STEEL CORPORATION OF THE PHILIPPINES, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, RODERICK B. JIMENEZ AND CECILIO A. PABATANG, JR., RESPONDENTS.

Steel Corporation of the Philippines versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by Steel Corporation of the Philippines against the National Labor Relations Commission and two of its former supervisors, Roderick Jimenez and Cecilio Pabatang, Junior. The company asks the Supreme Court to annul the Commission's ruling that the retrenchment of the two employees was illegal, and to reverse the money awards that followed. The case matters because it gathers into one decision the complete checklist for a valid retrenchment, the rule that retrenchment is a measure of last resort, the limited scope of a labor appeal, and the weight to be given to quitclaims signed by employees facing unemployment.

Procedural History

Jimenez and Pabatang filed separate complaints for illegal dismissal and unfair labor practice before the labor arbiter. In a consolidated decision, the Executive Labor Arbiter found them illegally dismissed, ordered backwages, separation pay, and attorney's fees, dismissed the unfair labor practice charge for lack of merit, and treated the separation pay already received as advances to be deducted from the award. The company and its chairman appealed to the National Labor Relations Commission. The Commission affirmed the finding of illegal dismissal but modified the award: it dismissed the complaint of a co-complainant for failure to prosecute, declared the corporation solely liable, recomputed the awards only up to the date the corporation was dissolved, and deleted the attorney's fees. The company's motion for reconsideration was denied. The company then came to the Supreme Court by petition for certiorari, imputing grave abuse of discretion on the Commission. The private respondents did not file their comment, and the case was submitted for decision.

Facts

Jimenez was hired in August 1997 and became a senior supervisor of the finishing and recoiling lines. Pabatang was hired in March 2007 and served as quality assurance inspector. Both were separated from service effective the third of December 2010 under a retrenchment program. Jimenez was the elected president of a newly organized union of supervisory employees, and Pabatang was a member. They claimed the retrenchment was a ploy to bust that union and that the requirements of law were not met.

The company answered that retrenchment was its last ditch effort to survive. It had been placed under corporate rehabilitation in 2006 upon a bank's petition. In 2009 its independent auditors reported a net loss of more than one billion pesos. In December 2009 a fire gutted its cold rolling mill section, which accounted for twenty five percent of plant operations, and the shutdown of that section forced the closure of the push-pull pickle line, so that half of its operations were discontinued. The company also invoked the quitclaims and releases the two had signed after receiving separation pay.

The labor arbiter and the Commission both found that only the first three requirements of a valid retrenchment were satisfied, and that no fair and reasonable criteria were shown for choosing who would be dismissed. The Commission noted that the uniformly worded letters sent to the employees indicated no criteria at all, and that the company did not deny that other supervisors with less seniority were retained.

Issues

• Whether or not the retrenchment was illegal because the company failed to use fair and reasonable criteria in selecting the employees to be retrenched.
• Whether or not the Commission gravely abused its discretion in awarding service incentive leave pay although it was not alleged in the complaints.
• Whether or not the employees were barred by the quitclaims and releases they signed from questioning their dismissal.
• Whether or not the separation pay already received should be deducted from the monetary award.

Applicable Provisions

Article 297 of the Labor Code, as renumbered, provides:

Article 297. 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 closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

This is the authorized cause invoked by the company, and its requirements supply the standards against which the retrenchment was measured.

Section 4, Rule VI of the 2011 Rules of Procedure of the National Labor Relations Commission provides:

Section 4. Requisites for Perfection of Appeal. (d) Subject to the provisions of Article 218 of the Labor Code, once the appeal is perfected in accordance with these Rules, the Commission shall limit itself to reviewing and deciding only the specific issues that were elevated on appeal.

This provision explains why the Commission could not be faulted for not resolving the quitclaim issue, which the company raised only for the first time before the Supreme Court.

Ruling

On the first issue, the Court held that the retrenchment was invalid. The Court laid down five requirements: that the retrenchment be reasonably necessary and likely to prevent substantial and serious losses, actual or reasonably imminent; that written notice be served on the employees and the Department of Labor and Employment at least one month before; that separation pay be paid; that the prerogative be exercised in good faith and not to defeat the right to security of tenure; and that fair and reasonable criteria be used in choosing who would be dismissed and who would be retained. The Court stressed that retrenchment is a last resort, justified only when all less drastic means have been tried and found insufficient, and that the employer must prove the requirements by clear and convincing evidence. Only the first three were satisfied. The company never showed any standard for selecting the retrenched employees, and it abandoned that point on reconsideration and in this petition. Even if the Court accepted that the company was justified in immediately resorting to retrenchment, the outcome would be the same, because the absence of fair and reasonable criteria alone invalidates the retrenchment.

On the second issue, the Court ruled for the company. Service incentive leave pay was included in the computation although it was not among the causes of action alleged in the complaints, so that portion of the award was deleted.

On the third issue, the Court held that the employees were not barred by their quitclaims. The company never raised that question on appeal to the Commission, and under the Rules the Commission reviews only the specific issues elevated before it, so no grave abuse of discretion could be imputed to it for remaining faithful to its own rules. On the merits, the Court agreed that economic necessity constrained the employees to accept the offer and sign, and that their being supervisors did not make them less susceptible to financial offers when faced with unemployment.

On the fourth issue, the Court ruled that the amounts already received as separation pay must be deducted from the monetary award, conforming to the Commission's own ruling that they be treated as advances.

Doctrine

A valid retrenchment under Article 297 of the Labor Code requires all five requisites, proved by clear and convincing evidence: necessity to prevent substantial losses, one month written notice to the employees and the Department of Labor and Employment, payment of separation pay, good faith, and fair and reasonable criteria in selecting who is dismissed. Failure to observe fair and reasonable criteria, such as seniority, efficiency, and status, renders the retrenchment invalid even if the company was financially justified in retrenching. Retrenchment is a measure of last resort, permissible only after less drastic means have been tried and found inadequate. On appeal, the National Labor Relations Commission reviews only the specific issues elevated before it, so a ground not raised there cannot be imputed to it as grave abuse of discretion. A quitclaim does not bar a dismissed employee from questioning the dismissal where economic necessity constrained its signing. Finally, service incentive leave pay cannot be awarded if not alleged as a cause of action, and separation pay already received is deducted from the monetary award.

Disposition

The petition was partially granted: the award of service incentive leave pay was deleted, and the amounts already received from the company were ordered deducted from the monetary award, while the finding of illegal dismissal stood.

Remember This

Memorize the five requisites of a valid retrenchment, and the rule that missing fair and reasonable selection criteria alone defeats it. Examiners use this case to test the last-resort doctrine, the clear and convincing evidence standard, the scope of a labor appeal, and the validity of quitclaims signed out of economic necessity.