ASIA PACIFIC CHARTERING (PHILS.) INC., PETITIONER, VS. MARIA LINDA R. FAROLAN, RESPONDENT.

Asia Pacific Chartering versus Farolan

The Case

This is a labor case about an illegally dismissed sales manager. Asia Pacific Chartering (Phils.) Inc., the employer, terminated Maria Linda R. Farolan as its Sales Manager for the Philippine passenger and cargo operations of Scandinavian Airlines System, invoking loss of confidence. Farolan filed a complaint for illegal dismissal with a prayer for damages and attorney's fees. The case matters because it draws the line between the employer's management prerogative to dismiss a managerial employee on one hand, and the employee's security of tenure on the other. It teaches that loss of trust and confidence is not a magic phrase that dispenses with proof, and that even a managerial employee may not be dismissed without due process and without a clearly established basis for the loss of confidence.

Procedural History

The Labor Arbiter, after a detailed analysis of the evidence of both parties, found that Farolan was dismissed without just cause, with malice, ill will and bad faith. The Labor Arbiter ordered Asia Pacific Chartering to pay separation pay of 44,000 pesos and all the benefits that would have been due her, plus moral damages of 1,500,000 pesos, exemplary damages of 750,000 pesos, nominal damages of 5,000 pesos, and attorney's fees equivalent to 25 percent of the total award.

On appeal, the National Labor Relations Commission reversed the Labor Arbiter. It recognized the employer's right to dismiss based on loss of trust and confidence as a management prerogative. Farolan's motion for reconsideration was denied, so she went to the Court of Appeals by petition for certiorari. The Court of Appeals reversed the National Labor Relations Commission, set aside its decision and resolution for grave abuse of discretion, and upheld the Labor Arbiter's decision with modifications: attorney's fees were reduced to 10 percent of the total monetary award, and the award of nominal damages was deleted for lack of basis. Asia Pacific Chartering's motion for reconsideration was denied, so it came to the Supreme Court by petition for review on certiorari.

Facts

Asia Pacific Chartering was, until 1996, the general sales agent in the Philippines of Scandinavian Airlines System, an off-line international airline. On December 16, 1992, Farolan was hired as Sales Manager of its passenger and cargo general sales agency operations, after she signed a letter-offer of employment dated December 10, 1992. She had been approached by the company's then Sales Manager, Leslie Murray, who briefed her verbally on the nature of the position. Soon after assuming her post, she attended seminars and meetings, including a customer service seminar in Bangkok and a course on the airline computer reservations system called Amadeus.

In September 1993, upon instruction of Vice President and Comptroller Catalino Bondoc, Farolan submitted a report on the poor profit and loss performance of Scandinavian Airlines System for January to July 1993. The report explained that the decline was due to market forces beyond her control, such as the termination of refugee projects and the lower rates of on-line carriers, and it proposed measures to improve sales. In January 1994, the company directed its high ranking officer Roberto Zozobrado to investigate the decline, and he informally took over some of her marketing and sales responsibilities while she retained her title and salary.

In 1994, Farolan received two messages from Soren Jespersen, the airline's General Manager in Hongkong. The first, received on May 21, 1994, congratulated her and Zozobrado for exceeding the April sales target. The second, received on July 18, 1994, noted that June sales did not reach the target in one class but that in another class she managed very well, and encouraged her staff to keep up the good work. On that same day, however, the company sent her a letter of termination on the ground of loss of confidence, citing shortfalls in gross revenue and net cash flow. She had earlier been asked to resign and had refused. She then filed the complaint for illegal dismissal.

Issues

• Whether or not Farolan's dismissal was legal, that is, whether or not it was for a valid cause and effected with due process.
• Whether or not the employer's claim of loss of trust and confidence, based on alleged gross inefficiency and incompetence, was sufficiently established.
• Whether or not Farolan is entitled to reinstatement, backwages, separation pay, and damages.

Applicable Provisions

Article 282 of the Labor Code, which the Court cites as the source of the valid causes for dismissal, provides in the portion the Court relies upon:

An employer may terminate an employment for any of the following causes: (a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; (b) Gross and habitual neglect by the employee of his duties; (c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; (d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and (e) Other causes analogous to the foregoing.

This provision bears on the case because the employer invoked loss of confidence, which must fall under the cause of willful breach of trust, and the Court required that such breach be willful and founded on clearly established facts.

Section 2, paragraph b, Rule I, Book III of the Omnibus Rules Implementing the Labor Code, which the Court quotes in defining a managerial employee, provides:

Before one may be properly considered a managerial employee, all the following conditions must be met: (1) Their primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof; (2) They customarily and regularly direct the work of two or more employees therein; (3) They have the authority to hire or fire other employees of lower rank; or their suggestions and recommendations as to the hiring and firing and as to the promotion or any other change of status of other employees are given particular weight.

This provision bears on the case because the Court used it to test whether Farolan was truly a managerial employee, noting that the absence of a written job description left the Court in the dark on the point.

Ruling

On the first issue, the Court held that the dismissal was illegal because both requisites of a valid dismissal were absent. The Court stated the requisites thus:

(a) the employee must be afforded due process, i.e., he must be given opportunity to be heard and to defend himself; and (b) dismissal must be for a valid cause as provided in Article 282 of the Labor Code or any of the authorized causes under Article 283 and 284 of the same Code.

On due process, the Court adopted the Labor Arbiter's findings: Zozobrado took over her functions without any written authority, Bondoc summoned her and told her to resign or face termination, and she was finally terminated without being afforded the opportunity to be heard and to present evidence, and without a written notice stating the particular acts or omissions constituting the grounds for dismissal.

On the second issue, the Court held that the employer bears the onus of proving that the dismissal is for just cause, and that loss of trust and confidence must rest on a willful breach founded on clearly established facts. A breach is willful if done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. The Court found Farolan's explanation that the decline was due to market forces beyond her control plausible, and found no showing of willful breach. The two 1994 letters from the airline, congratulating her on exceeding the April target and noting that she managed very well in one class, negated willful breach. The Court also held that the employer had not shown what work standards or reasonable work assignments she failed to observe, nor that any failure was due to inefficiency. It noted that she had been approached and offered the position, and could not just be unceremoniously discharged for loss of confidence arising from alleged incompetency.

On the third issue, the Court held that Farolan was entitled to reinstatement without loss of seniority rights and to backwages. But since reinstatement was no longer feasible because the general sales agency contract had been terminated in May 1996, she was entitled to separation pay equivalent to one month salary for every year of service, a fraction of six months to be considered a year. Having been hired on December 16, 1992 and terminated on July 18, 1994, she was considered to have worked for two years. She was also entitled to backwages computed from July 18, 1994 up to May of 1996.

Doctrine

A valid dismissal requires two things: the employee must be afforded due process, meaning the opportunity to be heard and to defend himself, and the dismissal must be for a valid cause under Article 282 of the Labor Code or an authorized cause under Articles 283 and 284. In termination cases, the employer bears the onus of proving that the dismissal is for just cause; failing that, the dismissal is not justified and the employee is entitled to reinstatement.

Loss of trust and confidence as a ground for dismissal must be based on a willful breach and founded on clearly established facts. A breach is willful if done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. For rank and file personnel, loss of trust and confidence requires proof of involvement in the alleged events, and mere uncorroborated assertions and accusations by the employer will not suffice; for a managerial employee, the mere existence of a basis for believing that the employee has breached the trust of the employer would suffice. But even for a managerial employee, the stated ground must have a basis, and the determination thereof cannot be left entirely to the employer.

Whether an employee is managerial is determined by the job description, not by the title. The mere fact that an employee is designated manager does not ipso facto make him one; the designation should be reconciled with the actual job description, for it is the job description that determines the nature of employment.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals, holding that Farolan was illegally dismissed and entitled to separation pay of one month salary for every year of service, backwages from July 18, 1994 up to May of 1996, and the damages awarded below as modified.

Remember This

The line worth memorizing is that loss of trust and confidence must be based on a willful breach founded on clearly established facts, and even a managerial employee cannot be dismissed on that ground without due process and without a basis that the employer can prove. Examiners like to use this case to test the distinction between the treatment of managerial and rank and file employees on loss of confidence, and the rule that the employer bears the onus of proving a just cause for dismissal.