G.R. No. 224097 - Keng Hua Paper Products Co., Inc. vs. Ainza

Case Summary (G.R. No. 224097)

Petitioners

Keng Hua claimed cessation of operations after Ondoy and argued respondents’ separation was a bona fide suspension of work, not dismissal.

Respondents

Alleged abrupt termination in January 2010 without notice or explanation, prompting an illegal dismissal complaint seeking reinstatement, backwages, separation pay, and attorney’s fees.

Key Dates

– July 1981 to February 2002: Employment commencement dates for respondents.
– September 2009: Typhoon Ondoy floods and alleged suspension of operations.
– May 2010: Alleged resumption of operations, excluding respondents.
– March 31, 2011: Filing of illegal dismissal complaint.
– September 30, 2015: Court of Appeals (CA) decision reversing NLRC.
– February 22, 2023: Supreme Court decision.

Applicable Law

– 1987 Philippine Constitution: Security of tenure under Article XIII, Section 3(2).
– Labor Code (as renumbered):
• Article 301 (formerly 286) – suspension of operations not exceeding six months.
• Article 298 (formerly 283) – authorized causes and procedural requirements for retrenchment or closure.
• Article 294 (formerly 279) – remedies for illegal dismissal.

Background of Dispute

Respondents were barred from work in January 2010. Petitioners relied on union-notarized wage agreement acknowledging Ondoy-related financial losses. Yet Keng Hua executed a five-year collective bargaining agreement in March 2011 and filed tax returns showing post-2009 income, indicating continued operations.

Labor Arbiter Decision

The Arbiter found no illegal dismissal, ruling the job suspension due to typhoon was a bona fide suspension under Article 301. Nonetheless, recognizing petitioners’ willingness to pay separation pay, the Arbiter ordered payment to each respondent.

NLRC Ruling

Affirmed the Arbiter in toto, holding that respondents were not dismissed but temporarily laid off. It credited petitioners’ separation-pay offer and found no wage underpayment, noting prevailing minimum wage.

Court of Appeals Ruling

Granted respondents’ certiorari petition, finding grave abuse of discretion by the NLRC. The CA held that:

Suspension exceeded the six-month statutory limit, effecting termination by operation of law.
Petitioners failed to serve one-month written notices to respondents and DOLE.
No independently audited financial statements proved losses.
No demonstration of good-faith cost-saving measures or fair retrenchment criteria.
It declared illegal dismissal, ordered reinstatement or, if infeasible, full backwages, separation pay, and 10% attorney’s fees.

Supreme Court Ruling

The petition was denied. The Court affirmed illegal dismissal, emphasizing:
– Suspension beyond six months triggers termination by law absent recall.
– Valid retrenchment requires proof by clear and convincing evidence of substantial losses, procedural compliance (one-month notices and separation pay), good-faith motive, and fair criteria for selecting employees.
– Petitioners failed to meet both procedural and substantive requisites.

Six-Month Suspension Rule

Under Article 301, a bona fide suspension not exceeding six months does not terminate employment; employees must signal readiness to return within one month of operations resuming. Here, suspension ran from September 2009 to May 2010—over six months—and respondents neither received recall notices nor were actually reinstated.

Requirements for Valid Retrenchment or Closure

Substantial, actual or reasonably imminent losses objectively and in good faith.
Written notice to affected employees and DOLE at least one month before retrenchment date.
Separation pay: one month’s salary or at least ½ month per year of service, whichever higher.
Good-faith exercise of management prerogative, not circumvention of employee rights.
Use of fair and reasonable criteria (e.g.,