PUNONGBAYAN AND ARAULLO (P&A), BENJAMIN R. PUNONGBAYAN., JOSE G. ARAULLO, GREGORIO S. NAVARRO, ALFREDO V. DAMIAN AND JESSIE C. CARPIO, PETITIONERS, VS. ROBERTO PONCE LEPON RESPO…

Punongbayan and Araullo versus Lepon

The Case

This is a labor case that began as a complaint for illegal suspension and illegal dismissal filed by Roberto Ponce Lepon, a managerial employee of the accounting partnership Punongbayan and Araullo, against the partnership and its partners. The partnership dismissed him for loss of trust and confidence after he allegedly negotiated with a competing firm, solicited the partnership's clients to move to that competitor, and invited its staff to join him. The case matters because it gathers in one decision the rules on substantial evidence, on the use of affidavits to prove disloyalty, on the distinction between managerial and rank and file employees in dismissals based on loss of trust and confidence, and on the solidary liability of partners in a professional partnership.

Procedural History

Lepon filed his complaint with the Regional Arbitration Branch of the National Labor Relations Commission in Cebu City. The Labor Arbiter dismissed the complaint for lack of merit, finding that the partnership had established the basis for its loss of trust and confidence and that Lepon was not denied due process. The National Labor Relations Commission affirmed the Labor Arbiter. Lepon moved for reconsideration, which was denied, so he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals granted the petition. It refused to give credence to the affidavits of the partnership's employees, finding a soaring possibility that they were tainted with bias, and it held that Lepon was denied due process because no hearing or investigation was conducted after he denied the charges. It set aside the rulings of the Commission and directed the partnership and its partners, jointly and severally, to pay full backwages, separation pay, and attorney's fees. The partnership's motion for reconsideration was denied, so it came to the Supreme Court by petition for review on certiorari.

Facts

Punongbayan and Araullo is a professional partnership engaged in public accounting practice. On July 5, 1988, it hired Lepon as Staff Auditor 1. Over the years he rose to become Manager-in-Charge of the Cebu operations and Director of the Visayas-Mindanao operations.

In April 2002, the firm Sycip Gorres Velayo and Company began negotiations with the partnership for a possible merger of their Philippine operations. The partnership sent its clients a memorandum dated April 24, 2002, informing them of its agreement to combine practices and later become a member of the Ernst and Young Organization. On April 26, 2002, Lepon sent an email-letter to Benjamin Punongbayan pleading against the merger, arguing among other things that it would defeat the spirit of competition, that it was onerous on the partnership, and that the cultures of the two firms would not match.

The partnership then learned that Lepon had met with its clients and invited them to engage a competing accounting firm, Laya Mananghaya-KPMG, and had attempted to pirate the entire staff of the Cebu City and Davao City offices. On May 30, 2002, partner Alfredo Damian sent Lepon a letter asking him to explain these alleged disloyal and inimical acts, and placing him on leave of absence with pay from June 1 to June 15, 2002. Lepon replied on June 6, 2002, reiterating his worries about the merger and denying the allegations. On June 17, 2002, the partnership served on him a notice of termination effective June 16, 2002 due to loss of trust and confidence. Lepon had already filed his complaint on June 14, 2002.

Issues

• Whether or not the factual findings of both the Labor Arbiter and the National Labor Relations Commission were supported by substantial evidence.
• Whether or not Lepon was deprived of his right to due process.
• Whether or not the petitioners are jointly and severally liable with the partnership to pay the judgment award.

Applicable Provisions

Article 297, paragraph (c) of the Labor Code, as amended, provides:

An employer may terminate an employment for any of the following causes: (c) Willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.

This is the ground on which the partnership dismissed Lepon, and the Court measures the validity of that dismissal against its language of willful breach.

Section 5, Rule 133 of the Rules of Court provides:

In cases filed before administrative or quasi-judicial bodies, a fact may be deemed established only if supported by substantial evidence.

This fixes the quantum of proof in labor cases and is the standard against which the Court tested the affidavits and the findings below.

Ruling

On the first issue, the Court held that the factual findings of the Labor Arbiter and the Commission were supported by substantial evidence. Affidavits may be sufficient to establish substantial evidence, which means that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. The Court had given credence to employee affidavits in earlier cases, and the bare fact that portions of affidavits are similarly worded does not prove that the affiants were coerced. Here, Lepon never questioned the evidentiary value of the affidavits at any stage and presented no evidence that the affiants were coerced. Their statements corroborated one another and established that Lepon negotiated to transfer to a competing firm while still employed, urged the partnership's clients to move their audit business to that competitor, invited its staff to join him, and urged the staff to engage in a sympathy strike. The Court quoted with approval the rule that an employer has the right to expect loyalty from his employees as long as the employment relationship continues, and that when an employee deliberately acquires an interest adverse to his employer, he is disloyal and his discharge is justified.

On the validity of the dismissal, the Court held that Lepon was validly dismissed for loss of trust and confidence. Two requisites must concur: the employee must hold a position of trust and confidence, and there must be an act justifying the loss of trust. Lepon was a managerial employee, the highest ranking officer of the Visayas-Mindanao operations, and the acts charged were established. The Court distinguished the degrees of proof, holding that for a managerial employee the mere existence of a basis for believing that he has breached the trust of his employer suffices, and proof beyond reasonable doubt is not required.

On the second issue, the Court held that Lepon was not denied due process. He was given a written notice of the charges and was able to submit a written explanation, and he did not request an adversarial hearing. The preventive leave with pay was a valid measure to stop his client sorties and pirating attempts on firm time.

On the third issue, the Court held that the partners could not be held jointly and severally liable with the partnership, there being no showing that they acted in bad faith in terminating Lepon's employment.

Doctrine

First, substantial evidence is that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion, and affidavits of co-employees, absent proof of coercion, may constitute substantial evidence of disloyalty. Second, a dismissal under Article 297, paragraph (c) of the Labor Code requires that the employee hold a position of trust and confidence and that an act justify the loss of trust; for a managerial employee, the mere existence of a basis for believing that he breached the employer's trust suffices. Third, an employee who, while still employed, negotiates with a competitor, solicits the employer's clients, and invites its staff to join him commits a willful breach of the trust reposed in him. Fourth, due process in dismissal is satisfied by the twin notices and an opportunity to explain, and a hearing is not mandatory where the employee does not ask for one. Fifth, the partners of a professional partnership are not solidarily liable with the partnership for a judgment award absent a showing of bad faith.

Disposition

The Supreme Court granted the petition, reversed the Court of Appeals, and upheld the validity of Lepon's dismissal, with the partners held not solidarily liable.

Remember This

Memorize this line: for a managerial employee, the mere existence of a basis for believing that he has breached the trust of his employer suffices for dismissal, and proof beyond reasonable doubt is not required. Examiners use this case to test the substantial evidence standard, the use of affidavits in labor cases, and the solidary liability of partners in a professional partnership.