Retrenchment without Notice Grants Employees Award of Nominal Damages

Retrenchment without Notice Grants Employees Award of Nominal Damages

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence. [EMCO Plywood Corporation vs. Abelgas, 427 SCRA 496, 511 (2004)]

Article 283 of the Labor Code provides, that the employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of the Labor Code, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof.

In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

Now, for retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected

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losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.

In the case of San Miguel Corporation, on 30 September 1996 it filed before the Regional Office at Iloilo City of the Department of Labor and Employment (DOLE) a Notice of Closure of its aquaculture operations effective on even date, citing serious business losses.

In resolving the labor dispute, the Supreme Court (SC) held that in the discharge of the requirements for retrenchment, it is the employer who has the onus, being in the nature of an affirmative defense.

Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, profit and loss statements and annual income tax returns. The financial statements must be prepared and signed by independent auditors failing which they can be assailed as self-serving documents.

In the case at bar, company losses were duly established by financial documents audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMC’s Agribusiness Division accumulated losses amounting to ₱145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental, ₱11,393,071.00 in 1993 and ₱80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

Further, the SC ratiocinated that for termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment, in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination.

The complainants however, were merely verbally informed on September 10, 1995 by SMC Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they were no longer to report for work as SMC would be closing its operations.

Where the dismissal is based on an authorized cause under Article 298 of the Labor Code but the employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employer’s exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 297 with the same procedural infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal process was, in effect, initiated by an act imputable to the employee.

In light of the factual circumstances of the case at bar, the SC awarded PhP50,000.00 to each complainant as nominal damages.

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