G.R. No. L-23857. August 29, 1969
INSULAR LUMBER COMPANY, PETITIONER, VS. COURT OF APPEALS, EULOGIO ARONALES, MANUEL ASTORGA, JULIO ATADERO, MELANIO BUNA, LUCIANO CARTON, AMADO CATALAN, FRANCISCO GANTES, FELIPE …
SANCHEZ, J.:
The dominant issue raised in this appeal is whether or not the
dismissal of employees without a definite period of employment – in
consequence of a retrenchment program for reasons of economy and mechanization
or modernization of operations – was for “just cause” which would
exempt the employer from giving separation pay under the Termination Pay Law,
Republic Act 1787, which took effect on June 21, 1957, Section 1 (the pertinent
portion) of which reads:
“SECTION 1. In cases of employment, without a definite
period, in a commercial, industrial, or agricultural establishment or
enterprise, the employer or the employee may terminate at any time the employment
with just cause; or without just cause in the case of an employee by serving
written notice on the employer at least one month in advance, or in the case of
an employer, by serving such notice to the employee at least one month in
advance or one-half month for every year of service of the employee, whichever
is longer, a fraction of at least six months being considered as one whole
year.
x x x
The employee, upon whom no such notice was
served in case of termination of employment without just cause shall be
entitled to compensation from the date of termination of his employment in an
amount equivalent to his salaries or wages corresponding to the required
period of notice.
The following are just causes for terminating an employment without
a definite period:
1. By the employer?
a. The closing or cessation of operation of the establishment or
enterprise, unless the closing is for the purpose of defeating the intention of
this law;
b. Serious misconduct or wilful
disobedience by the employee of the orders of his employer or representative in
connection with his work;
c. Gross and habitual neglect by the employee of his duties;
d. Fraud or wilful breach by the employee
of the trust reposed in him by his employer or representative;
e. Commission of a crime or offense by the employee against the
person of his employer or any immediate member of his family, or representative;
and
f. Other causes analogous to any of the foregoing.
x x x”
Private respondents
herein were petitioner’s employees without
a definite term. A majority of them had
worked for the company for more
than 20 years in its lumber factory in Barrio Fabrica, Sagay,
Negros Occidental. They were union men, members of the Allied
Workers’ Association of the Philippines,
Fabrica Chapter.
This labor union executed with petitioner on June 5, 1959 – or about two years after Republic Act 1787
became effective – an agreement providing –
“Article XVIII
Death and Separation
Gratuities
Section 1. With the exception of Employees and Workers
entitled to benefits under the Workmen’s Compensation Act and the Termination
Pay Law, the Company agrees to give death and separation gratuities after one
(1) year’s service to all its employees and workers in case of death or honorable
discharge from the service due to (1) old age, (2) reduction of force, and (3)
disablement due to physical reasons.
Section 2. The gratuity payments mentioned in Section 1 above, shall be exclusive of Social Security System benefits
and shall be based on the following schedule:
Over 1 to 8 years’ service (excluding
war years) – 1 Mo.’s Pay
Over 8 to 16 years’ service (excluding
war years) – 2 Mos.’ Pay
Over 16 to 24 years’ service (excluding
war years) – 3 Mos.’ Pay
Over 24 years – 5 Mos.’
Pay
It is understood and agreed that each month’s gratuity pay provided
hereinabove is to be computed by multiplying the workers daily basic rate by
twenty-six (26) working days.
Section 3. It is also understood and agreed that the
above gratuities shall be payable only if the deceased or disabled worker or
employee is not replaced, with the Company’s approval, by a relative or other
person upon the request of the deceased’s intestate heirs. If such a replacement takes place which must
count with the Company’s approval, the disabled worker or the intestate heirs
of the deceased worker, as the case may be, shall only be entitled to a
gratuity equal to one (1) month’s Pay irrespective of the worker’s years of
service with the Company.”
Three
months following the execution of the foregoing agreement or on September
29, 1959, petitioner
caused the circulation of a mimeographed letter which informed the employees
about the economic problems facing the company because of new taxes. In the month that followed, October
1959, the company commenced to execute a retrenchment program, dismissing
employees one after another, among them being herein private respondents. The gratuity payments given
them was based upon the agreed rates heretofore mentioned – not on
Republic Act 1787. The dismissals, so
it is averred, affected about 600 laborers estimated to be one-fourth of
petitioner’s labor force.
Right here it is worth observing that the stipulated rates for
gratuity payments under the agreement just transcribed were much lower than
those specified in Section 1 of the Termination Pay Law, Republic Act 1787, aforequoted. And this, in spite of the explicit warning in
Section 2 of said statute that:
“Any contract or agreement contrary to the provisions of Section 1
of this Act shall be null and void: Provided,
however, That nothing herein contained shall prevent an employer and his
employees or their representatives to enter into a collective bargaining
agreement with terms more liberal than those provided for in this Act in
favor of the employees.”
Because of their dismissal, 27 employees, on July 20, 1961, commenced suit against petitioner
in the Court of First Instance of Negros Occidental
for “recovery of termination pay, damages, and attorney’s fees.”1 Trial was had. The trial court dismissed the complaint,
without costs.
These 27 persons elevated the case to the Court of Appeals.2 Judgment was in the appellate court rendered ruling
that the agreement between the union and petitioner was null and void upon the
provisions of Section 2 of Republic Act 1787 heretofore adverted to; dismissing
the case with respect to 15 of the 27 plaintiffs, namely, Isaac Aguisando, Alejandro Alameda, Elisito
Boral, Pacifico Elisan, Lorenzo Jimera, Atilano Navarrite, Ariston Polines, Hilarion Pelegreno, Federico
Solis, Fortunato Soriano, Inocencio Susan, Vicente Vaflor, Braulio Villanueva, Jesus Ferraris and Pacifico
Olavia; and, after deducting the amounts received in
accordance with the nullified agreement, directing petitioner to pay the 12
remaining plaintiffs (private respondents herein) the amounts opposite their
respective names, viz: Eulogio Aronales – P1,130.55; Manuel Astorga
– P1,539.00; Julio Atadero – P373.80; Melanio Buna – P1, 014.45; Luciano
Carton – P1,577.00; Amado Catalan – P1,507.50;
Francisco Gantes – P655.70; Felipe Gaspe – P1, 233.48; Bernardo Marquez – P1,408.25; Melanio Porlas – P1,204.00;
Carlos Penaflor – P1,327.90; and Simeon Vaflor – P1,945.00, with legal interest from the filing of
the complaint, plus P500 by way of attorneys’ fees, and the costs in both instances.
Back of these awards were the Court of Appeals’ conclusions that
the retrenchment program was not made in good faith; and that the mechanization
or modernization of operations, given by petitioner as one of the reasons for
dismissal, is not one of the just causes enumerated in the Termination Pay Law.
It is now petitioner’s turn to appeal to this Court.
1. Quite plain is the commendable policy of Republic Act 1787, a
social legislation, to alleviate the difficulties which confront a dismissed
employee thrown into the streets to face the harsh necessities of life. It is for this
reason that the said statute compels the employer to dole out money, reasonable
under the circumstances, to cushion the adverse effects of sudden separation
from employment. This gives the
employee a leeway, commensurate to his years of service, to tide him and his
family over in the meantime that he goes job hunting. To one who has been accustomed to a certain
type of job in one company, adjustment to other job opportunities becomes a
problem. Advanced age, too, may reduce
him to a low priority in the labor market.
By constitutional precept, the State shall afford protection to
labor and shall regulate the relations between labor and capital in industry
and agriculture.3
Republic Act 1787 then should be interpreted with the aim in view of
advancing the beneficent purpose thereof to give justifiable protection to the
laborers so dismissed and their families.
Jurisprudence holds to the line that all doubts in labor legislation
should be resolved in the laborers’ favor.4 Case law
on this score is not alone. Our statute
books give it hefty support. Article
1702 of the Civil Code of the Philippines,
for instance, directs that: “In
case of doubt, all labor legislation and
all labor contracts shall be construed in favor of the safety and decent living
for the laborer.”
2. It is in the light of the principles just expressed that we
examine the reasons advanced by petitioner to bring it within the “just
causes” for dismissal area set forth in Republic Act 1787 and thus excuse
it from giving termination pay to its dismissed laborers. A reference to Section 1, Republic Act 1787,
transcribed at the start of this opinion, will readily show that, if at all,
the position taken by petitioner must have to be gauged by the terms of
paragraphs (a) and (f) of said Section 1, which give as just causes for
terminating an employment without a definite period: “a. The closing or cessation of operation
of the establishment or enterprise, unless the closing is for the purpose of
defeating the intention of this law; x x x f. Other causes analogous to any of the foregoing.”
A retrenchment program, we believe, does not fit into the
statutory scheme. To be underscored here
is that we are not called upon to apply the phrase “just causes” in
connection with the issue of propriety of dismissal of an employee who seeks
reinstatement and backpay upon the charge of unlawful
dismissal. Under Republic Act 1787, the
element of reinstatement with consequent backpay is
beside the point. The just causes
enumerated in the Termination Pay Law have relevance only to the issue of
whether or not the employer is liable to the employee for separation pay. The employee does not thereunder
seek reinstatement to his former position.
In other words, the just causes under Republic Act 1787 merely determine
the liability or non-liability on the part of the employer to give out
severance pay; while just causes under the general concept of the law are
decisive of the issue as to the propriety or impropriety of the dismissal and
the propriety or impropriety of the employee’s action for reinstatement.
The explanatory note to Senate Bill 278, Fourth Congress, which
was to become Republic Act 1787, gives the legislative intent, to wit: “But, under existing conditions where
employment opportunities are scarce and trade unionism is yet in the development
stage, the failure of said Act [referring to Republic Act 1052, the predecessor
of Republic Act 1737] to provide and define the causes under which an employer
may properly dismiss an employee places the latter under a very different and
unpredictable situation.”
Unquestionably, Republic Act 1787 is a remedial measure aimed at
the employee’s protection. With this
guideline, we look into the law itself.
And, we find that retrenchment is not analogous to, but is below the
level of, closing or cessation of operation.
We note with interest the restrictive provisions of the first paragraph
of Section 2 of Act 1787 that “the suspension for a period not exceeding
six months of the operation of a business or enterprise not attributable to the
fault of the employer x x x
shall not terminate an employment,” If such suspension not exceeding six
months, by the law itself, is neither closure nor cessation, much less may
economic measures of retrenchment fall under the category of closing or
cessation of operation [Section 1(a)] to bring into play the other provision
[Section 1(f)] in reference to analogous causes.
To be conceded is an employer’s right to follow economic policies
that would insure profit to itself and, for this
purpose, to mechanize or modernize its business – resulting in the dismissal
of a number of its employees in the process.
We do say however that such dismissal should not be interpreted in a
manner that will permit the employer to escape payment of termination pay. Some such situation is not envisioned in the
law. It strikes at the concept of social
justice.
It bears repetition to say that retrenchment policy for reasons
of economy stops short of the “closing or cessation of operation of the
establishment or enterprise.” The strictness with which the Termination
Pay Law is interpreted against the employer finds expression in the recent
decision of this Court in Wenceslao vs.
Carmen Zaragoza, Inc. (1968), 24
SCRA 554, 558. Mr. Justice Arsenio P. Dizon, speaking for
this Court, there said:
“True, appellant’s film exchange business where appellees worked was closed as of February 28, 1962, but
what the law considers as just cause for terminating an employment without a
definite period is the closing or cessation of operation of the establishment
or enterprise of the employer, and not merely the closing or cessation
of operation of any particular division or department of the employer’s
business. To sustain appellant’s
contention in this regard would amount to reading this into the law – something
which we are not ready to do, considering its adverse effects upon the rights
of the employees. If it must be so, let
the law say it clearly.”
We find no difficulty in stating that the position here of
private respondents is well above that of the laborers involved in the Wenceslao case.
The retrenchment here may not be analogized with the “closing or
cessation of operation of any particular division or department of the
employer’s business” in that case.
Retrenchment could be temporary; closing or cessation is final.
We are therefore persuaded to state that no justification there
is why mechanization or modernization should insulate the employer from its
legal obligation to give termination pay to those dismissed by reason
thereof. In the circumstances here
presented, it was no fault of the employees that they were abruptly separated
from their jobs. To them termination pay
has become a necessity. To their
employer mechanization or modernization is a relief. The employees are reduced to the state of
unemployed. And yet, their employer may
cushion the possible impact on its economy by including in its budgetary
projections amounts from time to time to be paid laid-off employees. Besides, any adverse effect occasioned by
termination payments may yet be evened up by the savings brought about by the
proposed mechanization or modernization.
We, accordingly, rule that mechanization or modernization of
operations, labor saving as they are, will not relieve an employer from its
obligation to give termination pay.
3. But let us assume that retrenchment for reasons of economy or
mechanization or modernization of operations may yet come as one analogous to
“closing” or “cessation” under Section 1(a) of Republic Act
1787. Nonetheless, the employer may not
sidetrack his obligation to give out termination pay where the closing or
cessation of operation was “for the purpose of defeating the intention of
this law.” Looming large then is the finding of the Court of Appeals that
the retrenchment program proffered by said petitioner was not made in good
faith. This finding is couched in the
following language of the decision of the Court of Appeals, speaking thru Mr.
Justice Magno Gatmaitan, viz:
Pero cuanto a
la pretendida buena fe, recuerdese que la Ley No. 1787 entro en vigor el 21 de Junio,
1957; antes de esa fecha, los obreros empleados
sin plazo especificado al
ser despedidos no tenian mas que su
derecho a la mesada; con la
aprobacion de la Ley, se
les habia concedido el pago de sus salarios
a base del tiempo y los años en que hubiesen
servido a sus patronos; escasamente un año y medio despues,
la Insular adopto la politica
de cercenamiento, en la junta de sus
accionistas en Philadelphia; luego,
se celebro el convenio con
la Union de sus obreros, Exh. 32, el Junio, 1959, en donde se fijo otra
escala que la establecida en la ley, — escala que de seguirse,
se les daria a los empleados despedidos, remuneraciones con motivo del despido,
mucho menos que las establecidas en la ley; luego, la gerencia circulo la carta, Exh. 31, advirtiendoles a los empleados de la supuesta situacion precaria de la compañia, el 29 de Septiembre,
1959, y algunos meses despues, se llevaron a cabo las destituciones;
y a los obreros destituidos se les hicieron firmar documentos de renuncia, — estos hechos no pueden menos de justificar ciertas dudas de que si en verdad,
el programa de cercenamiento
se hubiese inaugurado de buena fe, sin embargo el Exh. 32 que fijo
remuneraciones mucho menos
de las proveidas en la ley para los
que than de ser despedidos,
con motivo de aquella politica, — posiblemente o probablemente, ese
Exh. 32 hubiese sido por otro
lado y en verdad preparado y concebido en anticipacion, para esquivar los efectos
de la Ley 1787;
CONSIDERANDO: Cuanto al programa de cercenamiento testificado por el Sr. Ettisberger,
estudiado el mismo en relacion con el Exh. 31,
se vera que
ni en todo su testimonio, ni en todo el Exh.
31, se haya hecho demostracion clara
de que la Insular ya estaba perdiendo en sus negocios, no lo que se ve es
que segun el Exh. 31, la compañia solamente anunciaba, que:
‘If we added to the paragraph on the preceding page the costs of
the new taxes which are now being imposed and if all other costs and returns
continued on the same level as in 1958, then an operating loss would be
experienced and prolonged survival of the Company would be jeopardized;’ p. 2, Exh. 31;
y despues se reprodujo un cuadro sinoptico en donde se hizo patente que
los accionistas hubieron de sufrir 1% de perdida, — pero esto no era mas que una especulacion,
una conjectura, — ello es que
segun el mismo Exh. 31, en el año 1955, los accionistas habian percibido la ganancia de 2%; en otras palabras, con vistas de las pruebas de la demandada, tampoco se haya demostrado que si realmente, estaba
perdiendo, estaba en el borde de la bancarota, antes al contrario, antes de la inauguracion
de la politica de cercenamiento,
la compañia y sus accionistas ganaban, un poco, si, pero
ganaban, y no perdian; poco violento era por tanto el que
aceptara por buena aquella parte
del testimonio del testigo
Sr. Ettisberger de que:
‘In the light of such
developments, Insular was placed between two alternatives, — either to close
down operations altogether as no company can sustain losses over a long period
of time; or on the other hand, there was the possibility to modernize;’.”
The record does not suggest any challenge by petitioner of the
foregoing finding. It is rooted in
logic. The fact is that petitioner was
making profits even before the retrenchment program was launched. With the reduction in the labor force by 25%
and the introduction of mechanization or modernization in its operations, it is
difficult to see how petitioner could be headed for financial disaster.
Again, we say that petitioner may not in any manner seek shelter
in Section 1(a) in relation to Section 1(f) of Republic Act 1787 to excuse
itself from liability for termination pay as directed by the Court of Appeals.
4. Petitioner further contends that in applying the law, only
those services of private respondents after June 21, 1957 should be reckoned in the computation of
their termination pay. Because, so
petitioner avers, a contrary interpretation would have the effect of giving the
law retroactive application.
This theory is short of being compelling. The right of employees to separation pay in
the case before us attached after, not before, June 21, 1957. How
separation pay is to be computed lies within the permissible prerogatives of
Congress. Congress considered the number
of years of service of an employee as the basis in determining the amount to be
paid as separation pay. It could have
fixed a different criterion. That it
utilized years of service does not mean retroactive application of the law if
the time previous to June 21, 1957
were included. The determination of the
amount is to be made after said date when right to separation pay was granted
dismissed employees. There should thus
be no room for the notion that the law has been applied retroactively in this
case.
More to this. An idea difficult to pigeonhole is that
Republic Act 1787 was enacted in the exercise of the police power of the State.5 And, legislative acts or measures enacted pursuant
to the police power of the State may have retroactive effect.6 What needs stressing is the fact that in this case,
at the time of the passage of Republic Act 1787, an employer-employee
relationship existed between petitioner and private respondents. Dismissal was effected after said law came
into being. By the law, termination pay
must be given said employees.
The method of computation of termination pay as set forth in the
law is clear and plain. Republic Act
1787 provides, in Section 1 thereof heretofore quoted, that an employee whose
services are to be terminated without just cause must be served with notice
“at least one month in advance or one-half month for every year of service
of the employee, whichever is longer, a fraction of at least six months being
considered as one whole year”; otherwise, such
employee “shall be entitled to compensation from the date of termination
of his employment in an amount equivalent to his salaries or wages
corresponding to the required period of notice.” That this manner of
computation is just cannot be seriously disputed. The longer the service, the greater the benefit
given the employee; correspondingly, the bigger the termination pay.
This Court is thus duty bound to respect the law as it is
written. We cannot read it otherwise; we
are not permitted to do so. We cannot
sidestep its inescapable impact.
Petitioner here is liable to private respondents for termination pay as
Congress wrote it.
5. Deserving of serious consideration is petitioner’s claim that,
in the computation of the termination pay, the time covered by the stoppage of
its operation during the war years up to the time each employee was readmitted
to its reopened factory should be excluded.
The reason given is that during that period of time respondents did not
work for petitioner at all. We fall back
on the law. The basis of termination
pay, expressed in the legal stricture, is for “every year of service of
the employee x x x a
fraction of at least six months being considered as one whole year.”7
It would seem to us that since termination pay is gauged by the
term “upon the length of his service”, as stated in the explanatory
note to Senate Bill 278, accent should be on actual service. Because, that explanatory note itself
envisions “an equitable and clear-cut policy.” We do not believe it
equitable for the employer to be saddled with termination pay based on years
when the employee did not render service.
It would be unjust. For, indeed,
it cannot be said with reason that the employer profited in any way from the
employee’s work during the time that no service was rendered by the latter.
It thus results that a readjustment of the amounts, declared by
the Court of Appeals payable, should be made in reference to those and only to
those who were in the service of the company prior to the outbreak of the war
and thereafter were by it reemployed.
Fairness dictates that such deductions should be for the period starting
from the time during the war years when the particular employee stopped
work for petitioner and until the time he shall have been reemployed by
said petitioner.
Accordingly, as thus modified, the judgment of the Court
of Appeals is hereby affirmed in all other respects. The record is returned to the Court of First
Instance of Negros Occidental with instructions to
hold hearings: First, to
ascertain who of the 12 employees – now private respondents – are not subject
to the deductions herein set forth, and who may procure execution of the
judgment of the Court of Appeals upon our decision becoming final; and Second,
to determine the amount deductible from the others, in line with the opinion of
this Court, and thereafter to deduct such amounts from the amounts awarded in
the judgment of the Court of Appeals.
No costs allowed in this Court.
SO ORDERED.
Concepcion, C.J., Dizon,
Makalintal, Castro, Fernando, Capistrano, Teehankee, Barredo, JJ., concur.
Reyes, Zaldivar, JJ., on leave.
1 Civil Case 6241, entitled
“Isaac Aguisando, Alejandro Alameda, Eulogio Aronales, Manuel Astorga, Julio Atadero, Elisito Boral, Melanio Buna, Luciano Carton, Amado Catalan, Pacifico Elisan, Jesus Ferraris, Francisco Gantes,
Felipe Gaspe, Lorenzo Jimera,
Bernardo Marquez, Atilano Navarrite,
Pacifico Olavia, Ariston Polines, Melanio Porlas, Carlos Peñaflor, Hilarion Pelegreno, Federico Solis, Fortunato
Soriano, Inocencio Susan,
Simeon Vaflor, Vicente Vaflor,
and Braulio Villanueva, Complainants, versus
Insular Lumber Company, Defendant.”
2 CA-G.R. 32337-R, entitled
“Isaac Aguisando, et al., Demandantes?Apelantes,
contra Insular Lumber Company, Demandada-Apelada.”
3 Section 6,
Article XIV, Constitution.
4 Batangas
Transportation Co. vs. Rivera, 99 Phil. 1025; Madrigal Shipping Co.,
Inc. vs. del Rosario, 106 Phil. 1165-1166. See: 13 Velayo’s Digest,
1942-1960, pp. 550-551.
5 Republic Act 1052, the previous
legislation on termination pay, was held to be enacted in the exercise of the
police power of the State. Abe vs. Foster Wheeler Corporation, G.R. Nos. L-14785
& L-14923, November 29, 1960,
which upheld validity of application of Termination Pay Law to dismissals
after the passage of the law.
6 See: Pangasinan
Transportation Co. vs. Public Service Commission, 70 Phil. 221, 232;
Santos vs. de Alvarez, 78 Phil. 503 505; Ongsiako
vs. Gamboa, 86 Phil. 50, 54-55; Philippine
American Life Insurance Co. vs. Auditor General (1968), 22 SCRA 135,
145-147.
7 Paragraph 1,
Section 1, Republic Act 1787.