Case Summary (G.R. No. 224097)
Factual Background and Allegations
Respondents were long-tenured employees (Ainza since July 1981; Dela Cruz originally hired April 1982, rehired May 2001; Gelicami hired February 2002). Respondents allege abrupt exclusion from the plant gate in January 2010 and de facto termination without explanation. Petitioners claim cessation of operations after typhoon Ondoy (September 2009) which damaged equipment and caused financial losses; petitioners contend there was no illegal dismissal because operations had temporarily ceased. Union and petitioners executed a notarized agreement recognizing Ondoy’s severe impact and adopting a no-work-no-pay approach pending normalization; nevertheless, Keng Hua renewed its collective bargaining agreement on 10 March 2011 and submitted comparative income statements for 2006–2009 and 2011–2013, suggesting operations continued after Ondoy.
Procedural History — Labor Arbiter and NLRC
The Labor Arbiter dismissed the illegal dismissal complaint, finding the work stoppage was a bona fide suspension caused by a fortuitous event and not a dismissal, but directed petitioners to pay separation pay. The NLRC affirmed the Labor Arbiter in toto, concluding respondents were not illegally dismissed and noting petitioners’ willingness to grant separation pay and that prevailing minimum wages did not show underpayment. Respondents’ motion for reconsideration before the NLRC was denied.
Procedural History — Court of Appeals
The Court of Appeals granted respondents’ petition for certiorari, finding that petitioners had retrenched employees but failed to comply with legal requirements for a valid retrenchment. The CA emphasized petitioners’ lack of independently audited financial statements proving losses, absence of one-month written notices to employees and DOLE, failure to show consideration of alternative cost-saving measures, and lack of fair and reasonable criteria for selecting retrenched employees. The CA declared respondents illegally dismissed and ordered reinstatement with full backwages or, if reinstatement was not feasible, full backwages, separation pay, and attorney’s fees.
Issue Presented to the Supreme Court
The central issue reviewed by the Supreme Court was whether respondents were illegally dismissed, with subsidiary questions on factual matters (e.g., abandonment) that the Court declined to resolve as they were within the fact-finding domain of lower tribunals.
Legal Standard — Suspension of Operations (Article 301; six-month rule)
Article 301 (formerly Article 286) provides that a bona fide suspension of operations not exceeding six months does not terminate employment; the employee must indicate desire to return within one month from resumption to be reinstated without loss of seniority. Jurisprudence treats six months as the maximum lawful period for a temporary lay-off; beyond that period the employer must either recall employees or effect permanent retrenchment in compliance with the law, otherwise termination by operation of law occurs.
Legal Standard — Retrenchment and Closure (Article 298) and Requisites for Valid Termination
Article 298 (formerly Article 283) authorizes termination for retrenchment to prevent losses or for closure/cessation, but imposes two procedural requisites common to both: (1) written notices to affected workers and to DOLE at least one month before the intended date; and (2) payment of termination/separation pay (one month pay or at least one-half month pay per year of service, whichever is higher). Retrenchment and closure are distinct causes: retrenchment requires proof that losses are substantial/actual or reasonably imminent and that retrenchment is necessary and effective to prevent such losses; closure requires bona fides. The Court further articulated a five-part formulation of requirements for valid retrenchment, to be proved by clear and convincing evidence: (1) retrenchment reasonably necessary and likely to prevent substantial/serious/actual or imminently perceived losses; (2) written notices to employees and DOLE at least one month prior; (3) payment of statutory separation pay; (4) exercise of prerogative in good faith (not to defeat employee rights); and (5) use of fair and reasonable selection criteria for dismissals.
Application of Law to Facts — Six-Month Suspension and Cessation of Employment
The Supreme Court found that the suspension of operations extended well beyond six months (Ondoy in September 2009; resumption asserted in May 2010) and that petitioners did not prove they recalled respondents in May 2010. Petitioners admitted they had not recalled respondents when the six-month period lapsed. Consequently, respondents’ employment terminated by operation of law when the suspension exceeded six months, absent compliance with retrenchment/closure requisites.
Application of Law to Facts — Petitioners’ Failures on Retrenchment/Closure Requirements
The Court held that petitioners failed to satisfy both procedural and substantive requisites: they did not present independent audited financial statements or other convincing evidence proving substantial losses or imminent losses; they did not show service of the one-month written notices to employees and DOLE; they did not demonstrate payment of required separation/termination pay; they did not show consideration of alternative cost-saving measures prior to retrenchment; and they did not prove use of fair and reasonable criteria in selecting who would be retrenched. The Court emphasized that the burden to prove the validity and bona fides of termination rests on the employer.
Remedy — Illegal Dismissal, Reinstatement vs. Separatio
...continue readingCase Syllabus (G.R. No. 224097)
Case Citation and Forum
- G.R. No. 224097, Decision dated February 22, 2023, First Division of the Supreme Court of the Philippines.
- Petition for Review on Certiorari filed under Rule 45, assailing the Court of Appeals Decision dated 30 September 2015 and Resolution dated 11 April 2016 in CA‑G.R. SP No. 124951.
- Petitioners: Keng Hua Paper Products Co., Inc. (Keng Hua) and its president, James Yu.
- Respondents: Carlos E. Ainza, Primo Dela Cruz, and Benjamin R. Gelicami.
- Decision penned by Justice Zalameda; Gesmundo, C.J. (Chairperson), Dimaampao, Marquez, and Kho, Jr., JJ., concurred. Hernando, J. and Rosario, J. took no part due to prior participation in the Court of Appeals; Dimaampao, J. and Kho, J. designated as additional Members per raffle.
Nature of the Case and Reliefs Sought
- Case: Complaint for illegal dismissal with prayer for separation pay, underpayment of wages, damages, and attorney’s fees.
- Respondents sought: reinstatement or separation pay, backwages, recognition of illegal dismissal, and attorney’s fees.
- Petitioners sought: review of CA decision declaring respondents illegally dismissed and ordering reinstatement or, alternatively, monetary reliefs.
Antecedent Facts (Employment and Circumstances)
- Respondents’ employment:
- Carlos E. Ainza: hired July 1981; salary P392.50 per day.
- Primo Dela Cruz: hired April 1982, resigned 26 March 2001 to avail gratuity pay, rehired May 2001; salary P392.50 per day.
- Benjamin R. Gelicami: hired February 2002; salary P383.00 per day.
- Typhoon Ondoy (late September 2009) caused flashfloods that seriously damaged Keng Hua’s equipment and facilities at 1000 Gov. Pascual Avenue, Potrero, Malabon City.
- Petitioners’ claimed facts:
- Keng Hua ceased operations due to Ondoy damage; allegedly no work for respondents; petitioners claim there was no illegal dismissal because of cessation of operations.
- Petitioners asserted operations slowly resumed on 15 May 2010 and that most employees resumed services except respondents; petitioners submitted a list to DOLE on 10 September 2012 including respondents’ names as affected by temporary closure due to heavy monsoon rains (referred to as "habagat").
- Petitioners admitted they "have not recalled Respondents when the six-month period lapsed."
- Respondents’ claimed facts:
- In January 2010 they were stopped at the gate by security guards on petitioners’ orders and told they had no more jobs; they were not allowed to speak with superiors and were thus abruptly prevented from working.
Documentary and Union Evidence
- Comparative income statements submitted to BIR for years 2006–2009 and for 2011–2013, showing decline from 2007 and operations beyond September 2009.
- Union (Samahan ng mga Manggawa sa Globe Keng Hua a Association Genuine Labor Union) notarized agreement acknowledging Ondoy’s severe damage to Keng Hua and recognizing:
- That damage effectively stopped Keng Hua’s production;
- That Wage Order No. 15 was in force with certain back wages treatment and Wage Order No. 16 implementation to occur once operations normalized;
- A "NO WORK-NO PAY" policy for days not worked.
- Collective Bargaining Agreement: renewed on 10 March 2011, covering 02 January 2011 to 02 January 2016, indicating continued operations post‑Ondoy.
Procedural History (Labor Arbiter, NLRC, Court of Appeals)
- Labor Arbiter (Decision dated 28 October 2011):
- Held that the cause of respondents’ job loss was a fortuitous event (Ondoy).
- Applied Article 283 (now Article 298) permitting cessation of operations to prevent losses; found no illegal dismissal.
- Nonetheless ordered petitioners to pay separation pay to respondents, specifying amounts:
- Carlos Ainza – Php 221,108.32
- Primo Dela Cruz – Php 22,895.00
- Benjamin Gelicami – Php 20,330.87
- Dismissed other claims.
- NLRC (Decision dated 06 February 2012; Resolution dated 26 March 2012):
- Denied respondents’ appeal for lack of merit and affirmed the Labor Arbiter in toto.
- Found that Ondoy‑related circumstances sufficiently proved no illegal dismissal and even stated it was "fully convinced that there was no dismissal from the service in the first place."
- Noted petitioners’ willingness to pay separation pay favorably and found no underpayment of wages given prevailing minimum wage then was P362.00.
- Court of Appeals (Decision dated 30 September 2015; Resolution dated 11 April 2016):
- Reversed and set aside the NLRC decision.
- Found respondents retrenched and that petitioners failed to comply with legal requirements for valid retrenchment:
- No independently audited financial statements proving losses.
- No written notices to respondents and DOLE at least one month prior to retrenchment.
- No showing petitioners adopted other cost‑saving measures before retrenchment.
- No fair and reasonable criteria demonstrated in selecting who would be retrenched.
- Declared respondents illegally dismissed, ordered reinstatement without loss of seniority and full backwages from January 2010 until finality; if reinstatement infeasible, ordered full backwages, separation pay, and attorney’s fees of 10% of total monetary awards; remanded to LA for computation.
- Denied petitioners’ motion for reconsideration (11 April 2016), disallowing the first‑time assertion of abandonment.
Issues Presented to the Supreme Court
- Whether the Court of Appeals erred in overturning the NLRC decision and declaring respondents illegally dismissed.
- Whether petitioners raised abandonment for the first time in their Motion for Reconsideration.
Court’s Scope and Focus
- The Supreme Court limited its review primarily to the issue of illegal dismissal because abandonment raises questions of fact not within the Supreme Court’s domain.
Governing Statutes and Doctrines Cited
- Article 301 (formerly Article 286) of the Labor Code (renumbered; Department Advisory No. 01, Series of 2015) – suspension of operations not exceeding six months does not terminate employment; employee must indicate desire to return within one month from resumption.
- Article 298 (formerly Article 2