ALFREDO A. MENDROS, JR., PETITIONER, VS. MITSUBISHI MOTORS PHILS. CORPORATION (MMPC), RESPONDENT.

Mendros versus Mitsubishi Motors Philippines Corporation

The Case

This is a labor case about the validity of a retrenchment. Alfredo Mendros, Junior, a regular hourly employee of Mitsubishi Motors Philippines Corporation, was temporarily laid off and then permanently retrenched after the company suffered heavy losses during the Asian financial crisis. He sued for illegal dismissal. The case matters because it gathers into one decision the complete checklist for a valid retrenchment, and because it teaches how a collective bargaining agreement's scattered clauses must be read together rather than in isolation.

Procedural History

Mendros filed a complaint for illegal dismissal and damages before the Regional Arbitration Branch of the National Labor Relations Commission. The Labor Arbiter dismissed the complaint and upheld the retrenchment. Mendros appealed to the National Labor Relations Commission, which reversed the Labor Arbiter. The Commission declared the temporary lay-off and retrenchment illegal, ordered reinstatement with full backwages and attorney's fees, and held that the company's merit rating system was an arbitrary additional criterion not found in the collective bargaining agreement.

The company moved for reconsideration, which was denied. It then went to the Court of Appeals on a petition for certiorari. The Court of Appeals granted the petition, set aside the Commission's resolutions, and reinstated the Labor Arbiter's decision. Mendros moved for reconsideration, which was denied, so he elevated the matter to the Supreme Court through a petition for review under Rule 45.

Facts

Mitsubishi Motors Philippines hired Mendros in April 1994 as a regular body prepman and later promoted him to assembler major in its manufacturing division. The 1997 financial crisis struck the region, and the company's audited financial statements showed a loss of 470 million pesos in 1997 and 771 million pesos in 1998. To cushion the impact, the company cut costs on supplies and energy, curtailed representation and travel expenses, froze hiring, separated casuals and trainees, reduced manpower services, held intermittent plant shutdowns, and placed managerial and monthly-salaried personnel on a reduced work week.

In February 1998, the company implemented a first retrenchment affecting around 531 hourly manufacturing employees. Still not enough, it then placed about 170 hourly employees, Mendros included, on temporary lay-off for six months, from January 4 to July 2, 1999. The company kept the affected employees updated on its business condition.

The market situation continued to slide. On May 31, 1999, the company sent Mendros and the others separate notices of permanent lay-off with retrenchment benefits, effective July 2, 1999, citing the drop in sales and market share. No copy of the audited financial statements was attached to the notice. On June 1, 1999, the company informed the Department of Labor and Employment by letter that the temporary lay-off was being made permanent. In September 1999, Mendros filed his complaint.

Issues

• Whether or not Mendros's retrenchment was illegal.
• Whether or not merit rating and ranking formed part of the criteria in the collective bargaining agreement for choosing which regular employee to retrench.
• Whether or not the company could validly adopt merit rating and ranking as part of those criteria.
• Whether or not the company should have disclosed Mendros's low merit rating and ranking in the notice, and furnished him the audited financial statements to substantiate its claimed losses.
• Whether or not the retrenchment was valid simply because earlier retrenchments of other employees had been adjudged valid.
• Whether or not the Court of Appeals correctly found that the National Labor Relations Commission committed grave abuse of discretion in reversing the Labor Arbiter.

Applicable Provisions

Article 283 of the Labor Code, as amended, provides:

Article 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to retrenchment to prevent losses or the closing or cessation of operations of the establishment by serving a written notice on the worker and the Department of Labor and Employment at least one month before the intended date thereof. In case of retrenchment to prevent losses, the separation pay shall be equivalent to one (1) month pay or at least one-half month pay for every year of service whichever is higher.

This is the statutory basis of the management prerogative to retrench and of the notice and separation pay requirements.

Article 1374 of the Civil Code provides:

The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.

This governs how the Court reads the collective bargaining agreement's provisions on lay-off together with its general criteria for employee movements.

Section 1 of Article V of the collective bargaining agreement provides:

In the exercise of customary functions of Management as regards promotions, transfer, lay-off and recall, the COMPANY shall be guided by the following: Seniority, Efficiency and Attitude, Job Knowledge and Potential, and Attendance and the COMPANY shall exercise just and fair evaluation of such factors.

This is the general criteria clause that the Court reads as qualifying the lay-off provision.

Section 5, paragraph (c), of Article V of the collective bargaining agreement provides:

LAY-OFF PROCEDURE -- in case of lay-off whether in the Production or Non-Production Departments, all temporary, casual and probationary employees will be laid-off first. Regular employees will be laid-off taking into consideration corporate seniority (last-in, first-out) and the needs of the COMPANY.

This is the clause Mendros invoked to argue that only seniority and the needs of the company could be used.

Ruling

The Court denied the petition and upheld the retrenchment. On the first issue, the Court applied the settled requirements for a valid retrenchment: that it is reasonably necessary and likely to prevent substantial and serious losses, that written notice is served on the employees and the Department of Labor and Employment at least one month before, that separation pay is paid, that the prerogative is exercised in good faith, and that fair and reasonable criteria are used in selecting who is retrenched. The Court found all of these present. The aggregate loss of 1.242 billion pesos over two years, shown in statements prepared by an independent external auditor, was substantial and not de minimis. The company had tried less drastic measures first, and the phrase "retrenchment to prevent losses" means the employer need not wait for losses to materialize. Notice was given to Mendros and to the Department a month before effectivity, and separation benefits were paid.

On the disclosure issue, the Court held that no law requires the employer to furnish the employee copies of its audited financial statements or the findings of its merit evaluation. The law requires only the written notice, and the proper forum to contest the reality or good faith of the retrenchment is the Department of Labor and Employment.

On the criteria issue, the Court held that the merit rating system was fair and reasonable. Reading the agreement as a whole, Sections 1 and 2 qualify Section 5(c). Section 1 expressly lists seniority, efficiency and attitude, job knowledge and potential, and attendance as the guiding factors for lay-off, and gives the company latitude to evaluate them justly and fairly. To read Section 5(c) alone would make the needs of the company a meaningless standard and give the company an unchecked license. The Court also noted that the company had already undergone two earlier retrenchments, which showed good faith rather than a scheme to circumvent security of tenure.

Doctrine

A valid retrenchment under Article 283 of the Labor Code requires substantial and serious losses, proven by sufficient and convincing evidence; written notice to the employee and the Department of Labor and Employment at least one month before; separation pay; good faith; and fair and reasonable criteria in selecting who is retrenched. Retrenchment is a measure of last resort, to be resorted to only after less drastic cost-cutting measures have failed. The employer need not wait for losses to materialize, because the law speaks of retrenchment to prevent losses. No law requires the employer to furnish the employee copies of its financial statements or merit evaluation findings. Under Article 1374 of the Civil Code, the clauses of a collective bargaining agreement are read together, so a general criteria clause qualifies a specific lay-off clause, and the employer may use merit rating as a criterion where the agreement allows just and fair evaluation of the listed factors.

Disposition

The Supreme Court denied Mendros's petition and affirmed the Court of Appeals, upholding the retrenchment and the Labor Arbiter's dismissal of the complaint.

Remember This

Memorize the five requisites of a valid retrenchment and the rule that a collective bargaining agreement is read as a whole, not by isolated clauses. Examiners use this case for the last-resort requirement, the "prevent losses" language, and the validity of merit rating as a selection criterion.