Labor Law Module 3 Pointers

MODULE III
LABOR LAW AND LEGISLATIONS
NAME:
COURSE, YEAR, AND SECTION:
INSTRUCTOR: THERESE DIOVE GLEA M. RUBI
SEMESTER: 2ND SEMESTER
ACADEMIC YEAR: 2021-2022
MODULE III
Security of Tenure and Employment
This module contains two lessons that tackle all about security of tenure and termination of
employment. Lesson 1 is about the “Security of Tenure” which discusses the regular and
casual employment, other forms of employment such as project employment, seasonal
employment, fixed-period employment, and probationary employment, and the management
prerogatives (right to transfer, right to disciple, right to promote, right to demote and right to
grant bonuses). Lesson 2 talks about “Termination of Employment” which the Labor Code
provides the just causes and authorized causes for which an employer may terminate an
employment.
Lesson 1 Security of Tenure

I - Learning Objectives:
At the end of this lesson, the students are expected to:
1. determine whether the employees as regular employees or not;
2. make a critical paper on the impact of labor of rampant practice among companies in
contracting fixed period of employees; and
3. demonstrate content and knowledge of security of tenure through a case digests in order
to value its significance.
II – Discussions:
The protection to labor, as enshrined in the Constitution, does not settle with simply
guaranteeing that an employee gets nothing less than what social justice dictates. It extends
to an assurance that the employee will stay employed, unless there is reasonable ground for
his/her removal.
The Constitution expressly safeguards an employee’s right to security of tenure. Article XIII,
Section 3 of the Constitution provides that “they (employees) shall be entitled to security of
tenure, humane conditions of work, and a living wage”. Security of tenure is commonly
defined as the constitutional right granted to an employee, which generally prohibits the
employer from terminating his/her services, except for just causes, or when authorized by
law.
Article 279 of the Labor Code of the Philippines states that 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
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.
More than just an employee’s right against unjust and arbitrary dismissal, this right to
security of tenure is also based on a more fundamental right that the Constitutional protects,
i.e. his right to property, under Article III Section 1 of the same. “He cannot be deprived of
his work, which is property in the constitutional sense, without the benefit of a hearing”.
Moreover, an employee’s right to security of tenure is not solely confined with unjust
terminations, but is also intended to protect workers from unwarranted transfers, demotion
and diminution of benefits.
However, it is important to note that this right does not warrant perpetual employment. The
COMPILED BY:
removal of employees is still part of management prerogative. What the law frowns upon,
and heavily punishes, is the termination from employment of a person without any just or
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JOHN ALBERT A. ALZATE
Labor Laws & Legislations (HRM2)Page 1
EMAIL: theresedioveglea.rubi@gmail.com
authorized cause, and absent the necessary procedures required by one’s right to due
process of law. “If there is a just or authorized cause the employer may terminate the
services of an employee; the former cannot be legally compelled to have in its employ a
person who’s continued employ a person whose continued employment is patently inimical
to its interest. The law, while affording protection to the employee, does not authorize the
oppression or destruction of the employer”.
In short, as concisely discussed in the case of Phil-Singapore Transport Services, Inc. vs.
NLRC, the Court pronounces that:
No less than the Constitution recognizes and guarantees the labor’s right to security of
tenure. Under the Labor Code of the Philippines, as amended, specifically, Article 279 of the
said Code, the security of tenure has been construed to mean as that “the employer shall
not terminate the services of an employee except for a just cause or when authorized” by
the Code. The two facets of this legal provision are: (a) the legality of the act of dismissal;
and (b) the legality in the manner of dismissal. The illegality of the act of dismissal
constitutes discharge without just cause, while illegality in the manner of dismissal without
due process. If an employee is dismissed without just cause, he is entitled to reinstatement
with backwages up to the time of his actual reinstatement, if the contract of employment is
not for a definite period; or to the payment of his salaries corresponding to unexpired portion
of the employment contract, if the contract is for the definite period. If the dismissal is for a
just cause but it was made without due process, the employee is entitled to the payment of
an indemnity.
1.1 To whom does the right extend?
The right to security of tenure, generally speaking, knows no classification. As long as one is
an employee, then he/she shall enjoy the protection being guaranteed by said right.
However, as to the extent of the protection, a categorization of the different kinds of
employment must be made – as provided under Article 279 of the Labor Code. While all
employees are entitled to security of tenure, regular employees are the ones entitled to the
full extent of this constitutional right. The other kinds of employment likewise enjoy security
of tenure, but only to a limited extent.
1.1a Regular and Casual Employment
In lesson 1 of module 1, a short definition as to the difference between regular and casual
employments has already been made. However, for purposes of elucidating on the matter of
security of tenure, the same shall be expounded further under this lesson.
As above-mentioned, when we speak of security of tenure, regular employees enjoy the
most extensive coverage of this right. And so to reiterate, a regular employee, under Article
280 of the Labor Code is one who:
a. has been engaged to perform activities which are usually necessary or desirable in
the usual business or trade of the employer, his employment not being fixed for a
specific project or undertaking the completion or termination of which has been
determined at the time of engagement, or seasonal in nature and the employment is
for the duration of the season.
b. Has rendered at least one (1) year of service, whether such service is continuous or
broken, with respect to the activity in which he is employed.
In the second category of regular employment, it can be gleaned that his/her job need not
be usually necessary or desirable in the usual business or trade of the employer. As such,
he is considered as a casual employee from the outset of employment. But he shall retain
such status only within a year from his/her employment. If said employee continued working
for his/her employer after the lapse of one year, then he/she shall thereafter be considered
as a regular employee.
When a causal employee completes one year of service, he becomes a regular employee
with respect to the activity in which he is employed. It is not necessary that the employee be
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first issued a regular appointment or be formally declared as such before he can acquire
regular status. It is the passage of time that gives a casual employee a regular status.
But, at the beginning of engagement, what determines regularity of status? It is neither the
nomenclature nor title of the job that an employee is performing, nor the description laid
down in one’s employment contract. It shall be the actual work performed by the employee.
More specifically, it is the reasonable connection between the particular activity performed
by the employee in relation to the usual business or trade of the employer. It is the NATURE
of te activities to be and being performed that determines regularity of employment.
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Case illustration: GMA NETWORK, INC. vs. CARLOS PABRIGA, ET. AL (2013)
FACTS: On July 19, 1999 due to the miserable working conditions private respondents were
forced to file a complaint against the petitioner before the National Labor Relations
Commission assailing their respective employment circumstances. Private respondents
were engaged by petitioner to perform the following, to wit:
1. Manning of Technical Operations Center:
a. Responsible for the airing of local commercials; and
b. Logging/Monitoring of national commercials (satellite)
2. Acting as Transmitter/VTR men:
a. Prepare tapes for local airing;
b. Actual airing of commercials;
c. Plugging of station promo;
d. Logging of transmitter reading; and
e. In case of power failure, start-up generator set to resume program;
3. Acting as Maintenance staff:
a. Checking of equipment;
b. Warming up of generator
c. Filling of oil, fuel, and water in radiator; and
4. Acting as Cameramen
On 9 August 1999, private respondents were summoned to office of petitioner’s Area
Manager, and they were made to explain why they filed the complaint. The next day,
private respondents were barred from entering and reporting for work without any notice
stating the reasons therefore. Eventually, they were totally dismissed from work.
Respondents filed a complaint for illegal dismissal. They claim that they are regular
employees of petitioner GMA Network, Inc. The latter, on the other hand,
interchangeably characterize respondents’ employment as project and fixed period/fixed
term employment, NLRC ruled in favour of the respondents, stating that they are regular
employees with respect to the particular activity to which they were assigned, unit it
ceased to exist. As such, they are entitled to payment of separation pay computed at
one (1) month salary for every year of service.
ISSUE: Whether or not herein respondents are regular employees.
RULING: Yes
The nature of the employment is determined by law, regardless of any contract
expressing otherwise. The supremacy of the law over the nomenclature of the contract
and the stipulations contained therein is to bring to life the policy enshrined in the
Constitution to afford full protection to labor. Labor contracts, being imbued with public
interest, are placed on a higher plan than ordinary contracts and are subject to the police
power of the State.
The terms regular employment and project employment are taken from Article 280 of the
Labor Code, which also speaks of casual and seasonal employment:
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Article 280. Regular and causal employment. - The provisions of written
agreement to the contrary notwithstanding and regardless of the oral agreement
of the parties, an employment shall be deemed to be a regular where the
employee has been engaged to perform activities which are usually necessary
or desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion
or termination of which has been determined at the time of the engagement of
the employee or where the work or services to be performed is seasonal in
nature and employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: Provided, that, any employee who has been rendered at
least one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity actually exist.
Pursuant to the above-quoted Article 280 of the Labor Code, employees performing
activities which are usually necessary or desirable in the employer’s usual business or
trade can either be regular, project or seasonal employees, while, as a general rule,
those performing activities not usually necessary or desirable in the employer’s usual
business or trade are casual employees. The reasons for this distinction may not be
readily comprehensible to those who have not carefully studied these provisions: only
employers who constantly need the specified tasks to be performed can be justifiably
charged to uphold the constitutionally protected security of tenure of the corresponding
workers. The consequence of the distinction is found in Article 279 of the Labor Code,
which provides:
Article 279. Security of tenure. – In cases 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 his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from time his
compensation was withheld from him up to the time of his actual reinstatement.
In order to safeguard the rights of workers against the arbitrary use of the word
“project” to prevent employees from attaining the status of regular employees,
employers claiming that their workers are project employees should not only prove that
the duration and scope of the employment was specified at the time they were
engaged, but also that there was indeed a project. The project could either be (1) a
particular job or undertaking that is within the regular or usual business of the employer
company, but which is distinct and separate, and identifiable as such, from the other
undertaking of the company; or (2) a particular job or undertaking that is not within the
regular business of the corporation.
As it was with regard to the distinction between a regular and causal employee, the
purpose of this requirement is to delineate whether or not the employer is in constant
need of the services of the specified employee. If the particular job or undertaking is
within the regular or usual business of the employer company and it is not identifiably
distinct or separate from the other undertakings of the company, there is clearly a
constant necessity for the performance of the task in question, and therefore said job or
undertaking should not be considered a project.
The jobs and undertakings of herein respondents are clearly within the regular or usual
business of the employer company and are not identifiably distinct or separate from the
other undertakings of the company. There is no denying that the manning of the
operations center to air commercials, acting as transmitter/VTR men, maintaining the
equipment, and acting as cameramen are not undertakings separate or distinct from
the business of a broadcasting company.
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Petitioner’s allegation that respondents were merely substitutes or what they call pint-
hitters (which means that they were employed to take the place of regular employees
of petitioner who were absent or on leave) does not change the fact that their jobs
cannot be considered projects within the purview of the law. Every industry, even public
offices, has to deal with securing substitutes for employees who are absent or on
leave. Such tasks, whether performed by the usual employee or by a substitute, cannot
be considered separate and distinct from the other undertakings of the company. While
it is management’s prerogative to device a method to deal with this issue, such
prerogative is not absolute and is limited to systems wherein employees are not
ingeniously and methodically deprived of their constitutionally protected right to security
of tenure.
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The repeated rehiring and the continuing need for the employee’s services are sufficient
evidence of the necessity and indispensability of his services to the employer’s business or
trade. Therefore, in one case, it was ruled that the crew members of a fishing vessel who
were employed repeatedly “por viaje”, during a span of more than ten (10) are regular, not
fixed term, employees. In the same manner, that an employee worked only on a part-time
basis does not mean the he is not a regular employee. One’s regularity of employment is not
determined by the number of hours one works but by the nature and length of time one has
been in that particular job.
1.1b Other Forms of Employment
As discussed above, a casual employee, by operation of law through the passage of time
(i.e 1 year from employment), will become a regular employee – and therefore be entitled to
the full extent of protection of security of tenure. The other kinds of employees, such as
project, seasonal, probationary and contractual, may likewise enjoy the status of regular
employment.
 Project Employment
Project employment is technically within the scope of regular employment – as employees
under the former category may also perform services which are “usually necessary and
desirable in the usual business or trade of the employer”, as defined in Article 294 of the
Labor Code. However, by virtue of the nature of their job, which is subject to the completion
of the project, their entitlement to security of tenure is limited to such duration. Therefore,
they are not regular employees because of the limited and fixed duration of the existence of
their employment, and not because of the nature of their work. They, however, enjoy
security of tenure within the period for the completion of the project.
In one Supreme Court decision, it was ruled that, “project workers are not regular
employees, their services being needed only when there are projects to be undertaken. The
rationale of this rule is that if a project has already been completed, it would be unjust to
require the employer to maintain them in the payroll while they are doing absolutely nothing
except waiting until another project is begun, if it all. In effect, these standby workers would
be enjoying the status of privileged retainers, collecting payments for work not done, to be
disbursed by the employer from profits not earned. This is not fair by any standard and can
only lead to a coddling of labor at the expense of management.
Similarly, in the case of Cartagenas vs. Romago Electric Company (1989), the Court
rules that as an electrical contractor, the private respondent depends for its business on the
contracts it is able to obtain from real estate developers and builders of buildings. Since it
work depends on the availability of such contracts or “projects”, necessarily the duration of
the employment of its work force is not permanent but co-terminus with the projects to which
they are assigned and from whose payrolls they are paid. It would be extremely
burdensome for their employer who, like them, depends on the availability of projects, if it
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would have to carry them as permanent employees and pay them wages even if there are
no projects for them to work on. The fact that the complainants worked for the respondent
under different project employment contracts for so many years could not be made a basis
to consider them as regular employees for they remain project employees regardless of the
number of projects in which they have worked.
But considering that both regular and project employee performs services that are usually
necessary and desirable in the usual business or trade of the employer, how do we
distinguish who is who? The predetermination of the duration or period of project
employment is important in resolving whether one is a project employee or not. It is not
enough that an employee is hired for a specific project. Aside from this, the completion or
termination of the project must be clearly established at the outset. “It has been held that the
length of service of a project employee is not the controlling test of employment tenure but
whether or not ‘the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of engagement of the
employee”. If this clear arrangement was not made at the outset of employment, then the
employee shall be considered as regular employee form the first day of his/her job.
The principal test for determining whether an employee is a project employee or a regular
employee is whether the employment has been fixed for a specific project or undertaking,
the completion or termination of which has been determined at the time of the engagement
of the employee or where the work or service to be performed is seasonal in nature and the
employment is for the duration of season. A true project employee should be assigned to a
project which begins and ends at determined or determinable times, and be informed
thereof at the time of the hiring.
If a project employee is continuously hired even after the completion of the project, then
he/she may already be considered as a regular employee. A project employee can be given
the status of regular employee is he/she is repeatedly rehired despite the completion of the
project for which he/she was primarily hired, and there is continuing need for his/her
services, which are necessary and indispensable to the employer’s business. The
employment of a project employee becomes non-coterminous with the specific projects
when they started to be continuously rehired due to the demands of the employer’s industry
and reengaged for many more projects without interruption.
To further avoid the apparent confusion in determining whether an employee is regular or
project, the Deparment of Labor clarified project employment in Section 2.2 of Department
Order No. 19 said issuance provides for certain indicators in classifying an employee as a
project employee. The enumeration provided is disjunctive, rather than conjunctive, to wit:
a. The duration of the specific/identified undertaking for which the worker is engaged is
reasonably determinable;
b. Such duration, as well as the specific work/service to be performed, is defined in an
employment agreement and is made clear to the employee at the time of hiring;
c. The work/service performed by the employee is in connection with the particular
project/undertaking for which he is engaged;
d. The employee, while not employed and awaiting engagement, is free his services to
any other employer;
e. The termination of his employment in the particular project/undertaking is reported to
the DOLE Regional Office having jurisdiction over the workplace within 30 days
following the date of his separation from work, using the prescribed form on
employees’ terminations/dismissals/suspensions;
f. An undertaking in the employment contract by the employer to pay completion bonus
to the project employee as practiced by most construction companies (only if
applicable).
In a nutshell, a project employee contract by the employer to pay completion bonus to the
project employee when the following concur:
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a. There is continuous rehiring of project employees even after cessation of a project;
and
b. The task performed by the alleged “project employee” are vital, necessary and
indispensable to the usual business or trade of the employer.
Furthermore, in the cases of Philippine Long Distance Telephone Company vs. Ylagan
and ABS-CBN Broadcasting Corporation vs. Nazareno, the Court held that the
employer’s failure to report the termination of employees upon project completion to the
DOLE Regional Office having jurisdiction over the workplace within the period prescribed
militates against the employer’s claim of project employment, even outside the construction
industry.
Generally, a project employee is not entitled to separation pay if they are terminated as a
result of the completion of the project or any phase thereof. Therefore, if prior to the
completion of the project their services are terminated, then he/she shall be entitled to the
separation pay mandated by the Labor Code.
 Seasonal Employment
As previously defined, seasonal employees are those engaged on services which are
seasonal in nature and the employment is for the duration of the season. If he/she is
employed only for the duration of one season, then he/she does not achieve the status of
regular employment. Seasonal employees do not become regular employees although their
services exceed one year, unlike a casual employee. But if their work is not merely for the
duration of the season, and is rehired every working season, then they can be considered
as regular employees.
“The nature of this relationship with the employer is such that during off season they are
temporarily laid off, but during (summer) season they are reemployed, or when their
services are needed. They are not, strictly speaking, separated from the service but are
merely considered as on leave of absence without pay until they are reemployed. Their
employment relationship is never severed but only suspended. As such those employees
can be considered as in regular employment of the employer”.
 Fixed Period Employment

A project employment, as previously explained, last only for the project’s duration which is
predetermined at the same time of hiring. By definition, therefore, a project employment is
also a fixed period employment. But not all fixed-period employment is “project or seasonal”.
There is a barrage of reasons as to why an employee shall be hired for only a specific term.
But not all of them are recognized in our jurisprudences as valid, as some of them are only
used in order to circumvent the provisions of the Labor Code in terms of regular employment
and security of tenure.
The Labor Code does not prescribe or prohibit an employment contract with a fixed period,
provided the same is (a) entered into by the parties without any force, duress or improper
pressure, and (b) the employer and employee deal with each other on more or less equal
terms with no moral dominance exercised by the former over the latter. These standards are
set so that such arrangement is not used to circumvent the constitutionally guaranteed right
to security of tenure.
But in themselves, and due to the nature of his/her employment, a fixed-period employee
enjoys security of tenure during the limited times of his employment only. A common
example of employees under this category of employment is sea fearers and overseas
workers.
However, the continuous rehiring of the employee every time his/her fixed term employment
contract expires may render said employee as regular.
 Probationary Employment
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A probationary employee is one who is on trial by an employer during which the employer
determines whether or not he is qualified for permanent employment. In other words, the
probationary period is in the nature of a trial period, in order to give the employer an
opportunity to observe the fitness of the employee to continue working for him.
Being in nature of a trial period, the essence of a probationary employment fundamentally
lies in the purpose or sought to be attained by both the employer and the employee. The
length of time is immaterial in determining the correlative rights of both in dealing with each
other during said period. While the employer observes the fitness, propriety and efficiency of
a probationer to ascertain whether he is qualified for permanent employment, the
probationer, on the other hand, seeks to prove to the employer that he has the qualifications
to meet the reasonable standards for permanent employment.
Under Article 295 of the Labor Code, “Probationary employment shall not exceed six (6)
months from the date the employee started working, unless it is covered by an
apprenticeship agreement stipulating a longer period. The services of an employee who has
been engaged on a probationary basis may be terminated for a just cause or when he fails
to qualify as a regular employee in accordance with reasonable standards made known by
the employer to the employee at the time of his engagement. An employee who is allowed
to work after a probationary period shall be considered a regular employee.”
From the above-quoted provision, it can be deduced that a probationary employee also
enjoys security of tenure, but only during the probationary period. If after this period, the
employee fails to pass the reasonable standards set by the employer in order to achieve
permanent status, then his removal shall not be deemed as a violation of his right to security
of tenure. It is within the prerogative of the employer to select who among the probationary
employees are qualified for rehiring, based on the reasonable standards established by the
former. In other words, “even if probationary employees do not enjoy permanent status, they
are accorded the constitutional protection of security of tenure. This means they may only
be terminated for just cause or when they otherwise fail to qualify as regular employees in
accordance with reasonable standards made known to them by the employer at the time of
their engagement.
However, the Supreme Court has set limitations on the power of the employer to terminate
probationary employment, in consonance with the Labor Code, to wit:
a. It must be exercised in accordance with the specific requirements of the contract;
b. If a particular time is prescribed, the termination must be made within such time and
if formal notice is required, then that for must be used;
c. The employer’s dissatisfaction must be real and in good faith, not feigned so as to
circumvent the contract or the law; and
d. There must be no unlawful discrimination in the dismissal.
If the employee is rehired after the probationary period, then he shall, by operation of law,
be deemed to have achieved regular status. Likewise, if at the time of engagement, the
probationary arrangement was not expressly agreed upon, the employment shall be
considered as regular. As decided by the Supreme Court in Cielo vs. NLRC (1991), if an
employee hired allegedly on probationary basis was not informed of the standards that
should qualify her as a regular employee, the employee is deemed to have been hired from
day one as a regular employee.
But how is probationary period computed? In the case of Mitsubishi Motors Philippines
Corporation vs. Chrysler Philippines Labor Union and Nelson Paras (2004), the period
of six (6) months consists of one hundred eighty (180) days. This is in conformity with
the first paragraph of Article 13 of Civil Code, which provides that the months which
are not designated by their names shall be understood as consisting of thirty (30)
days each. Furthermore, as clearly provided for in the last paragraph of Article 13, in
computer a period, the first day shall be excluded and the last day included. Thus, the
one hundred eighty (180) days commenced, in this case, on May 27,1996 and ended on
November 23, 1996. Therefore, the termination letter dated November 25, 1996 was served
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on Paras only at 3:00 am of November 26, 1996. He was, by then already a regular
employee of the petitioner.
But can a probationary be dismissed before the expiration of the probationary period? The
answer is, as a rule, no. In one case, William Soriano was hired by Univac Development,
Inc. on probationary basis as legal assistant of the company. Eight (8) days prior to the
expiration of the probationary period, he was informed that he was being terminated. The
reason used by the employer was cost-cutting measures being done by the company.
Soriano filed a case for illegal dismissal. The Court ruled accordingly:
While, as a probationary employee, he did not enjoy permanent status, nevertheless he is
accorded the constitutional protection of security of tenure which means that he can only be
dismissed from employment for a just cause or when he fails to qualify as a regular
employee in accordance with reasonable standards made know to him by the employer at
the time of his engagement.
While the law provided the probationary period shall not exceed 6 months, this provision is
permissive, rather than mandatory. Some of the instances when probationary period can
exceed said period are:
a. If it is cover by an apprenticeship agreement stipulating a longer period.
b. When the parties to the employment contract agreed otherwise
c. When the same is required by the nature of work to be performed
d. For teachers and professors, where permanency has general two requirements:
i. Must be a fulltime professor, and
ii. Has rendered service for at least 3 consecutive years of satisfactory service.
Furthermore, the employer and employee may also validly agree to extend the probationary
period after the same.
1.2 Management Prerogatives
While the Constitution enshrines the rights of employees to security of tenure, our legal
system equally protects the rights of employer to certain prerogatives in terms of who to
hire, who to remove, how to manage his business and everything in between. “Our laws
recognize and respect the exercise by management of certain rights and prerogatives. For
this reason, courts often decline to interfere in legitimate business decisions of employers. In
fact, labor laws discourage interference in employers’ judgment concerning the conduct of
their business.
Except as limited by special laws, an employer is free to regulate according to his own
discretion and judgment, all aspects of employment, including hiring, work assignments,
working methods, time, place and manner of work, tools to be used, processes to be
followed, supervision of workers, working regulations, transfer of employees, work
supervision, lay-off of workers and the discipline, dismissal and recall of work. In the same
manner, in Abbott Laboratories vs. NLRC, the Court decided that “even as the law is
solicitous of the welfare of the employees, it must also protect the right of employer
to exercise what are clearly management prerogatives. The free will of management
to conduct its own business affairs to achieve its purpose cannot be denied”.
At the very least, the only limitation to the exercise of management prerogative would be the
principle of reasonableness and good faith, “So long as a company’s management
prerogatives are exercised in good faith for the advancement of the employer’s interest and
not for the purpose of defeating or circumventing the right of the employees under special
laws or under valid agreements, this Court will uphold them”, Furthermore, it is also subject
to the limitations imposed by law or by the CBA, employment contract, employer policy or
practice and general principles of fair play and justice.
One of these management prerogatives is the power of dismissal, which runs counter with
an employee’s right to security of tenure. But before I discuss this prerogative, let us first
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delve into some recognized management rights that an employer enjoys and is legally
entitled to.
1.2a Right to Transfer

A transfer means a movement (1) from one position to another of equivalent rank, level or
salary, without a break in the service; or (2) from one office to another within the same
business establishment. In other words, it involves lateral movement. This management
prerogative is inherent to the right of an employer to control his business or industry
effectively. The Court, in the case of Yuco Chemical Industries, Inc. vs. Ministry of
Labor and Employment, as in plethora of other cases, the prerogative of management
to transfer an employee from one office to another within the business establishment
has been repeatedly upheld; provided that there is no demotion in rank or a
diminution of salary, benefits and other privileges.
If, however, the exercise of the right is vitiated by improper motive and is merely a disguised
attempt to remove or punish the employee sough to be transferred, then the Court may
strike such transfer as invalid. It cannot be used as a subterfuge by the employer to get rid
of an undesirable employee. The transfer, for example, of employees during the height of
the labor union’s concerted activities in the company where they were active participants
can be considered as merely a ploy by the management to weaken the number and strength
of the union – which sheds bad faith on the exercise of the employer’s right to transfer.
Furthermore, the transfer must not be completely unreasonable, inconvenient or prejudicial
to the employee.
However, an employee’s right to security of tenure does not give him such a vested in his
position as would deprive the company of its prerogative to change his assignment or
transfer him where he will be most useful. An employee who refuses to be transferred, when
such transfer is valid, is guilty of insubordination or wilful disobedience. In Abbot
Laboratories, Inc. vs. NLRC, the dismissal of a medical representative who acceded in
his employment application to be assigned anywhere in the Philippines, but later
refused to be transferred from Manila to a provincial assignment, was held valid. The
reason is that at the outset, he already agreed with the policy of the company
regarding the assignment of employees anywhere in the Philippines, as demanded by
the business operation.
Parental obligations, additional expenses that may be incurred and anguish that may be
suffered if assigned away from the family are, by themselves, not valid grounds to refuse a
transfer of assignment. The transfer from one city to another within the country is valid as
long as there is no bad faith on the part of the employer – especially if the additional
expenses to be incurred by the employee shall be defrayed by the employer.
Transfer of an employee to avoid conflict of interest is a valid exercise of management
prerogative. In the case of Duncan Association of Detailam-PGTWO vs. Glaxo
Welcome Philippines, Inc., the medical representative’s transfer of assignment was
held valid as the same was necessitated by the possible conflict of interest, since his
wife holds a sensitive supervisory position in a competitor firm who takes an active
participation in the market war among pharmaceutical companies.
Inconvenience of the transfer to the employee does not necessarily invalidate a transfer
order. In the case of OSS Security and Allied Services, Inc. (2000), the transfer of a
security guard from her post in Makita to Rizal has been ruled as a valid transfer, as
the same was motivated by the request of the agency’s client for a more disciplined
service, and reason would dictate that the renewal of the security guard’s contract
depended on the action taken by the agency as regards the client’s request. This is
even if she had to travel a bit farther than she normally did. However, if the
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inconvenience is brought about the unreasonableness of the order, then the transfer
can be construed as invalid.
1.2b Right to Discipline
Common sense would dictate that instilling discipline upon erring employees, as long as it is
within the bounds of reasonableness, is well within the inherent rights and prerogatives that
an employer may exercise. Otherwise, it will be prejudicial to the employer and his business
if he shall be forced to keep in his employ those who have been found guilty of misconduct,
specially if it is connected with the employee’s function and work. It will dishearten and
undermine the efforts exerted by other employees, if the underserving and inept ones
remain in the service.
The only criterion to guide the exercise of this right is that the policies, rules and regulations
on work-related activities of the employees must always be fair and reasonable and the
corresponding penalties, as prescribed, commensurate to the offense involved and to the
degree of the infraction – otherwise known as the proportionality rule.
The matter of imposing the appropriate penalty generally depends on the employer. In
China Banking Corporation vs. Borromeo, where the managerial employee
questioned the imposition of the accessory penalty of restitution on him without
imposing the principal penalty of “written reprimand/suspension”, it was ruled that
the employer’s Code of Ethics expressly sanctions the imposition of restitution apart
from or independent of the other penalties. It was certainly within the employee-
bank’s prerogative to impose on the respondent-employee what it considered the
appropriate penalty under the circumstances pursuant to its company rules and
regulations.
Moreover, the employer has the right to impose a heavier penalty than that prescribed in the
company rules and regulations if circumstances warrant the imposition. In Cruz vs. Cocal-
Cola Bottlers Philippines, Inc., admittedly the company rules violated by the petitioner
are punishable, for the first offense, with the penalty of suspension. However, the
Court affirmed the validity of the dismissal because the respondent has presented
evidence showing that petitioner has a record of other violations from as far back as
1986, e.g. deliberate misrepresentation on two occasions, involvement in vehicular
accidents which caused damage to another car and an outlet store, several AWOLs
and has been investigated on several occasions for shortages in remittances of
collections from customers.
But ultimately, although the employer has the prerogative to discipline or dismiss its
employee, such prerogative cannot be exercised wantonly, but must be controlled by
substantive due process and tempered by the fundamental policy of protection to labor
enshrined in the Constitution. Infractions committed by an employee should merit only the
corresponding sanction demanded by the circumstances. The penalty mist be
commensurate with the act, conduct or omission imputed to the employee and imposed in
connection with the employer’s disciplinary authority.
1.2c Right to Promote
Promotion is the advancement from one position to another involving increase in duties and
responsibilities as authorized by law, and increase in compensation and benefits. It is the
upward vertical movement of the employee’s rank or position. Any increase in salary should
only be considered incidental but never determinative of whether or not promotion is
bestowed upon an employee.
However, no matter how lofty the offer is, an employee cannot be forced to accept the
same. An employee has the right to refuse promotion. There is no law which compels an
employee to accept promotion, since it is in the nature of a gift or reward. Moreover,
promotion normally entails changes in circumstances and responsibilities, which the
employee may find as unappealing or unacceptable.
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1.2d Right to Demote
In as much as an employer has the right to promote, he/she also has the right to demote.
There is no demotion where there is reduction in position, rank or salary as a result of a
transfer. An example of demotion is when an employee occupying a high technical position
requiring the use of an employee’s mental faculty, is transferred to another position where
he/she performed mere mechanical work.
Demotion must, nevertheless, be based on reasonable justifications and not on some
whimsical and capricious exercise of prerogative by the employer – as demotion is closely
related to, and oftentimes used as a form or mode punishment to erring employees.
Personal vendetta on an employee is definitely not a valid ground for demoting an
employee.
1.2e Right to Grant Bonuses
The receipt of bonus is not demandable right. On the contrary, it is a management
prerogative, as it is something given in addition to what is ordinarily received by or strictly
due the recipient. “A bonus is not demandable and enforceable obligation, except when it is
made part of the wage, salary or compensation of the employee. But the employer cannot
be forced to distribute bonuses when it can no longer afford to pay. To hold otherwise would
be penalize employer for his past generosity. However, this becomes an obligation on the
part of the employer if:
a. It is stipulated in an employment contract of CBA
b. It is a company policy or practice
c. It is agreed as an additional compensation which the employer agreed to give
without any condition.
Lesson 2
Module III
Termination of Employment
I - Learning Objectives:
At the end of this lesson, the students are expected to:
1. determine what ground was used in justifying dismiss and its validity;
2. make a critique paper on the preparedness and readiness of the country for the
implementation of the K-12 program;
3. demonstrates content and understanding of the termination of employment through
case digest.
II – Discussions:
Our labor law is in a constant struggle to maintain the balance between the differing
interests of labor and capital. On the one hand, the Constitution guarantees the right of an
employee to security of tenure. On other hand, it similarly recognized that an employer has
the right to manage his/her business or industry in the manner that he/she deems necessary
and efficient, which may include the removal or dismissal of certain employees.
Article 293 of the Labor Code, to reiterate, provides that “In cases of regular employment,
the employer shall not terminate the services of an employee except for a just cause or
when authorized by 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 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.
From the above-quoted provision, it can be gleaned than an employee, although enjoying
the right to security of tenure, does not have perpetual entitlement to his position or job. If
there exists just or authorized causes for his termination, then he/she may be dismissed
from employment. In other words, the guarantee of security of tenure does not totally and
absolutely remove from the hands of the employer the control of his business, as regards
the poll of employees that he/she wants to keep.
The law in protecting the rights of the laborer, authorizes neither
oppression nor self-destruction of the employer. While the Constitution
is committed to the policy of social justice and the protection of the
working class, it should not be supposed that every labor dispute will
be automatically decided in favour of labor. Management also has its
own rights, which, as such, are entitled to respect and enforcement in
the interest of simple fair play. Out of its concern for those with less
privileges in life, the Supreme Court has inclined more often than not
toward the worker and upheld his cause in his conflicts with the
employer. Such favouritism, however, has not blinded the Court to the
rule that justice is in every case for the deserving, to be dispensed in
the light of the established facts and applicable law and doctrine.
But while an employer, if just or authorized causes exist, can validly dismiss an employee,
the exercise of the same is still subject to the regulation of the State. In Farrol vs. Court of
Appeals, the employer alleged that under its rules, petitioner’s infraction is
punishable by dismissal. However, the Court said that the employer’s rules cannot
preclude the State from inquiring whether the strict and rigid application or
interpretation thereof would be harsh to the employee. In this case, petitioner has no
previous record in his 24 long years of service – his transgression (which is failure, as a
cashier, to explain the shortage in their branch) would have been his first offense. It was
thus held that the dismissal imposed on petitioner is unduly harsh and grossly
disproportionate to the infraction which led to the termination of his services.
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In VH Manufacturing Inc. vs. NLRC, involving the dismissal of an employee for
sleeping on the job, the Court held that such appears to be harsh a penalty,
considering that he was being held liable for the first time, after 9 long years of
unblemished service. Again, while an employer enjoys a wide latitude of discretion in
the promulgation of policies, rules and regulations on work-related activities of the
employees, those directives, however, must always be fair and reasonable, and the
corresponding penalties, when prescribed, must be commensurate to the offense
involved and to the degree of the infraction.
Moreover, necessary measures and mandated procedures must be undertaken and
complied with by an employer before he/she terminates or discharges an employee – one of
which would be the right of the latter to due process of law. Dismissals must not be arbitrary
or capricious. The Labor Code provides to categories of valid causes for the termination of
an employee – i.e. just cause and authorized cause.
2.1 Just Causes
Article 282 of the Labor Code provides the just cause for which an employer may terminate
an employment. In dismissal for just cause, the employee is dismissed for causes which are
attributable to his fault or culpability. They are as follows:
a. Serious misconduct or wilful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
b. Gross and habitual neglect by the employee of his duties;
c. Fraud or wilful breach by the employee of the trust reposed in him by his employer
d. Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representatives; and
e. Other causes analogous to the foregoing.
 Serious Misconduct
Section 4343.01 of the Department of Labor Manual provides thus: misconduct is an
improper or wrong conduct. It is the transgression of some established and definite rule of
action a forbidden act, a dereliction of duty, wilful in character, and implies wrongful intent
and not mere error in judgment. The misconduct to be serious within the meaning of the
Labor Code must be of such a grave and aggravated character and not merely trivial or
unimportant. Such misconduct, however serious, must, nevertheless, be in connection with
the employees work to constitute just cause for his separation.
From the above-quoted provision, at least three conditions are needed for transgression to
be considered as serious misconduct, to wit:
a. It must be grave and aggravated in character and not merely trivial or unimportant
b. It must be in connection with the employee’s work
c. It must show that the employee has become unfit to continue working for the
employer.
 Willful Disobedience
For an act to be considered as wilful disobedience, the employee’s assailed act must have
been intention characterized by a wrongful and perverse attitude. But at the outset, it must
be proven that the orders, regulations or instructions wilfully defied by the employee
are:
a. Reasonable and lawful
b. Sufficiently known to the employee, and
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c. Is in connection with the duties which the employee has been engaged to discharge.
Case Illustration: Equitable PCI Bank vs. Castor Dompor (2010)
FACTS: Dompor was hired by herein petitioner, and assigned as Branch Manager of PCI Bank’s
Makati Cinema Branch. Some fraudulent transactions under Dompor’s watch were discovered by
the bank’s audit committee. Thus, based on its finding and evaluation, the audit committee
recommended respondents dismissal from employment and setting up of a contingent liability
for the potential loss for violation of bank policies and failure to exercise prudence expected of a
branch head.
An investigation was conducted thereafter, that eventually led to the dismissal of Dompor.
Petitioner claim that Dompor committed flagrant and wilful disobedience of bank policies and
procedures that exposed it to risk of huge losses when responded accepted checks endorsed by
corporations or firms for credit to the personal account of Fuentes as well as checks with unusual
endorsements; when he accepted deposits which exceed his single approving limit of
₱15,000,000.00 per transaction; when he failed to close the account of Fuentes despite the
mishandling of her account; and, when respondent failed to ensure that all procedures and
approval requirements are complied with and being followed by designated staff and officer,
thereby abusing the discretion and authority as branch manager.
ISSUE: Whether or not Dompor committed wilful disobedience to justify his dismissal.
RULING: YES
To justify wilful disobedience or insubordination as valid ground for termination, the employees
assailed conduct must have been wilful or characterized by a wrongful or perverse attitude and
the order violated must have been reasonable, lawful, made known to the employee, and must
pertain to the duties which he had been engaged to discharge.
While petitioners’ manual of procedures does not absolutely prohibit the negotiation or
acceptance of second-endorsed checks for deposits, it does not expressly disallow the acceptance
of checks endorsed by corporations, societies, firms, etc. and checks with unusual endorsements.
As shown by the records, this explicit policy was transgressed by respondent intentionally and
wilfully. It was not denied that on June 27, 1996, respondent was instructed by management to
stop accepting second-endorsed checks due to the irregularities attendant to the transactions
with Fuentes.
Despite such reasonable order, on two occasions, respondent unhesitatingly accommodated the
request of Fuentes to accept her checks allegedly on the strength of the Area Heads approval on
the first instance and on the second instance, respondent justifies his acceptance of the checks as
the same were nevertheless returned and cancelled on the ground that the checks include those
payable to corporations. Indeed, the return and cancellation of these checks do not change the
fact that respondent had accepted for deposit checks which are payable to corporations, thereby
flagrantly violating bank guidelines.
Respondent admittedly disobeyed not only his superiors directives but also simple bank rules.
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Reasonableness of the order will depend on the circumstances attendant to the case. But in
all cases, the kind or character of directives and commands, and the manner in which they
were made, must be considered carefully. Finally, the disobedience must relate to matters
which are substantial to the duties of the employee, and not merely on trivial affairs. “Where
a classroom teacher without any justifiable reason refused to comply with the (1) order of
the school requiring her to explain why after punching her daily time cash she immediately
left the premises without the knowledge and consent of the authorities, and the (2) order for
her to submit herself to a medical examination to be conducted by school physicians to
determine the basis of her application for sick leave, it was ruled that such disobedience
constitutes a valid ground to dismiss her considering that the orders were lawful and
reasonable.
On the matter of making the order or command known to the employee, the Civil Code
provision “Ignorance of the law excuses no one from compliance therewith” does not apply.
There is no presumption of public knowledge of the rules and regulations in private
enterprises and businesses. Therefore, if the employee is able to prove the he was not
sufficiently informed of the command or order that he allegedly disobeyed, then his
dismissal pursuant to the same can be ruled by the courts as illegal and invalid.
Refusal to a transfer will constitute wilful disobedience depending on whether the transfer is
valid or not. If the transfer is valid, the disobedience thereto can be a valid ground for
dismissal; if the same is invalid, then the dismissal is invalid as well. Therefore, in the case
of Homeowners’ Savings and Loan Association, Inc. vs. NLRC (1996), the dismissal of
a branch accountant due to disobedience to another branch about thirty (30)
kilometres away from her residence in order that she could maintain a harmonious
relationship with her parents-in-law, the reassignment being necessary to uplift the
operational efficiency of the bank.
But refusal to a promotion does not constitute wilful disobedience. In the case of Dosch vs.
NLRC (1983), as already cited previously, the Court resolved that there is no law the
compels an employee to accept a promotion, as a promotion is in the nature of a gift
or a reward, which a person has a right to refuse. When petitioner refused to accept
his promotion to Director of International Sales, he was exercising a right and he
cannot be punished for it as qui jure suo utitur neminem laedit (or he who uses his
own legal right injures no one).
 Neglect of Duties
Pursuant to the Department of Labor Manual, in order to constitute a just cause for the
employee’s dismissal, the neglect of duties must gross. Gross negligence, in the case of
National Bookstore vs. Court of Appeals (2002), has been defined as the want or
absence of or failure to exercise slight care or diligence, or the entire absence of care.
It evinces a thoughtless disregard of consequences without exerting effort to avoid
them. Therefore, in one case, the dismissal on the ground of gross negligence of the
driver due to a vehicular accident was ruled as invalid, because it was shown that he
tried to turn left to avoid a collision, even giving up his right of way.
But in the case of Valenzuela vs. Caltex Philippines, Inc. (2010), the dismissal of a
warehouseman was held as valid. The duties of the warehouseman included the
maintenance of the stockcards for storehouse materials and supplies, the conduct of
physical inventory of the company’s merchandise stocks and monitoring the
movement of said stocks. An audit of the warehouse operations showed a net
inventory shortage of over ₱800,000. It was held that, by reason thereof, the
warehouseman may be validly dismissed for gross and habitual neglect of duties, it
appearing that he did nothing about several shortages of merchandise stocks and
even concealed them from the company.
However, even if the neglect is not gross, but it is nevertheless habitual, then it would also
constitute as a just cause for dismissal. Therefore, the single or isolated acts of negligence
(if not gross) do not constitute a just cause for the dismissal of the employee. It must be a
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repeated failure to perform the duties and functions incumbent to an employee over a
considerable period of time. Therefore, in the case of Harpoon Marine Services, Inc. vs.
Francisco (2011), the Court ruled that the absence of three (3) days and without any record
of tiredness cannot warrant a dismissal; these would not considered gross and habitual
absenteeism.
Furthermore, according to the Manual, to justify the dismissal of an employee for neglect of
duties, it does not seem necessary that the employer show that he has incurred actual loss,
damage or prejudice by reason of the employee’s conduct. It is sufficient that the gross and
habitual neglect by the employee of his duties tends to prejudice the employer’s interest
since it would be unreasonable to require the employer to wait until he is materially injured
before removing the cause of the impending evil.
Abandonment is one of the common forms of neglect of duty. In the case of Flores vs.
Funeraria Nuestro (1988), it was discussed that the constitute abandonment, there must be
clear and deliberate intent to discontinue one’s employment without any intention of
returning back. The elements of abandonment are as follows:
1. Failure to report for work or absence without valid or justifiable reason
2. A clear intention to sever employee-employer relationship
Generally, however, the rule is that the immediate filing of complaint for illegal dismissal
against the employer with a prayer for reinstatement shows that the employee was not
abandoning work. The filing of the complaint for illegal dismissal is inconsistent with the
charge of abandonment, for an employee who take steps to protest his dismissal cannot by
logic be said to have abandoned his work. However, when instead of reinstatement, the
complainant prays for separation pay, then the rule will not apply.
Habitual tardiness and absenteeism are the other examples of neglect duty as a valid
ground for dismissal.
 Fraud or Willful Breach of Trust

For this ground to be valid reason of dismissing an employee, the fraud must be committed
against the employer or his/her representative, and the same must be in connection with the
duties of the employees. Since fraud implies wilfulness and wrongful intent, the innocent
failure of an employee to disclose certain facts and information relative to his duties to the
employer will not automatically constitute as a just cause for his dismissal. Some examples
of fraud that would constitute as a valid ground for dismissal are falsification of time cards,
theft of company property and unauthorized use of vehicle.
In case of wilful breach of trust, which in turn leads to loss of confidence, the rule is that this
ground for dismissal does not apply to all employees. This only applies in situations where
the employee is routinely in charge with the cared and custody of the employer’s money or
property (e.g. cashiers, auditors, property custodian, route salesman and the like). In other
words, the employee involved must hold a position of trust and confidence relative to the
employer. Therefore, the dismissal of the branch manager and assistant branch manager,
who clearly held fiduciary positions in the company, was ruled to be valid because they
concealed the shortages of one of the tellers. Such concealment of an offense prejudicial to
the bank’s interest reflected a regrettable lack of loyalty which they should have reinforced
instead of betrayed.
But to be a valid ground for dismissal, loss of trust and confidence must be based on a wilful
breach of trust and founded on clearly established facts. A breach is wilful if is be done
intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an
act done carelessly, thoughtlessly, heedlessly or inadvertently. It must rest on substantial
grounds and not on the employer’s arbitrariness, whims, caprices or suspicion. It must be
premised on the fact that the employee concerned is invested with delicate matters, such as
the handling, or care and protection of the property and assets of the employer.
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But in the application of the doctrine of trust and confidence, a distinction must be made
between rank and file personnel and managerial employees. With respect to rank and file
personnel, loss of trust and confidence as ground for valid dismissal requires proof of
involvement in the alleged events in question and that mere uncorroborated assertions and
accusations by the employer will not be sufficient. But as regards a managerial employee,
the mere existence of a basis for believing that such employee has breached the trust of his
employer would suffice for his dismissal.
In additional, for breach of trust and confidence to be a valid ground for dismissal, the case
of loss or trust and confidence must be related to the performance of the employee’s duties.
Thus, where the Assistance Vice-President of bank’s Jewelry Department merely referred to
the VISA Card Unit applications for credit cards of persons that later turned out to be
fictitious, it was ruled that he could not be dismissed for breach of trust and confidence,
because the acts imputed to him were not related to the performance of his duties.
In a nutshell, the law mandates that before validity can be accorded to a dismissal premised
on loss of trust and confidence, these requisites must concur:
a. The employee concerned must be holding a position of trust;
b. The loss of trust must be based on wilful breach of trust founded on clearly
established facts;
c. The act complained of must be work-related and shows that the employee
concerned is unfit to continue working for the employer.
]
 Commission of a Crime or Offense
The crime or offense must have been committed against the person of property of his
employer or against any immediate member of the employer’s family. Conviction is not
necessary for this to be a valid ground for the dismissal of the erring employee. But what if
he was acquitted from the criminal charge filed against him?
In Mercury Drug Corporation vs. NLRC (1989), the Court ruled in the negative. According
to the Court, “the eventual conviction of the employee who is prosecuted for his misconduct
is not indispensable to warrant his dismissal by his employer. More specifically, an
employee who has been exonerated from a criminal charge of theft of gasoline on the basis
of technicality may still be dismissed from employment if the employer has ample reason to
mistrust him. If acquittal from the criminal charge does not negate the existence of a ground
for loss of trust and confidence, with more reason should conviction for such criminal charge
fortify said mistrust.”
 Analogous Cases
All other cases that does not directly fall under any of the first five grounds already
discusses, but which nevertheless are somewhat related to them, can also constitute as a
valid ground for the discharge of an employee. In addition to which, the act complained of
must be voluntary and/or wilful.
Therefore, while theft committed against co-employee and not against the employer, will not
fall under the ground “commission of crime and offense”, it may nevertheless be considered
as an “analogous case”. Other examples that would fall under this category would be gross
incompetence and inefficiency, violation of company rules and regulations, and conflict of
interest.
2.2 Authorized Causes
While the just causes for termination of employment, as discussed above, speak of
instances due to the fault or voluntary acts of the employee, those under authorized causes
cover occasions which validly justifies the removal of an employee, but are nevertheless
beyond his/her control. Articles 283 and 284 provides for the authorized causes of
terminating employment. They are as follows:
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a. Installation of labor-saving devices/automation
b. Redundancy
c. Retrenchment to prevent losses
d. Closure
e. Diseases
f. Other analogous cases
 Automation
The fast technological advancement ushered in speedier, but less costly, manufacturing and
production in business and enterprises. This is the reason why most companies resort to the
introduction of machines, which in the process result in the reduction of needed human
labor. “Reduction of the number of workers in a company’s factory made necessary by the
introduction of machinery in the manufacture of its products is justified. There can be no
question as to the right of manufacturer to use new labor-saving devices with a view of
effecting more economy and efficiency in its method of production”.
 Redundancy
Occasions may arise that lead to a scenario where a company has more employees that
there is work to be done. Redundancy exists where the services of an employee are in
excess of what is reasonably demanded by the actual requirements of the enterprise.
Succinctly put, a position or positions may be the outcome of a number of factors, such as
over-hiring of workers, decreased volume of business, or dropping of a particular product
line or service activity previously manufactured or undertaken by the enterprise.
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
reasonably redundant position is one rendered superfluous by any number of
factors such as over-hiring of workers, decreased volume of business,
dropping of a particular product line previously manufactured by the company
or phasing out of service activity previously undertaking by the business.
Among the requisites of a valid redundancy program are:
a. The good faith of the employer in abolishing the redundant position; and
b. Fair and reasonable criteria in ascertaining what positions are to be declared
redundant and according abolished.
If the removal of an employee is because of any of the above-mentioned reasons, or
anything analogous to them, then the termination is valid and is justified. The employer has
no legal obligation to keep in its payroll more employees that are necessary for the
operation of its business.
The termination of employment pursuant to redundancy must be based on good faith and is
not ill-motivated. In one case, “the dismissal of workers allegedly due to downsizing of a
department has been ruled to be illegal where the obvious purpose was to debilitate the
union and decapitate its leadership, no fair and reasonable parameters to determine who
among the employees should be supposedly ‘retired’ due to redundancy, the employees
were not properly apprised of the existence of the special retirement program, and the
downsizing of personnel was not even among the measures recommended by the auditing
firm commissioned to conduct a study of the corporation and its operations to identify
changes to achieve cost effectiveness and global competitiveness. In the same manner, the
position of school electrician cannot be considered redundant where it was shown that after
the abolition of the position a student-trainee took over the work.
Another indication of bad faith in case of redundancy is when immediately after, or
simultaneously with the firing of employees, is the hiring of new ones for the same position
vacated. Moreover, it is not enough for a company to merely declare that is has become
over manned. It must produce adequate proof that such is the actual situation in order to
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justify the dismissal of the affected employees for redundancy. And in the selection of the
employees to be dismissed, a fair and reasonable criteria must be used. Ultimately, whether
it be by redundancy or retrenchment or any of the other authorized causes, no employee
may be dismissed without observance of the fundamentals of good faith. It is not difficult for
employers to abolish positions in the guise of a cost-cutting measure and the courts will not
be easily swayed by such schemes which all too often reduce to near nothing what is left of
the rubble of rights of our exploited workers.
 Retrenchment
In case of economic loss, an employer can likewise validly terminate employees in order to
either prevent an impending loss, or to alleviate itself from the financial injuring that is
already suffering or at least minimize the same. The reduction of employees under
retrenchment is usually due to poor financial returns so as to cut down on costs of
operations in terms of salaries and wages to prevent bankruptcy of the company.
Lack of work is a justifiable cause for termination of employment. Protection to labor does
not mean oppression or self-destruction of capital. Where the continuation of the mean in
the service is patently inimical to the interest of the employer, there is no alternative by for
the court to authorize the employer to lay off such number of workers as the circumstances
may warrant. But the employer must serve written notice both to the employees and to
DOLE at least one (1) month prior the intended dates of retrenchment.
But the retrenchment must be reasonably necessary to prevent the expected losses or to
minimize the loss already suffered. Moreover, the expected or actual losses must be proved
by sufficient and convincing evidence. And the burden of proving that the company is
actually enduring or is bound to endure business reverses lies with the employer. Failure to
prove the existence of the economic losses would render as invalid the dismissal that
resulted therefrom.
The condition of business losses is normally shown by audited financial documents like
yearly balance sheets and profits and loss statements as well as income tax returns. But
financial statements must be prepared and signed by independent auditors, otherwise, they
can be assailed as self-serving documents. It is not enough that only the financial
statements for the year during which retrenchment was undertaken are presented in
evidence. For it may happen that while the company has indeed been losing, its losses may
be on a downward trend, indicating that business is picking up and retrenchment, being a
drastic move, should no longer be resorted to. It is necessary that the employer also show
that its losses increased through a period of time and that the condition of the company is
not likely to improve in the near future. If the employer failed to show these said documents,
then the retrenchment may be construed as illegal.
But even assuming that the employer’s losses warranted retrenchment, and that the
employer seasonably served written notices of retrenchment to the workers and the DOLE,
but it failed to implement the retrenchment program in a just and proper manner as it did not
use a reasonable and fair standard in the computation of the employees’ demerits points for
purposes of determining who among the workers should be dismissed, the retrenchment
programs is invalid. The employer’s failure to use a reasonable and fair standard in the
selection of the workers to be dismissed is not merely procedural but a substantive defect
which invalidates the employee’s dismissal.
In a nutshell, pursuant to the Labor Code and jurisprudence, the basic requirements for a
valid retrenchment are as follows:
a. The retrenchment is reasonably necessary and likely to prevent business losses,
which if already incurred, are not merely de minimis, but substantial, serious, actual
and real, or if only expected, are reasonably imminent as perceived objectively and
in good faith by the employer.
b. The employer served written notice both to the employees and to DOLE at least one
(1) month prior the intended date of retrenchment;
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c. The employer pays the retrenched employees separation pay equivalent to one
month pay or at least one-half (1/2) month pay for every year of service;
d. The employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and
e. The employer used 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.
Where (1) the decision to retrench has basis, was not simulated or resorted to for the
purpose getting rid of employees, and was made pursuant to the recommendation of the
company’s external auditor to minimize net loss and cash deficiency; (2) the cost-cutting
measure recommended involved reduction of the payroll expense account which made up
41% of the company’s total operating expenses; (3) the company had already a net income
loss of more 2.5 millions more or less and a deficient in its retained earnings of more than 7
million pesos; and (4) the company resorted to other measures to abate its losses; it was
held that the company, on the whole, satisfied the requisites for a valid retrenchment.
RETRENCHMENT REDUNDANCY
Employer reduces number of its personnel When four purposes of economy a
in order to prevent further loses in his company decides to reorganize its
business operations. departments by imposing on employees of
one department the duties performed by
the employees of the other department,
thus rendering unnecessary the job of the
latter, the services of the employees whose
functions are now being performed by the
former,
 Closure or Cessation of Operation

The closure of one’s business can be done by the employer regardless of the presence or
absence of business losses. If the business is not losing but its owner, for reasons of his
own, wants to get out of the business, he in good faith can lawfully do so anytime. Just as
no law forces anyone to go into business, no law compels anybody to stay in business.
Therefore, while retrenchment is always predicated on the existence or imminence of
business losses, the closure of operation is valid ground for termination employees does not
necessarily have to be founded on such.
Cessation of business operations may also be due to the sale of one’s business to another.
In such case, the purchases has no legal obligation to absorb in his new undertaking the
employees of the seller, unless he agrees to such arrangement. Neither is he obliged to give
employment preference to the former employees, except also when he agrees to do so. The
sale, however, must be motivated by good faith.
Change of ownership in a business concern is not prescribed by law. However, the sale or
disposition must be motivated by good faith as a condition for exemption from liability. IT has
thus been held that the supposed sale of the transportation company was feigned or
simulated where no deed sale was never presented, it was not established that the
company as suffering from business reverses and that the supposed seller continued to
operate the business under the same name, franchises and routes and under the same
circumstances as before the alleged sale. There was therefore no closure or cessation of
business that can serve as authorized cause for dismissal of the employees.
Where the alleged sale of business is merely a simulation, there is no change of ownership,
no cessation of the business, hence, the termination of the employees’ employment has no
basis. The termination is done in bad faith. In a case where no documentary evidence of
sale was presented, and where the respondent employer continued to operate under the
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same name, franchises, and route as before the alleged sale, the court concluded that the
sale was a sham, designed to circumvent the law on the rights of the workers.
 Disease
Where the continued employment of a sick employment is prohibited by law or is prejudicial
to his health as well as to the health of his co-employees, he may be terminated if his
ailment is certified by a competent authority (such as a public health officer) to be incurable
within 6 months despite due medication and treatment.
The requirement for a medical certificate cannot be dispensed with; otherwise, it would
sanction the unilateral and arbitrary determination by the employer of the gravity or extent of
the employee’s illness and this defeat the public policy on the protection of labor. A
company physician is not considered as a competent authority who can validly issues a
medical certificate for the aforementioned purpose.
It must be taken note though that under Section 35 of R.A. 8504, discrimination in any form
from pre-employment to post-employment, including hiring, promotion or assignment, based
on the actual, perceived or suspected HIV status of an individual is prohibited. Termination
from work on the sole basis of actual, perceived or suspected HIV status is deemed
unlawful.
JUST CAUSE AUTHORIZED CAUSE

The employee is dismissed for causes The employee is dismissed for causes
which are attributed to his fault or independent of his faulty or culpability.
culpability.
Before an employee is dismissed for just Employer must give the employee to be
cause, he must be given ample opportunity terminated a written notice at least 1 month
to be head and to defend himself. before the intended day of termination.
As a rule, a dismissed employee is not An employee terminated for authorized
entitled to separation pay. cause is entitled to separation pay.
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MODULE III

LABOR LAW AND LEGISLATIONS

Lesson 1 Security of Tenure

 Fixed Period Employment

1.2a Right to Transfer

Case Illustration: Equitable PCI Bank vs. Castor Dompor (2010)

 Fraud or Willful Breach of Trust

 Closure or Cessation of Operation

JUST CAUSE AUTHORIZED CAUSE

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