22.

REPUBLIC V PERALTA
150 SCRA 37
FELICIANO; May 20, 1987
NATURE: Review on certiorari
FACTS:
- The Republic of the Philippines seeks the review on certiorari of the Order of the CFI of Manila in its Civil
Case No. 108395
entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation, Quality Tobacco.”
- In its questioned Order, the trial court held that the above enumerated claims of USTC and FOITAF (hereafter
collectively
referred to as the "Unions") for separation pay of their respective members embodied in final awards of the
NLRC were
to be preferred over the claims of the Bureau of Customs and the BIR. The trial court, in so ruling, relied
primarily upon Article 110 of the Labor Code.
- The Solicitor General, in seeking the reversal of the questioned Orders, argues that Article 110 of the Labor
Code is not applicable as it speaks of "wages," a term which he asserts does not include the separation pay
claimed by the Unions. "Separation pay," the Solicitor General contends: is given to a laborer for a separation
from employment computed on the basis of the number of years the laborer was employed by the 7 SEC. 1.
Requirements for Issuance of License. Every applicant for license to operate a private employment agency or
manning agency shall submit a written application together with the following requirements: xxx xxx
f. A verified undertaking stating that the applicant:
xxx xxx xxx
(3) Shall assume joint and solidary liability with the employer for all claims and liabilities which may arise in
connection with the implementation of the contract; including but not limited to payment of wages, health
and disability compensation and reparation. employer; it is a form of penalty or damage against the employer
in favor of the employee for the latter's dismissal or separation from service
ISSUE WON separation pay of their respective members embodied in final awards of the NLRC were to be
preferred over the claims of the Bureau of Customs and the BIR (WON separation pay is included in the term
“wages”8)
HELD 1. YES Ratio For the specific purposes of Article 1109 and in the context of insolvency termination or
separation pay is reasonably regarded as forming part of the remuneration or other money benefits accruing
to employees or workers by reason of their having previously rendered services to their employer; as such,
they fall within the scope of "remuneration or earnings — for services rendered or to be rendered — ."
Liability for separation pay might indeed have the effect of a penalty, so far as the employer is concerned. So
far as concerns the employees, however, separation pay is additional remuneration to which they become
entitled because, havingpreviously rendered services, they are separated from the employer's service.
Reasoning - We note, in this connection, that in Philippine Commercial and Industrial Bank (PCIB) us. National
Mines and Allied Workers Union, the Solicitor General took a different view and there urged that the term
"wages" under Article 110 of the Labor Code may be regarded as embracing within its scope severance pay or
termination or separation pay. In PCIB, this Court agreed with the position advanced by the Solicitor General.
We see no reason for overturning this particular position.
- The resolution of the issue of priority among the several claims filed in the insolvency proceedings instituted
by the Insolvent cannot, however, rest on a reading of Article 110 of the labor Code alone.
- Article 110 of the Labor Code, in determining the reach of its
terms, cannot be viewed in isolation. Rather, Article 110 must
be read in relation to the provisions of the Civil Code concerning
the classification, concurrence and preference of credits, which
provisions find particular application in insolvency proceedings
where the claims of all creditors, preferred or non-preferred,
may be adjudicated in a binding manner.
Disposition MODIFIED and REMANDED to the trial court for
further proceedings in insolvency.
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Wage' paid to any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission basis, or
other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment for work
done or to be done, or for services rendered or to be rendered, and includes
the fair and reasonable value, as determined by the Secretary of Labor, of
board, lodging, or other facilities customarily furnished by the employer to
the employee. 'Fair and reasonable value' shall not include any profit to the
employer or to any person affiliated with the employer.(emphasis supplied)
9
Article 110. Worker preference in case of bankruptcy — In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Union
paid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer. (emphasis supplied).

23. DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, ONG PENG, ET AL., respondents.,

G.R. No. 100264-81; Jan 29, 1993

FACTS:

November 14, 1986, private respondents filed with DOLE- Daet, Camarines Norte, 17 individual complaints
against Republic Hardwood Inc. (RHI) for unpaid wages and separation pay. These complaints were thereafter
endorsed to Regional Arbitration Branch of the NLRC since the petitioners had already been terminated from
employment.
RHI alleged that it had ceased to operate in 1983 due to the government ban against tree-cutting and that in
May 24, 1981, its sawmill was totally burned resulting in enormous losses and that due to its financial
setbacks, RHI failed to pay its loan with the DBP. RHI contended that since DBP foreclosed its mortgaged
assets on September 24,1985, then any adjudication of monetary claims in favor of its former employees must
be satisfied against DBP. Private respondent impleaded DBP.
Labor Arbiter favored private respondents and held RHI and DBP jointly and severally liable to private
respondents. DBP appealed to the NLRC. NLRC affirmed LA’s judgment. DBP filed M.R. but it was dismissed.
Thus, this petition for certiorari.
ISSUE:

(1) Whether the private respondents are entitled to separation pay.

(2) Whether the private respondents’ separation pay should be preferred than the DBP’s lien over the RHI’s
mortgaged assets.
RULING:

Yes. Despite the enormous losses incurred by RHI due to the fire that gutted the sawmill in 1981 and despite
the logging ban in 1953, the uncontroverted claims for separation pay show that most of the private
respondents still worked up to the end of 1985. RHI would still have continued its business had not the
petitioner foreclosed all of its assets and properties on September 24, 1985. Thus, the closure of RHI’s
business was not primarily brought about by serious business losses. Such closure was a consequence of
DBP’s foreclosure of RHI’s assets. The Supreme Court applied Article 283 which provides:
“. . . 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 1 month pay or at least 1/2 month pay for
every year of service, whichever is higher. . . .”
(2) No. Because of the petitioner’s assertion that LA and NLRC incorrectly applied the provisions of Article
110 of the Labor Code, the Supreme Court was constrained to grant the petition for certiorari.
Article 110 must be read in relation to the Civil Code concerning the classification, concurrence and
preference of credits, which is application in insolvency proceedings where the claims of all creditors,
preferred or non-preferred, may be adjudicated in a binding manner. Before the workers’ preference provided
by Article 110 may be invoked, there must first be a declaration of bankruptcy or a judicial liquidation of the
employer’s business.
NLRC committed grave abuse of discretion when it affirmed the LA’s ruling. DBP’s lien on RHI’s mortgaged
assets, being a mortgage credit, is a special preferred credit under Article 2242 of the Civil Code while the
workers’ preference is an ordinary preferred credit under Article 2244.
A distinction should be made between a preference of credit and a lien. A preference applies only to claims
which do not attach to specific properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in
application. It is a method adopted to determine and specify the order in which credits should be paid in the
final distribution of the proceeds of the insolvent’s assets. It is a right to a first preference in the discharge of
the funds of the judgment debtor.
Article 110 of the Labor Code does not create a lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages
do not therefore fall at all within the category of specially preferred claims established under Articles 2241
and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by
Article 2241, (6)- (claims for laborers’ wages, on the goods manufactured or the work done); or by Article 2242,
(3)- (claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals and other works.
Since claims for unpaid wages fall outside the scope of Article 2241 (6) and 2242 (3), and not attached to any
specific property, they would come within the category of ordinary preferred credits under Article 2244.
(Note: SC favored DBP kasi yung mortgage nila against RHI was executed prior to the amendment of Article
110. The amendment can’t be given retroactive effect daw. Pero sa present, 1st priority na talaga ang laborer’s
unpaid wages regardless kung may mortgage or wala ang ibang creditors ng employer)
Article 110 of the Labor Code has been amended by R.A. No. 6715 and now reads:
“Article 110. Worker preference in case of bankruptcy. – In the event of bankruptcy or liquidation of an employers
business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any
provision of law to the contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in full
before the claims of the Government and other creditors may be paid.”
The amendment “expands worker preference to cover not only unpaid wages but also other monetary claims
to which even claims of the Government must be deemed subordinate.” Hence, under the new law, even
mortgage credits are subordinate to workers’ claims.
R.A. No. 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be retroactively
applied to, nor can it affect, the mortgage credit which was secured by the petitioner several years prior to its
effectivity.
Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean `absolute
preference,’ the same should be given only prospective effect in line with the cardinal rule that laws shall have
no retroactive effect, unless the contrary is provided. To give Article 110 retroactive effect would be to wipe
out the mortgage in DBP’s favor and expose it to a risk which it sought to protect itself against by requiring a
collateral in the form of real property.
The public respondent, therefore, committed grave abuse of discretion when it retroactively applied the
amendment introduced by R.A. No. 6715 to the case at bar.
Petition GRANTED. Decision of NLRC SET ASIDE.
24.
MARLO A. DEOFERIO, Petitioner, vs. INTEL TECHNOLOGY PHILIPPINES, INC. and/or MIKE
WENTLING, Respondents.
G.R. No. 202996 June 18, 2014

FACTS: TOPIC Disease

1. Intel employed Deoferio as product quality and reliability engineer with a monthly salary of
P9,000.00. In July2001, Intel assigned him to the United States as a validation engineer for an agreed
period of two years and with a monthly salary of US$3,000.00. On January 27, 2002, Deoferio was
repatriated to the Philippines after being confined at Providence St. Vincent Medical Center for major
depression with psychosis. In the Philippines, he worked as a product engineer with a monthly salary
of P23,000.00.
2. Deoferio underwent a series of medical and psychiatric treatment at Intel’s expense after his
confinement in the United States.
3. In 2002, Dr. Elizabeth Rondain of Makati Medical Center diagnosed him to be suffering from mood
disorder, major depression, and auditory hallucination.
4. He was also referred to Dr. Norieta Balderrama, Intel’s forensic psychologist, and to a certain Dr.
Cynthia Leynes who both confirmed his mental condition
5. On August 8, 2005, Dr. Paul Lee, a consultant psychiatrist of the Philippine General Hospital,
concluded that Deoferio was suffering from schizophrenia. After several consultations, Dr. Lee issued
a psychiatric report dated January 17,2006 concluding and stating that Deoferio’s psychotic
symptoms are not curable within a period of six months and "will negatively affect his work
and social relation with his co-worker[s]."
6. Pursuant to these findings, Intel issued Deoferio a notice of termination on March 10, 2006.
7. Deoferio filed an action against Intel for illegal dismissal He denied that he ever had mental illness
and insisted that he satisfactorily performed his duties as a product engineer. He argued that Intel
violated his statutory right to procedural due process when it summarily issued a notice of
termination.
8. Respondents argued that: Deoferio’s dismissal was based on Dr. Lee’s certification that: (1) his
schizophrenia was not curable within a period of six months even with proper medical treatment;
and (2) his continued employment would be prejudicial to his and to the other employees’
health. The respondents also insisted that Deoferio’s presence at Intel’s premises would pose an
actual harm to his co-employees as shown by his previous acts. On May 8, 2003, Deoferio emailed an
Intel employee with this message: "All soul’s day back to work Monday WW45.1." On January 18,
2005, he cut the mouse cables, stepped on the keyboards, and disarranged the desks of his co-
employees. The respondents also highlighted that Deoferio incurred numerous absences from work
due to his mental condition, specifically, from January 31, 2002 until February 28, 2002, from August
2002 until September 2002, and from May 2003 until July 2003. Deoferio also took an administrative
leave with pay from January 2005 until December 2005. respondents further asserted that the twin-
notice requirement in dismissals does not apply to terminations under Article 284 of the Labor Code.
9. LA – valid dismissal. The LA gave weight to Dr. Lee’s certification that Deoferio had been suffering
from schizophrenia and was not fit for employment.
10. NLRC affirmed
11. CA affirmed, MR denied
12. Deoferio argues: that he was suffering from schizophrenia is belied by his subsequent employment at
Maxim Philippines Operating Corp. and Philips Semiconductors Corp., which both offered him higher
compensations. He also asserts that the Labor Code does not exempt the employer from complying
with the twin-notice requirement in terminations due to disease.

ISSUE: W/N the twin-notice requirement in dismissals applies to terminations due to disease – YES. DUE
PROCESS

HELD: The twin-notice requirement applies to terminations under Article 284 of the Labor Code. The Labor
Code and its IRR are silent on the procedural due process required in terminations due to disease. Despite the
seeming gap in the law, Section 2, Rule 1, Book VI of the IRR expressly states that the employee should
be afforded procedural due process in all cases of dismissals. In Sy v. Court of Appeals and Manly Express,
Inc. v. Payong, Jr., promulgated in 2003 and 2005, respectively, the Court finally pronounced the rule that the
employer must furnish the employee two written notices in terminations due to disease, namely: (1) the
notice to apprise the employee of the ground for which his dismissal is sought; and (2) the notice informing
the employee of his dismissal, to be issued after the employee has been given reasonable opportunity to
answer and to be heard on his defense. These rulings reinforce the State policy of protecting the workers from
being terminated without cause and without affording them the opportunity to explain their side of the
controversy.

In the current case, we agree with the CA that Dr. Lee’s psychiatric report substantially proves that Deoferio
was suffering from schizophrenia, that his disease was not curable within a period of six months even with
proper medical treatment, and that his continued employment would be prejudicial to his mental health. This
conclusion is further substantiated by the unusual and bizarre acts that Deoferio committed while at Intel’s
employ.

Employer has the right to discharge the employee for authorized cause, like in this case, disease. Thus, in
termination cases, the law places the burden of proof upon the employer to show by substantial evidence that
the termination was for a lawful cause and in the manner required by law.

In concrete terms, these qualifications embody the due process requirement in labor cases - substantive and
procedural due process. Substantive due process means that the termination must be based on just and/or
authorized causes of dismissal. On the other hand, procedural due process requires the employer to effect the
dismissal in a manner specified in the Labor Code and its IRR.

termination due to disease requires (elements) the presence of:

(1) An employer has been found to be suffering from any disease.
(2) His continued employment is prohibited by law or prejudicial to his health, as well as to the
health of his co-employees.
(3) A competent public health authority certifies that the disease is of such nature or at such a stage
that it cannot be cured within a period of six months even with proper medical treatment. With
respect to the first and second elements, the Court liberally construed the phrase "prejudicial to his
health as well as to the health of his co-employees" to mean "prejudicial to his health or to the health
of his co-employees." We did not limit the scope of this phrase to contagious diseases for the reason
that this phrase is preceded by the phrase "any disease" under Article 284 of the Labor Code, to wit:

Art. 284. Disease as ground for termination. – An employer may terminate the services of an employee who
has been found to be suffering from any disease and whose continued employment is prohibited by law or is
prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid separation pay
equivalent to at least one (1) month salary or to one-half (1/2) 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.

The third element substantiates the contention that the employee has indeed been suffering from a disease
that: (1) is prejudicial to his health as well as to the health of his co-employees; and (2) cannot be cured
within a period of six months even with proper medical treatment. Without the medical certificate, there can
be no authorized cause for the employee’s dismissal. The absence of this element thus renders the dismissal
void and illegal.

Simply stated, this requirement is not merely a procedural requirement, but a substantive one. The
certification from a competent public health authority is precisely the substantial evidence required by law to
prove the existence of the disease itself, its non-curability within a period of six months even with proper
medical treatment, and the prejudice that it would cause to the health of the sick employee and to those of his
co-employees.

In the current case, we agree with the CA that Dr. Lee’s psychiatric report substantially proves that Deoferio
was suffering from schizophrenia, that his disease was not curable within a period of six months even with
proper medical treatment, and that his continued employment would be prejudicial to his mental health. This
conclusion is further substantiated by the unusual and bizarre acts that Deoferio committed while at Intel’s
employ.

WHEREFORE, premises considered, we partially grant the petition; the assailed February 24, 2012 decision
and the August 2, 2012 resolution of the Court of Appeals stand but respondent Intel Technology Philippines,
Inc. is ordered to pay petitioner Marlo A. Deoferio nominal damages in the amount of P30,000.00. We totally
deny the petition with respect to respondent Mike Wending.

(relevant to topic disease: applicability of 2 notice rule in disease, elements of disease)

25, ---------------------------------------------
145. MILAN v. NLRC
G.R. No. 202961
February 04, 2015
Digested By: Joyce Baylon
---------------------------------------------
Petitioners: EMER MILAN, RANDY MASANGKAY, WILFREDO JAVIER, RONALDO DAVID, BONIFACIO
MATUNDAN, NORA MENDOZA, ET AL., (Milan et.al)
Respondents: NATIONAL LABOR RELATIONS COMMISSION, SOLID MILLS, INC., AND/OR PHILIP ANG

Petition: Petition for Review of CA Decision

Ponente: LEONEN

FACTS:
1. Milan et.al are Solid Mills, Inc.’s (Solid Mills) employees. They are represented by the National Federation
of Labor Unions (NAFLU), their collective bargaining agent.
2. As Solid Mills’ employees, Milan et.al. and their families were allowed to occupy SMI Village, a property
owned by Solid Mills. According to Solid Mills, this was “[o]ut of liberality and for the convenience of its
employees . . . [and] on the condition that the employees would vacate the premises anytime the Company
deems fit.”
3. In September 2003, Milan et.al were informed that effective October 10, 2003, Solid Mills would cease its
operations due to serious business losses. NAFLU recognized Solid Mills’ closure due to serious business
losses in the memorandum of agreement dated September 1, 2003. The memorandum of agreement
provided for Solid Mills’ grant of separation pay less accountabilities, accrued sick leave benefits, vacation
leave benefits, and 13th month pay to the employees. The agreement was entered into with full
knowledge by the parties of their rights under the law and they bound themselves not to conduct any
concerted action of whatsoever kind, otherwise the grant of financial assistance as discussed above will
be withheld.
4. Solid Mills filed its Department of Labor and Employment termination report on September 2, 2003.
5. Later, Solid Mills, through Alfredo Jingco, sent to Milan et.al individual notices to vacate SMI Village.
6. Milan et.al. were no longer allowed to report for work by October 10, 2003. They were required to sign a
memorandum of agreement with release and quitclaim before their vacation and sick leave benefits, 13th
month pay, and separation pay would be released. Employees who signed the memorandum of
agreement were considered to have agreed to vacate SMI Village, and to the demolition of the constructed
houses inside as condition for the release of their termination benefits and separation pay. Milan et.al.
refused to sign the documents and demanded to be paid their benefits and separation pay.
7. Hence, they filed complaints before the Labor Arbiter for alleged non-payment of separation pay, accrued
sick and vacation leaves, and 13th month pay. They argued that their accrued benefits and separation pay
should not be withheld because their payment is based on company policy and practice. Moreover, the
13th month pay is based on law, specifically, Presidential Decree No. 851. Their possession of Solid Mills
property is not an accountability that is subject to clearance procedures. They had already turned over to
Solid Mills their uniforms and equipment when Solid Mills ceased operations.
8. On the other hand, Solid Mills argued that Milan et.al.’s complaint was premature because they had not
vacated its property.
9. The Labor Arbiter ruled in favor of Milan et.al. According to the Labor Arbiter, Solid Mills illegally
withheld petitioners’ benefits and separation pay. The memorandum of agreement dated September 1,
2003 stated no condition to the effect that petitioners must vacate Solid Mills’ property before their
benefits could be given to them. Milan et.al.’s possession should not be construed as
their“accountabilities” that must be cleared first before the release of benefits. er.
10. Silodd Mills appealed to the National Labor Relations Commission. The National Labor Relations
Commission affirmed part of the decision but reversed and set aside another part and decided that Milan
et.al.’s monetary claims in the form of separation pay, accrued 13th month pay for 2003, accrued vacation
and sick leave pays are held in abeyance pending compliance of their accountabilities to respondent
company by turning over the subject lots they respectively occupy at SMI Village Sucat Muntinlupa City,
Metro Manila to Solid Mills. Linga and four other were already paid their respective separation pays and
benefits. Meanwhile, Teodora Mahilom already retired long before Solid Mills’ closure. She was already
given her retirement benefits.
11. The National Labor Relations Commission ruled that because of petitioners’ failure to vacate Solid Mills’
property, Solid Mills was justified in withholding their benefits and separation pay. 35 Solid Mills granted
the petitioners the privilege to occupy its property on account of petitioners’ employment. 36 It had the
prerogative to terminate such privilege.37 The termination of Solid Mills and petitioners’ employer-
employee relationship made it incumbent upon petitioners to turn over the property to Solid Mills.
12. The Court of Appeals ruled that Solid Mills’ act of allowing its employees to make temporary dwellings in
its property was a liberality on its part. It may be revoked any time at its discretion.

ISSUE: Whether or not an employer is allowed to withhold terminal pay and benefits pending the employee’s
return of its properties

RULING/RATIO: Yes. The fact that majority of NAFLU’s members were not occupants of respondent Solid
Mills’ property is evidence that possession of the property was not contemplated in the agreement.
“Accountabilities” should be interpreted to refer only to accountabilities that were incurred by petitioners
while they were performing their duties as employees at the worksite. Moreover, applicable laws, company
practice, or policies do not provide that 13th month pay, and sick and vacation leave pay benefits, may be
withheld pending satisfaction of liabilities by the employee.

Requiring clearance before the release of last payments to the employee is a standard procedure among
employers, whether public or private. Clearance procedures are instituted to ensure that the properties, real
or personal, belonging to the employer but are in the possession of the separated employee, are returned to
the employer before the employee’s departure.

As a general rule, employers are prohibited from withholding wages from employees (Art. 116, Labor Code).
The Labor Code also prohibits the elimination or diminution of benefits (Art. 100, Labor Code).

However, our law supports the employers’ institution of clearance procedures before the release of wages. As
an exception to the general rule that wages may not be withheld and benefits may not be diminished, the
Labor Code provides: Art. 113. Wage deduction. No employer, in his own behalf or in behalf of any person,
shall make any deduction from the wages of his employees, except:
1. In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
2. For union dues, in cases where the right of the worker or his union to check-off has been recognized by
the employer or authorized in writing by the individual worker concerned; and
3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and
Employment.

The Civil Code provides that the employer is authorized to withhold wages for debts due: Article 1706.
Withholding of the wages, except for a debt due, shall not be made by the employer. “Debt” in this case refers
to any obligation due from the employee to the employer. It includes any accountability that the employee
may have to the employer. There is no reason to limit its scope to uniforms and equipment, as petitioners
would argue.

More importantly, respondent Solid Mills and NAFLU, the union representing petitioners, agreed that the
release of petitioners’ benefits shall be “less accountabilities.” Accountabilities of employees are personal.
They need not be uniform among all employees in order to be included in accountabilities incurred by virtue
of an employer-employee relationship. Milan et.al. do not categorically deny Solid Mills’ ownership of the
property, and they do not claim superior right to it. What can be gathered from the findings of the Labor
Arbiter, National Labor Relations Commission, and the Court of Appeals is that Solid Mills allowed the use of
its property for the benefit of Milan et.al. as its employees. Milan et.al were merely allowed to possess and use
it out of Solid Mills’ liberality. The employer may, therefore, demand the property at will.

DISPOSITIVE: Solid Mills won.

DOCTRINE: An employer is allowed to withhold terminal pay and benefits pending the employee’s return of
its properties. As a general rule, No employer, in his own behalf or in behalf of any person, shall make any
deduction from the wages of his employees. The following cases are considered exceptions:
1. In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
2. For union dues, in cases where the right of the worker or his union to check-off has been recognized
by the employer or authorized in writing by the individual worker concerned; and
3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and
Employment.

26.
Portillo vs. Rudolf Lietz, Inc. et al., G.R. No. 196539, October 10, 2012

Doctrine: The "reasonable causal connection with the employer-employee relationship" is a requirement
not only in employees' money claims against the employer but is, likewise, a condition when the claimant
is the employer.

Facts: Marietta Portillo (Portillo) was promoted to Sales Representative and received a corresponding
increase in basic monthly salary sales and sales quota on her 10th year with Lietz, Inc. In this regard,
Portillo signed another letter agreement containing a “Goodwill Clause.”
Three years thereafter, Portillo resigned from her employment and demanded from Lietz Inc. for the
payment of her remaining salaries and commissions not paid to her upon such resignation. Later, within
the 3-year prohibitory period, Lietz learned that Portillo was hired by Ed Keller Philippines, a direct
competitor of Lietz, as head of its Pharma Raw Material Department.
Portillo's demands from Lietz, Inc. for the payment of her remaining salaries and commissions went
unheeded. Lietz, Inc. gave Portillo the run around, on the pretext that her salaries and commissions were
still being computed. She filed a complaint with the NLRC for non-payment of 1½ months’ salary, 2
months’ commission, 13th month pay, plus moral, exemplary and actual damages and attorney’s fees.
In its position paper, Lietz admitted liability for Portillo’s money claims. However, Lietz raised the
defense of legal compensation, stating that Portillo’s money claims should be offset against her liability to
Lietz for liquidated damages for Portillo’s breach of the “Goodwill Clause” in the employment contract
when she became employed with Ed Keller.

Issue: Should Portillo’s money claims for unpaid salaries be offset against Lietz’ claim for liquidated
damages?

Ruling: No. There is no causal connection between the petitioner employees' claim for unpaid wages and
the respondent employers' claim for damages for the alleged "Goodwill Clause" violation. Portillo's claim
for unpaid salaries did not have anything to do with her alleged violation of the employment contract as,
 in fact, her separation from employment is not "rooted" in the alleged contractual violation. She resigned
from her employment. She was not dismissed. Portillo's entitlement to the unpaid salaries is not even
contested. Indeed, Lietz, Inc.'s argument about legal compensation necessarily admits that it owes the
money claimed by Portillo. The alleged contractual violation did not arise during the existence of the
employer-employee relationship. It was a post-employment matter, a post-employment violation.

 27 DIVISION

[ GR No. 192582, Apr 07, 2014 ]

BLUER THAN BLUE JOINT VENTURES COMPANY v. GLYZA ESTEBAN +

DECISION

REYES, J.:
"It is not the job title but the actual work that the employee performs that determines whether he or she
occupies a position of trust and confidence."[1] In this case, while respondent's position was denominated as
Sales Clerk, the nature of her work included inventory and cashiering, a function that clearly falls within the
sphere of rank-and-file positions imbued with trust and confidence.

Facts of the Case

Respondent Glyza Esteban (Esteban) was employed in January 2004 as Sales Clerk, and assigned at Bluer
Than Blue Joint Ventures Company's (petitioner) EGG boutique in SM City Marilao, Bulacan, beginning the
year 2006. Part of her primary tasks were attending to all customer needs, ensuring efficient inventory,
coordinating orders from clients, cashiering and reporting to the accounting department.

In November 2006, the petitioner received a report that several employees have access to its point-of-sale
(POS) system through a universal password given by Elmer Flores (Flores). Upon investigation, it was
discovered that it was Esteban who gave Flores the password. The petitioner sent a letter memorandum to
Esteban on November 8, 2006, asking her to explain in writing why she should not be disciplinary dealt with
for tampering with the company's POS system through the use of an unauthorized password. Esteban was
also placed under preventive suspension for ten days.

In her explanation, Esteban admitted that she used the universal password three times on the same day in
December 2005, after she learned of it from two other employees who she saw browsing through the
petitioner's sales inquiry. She inquired how the employees were able to open the system and she was told
that they used the "123456" password.

On November 13, 2006, Esteban's preventive suspension was lifted, but at the same time, a notice of
termination was sent to her, finding her explanation unsatisfactory and terminating her employment
immediately on the ground of loss of trust and confidence. Esteban was given her final pay, including benefits
and bonuses, less inventory variances incurred by the store amounting to P8,304.93. Esteban signed a
quitclaim and release in favor of the petitioner.
On December 6, 2006, Esteban filed a complaint for illegal dismissal, illegal suspension, holiday pay, rest day
and separation pay.

In a Decision[2] dated September 28, 2007, the Labor Arbiter (LA) ruled in favor of Esteban and found that she
was illegally dismissed. The LA also awarded separation pay, backwages, unpaid salary during her preventive
suspension and attorney's fees. The dispositive portion of the LA decision provides:

WHEREFORE, a Decision is hereby rendered declaring [Esteban] to have been illegally dismissed. Corollarily,
she is entitled for the payment of separation pay as prayed for at one month salary for every year of service,
plus backwages from November 13, 2006 when she was dismissed up to the rendition of this Decision.

Further, as [Esteban] was illegally suspended she is entitled to salaries during her suspension from November
9-13, 2006.

In addition, an attorney's fees equivalent to ten (10%) percent of the total award is hereby granted, computed
as follows:

a) Backwages
11/13/06 - 9/28/07 = 10.50 mos.
[P]350 x 26 x 10.50 = [P]95,550.00
13th Month Pay
1/12 of [P]95,550.00 = 7,962.50
SILP
[P]350 x 5/12 x 10.50 = 1,531.25 [P]105,043.75
b) Separation Pay
11/25/03 - 12/6/06 = 3 yrs.
[P]350 x 26 x 3 27,300.00
c) Unpaid Salaries
11/9 - 13/06 = 5 days
[P]350 x 5 = 1,750.00
[P]134,093.75
Ten (10%) Percent Attorney's Fees 13,409.37
TOTAL [P]147,503.12

SO ORDERED.[3]

The petitioner filed an appeal with the National Labor Relations Commission (NLRC), and in its
Decision[4] dated September 23, 2008, the NLRC reversed the decision of the LA and dismissed the case for
illegal dismissal. The dispositive portion of the NLRC decision reads:

WHEREFORE, the decision appealed from is hereby reversed and set aside and in its stead a new one is
rendered dismissing this case for lack of merit.

[Petitioners] however are ordered to refund to [Esteban] the amount of [P]8,304.93 which was illegally
deducted from her salary.

SO ORDERED.[5]

Thus, Esteban went to the Court of Appeals (CA) on certiorari. In the assailed Decision[6] dated November 25,
2009, the CA granted Esteban's petition and reinstated the LA decision, to wit:
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Decision dated September
23, 2008 and Resolution dated November 27, 2008 of public respondent National Labor Relations
Commission are ANNULLED and SET ASIDE[.] Accordingly, the Decision of the Labor Arbiter dated
September 28, 2007 is REINSTATED with MODIFICATION, that the award of separation pay is computed
from January 2, 2004, and not from November 25, 2003.

SO ORDERED.[7]

Hence, this petition with the following assignment of errors:

I. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN IT HELD THAT
RANK-AND-FILE EMPLOYEES CANNOT BE DISMISSED ON GROUND OF LOSS OF TRUST AND
CONFIDENCE.

II. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN APPLYING THE
PRINCIPLE OF REASONABLE PROPORTIONALITY ON THE WRONGFUL ACTS OF RESPONDENT
ESTEBAN.

III. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT THE
PREVENTIVE SUSPENSION OF RESPONDENT ESTEBAN WAS UNWARRANTED.

IV. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT THE
WAGE DEDUCTION FOR THE NEGATIVE VARIANCE AMOUNTING TO [P]8,304.93 IS UNFOUNDED. [8]

The petitioner argues that it had just cause to terminate the employment of Esteban, that is, loss of trust and
confidence. Esteban, the petitioner believes, is a rank-and-file employee whose nature of work is reposed
with trust and confidence. Her unauthorized access to the POS system of the company and her dissemination
of the unauthorized password, which Esteban admitted, is a breach of trust and confidence, and justifies her
dismissal.[9]

The petitioner also contends that the CA failed to appreciate the significance of Esteban's infraction when it
ruled that suspension would have sufficed to discipline her. Esteban's length of service should also not have
been considered to mitigate the penalty imposed, as her acts show a lack of concern for her employer. As
regards her preventive suspension, the petitioner maintains that it was justified in imposing the same despite
that the acts were committed almost a year before the investigation since it did not have any prior knowledge
of the infraction.[10]

Finally, the petitioner contends that the deduction on Esteban's wages of the negative variances in the sales is
allowed by the Labor Code, and such practice has been widely recognized in the retail industry. [11]

Esteban, on the other hand, avers that the competency clause she signed with the petitioner merely states the
following functions: (1) attend to and assist the customer in all their needs; (2) conduct physical inventory;
(3) clean and tidy up the merchandise and store; and (4) coordinate with the stockroom for orders. As
regards the cashiering function, it merely states "to follow." [12] As such, her main task is that of a sales clerk.
Esteban also avers, albeit belatedly, that the notice to explain given to her did not identify the acts or
omissions allegedly committed by her. She also contends that it was the company's fault in not creating a
strong password, and that she was forced into signing the quitclaim and waiver, among others. [13]

Ruling of the Court

The LA and the CA were one in ruling that Esteban was illegally dismissed by the petitioner. It was their
finding that the position occupied by Esteban was that of a rank-and-file employee and she is neither a
supervisor, manager nor a cashier; thus, she does not hold a position of trust and confidence. [14] The CA also
affirmed the ruling of the LA that Esteban's preventive suspension was not warranted. [15] The CA also upheld
the finding of the NLRC that the deduction of P8,304.93, representing the store's negative variance, from
Esteban's salary violates Article 113 of the Labor Code, which prohibits wage deduction. [16]

The NLRC, on the other hand, found that Esteban was dismissed for cause. According to the NLRC, Esteban
admitted that she violated the petitioner when she made an unauthorized access to the POS system, and even
shared the password to another employee. The NLRC also rejected Esteban's assertion that her job as sales
clerk does not occupy a position of trust, and that her preventive suspension was not warranted. With regard
to her waiver and quitclaim, the NLRC upheld its validity as Esteban signed the same with full awareness that
she committed a wrong.[17]

Loss of trust and confidence as a

valid ground for dismissal from employment

The antecedent facts that gave rise to Esteban's dismissal from employment are not disputed in this case. The
issue is whether Esteban's acts constitute just cause to terminate her employment with the company on the
ground of loss of trust and confidence.

Loss of trust and confidence is premised on the fact that the employee concerned holds a position of
responsibility, trust and confidence. The employee must be invested with confidence on delicate matters,
such as the custody, handling, care and protection of the employer's property and funds. [18] "[W]ith respect to
rank-and-file personnel, loss of trust and confidence as ground for valid dismissal requires proof of
involvement in the alleged events in question, and that mere uncorroborated assertions and accusations by
the employer will not be sufficient." [19]

Esteban is, no doubt, a rank-and-file employee. The question now is whether she occupies a position of trust
and confidence.

Among the fiduciary rank-and-file employees are cashiers, auditors, property custodians, or those who, in
the normal exercise of their functions, regularly handle significant amounts of money or property .
[20]
These employees, though rank-and-file, are routinely charged with the care and custody of the employer's
money or property, and are thus classified as occupying positions of trust and confidence. [21]

In this case, Esteban was a sales clerk. Her duties, however, were more than that of a sales clerk. Aside from
attending to customers and tending to the shop, Esteban also assumed cashiering duties. This, she does not
deny; instead, she insists that the competency clause provided that her tasks were that of a sales clerk and the
cashiering function was labelled "to follow." [22] A perusal of the competency clause, however, shows that it is
merely an attestation on her part that she is competent to "meet the basic requirements needed for the
position [she] is applying for x x x". It does not define her actual duties. As consistently ruled by the Court, it
is not the job title but the actual work that the employee performs that determines whether he or she
occupies a position of trust and confidence. [23] In Philippine Plaza Holdings, Inc. v. Episcope,[24] the Court ruled
that a service attendant, who was tasked to attend to dining guests, handle their bills and receive payments
for transmittal to the cashier and was therefore involved in the handling of company funds, is considered an
employee occupying a position of trust and confidence. Similarly in Esteban's case, given that she had in her
care and custody the store's property and funds, she is considered as a rank-and-file employee occupying a
position of trust and confidence.

Proceeding from the above conclusion, the pivotal question that must be answered is whether Esteban's acts
constitute just cause to terminate her employment.

Loss of trust and confidence to be a valid cause for dismissal must be work related such as would show the
employee concerned to be unfit to continue working for the employer and it must be based on a wilful
breach of trust and founded on clearly established facts.[25] Such breach is wilful if it is done intentionally,
knowingly, and purposely, without justifiable excuse as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently. [26] The loss of trust and confidence must spring from the voluntary
or wilful act of the employee, or by reason of some blameworthy act or omission on the part of the employee.
[27]

In this case, the Court finds that the acts committed by Esteban do not amount to a wilful breach of trust. She
admitted that she accessed the POS system[28] with the use of the unauthorized "123456" password. She did
so, however, out of curiosity and without any obvious intention of defrauding the petitioner. As professed by
Esteban, "she was acting in good faith in verifying what her co-staff told her about the opening of the
computer by the use of the "123456" password, x x x. She even told her co-staff not to open again said
computer, and that was the first and last time she opened said computer." [29] Moreover, the petitioner even
admitted that Esteban has her own password to the POS system. If it was her intention to manipulate the
store's inventory and funds, she could have done so long before she had knowledge of the unauthorized
password. But the facts on hand show that she did not. The petitioner also failed to establish a substantial
connection between Esteban's use of the "123456" password and any loss suffered by the petitioner. Indeed,
it may be true that, as posited by the petitioner, it is the fact that she used the password that gives cause to the
loss of trust and confidence on Esteban. However, as ruled above, such breach must have been done
intentionally, knowingly, and purposely, and without any justifiable excuse, and not simply something done
carelessly, thoughtlessly, heedlessly or inadvertently. To the Court's mind, Esteban's lapse is, at best, a careless
act that does not merit the imposition of the penalty of dismissal.

The Court is not saying that Esteban is innocent of any breach of company policy. That she relayed the
password to another employee is likewise demonstrative of her mindless appreciation of her duties as a sales
clerk in the petitioner's employ. But absent any showing that her acts were done with "moral perverseness"
that would justify the claimed loss of trust and confidence attendant to her job, [30] the Court must sustain the
conclusion that Esteban was illegally dismissed. As stated by the CA, "[s]uspension would have sufficed as
punishment, considering that the petitioner had already been with the company for more than 2 years, and
the petitioner apologized and readily admitted her mistake in her written explanation, and considering that
no clear and convincing evidence of loss or prejudice, which was suffered by the [petitioner] from [Esteban's]
supposed infraction."[31]

Preventive suspension during

investigation

Preventive suspension is a measure allowed by law and afforded to the employer if an employee's continued
employment poses a serious and imminent threat to the employer's life or property or of his co-workers. [32] It
may be legally imposed against an employee whose alleged violation is the subject of an investigation. [33]

In this case, the petitioner was acting well within its rights when it imposed a 10-day preventive suspension
on Esteban. While it may be that the acts complained of were committed by Esteban almost a year before the
investigation was conducted, still, it should be pointed out that Esteban was performing functions that involve
handling of the petitioner's property and funds, and the petitioner had every right to protect its assets and
operations pending Esteban's investigation. [34]

Sales negative variances as wage deductions

The petitioner deducted the amount of P8,304.93 from Esteban's last salary. According to the petitioner, this
represents the store's negative variance for the year 2005 to 2006. The petitioner justifies the deduction on
the basis of alleged trade practice and that it is allowed by the Labor Code.

Article 113 of the Labor Code provides that no employer, in his own behalf or in behalf of any person, shall
make any deduction from the wages of his employees, except in cases where the employer is authorized by
law or regulations issued by the Secretary of Labor and Employment, among others. The Omnibus Rules
Implementing the Labor Code, meanwhile, provides:

SECTION 14. Deduction for loss or damage. Where the employer is engaged in a trade, occupation or business
where the practice of making deductions or requiring deposits is recognized to answer for the reimbursement
of loss or damage to tools, materials, or equipment supplied by the employer to the employee, the employer
may make wage deductions or require the employees to make deposits from which deductions shall be made,
subject to the following conditions:

(a) That the employee concerned is clearly shown to be responsible for the loss or damage;
(b) That the employee is given reasonable opportunity to show cause why deduction should not be made;
(c) That the amount of such deduction is fair and reasonable and shall not exceed the actual loss or damage;
and
(d) That the deduction from the wages of the employee does not exceed 20 percent of the employee's wages in
a week.
In this case, the petitioner failed to sufficiently establish that Esteban was responsible for the negative
variance it had in its sales for the year 2005 to 2006 and that Esteban was given the opportunity to show
cause the deduction from her last salary should not be made. The Court cannot accept the petitioner's
statement that it is the practice in the retail industry to deduct variances from an employee's salary, without
more. In Niña Jewelry Manufacturing of Metal Arts, Inc. v. Montecillo,[35] the Court ruled that:

[T]he petitioners should first establish that the making of deductions from the salaries is authorized by law, or
regulations issued by the Secretary of Labor. Further, the posting of cash bonds should be proven as a
recognized practice in the jewelry manufacturing business, or alternatively, the petitioners should seek for the
determination by the Secretary of Labor through the issuance of appropriate rules and regulations that the
policy the former seeks to implement is necessary or desirable in the conduct of business. The petitioners
failed in this respect. It bears stressing that without proofs that requiring deposits and effecting deductions
are recognized practices, or without securing the Secretary of Labor's determination of the necessity or
desirability of the same, the imposition of new policies relative to deductions and deposits can be made
subject to abuse by the employers. This is not what the law intends.[36]

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated November 25, 2009 and Resolution
dated June 10, 2010 of the Court of Appeals in CA-G.R. SP No. 107573 insofar as it reinstated with
modification the Decision of the Labor Arbiter dated September 28, 2007 are AFFIRMED. Insofar as it
affirmed respondent Glyza Esteban's preventive suspension, the same are hereby REVERSED.

The Labor Arbiter is hereby ORDERED to re-compute the monetary award in favor of Glyza Esteban and to
exclude the award of backwages during such period of preventive suspension, if any.

SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Villarama, Jr., JJ., concur.
28. VICENTE S. ALMARIO v. PHILIPPINE AIRLINES, INC.

532 SCRA 614 (2007)

Courts will not allow one party to enrich himself at the expense of another.

On April 28, 1995, Almario, then about 39 years of age and a Boeing 737 (B-737) First Officer at PAL,
successfully bid for the higher position of Airbus 300 (A-300) First Officer. Since said higher position required
additional training, he underwent, at PAL‘s expense, more than five months of training consisting of ground
schooling in Manila and flight simulation in Melbourne, Australia. After completing the training course,
Almario served as A-300 First Officer of PAL, but after eight months of service as such, he tendered his
resignation, for ―personal reasons.‖ Despite a letter coming from PAL to reconsider his resignation otherwise
he will bear the cost of training, Mr. Almario still proceeded with his resignation.
Later on, PAL filed a Complaint against Almario before the Regional Trial Court (RTC), for reimbursement of
P851,107 worth of training costs, attorney‘s fees equivalent to 20% of the said amount, and costs of litigation.
PAL invoked the existence of an innominate contract of do ut facias (I give that you may do) with Almario in
that by spending for his training, he would render service to it until the costs of training were recovered in at
least three (3) years. Almario having resigned before the 3-year period, PAL prayed that he should be ordered
to reimburse the costs for his training. In his Answer, Almario denied the existence of any agreement with PAL
that he would have to render service to it for three years after his training failing which he would reimburse
the training costs. He pointed out that the Collective Bargaining Agreement (CBA) between PAL and the
Airline Pilot‘s Association of the Philippines (ALPAP), of which he was a member, carried no such agreement.
Mr. Almario‘s contention was confirmed by the RTC but was reversed by the Court of Appeals (CA). The CA
found Almario liable under the CBA between PAL and ALPAP and, in any event, under Article 22 of the Civil
Code. Thus, this action for review on Certiorari by Mr. Almario.

ISSUE:

Whether or not the act of Mr. Almario is in violation of the CBA.

HELD:

Article XXIII, Section 1 of the CBA provides that pilots fifty-seven (57) years of age shall be frozen in their
position and shall not be permitted to occupy any position in the company‘s turbo-jet fleet. The reason
why pilots who are 57 years of age are no longer qualified to bid for a higher position is because they have
only three (3) years left before the mandatory retirement age of 60 and to send them to training at that age,
PAL would no longer be able to recover whatever training expenses it will have to incur.

Simply put, the foregoing provision clearly and unequivocally recognizes the prohibitive training
cost principle such that it will take a period of at least three (3) years before PAL could recover from the
training expenses it incurred.
Admittedly, PAL invested for the training of Almario to enable him to acquire a higher level of skill, proficiency,
or technical competence so that he could efficiently discharge the position of A-300 First Officer. Given that,
PAL expected to recover the training costs by availing of Almario‘s services for at least three years. The
expectation of PAL was not fully realized, however, due to Almario‘s resignation after only eight months of
service following the completion of his training course. He cannot, therefore, refuse to reimburse the costs of
training without violating the principle of unjust enrichment.