Facts:

On June 30, 1989, the Rural Bank of Bangued terminated the employment of three employees: Paulino Balbalec, Juan Bolante, and Rolando Beleno, referred to as the petitioners. The dismissals were attributed to necessary workforce retrenchment due to substantial losses incurred by the bank from 1984 to 1988. The termination letter indicated that the layoffs aimed to safeguard the bank's profitability and comply with the requirements of the new minimum wage law. In response to their dismissal, the petitioners filed individual complaints against the bank for unfair labor practices, illegal dismissal, and non-payment of salaries before the Cordillera Administrative Division of the National Labor Relations Commission (NLRC) in Baguio City. The complaints were subsequently consolidated for joint hearing upon the private respondent’s motion. The petitioners contended that they were unfairly targeted for dismissal after they refused to sign a wage deferment agreement under Republic Ac

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Facts:

Background of the Case

• On June 30, 1989, the Rural Bank of Bangued dismissed three employees—Paulino Balbalec, Juan Bolante, and Rolando Beleno—alleging a retrenchment necessitated by losses incurred during 1984–1988.
• The dismissal was justified by the bank as a means "to protect the bank’s stability and profitability" and to comply with the new minimum wage law under Republic Act 6727.

Initiation of Legal Actions

• Following their termination, each petitioner individually filed cases covering allegations of unfair labor practice, illegal dismissal, unpaid salaries, claims for reinstatement, and backwages before the Cordillera Administrative Division of the National Labor Relations Commission (NLRC) in Baguio City.
• The cases were consolidated and heard jointly upon a motion by the private respondent (the bank).

Petitioners’ Allegations

• The petitioners claimed that they were singled out for dismissal because they were the only employees who refused to sign an agreement for the deferral of wage increases under Republic Act 6727—an agreement that all other employees had signed.
• This allegation was used to underscore a potential deviation from the standard practice in dismissals based on seniority.

Respondent Bank’s Defense

• The bank contended that the retrenchment was a necessary measure to prevent business losses, asserting that the dismissal did not affect its operational integrity.
• It maintained that the selection for retrenchment was based on seniority, with the petitioners being the last in line among its ten employees.

Proceedings Before the Labor Arbiter and NLRC

• On December 20, 1990, Labor Arbiter Irenarco R. Rimando ruled in favor of the petitioners by declaring their dismissal illegal due to the lack of a valid retrenchment process.
• The decision ordered the reinstatement of the petitioners without loss of seniority.
• The bank was further directed to pay backwages, COLA deficiencies, and wage increases per RA 6640.
• The NLRC, through its Third Division on May 14, 1991, sustained the Labor Arbiter’s decision and dismissed the bank's appeal.
• On July 31, 1992, upon motion for reconsideration, the NLRC partially reversed its earlier ruling concerning retrenchment.
• It upheld the bank’s action on the grounds of valid retrenchment.
• It ordered the bank to render separation pay equivalent to half a month’s pay for every year of service plus a penalty tied to the failure to provide a one-month notice under Article 283 of the Labor Code.

Economic Evidence and Financial Condition of the Bank

• The bank’s submissions included losses for specific years: P12,920.22 for 1984, P3,888.34 for 1985, and P17,865.12 for 1986.
• Despite showing net profits in later years, there were underlying issues:
• A reported net income in 1988 and 1989 was partly attributed to deferring wage increases.
• A significant reduction in the bank’s total resources (27.23%) and total loan investments (35.79%) from 1984 to 1988 was noted.
• Elevated past due loan ratios and a mandated reserve for bad debts by the Central Bank further underscored the bank’s financial instability.
• The bank’s small capitalization of P500,000.00 was highlighted as a factor accentuating its precarious financial survival.

Notice and Procedural Violations

• The dismissal letter was sent only on June 26, 1989—failing to comply with the one-month notice requirement mandated by the Labor Code.
• This failure prompted the imposition of an additional penalty for non-compliance with the statutory notice provision.

Issue:

Validity of the Retrenchment

• Was the dismissal of the petitioners justified under a valid retrenchment process to prevent business losses?
• Did the respondent bank sufficiently prove the existence of pressing economic and business conditions warranting the reduction of its workforce?

Selection Criteria and Alleged Singling Out

• Were the petitioners unfairly singled out for dismissal, particularly on the basis of their refusal to sign the wage deferral agreement, contrary to the standard practice of selecting employees based on seniority?
• Did the bank adhere to the established and reasonable criteria (seniority, efficiency rating, and less preferred status) in selecting employees for retrenchment?

Compliance with Procedural Requirements

• Did the bank comply with the mandatory notice requirements under Article 283 of the Labor Code?
• Should the penalty for non-compliance be adjusted given the bank’s failure to furnish the required written notice?

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)