Philippine labour laws distinguish between two categories of employer-initiated terminations: (i) those involving blameworthy conduct (eg, serious misconduct, fraud, breach of trust, and gross and habitual neglect); and (ii) those involving economic motives (eg, redundancy, retrenchment, installation of labour-saving devices and closure).
The procedural steps for these types of termination differ. For blameworthy conduct, the employer must comply with the requirements of a written notice of charge, summary hearing and written notice of termination. Where economic motives are involved, the employer must comply with a written notice sent to the employee and the Labour Department 30 days prior to the discharge. In addition, payment of separation benefits is mandatory in cases of economic dismissal, but it is not required in terminations for blameworthy conduct.
Two recent Supreme Court cases set new doctrines on the consequences of terminations which have a valid cause but do not meet due process requirements.
Jenny Agabon v National Labour Relations Commission involved two employees who were terminated for abandoning their jobs. The Labour Arbitration Court initially ruled that the employees were unlawfully terminated without just cause. The Labour Appellate Commission reversed the judgment and ruled that the employees did abandon their jobs and their termination was therefore valid. The Court of Appeal subsequently affirmed the commission's ruling. On appeal, the Supreme Court held that while the termination was for just cause, the employer failed to comply with the notice requirement because the notice of charge was not sent to the employees' last-known address as required by the labour regulations. Since the employees were dismissed for just cause but were not afforded procedural due process, the Supreme Court had to resolve the issue of the proper relief that must be accorded to them.
Prior to Agabon, the Supreme Court decision in Serrano v National Labour Relations Commission provided that the applicable penalty was the payment of full back pay, because failure to observe due process rendered the termination ineffectual. However, reinstatement would not be ordered; instead, the employee would be paid separation benefits equivalent to one month's salary for every year of service. The old doctrine did not differentiate between dismissals for blameworthy conduct and dismissals for economic reasons.
In Agabon the Supreme Court abandoned this doctrine. The new doctrine would no longer grant the relief of back pay and separation benefits, the rationale being that a termination for just cause, although not attended with procedural due process, remains valid. As penalty for the violation of due process, the employee would be awarded a uniform amount of Ps30,000 as nominal damages.
Jaka Foods Processing Corporation v Darwin Pacot involved employees who were retrenched because the company was in extreme financial difficulty. The employees filed an action for unlawful termination with the Labour Arbitration Court, which ruled in their favour. On appeal, the Appellate Labour Commission reversed the initial judgment, but granted separation benefits of one month for every year of service, because the dismissal was for an economic reason. The case was appealed again, and the Court of Appeal relied on and applied the then prevailing Serrano doctrine, which mandated the payment of full back pay and separation benefits where a dismissal (even if with just cause) was effected in violation of the due process requirements. By the time the case reached the Supreme Court, the Agabon doctrine was in place. The Supreme Court agreed that the company was suffering serious business losses, thereby justifying the retrenchment, and deleted the award for separation pay on the underlying premise that the company was forced to cease operations due to its financial situation. However, as the company failed to comply with the 30-day prior notice rule, it committed a violation of due process. Under the Agabon doctrine, the employees would be entitled to Ps30,000 as nominal damages. However, the Supreme Court felt it necessary to differentiate between dismissals for blameworthy conduct and dismissals for economic reasons.
The Supreme Court reasoned that, in cases of termination for blameworthy conduct, it could be said that the process is effectively initiated by the employee because he or she provided the grounds for the dismissal by committing the culpable act or omission. In dismissals for economic reasons, however, the penalty should be stiffer, because the dismissal process is initiated by the employer's exercise of the management prerogative to effect retrenchment or closure. Therefore, the Supreme Court raised the uniform nominal damages to Ps50,000 in cases of economic-based dismissals.
The new doctrines provide a welcome reduction in the overly generous compensation previously awarded to employees who commit blameworthy conduct but are deprived of due process by their employers. While penalties must be applied to erring employers for violation of procedural due process, the twin reliefs of full back pay and separation benefits mandated under the Serrano doctrine, which would easily amount to more than Ps1 million for even ordinary employees, were tantamount to unjust enrichment of employees validly terminated for just cause. The tempered nominal damages of P30,000 and P50,000 set forth in the new doctrines appear to impose a reasonable penalty on employers that trifle with procedural due process requirements.
However, the Supreme Court is not justified in making the penalty for economic-based termination higher than that for termination for blameworthy conduct, especially where the reason for the retrenchment of employees is closure of business due to serious financial difficulties. Although, as stated by the Supreme Court, termination on economic grounds may be purely at the volition of the employer, this may not be so where the employer is forced to close the company on account of its financial inviability. Subjecting the employer to a higher penalty under this circumstance is not justified.
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