ChapterFour

TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
A. Employer-employee relationship
1. Four-fold test
2. Kinds of employment
a. Probationary
b. Regular
c. Project employment
d. Seasonal
e. Casual
f. Fixed-term
3. Job contracting
a. Articles 106 to 109 of the Labor Code
b. Department Order No. 18-A
c. Department Circular No. 01-12
d. Effects of Labor-Only Contracting
e. Trilateral relationship in job contracting
A.
EMPLOYER-EMPLOYEE RELATIONSHIP
1.
Four-Fold Test
1. FOUR-FOLD TEST.
a. Selection and engagement of the employee;
b. Payment of wages or salaries;
c. Exercise of the power of dismissal; or
d. Exercise of the power to control the employees conduct. 1
These tests, however, are not fool-proof as they admit of exceptions.
2. CONTROL TEST, THE CONTROLLING TEST.
The control test is the controlling test. It addresses the issue of whether the
employer controls or has reserved the right to control the employee not only as to
the result of the work to be done but also as to the means and methods by which the
same is to be accomplished.2
3. SOME PRINCIPLES ON EMPLOYER-EMPLOYEE RELATIONSHIP.
a. There is no uniform test prescribed by law or jurisprudence to determine the
existence of employer-employee relationship. 3
b. The existence of the employer-employee relationship is essential in that it
comprises as the jurisdictional basis for recovery under the law. Only cases
arising from said relationship are cognizable by the labor courts. 4
c. The relationship of employer and employee is contractual in nature. It may be an
oral or written contract. A written contract is not necessary for the creation and
validity of the relationship.5

d. Stipulation in a contract is not controlling in determining existence of the

relationship. The employment status of a person is defined and prescribed by law
and not by what the parties say it should be. 6
e. The mode of paying the salary or compensation of a worker does not preclude
existence of employer-employee relationship. Thus, payment by commission 7 or
on a piece-rate basis8 or on a no work, no pay 9 basis does not affect existence of
employment relationship.
f. Retainer fee arrangement does not give rise to employment relationship. 10
4. CASES WHERE EMPLOYMENT RELATIONSHIP EXISTS.
Following the right-of-control test, the Supreme Court has found that employment
relationship exists in the following cases:
a. Dispatchers of a transportation company. 11
b. Persons paid on boundary system basis in relation to the transport operator such
as jeepney drivers and conductors, 12 taxi drivers,13auto-calesa driver,14 and bus
driver.15 Under the boundary system, the relationship between the driver and
conductor of a bus and the owner thereof is not that of lessee and lessor but that
of employee and employer.16
c. Musicians employed by a company producing motion pictures for purposes of
making music recordings for title music, background music, musical numbers,
finale music and other forms of music without which a motion picture is not
complete.17
d. Fishermen-crew who rendered services in various capacities (patron/pilot, master
fisherman, second fisherman, chief engineer, and fisherman) aboard the fishing
vessels of a company engaged in trawl fishing and whose compensation was
paid in cash on percent commission basis. 18
e. Stevedores, although supplied to the company by the labor organization
composed of various labor unions, are employees of the company. 19
f. Resident physicians. - There is employer-employee relationship between resident
physicians and the training hospitals unless:
1. there is a training agreement between them; and
2. the training program is duly accredited or approved by the appropriate
government agency.20
g. Employees of cooperatives, but not its members unless the members are also
employees thereof.21
h. Insurance agent.22
2.
KINDS OF EMPLOYMENT
1. FIVE (5) GENERAL CLASSIFICATIONS OF EMPLOYMENT.
There are five (5) classifications of employment. 23 Article 280 provides for four (4)
kinds of employees,24 to wit:
(a) Regularemployees referring to those who have been engaged to perform
activities which are usually necessary or desirable in the usual business or trade
of the employer;

(b) Project employees referring to those whose employment has been fixed for a
specific project or undertaking, the completion or termination of which has been
determined at the time of the engagement of the employee;
(c) Seasonal employees referring to those who work or perform services which are
seasonal in nature, and the employment is for the duration of the season; and
(d) Casualemployees referring to those who are not regular, project, or seasonal
employees.25
A fifth one, fixed-term employees, must be added to the above enumeration. 26 This,
however, is not provided in the Labor Code but recognized only in jurisprudence. 27
2. CLASSIFICATION OF EMPLOYMENT AS TO NATURE OF WORK.
According to the 2013 case ofGMA Network, Inc. v. Pabriga, 28 pursuant to Article
280, another classification may be formed in accordance with the nature of employment, to
wit:
(1) Employees performing activities which are usually necessary or desirable in the
employers usual business or trade can either be regular, project or
seasonal employees; while
(2) Those performing activities not usually necessary or desirable in the employers
usual business or trade are, as a general rule, casualemployees.
The reason for this distinction may not be readily comprehensible to those who
have not carefully studied these provisions; only employers who constantly need the
specified tasks to be performed can be justifiably charged to uphold the constitutionally
protected security of tenure of the corresponding workers. The consequence of the
distinction is found in Article 279 of the Labor Code. 29 With respect to the activities
of projectemployees, they may or may not be usually necessary or desirable in the usual
business or trade of the employer, as discussed by the Court in some cases. 30
a.
PROBATIONARY EMPLOYMENT31
1. NATURE OF PROBATIONARY EMPLOYMENT.
A probationary employee is one who, for a given period of time, is on observation,
evaluation and trial by an employer during which the employer determines whether or not
he is qualified for permanent employment. During the probationary period, the employer is
given the opportunity to observe the skill, competence, attitude and fitness of the
probationary employee while the latter seeks to prove to the employer that he has the
qualifications to meet the reasonable standards for permanent employment. 32
2. PROBATIONARY PERIOD.
As a general rule, it should not exceed six (6) months from the date the employee
started working.33 One becomes a regular employee upon completion of his six-month
period of probation.34
3. EXCEPTIONS.
The 6-month period provided in Article 281 admits of certain exceptions such as:
1. When the employer and the employee agree on a shorter or longer period;
2. When the nature of work to be performed by the employee requires a longer
period;
3. When a longer period is required and established by company policy.
If not one of the exceptional circumstances above is proven, the employee whose
employment exceeds six (6) months is undoubtedly a regular employee. 35

Buiser v. Hon. Leogardo. 36 - The probationary period of 18 months was

considered valid in the light of the nature of employment of the probationary employees.
The company here is engaged in the publication of advertisements in PLDTs Yellow Pages
Telephone Directories. Solicited ads are published a year after the sale has been made and
only then can the company be able to evaluate the efficiency, conduct and selling ability of
the sales representatives, the evaluation being based on the published ads.
4. PROBATIONARY PERIOD, HOW RECKONED AND COMPUTED.
The 6-month probationary period should be reckoned from the date of
appointment up to the same calendar date of the 6 month following. 37
th

5. PROBATIONARY EMPLOYMENT VS. FIXED-TERM EMPLOYMENT.

The intention of the parties (employer and employee) is material. Both involve fixed
period in terms of duration of employment. However, inprobationary employment, the
parties intend to make their relationship regular after the lapse of the period. In fixedterm employment, no such intention exists and the relationship automatically terminates at
the expiration of the period.
A probationary period cannot be stipulated within the fixed period of employment. 38
6. SOME PRINCIPLES ON PROBATIONARY EMPLOYMENT.
The probationary period may be extended but only upon the mutual agreement by the
employer and the probationary employee. 39
Purpose and not length of the probationary period is material. 40
An employee who is allowed to work after a probationary period is considered a
regular employee.41
Employment is deemed regular if the employment contract has no stipulation on
probationary period.42
Employee is deemed regular absent any contract to prove probationary employment. 43
Repetitive rehiring of a probationary employee means he has become a regular
employee.44
Regular workers of previous owner of business may be hired as probationary
employees of new owner.45
Probationary employment cannot be ad infinitum.46
7. TERMINATION OF PROBATIONARY EMPLOYMENT.
a. Security of tenure of probationary employees.
Within the limited legal 6-month probationary period, probationary employees are
entitled to security of tenure notwithstanding their limited tenure and non-permanent
status.47 Hence, during their probationary employment, they cannot be dismissed except for
just or authorized cause or when he fails to qualify as a regular employee. 48
b. Grounds to terminate probationary employment.
Under Article 281, a probationary employee may be terminated only on three (3)
grounds, to wit:
1. For a just cause; or
2. For authorized cause; or
3. When the probationary employee fails to qualify as a regular employee in
accordance with reasonable standards made known by the employer to the
employee at the start of the employment. 49
c. Some principles on termination of employment of probationary employees.
1.

Procedural
due
process
is
required
only
in
the
case
of
the first and second grounds (dismissal due to just or authorized cause) .

The thirdground (failure to qualify as a regular employee) does not require notice
and hearing. Due process of law for the third ground consists of making the
reasonable standards expected of the employee during his probationary
employment known to him at the time of his engagement. 50
2. Termination to be valid must be done prior to lapse of probationary period.51
3. Termination a few days after lapse of probationary period cannot be done without
due process as he has already become a regular employee by that time. 52
4. Peremptory and arbitrary termination of probationary employees is not allowed. 53
5. No obligation to pay unexpired portion in case of valid termination prior to lapse
of probationary period.54
6. Agabon doctrine55 applies if dismissal of probationary employee for a just cause is
without due process. Thus, the termination is considered legal but the employee
will be awarded an indemnity in the form of nominal damages of P30,000.00. 56
7. Jaka doctrine57 applies if dismissal of probationary employee for an authorized
cause is without due process. The amount of indemnity is higher: P50,000.00.
b.
REGULAR EMPLOYMENT58
1. TWO (2) KINDS OF REGULAR EMPLOYEES.
The regular employees under Article 280 consist of the following:
(1) Those engaged to perform activities which are usually necessary or desirable in
the usual business or trade of the employer; and
(2) Those who have rendered at least one (1) year of service, whether such service is
continuous or broken, with respect to the activity in which they are employed. 59
2. THREE (3) WAYS OF ATTAINING REGULAR EMPLOYMENT.
Under the Labor Code, regular employment may be attained in either of three (3)
ways, namely:
1. By nature of work. - The employment is deemed regular when the employee
has been engaged to perform activities which are usually necessary or desirable
in the usual business or trade of the employer. 60
2. By period of service. - The employment is reckoned as regular when the
employee has rendered at least one (1) year of service, whether such service is
continuous or broken, with respect to the activity in which he is employed and his
employment shall continue while such activity exists. 61
3. By probationary employment. - The employment is considered regular when
the employee is allowed to work after a probationary period. 62
3. SOME PRINCIPLES ON REGULAR EMPLOYMENT.
a.

Law presumes regularity of employment. The presumption having been

made by the law itself, it follows that an employee is deemed regular by operation
of law the moment the fact is established that the nature of his work is directly
related to the principal business of the employer. 63

b.

The phrase to perform activities which are usually necessary or desirable

in the usual business or trade of the employer includes performance of
peripheral jobs indirectly related to the principal business of employer. 64

c.

No declaration or appointment paper necessary to make one a regular

employee.65

d.

Fixed-period employment is the exception to the rule that an employee

becomes regular by reason of nature of work or period of
employment66 because in fixed-period employment, these factors are not
decisive indicators of regularity of employment. The decisive determinant is
the day certain agreed upon by the parties for the commencement and
termination of their employment relationship, a day certain being understood to
be that which must necessarily come, although it may not be known when. 67

e.

Written or oral agreement is immaterial to determine regularity of employment.

The phrase the provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the partiesin Article 280 simply means that
irrespective of any written or oral agreement stating that the employment is not
regular, once the fact is established that the employee has been engaged to
perform activities which are usually necessary or desirable in the usual business
or trade of the employer, his employment is regular by reason of its nature. 68

f.

However, there is a need to execute a written employment contract if the

intention is to stipulate on such other kinds of employment such as probationary,
project, seasonal, casual or fixed-term, as the case may be, because the absence
thereof will make the relationship that of regular employment. It is only by
proving the terms and conditions of the contract that the general presumption
that the relationship is regular in nature would be effectively dispelled.
Jurisprudence abounds where the non-presentation of the written contract was
held as evidence that the status of employment is not what it purports to be, that
is, probationary, project, seasonal, casual or fixed-term but regular employment.

g.

The doctrine of adhesion69 applies to employment contracts. 70 It must be

emphasized, however, that the rule on the interpretation or construction of
contracts of adhesion does not apply when the stipulations contained in a
contract are not obscure or ambiguous. 71Besides, a contract of adhesion is not
prohibited per se. 72

h.

The act of hiring and re-hiring the employees over a period of time without
considering them as regular employees evidences bad faith on the part of the
employer.73

i.

Manner and method of payment of wage or salary is immaterial to the issue of

whether the employee is regular or not. 74
c.
PROJECT EMPLOYMENT75

1. CONCEPT.
Project employees are those hired:
1. for a specific project or undertaking; and
2. the completion or termination of such project has been determined at the time
of their engagement.76
2. TWO (2) CATEGORIES OF PROJECT EMPLOYEES.
In order to safeguard the rights of workers against the arbitrary use of the
word project to prevent employees from attaining the status of regular employees,

employers claiming that their workers are project employees should not only prove that the
duration and scope of the employment was specified at the time they were engaged, but also that
there was indeed a project. 77
The two (2) categories of project employees on the basis of project for which they
have been engaged to perform are as follows:
(1) A particular job or undertaking that is within the regular or usual business of
the employer company, but which is distinct and separate, and identifiable
as such, from the other undertakings of the company ; or
(2) A particular job or undertaking that is not within the regular business of the
corporation. 78
In the realm of business and industry, we note that project could refer to one or
the other of at least two (2) distinguishable types of activities . Firstly, aproject
could refer to a particular job or undertaking that is within the regular or usual
business of the employer company, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or
undertaking begins and ends at determined or determinable times. The typical example
of this first type of project is a particular construction job or project of a construction
company. A construction company ordinarily carries out two or more [distinct]
identifiable construction projects: e.g. , a twenty-five-storey hotel in Makati; a residential
condominium building in Baguio City; and a domestic air terminal in Iloilo City.
Employees who are hired for the carrying out of one of these separate projects, the
scope and duration of which has been determined and made known to the employees
at the time of employment, are properly treated as project employees, and their
services may be lawfully terminated at completion of the project.
The term project could also refer to, secondly , a particular job or undertaking
that is not within the regular business of the corporation. Such a job or undertaking
must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined
or determinable times.79

3. LITMUS TEST OF PROJECT EMPLOYMENT.

The litmus test of project employment, as distinguished from regular employment, is
whether or not the project employees were assigned to carry out a specific project or
undertaking, the duration and scope of which were specified at the time the employees were
engaged for that project. 80 A true project employee should be assigned to a project which
begins and ends at determined or determinable times and be informed thereof at the time
of hiring.81
4. PROJECT EMPLOYMENT VS. REGULAR EMPLOYMENT.
1. The services of project employees are coterminous with the project or any phase
thereof and may be terminated upon the end or completion of the project or phase thereof
for which they were hired. Regular employees, in contrast, enjoy security of tenure and are
legally entitled to remain in the service of their employer and to hold on to their work or
position until their services are terminated by any of the modes of termination of service
recognized under the Labor Code.82
2. Due process likewise varies. In case of project employment, if the termination is
brought about by the completion of the project or any phase thereof, due process is
complied with even if no prior notice of termination is served. For termination
of regular employment, the due process required would necessarily depend on the ground
cited. If the termination is for just cause, due process applicable to Article 282 terminations

applies. If due to authorized cause, due process applicable to Articles 283 and 284
terminations should be followed.
5. INDICATORS OF PROJECT EMPLOYMENT.
a. 6 indicators of project employment.
Either one or more of the following circumstances, among others, may be
considered as indicator/s that an employee is a project employee:
1. The duration of the specific/identified undertaking for which the worker is
engaged is reasonably determinable.
2. Such duration, as well as the specific work/service to be performed, are defined in
an employment agreement and is made clear to the employee at the time of
hiring.
3. The work/service performed by the employee is in connection with the particular
project or undertaking for which he is engaged.
4. The employee, while not employed and awaiting engagement, is free to offer his
services to any other employer.
5. The termination of his employment in the particular project/undertaking is
reported to the Regional Office of the Department of Labor and Employment
having jurisdiction over the workplace, within thirty (30) days following the date of
his separation from work, using the prescribed form on employees terminations
or dismissals or suspensions.
6. An undertaking in the employment contract by the employer to pay completion
bonus to the project employee as practiced by most construction companies. 83
b. Some principles on project employment.
1. Project employees should be informed of their status as such at inception of the
employment relationship.84
2. There must be a written contract of project employment stating the duration of
the project employment as well as the particular work or service to be
performed.85
3. A written project employment contract is an indispensable requirement. 86
4. Failure to present contract of project employment means that employees are
regular.87
5. Regular employment is inconsistent with project employment. In other words, a
regular employee cannot be at the same time a project employee. 88
6. Intervals in employment contracts indicate project employment. 89
7. Continuous, as opposed to intermittent, rehiring shows that employee is regular. 90
8. Project-to-project basis of employment is valid.91
9. Length of service is not a controlling determinant of employment tenure. 92
10. Project employment should not be confused with fixed-term employment to
justify continuous rehiring of so-called project employees. 93
c. Work pool principle.
As a general rule, employers may or may not form a work pool. A work pool refers
to a group of workers from which an employer like a construction company draws the
workers it deploys or assigns to its various projects or any phase/s thereof. Members of
a work pool may consist of:

1. Non-project employees or employees for an indefinite period. If they are employed

in a particular project, the completion of the project or of any phase thereof will
not mean severance of employer-employee relationship.
2. Project employees. These workers in the work pool who are employed in a
particular project or in any phase thereof are considered as such if they are free
to leave anytime and offer their services to other employers. 94
Mere membership in a work pool does not result in the workers becoming regular
employees by reason of that fact alone. 95 However, under established jurisprudence, a
project employee who is a member of a work pool, may attain regular status as a project
employee. This kind of employee is known as regular project employee.
6. TERMINATION OF PROJECT EMPLOYMENT.
1. Project employees enjoy security of tenure only during the term of their project
employment.96
2. If the project or the phase thereof on which the project employee is working has
not yet been completed and his services are terminated without just or
authorized cause and there is no showing that his services are unsatisfactory,
such termination is considered illegal, hence, the project employee is entitled to
reinstatement to his former position or substantially equivalent position. If the
reinstatement is no longer possible, the employee is entitled to his salaries for the
unexpired portion of the agreement. 97
3. Project employees are not, by law, entitled to separation pay if their services are
terminated as a result of the completion of the project or any phase thereof in
which they are employed. The reason is that their services are deemed
coterminous with the project or phase thereof. 98
4. Project employees have presumably become regular employees if they are allowed
to work beyond the completion of the project or any phase thereof to which they
were assigned or after the day certain which they and their employer have
mutually agreed for its completion. Having become regular employees, they can
no longer be terminated on the basis of the completion of the project or any
phase thereof to which they were deployed. 99
5. Advance notice of termination of project employment is not required. 100
6. Report to DOLE on termination of project employees is required. 101 Report should
be made after every completion of project or phase thereof. 102
7. Payment of completion bonus is an indicator of project employment. 103
8. Burden of proof in termination of project employment rests on the employer. 104
d.
SEASONAL EMPLOYMENT105
1. CONCEPT.
A seasonal employee is one whose work or service to be performed is seasonal in
nature and the employment is for the duration of the season. 106
2. REGULAR SEASONAL EMPLOYMENT.
Seasonal employees may attain regularity in their employment as such. Once they
attained such regularity, they are properly to be calledregular seasonal employees.
Regular seasonal workers are called to work from time to time, mostly during
certain season. The nature of their relationship with the employer is such that during offseason, they are temporarily laid off but they are re-employed during the season or when

their services may be needed. They are not, strictly speaking, separated from the service but
are merely considered as on leave of absence without pay until they are re-employed. Their
employment relationship is never severed but only suspended. As such, they can be
considered as being in the regular employment of the employer. 107
3. REQUISITES FOR REGULARITY OF EMPLOYMENT OF SEASONAL EMPLOYEES.
The case of Hacienda Fatima v. National Federation of Sugarcane Workers Food and General Trade, 108 enunciates the requisites in order that a seasonal employee
may be deemed to have attained regularity of employment as such, thus:
1. The seasonal employee should perform work or services that are seasonal in
nature; and
2. They must have also been employed for more than one (1) season.
Both requisites should concur in order that the employee may be classified
as regular seasonal employee. If the seasonal worker is engaged only for the duration of
one (1) season, then, he does not attain regularity of employment as a seasonal worker.
e.
CASUAL EMPLOYMENT109
1. MEANING OF CASUAL EMPLOYMENT.
There is casual employment where an employee is engaged to perform a job, work
or service which is merely incidental to the business of the employer, and such job, work or
service is for a definite period made known to the employee at the time of engagement. 110
2. SOME PRINCIPLES ON CASUAL EMPLOYMENT.
Casual employee becomes regular after one year of service by operation of law. 111
No regular appointment papers necessary for casual employees to become regular. 112
The one (1) year period should be reckoned from the hiring date. 113
Repeated rehiring of a casual employee makes him a regular employee. 114
The wages and benefits of a casual employee whose status is converted into regular
employment should not be diminished.115
f.
FIXED-TERM EMPLOYMENT116
1. REQUISITES FOR VALIDITY OF FIXED-TERM CONTRACTS OF EMPLOYMENT.
The two (2) requisites or criteria for the validity of a fixed-term contract of
employment are as follows:
1. The fixed period of employment was knowingly and voluntarily agreed upon by
the parties, without any force, duress or improper pressure being brought to
bear upon the employee and absent any other circumstances vitiating his
consent; or
2. It satisfactorily appears that the employer and employee dealt with each other on
more or less equal terms with no moral dominance whatever being exercised by
the former on the latter.117
If the foregoing criteria are not present, the fixed-term contract of employment
should be struck down for being illegal. 118
2. SOME PRINCIPLES ON FIXED-TERM EMPLOYMENT.

 Fixed-term employment is valid even if duties are usually necessary or desirable in the
employers usual business or trade. 119
Notice of termination not necessary in fixed-term employment. 120
Employee is deemed regular if contract failed to state the specific fixed period of
employment.121
Charges for misconduct or other wrongful acts or omissions are relevant only in
termination prior to expiration of the term. They are not relevant if termination is due to
expiration of fixed period.122
Employees allowed to work beyond fixed term become regular employees. 123
Rendering work beyond one (1) year would result to regular employment. 124
Successive renewals of fixed-period contracts will result to regular employment. 125
Hiring of employees on a uniformly fixed 5-month basis and replacing them upon the
expiration of their contracts with other workers with the same employment status
circumvents their right to security of tenure. 126
Employment on a day-to-day basis for a temporary period will result to regular
employment.127
Termination prior to lapse of fixed-term contract should be for a just or authorized
cause.128
Liability for illegal dismissal of fixed-term employee is only for salary for unexpired
portion.129
3. FIXED-TERM EMPLOYMENT OF OFWs.
OFWs can never acquire regular employment.130
Employment contracts of OFWs for indefinite period are not valid. 131
OFWs do not become regular employees by reason of nature of work. 132
Series of rehiring of OFWs cannot ripen into regular employment. 133
CBA cannot override the terms and conditions prescribed by the POEA under the
Standard Employment Contract (SEC) for OFWs. 134
Probationary employment of OFWs is a misnomer. 135
The employment of OFWs for a fixed period is not discriminatory. 136
The contracts of OFWs cease upon expiration thereof. 137
Hiring of seafarer for overseas employment but assigning him to local vessel does not
affect his status as an OFW. 138
Seafarer hired for overseas deployment but later assigned to domestic operations after
the expiration of his overseas contract ceases to be an OFW. 139
3.
JOB CONTRACTING
1. CONTRACTING OUT OF SERVICES IS A PROPRIETARY RIGHT OF EMPLOYER
EXPRESSLY ALLOWED BY LAW.
Contracting out of services is not illegal per se. It is an exercise of business judgment
or management prerogative. Absent proof that the management acted in a malicious or
arbitrary manner, the Court will not interfere with the exercise of judgment by an
employer.140
2. OUTSOURCING, A UNIVERSALLY ACCEPTED MANAGEMENT PREROGATIVE.

It is within the right of an employer to enter into an outsourcing arrangement as an

exercise of its management prerogative in order to achieve greater economy and efficiency
in its operations a universally accepted business objective and standard that can never be
questioned. This universal recognition of outsourcing as a legitimate activity has been
pronounced in a number of cases. 141 A company can determine in its best judgment
whether it should contract out a part of its work for as long as the employer is motivated by
good faith; the contracting is not for purposes of circumventing the law; and does not
involve or be the result of malicious or arbitrary action. 142
3. OUTSOURCING MAY BE DONE REGARDLESS OF WHETHER THE ACTIVITY IS
PERIPHERAL OR CORE IN NATURE IN RELATION TO THE EMPLOYERS BUSINESS.
Reiterating its earlier pronouncement in Aliviado v. Procter & Gamble Phils. ,
Inc. , the High Court, in the 2012 case of Digital Telecommunications Philippines, Inc.
v. Digitel Employees Union (DEU) , 144 stated that indeed, it is management prerogative to
farm out any of its activities, regardless of whether such activity is peripheral or core in
nature. However, in order for such outsourcing to be valid, it must be made to a legitimate
independent contractor because the current labor rules expressly prohibit labor-only
contracting.
143

4. JUDICIAL RECOGNITION OF VALIDITY OF OUTSOURCING.

The validity of outsourcing has been judicially recognized by the Supreme Court. It
has already taken judicial notice of the general practice adopted in several government and
private institutions and industries, of hiring independent contractors to perform special
services. These services range from janitorial, security and even technical or other specific
services. While these services may be considered directly related to the principal business of
the employer, they are not necessary in the conduct of the principal business of the
employer.145
a.
ARTICLES 106 TO 109 OF THE LABOR CODE
1. LABOR CODE PROVISIONS ON JOB-CONTRACTING OR
CONTRACTUALIZATION.
There are only four (4) provisions in the Labor Code which directly
enunciate the rules on contractualization, to wit:
1. Article 106 Contractor or Subcontractor;146
2. Article 107 Indirect Employer;147
3. Article 108 Posting of Bond;148 and
4. Article 109 Solidary Liability.149
These provisions will be discussed below, together with the provisions of
other issuances.
b.
DEPARTMENT ORDER NO. 18-A
1. THE PREVAILING IMPLEMENTING RULES.
Department Order No. 18-A, Series of 2011, [November 14, 2011] entitled Rules
Implementing Articles 106 to 109 of the Labor Code, as Amended, was issued by the DOLE

Secretary to enunciate regulations governing contracting and subcontracting arrangements.

This issuance superseded Department Order No. 18-02, Series of 2002 [February 21,
2002], Department Order No. 3, Series of 2001 [May 08, 2001]and earlier Department Orders
on the same subject matter.
2. POWER OF DOLE SECRETARY TO RESTRICT OR PROHIBIT CONTRACTING-OUT OF
LABOR.
The first two (2) paragraphs of Article 106 set the general rule that a principal is
permitted by law to engage the services of a contractor for the performance of a particular
job, but the principal, nevertheless, becomes solidarily liable with the contractor for the
wages of the contractors employees. The third (3 ) paragraph of Article 106, however,
empowers the Secretary of Labor to make distinctions between permissible job contracting
and labor-only contracting which is a prohibited act further defined under the last
paragraph thereof.150
rd

Thus, the DOLE Secretary may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under the Labor Code.
In so prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of contracting
and determine who among the parties involved shall be considered the employer for
purposes of the Code, to prevent any violation or circumvention of any provision thereof. 151
3. SPECIFIC ENUMERATION OF COVERED CONTRACTORS.
Department Order No. 18-A, Series of 2011 applies to:
1. All parties of contracting and subcontracting arrangements where employeremployee relationships exist; and
2. Cooperatives engaging in contracting or subcontracting arrangements. 152
The provisions of this Department Order will be discussed jointly with those of
Articles 106 to 109 of the Labor Code and those of other issuances and pieces of
jurisprudence below.
c.
DEPARTMENT CIRCULAR NO. 01-12
1. DEPARTMENT CIRCULAR NO. 01, SERIES OF 2012, CLARIFYING DEPARTMENT
ORDER NO. 18-A.
Department Circular No. 01, Series of 2012, [March 13, 2012], was issued Clarifying
the Applicability of Department Order No. 18-A, Series of 2011 to Business Processing
Outsourcing (BPO) /Knowledge Process Outsourcing (KPO) and the Construction Industry.
The purpose of this Circular is to respond to queries on whether firms or companies
in the Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO) and in
the Construction Industry are covered by Department Order No. 18-A, Series of 2011.
1. On the applicability of D.O. 18-A to BPO, this Circular clarifies as follows:
D.O. 18-A, Series of 2011, clearly speaks of a trilateral relationship that
characterizes the covered contracting/subcontracting arrangement. Thus, vendor-vendee
relationship for entire business processes covered by the applicable provisions of the Civil
Code on Contracts is excluded.153
D.O. 18-A, Series of 2011, contemplates generic or focused singular activity in one
contract between the principal and the contractor (for example, janitorial, security,
merchandising, specific production work) and does not contemplate information
technology-enabled services involving an entire business processes (for example, business

process outsourcing, knowledge process outsourcing, legal process outsourcing, hardware

and/or software support, medical transcription, animation services, back office
operations/support) . These companies engaged in business processes ("BPOs") may hire
employees in accordance with applicable laws, and maintain these employees based on
business requirements, which may or may not be for different clients of the BPOs at
different periods of the employees' employment. 154
2. On the applicability of D.O. 18-A to the Construction Industry and
Coordination with PCAB-CIAP, this Circular clarifies as follows:
The licensing and the exercise of regulatory powers over the construction industry
are lodged with the Philippine Contractors Accreditation Board (PCAB) , which is under the
Construction Industry Authority of the Philippines (ClAP) , pursuant to the provisions of P.D.
No. 1746, Series of 1980, and not with the Department of Labor and Employment or any of
its regional offices. PCAB registers all contractors, whether general or subcontractors, in the
Construction Industry and regulates the same including ensuring compliance with DOLE
Department Order No. 13, Series of 1998 (Guidelines Governing the Occupational Safety
and Health in the Construction Industry) ; and DOLE-DPWH-DILG-DTI and PCAB
Memorandum of Agreement-Joint Administrative Order No. 1, Series of 2011 (on
coordination and harmonization of policies and programs on occupational safety and health
in the construction industry) .
Thus, the DOLE, through its regional offices, shall not require contractors licensed
by PCAB in the Construction Industry to register under D.O. 18-A, Series of 2011. Moreover,
findings of violation/s on labor standards and occupational health and safety standards shall
be coordinated with PCAB for its appropriate action, including the possible
cancellation/suspension of the contractors license. 155
d.
TRILATERAL RELATIONSHIP IN JOB CONTRACTING 156
1. CONTRACTING OR SUBCONTRACTING.
"Contracting" or "subcontracting" refers
to
an
arrangement
whereby
a principal agrees to put out or farm out with a contractor the performance or completion of
a specific job, work or service within a definite or predetermined period, regardless of
whether such job, work or service is to be performed or completed within or outside the
premises of the principal.157
2. TRILATERAL RELATIONSHIP, MEANING.
"Trilateral relationship" refers to the relationship in a contracting or subcontracting
arrangement where there is a contract for a specific job, work or service between
the principal and the contractor, and a contract of employment between the contractor and
its workers.
There are three (3) parties involved in these arrangements:
1. The principal who decides to farm out a job, work or service to a contractor;
2. The contractor who has the capacity to independently undertake the
performance of the job, work or service; and
3. The contractual workers engaged by the contractor to accomplish the job, work
or service.158
a. Principal.

"Principal" refers to any employer, whether a person or entity, including government

agencies and government-owned and controlled-corporations, who/which puts out or farms
out a job, service or work to a contractor. 159
Under Article 107 of the Labor Code, a principal is also referred to as an indirect
employer. As defined therein, an indirect employer refers to any person, partnership,
association or corporation who/which contracts with an independent contractor for the
performance of any work, job, task, project or service. The principal thereforeis not the direct
employer of the workers employed by the contractor and assigned to the principal.
Within the context of a valid contracting arrangement, a principal or indirect
employer is also known as a statutory employer or, simply anemployer. 160
b. Contractor.
"Contractor" refers to any person or entity, including a cooperative, engaged in a
legitimate contracting or subcontracting arrangement providing either services, skilled
workers, temporary workers, or a combination of services to a principal under a Service
Agreement. 161
In its strict technical sense, a contractor is different from a subcontractor in that
the former is the one who/which directly enters into a contract with the principal with
respect to the performance of a certain work, job, task, project or service; while the latter
merely subcontracts the said work, job, task, project or service from the contractor. This
technical distinction is evident from the language of Article 106 where mention of
thesubcontractor was made not in relation to the employer (or principal) but in relation to
the contractor.
However, this technical distinction between a contractor and a subcontractor is not
given any major signification as both terms may be interchangeably used since in almost all
cases, they refer to one and the same person or entity.
Thus, the contractor or subcontractor may appropriately refer to the person
himself or entity itself, called an independent contractor, who/which exercises independent
employment and who/which contracts to do a piece of work according to his/its own
methods and without being subject of control by the principal (or indirect/statutory
employer) , except as to the results thereof. 162
The contractor or subcontractor is the direct employer of the contractual workers
or employees who are supplied to the principal and made to perform the principals (or
indirect/statutory employers) work, job, task or project.
c. Contractual worker or contractors employee.
Contractual worker or "Contractor's employee" may refer to either:
1. One employed by a contractor to perform or complete a job, work, or service
pursuant to a Service Agreement with a principal; or
2. A regular employee of the contractor whose functions are not dependent on the
performance or completion of a specific job, work or service within a definite
period of time, i.e. , administrative staff.163
3. TWO (2) KINDS OF CONTRACTS IN A TRILATERAL RELATIONSHIP.
In the trilateral relationship, there are two (2) kinds of contracts that should be
executed, to wit:
(a) Employment Contract between the contractor and its employee; and

(b) Service Agreement between the principal and the contractor164 containing the
terms and conditions governing the performance or completion of a specific job,
work or service being farmed out for a definite or predetermined period. 165
Governing la w.
The Employment Contract is governed by the Labor Code; while the Service
Agreement is governed by the Civil Code.166
4. EMPLOYMENT CONTRACT.
a. Employer-employee relationship between contractor and its employees.
In legitimate contracting or subcontracting arrangement, there exists an employeremployee relationship between the contractor and the employees it engaged to perform the
specific job, work or service being contracted with the principal. 167
Thus, it is essential that a contract of employment be executed between the
contractor and the contractual employees. This is the first contract required to be executed
in a legitimate contracting arrangement.
b. Contents of the employment contract.
Notwithstanding any oral or written stipulations to the contrary, the employment
contract between the contractor and its employee shall be governed by the provisions of
Articles 279 and 280 of the Labor Code, as amended. It shall include the following terms and
conditions:
1. The specific description of the job, work or service to be performed by the
employee;
2. The place of work and terms and conditions of employment, including a statement
of the wage rate applicable to the individual employee; and
3. The term or duration of employment that must be co-extensive with the Service
Agreement or with the specific phase of work for which the employee is
engaged.168
c. Duty of contractor to inform its employees about the terms of the
employment contract.
The contractor shall inform the employee of the foregoing terms and conditions of
employment in writing on or before the first day of his/her employment. 169
5. SERVICE AGREEMENT.
a. The agreement is between principal and contractor.
A second contract called Service Agreement is required to be executed between
the principal and the contractor whose terms and conditions shall govern the contracting
arrangement between them.
b. Contents of the Service Agreement.
The Service Agreement should embody the following:
1. The specific description of the job, work or service being subcontracted;
2. The place of work and terms and conditions governing the contracting
arrangement, to include the agreed amount of the services to be rendered and
the standard administrative fee of not less than ten percent (10%) of the total
contract cost;

3. Provisions ensuring compliance with all the rights and benefits of the employees
under the Labor Code and the Implementing Rules (D.O. 18-A, Series of 2011) on:
provision for safe and healthful working conditions; labor standards such as,
service incentive leave, rest days, overtime pay, 13 month pay and separation
pay; retirement benefits; contributions and remittance of SSS, Philhealth, Pag-IBIG
Fund, and other welfare benefits; the right to self-organization, collective
bargaining and peaceful concerted action; and the right to security of tenure;
th

4. A provision on the Net Financial Contracting Capacity of the contractor, which

must be equal to the total contract cost;
5. A provision on the issuance of the bond/s renewable every year;
6. The contractor or subcontractor shall directly remit monthly the employers' share
and employees' contribution to the SSS, ECC, Philhealth and Pag-IBIG; and
7. The term or duration of engagement. 170
c. Net Financial Contracting Capacity (NFCC) , meaning.
The term "Net Financial Contracting Capacity (NFCC) " mentioned in the Service
Agreement above refers to the formula to determine the financial capacity of the contractor
to carry out the job, work or services sought to be undertaken under a Service Agreement.
NFCC is current assets minus current liabilities multiplied by K, which stands for contract
duration equivalent to: 10 for one year or less; 15 for more than one (1) year up to two (2)
years; and 20 for more than two (2) years, minus the value of all outstanding or ongoing
projects including contracts to be started. 171
NFCC is the formula set out in the Implementing Rules and Regulations of R.A. No.
9184, [approved January 10, 2003] or An Act Providing for the Modernization,
Standardization and Regulation of the Procurement Activities of the Government and For
Other Purposes.
d. Effect of violation of any of the contracts aforementioned.
A finding by competent authority of violation of any of the contracts mentioned
above (Employment Contract and Service Agreement) shall render the principal the direct
employer of the employees of the contractor or subcontractor, pursuant to Article 109 of
the Labor Code, as amended.172
e. Duty to produce copy of contract between the principal and the
contractor.
The principal or the contractor shall be under the obligation to produce a copy of
the Service Agreement in the ordinary course of inspection by the DOLE.
The contractor shall likewise be under the obligation to produce a copy of any Contract of
Employment when directed to do so by the DOLE Regional Director or his/her authorized
representative.173
e.
EFFECTS OF LABOR-ONLY CONTRACTING 174
1. LEGITIMATE JOB CONTRACTING ARRANGEMENT.
It bears noting that the Labor Code does not define what constitutes a legitimate
job contracting arrangement. However, under Department Order No. 18-A175 and
jurisprudence, job contracting shall be legitimate if all of the following circumstances
concur:
(1)

The contractor must be duly registered with the DOLE.

(2)

The contractor carries a distinct and independent business and undertakes

to perform the job, work or service on its own responsibility, according to
its own manner and method, and free from control and direction of the
principal in all matters
connected
with
the performance
of
the
work except as to the results thereof;

(3)

The contractor has substantial capital and/or investment in the form of

tools, equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business; 176 and

(4)

The Service Agreement between principal and contractor should ensure

compliance with all the rights and benefits of workers under Labor
Laws177 such as labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social and
welfare benefits.178

Absence of any of the foregoing requisites makes it a labor-only contracting

arrangement.179
2. IMPORTANT POINTS ON THE ABOVE REQUISITES.
(a) On No. 1 Requisite above. - Registration of contractor with the DOLE is now
mandatorily required. Failure to register shall give rise to thepresumption that the contractor
is engaged in labor-only contracting.180
(b) On No. 2 Requisite above. - This is the Right of Control test which basically
addresses the issue of whether the contractors manner and methods of performing his job
contracting is completely free from the control and direction of the principal except as to
the results thereof. If the issue is answered in the affirmative, then this requisite of
legitimate job contracting arrangement is fully satisfied.
Illustrative cases:
In the 2012 case of Digital Telecommunications Philippines, Inc. v. Digitel
Employees Union (DEU) , 181 besides the lack of substantial capitalization that
indicates labor-only contracting, it was further held that Digitel Service, Inc.
(Digiserv) , a non-profit enterprise engaged in call center servicing, was a labor-only
contractor of petitioner Digitel because it does not exercise control over the
affected employees. The NLRC highlighted the fact that Digiserv shared the same
Human Resources, Accounting, Audit and Legal Departments with Digitel which
manifested that it was Digitel who exercised control over the performance of the
affected employees. The NLRC also relied on the letters of commendation, plaques
of appreciation and certification issued by Digitel to the Customer Service
Representatives as evidence of control.
The same ruling of lack of control by the contractor was cited as additional
justification for declaring the contractor as a labor-only contractor in the 2012
case of Norkis Trading Corporation v. Buenavista. 182 Thus, together with the
DOLE Regional Directors finding thatPanaghiusa sa Kauswagan Multi-Purpose
Cooperative (PASAKA) , a duly-registered cooperative, evidently lacked substantial
capital or investment required of legitimate job contractors, the cooperative failed
to dispute the respondents allegation that officers of Norkis Trading supervised
the work and paid the salaries of its employees.
(c) On No. 3 Requisite above. - This is the Substantial Capital or Investment test
which seeks to address the issue of whether the contractor has substantial capital or
investment in the form of tools, equipment, machineries, work premises, and other materials

which are necessary in the conduct of its business. 183 If the answer is in the affirmative, the
second requisite in legitimate job contracting/subcontracting arrangement is fully complied
with.
Significant points:
The amount of substantial capital is now fixed under the
Rules. Under Department Order No. 18-A, the term "substantial capital"shall now
mean:
1. In the case of corporations, partnerships or cooperatives paid-up capital
stocks/shares of at least Three Million Pesos (P3,000,000.00) ; or
2. In the case of single proprietorship - a net worth of at least Three Million
Pesos (P3,000,000.00) . 184
Unlike in the past implementing rules, Department Order No. 18-A now sets in
very clear terms, the amount which constitutes substantial capital.
Moreover, cooperatives are now mentioned prominently in the enumeration
of the entities which may engage in contracting/subcontracting arrangement.
By clearly specifying the amount that constitutes substantial capital, cases in
the past where this issue was raised should now be qualified by this new
issuance. Cases subsequent to the effectivity of Department Order No. 18-A on
November 14, 2011 should take this specific amounts into account.
Substantial capital and investment in tools, etc. are two separate
requirements.
Substantial capital and investment in tools, equipment, implements, machineries and
work premises should be treated as two (2) distinct and separate requirements in
determining whether there is legitimate job contracting arrangement. 185
(d) On No. 4 Requisite above. - This is the Legal Rights and Benefits Compliance test
which addresses the issue of whether the Service Agreement between the principal and
contractor is compliant with the rights and benefits of workers under labor laws. 186 If
answered in theaffirmative, the contracting arrangement is deemed legitimate.
Rights of contractors employees. - Per Department Order No. 18-A, all
contractor's employees, whether deployed or assigned as reliever, seasonal, weekender, temporary, or promo jobbers, shall be entitled to all the rights and
privileges as provided for in the Labor Code, as amended, to include the following:
(a) Safe and healthful working conditions;
(b) Labor standards such as but not limited to service incentive leave, rest days,
overtime pay, holiday pay, 13 month pay, and separation pay as may be
provided in the Service Agreement or under the Labor Code;
(c) Retirement benefits under the SSS or retirement plans of the contractor, if
there is any;
(d) Social security and welfare benefits;
(e) Self-organization, collective bargaining and peaceful concerted activities; and
(f) Security of tenure.187
th

Effect of violation of the rights of contractors employees. - A finding by

competent authority of violation of the said rights of contractors employees shall
render the principal the direct employer of the employees of the contractor or
subcontractor, pursuant to Article 109 of the Labor Code, as amended. 188
3. LABOR-ONLY CONTRACTING.

a. Absolute prohibition.
Code

189

Labor-only contracting is expressly prohibited under Article 106 of the Labor

and its implementing rules.190
b. Labor-only contracting per Department Order No. 18-A, Series of 2011.

Per law,191 this Department Order192 and pertinent jurisprudence,193 labor-only

contracting refers to an arrangement where:
(a) The contractor does not have substantial capital or investments in the form of
tools, equipment, machineries, work premises, among others, and the
employees recruited and placed are performing activities which are usually
necessary or desirable to the operation of the company, or directly related
to the main business of the principal within a definite or predetermined
period,regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal; OR
(b) The contractor does not exercise the right of control over the performance of
the work of the employee.
c. Some important points on the foregoing requisites:
1) Even if only one of the two (2) elements above is present, there is labor-only
contracting.194
2) The Direct Relation to Principals Business test enunciated above seeks to
address the issue of whether the employees recruited, supplied or placed by a
contractor to the principal are performing activities which are directly related
to the main business of the principal. If this poser is answered in
the affirmative, the contractor is deemed a labor-only contractor and the
employees become direct employees of the principal.
Illustrative cases:
In

the

2012

case

of Norkis

Trading

Corporation

v.

Buenavista,195 it was established that Panaghiusa sa Kauswagan

Multi-Purpose Cooperative(PASAKA) , a duly-registered cooperative,
was a labor-only contractor because, besides its lack of substantial
capital or investment in tools and its failure to carry on an
independent

contracting

business,

the

respondent-workers

it

supplied to petitioner-employer, were performing activities directly

related to the principal business of the petitioner.
In the 2009 case of Coca-Cola Bottlers Phils. , Inc. v.
Agito,196 the contractor was declared a labor-only contractor
because the respondent-workers supplied by it to petitioner
company worked therein as salesmen. In the Delivery Agreement
between petitioner and the contractor, it is stated that petitioner is
engaged in the manufacture, distribution and sale of softdrinks and
other related products.

The work of respondents, constituting

distribution and sale of Coca-Cola products, is clearly indispensable

to the principal business of petitioner.

3) The validity of job contracting arrangement does not depend on whether the
job, work, or service is done within or outside the company premises of the
principal.197
But in the 2010 case ofBabas v. Lorenzo Shipping Corp. , 198 the High Court
cited as additional basis for holding that the contractor, Best Manpower
Services, Inc. (BMSI) , was a labor-only contractor, the fact that petitioners
worked at respondent LSCs premises, and nowhere else. Other than the
provisions of the Agreement between respondent LSC and BMSI, there was no
showing that it was BMSI which established petitioners working procedure
and methods, which supervised petitioners in their work, or which evaluated
the same. There was absolute lack of evidence that BMSI exercised control
over them or their work, except for the fact that petitioners were hired by
BMSI.
4. EFFECTS OF LABOR-ONLY CONTRACTING. 199
In summary, the following are the effects of a labor-only contracting arrangement:
1. The labor-only contractor will be treated as the agent or intermediary of the
principal. Since the act of an agent is the act of the principal, representations
made by the labor-only contractor to the employees will bind the principal.
2. The principal will become the employer as if it directly employed the workers
supplied by the labor-only contractor to undertake the subcontracted job or
service. It will be responsible to them for all their entitlements and benefits under
labor laws.
3. The principal and the labor-only contractor will be solidarily treated as the direct
employer.
4. The employees will become employees of the principal, subject to the
classifications of employees under Article 280 of the Labor Code. 200
5. LEGITIMATE JOB CONTRACTING VS. LABOR-ONLY CONTRACTING.
The chief distinctions between legitimate job contracting, on the one hand, and the
prohibited labor-only contracting, on the other, may be summed up as follows:
1. In the former, no employer-employee relationship exists between the contractual
employees of the job contractor and the principal; while in the latter, an
employer-employee relationship is created by law between the principal and the
contractual employees supplied by the labor-only contractor. 201
2. In the former, the principal is considered only an indirect employer, as this term is
understood under Article 107 of the Labor Code; while in the latter, the principal
is considered the direct employer of the contractual employees in accordance
with the last paragraph of Article 106 of the Labor Code. 202
3. In the former, the joint and several obligation of the principal and the legitimate
job contractor is only for a limited purpose, that is, to ensure that the employees
are paid their wages. Other than this obligation of paying the wages, the principal
is not responsible for any claim made by the contractual employees; while in
the latter, the principal becomes jointly and severally or solidarily liable with the
labor-only contractor to the latters employees in the same manner and extent
that the principal is liable to employees directly hired by him/her, as provided in
Article 106 of the Labor Code, as amended. 203

4. In the former, the legitimate job contractor undertakes to perform a specific job
for the principal; while in the latter, the labor-only contractor merely provides,
supplies, recruits and places the personnel to work for the principal. 204
6. PROHIBITIONS OTHER THAN LABOR-ONLY CONTRACTING.
a. Two (2) sets of other prohibitions.
Notwithstanding the prohibition on labor-only contracting, the following are declared
prohibited for being contrary to law or public policy under Department Order No. 18-A, Series
of 2011:
A. Contracting out of jobs, works or services when not done in good faith and
not justified by the exigencies of the business such as the following:
(1) Contracting out of jobs, works or services when the same results in the
termination or reduction of regular employees and reduction of work hours
or reduction or splitting of the bargaining unit.
(2) Contracting out of work with a "Cabo."
(3) Taking undue advantage of the economic situation or lack of bargaining
strength of the contractor's employees, or undermining their security of
tenure or basic rights, or circumventing the provisions of regular
employment, in any of the following instances:
(i) Requiring them to perform functions which are currently being performed
by the regular employees of the principal; and
(ii) Requiring them to sign, as a precondition to employment or continued
employment, an antedated resignation letter; a blank payroll; a waiver of
labor standards including minimum wages and social or welfare benefits;
or a quitclaim releasing the principal, contractor or from any liability as to
payment of future claims.
(4) Contracting out of a job, work or service through an in-house agency.
(5) Contracting out of a job, work or service that is necessary or desirable or
directly related to the business or operation of the principal by reason of a
strike or lockout whether actual or imminent.
(6) Contracting out of a job, work or service being performed by union members
when such will interfere with, restrain or coerce employees in the exercise of
their rights to self-organization as provided in Art. 248 (c) of the Labor Code,
as amended.
(7) Repeated hiring of employees under an employment contract of short
duration or under a Service Agreement of short duration with the same or
different contractors, which circumvents the Labor Code provisions on
Security of Tenure.
(8) Requiring employees under a subcontracting arrangement to sign a contract
fixing the period of employment to a term shorter than the term of the
Service Agreement, unless the contract is divisible into phases for which
substantially different skills are required and this is made known to the
employee at the time of engagement.
(9) Refusal to provide a copy of the Service Agreement and the employment
contracts between the contractor and the employees deployed to work in the
bargaining unit of the principal's certified bargaining agent to the sole and
exclusive bargaining agent (SEBA) .

(10) Engaging or maintaining by the principal of subcontracted employees in

excess of those provided for in the applicable Collective Bargaining
Agreement (CBA) or as set by the Industry Tripartite Council (ITC) .
B. Contracting out of jobs, works or services analogous to the above when
not done in good faith and not justified by the exigencies of the
business. 205
b. Cabo, meaning.
"Cabo" refers to a person or group of persons or to a labor group which, in the
guise of a labor organization, cooperative or any entity, supplies workers to an employer,
with or without any monetary or other consideration, whether in the capacity of an agent of
the employer or as an ostensible independent contractor. 206
c. In-house agency, meaning.
"In-house agency" refers to a contractor which is owned, managed, or controlled
directly or indirectly by the principal or one where the principal owns/represents any share
of stock, and which operates solely or mainly for the principal. 207
d. Effect of commission of prohibited activities.
A finding by competent authority of commission of any of the above
enumerated prohibited activities shall render the principal the direct employer of the
employees of the contractor or subcontractor, pursuant to Article 109 of the Labor Code,
as amended.208

------------oOo------------

ChapterFour
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
B. Dismissal from employment
1. Just Causes
2. Authorized Causes
3. Due Process
a) Twin-notice requirement
b) Hearing; meaning of opportunity to be heard
B.
DISMISSAL FROM EMPLOYMENT
1. TWO-FOLD DUE PROCESS REQUIREMENT. 1
Dismissal of employees requires the observance of the two-fold due process
requisites, namely:
1. Substantive aspect which means that the dismissal must be for any of the (1) just
causes provided under Article 282 of the Labor Code or the company rules and
regulations promulgated by the employer; or (2) authorized causes under
Articles 283 and 284 thereof; and

2. Procedural aspect which means that the employee must be accorded due
process, the elements of which are notice and the opportunity to be heard and to
defend himself.2
2. JUST CAUSES VS. AUTHORIZED CAUSES.
A dismissal based on a just cause means that the employee has committed a
wrongful act or omission; while a dismissal based on anauthorized cause means that there
exists a ground which the law itself allows or authorizes to be invoked to justify the
termination of an employee even if he has not committed any wrongful act or omission such
as installation of labor-saving devices, redundancy, retrenchment, closure or cessation of
business operations3 or disease.4
1.
JUST CAUSES
1. JUST CAUSES UNDER THE LABOR CODE.
The just causes in the Labor Code are found in the following provisions
thereof:
(1) Article 282 - (Termination by the Employer) which provides for the
following grounds:
(a) Serious misconduct or willful disobedience by the employee of the lawful
orders of his employer or representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representatives; and
(e) Other causes analogous to the foregoing.
(2) Article 264(a) - (Prohibited Activities) which provides for the
termination of the following:
(a) Union officers who knowingly participate in an illegal strike and therefore
deemed to have lost their employment status.
(b) Any employee, union officer or ordinary member who knowingly participates
in the commission of illegal acts during a strike (irrespective of whether the
strike is legal or illegal) , is also deemed to have lost his employment status.
(3) Article 263(g) - (National Interest Cases) where strikers who violate orders,
prohibitions and/or injunctions as are issued by the DOLE Secretary or the NLRC,
may be imposed immediate disciplinary action, including dismissal or loss of
employment status.5
(4) Article 248(e) - (Union Security Clause) where violation of the union security
agreement in the CBA may result in termination of employment. Under this
clause, the bargaining union can demand from the employer the dismissal of an
employee who commits a breach of union security arrangement, such as failure
to join the union or to maintain his membership in good standing therein. The

same union can also demand the dismissal of a member who commits an act of
disloyalty against it, such as when the member organizes a rival union. 6
2. JUST CAUSES IN ACCORDANCE WITH PREVAILING JURISPRUDENCE.
In addition to the just causes mentioned in the Labor Code, just causes are also
found in prevailing jurisprudence. 7 The following may be cited as just causes in accordance
with prevailing jurisprudence:
1. Violation of company rules and regulations. 8
2. Theft of property owned by a co-employee 9 as distinguished from companyowned property which is considered serious misconduct.
3. Incompetence, inefficiency or ineptitude. 10
4. Failure to attain work quota.11
5. Failure to comply with weight standards of employer. 12
6. Attitude problem.13
3. DISMISSAL BASED ON COMPANY RULES AND REGULATIONS NOT ILLEGAL.
If the ground cited is based on the Company Rules and Regulations or Code
of Conduct or Code of Discipline, it is to be expected that the same is not to be
found in Article 282 of the Labor Code since the latter merely enumerates the just
causes or grounds in general terms.
In the 2013 case of Sampaguita Auto Transport Corporation v. NLRC, 14 the
Supreme Court pronounced that the Court of Appeals erred in ruling that the dismissal of
private respondent, a bus driver of petitioner, was illegal because the grounds upon which
petitioners based respondents termination from employment, viz: hindi lahat ng schedule
nailalabas,[]mababa ang revenue ng bus, laging kasama an[g] asawa sa byahe and maraming
naririnig na kwento tungkol sa kanya, nag-uutos ng conductor para kumita sa hindi magandang
paraan[,] xxx are not among thoseenumerated under Article 282 of the Labor Code as just
causes for termination of employment. The irregularities or infractions committed by
private respondent in connection with his work as a bus driver constitute serious
misconduct or, at the very least, conduct analogous to serious misconduct, under the abovecited Article 282 of the Labor Code. The requirement in the company rules that: 3. to obey
traffic rules and regulations as well as the company policies. 4. to ensure the safety
of the riding public as well as the other vehicles and motorist (sic) is so fundamental
and so universal that any bus driver is expected to satisfy the requirement whether or not
he has been so informed.
4. DISCUSSION OF THE JUST CAUSES UNDER ARTICLE 282 OF THE LABOR CODE.
The grounds mentioned in Article 282 shall be discussed herein seriatim.
I.
SERIOUS MISCONDUCT 15
1. REQUISITES.
For misconduct or improper behavior to be a just cause for dismissal, the following
requisites must concur:
1. It must be serious; and
2. It must relate to the performance of the employees duties; and
3. It must show that he has become unfit to continue working for the employer.16

All the above three (3) requisites must concur. 17

2. SOME PRINCIPLES ON SERIOUS MISCONDUCT.
Serious misconduct implies that it must be of such grave and aggravated
character and not merely trivial or unimportant. 18
Simple or minor misconduct would not justify the termination of the services of an
employee.19
The charge for serious misconduct must not be a mere afterthought. 20
Series of irregularities, when put together, may constitute serious misconduct. 21
Acts destructive of the morale of co-employees constitute serious misconduct. 22
Committing libel against an immediate superior constitutes serious misconduct. 23
Possession or use of shabu or other drugs is a valid ground to terminate
employment.24
Immorality, as a general rule, is not a just ground to terminate employment. The
exception is when such immoral conduct is prejudicial or detrimental to the
interest of the employer.25
Immoral act committed beyond office hours is a valid ground to terminate
employment.26
Sexual intercourse inside company premises constitutes serious misconduct. 27
The act of a 30-year old lady teacher in falling in love with a 16-year old student is
not immoral.28
Fighting is a ground for termination but only the instigator or aggressor and not
the victim who was constrained to defend himself should be dismissed. 29
Filing of criminal case by an employee does not indicate his innocence. 30
Challenging superiors to a fight is a just cause for termination. 31
Assaulting another employee is a just cause for termination. 32
Utterance of obscene, insulting or offensive words constitutes serious
misconduct.33
Disrespectful conduct is not serious misconduct if provoked by superior or
employer.34
Gambling within company premises is a serious misconduct. 35
Rendering service to business rival is a just cause to terminate employment. 36
Selling products of a competitor is a just cause for termination. 37
Organizing a credit union by employees in a bank is a serious misconduct. 38
Deceiving a customer for personal gain is a just cause for termination. 39
Contracting work in competition with employer constitutes serious misconduct. 40
Employer need not suffer any damages resulting from a serious misconduct
committed by an employee against a customer. 41
Intoxication which interferes with the employees work constitutes serious
misconduct.42
The act of a teacher in pressuring a colleague to change the failing grade of a
student is serious misconduct.43
Sexual harassment is a just ground to dismiss. 44
Sleeping while on duty is a ground for termination. 45
Dismissal is too harsh a penalty for eating while at work. 46
Pilferage or theft of company-owned property is a just cause to terminate. 47
Theft of funds or property not owned by employer is not a ground to terminate. 48
Act of falsification is a valid ground to terminate employment. 49
Punching-in of time cards of other employees is a just cause for termination. 50
Circulating fake meal tickets is a just cause for termination. 51

II.
INSUBORDINATION
OR WILLFUL DISOBEDIENCE OF LAWFUL ORDERS 52
1. REQUISITES.
One of the fundamental duties of an employee is to obey all reasonable rules,
orders and instructions of the employer. In order to validly invoke this ground, the following
requisites must be complied with, to wit:
1. The employees assailed conduct must have been willful or intentional, the
willfulness being characterized by a wrongful and perverse attitude; and
2. The order violated must be based on a reasonable and lawful company rule,
regulation or policy and made known to the employee and must pertain to the
duties for which he has been engaged to discharge. 53
2. SOME PRINCIPLES ON INSUBORDINATION.
Filing of a case questioning the validity of rules and policies does not prevent employer
from enforcing them.54
Making false allegations in complaint does not constitute insubordination. 55
Failure to answer memo to explain constitutes willful disobedience. 56
Another notice is required in case of termination on the ground of failure to answer
memo to explain.57
Willfulness of conduct may be deduced from the manner the reply is written. 58
Refusal to undergo random drug testing constitutes both serious misconduct and
insubordination.59
Prolonged practice, not an excuse for commission of wrongful acts. 60
Refusal to render overtime to meet production deadline constitutes insubordination. 61
Refusal to comply with a lawful transfer constitutes insubordination. 62
III.
GROSS AND HABITUAL NEGLECT OF DUTIES 63
1. REQUISITES.
The following are the requisites:
(1) There must be negligence which is gross and/or habitual in character; and
(2) It must be work-related as would make him unfit to work for his employer.
2. SOME PRINCIPLES ON GROSS AND HABITUAL NEGLECT OF DUTIES.
Simple negligence is not sufficient to terminate employment. 64
The negligence must be gross in character which means absence of that diligence that
an ordinarily prudent man would use in his own affairs. 65
As a general rule, negligence must be both gross and habitual to be a valid ground to
dismiss.66
Habituality may be disregarded if negligence is gross or the damage or loss is
substantial.67 Habitual negligence implies repeated failure to perform ones duties for a
period of time, depending upon the circumstances. 68
Negligence is a question of fact.69
In the absence of any form of negligence, the dismissal is illegal. 70
Actual damage, loss or injury is not an essential requisite. 71

 Higher degree of diligence is required in the banking industry. 72

Gross negligence may result to loss of trust and confidence. 73
No negligence if the act alleged to be so is in accordance with standing company
practice.74
No negligence if the act is in accordance with management-sanctioned deviations from
the company policy.75
Absences, if authorized, cannot be cited as a ground to terminate employment. 76
Tardiness or absenteeism, if not habitual, cannot be cited as a ground to terminate
employment.77
Tardiness or absenteeism, if habitual, may be cited as a ground to terminate
employment.78
Tardiness or absenteeism, if habitual, may be tantamount to serious misconduct. 79
Absences or tardiness due to emergency, ailment or fortuitous event are justified and
may not be cited as just cause to terminate employment. 80
Mere allegation of absences or tardiness is not sufficient; the burden of proof is on the
employer.81
Unblemished record belies allegation of gross and habitual neglect. 82
Unsatisfactory or poor performance, inefficiency and incompetence are considered
just causes for dismissal only if they amount to gross and habitual neglect of duties. 83
IV.
ABANDONMENT OF WORK 84
1. CONCEPT.
Abandonment is a form of neglect of duty; hence, a just cause for termination of
employment under Article 282 [b] of the Labor Code. 85
2. REQUISITES.
To constitute abandonment, two (2) elements must concur, namely:
1. The employee must have failed to report for work or must have been absent
without valid or justifiable reason; and
2. There must have been a clear intention on the part of the employee to sever the
employer-employee relationship manifested by some overt act.86
3. SOME PRINCIPLES ON ABANDONMENT.
Mere absence is not enough to constitute abandonment. 87
Clear intention to sever employment relationship is necessary. 88
An employee who stopped working because of her mistaken belief that she has been
dismissed is not guilty of abandonment. 89
Abandonment is a factual issue.90
Employer has the burden of proof to prove abandonment. 91
There is no abandonment when it was the employer who prevented the workers from
reporting for work.92

 Due process in abandonment cases consists only of the service of 2 notices to the
employee, viz:
a. First notice directing the employee to explain why he should not be declared as
having abandoned his job; and
b. Second notice to inform him of the employers decision to dismiss him on the
ground of abandonment.93
No hearing is required to validly dismiss an employee for abandonment. 94
Notices in abandonment cases must be sent to employees last known address per
record of the company. The employer need not look for the employees current
whereabouts.95
Service of the notices of abandonment of work after the six-month period of floating
status is not valid.96
Immediate filing of a complaint for illegal dismissal praying for reinstatement negates
abandonment. 97
Lapse of time between dismissal and filing of a case is not a material indication of
abandonment. Hence, lapse of 2 years and 5 months 98 or 20 months99 or 9
months100 or 8 months101 before filing the complaint for illegal dismissal is not an
indication of abandonment. Under the law, the employee has a 4-year prescriptive
period within which to institute his action for illegal dismissal. 102
The fact that an employee filed a complaint for illegal dismissal is not by itself sufficient
indicator that he had no intention of deserting his employment if the totality of his
antecedent acts palpably display the contrary. 103
Filing of a case to pre-empt investigation of the administrative case is tantamount to
abandonment.104
When what is prayed for in the complaint is separation pay and not reinstatement, the
filing of complaint does not negate abandonment. 105
It is abandonment when what is prayed for in the complaint is separation pay and it
was only in the position paper that reinstatement was prayed for. 106
Employment in another firm coinciding with the filing of complaint does not indicate
abandonment.107
There is no abandonment when it was the employer who prevented the workers from
reporting for work. 108
Offer of reinstatement by employer during proceedings before Labor Arbiter and
refusal by employee does not indicate abandonment but more of a symptom of strained
relations between the parties.109
Subcontracting for another company indicates abandonment. 110
An employee may be absolved from the charge of abandonment of work but adjudged
guilty of AWOL.111 These two grounds are separate and distinct from each other.
An employee who failed to report for work after the expiration of the duly approved
leave of absence is considered to have abandoned his job. 112
An employee who failed to comply with the order for his reinstatement is deemed to
have abandoned his work.113

 An employee who, after being transferred to a new assignment, did not report for work
anymore is deemed to have abandoned his job. 114
An employee who deliberately absented from work without leave or permission from
his employer for the purpose of looking for a job elsewhere is deemed to have
abandoned his work.115
Imprisonment or detention by military does not constitute abandonment. 116
Absence to evade arrest is not a valid justification. To do so would be to place
an imprimatur on the employees attempt to derail the normal course of the
administration of justice.117
Requesting for a Certificate of Employment is not evidence of abandonment. 118
Employers insistence on commission of wrongful acts like estafa and/or qualified theft
by the employees negates the charge of abandonment.Rather, it strengthens the finding
of petitioners discrimination, insensibility and antagonism towards the employees which
gave no choice to the latter except to forego their employment. 119
V.
FRAUD 120
1. CORRELATION OF FRAUD AND LOSS OF TRUST AND CONFIDENCE.
Fraud is separate and distinct from the other ground provided in the same
paragraph, that is, loss of trust and confidence (willful breach by the employee of the trust
reposed in him by his employer or duly authorized representative) . 121
However, the commission of fraud by an employee against the employer
will necessarily result in the latters loss of trust and confidence in the former. On
the other hand, the ground of willful breach by the employee of the trust and
confidence reposed in him by the employer may not necessarily involve fraud but
some other acts that would similarly result in the loss of such trust and
confidence.
2. REQUISITES.
The following are the requisites of this ground:
1.

The

employee

has

committed

an intentional

deception and

used dishonest methods for personal gain or to damage the employer;

and
2. The fraud is work-related and rendered him unfit to work for his
employer.122
3. SOME PRINCIPLES ON FRAUD.
Failure to deposit collection constitutes fraud. 123
Lack of damage or losses is not necessary in fraud cases. The fact that the employer
did not suffer losses from the dishonesty of the dismissed employee because of its
timely discovery does not excuse the latter from any culpability. 124
Lack of misappropriation or shortage is immaterial in case of unauthorized
encashment of personal checks by teller and cashier. 125

 Restitution does not have absolutory effect. 126

VI.
WILLFUL BREACH OF TRUST AND CONFIDENCE 127
1. REQUISITES.
For the doctrine of loss of trust and confidence to apply, the following requisites
must be satisfied:
(1) The employee holds a position of trust and confidence;
(2) There exists an act justifying the loss of trust and confidence, 128 which means that
the act that betrays the employers trust must be real, i.e. , founded on clearly
established facts;129
(3) The employees breach of the trust must be willful, i.e. , it was done intentionally,
knowingly and purposely, without justifiable excuse; 130 and
(4) The act must be in relation to his work which would render him unfit to perform
it.
2. GUIDELINES.
As a safeguard against employers who indiscriminately use loss of trust
and confidence to justify arbitrary dismissal of employees, the Supreme Court, in
addition to the above elements, came up with the following guidelines for the
application of the doctrine:131
(1) The loss of confidence must not be simulated;
(2) It should not be used as a subterfuge for causes which are illegal,
improper or unjustified;
(3) It may not be arbitrarily asserted in the face of overwhelming evidence
to the contrary; and
(4) It must be genuine, not a mere afterthought, to justify earlier action
taken in bad faith.132
The foregoing guidelines have been prescribed by the Supreme Court due to the
subjective nature of this ground which makes termination based on loss of trust and
confidence prone to abuse.133
3. SOME PRINCIPLES ON THE DOCTRINE OF LOSS OF TRUST AND CONFIDENCE.
Employees position must be reposed with trust and confidence. 134
Position of trust and confidence is one where a person is entrusted with confidence
on delicate matters, or with the custody, handling, or care and protection of the
employers property.135
Two (2) classes of positions of trust. 136 The first class consists of managerial
employees or those who, by the nature of their position, are entrusted with confidential
and delicate matters and from whom greater fidelity to duty is correspondingly
expected. They refer to those vested with the powers or prerogatives to lay down and
execute management policies and/or to hire, transfer suspend, lay-off, recall, discharge,
assign or discipline employees or to effectively recommend such managerial
actions.137 Their primary duty consists of the management of the establishment in which
they are employed or of a department or a subdivision thereof. 138
The second class includes cashiers, auditors, property custodians, or those who, in the
normal and routine exercise of their functions, regularly handle significant amounts of
[the employers] money or property. 139 They are fiduciary rank-and-file employees who,

though rank-and-file, are routinely charged with the custody, handling or care and
protection of the employer's money or property, 140 or entrusted with confidence on
delicate matters,141 and are thus classified as occupying positions of trust and
confidence.142
Rules on termination of managerial and supervisory employees different from
those applicable to rank-and-file employees. As a general rule, the doctrine of trust
and confidence is restricted to managerial employees. 143 This means that the rules on
termination of employment applicable to managerial or fiduciary employees are
different from those involving ordinary employees not holding positions of trust and
confidence. In the latter case, mere accusations by the employer will not be
sufficient.144 Thus, with respect to rank-and-file personnel, loss of trust and confidence
as a ground for valid dismissal requires proof of involvement in the alleged events in
question and that mereuncorroborated assertions and accusations by the employer
will not be sufficient. But as regards a managerial employee, the mere existence of a
basis for believing that he has breached the trust of his employer would suffice for his
dismissal.145
There must be some basis for the loss of trust and confidence which means that
there is reasonable ground to believe, if not to entertain the moral conviction, that the
concerned employee is responsible for the misconduct and that the nature of his
participation therein rendered him absolutely unworthy of trust and confidence
demanded by his position.146
In termination for loss of trust and confidence, the fact that the employer did not suffer
losses is of no moment.147
Employer has burden of proof.148
Dismissal due to feng shui mismatch is not a valid ground to lose trust and
confidence.149
Command responsibility of managerial employees is a ground to dismiss. 150
Confidential employee may be dismissed for loss of trust and confidence. 151
Grant of promotions and bonuses negates loss of trust and confidence. 152
Long years of service, absence of derogatory record and small amount involved are
deemed inconsequential insofar as loss of trust and confidence is concerned. 153
Dropping of criminal charges or acquittal in a criminal case arising from the same act
does not affect the validity of dismissal based on loss of trust and confidence. 154
Full restitution does not absolve employee of offense which resulted in the loss of trust
and confidence.155
VII.
COMMISSION OF CRIME OR OFFENSE 156
1. REQUISITES.
The following are the requisites for the valid invocation of this ground:
1. A crime or offense was committed by the employee;
2. It was committed against any of the following persons:

(a) His employer;

(b) Any immediate member of his employers family; or
(c) His employers duly authorized representative.
2. SOME PRINCIPLES ON THE COMMISSION OF CRIME OR OFFENSE.
Because of its gravity, work-relation is not necessary. Neither is it necessary to show
that the commission of the criminal act would render the employee unfit to perform his
work for the employer.
The phrase immediate members of the family refers to those persons having family
relations under Article 150 of the Family Code, to wit:
(1) Between husband and wife;
(2) Between parents and children;
(3) Among other ascendants and descendants; and
(4) Among brothers and sisters, whether of the full or half-blood. 157
VIII.
OTHER ANALOGOUS CAUSES 158
1. ANALOGOUS CAUSES UNDER ESTABLISHED JURISPRUDENCE.
The following may be cited as analogous causes:
1) Violation of company rules and regulations. 159
2) Theft of property owned by a co-employee, as distinguished from theft of
property owned by the employer.160
3) Incompetence, inefficiency or ineptitude. 161
4) Failure to attain work quota.162
5) Failure to comply with weight standards of employer. 163
6) Attitude problem is analogous to loss of trust and confidence. 164
IX.
TERMINATION DUE TO ENFORCEMENT OF
UNION SECURITY CLAUSE 165
1. NATURE OF STIPULATION.
The union security clause is a stipulation in a CBA166 which allows the parties thereto
to enter into an agreement requiring membership in the exclusive collective bargaining
agent which successfully negotiated said CBA as a condition for continued employment with
the exception of employees who are already members of another union at the time of the
signing of the CBA.
The validity of dismissal based on this ground which jurisprudentially is considered a
just cause, has lately been reiterated in the case ofAlabang Country Club, Inc. v.
NLRC, 167 where the Supreme Court declared that in addition to the grounds mentioned in
Articles 282, 283, 284 and 285 of the Labor Code, another just cause for termination is
dismissal from employment due to the enforcement of the union security clause in the CBA.
2. EFFECTS OF THE APPLICATION OF THE UNION SECURITY CLAUSE.
The following are the effects:
a. On members of the bargaining union/agent. They are not allowed to resign or
terminate their membership therefrom. Any member of the bargaining agent

who resigns or is expelled therefrom may be recommended to the employer by

the bargaining agent for termination of his employment.
b. On non-members of the bargaining union/agent but members of the minority
union/s. They are not bound by the union security clause if they are members of
the minority or other unions at the time of the signing of the CBA. Hence, they
cannot be compelled to resign from their union/s in order to join the bargaining
agent.
c. On non-members of the bargaining union/agent or of any minority union/s. If
not a member of the bargaining agent or any other unions in the bargaining unit
at the time of the signing of the CBA by reason of the fact that he is excepted
from the coverage of the bargaining unit, the employee cannot be compelled to
join the bargaining agent.
d. On new employees hired after the signing of the CBA containing the union
security clause. They can be compelled to join the bargaining agent. If they
refuse, they can be recommended for termination.
3. EXCEPTION TO APPLICATION OF THE UNION SECURITY CLAUSE.
Religious ground is the only exception that may effectively be invoked against the
application of the union security clause. 168 For example: members of the Iglesia ni Kristo
(INK) cannot be compelled to join a union; hence, they are not bound by the union security
doctrine.169
4. REQUISITES FOR THE VALID TERMINATION DUE TO ENFORCEMENT OF UNION
SECURITY CLAUSE.
(1) The union security clause is applicable;
(2) The bargaining union is requesting for the termination of employment due to
enforcement of the union security provision in the CBA; and
(3) There is sufficient evidence to support the unions decision to expel the employee
from the union.
All the foregoing requisites should be complied with to justify the termination of
employment.170
5. SOME RELEVANT PRINCIPLES.
Dismissal effected by the employer pursuant to a labor unions demand in accordance
with a union security agreement does not constitute an unfair labor practice. 171
Employer is obligated to act upon being demanded by the union to terminate the
employment of its errant members.172
Employer should afford due process to the expelled unionist. 173
The employee sought to be terminated should be afforded an independent and
separate hearing which means that the employer is not duty-bound to immediately
implement the recommendation to terminate made by the union. It has to conduct its
own hearing independent and separate from any hearing conducted by the union. 174
Employer has the liability for reinstatement, full backwages, damages and attorneys fees
in illegal dismissal cases based on the union security clause. 175
The employer has the right to be reimbursed for payment of any claims arising out of
dismissals made upon demand of the union under the union security clause. 176
2.
AUTHORIZED CAUSES 177
1. TWO (2) CLASSES.

Under the Labor Code, authorized causes are classified into two (2)
classes, namely:
(1) Business-related causes. Referring to the grounds specifically
mentioned in Article 283, to wit:
a. Installation of labor-saving device;
b. Redundancy;
c. Retrenchment;
d. Closure or cessation of business operations NOT due to serious business
losses or financial reverses; and
e. Closure or cessation of business operations due to serious business losses
and financial reverses.
(2) Health-related causes. Referring to disease covered by Article 284 of the
Labor Code.
2. COMMONALITY OF REQUISITES OF THE AUTHORIZED CAUSES UNDER ARTICLE 283.
Notably, there are certain requisites that are common to the five (5) grounds in
Article 283. To simplify the discussion, the following five (5) common requisites are applicable
to the said grounds:
1. There is good faith in effecting the termination;
2. The termination is a matter of last resort, there being no other option available to
the employer after resorting to cost-cutting measures;
3. Two (2) separate written notices are served on both the affected employees and
the DOLE at least one (1) month prior to the intended date of termination;
4. Separation pay is paid to the affected employees, to wit:
(a) If based on (1) installation of labor-saving device, or (2) redundancy. - One
(1) month pay or at least one (1) month pay for every year of service,
whichever is higher, a fraction of at least six (6) months shall be considered as
one (1) whole year.
(b) If based on (1) retrenchment, or (2) closure NOT due serious business
losses or financial reverses. - One (1) month pay or at least one-half ()
month pay for every year of service, whichever is higher, a fraction of at least
six (6) months shall be considered as one (1) whole year.
(c) If closure is due to serious business losses or financial
reverses, NO separation pay is required to be paid.
(d) In case the CBA or company policy provides for a higher separation pay, the
same must be followed instead of the one provided in Article 283.
5. Fair and reasonable criteria in ascertaining what positions are to be affected by
the termination, such as, but not limited to: nature of work; status of employment
(whether casual, temporary or regular) ; experience; efficiency; seniority;
dependability; adaptability; flexibility; trainability; job performance; discipline; and
attitude towards work.178 Failure to follow fair and reasonable criteria in selecting
who to terminate would render the termination invalid. 179
I.
INSTALLATION OF LABOR-SAVING DEVICE
1. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
In addition to the five (5) common requisites above, the unique requisite for this
ground is that the purpose for such installation must be valid, such as to save on cost,
enhance efficiency and other justifiable economic reasons. 180
2. SOME RELEVANT PRINCIPLES.

 The installation of these devices is a management prerogative and the courts will not
interfere with its exercise in the absence of abuse of discretion, arbitrariness, or malice
on the part of management.181
Redundancy results from installation of labor-saving device. The installation of
labor-saving device will result in making the positions being held by employees who will
be adversely affected thereby redundant and unnecessary. 182
Modernization program through introduction of high-speed machines is valid. 183
Proof of losses is not required.
II.
REDUNDANCY
1. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
The fact of redundancy must be proved. Redundancy exists under any of the
following circumstances:
(1)

Where the services of employees are in excess of what is reasonably demanded

by the actual requirements of the enterprise. 184

(2)

Where the position is superfluous because of a number of factors, such

as over-hiring of workers, decreased volume of business, dropping of a
particular product line or service activity previously manufactured or
undertaken by the enterprise or phasing out of service activity priorly
undertaken by the business.185

(3)

Where there is duplication of work. Indeed, in any well-organized business

enterprise, it would be surprising to find duplication of work and two (2) or more
people doing the work of one person.186

(4)

Where it is validly resorted to as a cost-cutting measure and to streamline

operations so as to make them more viable. Positions which overlapped each
other, or which are in excess of the requirements of the service, may be
declared redundant.187

2. SOME PRINCIPLES ON REDUNDANCY.

The wisdom, soundness or characterization of service as redundant by the
employer is not subject to review. The only exception is when there is a showing that
the same was done in violation of law or attended with arbitrary and malicious
action.188
Burden of proof in redundancy rests on the employer. 189
Evidence of losses is not required.190
Elimination of undesirables, abusers and worst performers through redundancy is
not an indication of bad faith.191
The act of the employer in hiring replacements is not an indication of bad faith if the
positions have no similar job descriptions. 192
Redundancy to save on labor costs is valid. 193
Redundancy resulting from use of high technology equipment is valid. 194
Abolition of positions or departments is valid. 195
Reorganization through redundancy is valid. 196

 Contracting out of abolished positions to independent contractors is valid. 197

Hiring of casuals or contractual employees after redundancy is valid. 198
Where two or more persons are performing the same work which may be effectively
accomplished by only one, the employer may terminate the excess personnel and
retain only one.199
Even if there is a seniority rule, such as the LIFO (Last In, First Out) rule, the nature
of work and experience of the employees should still be taken into account by the
employer.200
The LIFO or FILO (First In, Last Out) rule has no basis in law. 201
LIFO rule is not controlling as employer has the prerogative to choose who to
terminate.202
III.
RETRENCHMENT
1. RETRENCHMENT, DEFINED.
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 work or orders, shortage of materials; or
considerable reduction in the volume of the employers business, conversion of the plant for
a new production program or the introduction of new methods or more efficient machinery,
or of automation. 203
2. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
Proof of losses or possible imminent losses is the distinctive requisite of
retrenchment. This is the only statutory ground in Article 283 which requires this kind of
proof. The other grounds of closure or cessation of business operations may be resorted to
with or without losses.204
3. STANDARDS TO DETERMINE VALIDITY OF LOSSES AS JUSTIFICATION FOR
RETRENCHMENT.
The general standards in terms of which the act of an employer in retrenching or
reducing the number of its employees must be appraised are as follows:
1. The losses expected should be substantial and not merely de minimis or
insubstantial and inconsequential in extent.
2. The substantial loss apprehended must be reasonably imminent, as such
imminence can be perceived objectively and in good faith by the employer.
3. Retrenchment must be reasonably necessary and likely to effectively prevent the
expected losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses, i.e. , cut other costs than labor costs.
4. The alleged losses, if already realized, and the expected imminent losses sought
to be forestalled, must be proved by sufficient and convincing evidence through
presentation of externally audited financial statements. 205
4. SOME PRINCIPLES ON RETRENCHMENT.
If said standards are present, wisdom to retrench cannot be questioned. 206

 The retrenchment must be done in good faith. 207

Notoriety of the employee is a valid criterion. 208
The progressive manner of implementing the streamlining and downsizing of operations
resorted to by a construction company in order not to jeopardize the completion of its
projects is valid. Thus, several departments like the Civil Works Division, Electromechanical Works Division and the Territorial Project Management Offices, among
others, were abolished in the early part of 1996 and thereafter, the Structural Steel
Division by the end of year 1997.209
The fact that there has been economic or other crisis besetting a particular sector or
the country as a whole is not sufficient justification for retrenchment. 210
Article 283 applies only to permanent retrenchment or lay-off. 211
Cost-reduction or cost-saving measures prior to retrenchment are required. 212
The phrase retrenchment to prevent losses means that retrenchment must be
undertaken by the employer before the losses anticipated are actually sustained or
realized. The employer need not keep all his employees until after his losses shall have
materialized. Otherwise, the law could be vulnerable to attack as undue taking of
property for the benefit of another. 213
Employer bears the burden of proof to show business losses or financial reverses. 214
Best evidence of losses - financial statements audited by independent auditors
(not by internal auditors) . 215
Best evidence of losses in a government-controlled corporation - financial
statements audited by COA. 216
Period covered by financial statements, material. 217
Income tax returns, not valid since they are self-serving documents.

218

Mere affidavit on alleged losses is not sufficient. 219

Mere notice of intention to implement a retrenchment program is not sufficient. 220
Rehabilitation receivership presupposes existence of losses. 221 However, the fact that
the employer is undergoing rehabilitation receivership does not by itself excuse it from
submitting to the labor authorities copies of its audited financial statements to prove the
urgency, necessity and extent of its retrenchment program. 222
Audited financial statements should be presented before the Labor Arbiter or the NLRC
but not belatedly before the Court of Appeals or Supreme Court. 223
Retrenchment effected long after the business losses is not valid. 224
Profitable operations in the past do not affect the validity of retrenchment. 225
Compulsory retirement to prevent further losses is valid.226
Early Retirement Program (ERP) to prevent further losses and implemented prior to
retrenchment is valid.227
Rotation of work may be tantamount to constructive dismissal or retrenchment. 228
Retrenchment due to liquidity problem is not valid. 229

 Sharp drop in income is not a ground to justify retrenchment. A mere decline in gross
income cannot in any manner be considered as serious business losses. It should be
substantial, sustained and real.230
Litany of woes, in the absence of any solid evidence that they translated into specific
and substantial losses that would necessitate retrenchment, will not suffice to justify
retrenchment.231
Rehiring of retrenched employees does not necessarily indicate illegality of
retrenchment.232
In an enterprise which has several branches nationwide, profitable operations in some
of them will not affect the validity of the retrenchment if overall, the financial condition
thereof reflects losses.233
IV.
CLOSURE OR CESSATION OF BUSINESS OPERATIONS
1. CONCEPT.
Closure or cessation of business is the complete or partial cessation of the
operations and/or shutdown of the establishment of the employer. It is carried out to either
stave off the financial ruin or promote the business interest of the employer. 234
Closure involves two (2) situations:
(a) When NOT due to serious business losses or financial reverses; or
(b) When due to serious business losses or financial reverses
It is only in the first that payment of separation pay is required. No such
requirement is imposed in the second.235
2. SOME PRINCIPLES ON CLOSURE.
Employer may close its business whether it is suffering from business losses or not;
court cannot order employer to continue its business. 236
Principle of closure under Article 283 applies in cases of both total and partial closure
or cessation of business operations. Management may choose to close only a branch,
a department, a plant, or a shop.237
Closure of department or section and hiring of workers supplied by independent
contractor as replacements is valid.238
Relocation of business may amount to cessation of operations. 239
The burden of proving that the closure or cessation of business operations is bonafide falls upon the employer.240
Closure may constitute an unfair labor practice if it is resorted to as a ruse or scheme
to get rid of employees on account of their union activities. 241
Closure by reason of enactment of a law is valid. Example: The closure of the
Philippine Veterans Bank by operation of law (R.A. No. 7169 [An Act to Rehabilitate the
Philippine Veterans Bank Created Under Republic Act 3518, Providing the
Mechanisms Therefor and for other Purposes] 242 or closure of the employers
business because a large portion of its estate was acquired by the Department of
Agrarian Reform pursuant to the Comprehensive Agrarian Reform Program (CARP)
under R.A. No. 6657.243

 Closure of business to merge or consolidate with another or to sell or dispose all of its
assets, held valid.244
Audited financial statements necessary only in closure due to losses.

245

Evidence of losses in a closure case should not be presented for the first time on
appeal with the Court of Appeals or Supreme Court. 246
For closure to be a valid basis, it must be invoked at the time of termination and not
after.247
Closure of a department or section due to losses amounts to retrenchment. 248
V.
DISEASE 249
1. REQUISITES.
Disease is one of the authorized causes to terminate employment. The following
requisites must be complied with before termination of employment due to disease may be
justified:
1. The employee is suffering from a disease;
2. His continued employment is either:
a) prohibited by law; or
b) prejudicial to his health; or
c) prejudicial to the health of his co-employees;
3. There is a certification by a competent public health authority that the disease is
of such nature or at such stage that it cannot be cured within a period of six (6)
months even with proper medical treatment;
4. Notice of termination based on this ground should be separately served both to
the employee and the Department of Labor and Employment at least one (1)
month prior to the effectivity of the termination; 250 and
5. Separation pay should be paid to the employee in an amount equivalent to at
least one (1) month salary or to one-half () month salary for every year of
service, whichever is greater, a fraction of at least six (6) months being considered
as one (1) whole year.251
2. SOME PRINCIPLES ON DISEASE.
Burden of proof rests on the employer. 252
If the disease or ailment can be cured within the period of six (6) months with proper
medical treatment, the employer should not terminate the employee but merely ask
him to take a leave of absence. The employer should reinstate him to his former
position immediately upon the restoration of his normal health. 253
In case of death, Article 284 does not apply. 254
In case the employee unreasonably refuses to submit to medical examination or
treatment upon being requested to do so, the employer may terminate his services on
the ground of insubordination or willful disobedience of lawful order. 255
A medical certificate issued by a companys own physician is not an acceptable
certificate for purposes of terminating an employment based on Article 284, it having
been issued not by a competent public health authority, the person referred to in the
law.256

 A competent public health authority refers to a government doctor whose

medical specialization pertains to the disease being suffered by the employee. For
instance, if the employee suffers from tuberculosis, the medical certificate should be
issued by a government-employed pulmonologist who is competent to make an
opinion thereon. If the employee has cardiac symptoms, the competent physician in
this case would be a cardiologist.
Medical certificate is an indispensable requisite. 257 It is the best evidence of illness.258
The medical certificate should be procured by the employer and not by the
employee. 259
The employer has the burdent to prove existence of the medical certificate. 260
Employee dismissed without the medical certificate is entitled to moral and exemplary
damages.261
Separate notices of the termination to the affected employee and to the DOLE is
necessary.262
Hearing is not required, disease being an authorized cause.

3.
DUE PROCESS263
(a) Twin-Notice Requirement
(b) Hearing; Meaning of Opportunity to be Heard
1. JOINT DISCUSSION.
The foregoing topics will be discussed herein jointly in the light of their close
interrelation.
2. THE AGABON DOCTRINE: DUE PROCESS IN TERMINATION OF EMPLOYMENT REFERS
TO STATUTORY, AND NOT CONSTITUTIONAL, DUE PROCESS.
Per Agabon doctrine,264 it is now the prevailing rule that it is not the due process
provided in the Constitution265 that is required in termination of employment but the
statutory due process provided under Article 277[b] of the Labor Code.
Constitutional due process protects the individual from the government and
assures him of his rights in criminal, civil or administrative proceedings; while statutory due
process protects employees from being unjustly terminated without just cause after notice
and hearing. Put differently, the Bill of Rights is not meant to be invoked against acts of
private individuals like employers. Private actions, no matter how egregious, cannot violate
the constitutional guarantees.
3. THE ABBOTT LABORATORIES DOCTRINE: CONTRACTUAL DUE PROCESS.
a. New doctrine.
The norm since Agabon is that compliance with the statutorily-prescribed procedural
due process under Article 277(b) 266 would suffice. Whether there is an existing company
policy which also enunciates the procedural due process in termination cases need not be
considered nor given any weight in determining the validity of the termination.
However, under the latest doctrinal en banc ruling in the 2013 case of Abbott
Laboratories, Philippines v. Pearlie Ann F. Alcaraz, 267 it is now required that

in addition to compliance with the statutory due process, the employer should still comply
with the due process procedure prescribed in its own company rules. The employers
failure to observe its own company-prescribed due process will make it liable to pay an
indemnity in the form of nominal damages, the amount of which is equivalent to the
P30,000.00 awarded under the Agabon doctrine.
It was found in this case of Abbott Laboratories that respondent Alcaraz,268 who was
hired as a probationary managerial employee, was afforded both the statutorily-mandated
substantive and procedural due process, when she was terminated 269 for failure to qualify
as a regular employee. Nonetheless, despite the existence of a sufficient ground to
terminate Alcarazs employment and Abbotts compliance with the Labor Code termination
procedure, it was found that petitioner Abbott breached its contractual obligation to
Alcaraz when it failed to abide by its own procedure in evaluating the performance of a
probationary employee. Company personnel policies create an obligation on the part
of both the employee and the employer to abide by the same.
Records show that Abbotts PPSE270 procedure mandates, inter alia, that the job
performance of a probationary employee should be formallyreviewed and discussed with
the employee at least twice: first, on the third month and second, on the fifth month from the
date of employment. Abbottis also required to come up with a Performance Improvement
Plan during the third month review to bridge the gap between the employeesperformance
and the standards set, if any. In addition, a signed copy of the PPSE form should be
submitted to Abbotts HRD as the same would serveas basis for recommending the
confirmation or termination of the probationary employment.
In this case, it is apparent that Abbott failed to follow the above-stated procedure in
evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcarazs
PPSE form was submitted to the HRD. It was not even shown that a PPSE form was
completed to formally assess herperformance. Neither was the performance evaluation
discussed with her during the third and fifth months of her employment. Nor did Abbott
comeup with the necessary Performance Improvement Plan to properly gauge Alcarazs
performance with the set company standards.
While it is Abbotts management prerogative to promulgate its own company rules
and even subsequently amend them, this right equallydemands that when it does create its
own policies and thereafter notify its employee of the same, it accords upon itself the
obligation to faithfullyimplement them. Indeed, a contrary interpretation would entail
a disharmonious relationship in the work place for the laborer should never be mired by the
uncertainty of flimsy rules in which the latters labor rights and duties would, to some extent,
depend.
b. Proper sanction for lack of contractual due process.
In imposing the penalty of indemnity in the form of nominal damages upon
petitioner Abbott, it was held that while there lies due cause to terminate Alcarazs
probationary employment for her failure to meet the standards required for her
regularization, and while it must be further pointed out that Abbott had satisfied its
statutory duty to serve a written notice of termination, the fact that it violated its own
company procedure renders the termination of Alcarazs employment procedurally
infirm, warranting the payment of nominal damages.
Evidently, the sanctions imposed in both Agabon271 and Jaka272 proceed from the
necessity to deter employers from future violations of the statutory due process rights of
employees. In similar regard, the Court deems it proper to apply the same principle to the
case at bar for the reason that an employers contractual breach of its own company
procedure albeit not statutory in source has the parallel effect of violating the laborers

rights. Suffice it to state, the contract is the law between the parties and thus, breaches of
the same impel recompense to vindicate a right that has beenviolated. Consequently, while
the Court is wont to uphold the dismissal of Alcaraz because a valid cause exists, the
payment of nominal damages onaccount of Abbotts contractual breach is warranted in
accordance with Article 2221273 of the Civil Code.
c. Proper amount of nominal damages.
Anent the proper amount of damages to be awarded, the Court observes that
Alcarazs dismissal proceeded from her failure to comply withthe standards required for her
regularization. As such, it is undeniable that the dismissal process was, in effect, initiated by
an act imputable to theemployee, akin to dismissals due to just causes under Article
297274 [282] of the Labor Code. Therefore, the Court deems it appropriate to fix the amount
of nominal damages at the amount of P30,000.00, consistent with its rulings
in both Agabon275 and Jaka. 276
4. PROCEDURAL DUE PROCESS VARIES DEPENDING ON THE GROUND/S INVOKED.
Based on law and jurisprudence, it is clear that the procedural due process required
to validly terminate an employee depends on the ground invoked. There is no uniform
procedural due process that should be applied in all cases.
5. THE KING OF KINGS TRANSPORT DOCTRINE: PROCEDURAL DUE PROCESS IN JUST
CAUSE TERMINATION.
a. Procedural steps.
In just cause termination, the twin-notice requirement applies. More particularly, the
following procedure in the order presented below should be followed:
1. Service of first written notice;
2. Conduct of hearing; and
3. Service of second written notice.
b. The King of Kings Transport doctrine.
Based on this doctrine which was enunciated inKing of Kings Transport, Inc. v.
Mamac, 277 the following requirements should be complied with:
(1) First written notice.
The first written notice to be served on the employee should:
a) Contain the specific causes or grounds for termination against him;
b) Contain a directive that the employee is given the opportunity to submit
his written explanation within the reasonable period of FIVE (5) CALENDAR
DAYS from receipt of the notice:
1) to enable him to prepare adequately for his defense;
2) to study the accusation against him;
3) to consult a union official or lawyer;
4) to gather data and evidence; and
5) to decide on the defenses he will raise against the complaint.
c) Contain a detailed narration of the facts and circumstances that will serve as
basis for the charge against the employee. This is required in order to enable
him to intelligently prepare his explanation and defenses. A general
description of the charge will not suffice.

d) Specifically mention which company rules, if any, are violated and/or which
among the grounds under Article 282 is being charged against the employee.
(2) Hearing required,
After serving the first notice, the employer should schedule and conduct
a hearing or conference wherein the employee will be given the opportunity to:
1) explain and clarify his defenses to the charge/s against him;
2) present evidence in support of his defenses; and
3) rebut the evidence presented against him by the management.
During the hearing or conference, the employee is given the chance to defend
himself personally, with the assistance of a representative or counsel of his choice.
Moreover, this conference or hearing could be used by the parties as an opportunity to
come to an amicable settlement.
(3) Second written notice.
After determining that termination of employment is justified, the employer shall
serve the employees a written notice of terminationindicating that:
1) all circumstances involving the charge/s against the employee have been
considered; and
2) grounds have been established to justify the severance of his employment. 278
c. The foregoing rule does not apply in case of abandonment.
Abandonment is a just cause to terminate employment. It is considered a form of
gross neglect of duties under Article 282[b] of the Labor Code. However, the procedural due
process is different from the process described above. For obvious reason, due process in
abandonment cases does not involve the conduct of hearing. Compliance with the following
two (2) notices suffices, viz:
1) First notice asking the employee to explain why he should not be declared as
having abandoned his job; and
2) Secondnotice informing him of the employers decision to dismiss him on the
ground of abandonment.
d. The Perez doctrine.
The
2009 Perez doctrine279 enunciates
the newguiding
principles on
the hearing aspect of procedural due process. This dramatically modified the concept of
hearing in just cause termination. (See separate discussion in No. 9 below) .
6. PROCEDURAL DUE PROCESS IN AUTHORIZED CAUSE TERMINATION.
Due process in authorized cause termination is deemed complied with upon the
separate and simultaneous service of a written notice of the intended termination to both:
(1) the employee to be terminated; and
(2) the appropriate DOLE Regional Office, at least one (1) month before the
intended date of the termination specifying the ground/s therefor and the
undertaking to pay the separation pay required under Article 283 of the Labor
Code.
7. PROCEDURAL DUE PROCESS IN DEFINITE-PERIOD EMPLOYMENT.
Procedural due process is not required in termination of the following:
1. Project employment which automatically terminates upon completion of the
project;
2. Seasonal employment which automatically terminates upon the end of the
season;

3. Casual employment which automatically terminates upon the lapse of the agreed
period;
4. Fixed-term employment which automatically terminates upon the expiration of
the fixed period.
8. PROCEDURAL DUE PROCESS IN TERMINATION OF PROBATIONARY EMPLOYMENT.
Probationary employment may be terminated prior to the lapse of the probationary
period fur just or authorized cause; in which case, the appropriate, applicable procedural
due process should apply.
However, if the ground invoked is the failure of the probationary employee to
qualify as a regular employee based on the reasonable standards made known to him at
the time of his engagement, no due process is required. it is sufficient that a written notice
of termination is served to the probationary employee within a reasonable time from the
effective date thereof setting forth the justification of such termination. 280
Per Abbott Laboratories doctrine, 281 however, if the employer has prescribed in its
company rules a certain procedure for the termination of probationary employment, the
same should be complied with; otherwise, the employer will be penalized with an indemnity
in the form of nominal damages in the amount of P30,000.00.
9. THE PEREZ DOCTRINE: NEW GUIDING PRINCIPLE ON THE HEARING REQUIREMENT.
The concept of hearing as part of due process has been significantly changed by
the Perez doctrine.282 It enunciates the newguiding principleson the hearing aspect of
procedural due process. It has interpreted the term ample opportunity to be heard in a
new light, thus:
(a) Ample opportunity to be heard means any meaningful opportunity (verbal or
written) given to the employee to answer the chargesagainst him and submit
evidence in support of his defense, whether in a hearing, conference or some
other fair, just and reasonable way.
(b)

A formal
hearing
or
conference is no longer
mandatory.
becomes mandatoryonly under any of the following circumstances:

It

(1) When requested by the employee in writing; or

(2) When substantial evidentiary disputes exist; or
(3) When a company rule or practice requires it; or
(4) When similar circumstances justify it.
(c) the ample opportunity to be heard standard in the Labor Code prevails over
the hearing or conference requirement in itsImplementing Rules and
Regulations. This is how the Supreme Court resolved the conflict in the following
provisions of the Labor Code and its implementing rules:
1) Under Article 277(b) of the Labor Code, the employer is required to afford the
employee ample opportunity to be heard and to defend himself with
the assistance of his representative if he so desires; while 2) Under Section 2(d) , Rule I, Book VI of the Implementing Rules of the Labor
Code, the employer is required to afford to the employee ahearing or
conference during which the employee concerned, with the assistance
of counsel, if he so desires, is given opportunity to respond to the
charge, present his evidence or rebut the evidence presented against
him.

The Perez doctrine is now the prevailing rule as shown by a catena of cases 283 which
cited it after its promulgation.
10. SOME PRINCIPLES ON HEARING REQUIREMENT.
If employee does not answer, hearing should still proceed. 284
Outright termination violates due process. 285
Investigation still required even if incident was witnessed by many. 286
Meeting, dialogue, consultation or interview is not the hearing required by law. It may
not be a substitute for the actual holding of a hearing. 287
Prior consultation with union is not part of the due process requirement. 288
Cross-examination or confrontation of witnesses is not necessary in company
investigations.289
Co-conspirators confession is not sufficient to merit dismissal. 290
If a party was not initially given a chance to be heard at the company level, but later
was given full opportunity to submit position papers or present his case and arguments
before the Labor Arbiter, this defect is cured. 291 But if the dismissal is not justified, this
principle does not apply.292
11. INSTANCES WHERE HEARING IS NOT REQUIRED.
Hearing is not required in the following cases:
1. Termination of project, seasonal, casual or fixed-term employment.
2. Termination of probationary employment on the ground of failure of the
probationary employee to qualify as a regular employee in accordance with
reasonable standards made known to him at the start of the employment. 293
3. Termination due to abandonment of work.
4. Termination due to authorized causes under Article 283 (installation of laborsaving device, redundancy, retrenchment or closure of business or cessation of
operations) . In such cases, there are no allegations which the employees should
refute and defend themselves from. 294
5. Termination due to disease under Article 284. 295
6. Termination by the employee (resignation) under Article 285.
7. Termination after 6 months of bona-fide suspension of operation under Article
286. For purposes of satisfying due process, what is required is simply that the
notices provided under Article 283 be served to both the affected employees and
the Department of Labor and Employment at least one (1) month before the
termination becomes effective.296
8. Termination due to retirement under Article 287.
9. Termination due to expiration of tenure made coterminous with lease. 297
10. Termination due to closure or stoppage of work by government authorities when
non-compliance with the law or implementing rules and regulations poses grave
and imminent danger to the health and safety of workers in the workplace. 298
11. Termination due to expiration of contractual employment in a legitimate
contracting or subcontracting arrangement. 299
12. Termination of employee who has admitted his guilt for the offense charged. 300
12. SEVEN (7) STANDARD SITUATIONS IN TERMINATION CASES.

The rules on termination of employment in the Labor Code and pertinent

jurisprudence are applicable to seven (7) different situations, namely:
1. The dismissal was for a just cause under Article 282, for an authorized cause under
Article 283, or for health reasons under Article 284, and due process was observed
This termination is LEGAL. 301
2. The dismissal was without a just or authorized cause but due process was observed
This termination is ILLEGAL. 302
3. The dismissal was without a just or authorized cause and due process was not
observed This termination is ILLEGAL. 303
4. The dismissal was for a just or authorized cause but due process was not observed
This termination is LEGAL. 304
5. The dismissal was for a non-existent cause This termination is ILLEGAL. 305
6. The dismissal was not supported by any evidence of termination This termination
is NEITHER LEGAL NOR ILLEGAL as there is no dismissal to speak
of. 306 Reinstatement is ordered not as a relief for illegal dismissal but on equitable
ground.
7. The dismissal was brought about by the implementation of a law This termination
is LEGAL. 307
13. INDEMNITY IN THE FORM OF NOMINAL DAMAGES.
a. Application of the Agabon and Jaka doctrines.
Termination for a just cause or authorized cause but without affording the employee
procedural due process should no longer be considered illegal or ineffectual 308 but legal.
Consequently, the employee will not be ordered reinstated but will be awarded an
indemnity in the form of nominal damages the amount of which will depend on whether the
termination is grounded on just cause or authorized cause, thus:
1. If based on just cause P30,000.00 per Agabon doctrine.309
2. If based on authorized cause P50,000.00 per Jaka doctrine.310
According to Jaka, the indemnity is stiffer in case of authorized cause termination
because, unlike in the case of just cause termination where the employee has committed a
wrongful act, an employee dismissed based on authorized cause has not committed any
blameworthy act nor any delinquency or culpability on his part. Instead, the dismissal
process is initiated by the employers exercise of his management prerogative, i.e. , when the
employer opts to install labor saving devices, when he decides to cease business operations
or when, as in this case, he undertakes to implement a retrenchment program
b. Some principles under the Agabon doctrine.
1. Measure of penalty or indemnity - no longer full backwages but nominal damages.
2. Since the dismissal is considered legal, any award of backwages must be deleted
and replaced by award of indemnity.311
3. Amount of nominal damages may be reduced. 312 But as far as the upping of the
amount is concerned, a survey of Supreme Court decisions indicates that there
has yet been no decision increasing the indemnity beyond what has been
prescribed in Agabon and Jaka.

------------oOo------------

ChapterFour
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
C. Reliefs for Illegal Dismissal
1. Reinstatement
a. Pending appeal (Art. 223, Labor Code)
b. Separation pay in lieu of reinstatement
2. Backwages
a. Computation
b. Limited backwages
C.
RELIEFS FOR ILLEGAL DISMISSAL
1. RELIEFS UNDER ARTICLE 279 OF THE LABOR CODE.
Under this article,1 an illegally dismissed employee is entitled to the following reliefs:
(1) Reinstatement without loss of seniority rights and other privileges;
(2) Full backwages, inclusive of allowances; and
(3) Other benefits or their monetary equivalent.
2. OTHER RELIEFS NOT FOUND IN ARTICLE 279 BUT AWARDED IN ILLEGAL DISMISSAL
CASES.
279:

The following reliefs that are awarded in illegal dismissal cases are missing in Article
(1)

Award of separation pay in lieu of reinstatement.

(2)

Award of penalty in the form of nominal damages in case of termination due to

just or authorized cause but without observance of procedural due process.

(3)

Reliefs to illegally dismissed employee whose employment is for a fixed period.

The proper relief is only the payment of the employees salaries corresponding
to the unexpired portion of the employment contract.

(4)

Award of damages and attorneys fees.

(5)

Award of financial assistance in cases where the employees dismissal is

declared legal but because of long years of service, and other considerations,
financial assistance is awarded.

(6)

Imposition of legal interest on separation pay, backwages and other monetary

awards.
1.
REINSTATEMENT
a.
PENDING APPEAL
(ArtIcle 223, Labor Code)

b.
SEPARATION PAY
IN LIEU OF REINSTATEMENT
1. VARIOUS PROVISIONS OF THE LABOR CODE ENUNCIATING THE REMEDY OF
REINSTATEMENT.
The Labor Code grants the remedy of reinstatement in various forms and situations.
Its provisions recognizing reinstatement as a remedy are as follows:
1. Article 223 which provides for reinstatement of an employee whose dismissal is
declared illegal by the Labor Arbiter. This form of reinstatement is self-executory and must
be implemented even during the pendency of the appeal that may be instituted by the
employer.
2. Article 263 [g] which provides for automatic return to work of all striking or
locked-out employees, if a strike or lockout has already taken place, upon the issuance by
the DOLE Secretary of an assumption or certification order. The employer is required to
immediately resume operation and readmit all workers under the same terms and
conditions prevailing before the strike or lockout.
3. Article 277 [b] which empowers the DOLE Secretary to suspend the effects of
termination pending the resolution of the termination dispute in the event of a prima
facie finding by the appropriate official of the DOLE before whom such dispute is pending
that the termination may cause a serious labor dispute or is in implementation of a mass layoff.
4. Article 279 which grants reinstatement as a relief to an employee whose
dismissal is declared illegal in a final and executory judgment.
5. Article 286 which involves bona-fide suspension of operation for a period not
exceeding six (6) months or the rendition by an employee of military or civic duty. It is
required under this provision that the employer should reinstate its employees upon
resumption of its operation which should be done before the lapse of said six-month period
of bona-fide suspension of operation or after the rendition by the employees of military or
civic duty.
(NOTE: The reinstatement referred to in the Syllabus pertains only to the reinstatement
under Article 223. Discussion, therefore, will focus on this relief)

a.
REINSTATEMENT PENDING APPEAL
(Article 223, Labor Code)
1. ORDER OF REINSTATEMENT ISSUED BY LABOR ARBITER, IMMEDIATELY EXECUTORY
EVEN PENDING APPEAL.
Article 2232 of the Labor Code, as amended,3 provides that an order of
reinstatement by the Labor Arbiter is self-executory and thereforeimmediately
executory even pending appeal. Being self-executory, no writ of execution is required to be
issued to implement it.4 The concept of reinstatement under Article 223 is to restore the
illegally dismissed employee to a state or condition from which he has been removed or
separated.5 To underscore its immediate executory nature, the 2011 NLRC Rules of
Procedure provide that the perfection of an appeal shall stay the execution of the decision of
the Labor Arbiter except execution for reinstatement pending appeal. 6
Once an appeal is filed, the Labor Arbiter loses jurisdiction over the case.
Consequently, all pleadings and motions pertaining to the appealed case are required to be

addressed to and filed with the Commission (NLRC) . This rule, however, cannot be
invoked to prejudice the immediate reinstatement of an employee pending appeal. 7
2. DISTINGUISHED FROM REINSTATEMENT ISSUED BY NLRC, CA AND SC.
By way of distinction, while writ of execution is not required in case reinstatement is
ordered by the Labor Arbiter, it is necessary in case reinstatement is ordered by the NLRC
on appeal or by the CA and the Supreme Court, as the case may be. Only the Labor Arbiters
reinstatement order is self-executory or immediately executory. 8
3. DISTINGUISHED FROM REINSTATEMENT UNDER ARTICLE 279 .
The following distinctions may be cited between reinstatement under
Article 223 and Article 279 of the Labor Code:
(1) Finality. The reinstatement under Article 223 has not attained finality
as in fact it is the subject of an appeal; while that contemplated under Article 279
has already become final and executory.
(2) Employers option to reinstate. The reinstatement in the former is
subject to the exercise of option by the employer; while that in the latter, no such
option is available to the employer except to reinstate the employee to his former
position or to a substantially equivalent position.
(3) On nature of duty of Labor Arbiter to implement order. In the
former, it is ministerial upon the Labor Arbiter to implement his order of
reinstatement which is self-executory in character; 9 while in the latter, it is not
ministerial as it requires the filing of a motion for the issuance of writ of execution
before the Labor Arbiter can implement the order of reinstatement.
(4) On necessity for issuance of writ of execution. - In the former, a
writ of execution is not necessary to enforce the reinstatement order; while in the
latter, a writ of execution is indispensable to effect reinstatement.
4. REINSTATEMENT PENDING APPEAL APPLIES TO ALL KINDS OF ILLEGAL DISMISSAL
CASES.
The concept of reinstatement pending appeal under Article 223 contemplates all
kinds of illegal dismissal cases. The nature of the ground invoked to justify the dismissal
which subsequently is declared illegal is inconsequential in determining the validity of this
remedy.
The Court of Appeals, in the 2010 case of C. Alcantara & Sons, Inc. v. CA, 10 denied
the reinstatement of the ordinary union members who participated in the illegal strike but
whose dismissal was found to have been illegally effected since they did not commit any
illegal acts in the course of the strike. The CA justified its denial by ruling that the
reinstatement pending appeal provided under Article 223 contemplates illegal dismissal or
termination cases and not cases under Article 264. 11 The Supreme Court, however,
pronounced that this perceived distinction does not find support in the provisions of the
Labor Code. The grounds for termination under Article 264 are based on prohibited acts
that employees could commit during a strike. On the other hand, the grounds for
termination under Articles 282,12 28313 and 28414 are based on the employees conduct in
connection with his assigned work. Still, Article 217,15 which defines the powers of Labor

Arbiters, vests in the latter jurisdiction over all termination cases, whatever be the grounds
given for the termination of employment. Consequently, Article 223, which provides that
the decision of the Labor Arbiter reinstating a dismissed employee shall immediately be
executory pending appeal, cannot but apply to all terminations irrespective of the grounds
on which they are based.
5. REINSTATEMENT PENDING APPEAL DOES NOT APPLY WHEN THE DISMISSAL IS
LEGAL BUT REINSTATEMENT IS ORDERED FOR SOME REASONS LIKE EQUITY AND
COMPASSIONATE JUSTICE.
The principle of reinstatement pending appeal applies only in case there is a finding
of illegality of dismissal by the Labor Arbiter. In other words, if the dismissal is not illegal as in
fact it was declared valid and legal by the Labor Arbiter, the reinstatement granted by reason
of equity and compassionate justice cannot be executed pending appeal; neither can the
employer be held liable for payment of any reinstatement wages.
This is the gist of the Lansangan doctrine which was enunciated pursuant
to and by virtue of the pronouncement in Lansangan v. Amkor Technology
Philippines, Inc.

16

The petitioners in this case were found by the Labor Arbiter to

have committed a dishonest act consisting of:

[s]wiping another employees [sic] I.D. card or requesting another employee to swipe
ones I.D. card to gain personal advantage and/or in the interest of cheating, an
offense of dishonesty punishable as a serious form of misconduct and fraud or breach
of trust under Article 297 [282] of the Labor Code:
xxx
which allows the dismissal of an employee for a valid cause.

The Labor Arbiter consequently ruled that the dismissal was valid and legal
but he ordered their reinstatement to their former positions without backwages
as a measure of equitable and compassionate relief owing mainly to petitioners
prior unblemished employment records, show of remorse, harshness of the
penalty and defective attendance monitoring system of respondent company.
Based

on

these

facts,

the

Supreme

Court

noted

that

the

principle

of reinstatement pending appeal under Article 223 on which the appellate court
relied, finds no application in the present case. Article 223 concerns itself with an
interim relief, granted to a dismissed or separated employee while the case for
illegal dismissal is pending appeal.

It does not apply where there is no

finding of illegal dismissal, as in the present case. Further, petitioners are

not also entitled to full backwages as their dismissal was not found to be illegal.
Agabon v. NLRC,17 so states - payment of backwages and other benefits is
justified only if the employee was unjustly dismissed.
6. TWO (2) OPTIONS OF THE EMPLOYER.
The employer has only 2 options both of which involve reinstatement:
(1)

Actual reinstatement, i.e. , the employee should be reinstated to his position

which he occupies prior to his illegal dismissal under the same terms and
conditions prevailing prior to his dismissal or separation or, if no longer
available, to a substantially-equivalent position; or

(2)

Payroll reinstatement, i.e. , reinstatement of the employee in the payroll of

the company without requiring him to report back to his work. 18

There is no way the employer can disregard the reinstatement order. Posting of a
bond does not stay the execution of immediate reinstatement. 19
7. OBLIGATION OF EMPLOYER TO NOTIFY REINSTATED EMPLOYEE OF HIS CHOICE OF
OPTION.
Employer has the obligation to notify employee of his choice of option. 20 Under
the 2011 NLRC Rules of Procedure,21 it is required that the employer should submit a report of
compliance within ten (10) calendar days from receipt of the Labor Arbiters decision,
disobedience to which clearly denotes a refusal to reinstate.
8. INSTANCES WHEN WRIT OF EXECUTION OF LABOR ARBITERS
REINSTATEMENT ORDER IS STILL REQUIRED.
Under the 2011 NLRC Rules of Procedure,22 there are two (2) instances
when a writ of execution should still be issued immediately by the Labor Arbiter to
implement his order of reinstatement, even pending appeal, viz:
(1) When the employer disobeys the Rules-prescribed directive23 to submit a report
of compliance within ten (10) calendar days from receipt of the decision; or
(2) When the employer refuses to reinstate the dismissed employee.
The Labor Arbiter shall motu proprio issue a corresponding writ to satisfy the
reinstatement wages as they accrue until actual reinstatement or reversal of the order of
reinstatement.24
The employee need not file a motion for the issuance of the writ of execution since
the Labor Arbiter shall thereafter motu proprio issue the writ.25 Employer may be cited for
contempt for his refusal to comply with the order of reinstatement. 26
Employer is liable to pay the salaries for the period that the employee was ordered
reinstated pending appeal even if his dismissal is later finally found to be legal on appeal. 27
9. EFFECT OF FAILURE OF EMPLOYEE ORDERED REINSTATED PENDING APPEAL TO
REPORT BACK TO WORK AS DIRECTED BY EMPLOYER.
The provision of Article 223 on reinstatement pending appeal is intended for the
benefit of the employee and cannot be used to defeat his own interest. The law mandates
the employer to either admit the dismissed employee back to work under the same terms
and conditions prevailing prior to his dismissal or to reinstate him in the payroll to abate
further loss of income on the part of the employee during the pendency of the appeal. But
the language of the law should not be stretched as to give the employer the right to remove
an employee who fails to immediately comply with the reinstatement order, especially when
there is a reasonable explanation for his failure. 28
In the 2011 case of Pfizer, Inc. v. Velasco, 29 petitioner Pfizer contends that the
Court of Appeals committed a serious but reversible error when it ordered petitioner Pfizer
to pay respondent Velasco wages from the date of the Labor Arbiters decision ordering her
reinstatement until November 23, 2005, when the Court of Appeals rendered its decision
declaring Velascos dismissal valid. During the pendency of the case with the Court of
Appeals and prior to its November 23, 2005 decision, petitioner claimed that it had already
required respondent to report for work on July 1, 2005. However, according to petitioner, it
was respondent who refused to return to work when she wrote petitioner, through counsel,

that she was opting to receive her separation pay and to avail of petitioners early retirement
program. In petitioner Pfizers view, it should no longer be required to pay wages considering
that it was allegedly ready to reinstate respondent as of July 1, 2005 but it was respondent
who unjustifiably refused to report for work. According to petitioner, it would be tantamount
to allowing respondent to choose payroll reinstatement when by law it was the employer
which had the right to choose between actual and payroll reinstatement.
The Supreme Court, however, found this contention of petitioner devoid of merit
considering the following:
(1) Petitioner waited for the resolution of its appeal to the NLRC and, only after it was
ordered by the Labor Arbiter to pay the amount ofP1,963,855.00 representing respondents
full backwages from December 5, 2003 up to May 5, 2005, did petitioner decide to require
respondent to report back to work via the Letter dated June 27, 2005.
(2) The said letter does not conform to the directive in Article 223 that an employee
entitled to reinstatement shall either be admitted back to work under the same terms
and conditions prevailing prior to his dismissal or separation or, at the option of the
employer, merely reinstated in the payroll.
(3) The letter of respondent to petitioner indicating her preference for the payment
of separation pay in lieu of reinstatement is of no moment. It does not have the effect of
taking away the option from the employer to effect actual or payroll reinstatement.
10. SOME PRINCIPLES ON REINSTATEMENT PENDING APPEAL UNDER ARTICLE 223.
Reinstatement pending appeal under Article 223 is constitutional. 30
It is similar to return-to-work order.31
The Labor Arbiter cannot exercise option of employer by choosing payroll
reinstatement pending appeal.32
If the former position is already filled up, the employee ordered reinstated under
Article 223 should be admitted back to work in a substantially equivalent position. 33
Reinstatement to a position lower in rank is not proper. 34
Reinstatement cannot be refused on the basis of the employment elsewhere of the
employee ordered reinstated.35
In case of two successive dismissals, the order of reinstatement pending appeal under
Article 223 issued in the first case shall apply only to thefirst case and should not affect
the second dismissal.36
The failure of the illegally dismissed employee who was ordered reinstated to report
back to work does not give the employer the right to remove him, especially when there
is a reasonable explanation for his failure. 37
No reinstatement pending appeal should be made when antipathy and antagonism
exist.38
If reinstatement is not stated in the Labor Arbiters decision (neither in the dispositive
portion nor in the text thereof) , reinstatement is not warranted. 39

(NOTE: For discussion on the effect of NLRCs reversal of the Labor Arbiters order of
reinstatement, please read the comments on the topic:VIII. PROCEDURE AND

JURISDICITON, xxx B. National Labor Relations Commission (NLRC) , xxx 2. Effect of

NLRC Reversal of Labor Arbiters Order of Reinstatement, infra)

b.
SEPARATION PAY IN LIEU OF REINSTATEMENT

1. NO PROVISION IN THE LABOR CODE EXPRESSLY GRANTING SEPARATION PAY IN

LIEU OF REINSTATEMENT.
Article 279 expressly mandates only reinstatement and never the
alternative remedy of separation pay in lieu thereof.
But jurisprudence clearly enunciates the award of separation pay in the
event reinstatement is not possible or feasible.40 Undeniably, it is a recourse
based on equity that has been sanctioned by the Supreme Court in a catena of
cases.41
2. SPECIFIC INSTANCES WHERE SEPARATION PAY IN LIEU OF REINSTATEMENT WAS
AWARDED.
It is now well-settled that separation pay in lieu of reinstatement should be awarded
in the following situations:
(1) Where the continued relationship between the employer and the employee is no
longer viable due to the strained relations and antagonism between them
(Doctrine of Strained Relations) .42
(2) When reinstatement proves impossible, impracticable, not feasible or
unwarranted for varied reasons and thus hardly in the best interest of the parties
such as:
(a) Where the employee has already been replaced permanently as when his
position has already been taken over by a regular employee and there is no
substantially equivalent position to which he may be reinstated. 43
(b) Where the dismissed employees position is no longer available at the time of
reinstatement for reasons not attributable to the fault of the employer. 44
(c) When there has been long lapse or passage of time that the employee was out
of employers employ from the date of the dismissal to the final resolution of
the case45 or because of the realities of the situation. 46
(d) By reason of the injury suffered by the employee. 47
(e) The employee has already reached retirement age under a Retirement Plan. 48
(f) When the illegally dismissed employees are over-age or beyond the
compulsory retirement age and their reinstatement would unjustly prejudice
their employer.49
(g) When reinstatement of a security guard can no longer be ordered because he
was past the age qualification for a security guard license. 50
(h) When the general sales agency contract between the employer and its client
has been terminated and reinstatement is no longer feasible. 51
(i) Takeover of the business of the employer by another company and there is no
agreement regarding assumption of liability by the acquiring company. 52
(3) Where the employee decides not to be reinstated as when he does not pray for
reinstatement in his complaint or position paper but asked for separation pay
instead.53

(4) When reinstatement is rendered moot and academic due to supervening events,
such as:
(a) Death of the illegally dismissed employee. 54
(b) Declaration of insolvency of the employer by the court. 55
(c) Fire which gutted the employers establishment and resulted in its total
destruction.56
(d) In case the establishment where the employee is to be reinstated has closed
or ceased operations.57
(5) To prevent further delay in the execution of the decision to the prejudice of
private respondent.58
(6) Other circumstances59 such as (a) when reinstatement is inimical to the
employers interest;60 (b) reinstatement does not serve the best interests of the
parties involved;61 (c) the employer is prejudiced by the workers continued
employment;62 or (d) that it will not serve any prudent purpose as when
supervening facts transpired which made execution unjust or inequitable. 63
3. COMPONENTS OF SEPARATION PAY IN LIEU OF REINSTATEMENT PER PREVAILING
JURISPRUDENCE.
The amount of separation pay that should be paid in lieu of reinstatement
is not provided under the Labor Code. Jurisprudence, however, dictates that the
following should be included in its computation:
(1) The amount equivalent to at least one (1) month salary or to one (1) month salary
for every year of service, whichever is higher, a fraction of at least six (6) months
being considered as one (1) whole year. 64
(2) Allowances that the employee has been receiving on a regular basis.65
4. PERIOD COVERED.
a. From start of employment up to the date of finality of decision.
Separation pay in lieu of reinstatement is computed from the commencement of
employment up to the time of termination, including the imputed service for which the
employee is entitled to backwages. 66 More definitively, it should be reckoned from the
first day of employmentuntil the finality of the decision. 67
b. When employer has already ceased its operations.
When employer has ceased its business operations, the separation pay in lieu of
reinstatement should be computed only up to that date of closure. 68
5. SALARY RATE TO BE USED IN THE COMPUTATION.
The salary rate prevailing at the end of the period of putative service should be the
basis for computation which refers to the period of imputed service for which the
employee is entitled to backwages. 69
6. SOME PRINCIPLES ON SEPARATION PAY IN LIEU OF REINSTATEMENT.
Award of separation pay in lieu of reinstatement is not proper if there is no finding of
illegality of dismissal. This is so because the principal remedy of reinstatement may only
be granted in case the dismissal is illegal. 70
Separation pay, as a substitute remedy, is only proper for reinstatement but not for
backwages.71

 Separation pay and backwages are not inconsistent with each other. Hence, both may
be awarded to an illegally dismissed employee. 72 The payment of separation pay is in
addition to payment of backwages. 73
Employer does not have the option to choose between actual reinstatement and
separation pay in lieu thereof. Actual reinstatement has the primacy as the proper relief
to which an illegally dismissed employee is entitled. Payment of separation pay should
be ordered only in the event that there is a showing that reinstatement is no longer
possible by reason of the justifications allowed under established jurisprudence. 74
Reinstatement cannot be granted when what is prayed for by employee is separation
pay in lieu thereof.75
Grant of separation pay in lieu of reinstatement converts the award of reinstatement
into a monetary award; hence, legal interest may be imposed thereon. 76
STRAINED RELATIONS RULE
1. STRAINED RELATIONS OR ANTAGONISM MAY EFFECTIVELY BAR REINSTATEMENT.
The doctrine of strained relations or antipathy and antagonism or irretrievable
estrangement applies when reinstatement will no longer be in the best interest of both the
employee and the employer considering the animosity and antagonism that exist between
them brought about by the filing of the labor case. 77
However, according to the 2013 case of Leopard Security and Investigation
Agency v. Quitoy, 78 standing alone, the doctrine of strained relations will not justify an
award of separation pay, a relief granted in instances where the common denominator is the
fact that the employeewas dismissed by the employer. Even in cases of illegal dismissal,
thedoctrine of strained relations is not applied indiscriminately as to bar reinstatement,
especially when the employee has not indicated an aversion to returning to work or does
not occupy a position of trust and confidence or has no say in the operation of the
employers business. Although litigation may also engender a certain degree of hostility, it
has likewise been ruled that the understandable strain in the parties relations would not
necessarily rule out reinstatement which would, otherwise, become the rule rather than the
exception in illegal dismissal cases.79
In a plethora of cases, the Supreme Court has been consistent in its holding that the
existence of strained relations between the employer and the illegally dismissed employee
may effectively bar reinstatement of the latter. 80
2. SOME PRINCIPLES ON STRAINED RELATIONS.
Strained relations must be proved and demonstrated as a fact. 81
Litigation, by itself, does not give rise to strained relations that may justify nonreinstatement. The filing of the complaint for illegal dismissal does not by itself justify the
invocation of the doctrine of strained relations. 82
No strained relations should arise from a valid and legal act of asserting ones right;
otherwise, an employee who asserts his right could be easily separated from the service
by merely paying his separation pay on the pretext that his relationship with his
employer had already become strained. 83
Indeed, if the strained relations engendered as a result of litigation are sufficient to rule
out reinstatement, then reinstatement would become the exception rather than the rule
in cases of illegal dismissal.84

 The nature of position is material in determining the validity of strained

relations. If the nature of the position requires that trust and confidence be reposed
by the employer upon the employee occupying it as would make reinstatement
adversely affect the efficiency, productivity and performance of the latter, strained
relations may be invoked in order to justify non-reinstatement. Where the employee,
however, has no say in the operation of his employers business, invocation of this
doctrine is not proper.85
Non-settlement of dispute after long period of time is not indicative of strained
relations.86
The refusal of an employee to be reinstated is indicative of strained relations. 87
Criminal prosecution confirms the existence of strained relations which would render
the employees reinstatement highly undesirable. 88
A managerial employee should not be reinstated if strained relations exist.

89

In case of new ownership of the establishment, reinstatement is proper if no strained

relations exist with new owner.90
2.
BACKWAGES91
1. CONCEPT.
Under Article 279, an employee who is unjustly dismissed is entitled not only to
reinstatement, without loss of seniority rights and other privileges, but also to the payment
of his full backwages, inclusive of allowances and other benefits or their monetary
equivalent, computed from the time his compensation was withheld from him (which, as a
rule, is from the time of his illegal dismissal) up to the time of his actual reinstatement. 92
The raison d etre for the payment of backwages is equity. Backwages represent
compensation that should have been earned by the employee but were lost because of the
unjust or illegal dismissal.93
Simply stated, an employee whose dismissal is found to be illegal is considered not
to have left his office so that he is entitled to all the rights and privileges that accrue to him
by virtue of the office that he held. 94
But if the dismissal is not illegal, an award of backwages is not proper. 95
2. THE BUSTAMANTE DOCTRINE.
In 1996, the Supreme Court changed the rule 96 on the reckoning of backwages. It
announced a new doctrine in the case of Bustamante v. NLRC, 97 which is now known as
the Bustamante doctrine. Under this rule, the term full backwages should mean exactly
that, i.e. , without deducting from backwages the earnings derived elsewhere by the
concerned employee during the period of his illegal dismissal. 98
(a)
COMPUTATION
1. COMPONENTS.
The components of backwages are as follows:

1. Salaries or wages computed on the basis of the wage rate level at the time of the
illegal dismissal and not in accordance with the latest, current wage level of the
employees position.99
2. Allowances and other benefits regularly granted to and received by the employee
should be made part of backwages.100 Examples:
a. Emergency living allowances and 13 month pay mandated under the law.101
b. Fringe benefits or their monetary equivalent. 102
c. Transportation and emergency allowances. 103
d. Holiday pay, vacation and sick leaves and service incentive leaves. 104
e. Just share in the service charges. 105
f. Gasoline, car and representation allowances. 106
g. Any other regular allowances and benefits or their monetary equivalent. 107
th

2. SOME PRINCIPLES ON BACKWAGES.

The computation of said regularly paid allowances and benefits as part of backwages
should be made up to the date of reinstatement as provided under Article 279 of the
Labor Code or, if reinstatement be not possible, up to the finality of the decision
granting full backwages.108
Salary increases during period of unemployment are not included as component in the
computation of backwages.109
Dismissed employees ability to earn is irrelevant in the award of backwages. 110
The failure to claim backwages in a complaint for illegal dismissal is a mere procedural
lapse which cannot defeat a right granted under substantive law. Hence, the illegally
dismissed employee may still be awarded backwages despite said failure. 111
When Labor Arbiter or NLRC failed to award any backwages, the same may be corrected
on appeal even if worker did not appeal. 112
In case reinstatement is ordered, full backwages should be reckoned from the time
the compensation was withheld (which, as a rule, is from the time of illegal dismissal) up
to the time of reinstatement, whether actual or in the payroll . 113
If separation pay is ordered in lieu of reinstatement, full backwages should be
computed from the time of illegal dismissal until the finalityof the decision. The
justification is that along with the finality of the Supreme Courts decision, the issue on
the illegality of the dismissal is finally laid to rest. 114
The rule is different if employment is for a definite period. The illegally dismissed
fixed-term employee is entitled only to the payment of his salaries corresponding to
the unexpired portion of his fixed-term employment contract. 115
If the illegally dismissed employee has reached the optional retirement age of 60 years,
his backwages should only cover the time when he was illegally dismissed up to the time
when he reached 60 years. Under Article 287, 60 years is the optional retirement age. 116
If the employee has reached 65 years of age or beyond, his full backwages should be
computed only up to said age. The contention of the employer that backwages should
be reckoned only up to age 60 cannot be sustained. 117 In Jaculbe v. Silliman
University, 118 it was declared that since petitioner has already reached seventy-one (71)
years of age at the time the decision was rendered by the Supreme Court in this case,
the award of backwages in her favor must be computed from the time of her illegal
dismissal up to her compulsory retirement age of sixty-five (65) . 119

 If termination was made effective immediately, the backwages should be reckoned from
the date of the termination letter where such was stated. 120
If employer has already ceased operations, full backwages should be computed only up
to the date of the closure. To allow the computation of the backwages to be based on a
period beyond that would be an injustice to the employer. 121
If valid retrenchment supervened during the pendency of the case, full backwages
should be computed only up to the effectivity date of the retrenchment. 122
In case the employee dies during pendency of the case, his full backwages should be
computed from the time of his dismissal up to the time of his death. 123
The period of valid suspension is deductible from backwages. 124
Backwages should be reckoned from end of valid suspension. 125
Backwages should include period of preventive suspension. 126
Employers offer to reinstate does not forestall payment of full backwages. 127
Any amount received during payroll reinstatement is deductible from backwages. 128
(b)
LIMITED BACKWAGES
1. VARIATIONS IN THE GRANT OF BACKWAGES.
The discussion above dwells on cases where backwages are granted in full in
accordance with the clear mandate of Article 279 of the Labor Code. However, in certain
instances, backwages are not granted at all or are granted but only for a limited amount.
follows:

The discussion below will point out the variations in the grant of backwages as
(a)

When reinstatement is granted without backwages; or

(b)

When reinstatement is granted with limited backwages.

2. REINSTATEMENT WITHOUT BACKWAGES.

Under the following situations, reinstatement of an illegally dismissed employee is
granted without the accompanying backwages:
(1)

When the dismissal is deemed too harsh a penalty;

(2)

When the employer acted in good faith; or

(3)

Where there is no evidence that the employer dismissed the employee.

Illustrative cases of the FIRST situation above:

(1) Associated Labor Unions-TUCP v. NLRC, 129 where reinstatement with no
backwages was ordered because the penalty of dismissal imposed on the employee for
committing theft of company property was reduced to suspension due to mitigating
circumstances. The justification was that the entire period when the employee was out of
job because of his dismissal should already be considered as the period of his suspension;
hence, he should no longer be entitled to backwages for the same period.
(2) Yupangco Cotton Mills, Inc. v. NLRC, 130 where, after finding that the employee
was illegally dismissed but at the same time guilty of misconduct, it was ruled that there was

no grave abuse of discretion in the resolution of the NLRC which meted only the penalty of
suspension without backwages.
(3) Pepsi-Cola Distributors of the Philippines, Inc. v. NLRC, 131 where the
employee filed a leave of absence for one day after he suffered stomach ache and upon the
advice of his doctor, he took a rest for 25 days without prior leave. When he reported back
for work, he was told that he had been dismissed for being absent without leave. It was held
that while he was at fault, the employee could not be dismissed. He was ordered reinstated
but he was denied backwages.
Illustrative cases of the SECOND situation above:
(1) In Itogon-Suyoc Mines, Inc. v. National Labor Relations Commission, 132 the
employee was found guilty of breach of trust for stealing ore with high gold content.
However, his dismissal was considered drastic and unwarranted considering that he had
rendered twenty three (23) years of service without previous derogatory record and he was
prematurely suspended during the pendency of the case. Consequently, he was ordered
reinstated but without granting him any backwages. The High Court pronounced that [t]he
ends of social andcompassionate justice would therefore be served if private respondent is
reinstated but without backwages in view of petitioner's good faith.
(2) Finding factual similarity with the foregoing case of Itogon-Suyoc, the Supreme
Court, in the 2013 case of Pepsi-Cola Products Philippines, Inc. v. Molon, 133 deems it
appropriate to render the same disposition insofar as one of the respondents in this case
was concerned - Saunder Santiago Remandaban III. This case involves a strike which the
DOLE Secretary certified to the NLRC for compulsory arbitration. A return-to-work order was
issued as a consequence of such certification. However, Remandaban failed to report for
work within twenty-four (24) hours from receipt of the said order. Because of this, he was
served with a notice of loss of employment status (dated July 30, 1999) which he challenged,
asserting that his absence on that day was justified because he had to consult a physician
regarding the persistent and excruciating pain of the inner side of his right foot. In ordering
his reinstatement but without backwages, the Supreme Court cited the following as its
bases:
(a) While Remandaban was remiss in properly informing Pepsi of his intended
absence, the penalty of dismissal is too harsh for his infractions considering that
his failure to report to work was clearly prompted by a medical emergency and
not by any intention to defy the July 27, 1999 return-to-work order.
(b)

Pepsi's good faith is supported by the NLRC's finding that

the return-to-work order of the Secretary was taken lightly by Remandaban. In
this regard, considering Remandaban's ostensible dereliction of the said order,
Pepsi could not be blamed for sending him a notice of termination and eventually
proceeding to dismiss him.

(3) It was likewise held in the 2013 case of Integrated Microelectronics, Inc. v.
Pionella, 134 on motion for reconsideration by petitioner, that the backwages 135 should be
deleted on the grounds that (a) the penalty of dismissal was too harsh of a penalty to be
imposed against Pionilla for his infractions; 136 and (b) petitioner IMI was in good faith when it
dismissed Pionilla as his dereliction of its policy on ID usage was honestly perceived to be a
threat to the companys security. In this respect, since these concurring circumstances
trigger the application of the exception to the rule on backwages as enunciated in the
above-cited cases, the Court found it proper to accord the same disposition and
consequently directed the deletion of the award of backwages in favor of Pionilla,
notwithstanding the illegality of his dismissal.

 Illustrative cases of the THIRD situation above:

(1) In the 2012 case of Best Wear Garments v. De Lemos, 137 where the records
are bereft of any showing of clear discrimination, insensibility or disdain on the part of
petitioners in transferring respondents both sewers on piece-rate basis - to perform a
different type of sewing job which would amount to constructive dismissal. That respondents
eventually discontinued reporting for work after their plea to be returned to their former
work assignments was their personal decision, for which the petitioners should not be held
liable particularly as the latter did not, in fact, dismiss them. Indeed, there was no evidence
that respondents were dismissed from employment. In fact, petitioners expressed
willingness to accept them back to work. There being no termination of employment by the
employer, the award of backwages cannot be sustained. It is well settled that backwages may
be granted only when there is a finding of illegal dismissal. In cases where there is no
evidence of dismissal, the remedy is reinstatement but without backwages.
(2) In the 2013 case of Leopard Security and Investigation Agency v.
Quitoy, 138 as well as in the earlier case of Security and Credit Investigation, Inc. v.
NLRC, 139 reinstatement without backwages was ordered because petitioners were found
not to have dismissed respondents (security guards) and that the latter, for their part, have
not abandoned their employment.140
(3) Leonardo v. NLRC 141 where the Supreme Court ordered the reinstatement sans
backwages of the employee (Fuerte) who was declared neither to have abandoned his job
nor was he constructively dismissed. As pointed out by the Court, in a case where the
employees failure to work was occasioned neither by his abandonment nor by a
termination, the burden of economic loss is not rightfully shifted to the employer. Each party
must bear his own loss.
3. REINSTATEMENT WITH LIMITED BACKWAGES.
While in the aforementioned cases of illegal dismissal, the Supreme Court ordered
the employees reinstatement but without backwages, there are also instances where the
backwages were not given in full but merely limited for the same reason of good faith on
the part of the employer.
Illustrative cases where award of backwages was limited to 1 year:
(a) In San Miguel Corporation v. Javate, Jr. , 142 the High Court affirmed the
consistent findings and conclusions of the Labor Arbiter, the NLRC, and the Court of Appeals
that the employee was illegally dismissed since he was still fit to resume his work; but the
employers liability was mitigated by its evident good faith in terminating the employees
services based on the terms of its Health, Welfare and Retirement Plan. Hence, the
employee was ordered reinstated to his former position without loss of seniority and other
privileges appertaining to him prior to his dismissal, but the award of backwages waslimited
to only one (1) year considering the mitigating circumstance of good faith attributed to the
employer.
(b) In Procter and Gamble Philippines v. Bondesto,143 the Supreme
Court, while affirming the illegality of the dismissal of the employee, did not grant
him full backwages. It agreed with the findings of the NLRC and the Court of
Appeals that in view of the employees absences that were not wholly justified, he
should be entitled to backwages limited to one (1) year only.144
Illustrative case where award of backwages was limited to 2 years:
In Dolores v. NLRC, 145 the employee was terminated for her continuous absence
without permission. Although it was found that the employee was indeed guilty of breach of

trust and violation of company rules, the High Court still declared the employees dismissal
illegal as it was too severe a penalty considering that she had served the employer company
for 21 years, it was her first offense, and her leave to study the French language would
ultimately benefit the employer who no longer had to spend for translation services. Even
so, other than ordering the employees reinstatement, the said employee was
awarded backwages limited to a period of two (2) years, given that the employer acted
without malice or bad faithin terminating the employees services.
Illustrative case where award of backwages was limited to 5 years:
In its resolution on the motion for reconsideration filed by the petitioner in Victory
Liner, Inc. v. Race, 146 the High Tribunal reduced and limited the original award of full
backwages to five (5) years in the light of the evident good faith of the employer. While
petitioners argument that respondent had already abandoned his job in 1994 was not
upheld, the Court conceded that petitioner, given the particular circumstances of this case,
had sufficient basis to reasonably and in good faith deem respondent resigned by 1998.
------------oOo------------

ChapterFour
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
D. Preventive Suspension
D.
PREVENTIVE SUSPENSION1
1. LEGAL BASIS.
The Labor Code does not contain any provision on preventive suspension. The legal
basis for the valid imposition thereof is found in Sections 8 and 9, Rule XXIII, Book V of
the Rules to Implement the Labor Code.2
2. PURPOSE AND JUSTIFICATION.
Preventive suspension may be legally imposed against an errant employee only
when his alleged violation is the subject of an investigation. This remedy may thus be
resorted to only while the errant employee is undergoing an investigation for
certain serious offenses. Consequently, its purpose is to prevent him from causing harm or
injury to the company as well as to his fellow employees. It is justified only in cases where the
employees continued presence in the company premises during the investigation poses a
serious and imminent threat to the life or property of the employer or of the employees coworkers. Without this threat, preventive suspension is not proper. 3
3. SOME PRINCIPLES ON PREVENTIVE SUSPENSION.
An employer has the right to preventively suspend the employee during the pendency
of the administrative case against him as a measure of self-protection. 4
If the basis of the preventive suspension is the employees absences and tardiness, the
imposition of preventive suspension on him is not justified as his presence in the
company premises does not pose any such serious or imminent threat to the life or

property of the employer or of the employees co-workers simply by incurring repeated

absences and tardiness. 5
The grounds of violation of the school rules and regulations on the wearing of uniform,
tardiness or absence, and maliciously spreading false accusations against the school, do
not justify the imposition of preventive suspension. 6
The failure by an employee to attend a meeting called by his supervisor will not justify
his preventive suspension.7
Preventive suspension does not mean that due process may be disregarded. 8
Preventive suspension is not a penalty. 9 Preventive suspension, by itself, does not
signify that the company has already adjudged the employee guilty of the charges for
which she was asked to answer and explain. 10
Preventive suspension is neither equivalent nor tantamount to dismissal. 11
Preventive suspension should only be for a maximum period of thirty (30) days. After
the lapse of the 30-day period, the employer is required to reinstate the worker to his
former position or to a substantially equivalent position.
During the 30-day preventive suspension, the worker is not entitled to his wages and
other benefits. However, if the employer decides, for a justifiable reason, to extend the
period of preventive suspension beyond said 30-day period, he is obligated to pay the
wages and other benefits due the worker during said period of extension. In such a case,
the worker is not bound to reimburse the amount paid to him during the extension if
the employer decides to dismiss him after the completion of the investigation. 12
Extension of period must be justified. During the 30-day period of preventive
suspension, the employer is expected to conduct and finish the investigation of the
employees administrative case. The period of thirty (30) days may only be extended if
the employer failed to complete the hearing or investigation within said period due to
justifiable grounds. No extension thereof can be made based on whimsical, capricious or
unreasonable grounds.13
Preventive suspension lasting longer than 30 days, without the benefit of valid
extension, amounts to constructive dismissal. 14
Indefinite preventive suspension amounts to constructive dismissal.

15

Failure to state the duration of the preventive suspension in the notice does not mean
it is indefinite. There is a reasonable and logical presumption that said suspension in fact
has a duration which could very well be not more than 30 days as mandated by law. 16
Salaries should be paid for improperly-imposed preventive suspension. 17
Period of preventive suspension of workers in the construction industry is only for 15
days.18
Preventive suspension is different from suspension of operation under Article 286 19 of
the Labor Code.20
Preventive suspension is different from floating status.

------------oOo------------

ChapterFour

21

TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
E. Constructive Dismissal
E.
CONSTRUCTIVE DISMISSAL1
1. CONSTRUCTIVE DISMISSAL.
Constructive dismissal contemplates any of the following situations:
1) An involuntary resignation resorted to when continued employment is
rendered impossible, unreasonable or unlikely;
2) A demotion in rank and/or a diminution in pay; or
3) A clear discrimination, insensibility or disdain by an employer which becomes
unbearable to the employee that it could foreclose any choice by him except to
forego his continued employment.2
2. INVOLUNTARY RESIGNATION.
The termination initiated by the employee based on the just causes described and
enumerated in Article 2853 of the Labor Code is in the nature of involuntary resignation.
Thus, an employee may put an end to the employment relationship without need of serving
any notice on the employer for any of the following just causes:
(1) Serious insult by the employer or his representative on the honor and person of
the employee;
(2) Inhumane and unbearable treatment accorded the employee by the employer or
his representative;
(3) Commission of a crime or offense by the employer or his representative against
the person of the employee or any of the immediate members of his family; and
(4) Other causes analogous to any of the foregoing. 4
Thus, unlike resignation without just cause under the same Article 285 5 where the
law requires prior written notice, the employee may terminate his employment without
serving any notice to the employer if such is occasioned by any of the just causes mentioned
above.
3. FORCED RESIGNATION.
There is forced resignation where the employee is made to do or perform an
involuntary act - submission or tender of resignation - meant to validate the action of
management in inveigling, luring or influencing or practically forcing the employee to
effectuate the termination of employment, instead of doing the termination himself. 6
4. COMMON DENOMINATOR.
Both involuntary and forced resignations are embraced within the concept of
constructive dismissal. The common character pervading involuntary or forced resignation
or constructive dismissal is the act of quitting from employment by the employee because
of the attendant just causes, acts, facts or circumstances which render the continued
employment impossible, unreasonable or unlikely. 7 Thus, if there is no cessation of
work, there can be no constructive dismissal. 8
5. TEST OF CONSTRUCTIVE DISMISSAL.

The test of constructive dismissal is whether a reasonable person in the employees

position would have felt compelled to give up his position under the circumstances. It is an
act amounting to dismissal but made to appear as if it were not. In fact, the employee who
is constructively dismissed may be allowed to keep on coming to work. Constructive
dismissal is, therefore, a dismissal in disguise.9 The law recognizes and resolves this
situation in favor of the employees in order to protect their rights and interests from the
coercive acts of the employer.10
6. VOLUNTARY RESIGNATION VS. CONSTRUCTIVE DISMISSAL.
Voluntary resignation is likewise distinct from constructive dismissal. For instance, it
was held in Concrete Aggregates v. NLRC, 11 that an employee who tendered her voluntary
resignation and signed the quitclaim after receiving all the benefits due her for her
separation cannot claim that she was constructively dismissed. The fact of her transfer due
to a new secretarial staffing pattern which she objected to, or the alleged hostility on the
part of her employer, cannot render nugatory the voluntary nature of her resignation. She
was not eased out much less was she forced to resign. This is a case of voluntary resignation
and not a constructive dismissal.
In Admiral Realty Company, Inc. [Admiral Hotel] v. NLRC, 12 it was ruled that the
transfer of the location of an employees office from under the steps of the stairs to the
kitchen which allegedly caused her mental torture which forced her to resign does not
amount to constructive dismissal but a case of voluntary resignation. It was not shown that
her transfer was prompted by ill will of management. It merely involved a change in location
of the office and not a change of her position.
An indication that the resignation was voluntary and does not constitute
constructive dismissal is the act of the employee who resigned and took a leave of absence
on the date of effectivity of his resignation and while on leave, he worked for the release of
his clearance and the payment of his 13 month pay and leave pay benefits. In doing so, he,
in fact, performed all that an employee normally does after he resigns. If indeed he was
forced into resigning, he would not have sought to be cleared by his employer and to be
paid the monies due him. The voluntary nature of his acts has manifested itself clearly and
belied his claim of constructive dismissal. 13
th

An example of a resignation which was deemed indicative of constructive dismissal

is the 2014 case of Dreamland Hotel Resort v. Johnson. 14 Respondent, an Australian
citizen, worked as Operations Manager for about three (3) months with petitioner hotel but
he was not paid his salaries corresponding thereto, prompting him to tender his resignation
letter, the tenor of which reads:
I hereby tender my resignation to you, Mr[. ] Wes Prentice, Dreamland Resort,
Subic, Zambales, Philippines.
Since joining Dreamland Resort & Hotel over three months ago, I have put my
heart and soul into the business. I have donated many hours of my personal time. I have
frequently worked seven days a week and twelve to thirteen hours a day. I am now
literally penniless, due totally to the fact that I have lent you and your resort/hotel
well over $200,000AU (approx 8million pesos) and your non-payment of wages to
me from 1 August 2007 as per Employment Agreement. xxx.15
st

The above statement only goes to show that while it was Johnson who tendered his
resignation, it was due to the petitioners acts that he was constrained to resign. The
petitioners cannot expect Johnson to tolerate working for them without any
compensation. It is impossible, unreasonable or unlikely that any employee, such as
Johnson, would continue working for an employer who does not pay him his salaries.

7. ILLEGAL DISMISSAL VS. CONSTRUCTIVE DISMISSAL.

Illegal dismissal is readily shown by the act of the employer in openly and
expressly seeking the termination of employment of an employee; while constructive
dismissal, being dismissal in disguise, is not readily indicated by any similar act of the
employer that would openly and expressly show its desire and intent to terminate the
employment relationship.
More concretely, the employer in illegal dismissal cases would normally defend and
justify the termination but in constructive dismissal, there being no express dismissal to
speak of, the employer would normally contend that there was no termination at all.
In terms of evidence, in illegal dismissal cases, documentary, testimonial and other
forms of evidence are adduced by the employer to secure affirmation from the court of the
validity of the termination; in constructive dismissal, the employer, who normally denies the
termination, would advance arguments against the circumstantial evidence being presented
by the employee to prove his constructive dismissal.
As far as the reliefs under Article 27916 of the Labor Code are concerned, the same
are available to both illegal and constructive dismissal.
8. INSTANCES OF CONSTRUCTIVE DISMISSAL OR FORCED RESIGNATION.
Denying to the workers entry to their work area and placing them on shifts not by
weeks but almost by month by reducing their workweek to three days.17
Barring the employees from entering the premises whenever they would report for
work in the morning without any justifiable reason, and they were made to wait for a
certain employee who would arrive in the office at around noon, after they had waited
for a long time and had left.18
Instructing the employee to go on indefinite leave and asking him to return to work only
after more than three (3) years from the time he was instructed to go on indefinite leave
during which period his salaries were withheld. 19
Implementing a rotation plan for reasons other than business necessity. 20
Sending to an employee a notice of indefinite suspension which is tantamount to
dismissal.21
Demoting a worker or re-assigning him involving a demotion in rank or diminution of
salaries, benefits and other privileges. 22
Reducing the employees functions which were originally supervisory in nature and such
reduction is not grounded on valid grounds such as genuine business necessity. 23
Imposing indefinite preventive suspension without actually conducting any investigation.
It was only after almost one (1) year that the employer made known the findings in its
investigation which was conducted ex parte. 24
Threatening a sickly employee with dismissal if he will not retire and promising
employment to his son and daughter. The employee retired and signed two (2)
quitclaims entitled Receipt and Release in favor of the company. 25
Forcing the employee to resign with threat that if he will not resign, he will file charges
against him that would adversely affect his chances for new employment. 26
Asking the employee to choose whether to continue as a faculty member or to withdraw
as a lawyer against the mayor with whom the former owes certain favors, makes the
cessation from employment of said employee not voluntary. Such act is in the nature of
a contrivance to effect a dismissal without cause. 27

 Asking the employee to file a resignation on the condition or promise that she would be
given priority for re-employment and in consideration of immediately paying her two (2)
months vacation which she desperately needed then because she was ill. The
employers refusal in bad faith to reemploy her despite its promise to do so amounted
to illegal dismissal.28
Changing the employees status from regular to casual constitutes constructive
dismissal.29
Offer made by a labor contractor to reassign its employees to another company but
with no guaranteed working hours and payment of only the minimum wage. The terms
of the redeployment thus became unacceptable for said employees and foreclosed any
choice but to reject the employers offer, involving as it does a demotion in status and
diminution in pay.30
Preventing the employee from reporting for work by ordering the guards not to let her
in. This is clear notice of dismissal. 31
Transfer of respondent employee from Credit and Collection Manager to Marketing
Assistant which resulted in demotion as it reduced his duties and responsibilities
although there was no corresponding diminution in his salary. In holding that there was
constructive dismissal, the court took note of the fact that the former position is
managerial while the latter is clerical in nature. 32
Reducing the number of trips of the drivers and shortening their workdays which
resulted in the diminution of their pay. 33
Forcing the employee to tender her resignation letter in exchange for her 13 month
pay, the reason being that the employee was found by the employer to have violated its
no-employment-for-relatives-within-the-third-degree-policy,
she
having
been
34
impregnated by a married co-employee.
th

9. EXAMPLES OF CASES WHERE FACTS PROVED CONSTRUCTIVE DISMISSAL.

1. Cosare v. Broadcom Asia, Inc. 35 - In this 2014, the Supreme Court declared
petitioner as having been constructively dismissed based on the facts and circumstances
obtaining herein. It is clear that the respondents already rejected Cosares continued
involvement with the company. Even their refusal to accept the explanation which Cosare
tried to tender on April 2, 2009 further evidenced the resolve to deny Cosare of the
opportunity to be heard prior to any decision on the termination of his employment. The
respondents allegedly refused acceptance of the explanation as it was filed beyond the mere
48-hour period which they granted to Cosare under the memo dated March 30, 2009.
However, even this limitation was a flaw in the memo or notice to explain which only further
signified the respondents discrimination, disdain and insensibility towards Cosare,
apparently resorted to by the respondents in order to deny their employee of the
opportunity to fully explain his defenses and ultimately, retain his employment. The Court
emphasized in King of Kings Transport, Inc. v. Mamac, 36 the standards to be observed by
employers in complying with the service of notices prior to termination which require
compliance with the reasonable period of at least five (5) calendar days from receipt of the
notice within which to explain his side.
In sum, the respondents were already resolute on a severance of their working
relationship with Cosare, notwithstanding the facts which could have been established by his
explanations and the respondents full investigation on the matter. In addition to this, the
fact that no further investigation and final disposition appeared to have been made by the
respondents on Cosares case only negated the claim that they actually intended to first look
into the matter before making a final determination as to the guilt or innocence of Cosare.

This also manifested from the fact that even before Cosare was required to present his side
on the charges of serious misconduct and willful breach of trust, he was summoned to his
superiors office and was asked to tender his immediate resignation in exchange for financial
assistance.
2. Tuason v. Bank of Commerce. 37 In this 2012 case, the Supreme Court ruled
that petitioner was forced to resign. Pressure was exerted on her to resign from her work.
The Court has in fact examined the exchange of communications between petitioner and
the respondent officers of respondent bank before it arrived at its ruling that petitioner was
constructively dismissed. It was proved, among others, that petitioner was replaced in her
position while she was on leave. Like Tuason, any reasonable person similarly situated would
have felt compelled to give up her post as she was, in fact, stripped of it considering that
someone else was already discharging her functions and occupying her office.
10. SOME PRINCIPLES ON CONSTRUCTIVE DISMISSAL OR INVOLUNTARY OR FORCED
RESIGNATION.
Mere allegations of threat or force do not constitute evidence to support a finding of
forced resignation or constructive dismissal. 38
A threat to sue the employee is not unjust and will not amount to forced resignation or
constructive dismissal. For instance, a threat to file estafa case, not being an unjust act,
but rather a valid and legal act to enforce a claim, cannot at all be considered as
intimidation. A threat to enforce ones claim through competent authority, if the claim is
just or legal, does not vitiate consent. 39
Employee who alleges that he was coerced or intimidated into resigning has the
burden to prove such claim.40
Giving the employee the choice or option between resignation and investigation is not
illegal.41
The facts of the case should be considered to determine if there is constructive
dismissal.42
Voluntary resignation is different from constructive dismissal. An employee who
tendered her voluntary resignation and signed the quitclaim after receiving all the
benefits due her for her separation cannot claim that she was constructively
dismissed.43
An employee may be constructively dismissed and at the same time legally
dismissed. The case in point is Formantes v. Duncan Pharmaceuticals Phils. ,
Inc. 44 Petitioner45 was constructively dismissed because, while still employed with the
respondent, he was compelled to resign and forced to go on leave. After being
confronted with the complaint for sexual abuse lodged by a subordinate female
employee and before being required to explain his side, petitioner was no longer
allowed to participate in the activities of respondent company. His salary was no longer
remitted to him. His subordinates were directed not to report to him and the company
directed one of its district managers to take over his position and do his functions
without prior notice to him. He was required to explain his side on the issue of sexual
abuse as well as the charge of insubordination only after these things have already
been done to him. However, his dismissal was considered legal because there was a
just cause for his dismissal from the service consisting of his sexual abuse of a
subordinate female employee which, although not cited in the Notice of Termination
served on him when he was terminated, was duly proved during the trial of the case
before the Labor Arbiter. Since the dismissal, although for a valid cause, was done

without due process of law, the employer was ordered to indemnify petitioner with
nominal damages in the amount of P30,000.00.
------------oOo------------