PT&T vs. NLRC

G.R. NO. 147002, 15 April 2005

Facts of the case:

Bayao and Castillo were hired by the Philippine Telegraph & Telephone Corporation (PT&T) as account executives stationed in Baguio City. To prevent the company from going bankrupt, they undertook measures against losses by reducing its workforce from 2,500 to 900 employees. Hence, they implemented a Voluntary Staff Reduction Program which was availed of by 478 employees. Failing to attain its target, PT&T implemented an extended VSRP, but still not enough employees availed of the program. PT&T decided to implement a temporary retrenchment of some employees dubbed as Temporary Staff Reduction Program (TSRP) lasting for not more than 5 ½ months. Pursuant to the program, affected employees would receive financial assistance equivalent to 15 days salary and a loan equivalent to 2 months salary chargeable to the account of the employee concerned.

Bayao and Castillo received a letter from petitioner informing them about the cumulative net losses of PT&T that reached P293.4 million and that they were among the employees affected by the TSRP.

When they reported for work on September 2, 1998, they were informed that the position of account executive no longer existed; in its stead, the positions of Service Account Representatives (SAR) and Service Account Specialists (SAS) were created. And such positions had already been filled up.

That same day, September 2, 1998, Bayao and Castillo promptly filed a complaint for illegal dismissal with the NLRC, Regional Arbitration Branch, Cordillera Administrative Region, against PT&T.

The Labor Arbiter ruled in favor of Bayao and Castillo. On appeal, the NLRC affirmed the decision of the LA. The CA dismissed the petition and affirmed the findings of the NLRC. It declared that there was no valid ground for retrenchment, considering that when Bayao and Castillo returned, their positions were already filled up; at the same time, PT&T did not inform its employees and the Department of Labor and Employment (DOLE) of the scheduled retrenchment at least one month before its implementation.

Issue:

Whether or not the retrenchment program implemented by petitioner PT&T is valid.

Ruling of the Court:

The Court ruled that the retrenchment program implemented by petitioner PT&T is not in accordance with the requisites of the law.

In order that retrenchment due to serious business losses may be validly exercised, the following requisites must concur: (a) necessity of the retrenchment to prevent losses, and proof of such losses; (b) written notice to the employees and to the DOLE at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.

Under the first requisite, it is imperative and incumbent on the part of the employer to sufficiently and convincingly establish business reverses of the kind or in the amount that would justify retrenchment. To justify retrenchment, the employer must prove serious business losses, as not all business losses suffered by an employer would justify retrenchment under the aforesaid Article 283 (now 298). The loss referred to in the said provision cannot be of just any kind or amount, otherwise, a company could easily feign excuses to suit its whims and prejudices or to rid itself of unwanted employees.

Here, petitioners presented its audited financial statements for the corporate fiscal years 1996 to 1998 and emphasized that, in the October 20, 1998 Audit Report prepared by SGV & Co., the auditing firm declared that petitioner PT&T incurred a substantial loss. Based on the financial statements submitted, petitioner PT&T suffered a net loss of P40,780,017 in 1995 and P85,423,641 in 1996, posted a net income of P1,491,532 in 1997, and again suffered a net loss of P557,892,627 in 1998. The foregoing clearly indicates that the petitioner PT&T sufficiently complied with its burden to prove that it incurred substantial losses as to warrant the exercise of the extreme measure of retrenchment to prevent the company from totally going under.

While an employer may have a valid ground for implementing a retrenchment program, it is not excused from complying with the required written notice served both to the employee concerned and the DOLE at least one month prior to the intended date of retrenchment. The purpose of this requirement is not only to give employees some time to prepare for the eventual loss of their jobs and their corresponding income, look for other employment and ease the impact of the loss of their jobs but also to give the DOLE the opportunity to ascertain the verity of the alleged cause of termination.

In the case at bar, the memorandum sent by petitioner to respondents Bayao and Castillo informing the latter that they were included in the TSRP to be implemented effective September 1, 1998 was dated August 21, 1998 was received by Castillo on August 24, 1998 and Bayao on August 26, 1998. The respondents had barely two weeks' notice of the intended retrenchment program. Clearly then, the one-month notice rule was not complied with. At the same time, the petitioners never showed that any notice of the retrenchment was sent to the DOLE.

Interestingly enough, the evidence on record indicates that respondents Bayao and Castillo were not merely temporarily laid-off. The October 26, 1998 letter of petitioner addressed to the respondents clearly stated that the latter were to be considered separated from the company effective August 31, 1998 and that they were each being extended a separation package.

It must be stressed, however, that compliance with the one-month notice rule is mandatory regardless of whether the retrenchment is temporary or permanent. This is so because Article 283 itself does not speak of temporary or permanent retrenchment; hence, there is no need to qualify the term. Ubi lex non distinguit nec nos distinguere debemus (when the law does not distinguish, we must not distinguish).

However, the employer's failure to comply with the one month notice requirement prior to retrenchment does not render the termination illegal; it merely renders the same defective, entitling the dismissed employee to payment of indemnity in the form of nominal damages. Based on prevailing jurisprudence, the amount of indemnity is pegged at P30,000.00.

Finally, since petitioner PT&T was able to establish that it incurred serious business losses, justifying the retrenchment, the final requisite is the payment of separation pay. Pursuant to Section 283 of the Labor Code, as amended, the retrenchment having been effected due to serious business losses, respondents Bayao and Castillo are each entitled to one month pay or to at least one-half month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered one whole year.

Good notes on this case

- Retrenchment has been defined as the termination of employment initiated by the employer through no fault of the employees and without prejudice to the latter, resorted by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. It is a management prerogative resorted to by an employer to avoid or minimize business losses which is consistently recognized by the Court.

- In order that retrenchment due to serious business losses may be validly exercised, the following requisites must concur: (a) necessity of the retrenchment to prevent losses, and proof of such losses; (b) written notice to the employees and to the DOLE at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.

- It is imperative and incumbent on the part of the employer to sufficiently and convincingly establish business reverses of the kind or in the amount that would justify retrenchment. To justify retrenchment, the employer must prove serious business losses, as not all business losses suffered by an employer would justify retrenchment under the aforesaid Article 283 (now 298). The loss referred to in the said provision cannot be of just any kind or amount, otherwise, a company could easily feign excuses to suit its whims and prejudices or to rid itself of unwanted employees.

- As consistently held by this Court, to guard against abuse, any claim of actual or potential business losses must satisfy the following established standards, to wit; (a) the losses incurred are substantial and not de minimis; (b) the losses are actual or reasonably imminent; (c) the retrenchment is reasonably necessary and is likely to be effective in preventing the expected losses; and (d) the alleged losses, if already incurred, or the expected imminent losses sought to be forestalled are proven by sufficient and convincing evidence.

- The Court has previously ruled that financial statements audited by independent external auditors constitute the normal method of proof of the profit and loss performance of a company.

- While an employer may have a valid ground for implementing a retrenchment program, it is not excused from complying with the required written notice served both to the employee concerned and the DOLE at least one month prior to the intended date of retrenchment. The purpose of this requirement is not only to give employees some time to prepare for the eventual loss of their jobs and their corresponding income, look for other employment and ease the impact of the loss of their jobs but also to give the DOLE the opportunity to ascertain the verity of the alleged cause of termination.

- It must be stressed, however, that compliance with the one-month notice rule is mandatory regardless of whether the retrenchment is temporary or permanent. This is so because Article 283 itself does not speak of temporary or permanent retrenchment; hence, there is no need to qualify the term. Ubi lex non distinguit nec nos distinguere debemus (when the law does not distinguish, we must not distinguish).

- When an employer has a valid ground for implementing a retrenchment program, the employer's failure to comply with the 1-month notice requirement prior to retrenchment does not render the termination illegal; it merely renders the same defective, entitling the dismissed employee to payment of indemnity in the form of nominal damages. Based on prevailing jurisprudence, the amount of indemnity is pegged at P30,000.00.

- The requirement of notice to both the employees concerned and the Department of Labor and Employment (DOLE) is mandatory and must be written and given at least one month before the intended date of retrenchment. In this case, it is undisputed that the petitioners were given notice of the temporary lay-off. The notice must also be given at least one month in advance of the intended date of retrenchment to enable the employees to look for other means of employment and therefore to ease the impact of the loss of their jobs and the corresponding income.

- The law requires two notices, one to the employee/s concerned and another to the DOLE, not just one. The notice to the DOLE is essential because the right to retrench is not an absolute prerogative of an employer but is subject to the requirement of law that retrenchment be done to prevent losses. The DOLE is the agency that will determine whether the planned retrenchment is justified and adequately supported by facts.