage,
it must be liberally construed in his favor and strictly against the bank.
On August 15, 1995, Solidbank filed a Verified Motion for Summary Judgment, alleging therein that Rivera
raised no genuine issue as to any material fact in his Answer except as to the amount of damages. It
prayed that the RTC render summary judgment against Rivera. Solidbank alleged that whether or not the
employment ban provision contained in the Undertaking is unreasonable, arbitrary, or oppressive is a
question of law. It insisted that Rivera signed the Undertaking voluntarily and for valuable consideration;
and under the Release, Waiver and Quitclaim, he was obliged to return the P963,619.28 upon accepting
employment from a competitor bank within the one-year proscribed period. Solidbank appended to its
motion the Affidavit of Villarosa, where she declared that Rivera was employed by Equitable on May 1,
1995 for the same position he held before his retirement from Solidbank.
Rivera opposed the motion contending that, as gleaned from the pleadings of the parties as well as
Villarosa’s Affidavit, there are genuine issues as to material facts which call for the presentation of
evidence. He averred that there was a need for the parties to adduce evidence to prove that he did not
sign the Undertaking voluntarily. He claimed that he would not have been allowed to avail of the SRP if he
had not signed it, and consequently, his retirement benefits would not have been paid. This was what Ed
Nallas, Solidbank Assistant Vice-President for HRD and Personnel, told him when he received his check on
February 28, 1995. Senior Vice-President Henry Valdez, his superior in the Consumers’ Banking Group, also
did not mention that he would have to sign such Undertaking which contained the assailed provision. Thus,
he had no choice but to sign it. He insisted that the question of whether he violated the Undertaking is a
genuine issue of fact which called for the presentation of evidence during the hearing on the merits of the
case. He also asserted that he could not cause injury or prejudice to Solidbank’s interest since he never
acquired any sensitive or delicate information which could prejudice the bank’s interest if disclosed.
Rivera averred that he had the right to adduce evidence to prove that he had been faithful to the
provisions of the Release, Waiver and Quitclaim, and the Undertaking, and had not committed any act or
done or said anything to cause injury to Solidbank.18
Rivera appended to his Opposition his Counter-Affidavit in which he reiterated that he had to sign the
Undertaking containing the employment ban provision, otherwise his availment of the SRP would not push
through. There was no truth to the bank’s allegation that, "in exchange for receiving the larger amount
of P1,045,258.95 under the SRP, instead of the very much smaller amount of P224,875.81 under the ORP, he
agreed that he will not seek employment in a competitor bank or financial institution within one year from
February 28, 1995." It was the bank which conceived the SRP to streamline its organization and all he did
was accept it. He stressed that the decision whether to allow him to avail of the SRP belonged solely to
Solidbank. He also pointed out that the employment ban provision in the Undertaking was not a
consideration for his availment of the SRP, and that if he did not avail of the retirement program, he would
have continued working for Solidbank for at least 15 more years, earning more than what he received
under the SRP. He alleged that he intended to go full time into the poultry business, but after about two
months, found out that, contrary to his expectations, the business did not provide income sufficient to
support his family. Being the breadwinner, he was then forced to look for a job, and considering his training
and experience as a former bank employee, the job with Equitable was all he could find. He insisted that
he had remained faithful to Solidbank and would continue to do so despite the case against him, the
attachment of his family home, and the resulting mental anguish, torture and expense it has caused
them.19
In his Supplemental Opposition, Rivera stressed that, being a former bank employee, it was the only kind of
work he knew. The ban was, in fact, practically absolute since it applied to all financial institutions for one
year from February 28, 1995. He pointed out that he could not work in any other company because he did
not have the qualifications, especially considering his age. Moreover, after one year from February 28,
1995, he would no longer have any marketable skill, because by then, it would have been rendered
obsolete by non-use and rapid technological advances. He insisted that the ban was not necessary to
protect the interest of Solidbank, as, in the first place, he had no access to any "secret" information which,
if revealed would be prejudicial to Solidbank’s interest. In any case, he was not one to reveal whatever
knowledge or information he may have acquired during his employment with said bank.20
In its Reply, Solidbank averred that the wisdom of requiring the Undertaking from the 1995 SRP is purely a
management prerogative. It was not for Rivera to question and decry the bank’s policy to protect itself
from unfair competition and disclosure of its trade secrets. The substantial monetary windfall given the
retiring officers was meant to tide them over the one-year period of hiatus, and did not prevent them from
engaging in any kind of business or bar them from being employed except with competitor
banks/financial institutions.21
On December 18, 1995, the trial court issued an Order of Summary Judgment.22 The fallo of the decision
reads:
WHEREFORE, SUMMARY JUDGMENT is hereby rendered in favor of plaintiff and against defendant ordering
the latter to pay to plaintiff bank the amount of NINE HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED
NINETEEN AND 28/100 (P963,619.28) PESOS, Philippine Currency, as of May 23, 1995, plus legal interest at
12% per annum until fully paid, and the costs of the suit.
FURTHER, NEVERTHELESS, both parties are hereby encouraged as they are directed to meet again and sit
down to find out how they can finally end this rift and litigation, all in the name of equity, for after all,
defendant had worked for the bank for some 18 years.23
The trial court declared that there was no genuine issue as to a matter of fact in the case since Rivera
voluntarily executed the Release, Waiver and Quitclaim, and the Undertaking. He had a choice not to
retire, but opted to do so under the SRP, and, in fact, received the benefits under it.
According to the RTC, the prohibition incorporated in the Undertaking was not unreasonable. To allow
Rivera to be excused from his undertakings in said deed and, at the same time, benefit therefrom would
be to allow him to enrich himself at the expense of Solidbank. The RTC ruled that Rivera had to return
the P963,619.28 he received from Solidbank, plus interest of 12% per annum from May 23, 1998 until fully
paid.
Aggrieved, Rivera appealed the ruling to the CA which rendered judgment on June 14, 2002 partially
granting the appeal. The fallo of the decision reads:
WHEREFORE, the appeal is PARTIALLY GRANTED. The decision appealed from is AFFIRMED with the
modification that the attachment and levy upon the family home covered by TCT No. 51621 of the
Register of Deeds, Las Piñas, Metro Manila, is hereby SET ASIDE and DISCHARGED.
SO ORDERED.24
The CA declared that there was no genuine issue regarding any material fact except as to the amount of
damages. It ratiocinated that the agreement between Rivera and Solidbank was the law between them,
and that the interpretation of the stipulations therein could not be left upon the whims of Rivera. According
to the CA, Rivera never denied signing the Release, Waiver, and Quitclaim, including the Undertaking
regarding the employment prohibition. He even admitted joining Equitable as an employee within the
proscribed one-year period. The alleged defenses of Rivera, the CA declared, could not prevail over the
admissions in his pleadings.1avvphil.net Moreover, Rivera’s justification for taking the job with Equitable,
"dire necessity," was not an acceptable ground for annulling the Undertaking since there were no
earmarks of coercion, undue influence, or fraud in its execution. Having executed the said deed and
thereafter receiving the benefits under the SRP, he is deemed to have waived the right
to assail the same, hence, is estopped from insisting or retaining the said amount of P963,619.28.
However, the CA ruled that the attachment made upon Rivera’s family home was void, and, pursuant to
the mandate of Article 155, in relation to Article 153 of the Family Code, must be discharged.
Hence, this recourse to the Court.
Petitioner avers that –
I.
THE COURT OF APPEALS ERRED IN UPHOLDING THE PROPRIETY OF THE SUMMARY JUDGMENT RENDERED BY
THE TRIAL COURT CONSIDERING THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS WHICH CALL FOR
THE PRESENTATION OF EVIDENCE IN A TRIAL ON THE MERITS.
II.
THE COURT OF APPEALS ERRED IN NOT DECLARING THE ONE-YEAR EMPLOYMENT BAN IMPOSED BY
RESPONDENT SOLIDBANK UPON HEREIN PETITIONER NULL AND VOID FOR BEING UNREASONABLE AND
OPPRESSIVE AND FOR CONSTITUTING RESTRAINT OF TRADE WHICH VIOLATES PUBLIC POLICY AS ENUNCIATED
IN OUR CONSTITUTION AND LAWS.
III.
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION ORDERING HEREIN RESPONDENT
TO PAY SOLIDBANK THE AMOUNT OF P963,619.28 AS OF MAY 23, 1995, PLUS LEGAL INTEREST OF 12% PER
ANNUM UNTIL FULLY PAID.
IV.
MORE SPECIFICALLY, THE COURT OF APPEALS ERRED IN AFFIRMING THE PORTION OF THE SUMMARY
JUDGMENT ORDERING PETITIONER TO PAY SOLIDBANK LEGAL INTEREST OF 12% PER ANNUM UNTIL FULLY PAID
ON THE AFOREMENTIONED SUM [OF] P963,619.28.25
The issues for resolution are: (1) whether the parties raised a genuine issue in their pleadings, affidavits, and
documents, that is, whether the employment ban incorporated in the Undertaking which petitioner
executed upon his retirement is unreasonable, oppressive, hence, contrary to public policy; and (2)
whether petitioner is liable to respondent for the restitution of P963,619.28 representing his retirement
benefits, and interest thereon at 12% per annum as of May 23, 1995 until payment of the full amount.
On the first issue, petitioner claims that, based on the pleadings of the parties, and the documents and
affidavits appended thereto, genuine issues as to matters of fact were raised therein. He insists that the
resolution of the issue of whether the employment ban is unreasonable requires the presentation of
evidence on the circumstances which led to respondent bank’s offer of the SRP and ORP, and petitioner’s
eventual acceptance and signing of the Undertaking on March 1, 1995. There is likewise a need to
adduce evidence on whether the employment ban is necessary to protect respondent’s interest, and
whether it is an undue restraint on petitioner’s constitutional right to earn a living to support his family. He
further insists that respondent is burdened to prove that it sustained damage or injury by reason of his
alleged breach of the employment ban since neither the Release, Waiver and Quitclaim, and Undertaking
he executed contain any provision that respondent is automatically entitled to the restitution of
the P963,619.28. Petitioner points out that all the deeds provide is that, in case of breach thereof,
respondent is entitled to protection before the appropriate courts of law.
On the second issue, petitioner avers that the prohibition incorporated in the Release, Waiver and
Quitclaim barring him as retiree from engaging directly or indirectly in any unlawful activity and disclosing
any information concerning the business of respondent bank, as well as the employment ban contained in
the Undertaking he executed, are oppressive, unreasonable, cruel and inhuman because of its
overbreath. He reiterates that it is against public policy, an unreasonable restraint of trade, because it
prohibits him to work for one year in the Philippines, ultimately preventing him from supporting his family. He
points out that a breadwinner in a family of four minor daughters who are all studying, with a wife who
does not work, one would have a very difficult time meeting the financial obligations even with a steady,
regular-paying job. He insists that the Undertaking deprives him of the means to support his family, and
ultimately, his children’s chance for a good education and future. He reiterates that the returns in his
poultry business fell short of his expectations, and unfortunately, the business was totally destroyed by
typhoon "Rosing" in November 1995.
Petitioner further maintains that respondent’s management prerogative does not give it a license to entice
its employees to retire at a very young age and prohibit them from seeking employment in a so-called
competitor bank or financial institution, thus prevent them from working and supporting their families
(considering that banking is the only kind of work they know). Petitioner avers that "management’s
prerogative must be without abuse of discretion. A line must be drawn between management prerogative
regarding business operations per se and those which affect the rights of the employees. In treating its
employees, management should see to it that its employees are at least properly informed of its decision
or modes of action."
On the last issue, petitioner alleges that the P1,045,258.95 he received was his retirement benefit which he
earned after serving the bank for 18 years. It was not a mere gift or gratuity given by respondent bank,
without the latter giving up something of value in return. On the contrary, respondent bank received
"valuable consideration," that is, petitioner quit his job at the relatively young age of 45, thus enabling
respondent to effect its reorganization plan and forego the salary, benefits, bonuses, and promotions he
would have received had he not retired early.
Petitioner avers that, under the Undertaking, respondent would be entitled to a cause of action against
him before the appropriate courts of law if he had violated the employment ban. He avers that
respondent must prove its entitlement to the P963,619.28. The Undertaking contains no provision that he
would have to return the amount he received under the SRP; much less does it provide that he would have
to pay 12% interest per annum on said amount. On the other hand, the Release, Waiver and Quitclaim
does not contain the provision prohibiting him from being employed with any competitor bank or financial
institution within one year from February 28, 1995. Petitioner insists that he acted in good faith when he
received his retirement benefits; hence, he cannot be punished by being ordered to return the sum
of P963,619.28 which was given to him for and in consideration of his early retirement.
Neither can petitioner be subjected to the penalty of paying 12% interest per annum on his retirement pay
of P963,619.28 from May 23, 1995, as it is improper and oppressive to him and his family. As of July 3, 2002,
the interest alone would amount to P822,609.67, thus doubling the amount to be returned to respondent
bank under the decision of the RTC and the CA. The imposition of interest has no basis because the
Release, Waiver and Quitclaim, and the Undertaking do not provide for payment of interest. The deeds
only state that breach thereof would entitle respondent to bring an action to seek damages, to include
the return of the amount that may have been paid to petitioner by virtue thereof. On the other hand, any
breach of the Undertaking or the Release, Waiver and Quitclaim would only entitle respondent to a cause
of action before the appropriate courts of law. Besides, the amount received by petitioner was not a loan
and, therefore, should not earn interest pursuant to Article 1956 of the Civil Code.
Finally, petitioner insists that he acted in good faith in seeking employment with another bank within one
year from February 28, 1995 because he needed to earn a living to support his family and finance his
children’s education. Hence, the imposition of interest, which is a penalty, is unwarranted.
By way of Comment on the petition, respondent avers that the Undertaking is the law between it and
petitioner. As such, the latter could not assail the deed after receiving the retirement benefit under the
SRP. As gleaned from the averments in his petition, petitioner admitted that he executed the Undertaking
after having been informed of the nature and consequences of his refusal to sign the same, i.e., he would
not be able to receive the retirement benefit under the SRP.
Respondent maintains that courts have no power to relieve parties of obligations voluntarily entered into
simply because their contracts turned out to be disastrous deeds. Citing the ruling of this Court in Eastern
Shipping Lines, Inc. v. Court of Appeals,26 respondent avers that petitioner is obliged to pay 12% per annum
interest of the P963,619.28 from judicial or extrajudicial demand.
In reply, petitioner asserts that respondent failed to prove that it sustained damages, including the amount
thereof, and that neither the Release, Waiver and Quitclaim nor the Undertaking obliged him to pay
interest to respondent.
The petition is meritorious.
Sections 1 and 3, Rule 34 of the Revised Rules of Civil Procedure provide:
Section 1. Summary judgment for claimant. – A party seeking to recover upon a claim, counterclaim, or
cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has
been served, move with supporting affidavits, depositions or admissions for a summary judgment in his
favor upon all or any part thereof.
xxxx
Sec. 3. Motion and proceedings thereon. – The motion shall be served at least ten (10) days before the
time specified for the hearing. The adverse party may serve opposing affidavits, depositions, or admissions
at least three (3) days before the hearing. After the hearing, the judgment sought shall be rendered
forthwith if the pleadings, supporting affidavits, depositions, and admissions on file, show that, except as to
the amount of damages, there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.
For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no
genuine issue as to any material fact, except for the amount of damages; and (b) the party presenting the
motion for summary judgment must be entitled to a judgment as a matter of law.27 Where, on the basis of
the pleadings of a moving party, including documents appended thereto, no genuine issue as to a
material fact exists, the burden to produce a genuine issue shifts to the opposing party. If the opposing
party fails, the moving party is entitled to a summary judgment.28
A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an
issue which is a sham, fictitious, contrived or a false claim. The trial court can determine a genuine issue on
the basis of the pleadings, admissions, documents, affidavits or counteraffidavits submitted by the parties.
When the facts as pleaded appear uncontested or undisputed, then there is no real or genuine issue or
question as to any fact and summary judgment called for. On the other hand, where the facts pleaded by
the parties are disputed or contested, proceedings for a summary judgment cannot take the place of a
trial.29 The evidence on record must be viewed in light most favorable to the party opposing the motion
who must be given the benefit of all favorable inferences as can reasonably be drawn from the
evidence.30
Courts must be critical of the papers presented by the moving party and not of the papers/documents in
opposition thereto.31 Conclusory assertions are insufficient to raise an issue of material fact.32 A party
cannot create a genuine dispute of material fact through mere speculations or compilation of
differences.33 He may not create an issue of fact through bald assertions, unsupported contentions and
conclusory statements.34 He must do more than rely upon allegations but must come forward with specific
facts in support of a claim. Where the factual context makes his claim implausible, he must come forward
with more persuasive evidence demonstrating a genuine issue for trial.35
Where there are no disputed material facts, the determination of whether a party breached a contract is
a question of law and is appropriate for summary judgment.36 When interpreting an ambiguous contract
with extrinsic evidence, summary judgment is proper so long as the extrinsic evidence presented to the
court supports only one of the conflicting interpretations.37 Where reasonable men could differ as to the
contentions shown from the evidence, summary judgment might be denied.
In United Rentals (North America), Inc. v. Keizer,38 the U.S. Circuit Court of Appeals resolved the issue of
whether a summary judgment is proper in a breach of contract action involving the interpretation of such
contract, and ruled that:
[A] contract can be interpreted by the court on summary judgment if (a) the contract’s terms are clear, or
(b) the evidence supports only one construction of the controverted provision, notwithstanding some
ambiguity. x x x If the court finds no ambiguity, it should proceed to interpret the contract – and it may do
so at the summary judgment stage. If, however, the court discerns an ambiguity, the next step – involving
an examination of extrinsic evidence – becomes essential. x x x Summary judgment may be appropriate
even if ambiguity lurks as long as the extrinsic evidence presented to the court supports only one of the
conflicting interpretations.39
In this case, there is no dispute between the parties that, in consideration for his availment of the SRP,
petitioner executed the Release, Waiver and Quitclaim, and the Undertaking as supplement thereto, and
that he received retirement pay amounting to P963,619.28 from respondent. On May 1, 1995, within the
one-year ban and without prior knowledge of respondent, petitioner was employed by Equitable as
Manager of its Credit Investigation and Appraisal Division, Consumers’ Banking Group. Despite demands,
petitioner failed to return the P963,619.28 to respondent on the latter’s allegation that he had breached
the one-year ban by accepting employment from Equitable, which according to respondent was a
competitor bank.
We agree with petitioner’s contention that the issue as to whether the post-retirement competitive
employment ban incorporated in the Undertaking is against public policy is a genuine issue of fact,
requiring the parties to present evidence to support their respective claims.
As gleaned from the records, petitioner made two undertakings. The first is incorporated in the Release,
Waiver and Quitclaim that he signed, to wit:
4. I will not, at any time, in any manner whatsoever, directly or indirectly engage in any unlawful activity
prejudicial to the interest of the BANK, its parent, affiliate or subsidiary companies, their stockholders,
officers, directors, agents or employees, and their successors-in-interest and will not disclose any
information concerning the business of the BANK, its manner or operation, its plans, processes or data of
any kind.40
The second undertaking is incorporated in the Undertaking following petitioner’s execution of the Release,
Waiver and Quitclaim which reads:
4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank on FEBRUARY 28,
1995, I hereby expressly undertake that I will not seek employment with any competitor bank or financial
institution within one (1) year from February 28, 1995.41
In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring "an action for
damages which may include, but not limited to the return of whatever sums he may have received from
respondent under said deed if he breaks his undertaking therein."42 On the other hand, petitioner declared
in the Undertaking that "any breach on his part of said Undertaking or the terms and conditions of the
Release, Waiver and Quitclaim will entitle respondent to a cause of action against [petitioner] for
protection before the appropriate courts of law."43
Article 1306 of the New Civil Code provides that the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. The freedom of contract is both a constitutional and
statutory right.44 A contract is the law between the parties and courts have no choice but to enforce such
contract as long as it is not contrary to law, morals, good customs and against public policy.
The well-entrenched doctrine is that the law does not relieve a party from the effects of an unwise, foolish
or disastrous contract, entered into with full awareness of what he was doing and entered into and carried
out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact. Courts
have no jurisdiction to look into the wisdom of the contract entered into by and between the parties or to
render a decision different therefrom. They have no power to relieve parties from obligation voluntarily
assailed, simply because their contracts turned out to be disastrous deals.45
On the other hand, retirement plans, in light of the constitutional mandate of affording full protection to
labor, must be liberally construed in favor of the employee, it being the general rule that pension or
retirement plans formulated by the employer are to be construed against it.46 Retirement benefits, after all,
are intended to help the employee enjoy the remaining years of his life, releasing him from the burden of
worrying for his financial support, and are a form of reward for being loyal to the employer.47
In Ferrazzini v. Gsell,48 the Court defined public policy in civil law countries and in the United States and the
Philippines:
By "public policy," as defined by the courts in the United States and England, is intended that principle of
the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to
the public or against the public good, which may be termed the "policy of the law," or "public policy in
relation to the administration of the law." (Words & Phrases Judicially Defined, vol. 6, p. 5813, and cases
cited.) Public policy is the principle under which freedom of contract or private dealing is restricted by law
for the good of the public. (Id., Id.) In determining whether a contract is contrary to public policy the
nature of the subject matter determines the source from which such question is to be solved. (Hartford Fire
Ins. Co. v. Chicago, M. & St. P. Ry. Co., 62 Fed. 904, 906.)
The foregoing is sufficient to show that there is no difference in principle between the public policy (orden
publico) in the two jurisdictions (the United States and the Philippine Islands) as determined by the
Constitution, laws, and judicial decisions.49
The Court proceeded to define "trade" as follows:
x x x In the broader sense, it is any occupation or business carried on for subsistence or profit. Anderson’s
Dictionary of Law gives the following definition: "Generally equivalent to occupation, employment, or
business, whether manual or mercantile; any occupation, employment or business carried on for profit,
gain, or livelihood, not in the liberal arts or in the learned professions." In Abbott’s Law Dictionary, the word
is defined as "an occupation, employment or business carried on for gain or profit." Among the definitions
given in the Encyclopaedic Dictionary is the following: "The business which a person has learnt, and which
he carries on for subsistence or profit; occupation; particularly employment, whether manual or
mercantile, as distinguished from the liberal arts or the learned professions and agriculture." Bouvier limits
the meaning to commerce and traffic, and the handicraft of mechanics. (In re Pinkney, 47 Kan., 89.) We
are inclined to adopt and apply the broader meaning given by the lexicographers.50
In the present case, the trial court ruled that the prohibition against petitioner accepting employment with
a competitor bank or financial institution within one year from February 28, 1995 is not unreasonable. The
appellate court held that petitioner was estopped from assailing the post-retirement competitive
employment ban because of his admission that he signed the Undertaking and had already received
benefits under the SRP.
The rulings of the trial court and the appellate court are incorrect.
There is no factual basis for the trial court’s ruling, for the simple reason that it rendered summary judgment
and thereby foreclosed the presentation of evidence by the parties to prove whether the restrictive
covenant is reasonable or not. Moreover, on the face of the Undertaking, the post-retirement competitive
employment ban is unreasonable because it has no geographical limits; respondent is barred from
accepting any kind of employment in any competitive bank within the proscribed period. Although the
period of one year may appear reasonable, the matter of whether the restriction is reasonable or
unreasonable cannot be ascertained with finality solely from the terms and conditions of the Undertaking,
or even in tandem with the Release, Waiver and Quitclaim.
Undeniably, petitioner retired under the SRP and received P963,619.28 from respondent. However,
petitioner is not proscribed, by waiver or estoppel, from assailing the post-retirement 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 one that is against public
policy.51
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 an unreasonable or oppressive,
or in undue or unreasonable restraint of trade, thus, unenforceable for being repugnant to public policy.
As the Court stated in Ferrazzini v. Gsell,52 cases involving contracts in restraint of trade are to be judged
according to their circumstances, to wit:
x x x There are two principal grounds on which the doctrine is founded that a contract in restraint of trade
is void as against public policy. One is, the injury to the public by being deprived of the restricted party’s
industry; and the other is, the injury to the party himself by being precluded from pursuing his occupation,
and thus being prevented from supporting himself and his family.
And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule thus:
Public welfare is first considered, and if it be not involved, and the restraint upon one party is not greater
than protection to the other party requires, the contract may be sustained. The question is, whether, under
the particular circumstances of the case and the nature of the particular contract involved in it, the
contract is, or is not, unreasonable.53
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.54 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.55
Courts should carefully scrutinize all contracts limiting a man’s natural right to follow any trade or profession
anywhere he pleases and in any lawful manner. But it is just as important to protect the enjoyment of an
establishment in trade or profession, which its employer has built up by his own honest application to every
day duty and the faithful performance of the tasks which every day imposes upon the ordinary man. What
one creates by his own labor is his. Public policy does not intend that another than the producer shall reap
the fruits of labor; rather, it gives to him who labors the right by every legitimate means to protect the fruits
of his labor and secure the enjoyment of them to himself.56 Freedom to contract must not be unreasonably
abridged. Neither must the right to protect by reasonable restrictions that which a man by industry, skill and
good judgment has built up, be denied.57
The Court reiterates that the determination of reasonableness is made on the particular facts and
circumstances of each case.58 In Esmerson Electric Co. v. Rogers,59 it was held that the question of
reasonableness of a restraint requires a thorough consideration of surrounding circumstances, including
the subject matter of the contract, the purpose to be served, the determination of the parties, the extent
of the restraint and the specialization of the business of the employer. The court has to consider whether its
enforcement will be injurious to the public or cause undue hardships to the employee, and whether the
restraint imposed is greater than necessary to protect the employer. Thus, the court must have before it
evidence relating to the legitimate interests of the employer which might be protected in terms of time,
space and the types of activity proscribed.60
Consideration must be given to the employee’s right to earn a living and to his ability to determine with certainty the area
within which his employment ban is restituted. A provision on territorial limitation is necessary to guide an employee of
what constitutes as violation of a restrictive covenant and whether the geographic scope is co-extensive with that in
which the employer is doing business. In considering a territorial restriction, the facts and circumstances surrounding the
case must be considered.61
Thus, in determining whether the contract is reasonable or not, the trial court should consider the following factors: (a)
whether the covenant protects a legitimate business interest of the employer; (b) whether the covenant creates an
undue burden on the employee; (c) whether the covenant is injurious to the public welfare; (d) whether the time and
territorial limitations contained in the covenant are reasonable; and (e) whether the restraint is reasonable from the
standpoint of public policy.62
Not to be ignored is the fact that the banking business is so impressed with public interest where the trust and interest of
the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not
the highest degree of diligence.63
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.:64
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)65
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.66
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.
It is settled that actual damages or compensatory damages may be awarded for breach of contracts. Actual damages
are primarily intended to simply make good or replace the loss covered by said breach. 67 They cannot be presumed.
Even if petitioner had admitted to having breached the Undertaking, respondent must still prove that it suffered damages
and the amount thereof.68 In determining the amount of actual damages, the Court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of losses.69 The benefit to be derived from a contract which one of the parties has absolutely
failed to perform is of necessity to some extent a matter of speculation of the injured party.
On the assumption that the competitive employment ban in the Undertaking is valid, petitioner is not automatically
entitled to return the P963,619.28 he received from respondent. To reiterate, the terms of the Undertaking clearly state that
any breach by petitioner of his promise would entitle respondent to a cause of action for protection in the courts of law;
as such, restitution of the P963,619.28 will not follow as a matter of course. Respondent is still burdened to prove its
entitlement to the aforesaid amount by producing the best evidence of which its case is susceptible. 70
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 52235 is
SET ASIDE. Let this case be REMANDED to the Regional Trial Court of Manila for further proceedings conformably with this
decision of the Court.
SO ORDERED.
G.R. No. 196539 October 10, 2012
MARIETTA N. PORTILLO, Petitioner,
vs.
RUDOLF LIETZ, INC., RUDOLF LIETZ and COURT OF APPEALS Respondents.
DECISION
PEREZ, J.:
Before us is a petition for certiorari assailing the Resolution 1 dated 14 October 2010 of the Court of Appeals
in CA-G.R. SP No. I 065g I which modified its Decision2 dated 31 March 2009, thus allowing the legal
compensation or petitioner Marietta N. Portillo's (Portillo) monetary claims against respondent corporation
Rudolf Lietz, Inc.'s (Lietz Inc.)3 claim for liquidated damages arising from Portillo’s alleged violation of the
"Goodwill Clause" in the employment contract executed by the parties.
The facts are not in dispute.
In a letter agreement dated 3 May 1991, signed by individual respondent Rudolf Lietz (Rudolf) and
conformed to by Portillo, the latter was hired by the former under the following terms and conditions:
A copy of [Lietz Inc.’s] work rules and policies on personnel is enclosed and an inherent part of the terms
and conditions of employment.
We acknowledge your proposal in your application specifically to the effect that you will not engage in
any other gainful employment by yourself or with any other company either directly or indirectly without
written consent of [Lietz Inc.], and we hereby accept and henceforth consider your proposal an
undertaking on your part, a breach of which will render you liable to [Lietz Inc.] for liquidated damages.
If you are in agreement with these terms and conditions of employment, please signify your conformity
below.4
On her tenth (10th) year with Lietz Inc., specifically on 1 February 2002, Portillo was promoted to Sales
Representative and received a corresponding increase in basic monthly salary and sales quota. In this
regard, Portillo signed another letter agreement containing a "Goodwill Clause:"
It remains understood and you agreed that, on the termination of your employment by act of either you or
[Lietz Inc.], and for a period of three (3) years thereafter, you shall not engage directly or indirectly as
employee, manager, proprietor, or solicitor for yourself or others in a similar or competitive business or the
same character of work which you were employed by [Lietz Inc.] to do and perform. Should you breach
this good will clause of this Contract, you shall pay [Lietz Inc.] as liquidated damages the amount of 100%
of your gross compensation over the last 12 months, it being agreed that this sum is reasonable and just.5
Three (3) years thereafter, on 6 June 2005, Portillo resigned from Lietz Inc. During her exit interview, Portillo
declared that she intended to engage in business—a rice dealership, selling rice in wholesale.
On 15 June 2005, Lietz Inc. accepted Portillo’s resignation and reminded her of the "Goodwill Clause" in the
last letter agreement she had signed. Upon receipt thereof, Portillo jotted a note thereon that the latest
contract she had signed in February 2004 did not contain any "Goodwill Clause" referred to by Lietz Inc. In
response thereto, Lietz Inc. categorically wrote:
Please be informed that the standard prescription of prohibiting employees from engaging in business or
seeking employment with organizations that directly or indirectly compete against [Lietz Inc.] for three (3)
years after resignation remains in effect.
The documentation you pertain to is an internal memorandum of your salary increase, not an employment
contract. The absence of the three-year prohibition clause in this document (or any document for that
matter) does not cancel the prohibition itself. We did not, have not, and will not issue any cancellation of
such in the foreseeable future[.] [T]hus[,] regretfully, it is erroneous of you to believe otherwise.6
In a subsequent letter dated 21 June 2005, Lietz Inc. wrote Portillo and supposed that the exchange of
correspondence between them regarding the "Goodwill Clause" in the employment contract was a moot
exercise since Portillo’s articulated intention to go into business, selling rice, will not compete with Lietz Inc.’s
products.
Subsequently, Lietz Inc. learned that Portillo had been hired by Ed Keller Philippines, Limited to head its
Pharma Raw Material Department. Ed Keller Limited is purportedly a direct competitor of Lietz Inc.
Meanwhile, Portillo’s demands from Lietz Inc. for the payment of her remaining salaries and commissions
went unheeded. Lietz Inc. gave Portillo the run around, on the pretext that her salaries and commissions
were still being computed.
On 14 September 2005, Portillo filed a complaint with the National Labor Relations Commission (NLRC) for
non-payment of 1½ months’ salary, two (2) months’ commission, 13th month pay, plus moral, exemplary
and actual damages and attorney’s fees.
In its position paper, Lietz Inc. admitted liability for Portillo’s money claims in the total amount of
P110,662.16. However, Lietz Inc. raised the defense of legal compensation: Portillo’s money claims should
be offset against her liability to Lietz Inc. for liquidated damages in the amount of ₱869,633.097 for Portillo’s
alleged breach of the "Goodwill Clause" in the employment contract when she became employed with
Ed Keller Philippines, Limited.
On 25 May 2007, Labor Arbiter Daniel J. Cajilig granted Portillo’s complaint:
WHEREFORE, judgment is hereby rendered ordering respondents Rudolf Lietz, Inc. to pay complainant
Marietta N. Portillo the amount of Php110,662.16, representing her salary and commissions, including
13th month pay.8
On appeal by respondents, the NLRC, through its Second Division, affirmed the ruling of Labor Arbiter
Daniel J. Cajilig. On motion for reconsideration, the NLRC stood pat on its ruling.
Expectedly, respondents filed a petition for certiorari before the Court of Appeals, alleging grave abuse of
discretion in the labor tribunals’ rulings.
As earlier adverted to, the appellate court initially affirmed the labor tribunals:
WHEREFORE, considering the foregoing premises, judgment is hereby rendered by us DENYING the petition
filed in this case. The Resolution of the National Labor Relations Commission (NLRC), Second Division, in the
labor case docketed as NLRC NCR Case No. 00-09- 08113-2005 [NLRC LAC No. 07-001965-07(5)] is
hereby AFFIRMED.9
The disposition was disturbed. The Court of Appeals, on motion for reconsideration, modified its previous
decision, thus:
WHEREFORE, in view of the foregoing premises, we hereby MODIFY the decision promulgated on March 31,
2009 in that, while we uphold the monetary award in favor of the [petitioner] in the aggregate sum of
₱110,662.16 representing the unpaid salary, commission and 13th month pay due to her, we hereby allow
legal compensation or set-off of such award of monetary claims by her liability to [respondents] for
liquidated damages arising from her violation of the "Goodwill Clause" in her employment contract with
them.10
Portillo’s motion for reconsideration was denied.
Hence, this petition for certiorari listing the following acts as grave abuse of discretion of the Court of
Appeals:
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY EVADING TO RECOGNIZE (sic) THAT
THE RESPONDENTS’ EARLIER PETITION IS FATALLY DEFECTIVE;
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY OVERSTEPPING THE BOUNDS OF
APPELLATE JURISDICTION[;]
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY MODIFYING ITS PREVIOUS DECISION
BASED ON AN ISSUE THAT WAS RAISED ONLY ON THE FIRST INSTANCE AS AN APPEAL BUT WAS NEVER AT THE
TRIAL COURT AMOUNTING TO DENIAL OF DUE PROCESS[;]
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY EVADING THE POSITIVE DUTY TO
UPHOLD THE RELEVANT LAWS[.]11
Simply, the issue is whether Portillo’s money claims for unpaid salaries may be offset against respondents’
claim for liquidated damages.
Before anything else, we address the procedural error committed by Portillo, i.e., filing a petition
for certiorari, a special civil action under Rule 65 of the Rules of Court, instead of a petition for review
on certiorari, a mode of appeal, under Rule 45 thereof. On this score alone, the petition should have been
dismissed outright.
Section 1, Rule 45 of the Rules of Court expressly provides that a party desiring to appeal by certiorari from
a judgment or final order or resolution of the Court of Appeals may file a verified petition for review
on certiorari. Considering that, in this case, appeal by certiorari was available to Portillo, that available
recourse foreclosed her right to resort to a special civil action for certiorari, a limited form of review and a
remedy of last recourse, which lies only where there is no appeal or plain, speedy and adequate remedy
in the ordinary course of law.12
A petition for review on certiorari under Rule 45 and a petition for certiorari under Rule 65 are mutually
exclusive remedies. Certiorari cannot co-exist with an appeal or any other adequate remedy.13 If a petition
for review is available, even prescribed, the nature of the questions of law intended to be raised on
appeal is of no consequence. It may well be that those questions of law will treat exclusively of whether or
not the judgment or final order was rendered without or in excess of jurisdiction, or with grave abuse of
discretion. This is immaterial. The remedy is appeal, not certiorari as a special civil action.14
Be that as it may, on more than one occasion, to serve the ultimate purpose of all rules of procedures—
attaining substantial justice as expeditiously as possible15 —we have accepted procedurally incorrect
petitions and decided them on the merits. We do the same here.
The Court of Appeals anchors its modified ruling on the ostensible causal connection between Portillo’s
money claims and Lietz Inc.’s claim for liquidated damages, both claims apparently arising from the same
employment relations. Thus, did it say:
x x x This Court will have to take cognizance of and consider the "Goodwill Clause" contained [in] the
employment contract signed by and between [respondents and Portillo]. There is no gainsaying the fact
that such "Goodwill Clause" is part and parcel of the employment contract extended to [Portillo], and such
clause is not contrary to law, morals and public policy. There is thus a causal connection between
[Portillo’s] monetary claims against [respondents] and the latter’s claim for liquidated damages against the
former. Consequently, we should allow legal compensation or set-off to take place. [Respondents and
Portillo] are both bound principally and, at the same time, are creditors of each other. [Portillo] is a creditor
of [respondents] in the sum of ₱110,662.16 in connection with her monetary claims against the latter. At the
same time, [respondents] are creditors of [Portillo] insofar as their claims for liquidated damages in the sum
of ₱980,295.2516 against the latter is concerned.17
We are not convinced.
Paragraph 4 of Article 217 of the Labor Code appears to have caused the reliance by the Court of
Appeals on the "causal connection between [Portillo’s] monetary claims against [respondents] and the
latter’s claim from liquidated damages against the former."
Art. 217. Jurisdiction of Labor Arbiters and the Commission. – (a) Except as otherwise provided under this
code, the Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following case involving all workers, whether agricultural or
nonagricultural:
xxxx
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee
relations; (Underscoring supplied)
Evidently, the Court of Appeals is convinced that the claim for liquidated damages emanates from the
"Goodwill Clause of the employment contract and, therefore, is a claim for damages arising from the
employeremployee relations."
As early as Singapore Airlines Limited v. Paño,18 we established that not all disputes between an employer
and his employee(s) fall within the jurisdiction of the labor tribunals. We differentiated between
abandonment per se and the manner and consequent effects of such abandonment and ruled that the
first, is a labor case, while the second, is a civil law case.
Upon the facts and issues involved, jurisdiction over the present controversy must be held to belong to the
civil Courts. While seemingly petitioner's claim for damages arises from employer-employee relations, and
the latest amendment to Article 217 of the Labor Code under PD No. 1691 and BP Blg. 130 provides that all
other claims arising from employer-employee relationship are cognizable by Labor Arbiters [citation
omitted], in essence, petitioner's claim for damages is grounded on the "wanton failure and refusal"
without just cause of private respondent Cruz to report for duty despite repeated notices served upon him
of the disapproval of his application for leave of absence without pay. This, coupled with the further
averment that Cruz "maliciously and with bad faith" violated the terms and conditions of the conversion
training course agreement to the damage of petitioner removes the present controversy from the
coverage of the Labor Code and brings it within the purview of Civil Law.
Clearly, the complaint was anchored not on the abandonment per se by private respondent Cruz of his
job—as the latter was not required in the Complaint to report back to work—but on
the manner and consequent effects of such abandonment of work translated in terms of the damages
which petitioner had to suffer.
Squarely in point is the ruling enunciated in the case of Quisaba vs. Sta. Ines Melale Veneer & Plywood, Inc.
[citation omitted], the pertinent portion of which reads:
"Although the acts complained of seemingly appear to constitute 'matter involving employee-employer'
relations as Quisaba's dismissal was the severance of a pre-existing employee-employer relations, his
complaint is grounded not on his dismissal per se, as in fact he does not ask for reinstatement or
backwages, but on the manner of his dismissal and the consequent effects of such dismissal.
"Civil law consists of that 'mass of precepts that determine or regulate the relations . . . that exist between
members of a society for the protection of private interest (1 Sanchez Roman 3).
"The 'right' of the respondents to dismiss Quisaba should not be confused with the manner in which the right
was exercised and the effects flowing therefrom. If the dismissal was done anti-socially or oppressively as
the complaint alleges, then the respondents violated Article 1701 of the Civil Code which prohibits acts of
oppression by either capital or labor against the other, and Article 21, which makes a person liable for
damages if he wilfully causes loss or injury to another in a manner that is contrary to morals, good customs
or public policy, the sanction for which, by way of moral damages, is provided in article 2219, No. 10.
[citation omitted]"
Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor
Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other
items demanded are not labor benefits demanded by workers generally taken cognizance of in labor
disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the
natural consequences flowing from breach of an obligation, intrinsically a civil dispute.19 (Emphasis
supplied)
Subsequent rulings amplified the teaching in Singapore Airlines. The reasonable causal connection rule
was discussed. Thus, in San Miguel Corporation v. National Labor Relations Commission,20 we held:
While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the
entire universe of money claims that might be asserted by workers against their employers has been
absorbed into the original and exclusive jurisdiction of Labor Arbiters. In the first place, paragraph 3 should
be read not in isolation from but rather within the context formed by paragraph 1 (relating to unfair labor
practices), paragraph 2 (relating to claims concerning terms and conditions of employment), paragraph 4
(claims relating to household services, a particular species of employer-employee relations), and
paragraph 5 (relating to certain activities prohibited to employees or to employers). It is evident that there
is a unifying element which runs through paragraph 1 to 5 and that is, that they all refer to cases or disputes
arising out of or in connection with an employer-employee relationship. This is, in other words, a situation
where the rule of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3, and any
other paragraph of Article 217 of the Labor Code, as amended. We reach the above conclusion from an
examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and even though
earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor
Arbiters and the NLRC "cases arising from employer-employee relations, [citation omitted]" which clause
was not expressly carried over, in printer's ink, in Article 217 as it exists today. For it cannot be presumed
that money claims of workers which do not arise out of or in connection with their employer-employee
relationship, and which would therefore fall within the general jurisdiction of regular courts of justice, were
intended by the legislative authority to be taken away from the jurisdiction of the courts and lodged with
Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the "money claims of
workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in
connection with the employer-employee relationship, or some aspect or incident of such relationship. Put
a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction
of Labor Arbiters are those money claims which have some reasonable causal connection with the
employer-employee relationship.21 (Emphasis supplied)
We thereafter ruled that the "reasonable causal connection with the employer-employee relationship" is a
requirement not only in employees’ money claims against the employer but is, likewise, a condition when
the claimant is the employer.
In Dai-Chi Electronics Manufacturing Corporation v. Villarama, Jr.,22 which reiterated the San Miguel ruling
and allied jurisprudence, we pronounced that a non-compete clause, as in the "Goodwill Clause" referred
to in the present case, with a stipulation that a violation thereof makes the employee liable to his former
employer for liquidated damages, refers to post-employment relations of the parties.
In Dai-Chi, the trial court dismissed the civil complaint filed by the employer to recover damages from its
employee for the latter’s breach of his contractual obligation. We reversed the ruling of the trial court as
we found that the employer did not ask for any relief under the Labor Code but sought to recover
damages agreed upon in the contract as redress for its employee’s breach of contractual obligation to its
"damage and prejudice." We iterated that Article 217, paragraph 4 does not automatically cover all
disputes between an employer and its employee(s). We noted that the cause of action was within the
realm of Civil Law, thus, jurisdiction over the controversy belongs to the regular courts. At bottom, we
considered that the stipulation referred to post-employment relations of the parties.
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.23 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.24 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.
It is clear, therefore, that while Portillo’s claim for unpaid salaries is a money claim that arises out of or in
connection with an employer-employee relationship, Lietz Inc.’s claim against Portillo for violation of the
goodwill clause is a money claim based on an act done after the cessation of the employment
relationship. And, while the jurisdiction over Portillo’s claim is vested in the labor arbiter, the jurisdiction over
Lietz Inc.’s claim rests on the regular courts. Thus:
As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages
based on the parties' contract of employment as redress for respondent's breach thereof. Such cause of
action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts.
More so must this be in the present case, what with the reality that the stipulation refers to the
postemployment relations of the parties.
For sure, a plain and cursory reading of the complaint will readily reveal that the subject matter is one of
claim for damages arising from a breach of contract, which is within the ambit of the regular court's
jurisdiction. [citation omitted]
It is basic that jurisdiction over the subject matter is determined upon the allegations made in the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim asserted therein,
which is a matter resolved only after and as a result of a trial. Neither can jurisdiction of a court be made to
depend upon the defenses made by a defendant in his answer or motion to dismiss. If such were the rule,
the question of jurisdiction would depend almost entirely upon the defendant.25 [citation omitted]
xxxx
Whereas this Court in a number of occasions had applied the jurisdictional provisions of Article 217 to
claims for damages filed by employees [citation omitted], we hold that by the designating clause "arising
from the employer-employee relations" Article 217 should apply with equal force to the claim of
an employer for actual damages against its dismissed employee, where the basis for the claim arises from
or is necessarily connected with the fact of termination, and should be entered as a counterclaim in the
illegal dismissal case.26
xxxx
This is, of course, to distinguish from cases of actions for damages where the employer-employee
relationship is merely incidental and the cause of action proceeds from a different source of obligation.
Thus, the jurisdiction of regular courts was upheld where the damages, claimed for were based on
tort [citation omitted], malicious prosecution [citation omitted], or breach of contract, as when the
claimant seeks to recover a debt from a former employee [citation omitted] or seeks liquidated damages
in enforcement of a prior employment contract. [citation omitted]
Neither can we uphold the reasoning of respondent court that because the resolution of the issues
presented by the complaint does not entail application of the Labor Code or other labor laws, the dispute
is intrinsically civil. Article 217(a) of the Labor Code, as amended, clearly bestows upon the Labor Arbiter
original and exclusive jurisdiction over claims for damages arising from employer-employee relations─in
other words, the Labor Arbiter has jurisdiction to award not only the reliefs provided by labor laws, but also
damages governed by the Civil Code.27 (Emphasis supplied)
In the case at bar, the difference in the nature of the credits that one has against the other, conversely,
the nature of the debt one owes another, which difference in turn results in the difference of the forum
where the different credits can be enforced, prevents the application of compensation. Simply, the labor
tribunal in an employee’s claim for unpaid wages is without authority to allow the compensation of such
claims against the post employment claim of the former employer for breach of a post employment
condition. The labor tribunal does not have jurisdiction over the civil case of breach of contract.
We are aware that in Bañez v. Hon. Valdevilla, we mentioned that:
Whereas this Court in a number of occasions had applied the jurisdictional provisions of Article 217 to
claims for damages filed by employees [citation omitted], we hold that by the designating clause "arising
from the employer-employee relations" Article 217 should apply with equal force to the claim of
an employer for actual damages against its dismissed employee, where the basis for the claim arises from
or is necessarily connected with the fact of termination, and should be entered as a counterclaim in the
illegal dismissal case.28
While on the surface, Bañez supports the decision of the Court of Appeals, the facts beneath premise an
opposite conclusion. There, the salesman-employee obtained from the NLRC a final favorable judgment of
illegal dismissal. Afterwards, the employer filed with the trial court a complaint for damages for alleged
nefarious activities causing damage to the employer. Explaining further why the claims for damages
should be entered as a counterclaim in the illegal dismissal case, we said:
Even under Republic Act No. 875 (the ‘Industrial Peace Act,’ now completely superseded by the Labor
Code), jurisprudence was settled that where the plaintiff’s cause of action for damages arose out of, or
was necessarily intertwined with, an alleged unfair labor practice committed by the union, the jurisdiction
is exclusively with the (now defunct) Court of Industrial Relations, and the assumption of jurisdiction of
regular courts over the same is a nullity. To allow otherwise would be "to sanction split jurisdiction, which is
prejudicial to the orderly administration of justice." Thus, even after the enactment of the Labor Code,
where the damages separately claimed by the employer were allegedly incurred as a consequence of
strike or picketing of the union, such complaint for damages is deeply rooted from the labor dispute
between the parties, and should be dismissed by ordinary courts for lack of jurisdiction. As held by this
Court in National Federation of Labor vs. Eisma, 127 SCRA 419:
Certainly, the present Labor Code is even more committed to the view that on policy grounds, and
equally so in the interest of greater promptness in the disposition of labor matters, a court is spared the
often onerous task of determining what essentially is a factual matter, namely, the damages that may be
incurred by either labor or management as a result of disputes or controversies arising from employer-
employee relations.29
Evidently, the ruling of the appellate court is modeled after the basis used in Bañez which is the (c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.
"intertwined" facts of the claims of the employer and the employee or that the "complaint for damages is WHEREFORE, the petition is GRANTED. The Resolution of the Court of Appeals in CA-G.R. SP No. I 06581
deeply rooted from the labor dispute between the parties." Thus, did the appellate court say that: dated 14 October 20 I 0 is SET ASIDE. The Decision of the Court of Appeals in CA-G.R. SP No. I 06581 dated 3
There is no gainsaying the fact that such "Goodwill Clause" is part and parcel of the employment contract I March :2009 is REINSTATED. No costs.
extended to [Portillo], and such clause is not contrary to law, morals and public policy. There is thus a SO ORDERED.
causal connection between [Portillo’s] monetary claims against [respondents] and the latter’s claim for
liquidated damages against the former. Consequently, we should allow legal compensation or set-off to
take place.30
The Court of Appeals was misguided. Its conclusion was incorrect.
There is no causal connection between the petitioner employees’ claim for unpaid wages and the
respondent employers’ claim for damages for the alleged "Goodwill Clause" violation. Portillo’s claim for
unpaid salaries did not have anything to do with her alleged violation of the employment contract as, in
fact, her separation from employment is not "rooted" in the alleged contractual violation. She resigned
from her employment. She was not dismissed. Portillo’s entitlement to the unpaid salaries is not even
contested. Indeed, Lietz Inc.’s argument about legal compensation necessarily admits that it owes the
money claimed by Portillo.
The alleged contractual violation did not arise during the existence of the employer-employee relationship.
It was a post-employment matter, a post-employment violation. Reminders are apt. That is provided by the
fairly recent case of Yusen Air and Sea Services Phils., Inc. v. Villamor,31 which harked back to the previous
rulings on the necessity of "reasonable causal connection" between the tortious damage and the damage
arising from the employer-employee relationship. Yusen proceeded to pronounce that the absence of the
connection results in the absence of jurisdiction of the labor arbiter. Importantly, such absence of
jurisdiction cannot be remedied by raising before the labor tribunal the tortious damage as a defense.
Thus:
When, as here, the cause of action is based on a quasi-delict or tort, which has no reasonable causal
connection with any of the claims provided for in Article 217, jurisdiction over the action is with the regular
courts. [citation omitted]
As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages
based on the parties’ contract of employment as redress for respondent’s breach thereof. Such cause of
action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts.
More so must this be in the present case, what with the reality that the stipulation refers to the
postemployment relations of the parties.
For sure, a plain and cursory reading of the complaint will readily reveal that the subject matter is one of
claim for damages arising from a breach of contract, which is within the ambit of the regular court’s
jurisdiction. [citation omitted]
It is basic that jurisdiction over the subject matter is determined upon the allegations made in the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim asserted therein,
which is a matter resolved only after and as a result of a trial. Neither can jurisdiction of a court be made to
depend upon the defenses made by a defendant in his answer or motion to dismiss. If such were the rule,
the question of jurisdiction would depend almost entirely upon the defendant.32 (Underscoring supplied).
The error of the appellate court in its Resolution of 14 October 2010 is basic. The original decision, the right
ruling, should not have been reconsidered.1âwphi1
Indeed, the application of compensation in this case is effectively barred by Article 113 of the Labor Code
which prohibits wage deductions except in three circumstances:
ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any
deduction from wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by
the employer or authorized in writing by the individual worker concerned; and