The right of management to dismiss workers on the ground of retrenchment to prevent

serious losses is governed by Article 283 of the Labor Code. This is one of the authorized causes
of termination of employment. However, before one can dismiss employees on the ground of
retrenchment, four elements must be proven. Firstly, the losses expected should be substantial.
Secondly, the substantial loss apprehended must be reasonably imminent, and such imminence
can be perceived objectively and in good faith by the employer. Thirdly, because of the
consequential nature of retrenchment, it must be reasonably and necessary and likely to effectively
prevent the expected losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses such as cutting other costs other than labor cost. Lastly, the alleged
losses if already realized, and the expected imminent losses sought to be forestalled, must be
proven by sufficient and convincing evidences. It bears emphasis that serious business losses
should be proven by financial statements duly audited by an independent external auditor.
If the grounds for retrenchment are not proved, the retrenchment will be declared illegal and of
no effect. If the retrenched employee signed quitclaims, they may be declared invalid. Even his
acceptance of the retrenchment pay does not amount to estoppel which does not bar him from
contesting his separation.
There must be fair and reasonable criteria to be used in selecting employees to be
dismissed on account of retrenchment such as (a) less preferred status (i.e. temporary employees);
(b) efficiency rating; and (c) seniority. The last in first out(LIFO) rule indicates that as between two
or more employees affected by a retrenchment program, the last one employed will be the first to
go; seniority of the ones hired earlier therefore prevails. Such rule has its merits but its observance
is not a statutory duty of the employer.
In accordance with the Labor Code, for a valid implementation of a retrenchment program,
the employer must serve written notices on the employees and DOLE at least thirty (30) days prior
to the intended date of retrenchment. Specifically, the purpose of such previous notice to DOLE
must be to enable it to ascertain the verity of the cause for termination of employment. Finally, the
more important aspect in the termination of employment is the payment of the employees
separation pay equivalent to at least one (1) month pay or at least one-half (1/2) month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall be considered
as one (1) whole year.
Thus, the employer must not arbitrarily or speedily implement a retrenchment program.
The requirements discussed above must be fully complied with so as to preclude any problems in
the future. It bears great emphasis that failure to comply with the requirements mandated by the
Labor Code will render the retrenchment invalid and illegal.
Retrenched employees get separation
pay, thanks to DOLE-NCMBs SENA
Date Posted: May 23rd, 2013 02:50 AM

Retrenched employees get separation pay, thanks to DOLE-NCMBs SENA Cebu City - Seventy-one retrenched
employees of Goji Industries Philippines, Inc., a manufacturer of camera parts and accessories located at the Mactan
Economic Zone 1, have received their separation pay through the Single Entry Approach program, NCMB Executive
Director Reynaldo R. Ubaldo reported to Labor and Employment Secretary Rosalinda Dimapilis-Baldoz yesterday.
Citing a report from RCMB 7 Director Edmundo T. Mirasol, Ubaldo said the retrenched employees received their
separation pay amounting to P5.65 M at the NCMB office here on 6 May 2013. "The employees were terminated from
employment effective 5 April 2013 as a result of impending business losses caused by the pull out of orders from
Pentax for its camera parts assemblies," Ubaldo said, quoting the report. "They were informed of the termination as
early as 14 March 2013," he added. On 2 April 2013, the retrenched employees sought assistance from the RCMB 7
on the correct computation of their separation pay. Ms Irene Sanchez, one of the complainants, believed they were
terminated due to redundancy, and, hence, are entitled to one month pay per year of service. Management countered
that their move did not constitute termination due to redundancy but retrenchment, which entitles the affected workers
to only month pay for every year of service. The parties agreed to a compromise formula where the retrenched
employees would get half-month pay for every year of service plus the full amount of their 13th month pay. Single
Entry Assistance Desk Officer (SEADO) Rex P. Ramos, a labor and employment officer III of RCMB 7 facilitated the
settlement. SENA institutionalized a 30-day mandatory conciliation-mediation to simplify the filing and processing of
labor disputes in the different offices and agencies of the Department of Labor and Employment. Under the program,
single entry assistance desks are established in all the regional offices of the DOLE and its agencies, manned by
trained single entry assistance desk officers who respond to requests for assistance filed by workers. END/William E.
Calina Reporting by Remus M. Caducoy, LIO designate, RCMB 7

RETRENCHMENT; requisites for

validity
See - http://sc.judiciary.gov.ph/jurisprudence/2012/june2012/174214.htm

"x x x.

Retrenchment is the termination of employment initiated by the employer

through no fault of and without prejudice to the employees. It is resorted to during
periods of business recession, industrial depression, or seasonal fluctuations or
during lulls occasioned by lack of orders, shortage of materials, conversion of the
plant for a new production program or the introduction of new methods or more
efficient machinery or of automation.[16] It is an act of the employer of dismissing
employees because of losses in the operation of a business, lack of work, and
considerable reduction on the volume of his business.[17]

In case of retrenchment, proof of financial losses becomes the determining

factor in proving its legitimacy. In establishing a unilateral claim of actual or
potential losses, financial statements audited by independent external auditors
constitute the normal method of proof of profit and loss performance of a
company. The condition of business losses justifying retrenchment is normally
shown by audited financial documents like yearly balance sheets and profit and loss
statements as well as annual income tax returns.[18]
 Retrenchment is subject to faithful compliance with the substantative and
procedural requirements laid down by law and jurisprudence.[19] For a valid
retrenchment, the following elements must be present:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred,
are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably
imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and
Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at
least month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of
its interest and not to defeat or circumvent the employees right to security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who
would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and
financial hardship for certain workers.[20]

x x x."

WATERFRONT CEBU CITY HOTEL, G.R. No. 174214

Petitioner,

Present:

CARPIO, J.,
-versus- Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
 MA. MELANIE P. JIMENEZ,
JACQUELINE C. BAGUIO, LOVELLA V.
CARILLO, and MAILA G. ROBLE,
Promulgated:
Respondents.

June 13, 2012

x -------------------------------------------------------------------------------------x

DECISION

PEREZ, J.:

The closure of a department or division of a company constitutes retrenchment by,

and not closure of, the company itself.[1]
It is upon this principle that both parties to this case, the employer Hotel and the
complaining employees repose their argument.

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court
are the 5 July 2006 Decision[2] of the Court of Appeals reversing the National Labor
Relations Commission (NLRC) and its 15 August 2006 Resolution denying the
motion for reconsideration.

The factual milieu follows:

Respondents Ma. Melanie P. Jimenez, Jacqueline C. Baguio, Lovella V. Carillo,

and Maila G. Roble were hired for Club Waterfront (the Club), a division under
petitioner Waterfront Cebu City Hotel (the Hotel) which catered to foreign high
stakes gamblers,[3] for different positions and dates as indicated below:

NAME POSITIONS DATE HIRED MONTHLY

SALARY

Ma. Melanie P. Guest Services Sept. 4, 1996 P15,148.67

Jimenez Assistant

Jacqueline Cosep Treasury Supervisor June 1, 1996 P16,082.22

Baguio
 Lovella V. Carillo Guest Services May 26, 1998 P15,652.00
Assistant

Maila G. Roble Pit Supervisor Sept. 1, 1999 P16,452.00[4]

On 12 May 2003, respondents received identical letters of termination from

petitioners Director of Human Resources informing them of the temporary
suspension of business of the Club. A total of 45 employees were notified of the
imminent closure.

On the following day, petitioner served the notice of suspension of business with
the Department of Labor and Employment (DOLE).
The dismissed employees were offered separation pay equivalent to half-
month pay for every year of service. The Clubs closure took effect on 15 June 2003.

On 26 June 2003, respondents filed a complaint before the Labor Arbiter for illegal
dismissal, illegal suspension, and non-payment of salaries and other monetary
benefits. They likewise prayed for damages and attorneys fees.[5]

Respondents refused to believe that the Club was suffering from losses because
they knew exactly the number of arrivals as well as junket clients of the Club. They
presented documents[6] to show the arrival of foreign guests at the Club.

Respondents maintained that upon the other hand, they are employees of
petitioner assigned to the Club, hence they should have been allowed to work in
other departments of the hotel.

Oppositely, petitioner averred that since April 2002, the Club has been incurring
losses that it had to temporarily cease its operations effective 15 June 2003. To
support the allegations of losses, petitioner presented financial statements of
Waterfront Promotion, Ltd. Petitioner argued that pursuant to Article 286 of the
Labor Code, the temporary suspension of business operations does not terminate
employment. Thus, respondents have no cause of action against them.

On 12 December 2003, Labor Arbiter Ernesto F. Carreon ruled in favor of petitioner

and upheld the closure of the Clubs business operations as a management
prerogative. The petitioner was, however, directed to comply with Article 283 of
the Labor Code and to pay complainants their separation pay equivalent to one-
half month pay for every year of service, a fraction of at least 6 months being
considered as one year. The dispositive portion reads:
 WHEREFORE, premises considered judgment is hereby rendered ordering Waterfront
Cebu City Hotel and Casino to pay the complainants as follows:

1. Maria Melanie P. Jimenez P53,020.00

2. Josephine C. Baguio P56,286.00

3. Evangeline A. Balazuela P24,678.00

4. Sydel Agatha E. Binghay P54,782.00

5. Lovella V. Carillo P29,680.00

6. May T. Flores P29,650.00

7. Maila G. Roble P32,904.00

Attorneys fee P28,001.00

Total Award P309,002.00

The other claims and the case against individual respondents are dismissed for lack of
merit.[7]

Respondents appealed to the NLRC[8] which issued a Decision affirming the ruling
of the Labor Arbiter. The NLRC observed that petitioner was able to substantiate
the losses suffered by the Club through financial statements properly audited by
an independent auditor.
After the denial of respondents motion for reconsideration, they elevated
the case to the Court of Appeals.

Respondents argued that the NLRC should have considered the financial
statements of the petitioner Hotel and not merely of the Club, which is only a
division of the Hotel.According to respondents, the permanent closure of the Club
resulted in retrenchment but petitioner failed to prove that it complied with the
standards for retrenchment.

On 5 July 2006, the Court of Appeals rendered a Decision reversing the findings and
conclusions of the NLRC, thus:

WHEREFORE, premises considered, the petition for certiorari is hereby GRANTED. The
decision dated June 27, 2005 issued by the National Labor Relations Commission, Fourth
 Division,Cebu City in NLRC Case No. V-000482-2004 (RAB Case No. VII-06-1141-2003) is
hereby VACATED and SET ASIDE.

A new decision is hereby entered directing Waterfront Cebu City Hotel and Casino, Inc.
to pay full backwages from date of illegal dismissal until date of reinstatement, plus 13th
month pay, holidy pay, service incentive leave pay and moral damages equivalent to 10%
of the compensable amount, to petitioners Ma. Melanie P. Jimenez, Jacqueline C. Baguio,
Evangeline Balazuela, Sydel Agatha Binghay, Lovella Carillo, May T. Flores, Meila G. Roble.

At the election of the petitioners, full backwages, 13th month pay, holiday pay, service
incentive leave pay and separation pay at one month for every year of service, plus moral
damages equivalent to 10% of the compensable amount.

Attorneys fees of 10% of the total compensable amount is also awarded.

The Labor Arbiter is directed to compute the amounts herein awarded.[9]

The appellate court found that petitioner Hotel is the actual employer of
respondents, thus the evidence of losses and closure of the Club is immaterial and
irrelevant. The appellate court stated that there is no independent evidence on
record that petitioner Hotel incurred losses sufficient to sustain the termination of
respondents. Absent a clear, valid and legal cause for the termination of
employment, the appellate court opined that there is illegal dismissal. The
appellate court disregarded the audited financial statement of Waterfront
Promotions, Ltd. on the ground that said statement does not prove that the Club
has become a losing proposition because it was not shown that the Club is a division
of Waterfront Promotions. Neither was it proven that Waterfront Promotions and
petitioner are one and the same.[10]
Petitioner filed a motion for reconsideration but it was denied in a Resolution
dated 15 August 2006.
Hence, this petition for review on certiorari imputes the following errors on
the Court of Appeals, to wit:

I.

When it ruled that evidence of losses and closure of Club Waterfront is immaterial and
irrelevant to the termination of petitioners;

II.
 When it ruled that the audited financial statement of Waterfront Promotions, Ltd. is not
proof to show that respondent incurred losses or that Club Waterfront has become a
losing proposition;

III.

When it ruled that there is no evidence on record that Waterfront Cebu City Hotel and
Casino, Inc. incurred losses sufficient to sustain the termination of herein respondents
from employment;

IV.

When it found that respondents are entitled to full backwages and reinstatement without
loss of seniority rights and moral damages;

V.

When it ruled in the dispositive portion that its decision was effective for Balazuela,
Binghay and Flores.[11]

Initially, the respondents were laid off as a result of the suspension of the Clubs
operation. Under Art. 286 of the Labor Code,[12] a bona fide suspension of business
operations for not more than six (6) months does not terminate employment. After
six (6) months, the employee may be recalled to work or be permanently laid off. In
this case, more than six (6) months have elapsed from the time the Club ceased to
operate. Hence, respondents termination became permanent.
Petitioner anchors its arguments mainly on the thesis that retrenchment to
prevent losses was undertaken to justify the dismissal of respondents. Petitioner
likened the closure of the Club, which it deemed as a division/department, to
retrenchment. Acting on the same premise that the Club is a division of petitioner,
respondents demanded that they should be transferred to another department of
petitioner, instead of being dismissed from employment. Respondents also claim
that petitioner failed to prove losses to support retrenchment.

At the outset, it should be stated that the respondents cannot be

accommodated in other departments of the Hotel. The duties and functions they
perform are peculiar to the positions they hold in the Club. It is likewise undisputed
that the Club remained closed and there is no other department in the Hotel similar
to the Club and which catered to foreign high stakes gamblers. Verily,
reinstatement cannot be and could not have been an option for petitioner Hotel.

For the purpose of proving financial losses, petitioner presented the financial
statements of Waterfront Promotion, Ltd. which petitioner describes as the
company which promotes, markets and finances the Club.[13]
 A review of the corporate structure of the Club as contained in the financial
statements submitted by petitioner reveals that it is actually a wholly-owned
subsidiary of Waterfront Promotion, Ltd. Their corporate relationship is described
as follows:

Waterfront Promotion Ltd (WPL) and its wholly-owned subsidiary, Club Waterfront
International Limited (CWIL), were incorporated in the Cayman Islands on March 6,
1995 and June 11, 1996, respectively. WPL is a wholly-owned subsidiary of
Waterfront Philippines, Incorporated (WPI), a company registered with the Philippine
Securities and Exchange Commission (SEC).

WPL and CWIL invite and organize groups of foreign casino players to play in Philippine
casinos pursuant to certain agreements entered into with the Philippine Amusement and
Gaming Corporation (PAGCOR) under the latters Foreign Highroller Marketing Program
(the Program).

To support the Program, WPL and CWIL entered into several agreements with certain
parties also known as junket operators to market and promote the Philippine casinos to
foreign casino players. In consideration for marketing and promoting the Philippine
casinos, these operators receive certain incentives such as free hotel accommodations,
free airfares, and rolling commissions from WPL and CWIL.

The financial statements have been prepared on a going concern basis, which assumes
that WPL and CWIL will continue in existence. The validity of this assumption is
dependent upon WPL and CWIL to meet their financing requirements on a continuing
basis and the success of their future operations. Management continues to look for other
business opportunities and intends to run WPL and CWIL as going concerns.

At present, both WPL and CWIL have temporarily stopped their operations. The
Management decided to temporarily cease the operations of WPL and CWIL on June 2003
and November 2001 respectively, due to unfavorable economic conditions. However, the
Management of Waterfront Philippines, Incorporated (WPI), the Ultimate Parent
Company, has given an undertaking to provide necessary support in order for the
Company to continue as a going concern.

WPLs principal office is located in George Town, Grand Cayman, Cayman Islands, British
West Indies.[14]

In turn, Waterfront Promotion, Ltd. is a wholly-owned subsidiary of

Waterfront Philippines. Petitioner Hotel, as shown in the official records, is also
another subsidiary of Waterfront Philippines.[15] Strictly speaking, the Club is not
related to petitioner except to say that they are two different subsidiaries of one
parent corporation, i.e., WaterfrontPhilippines. Petitioner, then, could have right
at the beginning avoided the conflict with respondents by setting itself apart from
them. Petitioner could have invoked the separateness from the Hotel of the Club
which employed respondents. Petitioner did not do so. Instead, and at the outset,
it formally presented itself as the respondents employer when, through its Director
of Human Resources, it informed respondents about the temporary suspension of
the business of the Club and forthwith served the notices of suspension of business
on DOLE.

We find the consolidated financial statements that were prepared in the

name of Waterfront Promotion refer to the casino operations of the Club. A
consolidated financial statement is usually prepared for a parent company and its
subsidiaries, the purpose of which is to provide an overview of the financial
condition of the group of companies as a single entity. The Club, being a wholly-
owned subsidiary of Waterfront Promotion, Ltd. operates under the management,
supervision and control of Waterfront Promotion, Ltd.The relationship between
these two companies is so intertwined that the Club is practically considered a
department or division of Waterfront Promotion, Ltd.

A review of the consolidated financial statement shows that for the fiscal
years 2002 and 2003, the parent company and the consolidated companies reflect
the same amounts of losses: United States (U.S.) $2,791,104.00 for 2002 and U.S.
$765,222.00 for 2003. This proves petitioners assertion that the losses there
reflected refer to the losses of the Club.

The consolidated financial statement and the corporate relationships it

indicates, cannot, however, be relied upon by petitioner to avoid this particular
labor dispute because, as already stated, petitioner itself has been claiming from
the very beginning that the Club is only a division/department of the hotel.

Verily, retrenchment and not closure was effected to warrant the valid
dismissal of respondents. Petitioner has not totally ceased its operations. It merely
closed down a department.

Retrenchment is the termination of employment initiated by the employer

through no fault of and without prejudice to the employees. It is resorted to during
periods of business recession, industrial depression, or seasonal fluctuations or
during lulls occasioned by lack of orders, shortage of materials, conversion of the
plant for a new production program or the introduction of new methods or more
efficient machinery or of automation.[16] It is an act of the employer of dismissing
employees because of losses in the operation of a business, lack of work, and
considerable reduction on the volume of his business.[17]
 In case of retrenchment, proof of financial losses becomes the determining
factor in proving its legitimacy. In establishing a unilateral claim of actual or
potential losses, financial statements audited by independent external auditors
constitute the normal method of proof of profit and loss performance of a
company. The condition of business losses justifying retrenchment is normally
shown by audited financial documents like yearly balance sheets and profit and loss
statements as well as annual income tax returns.[18]

Retrenchment is subject to faithful compliance with the substantative and

procedural requirements laid down by law and jurisprudence.[19] For a valid
retrenchment, the following elements must be present:

(1) That retrenchment is reasonably necessary and likely to prevent business losses
which, if already incurred, are not merely de minimis, but substantial, serious, actual
and real, or if only expected, are reasonably imminent as perceived objectively and
in good faith by the employer;

(2) That the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the intended date
of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one
(1) month pay or at least month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for
the advancement of its interest and not to defeat or circumvent the employees right
to security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status,
efficiency, seniority, physical fitness, age, and financial hardship for certain
workers.[20]

All these elements were successfully proven by petitioner. First, the huge
losses suffered by the Club for the past two years had forced petitioner to close it
down to avert further losses which would eventually affect the operations
of petitioner. Second, all 45 employees working under the Club were served with
notice of termination. The corresponding notice was likewise served to the DOLE
one month prior to retrenchment.[21] Third, the employees were offered separation
pay, most of whom have accepted and opted not to join in this complaint. Fourth,
cessation of or withdrawal from business operations was bona fide in character and
not impelled by a motive to defeat or circumvent the tenurial rights of
employees.[22] As a matter of fact, as of this writing, the Club has not resumed
operations. Neither is there a showing that petitioner carried out the closure of the
business in bad faith. No labor dispute existed between management and the
employees when the latter were terminated.

Finally, we affirm the NLRCs award and computation of separation pay in

favor of respondents.

WHEREFORE, the petition is hereby GRANTED. The 5 July 2006 Decision

and 15 August 2006 Resolution of the Court of Appeals in CA- G.R. SP No. 01548
areREVERSED and SET ASIDE. The 27 June 2005 Decision and 18 November
2005 Resolution of the National Labor Relations Commission in NLRC NCR Case No.
V-000482-2004 are REINSTATED.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:
ALFREDO A. MENDROS, JR., G.R. No. 169780
Petitioner,
Present:

- versus - QUISUMBING, J., Chairperson,

CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
MITSUBISHI MOTORS PHILS.
CORPORATION (MMPC),
Respondent. Promulgated:
 February 16, 2009
x-----------------------------------------------------------------------------------------x

DECISION
VELASCO, JR., J.:

This is an appeal, via a petition for review under Rule 45, from the
Decision[1] dated November 18, 2004 of the Court of Appeals (CA) in CA-G.R. SP
No. 84790 which reversed and set aside the Resolutions dated September 23,
2002[2] and January 30, 2004 of the National Labor Relations Commission (NLRC)
in NLRC NCR CA No. 028205-01, and reinstated the February 27, 2001
Decision[3] of the Labor Arbiter in NLRC Case No. RAB-IV-9-11454-99-R.

The Facts

From the petition and its annexes, the respondents comment thereto, and the
parties respective memoranda, the Court gathers the following facts:

In April 1994, respondent Mitsubishi Motors Philippines Corporation

(MMPC) hired petitioner Alfredo A. Mendros, Jr. as regular body prepman, later
promoting him as assembler major in the companys manufacturing division.

Due to the severe drastic slump of its vehicle sales brought about by the
financial crisis that hit the country and other Asian economies in 1997, MMPC, per
its audited financial statements, sustained a financial loss of PhP 470 million in 1997
and PhP 771 million in 1998. In the face of these setbacks and in a bid to cushion
the impact of its business reversals and continue operations, MMPC implemented
various cost-cutting measures, such as but not limited to: cost reduction on the use
office supplies and energy, curtailment of representation and travel expenses,
employment-hiring freeze, separation of casuals and trainees, manpower services
(guards and janitorial services) reduction, intermittent plant shutdowns, and reduced
work week for managerial and other monthly-salaried personnel.

In February 1998, MMPC finally instituted the first stage of its retrenchment
program affecting around 531 hourly manufacturing employees, a step which later
proved not adequate enough to stem business reverses. Hence, after holding special
labor-management meetings with the hourly union, MMPC launched a temporary
lay-off program to cover some 170 hourly employees. This batch included Alfredo
who, sometime in January 1999, received a letter dated December 19, 1998,
informing him of the temporary suspension of his employment, inclusive of benefits.
As there indicated, the temporary lay-off scheme, initiated due to continuing
business contraction, was for six months from January 4 to July 2, 1999.

In the interim, MMPC updated the temporarily-suspended Alfredo, et al. of

its business condition.
As later events unfolded, the temporary lay-off move was still not enough to
avert further losses. In fact, the market situation even slid down. This development
impelled MMPC to embark on another retrenchment program affecting the hourly
employees. Accordingly, on May 31, 1999, MMPC sent separate notices to Alfredo
and other affected personnel advising them of their permanent lay-off, but with
retrenchment benefits, effective July 2, 1999. The drop in company sales and market
share was the stated reason for MMPCs latest move. As in the first instance, a copy
of the audited financial statements (AFS) was not appended to the letter-notice to
substantiate, as Alfredo would later bemoan, the acute business losses MMPC
claimed to have suffered.

It may be mentioned at this juncture that the July 1999 retrenchment of 170
hourly employees was preceded by the retrenchment of monthly-salaried MMPC
employees. In effect, therefore, the lay-off of the 170 employees was the second
retrenchment implemented by MMPC in 1999 and the third since 1998.

On June 1, 1999, a letter dated May 31, 1999 and addressed to Director Alex
Maraan was filed with the Department of Labor and Employment (DOLE), advising
him that the temporary lay-off of the 170 MMPC hourly employees is being made
permanent effective July 2, 1999 due to continuing adverse market conditions.

In September 1999, Alfredo filed a case for illegal dismissal and damages
before the NLRCs Regional Arbitration Branch No. IV, docketed as NLRC Case
No. RAB-IV-9-11454-99-R.

The Ruling of the Labor Arbiter

Conciliation efforts having failed, hearings were held, followed by a directive

for the submission of position papers. In its position paper, MMPC defined the
criteria used in considering employees for retrenchment. And among the documents
it filed together with its pleadings were its 1997-1996 and 1998-1997 Financial
Statements prepared by SGV & Co. On February 27, 2001, Labor Arbiter Enrico
Portillo rendered a Decision finding for MMPC and against Alfredo, his complaint
for illegal temporary lay-off and retrenchment being dismissed.[4]
 From the arbiters ruling, Alfredo appealed to the NLRC, its appeal docketed
as NLRC NCR CA No. 028205-01.
The Ruling of the NLRC

The NLRC saw things differently. By Resolution dated September 23, 2002,
the NLRCs First Division reversed and set aside the decision of Labor Arbiter
Portillo, disposing as follows:

IN VIEW THEREOF, the judgment appealed from is hereby

REVERSED and SET ASIDE and a new one ENTERED declaring the
temporary lay-off / retrenchment as illegal and ordering the respondent
[MMPC] to immediately reinstate the complainant [Alfredo] to his former
position without loss of seniority rights and other benefits accorded the
regular employees pursuant to their Collective Bargaining Agreement,
with full backwages which as of September 16, 2002 amounts to
P447,349.99.

A ten percent (10%) attorneys fee is likewise adjudged.

The computation submitted by the Computation and Examination

Unit is hereby adopted as Annex A and an integral part hereof.

SO ORDERED.[5]

While it agreed with the labor arbiters holding on MMPCs compliance with
the substantive and procedural requirements for retrenchment, the NLRC deemed
the merit rating system adopted by MMPC as additional and dominant criterion for
retrenchment to be erroneous and arbitrary, being against the parties then prevailing
Collective Bargaining Agreement (CBA). The CBA, according to the NLRC, listed
only seniority and needs of the company as determinative factors in the selection of
who shall be laid off.To the NLRC, MMPCs arbitrary way and the fact that it did
not notify Alfredo beforehand of the additional criterion, not to mention the findings
of the merit valuation, vitiated the retrenchment proceedings.

By Resolution of January 30, 2004, the NLRC denied MMPCs motion for
reconsideration, sending the company to the CA on a petition for certiorari, its
recourse docketed as CA-G.R. SP No. 84790.

The Ruling of the CA

On November 18, 2004, the appellate court rendered the appealed Decision
finding for MMPC, the dispositive portion of which reads, as follows:
 WHEREFORE, finding merit in the petition, We hereby GRANT
the same. The assailed Resolutions of public respondent National Labor
Relations Commission (NLRC) are hereby REVERSED and SET ASIDE
and the Decision of the Labor Arbiter dated February 27, 2001 is hereby
REINSTATED.

SO ORDERED.[6]

In reinstating the labor arbiters ruling and setting aside that of the NLRC, the
appellate court addressed two central issues: first, whether MMPC used fair and
reasonable criteria in ascertaining who would be retrenched; and second, whether
MMPC should have had furnished Alfredo copies of its AFS and the findings of its
merit evaluation. It resolved the first issue in the affirmative and the second in the
negative.

Following the denial of his motion for reconsideration, per the CAs resolution
of September 13, 2005, Alfredo interposed this petition.

The Issues

Petitioner Alfredo, through his Memorandum, raises the following issues for
our consideration:

I.

WHETHER OR NOT PETITIONERS RETRENCHMENT WAS

ILLEGAL.

A.

WHETHER OR NOT MERIT RATING AND RANKING ARE

PART OF THE CBA MANDATED CRITERIA IN
DETERMINING THE REGULAR EMPLOYEE TO BE
RETRENCHED.

B.

WHETHER OR NOT [MMPC] CAN VALIDLY ADOPT MERIT

RATING AND RANKING AS PART OF THE CRITERIA IN
DETERMINING THE REGULAR EMPLOYEE TO BE
RETRENCHED.

C.

WHETHER OR NOT [MMPC] SHOULD HAVE DISCLOSED

IN ITS NOTICE OF RETRENCHMENT TO PETITIONER, THE
 LATTERS LOW MERIT RATING AND RANKING AS THE
PRINCIPAL REASON FOR HIS RETRENCHMENT AND
FURNISHED PETITIONER WITH THE CORRESPONDING
[AFS] TO SUBSTANTIATE ITS CLAIM OF LOSSES.

D.

WHETHER OR NOT PETITIONERS RETRENCHMENT CAN

BE DEEMED VALID JUST BECAUSE [MMPCS] EARLIER
RETRENCHMENT OF HIS OTHER CO-EMPLOYEES HAD
BEEN ADJUDGED BY OUR COURTS TO BE VALID.

II.

WHETHER OR NOT THE [CA] CORRECTLY FOUND THAT THE

NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
REVERSING AND SETTING ASIDE THE DECISION OF LABOR
ARBITER PORTILLO AND ORDERING THE REINSTATEMENT x x
x.[7]

The fundamental issues tendered actually boil down to the legality and/or
validity of Alfredos temporary lay-off and eventual retrenchment.

The Courts Ruling

We deny the petition.

The right of management to retrench or to lay-off workers to meet clear and

continuing economic threats or during periods of economic recession to prevent
losses is recognized[8] by Article 283 of the Labor Code, as amended, partly
providing:

Art. 283. Closure of establishment and reduction of personnel.The

employer may also terminate the employment of any employee due to x x
x retrenchment to prevent losses or the closing or cessation of
operations of the establishment x x x by serving a written notice on the
worker and the [DOLE] at least one month before the intended date
thereof. x x x In case of retrenchment to prevent losses, the separation pay
shall be equivalent to one (1) month pay or at least one-half month pay for
every year of service whichever is higher. x x x (Emphasis ours.)

Decisional law teaches that the requirements for a valid retrenchment are:
(1) that the retrenchment is reasonably necessary and likely to prevent business
losses which, if already incurred, are not merely de minimis, but substantial,
serious, and real, or only if expected, are reasonably imminent as perceived
objectively and in good faith by the employer; (2) that the employer serves written
notice both to the employees concerned and the DOLE at least a month before the
intended date of retrenchment; (3) that the employer pays the retrenched
employee separation pay in an amount prescribed by the Code; (4) that the
employer exercises its prerogative to retrench in good faith; and (5) that it uses fair
and reasonable criteria in ascertaining who would be retrenched or retained.[9]

In F.F. Marine Corporation v. National Labor Relations Commission, the Court

expounded on the concept, requisites, and justification of retrenchment in the
following wise:

Retrenchment is the termination of employment initiated by the employer

through no fault of the employees x x x resorted to by management during periods of
business recession, industrial depression, or seasonal fluctuations or during lulls
occasioned by lack of orders, shortage of materials, conversion of the plant for a new
production program or the introduction of new methods or more efficient machinery, or
of automation. Retrenchment is a valid management prerogative. It is, however, subject
to faithful compliance with the substantive and procedural requirements laid down by
law and jurisprudence.
There are three (3) basic requisites for a valid retrenchment to exist, to wit: (a)
the retrenchment is necessary to prevent losses and such losses are proven; (b) written
notice to the employees and to the DOLE at least one (1) month prior to the intended
date of retrenchment; and (c) payment of separation pay x x x.
Jurisprudential standards to justify retrenchment have been reiterated by this
Court in a long line of cases to forestall management abuse of this prerogative, viz:
. . . . Firstly, the losses expected should be substantial and not merely de
minimis in extent. If the loss purportedly sought to be forestalled by
retrenchment is clearly shown to be insubstantial and inconsequential in
character, the bonafide nature of the retrenchment would appear to be seriously
in question. Secondly, the substantial loss apprehended must be reasonably
imminent, as such imminence can be perceived objectively and in good faith by
the employer. There should, in other words, be a certain degree of urgency for
theretrenchment, which is after all a drastic recourse with serious consequences
x x x. Because of the consequential nature of retrenchment, it must, thirdly, 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.An employer who, for
instance, lays off substantial numbers of workers while continuing to dispense fat
executive bonuses and perquisites or so-called golden parachutes, can scarcely
claim to be retrenching in good faith to avoid losses. To impart operational
meaning to the constitutional policy of providing full protection to labor, the
employers prerogative to bring down labor costs by retrenching must be
exercised essentially as a measure of last resort, after less drastic meanse.g.,
reduction of both management and rank-and-file bonuses and salaries, going on
reduced time, x x x costs, etc.have been tried and found wanting.
Lastly, x x x alleged losses if already realized, and the expected imminent losses
sought to be forestalled, must be proved by sufficient and convincing evidence. The
reason for requiring this quantum of proof is readily apparent: any less exacting standard
 of proof would render too easy the abuse of this ground for termination of services of
employees.[10] (Emphasis supplied.)

Given the foregoing legal perspective, the resolution of the basic core issue
should be in the affirmative. We are one with the appellate court in finding that the
essential requisites for a valid retrenchment laid down by law and jurisprudence are
obtaining.

First, there can hardly be any dispute that MMPC suffered substantial and
heavy losses in FY 1997 and continued to bleed in 1998. Even the NLRC conceded
this reality. To be precise, MMPC, as duly shown in its AFS for those fiscal
years,[11] incurred an aggregate loss of PhP 1.242 billion for its two-year operation.
To be sure, the AFS in question and necessarily the figures appearing therein cannot
be assailed as self-serving, as these documents were prepared and signed by SGV
& Co., a firm of reputable independent external auditors. Any suggestion that a
billion peso plus loss is de minimis in extent has to be dismissed for sheer absurdity.

Alfredos lament about not being furnished a copy of the 1997-1996 and
1998-1997 AFS and other financial documents, as well as the finding of the merit
evaluation rating, at the time he was notified of his lay-off cannot be accorded
tenability. The CA explained succinctly why:

x x x There is no law or rule that requires an employer to furnish an employee to

be retrenched copies of its [AFS] and other documents (e.g. finding of its merit
evaluation). The law only requires that the employer serve a written notice of the
retrenchment on the employee concerned and the [DOLE] at least one (1) month before
the intended date thereof. [Alfredos] contention that he should have been notified of his
merit rating in order for him to seek a clarification and even a reconsideration of the same
from [MMPC] is without merit. The appropriate forum for an employee to contest the
reality or good faith character of the retrenchment asserted as ground for dismissal from
employment is before the [DOLE].[12] (Citation omitted.)

Second, Alfredo cannot plausibly feign ignorance that MMPC was in dire
straights in 1997 and 1998. Neither can he impugn the bona fides of MMPCs
retrenchment strategy. Recall that MMPC, while experiencing business reverses,
implemented expense-cutting measures starting from reduction on the use of
utilities and office supplies, curtailing of representation and travel expenses and
deferring the implementation of set projects and programs. It froze hiring and
letting its casual employees and trainees go. And as the records show, a reduced
work week was set in place for managerial employees who, doubtless at
managements behest, agreed to a 5% salary cut. In fine, the retrenchment of
Alfredos batch on July 2, 1999 was not a spur-of-the-moment decision, but was
resorted to after cutbacks to minimize operational expenses have been explored,
but failed to forestall business losses. In fact, MMPC risked and in fact faced suits
by effecting two earlier retrenchment actions, itself an indicium that it imposed the
retrenchment on Alfredo in good faith, not to circumvent his security of tenure.

Third, it bears to state that the aforequoted Art. 283 of the Code uses the
phrase retrenchment to prevent losses. The phrase necessarily implies that
retrenchment may be effected even in the event only of imminent, impending, or
expected losses.[13] The employer need not wait for substantial losses to materialize
before exercising ultimate and drastic option to prevent such losses. In the case at
bench, MMPC was already financially hemorrhaging before finally resorting to
retrenchment.

Fourth, MMPC had complied with the prior written notice and separation pay
requirements. Alfredo was duly apprised of his fate a month before the effectivity
of his retrenchment, and the DOLE duly informed likewise a month before the July
2, 1999 effectivity through a letter dated May 31, 1999 sent on June 1, 1999. And
as determined by the labor arbiter, it appears that the retrenched employees have
already received their separation benefits of one-month salary for every year of
service,[14] except perhaps those who opted to challenge their retrenchment.

Finally, as the Court sees it, the merit rating system MMPC adopted as one
of the criteria for selecting who are to be eased out was fair and reasonable under
the premises. Alfredo, of course, latches the success of his cause principally on the
propriety of the criteria thus adopted, faulting the CA in the manner it construed
Art. V of the CBA then governing the employer-employee relationship between
MMPC and the hourly employees.

For clarity, we reproduce the pertinent provisions of Art. V of the CBA on lay-
off and other personnel/employee movements, specifically Sections 1 to 6, to wit:
ARTICLE V

PROMOTIONS, TRANSFERS, LAY-OFFS

AND RECALLS

SECTION 1. FACTORS TO BE FOLLOWED IN EMPLOYEE MOVEMENTS In the exercise of

customary functions of Management as regards promotions, transfer, lay-off and recall,
the COMPANY shall be guided by the following: Seniority, Efficiency and Attitude, Job
Knowledge and Potential, and Attendance and the COMPANY shall exercise just and fair
evaluation of such factors. It is understood that this provision is applicable only to
members of the bargaining unit and to movements within the bargaining unit.
 SECTION 2. In the application of the foregoing criteria, the following definition shall
be observed

(a) SENIORITY; Defined:

1. Department Seniority starts from the day of permanent assignment to a Production

Department or Non-Production Department.

2. Job Security starts from the day of permanent assignment to the job in Production
or Non-Production Department.

3. Corporate Seniority starts as of the first day of the probationary period of a regular
employee.

(b) EFFICIENCY AND ATTITUDE is defined as follows:

1. Ability to perform good work in accordance with COMPANY standards.

2. Ability to cooperate with supervisory staff and fellow employees.

3. Readiness to accept supervisors instructions and to perform them properly.

4. Compliance with COMPANY policies, rules and regulations.

5. Physical fitness.

(c) JOB KNOWLEDGE AND POTENTIAL as defined as follows:

1. Knowledge and ability to perform the job in accordance with COMPANY

standards.

2. Possession of broad knowledge of various types of work which will assure

satisfactory performance of other work assignments.

3. Adaptability to learn new work procedures.

4. Ability to improve work methods.

(d) ATTENDANCE is defined as follows:

Promptness in reporting to work; in other words, prompt observance of time signals,

scheduled starting time, morning and afternoon breaktime, lunch time and quitting
time. x x x

SECTION 3. PROMOTIONS Promotion is the movement of a qualified employee to a

higher job classification or lateral movement to a higher level within the same job
classification and shall entitle such employee to the appropriate wage range applicable to
the new position or job level.
 xxxx

SECTION 4. TRANSFERS Transfers are considered movements from one job

assignment to another, either on a temporary or permanent basis. In all cases of transfers,
whether temporary or permanent, the COMPANY will be guided by the factors
mentioned in Section 1 above.

xxxx

SECTION 5. LAY-OFFS Lay-Offs shall be guided by the following factors:

(a) TEMPORARY LAY-OFF is the adjustment or reduction in work force due to x x x and
other causes that will necessitate the temporary reduction of work force.

(b) PERMANENT LAY-OFF is a reduction in work force due to decrease in COMPANY

business.

(c) LAY-OFF PROCEDURE in case of lay-off whether in the Production or Non-

Production Departments, all temporary, casual and probationary employees will be
laid-off first. Regular employees will be laid-off taking into consideration corporate
seniority (last-in, first-out) and the needs of the COMPANY.

(d) No employee will be upgraded due to lay-off.

SECTION 6. RECALLS TO WORK When there is a need to increase the work force after
a lay-off, preference shall be given to retrenched employees on the basis of corporate
seniorityand provided they are qualified for the job opening. (Emphasis ours.)

Alfredo argues that since Art. V, Sec 5(c) of the CBA provides for only two
factors, i.e., (1) seniority (last-in, first-out) and (2) the needs of the company, to be
considered in retrenching MMPC employees, the company is bereft of authority to
arbitrarily impose other factors or criteria in effecting his retrenchment.

We are not persuaded.

Evaluation Method Used by MMPC in Determining the

Employees to be Retrenched Is in Accord with the CBA
 It is well-entrenched that if the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of the
stipulations shall control.[15] Courts, in appropriate cases, will intervene only when
the terms of the contract are ambiguous or uncertain and only to construe them to
seek the real intent of the parties and not to alter them.[16]

Just as settled is the rule that contracts should be so construed as to

harmonize and give effect to the different provisions of these contracts.[17] Under
Art. 1374[18] of the Civil Code, contracts cannot be construed by parts; stipulations
and clauses must be considered in relation to one another to give effect to the
whole. The legal effect of a contract is not determined alone by any particular
provision disconnected from all others, but from the whole read together.[19]

Following the above rules, the aforequoted Secs. 1 and 2 should be read as
qualifying the factors mentioned in the succeeding Sec. 5(c). It may be that Sec. 5(c)
mentions only seniority and needs of the company as factors to be considered in
the retrenchment selection process. But these twin factors cannot plausibly be
given exclusivity for Sec. 1 is clear in that the factors or criteria provided therein,
i.e., seniority, efficiency and attitude, job knowledge and potential, and
attendance, are to be considered in the exercise of management as regards lay-off,
among other personnel movements. Sec. 5 ought not to be treated alone, isolated
from kindred provisions.

Sec. 1, Art. V of the CBA, to reiterate, allows MMPC, in the exercise of its
customary management functions and prerogatives on matters of promotions,
transfer, lay-off, and recall, to consider as guiding norms the following factors or
criteria: Seniority, Efficiency and Attitude, Job Knowledge and Potential, and
Attendance. And to complement this prerogative, the company, in the same
section, is given the discretion to exercise just and fair evaluation of such factors,
meaning that the company is accorded a reasonable latitude to assign a
corresponding weight to each factor. On the other hand, Sec. 2 merely defines or
describes the factors or criteria mentioned in Sec. 1.

As couched, Sec. 1 is explicit in providing the criteria or factors for all

employee movements. A reading of the other provisos would show the
following: Sec. 3 on PROMOTIONS does not specifically mention any criterion or
factor, logically implying that the factors expressly mentioned in Sec. 1 shall apply
to promotional appointments; Sec. 4 on TRANSFERS, on the other hand, provides
that the factors mentioned in Sec. 1 apply; Sec. 5 on LAY-OFFS provides the factors
of seniority and needs of the company; while Sec. 6 on RECALLS TO WORK provides
the sole factor of seniority. Given the way the provisions were couched relative to
Sec. 1, it is clear to our mind, despite the seeming limited factors provided in Secs.
5 and 6, that the factors or criteria provided in Sec. 1, as defined in Sec. 2,
encompass and apply to all employee movements.

Alfredos posture that the Sec. 1 criteria are to be viewed as a general

standard and must be made to yield to those specifically provided in Sec. 5(c) is
specious at best and does not commend itself for concurrence.

As aptly noted by the CA, the Sec. 5(c) needs of the company factor, if viewed
by its lonesome self without linking it to the Sec. 1 criteria, would be a meaningless,
if not unreasonable, standard. Worse still, it may well-nigh give MMPC a carte
blanche and unchecked license to determine what the needs of the company would
be relative to the lay-off, retrenchment, or retention of any employee. Such
construal as espoused by Alfredo cannot be allowed for Sec. 1 expressly mandates
the use of salient criteria to be considered in lay-off situation and other personnel
movements. In all, there is really no irreconcilable conflict between Secs. 1 and 5;
they can and ought to be harmonized and read in conjunction with each other.

The proper view, therefore, is that the Sec. 1 criteria qualify the factors of
seniority and needs of the company in Sec. 5(c). Stated a bit differently, Sec. 5(c)
should be understood in the light of Sec. 1 which, to stress, provides seniority,
efficiency and attitude, job knowledge and potential, and attendance as among the
factors that should guide the company in choosing the employees to be laid-off or
kept. All other things being equal, a company would necessarily need to retain
those who had rendered dedicated and highly efficient service and whose
knowledge, attendance, and potential hew with company standards. Any other
measure would be senseless in the business viewpoint.Accordingly, the merit rating
used by MMPC based on Sec. 5 in conjunction with and as qualified by the factors
provided under Sec. 1 is fair and reasonable, and, to be sure, well within the
contemplation of the parties CBA. In fact, Alfredo, shorn of the contention that the
merit rating is against the CBA, has not shown any arbitrariness on the part of
MMPC in the evaluation, selection, and retrenchment of employees.

We end this ponencia by taking stock that 60 of the first batch of 531 hourly
employees retrenched in February 1998 challenged the legality of their
retrenchment on the very same issue of arbitrariness in the implementation of the
rating evaluation system. The labor arbiter, the NLRC, and effectively the CA were
one in their ruling that the retrenchment program and the evaluation method used
by MMPC passed the test of reasonableness and were arrived at in good faith; thus,
the retrenchment was held legal and valid. In G.R. No. 155406, the Court found no
reversible error in the CA judgment and dismissed the petition of the retrenched
employees, thereby upholding the validity of retrenchment undertaken by
respondent company.[20] The same result obtains in the instant petition.

WHEREFORE, the instant petition is hereby DENIED for lack of

merit. Accordingly, the Decision dated November 18, 2004 of the CA and its
Resolution of September 13, 2005 in CA-G.R. SP No. 84790 are hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

Retrenchment is an authorized cause for the termination of employment under

Article 283 of the Labor Code, which reads:

Art. 283. Closure of establishment and reduction of personnel. The

employer may also terminate the employment of any employee due to
the installation of labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on
the workers and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof. In case of termination due to
the installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at
least his one (1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1)
month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be
considered one (1) whole year.[44]
Retrenchment is defined as the termination of employment initiated by the
employer through no fault of the employee and without prejudice to the latter,
resorted by management during periods of business recession, industrial
depression or seasonal fluctuations or during lulls over shortage of materials. It is
a reduction in manpower, a measure utilized by an employer to minimize business
losses incurred in the operation of its business.[45] Explaining the import of the
phrase to prevent losses, this Court held in Lopez Sugar Corporation v. Federation
of Free Workers,[46] thus:

In its ordinary connotation, the phrase to prevent losses means

that retrenchment or termination of the services of some employees is
authorized to be undertaken by the employer sometime before the
losses anticipated are actually sustained or realized. It is not, in other
words, the intention of the lawmaker to compel the employer to stay his
hand and keep all his employees until sometime after losses shall have,
in fact, materialized; if such an intent were expressly written into the law,
that law may well be vulnerable to constitutional attack as taking
property from one man to give to another. This is simple enough.[47]

The prerogative of an employer to retrench its employees must be exercised

only as a last resort, considering that it will lead to the loss of the employees
livelihood. It is justified only when all other less drastic means have been tried and
found insufficient or inadequate.[48] Moreover, the employer must prove the
requirements for a valid retrenchment by clear and convincing evidence;
otherwise, said ground for termination would be susceptible to abuse by scheming
employers who might be merely feigning losses or reverses in their business
ventures in order to ease out employees. The requirements are:

xxx (1) that the retrenchment is reasonably necessary and likely to

prevent business losses which, if already incurred, are not merely de
minimis, but substantial, serious, actual and real, or if only expected, are
reasonably imminent as perceived objectively and in good faith by the
employer; (2) that the employer served written notice both to the
employees and to the Department of Labor and Employment at least one
month prior to the intended date of retrenchment; (3) that the employer
pays the retrenched employees separation pay equivalent to one month
pay or at least month pay for every year of service, whichever is higher;
 (4) that the employer exercises its prerogative to retrench employees in
good faith for the advancement of its interest and not to defeat or
circumvent the employees right to security of tenure; and (5) that the
employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as
status (i.e., whether they are temporary, casual, regular or managerial
employees), efficiency, seniority, physical fitness, age, and financial
hardship for certain workers.[49]

What the law speaks of is serious business losses or financial reverses. Sliding
incomes or decreasing gross revenues are not necessarily losses, much less serious
business losses within the meaning of the law. The bare fact that an employer may
have sustained a net loss, such loss, per se, absent any other evidence on its impact
on the business, nor on expected losses that would have been incurred had
operations been continued, may not amount to serious business losses mentioned
in the law.[50] The employer must also show that its losses increased through a
period of time and that the condition of the company will not likely improve in the
near future.

Redundancy, on the other hand, exists when the service capability of the work force
is in excess of what is reasonably needed to meet the demands of the enterprise. A
redundant position is one rendered superfluous by any number of factors, such as
overhiring of workers, decreased volume of business, dropping of a particular
product line previously manufactured by the company, or phasing out of a service
activity previously undertaken by the business. Under these conditions, the
employer has no legal obligation to keep in its payroll more employees than are
necessary for the operation of its business.[51]

For the implementation of a redundancy program to be valid, the employer must

comply with the following requisites: (1) written notice
served on both the employees and the Department of Labor and Employment at
least one month prior to the intended date of retrenchment; (2) payment of
separation pay equivalent to at least one month pay for every year of service,
whichever is higher; (3) good faith in abolishing the redundant positions; and (4)
fair and reasonable criteria in ascertaining what positions are to be declared
redundant and accordingly abolished.[52]

Respondents failed to adduce clear and convincing evidence to prove the

confluence of the essential requisites for a valid retrenchment of its employees. We
believe that respondents acted in bad faith in terminating the employment of the
members of petitioner Union.

Contrary to the claim of respondents that the Corporation was experiencing

business losses, respondent Corporation, in fact, amassed substantial earnings
from 1999 to 2003. It found no need to appropriate its retained earnings except
on March 23, 2001, when it appropriated P60,000,000.00 to increase production
capacity.[53] The respondent Corporation never incurred any net loss during said
period, which is borne out by the evidence on record, thus:

Retained Earnings (Unappropriated) Retained Earnings (Appropriated)

1999 P103,200,960.00

2000 P156,772,118.00

2001 P125,593,550.00 P60,000,000.00

2002 P155,077,328.00

2003 P157,737,854.00[54]

Respondent Corporation appropriated the P60,000,000.00 to fund the increase in

production capacity on March 23, 2001 and P20,000,000.00 for the expansion of its
plant.Although the Corporations retained earnings declined in 2001, in 2002 such
earnings amounted to P155,077,328.00, slightly lower than its P157,737,854.00
earnings in 2003.[55]

The evidence on record belies the P22,820,151.00 net income loss in 2004 as
projected by the SOLE. On March 29, 2004, the Board of Directors approved the
appropriation of P20,000,000.00 to purchase machinery to improve its facilities,
and declared cash dividends to stockholders at P30.00 per share. This is evidenced
by the financial report:

e. On March 29, 2004, the BOD approved the reversal of the

appropriation for plant expansion amounting to P60,000,000. On the
same date, the BOD approved the declaration of P10 per share cash
dividends to stockholders of record as of March 29, 2004 and the
appropriation for acquisition of machinery and equipment
amounting to P20,000,000 out of the Parent Companys
unappropriated retained earnings.
 f. On September 16, 2004, the BOD approved the appropriation from
unappropriated retained earnings for the purchase of machinery and
improvement of the Parent Companys facilities amounting
to P20,000,000. On the same date, the BOD declared cash dividends
of P30 per share payable in 2005 and reversed the appropriation
made on March 29, 2004 for acquisition of machinery and
equipment.[56]

It bears stressing that the appropriation of P20,000,000.00 by the respondent

Corporation on September 16, 2004 was made barely five months after the 77
Union members were dismissed on the ground that respondent Corporation was
suffering from chronic depression. Cash dividends were likewise declared
on March 29, 2004, barely two weeks after it implemented its retrenchment
program.

If respondent Corporation were to be believed that it had to retrench employees

due to the debilitating slump in demand for its products resulting in severe losses,
how could it justify the purchase of P20,000,000.00 worth of machinery and
equipment? There is likewise no justification for the hiring of more than 100 new
employees, more than the number of those who were retrenched, as well as the
order authorizing full blast overtime work for six hours daily. All these are
inconsistent with the intransigent claim that respondent Corporation was impelled
to retrench its employees precisely because of low demand for its products and
other external causes.

The evidence on record also shows that from 1999 to 2003, respondent
Corporation had the following net sales, gross and net profits, as well as net
income:

Net Sales Gross Profit Net Profit Net Income

1999 P339,443,017.00 P78,100,485.00 P7,562,572.00 P29,068,388.00

2000 P417,490,309.00 P87,448,322.00 P29,158,284.00 P63,640,408.00

2001 P419,821,466.00 P99,081,438.00 P70,603,790.00 P46,559,917.00

2002 P405,893,286.00 P89,814,698.00 P66,290,405.00 P39,553,028.00

2003 P413,616,177.00 P78,864,114.00 P64,516,917.00 P12,729,776.00[57]

 Thus, there was a substantial increase in net sales from 1999 to 2000,
amounting to P78,047,292.00. Although net sales in 2001 decreased
by P2,331,157.00, this was caused by the political crisis in the latter half of
2000. The considerable decrease in net sales in 2002 (P8,928,130.00) was caused
by the decrease in sales to one of respondent Corporations domestic customers,
the Universal Far East Corporation (from P10,191,891.00 in 2001
to P29,663,371.00 in 2002).[58] This prompted respondent Corporation to retrench
some of its personnel and stop the operation of PWSC effective July 31,
2002. However, it recovered in 2003 and increased net sales by P7,722,891.00,
which paralleled its net sales in 2001. Consequently, respondent Corporation
increased its retained earnings to P156,772,118.00. In 2003, the net sales increased
by more than P8,000,000.00.There was also an increase of sales to subsidiaries and
associates from P55,900,384.00 in 2002 to P71,954,982.00 in 2003.[59] The
personnel costs for salaries and wages, employee benefits and allowances and
retirement costs also decreased from P140,559,753.00 in 2002 to
only P122,075,383.00 in 2003.[60] Even general and administrative expenses slightly
decreased to P14,586,471.00 in 2003 from P15,262,901.00 in 2002.[61] The net
income of respondent Corporation in 1999 (P29,068,388.00) increased
to P63,640,408.00 in 2000. Its retained earnings of P84,201,822.00 at the
beginning of 1999 increased to P103,200,960.00 in 2000.[62] The Corporations net
profits of P7,562,572.00 in 1999 increased to P29,158,284.00 in 2000.

Admittedly, the net income of respondent Corporation of P46,559,917.00 in

2001 decreased to P37,764,303.00 in 2002. However, such decrease ensued
because respondent Corporation declared cash dividends for its shareholders
amounting to P28,000,000.00.[63]

It also appears that respondent Corporations gross profit of P89,814,698.00

in 2002 decreased to P78,864,114.00 in 2003. The reason for this is that the cost of
goods sold in 2002 amounted to P316,078,588.00. In 2003, it increased
to P334,752,063.00 in 2003,[64] in large part due to net changes in finished goods
and goods in the process amounting to P9,203,605.00,[65] as well as costs for raw
materials used, spare parts and supplies, light, power and water, and depreciation
of cost of goods sold increased.However, personnel costs decreased
to P97,971,479.00.[66] There was thus no reason for respondent Corporation to
implement its retrenchment program and terminate the 88 employees.

The net income of the respondent Corporation of P39,553,028.00 in 2002

decreased to P12,729,776.00 in 2003.[67] It bears stressing, however, that the
stockholders received cash dividends in the total amount
[68]
of P12,259,473.00. Also, the net income of respondent Corporation decreased
because its income before equity in net earnings of its subsidiaries and
associates was reduced to P11,122,142.00.[69] As shown in the SGV & Co. Audit
Report, the net income of PCMC-USA decreased to P6,612,000.00, while PCMC-
Clark and MPHI suffered net losses.[70]

That respondents acted in bad faith in retrenching the 77 members of

petitioner is buttressed by the fact that Diaz issued his Memorandum announcing
the cost-reduction program on March 9, 2004, after receipt of the February 10,
2004 letter of the Union president which included the proposal for additional
benefits and wage increases to be incorporated in the CBA for the ensuing
year. Petitioner and its members had no inkling, before February 10, 2004, that
respondent Corporation would terminate their employment. Moreover,
respondent Corporation failed to exhaust all other means to avoid further losses
without retrenching its employees, such as utilizing the latters respective forced
vacation leaves. Respondents also failed to use fair and reasonable criteria in
implementing the retrenchment program, and instead chose to retrench 77 of the
members of petitioner out of the dismissed 88 employees. Worse, respondent
Corporation hired new employees and even rehired the others who had been
retrenched.

As shown by the SGV & Co. Audit Report, as of year end December 31, 2003,
respondent Corporation increased its net sales by more than P8,000,000.00.
Respondents failed to prove that there was a drastic or severe decrease in the
product sales or that it suffered severe business losses within an interval of three
(3) months from January 2004 to March 9, 2004 when Diaz issued said
Memorandum. Such claim of a depressed market as of March 9, 2004 was only a
pretext to retaliate against petitioner Union and thereby frustrate its demands for
more monetary benefits and, at the same time, justify the dismissal of the 77 Union
members.

In Agabon v. National Labor Relations Commission[71] and Jaka Food

Processing Corp. v. Pacot,[72] the Court sustained the dismissals for just cause under
Article 282 and for authorized cause under Article 283 of the Labor Code,
respectively, despite non-compliance with the statutory requirement of notice and
hearing. The grounds for dismissal in those cases, namely, neglect of duty and
retrenchment, remained valid because the non-compliance with the notice and
hearing requirement in the Labor Code did not undermine the validity of the grounds
for the dismissals. The Court in those cases directed the employers to pay nominal
damages to the employees dismissed for just or authorized cause for non-compliance
with the procedural due process.
In contrast, in this case, the retrenchment effected by respondent Corporation is
invalid due to a substantive defect, non-compliance with the substantial
requirements to effect a valid retrenchment; it necessarily follows that the
termination of the employment of petitioner Unions members on such ground is,
likewise, illegal. As such, they (petitioner Unions members) are entitled to
reinstatement with full backwages.[73] However, in the case of those employees-
members of petitioner Union who had received their respective separation pay,
the amounts of such payments shall be deducted from the backwages due
them.[74] Where reinstatement is no longer feasible because the positions they
previously held no longer exist, respondent Corporation shall pay the employees-
members of petitioner Union backwages plus, in lieu of reinstatement, separation
pay equivalent to one month pay, or one-half month pay for every year of service,
whichever is higher.[75]

It is noteworthy that the separation pay being awarded in the instant case is due to
illegal dismissal; hence, it is different from the amount of separation pay provided
for in Article 283 of the Labor Code in case of retrenchment to prevent losses or in
case of closure or cessation of the employers business, in either of which the
separation pay is equivalent to at least one (1) month or one-half (1/2) month pay for
every year of service, whichever is higher.[76]

Considering further that there was evident bad faith on the part of respondent
Corporation in terminating the employment of the employees-members of petitioner
Union on the ground of retrenchment, they are entitled to an award of moral damages
in the amount of P20,000.00 each.[77]