LABOR LAWS AND SOCIAL LEGISLATION

AUTHORIZED CASES OF TERMINATION

MODULE NO. 8
A.
TOPICS LEARNING OBJECTIVES

Authorized Causes of Dismissal • Know the different authorized causes of

dismissal

B. DISCUSSION

B.2.b Authorized Causes a.k.a. Business-related Causes

Art 298 [283], LC
(1) Installation of labor saving device
(2) Retrenchment to prevent losses
(3) Redundancy
(4) Closure of Business

Due to labor-saving Due to retrenchment,

devices or closure, or
redundancy suspension of
operations

1-month pay, or at 1 month pay, or at

least 1 month pay for least ½ month pay
every year of service, for every year of
whichever is higher. service, whichever is
higher.

A fraction of at least six months shall be

considered as one year.

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 1

Basis
Employment is the lifeblood upon which the worker and his family owe their survival. [Flight
Attendants and Stewards Ass'n of the Philippines v. PAL, Inc., G.R. No. 178083 (2009)]

5 business-related causes for termination:

1. Installation of labor-saving devices
2. Retrenchment
3. Redundancy
4. Closure of business
5. Temporary/bona fide suspension of operations

B.2.B.1. Installation of Labor-Saving Device

This refers to the installation of machinery to effect economy and efficiency in the employer’s method of production
[Edge Apparel, Inc. v. NLRC, G.R. No. 121314 (1998)]

Elements of a valid termination based on installation of labor-saving devices

(a) There must be introduction of machinery, equipment or other devices;
(b) The introduction must be done in good faith;
(c) The purpose for such introduction must be valid such as to save on cost, enhance efficiency and other
justifiable economic reasons;
(d) There is no other option available to the employer than the introduction of machinery, equipment or device and
the consequent termination of employment of those affected thereby; and
(e) There must be fair and reasonable criteria in selecting employees to be terminated. [Sec. 5.4. (a), DO 147-
15]

Requirements for termination due to installation of labor-saving device

(1) The employer exercises its prerogative to install the labor-saving device in good faith for the advancement of its
interest and not to defeat or circumvent the employee’s right to security of tenure;
(2) The employer served a written notice both to the employees and to the DOLE at least 30 days prior to
the intended date of termination; and
(3) The employer pays the employees separation pay equivalent to one-month pay or at least one-half
(1/2) month pay for every year of service, whichever is higher, a fraction of at least six months being
considered as one whole year (Samson, 2004)

B.2.B.2. Retrenchment
Elements of a valid retrenchment:
(1) The retrenchment is reasonably necessary and likely to prevent business

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 2

 (2) The losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or
if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;
(3) The expected or actual losses must be proved by sufficient and convincing evidence;
(4) The retrenchment must be in good faith for the advancement of its interest and not to defeat or
circumvent the employees’ right to security of tenure; and
(5) There must be fair and reasonable criteria in ascertaining who would be dismissed and who would be
retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial
hardship for certain workers. [Sec. 5.2. (c), DO 147-15]
(6) That the employer served written notice both to the employees and to the Department of Labor
and Employment at least one month prior to the intended date of retrenchment;
(7) That the employer pays the retrenched employees separation pay equivalent to 1 month pay or
at least 1⁄2 month pay for every year of service, whichever is higher;
The employer bears the burden of proving the existence of the imminence of substantial losses with clear
and satisfactory evidence that there are legitimate business reasons justifying a retrenchment. [Mount
Carmel College Employees Union (MCCEU), et al vs. Mount Carmel College, Inc. G.R. No. 187621, (2014)]
The Court recognizes two kinds of losses which can justify retrenchment — incurred losses which are substantial,
serious, actual and real, and expected losses which are reasonably imminent. [Sanoh Fulton Phils. Inc. v. Bernardo
& Tagohoy, G.R. No. 187214 (2013)]

B.2.B.3. Redundancy
Redundancy exists when the service capability of the workforce is in excess of what is reasonably needed to meet the
demands of the business enterprise. A position is redundant when it is superfluous, and superfluity of a position or
positions could be the result of a number of factors, such as the overhiring of workers, a decrease in the volume of
business or the dropping of a particular line or service previously manufactured or undertaken by the enterprise.
[Morales v. Metrobank, G.R. No.
182475 (2012)]

Elements of redundancy:
(a) There must be superfluous positions or services of employees;
(b) The positions or services are in excess of what is reasonably demanded by the actual requirements of the
enterprise to operate in an economical and efficient manner;
(c) There must be good faith in abolishing redundant positions;
(d) There must be fair and reasonable criteria in selecting the employees to be terminated; and
(e) There must be an adequate proof of redundancy such as but not limited to the new staffing patter,
feasibility studies/proposal, on the viability of the newly created positions, job description and the
approval by the management of the restructuring. [Sec. 5.4. (c), DO 147-15]

For the implementation of a redundancy program to be valid, however, the employer must comply with the
following requisites:
(a) Written notice served on both the employees and the DOLE at least one month prior to the intended
date of termination of employment;
(b) Payment of separation pay equivalent to at least one month pay for every year of service;

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 3

 (c) Good faith in abolishing the redundant positions; and
(d) Fair and reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished. [Morales v. Metrobank, G.R. No. 182475 (2012)]

To exhibit its good faith and that there was a fair and reasonable criteria in ascertaining redundant positions, a
company claiming to be over manned must produce adequate proof of the same. Such proof includes but is not
limited to the new staffing pattern, feasibility studies/proposals on the viability of the newly created positions,
job description and the approval by the management of the restructuring. [General Milling Corporation v
Violeta L. Viajar, G.R. No. 181738 (2013)]

B.2.B.4. Closure of a Business

ELEMENTS OF A VALID CLOSURE OR CESSATION OF OPERATION
(a) There must be a decision to close or cease operation of the enterprise by the management;
(b) The decision was made in good faith; and
(c) There is no other option available to the employer except to close or cease operations. [Sec. 5.4. (d),
DO 147-15]

Guidelines in Closure
(1) Closure or cessation of operations of establishment or undertaking may either be partial or total
(2) Closure or cessation of operations of establishment or undertaking may or may not be due to
serious business losses or financial service reverses. However, in both instances, proof must be
shown that:
(a) it was done in good faith to advance the employer's interest and not for the purpose of
defeating or circumventing the rights of employees under the law or a valid agreement; and
(b) Written notice on the affected employees and the DOLE is served at least one month before
the intended date of termination of employment.
(3) The employer can lawfully close shop even if not due to serious business losses or financial reverses but separation
pay, which is equivalent to at least one month pay as provided for by Article 289 of the Labor Code, as amended,
must be given to all the affected employees.
(4) If the closure or cessation of operations of establishment or undertaking is due to serious business losses or
financial reverses, the employer must prove such allegation in order to avoid the payment of separation
pay. Otherwise, the affected employees are entitled to separation pay.

(5) The burden of proving compliance with all the above-stated falls upon the employer. [Manila Polo
Club Employees' Union v. Manila Polo Club, Inc., G.R. No. 172846 (2013)]

Closure of Department
The closure of a department or division of a company constitutes retrenchment by, and not closure of, the
company itself. [Waterfront Cebu City Hotel v. Jimenez, G.R. No. 174214, June 13, 2012]

Corporate acquisitions

Asset Sales Stock Sales

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 4

 Sale

Corporate entity sells In stock sales, the

all or substantially all individual or
of its assets to corporate
another entity. shareholders sell a
controlling block of
stock to new or
existing shareholders.

Obligation of Seller

Seller in good faith is A shift in the

authorized to dismiss composition of its
the affected shareholders will not
employees, but is affect its existence
liable for the payment and continuity.
of separation pay Notwithstanding the
under the law. stock sale, the
corporation continues
to be the employer of
its people and
continues to be liable
for the payment of
their just claims.

Obligation of Buyer

The buyer in good The corporation or its

faith, on the other new majority
hand, is not obliged shareholders are not
to absorb the entitled to lawfully
employees affected dismiss corporate
by the sale, nor is it employees absent a
liable for the payment just or authorized
of their claims. The cause.
most that it may do,
[SME Bank, Inc. v. De
for reasons of public
Guzman, G.R. No.
policy and social
184517, 186641,
justice, is to give

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 5

 (2013)]
preference to the
qualified separated
personnel of the
selling firm.

Procedural steps required

At least 1 month before the intended date of termination, Employer is to serve written notice to:
(1) Affected employees;
(2) DOLE (Art. 298, LC)

Criteria in selecting employees for dismissal:

Fair and reasonable criteria in ascertaining who will be affected:
(1) Preferred status (e.g. temporary, casual or regular Employees),
(2) Efficiency,
(3) Physical fitness,
(4) Age,
(5) Financial hardship, or
(6) Seniority. [Asian Alcohol Corp. v. NLRC, G.R. No. 131108 (1999)]

Retrenchment Redundancy Closure

The reversal of
the fortune of
Reduction of
the employer
personnel
The service whereby there
usually due to
of an is a complete
poor financial
Employee is cessation of
returns so as
in excess of business
to cut down
what is operations
on costs of
required by and/or actual
operations in
an locking-up of
terms of
enterprise the doors of the
salaries and
establishment,
wages
usually due to
financial losses

Resorted to
Aims to
primarily to
To save prevent further
avoid or
production financial drain
minimize
costs upon the
business
Employer
PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 6
 losses

In case of
closure of
business not
Employee is
Employee is due to serious
entitled to
entitled to business
separation
separation losses, the
pay of 1
pay of 1 employer pays
month pay
month pay or the employees
or 1/2
1/2 month pay terminated
month pay
per year of separation pay
per year of
service, of 1 month pay
service,
whichever is or 1/2 month
whichever is
higher pay per year of
higher
service,
whichever is
higher

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 7

B.2.B.5. Temporary Closure / Bona fide suspension of Operations
Art. 301, LC: When Employment Not Deemed
Terminated: The bona fide suspension of the operation of a business or undertaking for a period not exceeding
six (6) months, or the fulfillment by the employee of a military or civic duty shall not terminate employment. In
all such cases the employer shall reinstate the employee to his former position without loss of seniority rights
if he indicates his desire to resume his work not later than one
(1) month from the resumption of operations of his employer or from his relief from the military or civic duty

Under Art. 301 of the Labor Code, a bona fide suspension of business operations for not more than six (6)
months does not terminate employment. After six (6) months, the employee may be recalled to work or be
permanently laid off. In this case, more than six (6) months have elapsed from the time the Club ceased to
operate. Hence, respondents' termination became permanent. [SKM Art Craft Corp. v. Bauca, G.R. Nos.
171282, 183484 (2013)]
An employer may validly suspend operations for at most 6 months. Not accepting the workers back to work after
the 6-month period is equivalent to termination, which should be for cause and with proper procedure. [Manila
Mining Corp v Amor, GR No 182800 (2015)]

Floating Status
A floating status requires the dire exigency of the employer’s bona fide suspension of operation, business
or undertaking. It takes place when (a) the security agency’s clients decide not to renew their contracts with
the agency and (b) also in instances where contracts for security services stipulate that the client may
request the agency for the replacement of the guards assigned to it. In the latter case, the employer should
prove that there are no posts available to which the employee temporarily out of work can be assigned.
[Peak Ventures Corp v. Nestor Villareal, G.R. No. 184618 (2014)]

Other Causes

(1) Disease incurable in 6 months [Art. 299, LC]

(2) Enforcement of union security clause in the CBA
(3) Dismissal of union officers for the conduct of an illegal strike [Art. 279 (a), LC]
(4) Dismissal of union members for participating in the commission of illegal acts [Art. 279 (a), LC]
(5) Termination in conformity with existing statute/ qualification requirements

Disease

Art. 299, LC: Disease as Ground for Termination: An employer may terminate the services of an employee who has
been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial
to his health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at
least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction
of at least six (6) months being considered as one (1) whole year.
Section 8, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code Disease as a ground for dismissal. —
Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his
health or to the health of his coemployees, the employer shall not terminate his employment unless there is a

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 8

certification by competent public health authority that the disease is of such nature of at such a stage that it cannot be
cured within a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured
within the period, the employee shall not terminate the employee but shall ask the employee to take a leave of
absence. The employer shall reinstate such employee to his former position immediately upon the restoration of his
normal health

Requisites
(1) The employee must be suffering from a disease which cannot be cured within six months, even
with proper medical treatment;
(2) His continued employment is prohibited by law or prejudicial to his health or to the health of his co-
employees; and
(3) A certification to that effect must be issued by a competent public health authority. [Crayons
Processing, Inc. v. Pula, G.R. No. 167727 (2007), Sec. 5.2. (f), DO 147-15]
The burden falls upon the employer to establish these requisites, and in the absence of such
certification, the dismissal must necessarily be declared illegal.
It is only where there is a prior certification from a competent public authority that the disease afflicting the
employee sought to be dismissed is of such nature or at such stage that it cannot be cured within six (6)
months even with proper medical treatment that the latter could be validly terminated from his job [Crayons
Processing, Inc. v. Pula, G.R. No. 167727 (2007)]

ii. Enforcement of Union Security Clause in CBA

Union security is a generic term, which is applied to and comprehends:

Closed shop – an enterprise in which, by agreement between the employer and his employees or their
representatives, no person may be employed in any or certain agreed departments of the enterprise unless he
or she is, becomes, and, for the duration of the agreement, remains a member in good standing of a union entirely
comprised of or of which the employees in interest are a part.

Union shop – when all new regular employees are required to join the union within a certain period as
a condition for their continued employment.
Law authorizes the enforcement of union security clauses, provided such enforcement is not characterized
by arbitrariness, and always with due process.
(1) Substantive – whether the termination of employment was based on the
provisions of the Labor Code or in accordance with the prevailing jurisprudence;
In terminating the employment of an employee by enforcing the Union Security Clause, the employer
needs only to determine and prove that:
(a) The union security clause is applicable;
(b) The union is requesting for the enforcement of the union security provision in the CBA; and
(c) There is sufficient evidence to support the union's decision to expel the employee from the union
or company.
2 Procedural – the manner in which the dismissal was effected.

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 9

 (a) The first written notice to be served on the employees should contain the specific causes or grounds
for termination against them, and a directive that the employees are given the opportunity to submit
their written explanation within a reasonable period.
(b) The requirement of a hearing is complied with as long as there was an opportunity to be heard,
and not necessarily that an actual hearing was conducted.
(c) After determining that termination of employment is justified, the
employers shall serve the employees a written notice of termination indicating that: (1) all
circumstances involving the charge against the employees have been considered; and (2) grounds
have been established to justify the severance of their employment. [Inguillo v. First Phil Scales,
G.R. No. 165407 (2009)]

iii. Dismissal of union officers for the conduct of an illegal strike / dismissal of union members for
participating in the commission of illegal acts

Art. 279, a, 3rd par., 2nd sen., LC: Any union officer who knowingly participates in an illegal strike and
any worker or union officer who knowingly participates in the commission of illegal acts during a strike
may be declared to have lost his employment status.

iV. Termination in conformity with existing statute / Qualification requirements

While the right of workers to security of tenure is guaranteed by the Constitution, its exercise may be reasonably
regulated pursuant to the police power of the State to safeguard health, morals, peace, education, order, safety,
and the general welfare of the people. Consequently, persons who desire to engage in the learned professions
requiring scientific or technical knowledge may be required to take an examination as a prerequisite to engaging
in their chosen careers. [St. Lukes’s Medical Center Employees Ass'n-AFW v. NLRC, G.R. No. 162053 (2007)]

B.2.c. DUE PROCESS

Art. 292 (b), LC: Subject to the constitutional right of workers to security of tenure and their right to be protected
against dismissal except for a just and authorized cause without prejudice to the requirement of notice under Article
283 of this Code, the employer shall furnish the worker whose employment is sought to be terminated a written
notice containing a statement of the causes for termination and shall afford the latter ample opportunity to be heard
and to defend himself with the assistance of his representative if he so desires in accordance with company rules and
regulations promulgated pursuant to guidelines set by the Department of Labor and Employment. Any decision taken
by the employer shall be without prejudice to the right of the worker to contest the validity or legality of his dismissal
by filing a complaint with the regional branch of the National Labor Relations Commission. The burden of proving that
the termination was for a valid or authorized cause shall rest on the employer

Requisites for Valid Dismissal

1. Substantive due process: The dismissal must be for any of the causes provided for in Article 297 –
299 of the Labor Code; and
2. Procedural due process: The employee must be afforded an opportunity to be heard and defend
himself. [Fujitsu Computer Products Corporation of the Phil. v. Court of Appeals, G.R. No. 158232
(2005)]
Employer may not substitute the requiredprior notice & opportunity to be heard with the
mere payment of 30 days' salary. [PNB v.Cabansag, G.R. No. 157010 (2005)]

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 10

Right to Counsel

The right to counsel, a very basic requirement of substantive due process, has to be observed. Indeed, the rights to
counsel and to due process of law are two of the fundamental rights guaranteed by the 1987 Constitution to any
person under investigation, be the proceeding administrative, civil or criminal (Salaw v. NLRC, G.R. No. 90786 [1991])

Burden of Proof
In illegal dismissal cases, the onus of proving that the employee was not dismissed or, if dismissed, that the
dismissal was not illegal, rests on the employer, failure to discharge which would mean that the dismissal is
not justified and, therefore, illegal. [Macasero v. Southern Industrial Gases Philippines, G.R. No. 178524
(2009)]

Degree of Proof
In labor cases, as in other administrative proceedings, substantial evidence is required and it is such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion. [Andrada v. Agemar Manning Agency, Inc., G.R.
No. 194758 (2012)]
Substantial evidence is necessary for an employer to effectuate any dismissal. Uncorroborated assertions
and accusations by the employer do not suffice; otherwise the constitutional guaranty of security of tenure
of the employee would be jeopardized. [Kulas Ideas & Creations, et. al. v. Alcoseba & Arao Arao, GR 180123
(2010)]

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 11

B.2.C.1. TWIN-NOTICE REQUIREMENT
The employer has the burden of proving that a dismissed worker has been served two notices:
(1) First written notice: served on the employee specifying the ground or grounds for termination, and
giving said employee reasonable opportunity within which to explain his side.
(2) Second written notice: served upon the employee, indicating that upon due consideration of
all the circumstances, grounds have been established to justify his termination.

(1) opportunity to submit their written explanation within a

“reasonable period” or every kind of assistance that management must accord to the employees
to enable them to prepare adequately for their defense. This should be construed as a
First period of at least five (5)
Notice calendar days from receipt of the
notice
(3) Contain a detailed narration of the facts and circumstances that will serve as basis for the
charge against the employees.
(4) Specifically mention which company rules, if any, are violated and/or which among the
grounds under Art. 288 is being charged against the employees. [United Tourist
Promotions v. Kemplin, G.R. No. 205453 (2014)]

Indicate all circumstances

(1)
involving the charge against the
employees considered; and
Second (2) Indicate grounds established to
Notice justify the severance of their
employment [United Tourist
Promotions v. Kemplin, G.R. No.

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 12

An employee may be dismissed only if the grounds mentioned in the pre-dismissal notice were the ones cited for
the termination of employment. [Erector Advertising Sign Group, Inc. v. Cloma, G.R. No. 167218, (2010)]

B.2.C.2. HEARING; MEANING OF OPPORTUNITY TO BE HEARD

In employee dismissal cases, the essence of due process is simply an opportunity to be heard; it is the
denial of this opportunity that constitutes violation of due process of law. [Technol Eight Philippines
Corporation v. NLRC, G.R. No. 187605 (2010)]
While a formal hearing or conference is ideal, it is not an absolute, mandatory or exclusive avenue
of due process. [Perez v. PT&T, G.R. No. 152048 (2009)]

Guiding principles in hearing requirement

(1) "Ample opportunity to be heard" means any meaningful opportunity (verbal or written) given
to the employee to answer the charges against him and submit evidence in support of his
defense, whether in a hearing, conference or some other fair, just and reasonable way.
(2) A formal hearing or conference becomes mandatory only when requested by the employee in writing
or substantial evidentiary disputes exist or a company rule or practice requires it, or when similar
circumstances justify it.
(3) The "ample opportunity to be heard" standard in the Labor Code prevails over the "hearing
or conference" requirement in the implementing rules and regulations. [Perez v. PT&T, G.R.
No. 152048 (2009)]

Use of Position Paper

It is the labor arbiter who is authorized to determine whether or not there is a necessity for conducting formal
hearings in cases brought before them for adjudication even after the submission of the parties of their
position papers or memoranda. A formal trial-type hearing is not at all times and in all instances essential to
due process. It is enough that the parties are given a fair and reasonable opportunity to explain their
respective sides of the controversy and to present supporting evidence on which a fair decision can be based.
[Seastar Marine Services Inc. v. Bul-an, Jr., G.R. No. 142609 (2004)]

Decision/Award

It is a requirement of due process that the parties to a litigation be informed of how it was decided, with an
explanation of the factual and legal reasons that led to the conclusions of the court. The court cannot simply say
that judgment is rendered in favor of X and against Y and just leave it at that without any justification whatsoever
for its action. The losing party is entitled to know why he lost, so he may appeal to a higher court, if permitted,
should he believe that the decision should be reversed. A decision that does not clearly and distinctly state the
facts and the law on which it is based leaves the parties in the dark as to how it was reached and is especially
prejudicial to the losing party, who is unable to pinpoint the possible errors of the court for review by a higher
tribunal. [ABD Overseas Manpower Corporation vs. NLRC, G.R. No. 117056 (1998)]

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 13

Authorized Cause
Notice to:
(1) Employee, and
(2) DOLE at least 1 month prior to the effectivity of the separation

Requisites
(1) Notice not needed when Employee consented to the retrenchment or
voluntarily applied for one. [International Hardware, Inc. v. NLRC, G.R. No. 80770, (1989)]
(2) Notice must be individual, not collective [Shoppers Gain Supermart v. NLRC, G.R. No. 110731
(1996)]
(3) Voluntary arbitration satisfies notice
requirement for authorized causes [Revidad
v. NLRC, G.R. No. 111105 (1995

Consequences for non-compliance OF PROCEDURAL DUE PROCESS

Validity of
Situation Liability of ER
Dismissal

Just or Authorized Cause No liability.

Valid
+ Due Process Separation pay only in authorized cause

No Just or Authorized Cause Reinstatement or separation pay.

Invalid
+ Due Process If reinstatement not possible, + full backwages

No Just or Authorized Cause Reinstatement or separation pay.

Invalid
+ No Due Process If reinstatement not possible, + full backwages

Just or Authorized Cause Liable for damages due to procedural infirmity.

+ No Due Process Valid Separation pay if for authorized cause

B.3 RELIEFS FOR ILLEGAL DISMISSAL The reliefs are cumulative, not alternative

Art. 294, LC:

Security of Tenure. In case of regular employment, the employer shall not terminate the services of an
employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 14

 his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent
computed from the time his compensation was withheld from him up to the time of his actual
reinstatement.

1. In general
a. Reinstatement
b. Backwages
2. Damages and attorney’s fees
3. Separation Pay
4. Financial assistance/separation pay as
a measure of social justice
2 Indemnity
3 Interest at 6% p.a. on the total monetary awards (from finality of decision until full payment)
4 Solidary liability of corporate officers

B.3.A. In general
B.3.A.1. Reinstatement
Reinstatement means restoration to a state or condition from which one had been removed or separated. The
person reinstated assumes the position he had occupied prior to his dismissal. [Asian Terminals, Inc. v. Villanueva,
G.R. No. 143219 (2006)]

General Rule: Reinstatement and backwages

Exceptions:
(1) Separation pay
(2) Closure of business [Retuya v. Hon. Dumarpa, G.R. No. 148848 (2003)]
(3) Economic business conditions [Union of Supervisors v. Secretary of Labor, G.R. No. L-39889 (1981)]
(4) Employee’s unsuitability [Divine Word High School v. NLRC, G.R. No. 72207 (1986)]
(5) Employee’s retirement/ overage [New Philippine Skylanders, Inc. v. Dakila, G.R. No. 199547
(2012)]
(6) Antipathy and antagonism [Wensha Spa Center v. Yung, G.R. No. 185122 (2010)]
(7) Job with a totally different nature [DUP Sound Phils. v. CA, G.R. No. 168317 (2011)]
(8) Long passage of time
(9) Inimical to the employer's interest

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 15

 (10) When supervening facts have transpired which make execution on that score unjust or inequitable or,
to an increasing extent [Emeritus Security & Maintenance Systems, Inc. v. Dailig, G.R. No. 204761
(2014)]

Prescription Period
An action for reinstatement by reason of illegal dismissal is one based on an injury, which may be
brought within 4 years from the time of dismissal. [Art. 1146, CC]

. Reinstatement pending appeal

Art. 229, par. 3 LC: In any event, the decision of the Labor Arbiter reinstating a dismissed or separated
employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, pending
appeal. The employee shall either be admitted back to work under the same terms and conditions
prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in the
payroll. The posting of a bond by the employer shall not stay the execution for reinstatement provided
herein.

2 options given to employers:

1) Actually reinstate the dismissed employees or,
2) Constructively reinstate them in the payroll.

Either way, this must be done immediately upon the filing of their appeal, without need of any
executory writ.
If the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the
employer to reinstate and pay the wages of the dismissed employee during the period of appeal until
reversal by the higher court. The Labor Arbiter's order of reinstatement is immediately executory and the
employer has to either re-admit them to work under the same terms and conditions prevailing prior to their
dismissal, or to reinstate them in the payroll, and that failing to exercise the options in the alternative,
employer must pay the employee's salaries [Magana v. Medicard Philippines, Inc., G.R. No. 174833 (2010)]

No refund doctrine
An employee cannot be compelled to reimburse the salaries and wages he received during the pendency
of his appeal, notwithstanding the reversal by the NLRC of the LA's order of reinstatement. [College of the
Immaculate Conception v. NLRC, G.R. No. 167563 (2010)]
Note, however: Rule XI, Sec. 14 of the 2011 NLRC Rules of Procedure provide for restitution of amounts
paid pursuant to execution of awards during pendency of the appeal. However, it expressly disallows
restitution of wages paid due to reinstatement pending appeal.

Section 14. Effect of Reversal of Executed Judgment. Where the executed judgment is totally or partially
reversed or annulled by the Court of Appeals or the Supreme Court, the Labor Arbiter shall, on motion,
issue such orders of restitution of the executed award, except wages paid during reinstatement pending
appeal.

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 16

ii. Separation pay in lieu of reinstatement Kinds of separation pay (SP)

(1) SP as a statutory requirement for authorized causes

(2) SP as financial assistance found in the next section
(3) SP in lieu of reinstatement where reinstatement is not feasible; and
(4) SP as a benefit in the CBA or company policy

Instances when the award of separation pay, in lieu of reinstatement to an illegally dismissed
employee, is proper:
(1) When reinstatement is no longer possible, in cases where the dismissed employee's position
is no longer available;
(2) The continued relationship between the employer and the employee is no longer viable due
to the strained relations between them; and
(3) When the dismissed employee opted not to be reinstated, or the payment of separation
benefits would be for the best interest of the parties involved. [Book VI, Rule 1, Section 4 (b),
Rule I, IRR]

Separation Pay and Reinstatement, Exclusive Remedies

The payment of separation pay and reinstatement are exclusive remedies. The payment of
separation pay replaces the legal consequences of reinstatement to an employee who was illegally
dismissed. [Bani Rural Bank, Inc. v. De Guzman, G.R. No. 170904 (2013)]

Doctrine of Strained Relations

Where reinstatement is not feasible, expedient or practical, as where reinstatement would only exacerbate the
tension and strained relations between the parties or where the relationship between the employer and employee
has been unduly strained by reason of their irreconcilable differences, particularly where the illegally dismissed
employee held a managerial or key position in the company, it would be more prudent to order payment of
separation pay instead of reinstatement. [Quijano v. Mercury Drug Corp., G.R. No. 126561 (1998)]

Computation
SP as a statutory requirement is computed by integrating the basic salary with regular allowances
employee has been receiving [Planters Products, Inc. v. NLRC, G.R. No. 78524, 78739 (1989)]; allowances
include transportation and emergency living allowances [Santos v. NLRC, G.R. No. 76721 (1987)]
Inasmuch as the words "wages", "pay" and "salary" have the same meaning, and commission is included in the
definition of "wage", the logical conclusion, therefore, is, in the computation of the separation pay of petitioners,
their salary base should include also their earned sales commissions. [Songco
v. NLRC, G.R. Nos. 50999-51000 (1990)]
A dismissed employee who has accepted separation pay is not necessarily estopped from challenging the
validity of his or her dismissal. Neither does it relieve the employer of legal obligations. [Anino v. NLRC,
G.R. No. 123226 (1998)]

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 17

B.3.A.2. Backwages
Backwages are earnings lost by a worker due to his illegal dismissal; a form of relief that restores the income lost by
reason of such unlawful dismissal; it is not private compensation or damages; nor is it a redress of a private right
but, rather, in the nature of a command to the employer to make a public reparation for illegally dismissing an
employee. [St. Theresa's School of Novaliches Foundation v. NLRC, G.R. No. 122955 (1998)]
Backwages and reinstatement are two reliefs that should be given to an illegally dismissed employee. They are
separate and distinct from each other. An illegally dismissed employee is entitled to (1) either reinstatement, if
viable, or separation pay if reinstatement is no longer
viable, and (2) backwages. Payment of backwages is specifically designed to restore an employee's income that was
lost because of his unjust dismissal. [Aurora Land Projects Corp. v. NLRC, G.R. No. 114733 (1997)]

Effect of failure to order backwages

A “plain error” which may be rectified, even if employee did not bring an appeal regarding the
matter [Aurora Land Projects Corp. v. NLRC, supra]

i. Computation of backwages
Full backwages means exactly that, i.e., without deducting from backwages the earnings derived
elsewhere by the concerned employee during the period of his illegal dismissal. [Bustamante v.
NLRC, G.R. No. 111651 (1996)]
Awards including salary differentials are not allowed [Insular Life Assurance Co. v. NLRC, 1987]
The period of delay in instituting this ULP charge with claim for reinstatement and
backwages, although within the prescriptive period, should be deducted from the liability of the
employer to him for back wages. [Mercury Drug Co. Inc. v. CIR, G.R. No. L-23357 (1974)]
The salary base properly used should be the basic salary rate at the time of dismissal plus the regular
allowances; allowances include:
Emergency cost of living allowances (ECOLA), transportation allowances, 13th month pay.
[Paramount Vinyl Product Corp. v. NLRC (1990)]
Also included are vacation leaves, service incentive leaves, and sick leaves
The effects of extraordinary inflation are not to be applied without an official declaration thereof by
competent authorities. [Lantion v. NLRC, G.R. No. 82028 (1990)]

ii. Limited backwages

General rule: An illegally dismissed employee is entitled to full backwages.

Exceptions
(1) The Court awarded limited backwages where the employee was illegally dismissed but the
employer was found to be in good faith. [San Miguel

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 18

 Corporation v. Javate, Jr., G.R. No. L-54244 (1992)]
(2) Delay of the EE in filing the case for illegal dismissal [Mercury Drug Co., Inc. v. CIR, supra]

Rationale
Feati University Club vs. Feati University (1974) adopted a consensus policy of pegging the amount of backwages to their
total equivalent
for three years (depending on the circumstances) without deduction or qualification. The rationale for the
policy was stated in the following words:
As has been noted, this formula of awarding reasonable net backwages without deduction or qualification relieves
the employees from proving or disproving their earnings during their lay-off and the employers from submitting
counterproofs, and obviates the twin evils of Idleness on the part of the employee who would "with folded arms,
remain inactive in the expectation that a windfall would come to him" [Itogon Suyoc Mines, Inc. vs. Sangilo-Itogon
Workers Union (1968), as cited in Diwa ng Pagkakaisa vs. Filtex International Corp. (1972)] and attrition and
protracted delay in satisfying such award on the part of unscrupulous employers who have seized upon the further
proceedings to determine the actual earnings of the wrongfully dismissed or laid-off employees to hold unduly
extended hearings for each and every employee awarded backwages and thereby render practically nugatory such
award and compel the employees to agree to unconscionable settlements of their backwages award in order to
satisfy their dire need. [See La Campana Food Products, Inc. vs. CIR, (1969) and Kaisahan ng Mga Manggagawa vs.
La Campana Food Products, Inc., (1970)].

Note that according to Nacar v Gallery Frames, when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest …. shall be 6% per annum from such finality until
its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
[Nacar v Gallery Frames, G.R. No. 189871, (2013)]
Indemnity of Employer

Doctrine in Validity of
Period Liability of ER
effect Dismissal

Prior 1989 Pre-Wenphil Illegal Reinstatement + Backwages

Feb. 1989 – 1999 Wenphil Valid Dismiss now, indemnity pay later

Jan. 2000 – Oct. Full backwages up to reinstatement/finality of

Serrano Ineffectual
2004 decision

Nov. 2004 – Agabon Valid Nominal damages

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 19

B.3.B. Damages and Attorney’s Fees Article 111, Civil Code
Attorney’s fees.-- In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s
fees equivalent to ten percent of the amount of wages recovered.
It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the
recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered

Art 2208, par. 7, Civil Code

Attorney’s fees.-- In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s
fees equivalent to ten percent of the amount of wages recovered.
It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for
the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered.

The employee is entitled to moral damages when the employer acted a) in bad faith or fraud; b) in a manner
oppressive to labor; or c) in a manner contrary to morals, good customs, or public policy [Montinola vs. PAL,
GR No. 198656 (2014).
In labor cases, the court may award exemplary damages "if the dismissal was effected in a wanton, oppressive or
malevolent manner." [Garcia vs. NLRC, GR. No. 110518 (1994)]

B.3.C. Separation Pay

SEPARATION PAY [(Art. 289 & 290, LC, DOLE Handbook on Worker’s Statutory Monetary Benefits, 2014)
Separation pay is defined as the amount that an employee receives at the time of his severance from the
service and is designed to provide the employee with the wherewithal during the period that he is looking
for another employment. [A’ Prime Security Services vs NLRC (1993

Coverage
General Rule:
Cause for Termination Entitlement
Art. 288 Termination by Employer
(b) Serious misconduct or willful
disobedience of lawful orders
(c) Gross and habitual neglect of duties
(d) Fraud or willful breach of trust None
(e) Commission of a crime against employer
or immediate member of his family or
representative
(f) Analogous causes
Art. 289 Installation of labor saving devices or Equivalent to at least 1 month pay or 1 month pay
redundancy for every year of service, whichever is higher

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 20

 Art. 289 Retrenchment to prevent losses or
closure or cessations of operations of Equivalent to at least 1 month pay or 1/2 month
establishments or undertaking not due to serious pay for every year of service*, whichever is higher
business losses or financial reverses
Art. 290 Disease when continued employment is
Equivalent to at least 1 month pay or 1/2 month
prohibited by law or is prejudicial to his health or
pay for every year of service*, whichever is higher
health of co-employees
Art. 291 Termination by employee whether with or
None
without just cause
*A fraction of at least 6 months shall be considered 1 whole year

Exceptions: Considerations of equity as in the cases of Filipro, Inc. v. NLRC, Metro Drug Corp. v.
NLRC, Engineering Equipment, Inc. v. NLRC, San Miguel Corp v. NLRC. [PLDT vs NLRC (1988)]
An employee who voluntarily resigns is not entitled to separation pay unless stipulated in the employment
contract, or the collective bargaining agreement, or is sanctioned by established practice or policy of the
employer. [Phimco Industries vs NLRC (1997); Hinatuan Mining Corp vs NLRC (1997) cited in JPL Marketing
Promotions v. CA (2005)]

Amount
One-Half (1/2) Month Pay per Year of Service
An employee is entitled to receive separation pay equivalent to ½ month pay for every year of service,
a fraction of at least six (6) months being considered as one whole year, if his/her separation from the
service is due to any of the following authorized causes:
(1) Retrenchment to prevent losses (i.e. reduction of personnel effected by management to
prevent losses);
(2) Closure or cessation of operation of an establishment not due to serious losses or financial
reverses; and,
(3) When the EE is suffering from a disease not curable within a period of six (6) months and
his/her continued employment is prejudicial to his/her health or to the health of his/her co-
employees
In no case will an employee get less than one
(1) month separation pay if the separation is due to the above stated causes and he/she has served for at
least six (6) months. (DOLE
Handbook on Workers’ Statutory Monetary
Benefits, 2014 ed.)

One-Month Pay per Year of Service

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 21

An employee is entitled to separation pay equivalent to his/her one-month pay for every year of
service, a fraction of at least 6 months being considered as one whole year, if his/her separation
from service is due to any of the following:

(1) Installation by employer of labor-saving devices;

(2) Redundancy, as when the position of the employee has been found to be excessive or unnecessary
in the operation of the enterprise;
(3) Impossible reinstatement of the employee to his/her former position or to a substantially equivalent position
for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent
authority cannot be implemented due to closure of cessation of operations of the
establishment/employer, or the position to which he/she is to be reinstated no longer exists and there
is no substantially equivalent position in the establishment to which he/she can be assigned. [Gaco vs
NLRC (1994)]

Notice of Termination
The employer may terminate the employment of any employee due to the above-mentioned authorized causes by
serving a written notice on the employee and the DOLE through its regional office having jurisdiction over the place
of business at least 1 month before the intended date thereof.

Basis of Separation Pay

The computation of separation pay of an employee shall be based on his/her latest salary rate. [DOLE
Handbook on Workers’ Statutory Monetary Benefits, 2014 ed.]

Inclusion of Regular Allowance in the Computation

In the computation of separation pay, it would be error not to integrate the allowance with the basic salary.
The salary base properly used in computing the separation pay should include not just the basic salary but also
the regular allowances that an employee has been receiving. [Planters’ Products, Inc. vs NLRC (1989)]

B.4. PREVENTIVE SUSPENSION

Preventive suspension is a disciplinary measure for the protection of the company's property pending
investigation of any alleged malfeasance or misfeasance committed by the employee. The employer may
place the
worker concerned under preventive suspension if his continued employment poses a serious and imminent
threat to the life or property of the employer or of his co-workers. However, when it is determined that there
is no sufficient basis to justify an employee's preventive suspension, the latter is entitled to the payment of
salaries during the time of preventive suspension. [Gatbonton v. NLRC, G.R. No. 146779 (2006)]
Preventive suspension is justified where the employee's continued employment poses a serious and
imminent threat to the life or property of the employer or of the employee's co-workers. Without this
kind of threat, preventive suspension is not proper. [Artificio v. NLRC, G.R. No. 172988 (2010)]

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 22

DURATION
No preventive suspension shall last longer than thirty (30) days.
Upon the expiry of such period, the employer shall thereafter
(1) reinstate the worker in his former or in a substantially equivalent position or
(2) the employer may extend the period of suspension provided that during the period of extension,
he pays the wages and other benefits due to the worker. [Sec. 9, Rule XXIII, Book V, IRR]

PREVENTIVE SUSPENSION AS A PROTECTIVE MEASURE V. SUSPENSION AS PENALTY

Preventive suspension is not a penalty in itself. It is merely a measure of precaution so that the employee who
is charged may be separated, for obvious reasons, from the scene of his alleged misfeasance while the same
is being investigated. While [preventive suspension] may be imposed on a respondent during the investigation
of the charges against him, [suspension] is the penalty which may only be meted upon him at the termination
of the investigation or the final disposition of the case. [PAL v. NLRC, G.R. No. 114307 (1998)

SELF-ASSESSMENT ACTIVITY

1. Read and Summarize the case of Electro System Industries Corp v. NLRC
(G.R. No. 165282, October 5, 2005)

a. Did the company observed the twin notice rule?

2. Read and summarize the case of Distribution & Control Products, Inc.
v. Jeffrey Santos (G.R. No 212616, July 10, 2017)

C. REFERENCES
1. The Labor Code, as amended and renumbered
2. Prof. Joselito G. Chan, The 2017 Bar Reviewer on Labor Law
3. Atty. Cesario A. Azucena, Jr., The Labor Code with Comments and Cases (Vol. 1 & 2)

PREPARED BY: ATTY. ALFRED STALIN P. FRANCISCO 23