G.R. No. 152039 - F.F. Marine Corp. vs. National Labor Relations Commission

F.F. Marine Corporation (FFMC) is a duly organized corporation engaged in ship-repair, dry-docking, and dredging services with 419 employees.
Eric A. Cruz, as president, represents the petitioner corporation.
Ricardo M. Magno, a private respondent, was employed since February 7, 1990, and assigned as Lead Electrician with a monthly salary of P8,500.00.

On October 26, 1998, FFMC filed a notice with the Department of Labor and Employment (DOLE) declaring a retrenchment program to address serious business reverses attributed in large part to the Asian economic crisis.
The notice stated that the corporation had closed its dry docking and ship repair division on August 30, 1998, and that the downturn in the construction industry was heavily affecting its dredging services.
The retrenchment was scheduled to begin on November 1, 1998, with affected employees, including Magno, being informed that their employment would cease on December 16, 1998.
The affected employees received advanced payment covering November 16 to December 16, 1998, along with separation pay computed as one‐half (1/2) month’s basic pay per year of service plus a proportionate 13th-month pay.
An “Establishment Termination Report” was filed with the DOLE on December 11, 1998, listing 21 affected employees.

Magno received separation pay for his nine years of service, amounting to P46,182.41, and executed a release and quitclaim in favor of FFMC after receiving payment.
On January 12, 1999, Magno filed a complaint alleging illegal dismissal, moral and exemplary damages, and attorney’s fees, seeking reinstatement and backwages.
Magno contended that he was misled into accepting the separation pay by a pretext – claiming that his retrenchment was justified by a temporary stoppage of the dredging machine rather than the corporation’s financial troubles stemming from the Asian crisis.

The Labor Arbiter Salimathar V. Nambi, on August 6, 1999, rendered a decision upholding the retrenchment’s validity and dismissing Magno’s illegal dismissal complaint.
Magno then appealed to the National Labor Relations Commission (NLRC), which, on October 11, 2000, reversed the Labor Arbiter’s decision.

The NLRC held that the petitioners failed to establish proof of actual losses due to the absence of independently audited financial reports for 1996 and 1997.
Consequently, the NLRC declared Magno’s dismissal illegal and ordered payment of:

Full backwages from December 16, 1998, until the decision’s finality;
Separation pay equivalent to one month’s pay per year of service (less the advanced payment);
Attorney’s fees amounting to 10% of the total monetary award.

Petitioners then moved for a Motion for Reconsideration which was denied and elevated the case to the Court of Appeals by way of Petition for Certiorari.
Before the Court of Appeals, petitioners introduced financial reports prepared by independent external auditors (Banaria, Banaria and Company) for 1996 and 1997.
The appellate court dismissed petitioners’ certiorari petition, noting that the audited financial statements were prepared on March 30, 1998—well before the filing of Magno’s complaint—and that their late presentation constituted a suppression of material evidence, ultimately finding that petitioners failed to substantiate the substantive requisites of a valid retrenchment.
Additionally, the Court of Appeals held that Magno’s execution of the quitclaim did not preclude his subsequent filing for illegal dismissal.

Petitioners elevated the issue to the Supreme Court via a Rule 45 petition alleging grave errors:

The appellate court’s conclusion that petitioners failed to prove substantial and imminent losses necessary to justify retrenchment.
The affirmation of the NLRC’s award regarding separation pay and attorney’s fees.

Petitioners argued that retrenchment is a management prerogative provided that the substantive and procedural requirements are met, and that Magno’s quitclaim should bar his claims.

Whether FFMC sufficiently established the substantive requirements for a valid retrenchment, namely proving that the retrenchment was necessary to prevent substantial and imminent business losses.
Whether the late submission of the independently audited financial statements for the years 1996 and 1997 affected the evidentiary basis and the determination of actual financial losses.
Whether the execution of a quitclaim by Magno should bar him from subsequently claiming illegal dismissal and related benefits.
Whether the NLRC’s and Court of Appeals’ decisions concerning separation pay, full backwages, and attorney’s fees were consistent with the legal standards governing retrenchment and illegal dismissal.
Whether the management prerogative to retrench, even if recognized, is subject to judicial scrutiny to ensure adherence to the substantive and procedural safeguards afforded to employees.