LOPEZ SUGAR CORPORATION, PETITIONER, VS. FEDERATION OF FREE WORKERS, PHILIPPINE LABOR UNION ASSOCIATION (PLUA-NACUSIP) AND NATIONAL LABOR RELA­TIONS COMMISSION, RESPONDENTS.

In this Petition, petitioner Lopez Sugar Corporation seeks
reversal of the Decision dated 2 July 1986 of public respondent National Labor
Relations Commission (“NLRC”) which affirmed the decision of the
Labor Arbiter dated 30 September 1983. The Labor Arbiter (a) had denied petitioner’s application to retrench
some of its employees and (b) had ordered the reinstatement of twenty-seven
(27) employees and to pay them full backwages from the time of termination
until actual reinstatement.

Petitioner, allegedly to prevent losses due to major economic
problems, and exercising its privilege under Article XI, Section 2 of its 1975
– 1977 Collective Bargaining Agreement (“CBA”) entered into between
petitioner and private respondent Philippine Labor Union Association
(“PLUA-NACUSIP”), caused the retrenchment and retirement of a number
of its employees.

Thus, on 3 January 1980, petitioner filed with the Bacolod
District Office of the then Ministry of Labor and Employment (“MOLE”)
a combined report on retirement and application for clearance to retrench,
dated 28 December 1979,^[1]
affecting eighty-six (86) of its employees. This was docketed as NLRC Case No. A-217-80. Of these eighty-six (86) employees, fifty-nine (59) were retired
effective 1 January 1980 and twenty-seven (27) were to be retrenched effective
16 January 1980 “in order to prevent losses.”

Also, on 3 January 1980, private respondent Federation of Free
Workers (“FFW”), as the certified bargaining agent of the
rank-and-file employees of petitioner, filed with the Bacolod District Office
of the MOLE a complaint dated 27 December 1979 for unfair labor practices and
recovery of union dues, docketed as NLRC Case No. A-198-80. In said complaint, FFW claimed that the
terminations undertaken by petitioner were violative of the security of tenure
of its members and were intended to “bust” the union and hence
constituted an unfair labor practice. FFW claimed that after the termination of the services of its members,
petitioner advised 110 casuals to report to its personnel office. FFW further argued that to justify
retrenchment, serious business reverses must be “actual, real and amply
supported by sufficient and convincing evidence.” FFW prayed for
reinstatement of its members who had been retired or retrenched.

Petitioner denied having hired casuals to replace those it had
retired or retrenched. It explained
that the announcement calling for 110 workers to report to its personnel office
was only for the purpose of organizing a pool of extra workers which could be
tapped whenever there were temporary vacancies by reason of leaves of absence
of regular workers.

On 22 January 1980, another report on retirement affecting an
additional twenty-five (25) employees effective 1 February 1980 was filed by
petitioner.^[2]

On 3 March 1980, petitioner filed its Position Paper in NLRC Case
No. A-217-80 contending that certain economic factors jeopardizing its very
existence rendered the dismissals necessary. Petitioner explained:

“As a business firm, the Applicant must earn [a] fair return
of (sic) its investment. Its income is
generated from the sales of the Central’s shares of sugar and molasses
production. It has however no control
of the selling price of both products. It is of common knowledge that for the past years the price of sugar has
been very low. In order to survive, the
Applicant has effected several forms of cost reduction. Now that there is hope in the price of sugar
the applicant is again faced with two major economic problems, i.e., the
stoppage of its railway operation and the spiralling cost of production.

The Applicant was forced to stop its railway operation because the
owners of the land upon which the Applicant’s railway lines traverse are no
longer willing to allow the Applicant to make further use of portions of their
lands. x x x

The other economic problem that confronted the Applicant is the rising
cost of labor, materials, supplies, equipment, etc. These two major economic problems the rising cost of production
and the stoppage of its railway facilities, put together pose a very serious
threat against the economic survival of the Applicant. In view of this, the Applicant was
constrained to touch on the last phase of its cost reduction program which is
the reduction of its workforce.

x x x                                         x x x                                  x x x

The Applicant as a business proposition must be allowed to earn
income in order to survive. This is the
essence of private enterprise. Being
plagued with two major economic problems, the applicant is not expected to
remain immobile. It has to react
accordingly. As many other business
firms have resorted to reduction of force in view of the present economic
crisis obtaining here and abroad, the applicant was likewise compelled to do
the same as a last alternative remedy for survival.”^[3]

In a decision dated 30 September 1983,^[4]
the Labor Arbiter denied petitioner’s application for clearance to retrench its
employees on the ground that for retrenchment to be valid, the employer’s
losses must be serious, actual and real and must be amply supported by
sufficient and convincing evidence. The
application to retire was also denied on the ground that petitioner’s
prerogative to so retire its employees was granted by the 1975-77 collective
bargaining agreement which agreement had long ago expired. Petitioner was, therefore, ordered to
reinstate twenty-seven retired or retrenched employees represented by private
respondent Philippine Labor Union Association (“PLUA”) and FFW and to
pay them full backwages from the time of termination until actual
reinstatement.

Both dissatisfied with the Labor Arbiter’s decision, petitioner
and respondent FFW appealed the case to public respondent NLRC. On appeal, the NLRC, finding no justifiable
reason for disturbing the decision of the Labor Arbiter, affirmed that decision
on 2 July 1986.^[5]

Hence, this Petition for Certiorari making the following
arguments:

1.     
That portions of the decision of public respondent NLRC dated
July 2, 1986 affirming the decision of Labor Arbiter Ethelwoldo Ovejera dated
September 30, 1983 are contrary to law and jurisprudence;

2.     
That said decision subject of this petition are in some
respects not supported by evidence and self-contradictory;

3.     
That said decision subject of this petition were rendered with
grave abuse of discretion and in excess of jurisdiction;

4.     
That the dismissals at bar are valid and based on justifiable
grounds.^[6]

Petitioner contends that the NLRC acted with grave abuse of
discretion in denying its combined report on retirement and application for
clearance to retrench. Petitioner
argues that under the law, it has the right to reduce its workforce if made
necessary by economic factors which would endanger its existence, and that for
retrenchment to be valid, it is not necessary that losses be actually
sustained. The existence of valid
grounds to anticipate or expect losses would be sufficient justification to
enable the employer to take the necessary actions to prevent any threat to its
survival.

Upon the other hand, the Solicitor General argued that the
Decision rendered by the Labor Arbiter and affirmed by the NLRC is supported by
substantial evidence on record; that, therefore, no grave abuse of discretion
was committed by public respondent NLRC when it rendered that Decision.

Article 283 of the Labor Code provides:

“Article 283. 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 closures 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 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.”
(Underscoring supplied)

In its ordinary connotation, the phrase
“to prevent losses” means that retrenchment or termination of the services
of some employees is authorized to be undertaken by the employer sometime
before the losses anticipated are actually sustained or realized. It is not, in other words, the intention of
the lawmaker to compel the employer to stay his hand and keep all his employees
until sometime after losses shall have in fact materialized;^[7]
if such an intent were expressly written into the law, that law may well be
vulnerable to constitutional attack as taking property from one man to give to
another. This is simple enough.

At the other end of the spectrum, it seems equally clear that not
every asserted possibility of loss is sufficient legal warrant for reduction of
personnel. In the nature of things, the
possibility of incurring losses is constantly present, in greater or lesser
degree, in the carrying on of business operations, since some, indeed many, of
the factors which impact upon the profitability or viability of such operations
may be substantially outside the control of the employer. Thus, the difficult question is
determination of when, or under what circumstances, the employer becomes
legally privileged to retrench and reduce the number of his employees.

We consider it may be useful to sketch the general standards in
terms of which the acts of petitioner employer must be appraised. Firstly, the losses expected should be
substantial and not merely de minimis in extent. If the loss purportedly sought to be
forestalled by retrenchment is clearly shown to be insubstantial and inconsequential
in character, the bonafide nature of the retrenchment would appear to be
seriously in question. Secondly, the
substantial loss apprehended must be reasonably imminent, as such imminence can
be perceived objectively and in good faith by the employer. There should, in other words, be a certain
degree of urgency for the retrenchment, which is after all a drastic recourse
with serious consequences for the livelihood of the employees retired or
otherwise laid-off. Because of the
consequential nature of retrenchment, it must, thirdly, be reasonably necessary
and likely to effectively prevent the expected losses. The employer should have taken other
measures prior or parallel to retrenchment to forestall losses, i.e., cut other
costs than labor costs. An employer
who, for instance, lays off substantial numbers of workers while continuing to
dispense fat executive bonuses and perquisites or so-called “golden
parachutes”, can scarcely claim to be retrenching in good faith to avoid
losses. To impart operational meaning
to the constitutional policy of providing “full protection” to labor,
the employer’s prerogative to bring down labor costs by retrenching must be
exercised essentially as a measure of last resort, after less drastic means —
e.g., reduction of both management and rank-and-file bonuses and salaries,
going on reduced time, improving manufacturing efficiencies, trimming of
marketing and advertising costs, etc. — have been tried and found wanting.

Lastly, but certainly not the least important, alleged losses if
already realized, and the expected imminent losses sought to be forestalled,
must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is readily apparent: any less exacting standard of proof would
render too easy the abuse of this ground for termination of services of
employees. In Garcia v. National
Labor Relations Commission,^[8]
the Court said:

“x x x But it is
essentially required that the alleged losses in business operations must be prove[n]. (National Federation of Labor Unions [NAFLU]
vs. Ople, 143 SCRA 124 [1986]). Otherwise,
said ground for termination would be susceptible to abuse by scheming employers
who might be merely feigning business losses or reverses in their business ventures
in order to ease out employees.”^[9]
(Underscoring supplied)

Whether or not an employer would imminently suffer serious or
substantial losses for economic reasons is essentially a question of fact for
the Labor Arbiter and the NLRC to determine. In the instant case, the Labor Arbiter found no sufficient and
convincing evidence to sustain petitioner’s essential contention that it was
acting in order to prevent substantial and serious losses. The Labor Arbiter said:

“There is no question that an employer may reduce its work
force to prevent losses, however, these losses must be serious, actual and
real. In the instant case, even
assuming arguendo that company was, in fact, surrounded by the major
economic problems stated earlier, the question may be asked – will it suffer
serious losses as a result of the said economic problems? We find the answer to be negative. We had scanned the records but failed to
find evidence submitted to show that applicant company would suffer serious
business losses or reverses as a consequence of the alleged major economic
problems. In fact, applicant
company asseverated that these problems only threatens its
survival, hence, it had to reduce its work force. Another thing, while applicant company was retrenching its regular
employees, it also hired the services of casuals. This militated its
claim to reduce its work force to set up cost reduction. It must be stated that settled is the rule
that serious business losses or reverses must be actual, real and amply supported
by sufficient and convincing evidence.”^[10]
(Underscoring supplied)

We are in principle bound by such
findings in accordance with well-established jurisprudence that the factual
findings of labor administrative officials, if supported by substantial
evidence, are entitled not only to great respect but even to finality,^[11]
unless, indeed, petitioner is able to show that the Labor Arbiter and the NLRC
simply and arbitrarily disregarded evidence before them or had misapprehended
evidence of such a nature as to compel a contrary conclusion if properly
appreciated.

The submissions made by petitioner in this respect are basically
that from the crop year 1975-1976 to the crop year 1980-1981, the amount of
cane deliveries made to petitioner Central was declining and that the degree of
utilization of the mill’s capacity and the sugar recovery from the cane
actually processed, were similarly declining.^[12]
Petitioner also argued that the competition among the existing sugar mills for
the limited supply of sugar cane was lively and that such competition resulted
in petitioner having to close approximately thirty-eight (38) of its railroad
lines by the end of 1979.^[13]
According to the petitioner, the cost of producing one (1) picul of sugar
during the same period (i.e., from crop year 1976-1977 to crop year 1979-1980)
increased from P69.97 to P93.11.

The principal difficulty with petitioner’s case as above
presented was that no proof of actual declining gross and net revenues was
submitted. No audited financial
statements showing the financial condition of petitioner corporation during the
above mentioned crop years were submitted. Since financial statements audited by independent external auditors
constitute the normal method of proof of the profit and loss performance of a
company, it is not easy to understand why petitioner should have failed to
submit such financial statements.

Moreover, while petitioner made passing reference to cost
reduction measures it had allegedly undertaken, it was, once more, a fairly
conspicuous failure to specify the cost-reduction measures actually undertaken
in good faith before resorting to retrenchment. Upon the other hand, it appears from the record that petitioner,
after reducing its work force, advised 110 casual workers to register with the
company personnel officer as extra workers. Petitioner, as earlier noted, argued that it did not actually hire
casual workers but that it merely organize[d] a pool of ‘extra workers’ from
which workers could be drawn whenever vacancies occurred by reason of regular
workers going on leave of absence. Both
the Labor Arbiter and the NLRC did not accord much credit to petitioner’s
explanation but petitioner has not shown that the Labor Arbiter and the NLRC
were merely being arbitrary and capricious in their evaluation. We note also that petitioner did not claim
that the retrenched and retired employees were brought into the “pool of
extra workers” rather than new casual workers.

Petitioner next contends that the NLRC committed grave abuse of
discretion in affirming the ruling of the Labor Arbiter that the retirements
effected by petitioner were not valid since the basis therefor, i.e., Article
XI, Section 2 of the 1975-1977 CBA, had by then already expired and was thus no
longer enforceable or operative.^[14]
Article XI, Section 2 of the CBA provides:

“Section 2. — Any employee may apply for retirement after
having rendered the equivalent of at least eighteen (18) years of service to
the COMPANY. The COMPANY, as a
right, may retire any employee who has rendered twenty (20) years of service,
or has reached the age of sixty (60) years. Employees who are physically incapacitated to continue to work in
the COMPANY upon certifica­tion of the COMPANY Physician, shall be entitled to
a separation pay equivalent to the retirement benefits herein provided for that
may have accrued The heirs or surviving legally married spouse of the deceased
employee shall be granted by the COMPANY the amount equivalent to the accrued
retirement benefit of the deceased employee at the time of his death.”^[15]
(Underscoring supplied)

Petitioner argues that the CBA was “extended” not
merely by implication, but by reciprocal acts — in the sense that even after
the CBA had expired, petitioner continued to give, and the workers continued to
receive, the benefits and exercise the prerogatives provided therein. Under these circumstances, petitioner urges,
the employees are estopped from denying the extended effectivity of the CBA.

The Solicitor General, as well as private respondents, argue
basically that petitioner’s right to retire its employees was coterminous with
the life of the CBA.

On this point, we must find for petitioner. Although the CBA
expired on 31 December 1977, it continued to have legal effects as between the
parties until a new CBA had been negotiated and entered into. This proposition finds legal support in
Article 253 of the Labor Code, which provides:

“Article 253 – Duty to bargain collectively when there
exists a collective bargaining agreement. – When there is a collective
bargaining agreement, the duty to bargain collectively shall also mean that
neither party shall terminate nor modify such agreement during its
lifetime. However, either party can
serve a written notice to terminate or modify the agreement at least sixty (60)
days prior to its expiration date. It
shall be the duty of both parties to keep the status quo and to continue in
full force and effect the terms and conditions of the existing agreement during
the 60-day period and/or until a new agreement is reached by the parties.”
(Underscoring supplied)

Accordingly, in the instant case, despite the lapse of the formal
effectivity of the CBA by virtue of its own provisions, the law considered the
same as continuing in force and effect until a new CBA shall have been validly executed. Hence, petitioner acted within legal bounds
when it decided to retire several employees in accordance with the CBA. That
the employees themselves similarly acted in accordance with the CBA is plain
from the record. Even after the
expiration of the CBA, petitioner’s employees continued to receive the benefits
and enjoy the privileges granted therein. They continued to avail of vacation and sick leaves as computed in
accordance with Articles VII and VIII of the CBA. They also continued to avail of medical and dental aid under
Article IX, death aid and bereavement leave under Articles X and XIV, insurance
coverage under Article XVI and housing allowance under Article XVIII. Seventeen (17) employees even availed of
Section XI (dealing with retirement) when they voluntarily retired between 1
January 1978 and 31 December 1980 and received retirement pay computed on the
basis of Section 3 of the same article. If the workers chose to avail of the CBA despite its expiration, equity
– if not the law — dictates that the employer should likewise be able to
invoke the CBA.

The fact that several workers signed quitclaims will not by
itself bar them from joining in the complaint. Quitclaims executed by laborers are commonly frowned upon as contrary to
public policy and ineffective to bar claims for the full measure of the
workers’ legal rights. In AFP Mutual
Benefit Association, Inc. v. AFP-MBAI-EU,^[16]
the Court held:

“In labor jurisprudence, it is well-established that
quitclaims and/or complete releases executed by the employees do not estop them
from pursuing their claims arising from the unfair labor practice of the
employer. The basic reason for this
is that such quitclaims and/or complete releases are against public policy and,
therefore, null and void. The
acceptance of termination pay does not divest a laborer of the right to
prosecute his employer for unfair labor practice acts (Cariño vs. ACCFA,
L-19808, September 29, 1966, 18 SCRA 183; Philippine Sugar Institute vs. CIR,
L-13475, September 29, 1960, 109 Phil. 452; Mercury Drug Co. vs. CIR, L-23357,
April 30, 1974, 56 SCRA 694, 704)

In the Cariño case, supra, the Supreme Court, speaking thru
Justice Sanchez, said:

‘Acceptance of those benefits would not amount to estoppel. The reason is plain. Employer and employee, obviously, do not
stand on the same footing. The employer
drove the employee to the wall. The
latter must have to get hold of money. Because, out of job, he had to face the harsh necessities of life. He thus found himself in no position to
resist money proffered. His, then, is a
case of adherence, not of choice. One
thing sure, however, is that petitioners did not relent their claim. They pressed it. They are deemed not to have waived any of their rights. Renuntiatio
non praesumitur.'” (Underscoring supplied)

We conclude that because the attempted retrenchment on the part
of the petitioner was legally ineffective, all retrenched employees should be
reinstated and backwages paid them corresponding to a period of three (3) years
without qualification or deduction, in accordance with the three-year rule laid
down in a long line of cases.^[17]
In the case of employees who had received payments for which they had executed
quitclaims, the amount of such payments shall be deducted from the backwages
due to them. Where reinstate­ment is no
longer possible because the positions they had previously filled are no longer
in existence, petitioner shall pay backwages plus, in lieu of
reinstatement, separation pay in the amount of one–month’s pay for every year
of service including the three (3) year–period of putative service for which
backwages will be paid. Upon the other
hand, we find valid the retirement of those employees who were retired by
petitioner pursuant to the applicable provisions of the CBA.

WHEREFORE, the Petition for Certiorari is partially
GRANTED due course and the Decision dated 2 July 1986 of the public respondent
NLRC is hereby MODIFIED to the extent that it had affirmed that portion of the
Decision of the Labor Arbiter dated 30 September 1983 ordering the
reinstatement of employees who had been retired by petitioner under the
applicable provisions of the CBA. Except as so modified, the Decision of the NLRC is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin, and Cortes, JJ., concur.

^[1]
Rollo, pp. 38-39; Annexes “A” and “A-1” of Petition.

^[2]
Id., pp. 40-41; Annexes “B” and “B-1” of the Petition.

^[3]
Id., pp. 46-48; Annex “E” of Petition.

^[4]
Id., pp. 86-100; Annex “J” of Petition.

^[5]
Id., pp. 114-119; Annex “L” of Petition.

^[6]
Id., p. 20.

^[7]
Indino v. National Labor Relations Commission, et al., G.R. No. 80352,
September 29, 1989.

^[8]
153 SCRA 639 (1987); See also Camara Shoes v. Kapisanan ng Manggagawa sa
Camara Shoes, 173 SCRA 127 (1989); and Indino v. National Labor
Relations Commission, supra.

^[9]
153 SCRA at 651.

^[10]
Rollo, p. 98.

^[11]
Mamerto v. Inciong, 118 SCRA 265 (1982); Atlas Consolidated Mining and
Development Corp. v. National Labor Relations Commission, 167 SCRA 758
(1988); Reyes v. Minister of Labor, 170 SCRA 134 (1989); Bristol
Laboratories Employees Association-DFA, et al. v. National Labor
Relations Commission, et al., G.R. No. 87974, 2 July 1990.

^[12]
In its Petition, petitioner alleged that:

“1. Based on its sugar
mills’ rated capacity of 7,500 to 8,000 tons of cane per day, petitioner’s
production figures were as follows:

These figures show that there was
a continued decrease in production, both in cane deliveries and in sugar
recoveries from CY 1975-76 to CY 1977-78. While there were increases in cane
deliveries in CY 1978-79 and CY 1979-80, this was more because of Petitioner’s
increased trucking allowance which proved to be too expensive. But petitioner’s
studies projected that such increase were temporary and would not hold, as
tonnage of deliveries did fall in CY 1980-81 to a level only slightly higher
than those in CY 1977-78.” (Rollo, p. 32)

^[13]
Rollo, p. 33.

^[14]
This CBA lapsed on 31 December 1977. The retire­ments, on the other hand, were made on 1 January 1980 and 1
February 1980.

^[15]
Rollo, p. 143; Comment of the Solicitor General, p. 5.

^[16]
97 SCRA 715 (1980).

^[17]
Insular Life Assurance Co., Ltd. v. National Labor Relations Commission,
135 SCRA 697 (1985); Lepanto Consolidated Mining Company v. Encarnacion,
136 SCRA 256 (1985); Panay Railways, Inc. v. NLRC, 137 SCRA 480 (1985);
Atlas Consolidated Mining and Development Corp. v. National Labor
Relations Commission, et al., 167 SCRA 758 (1988).