ZENAIDA D. MENDOZA, PETITIONER, VS. HMS CREDIT CORPORATION AND/OR FELIPE R. DIEGO, MA. LUISA B. DIEGO, HONDA MOTOR SPORTS CORPORATION AND/OR FELIPE R. DIEGO, MA. LUISA B. DIEGO,…

Mendoza versus HMS Credit Corporation

The Case

This is a labor case about a managerial employee who was told to leave her post, then claimed she had been illegally dismissed, while her employers claimed she had resigned and, in any event, had betrayed their trust. Zenaida Mendoza, the Chief Accountant of HMS Credit Corporation and finance officer for the companies in the Honda Motor Sports Group, brought a complaint for illegal dismissal and for unpaid salaries, thirteenth month pay, and mid-year bonus against HMS Credit and its officers, Felipe Diego and Luisa Diego, together with the affiliated corporations. The case matters because it draws the line between a dismissal for just cause that is procedurally defective and a dismissal that is illegal, and because it fixes the consequence of that distinction: nominal damages, not reinstatement, backwages, or separation pay.

Procedural History

Mendoza filed her complaint with the National Labor Relations Commission. The Labor Arbiter ruled that she had been illegally dismissed and that the dismissal violated due process, and held the respondents jointly and severally liable for separation pay, backwages, moral and exemplary damages, and attorney's fees. The respondents appealed to the National Labor Relations Commission and moved to reduce the appeal bond, tendering a lesser amount on the ground of business losses. The Commission denied the reduction and directed them to post the differential, which they did. The Commission then reversed the Labor Arbiter, holding that Mendoza had not been dismissed, that she had breached the trust reposed in her, and that she was entitled only to separation pay. Mendoza's motion for reconsideration was denied, so she went to the Court of Appeals on certiorari. The Court of Appeals affirmed the Commission, holding that there was no dismissal because the parties had entered into a compromise agreement under which she would resign and receive separation benefits. Mendoza then filed a petition for review on certiorari with the Supreme Court.

Facts

Mendoza began as Chief Accountant of HMS Credit Corporation on the first of August 1999, and during her employment she also serviced three other companies in the Honda Motor Sports Group. She reported directly to Felipe Diego, while Luisa Diego was the Managing Director of HMS Credit.

On the eleventh of April 2002, after Mendoza submitted audited financial statements, Felipe summoned her and advised her of her termination. She says she was told to leave the premises without being allowed to collect her personal belongings. When she returned on the thirteenth of April, the security guard stopped her and told her that the officers had instructed that she be barred from the building. Later that month she returned for her mail and to settle canteen bills, and was again turned away under a memorandum barring her entry.

The respondents told a different story. They said Mendoza had misrepresented herself as a Certified Public Accountant, that she failed to disclose the resignations of two officers who transferred to a competitor and had a hand in pirating them, and that when confronted she suggested that the parties part ways. They said they asked her to propose her separation benefits and handed her thirty thousand pesos as payment for the external auditor. Mendoza filed her complaint for illegal dismissal on the thirtieth of April 2002.

Issues

• Whether or not the appeal of the respondents to the National Labor Relations Commission was timely filed, given that they posted a reduced appeal bond and paid the differential only after the Commission denied their motion.
• Whether or not Mendoza was illegally dismissed.

Applicable Provisions

Article 223 of the Labor Code, on perfecting an appeal involving a monetary award, provides:

In case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the monetary award in the judgment appealed from.

This is the provision against which the timeliness of the respondents' appeal is measured.

Article 282 of the Labor Code, on termination by the employer, provides:

An employer may terminate an employment for any of the following causes: Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; Gross and habitual neglect by the employee of his duties; Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; 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 Other causes analogous to the foregoing.

The Court uses the breach of trust clause to test whether a just cause existed for Mendoza's termination.

Article 285 of the Labor Code, on termination by the employee, provides:

An employee may terminate without just cause the employee-employer relationship by serving a written notice on the employer at least one (1) month in advance. The employer upon whom no such notice was served may hold the employee liable for damages.

This provision frames the resignation defense that the respondents raised and that the lower tribunals accepted.

Ruling

On the first issue, the Court held that the appeal was timely filed. Following its earlier ruling allowing a reduced bond accompanied by a motion, it found that the respondents substantially complied with Article 223: they moved to reduce the bond, tendered what they could afford given business losses, and promptly paid the differential once the Commission denied the motion. Rigid application of the bond requirement, the Court said, must yield to the just settlement of labor cases.

On the second issue, the Court disagreed with the lower tribunals in part. It found that Mendoza was a managerial employee, and that her misrepresentation of her professional qualifications, which she never controverted, was by itself sufficient basis for the employer's loss of confidence. It also upheld the finding that she committed acts of disloyalty toward the business. There was, therefore, a just cause for termination. But the Court rejected the conclusion that she had resigned. Resignation requires the concurrence of the intent to relinquish and the overt act of relinquishment, and the filing of a complaint for illegal dismissal is inconsistent with resignation. The supposed compromise agreement had no basis, since no party claimed any settlement and the respondents themselves admitted they never decided on one.

Because a just cause existed but the two-notice requirement of procedural due process was not observed, the dismissal was not rendered illegal. The Court stated the rule:

If the dismissal is based on a just cause, then the non-compliance with procedural due process should not render the termination from employment illegal or ineffectual.

The employer must instead indemnify the employee in the form of nominal damages. The Court fixed the award at thirty thousand pesos, and held that the respondents were not liable for backwages or separation pay.

Doctrine

First, under Article 223 of the Labor Code, the posting of an appeal bond in the amount of the monetary award is a condition for perfecting an employer's appeal, but the requirement admits of substantial compliance where the appellant files a motion to reduce the bond, tenders a reduced amount for reasonable cause, and promptly pays the differential once directed.

Second, for a managerial employee, the mere existence of a basis for believing that the employee has breached the employer's trust suffices for dismissal; proof beyond reasonable doubt is not required. This is the doctrine of loss of trust and confidence under Article 282.

Third, resignation under Article 285 requires the concurrence of the intent to relinquish and the overt act of relinquishment, and the burden of proving voluntary resignation rests on the employer. The filing of a complaint for illegal dismissal is inconsistent with resignation.

Fourth, where a just cause for dismissal exists but the two-notice requirement of procedural due process is not observed, the dismissal remains valid and effective, and the employer is liable only for nominal damages, not backwages or separation pay.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed with modification: the award of separation pay was deleted and, in its place, nominal damages of thirty thousand pesos were awarded in favor of Mendoza.

Remember This

The line to memorize is that a dismissal for just cause without the two notices is not illegal, it merely obliges the employer to pay nominal damages. Examiners use this case to test the distinction between substantive and procedural due process in dismissal, and the special treatment of managerial employees under the doctrine of loss of trust and confidence.