PADISCOR vs. Nievarez, et. al

G.R. No. 197852, 19 October 2015

Facts of the case:

Petitioner Pasig Agricultural Development and Industrial Supply Corporation (PADISCOR) hired respondents Nievarez, Halina, Nuevo, Torres and Balle as machinist, tool keeper/timer, helper, welder, and maintenance worker. On June 17, 2006, PADISCOR, sent notices to Nievarez, Torres and Nuevo informing them that they were temporarily laid off from employment for a period of six (6) months. It cited that it can no longer pay their wages and other benefits due to financial losses and lack of capital. On September 5, 2006, Balle and Halina received notices similar from the other respondents informing them of their temporary lay-off from employment. Consequently, respondents filed complaints for illegal suspension, illegal lay-off, non-payment of service incentive leave and paternity leave, damages and attorney’s fees against PADISCOR and Damian. Respondents claimed that as regular employees of PADISCOR, they are entitled to security of tenure and cannot be laid off without just cause. They also averred that the temporary lay-off by PADISCOR is equivalent to illegal dismissal. PADISCOR maintained that the six (6) months temporary lay-off of respondents was valid due to economic reasons. It also alleged that it gave one-month prior notice to respondents regarding the temporary retrenchment and filed Establishment Termination Reports with DOLE. It averred that there was no dismissal since the lay-off was merely temporary, thus, respondents are not entitled to separation pay.

The Labor Arbiter (LA) dismissed the complaint for illegal lay-off and illegal suspension for lack of merit. The LA also held that respondents were merely temporarily laid-off for a period of six (6) months and that such was valid since the corresponding notices to the respondents and to the DOLE were duly complied with by the petitioners. The NLRC affirmed that decision of LA and held that the law has imposed a limitation of six (6) months to temporary layoff such that exceeding that period will be treated as constructive dismissal. Thus, absent any evidence to the contrary, the NLRC agreed with the findings of the LA that the temporary lay-off of respondents was valid. The CA, however, reversed the decision of LA and NLRC and ruled that the pieces of evidence are insufficient to prove that PADISCOR has indeed suffered from financial losses and lack of capital which led to respondents being temporarily laid off. 

Issue:

Whether PADISCOR’s exercise of its management prerogative to temporarily lay-off the respondents are valid.

Ruling of the Court:

PADISCOR’s exercise of its management prerogative to temporarily lay-off the respondents are not valid.

There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a period or duration therefor. These employees cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 (now Article 301) of the Labor Code may be applied but only by analogy to set a specific period that employees may remain temporarily laid-off or in floating status.

Pursuant to Article 286 (now Article 301), the suspension of the operation of business or undertaking in a temporary lay-off situation must not exceed six (6) months. Within this six-month period, the employee should either be recalled or permanently retrenched. Otherwise, the employee would be deemed to have been dismissed, and the employee held liable therefor.

In the case at bar, PADISCOR asserts that respondents were temporarily laid-off from work for a period of six months since it can no longer pay their wages and other benefits due to financial losses and lack of capital. To support its claim, it presented the following pieces of evidence: (a) Notices of temporary layoff to respondents, dated June 17, 2006 and September 5, 2006, and (b) Copies of Establishment Termination Report on June 20, 2006 and September 5, 2006 evidencing the respondents’ lay-off.

The Court was not impressed, however, with petitioners’ bare claim of financial losses to justify the temporary lay-off of respondents. The documents they presented are scant to substantiate its claim. While the law and jurisprudence acknowledge that the closure or suspension of operations of employers due to economic reasons is a valid exercise of management prerogative, it does not exempt employers from complying with the requirements laid down by the law.

Jurisprudence, in both a permanent and a temporary lay-off, dictates that the one-month notice rule to both the DOLE and the employee under Article 283 (now Article 298) is mandatory. Also, in both cases, the layoff, as an exercise of the employer's management prerogative, must be exercised in good faith - that is, one which is intended for the advancement of employers' interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements.

PADISCOR should have established the bona fide suspension of its business operations or undertaking that would have resulted in the temporary lay-off of the respondents for a period not exceeding six (6) months in accordance with the Labor Code as a requisite provided by Article 286 (now Article 301).

In the present case, PADISCOR failed to prove its compliance with the said requisites. In invoking such article in the Labor Code, the paramount consideration should be the dire exigency of the business of the employer that compels it to put some of its employees temporarily out of work. This means that the employer should be able to prove that it is faced with a clear and compelling economic reason which reasonably forces it to temporarily shut down its business operations or a particular undertaking, incidentally resulting to the temporary lay-off of its employees.

Citing the case of Lambert Pawnbrokers and Jewelry Corporation v. Binamira, the  Court held that the normal method of discharging the burden in proving by sufficient and convincing evidence the claim of losses is by the submission of financial statements duly audited by independent external auditors. The CA aptly observed that no financial statements or documents were presented to support PADISCOR’s claim of loss. Instead, petitioners argued that the fact that they advised respondents to immediately resume employment is evidence of their good faith. The financial statements or documents could have established that the temporary lay-off from employment of respondents is indeed bona fide in character, but the petitioners failed to present any.

Therefore, the Court ruled that although PADISCOR complied with the one-month notice rule to the DOLE and the employees, it failed to prove that such temporary lay-off, as exercise of its management prerogative, was made in good faith.

Due to the grim consequences to the employee such that he or she does not receive any salary or financial benefit provided by law during the period of temporary lay-off, this Court holds that the employer should have sufficiently proven through clear and convincing evidence the existence of the dire exigency of its business that compels it to put some of its employees temporarily out of work before a temporary layoff be considered as valid.

Good notes on this case

- Lay-off is defined as the severance of employment, through no fault of and without prejudice to the employee, resorted to by management during the periods of business recession, industrial depression, or seasonal fluctuations, or during lulls caused by lack of orders, shortage of materials, conversion of the plant to a new production program or the introduction of new methods or more efficient machinery, or of automation. However, a layoff would be tantamount to a dismissal only if it is permanent. Hence, when a lay-off is only temporary, the employment status of the employee is not deemed terminated, but merely suspended.

- In temporary layoff, the paramount consideration should be the dire exigency of the business of the employer that compels it to put some of its employees temporarily out of work. The employer should be able to prove that it is faced with a clear and compelling economic reason which reasonably forces it to temporarily shut down its business operations or a particular undertaking, incidentally resulting to the temporary lay-off of its employees.

- Closure or cessation of operations for economic reasons is, therefore, recognized as a valid exercise of management prerogative. The determination to cease operations is a prerogative of management which the State does not usually interfere with, as no business or undertaking must be required to continue operating at a loss simply because it has to maintain its workers in employment. Such an act would be tantamount to a taking of property without due process of law.

- In both permanent and temporary lay-off, the one-month notice rule to both the DOLE and the employee under Article 283 (now Article 298) is mandatory. Also, in both cases, the layoff, as an exercise of the employer's management prerogative, must be exercised in good faith - that is, one which is intended for the advancement of employers' interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements.

- Before a temporary layoff be considered as valid, the employer should have sufficiently proven through clear and convincing evidence the existence of the dire exigency of its business that compels it to put some of its employees temporarily out of work.

- In the case of Lambert Pawnbrokers and Jewelry Corporation v. Binamira, the  Court held that the normal method of discharging the burden in proving by sufficient and convincing evidence the claim of losses is by the submission of financial statements duly audited by independent external auditors.

- Advising the temporary lay-off employees to immediately resume employment is not evidence of good faith.