Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 85985 August 13, 1993

PHILIPPINE AIRLINES, INC. (PAL), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P.
ORTIGUERRA and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA),
respondents.

Solon Garcia for petitioner.

Adolpho M. Guerzon for respondent PALEA.

MELO, J.:

In the instant petition for certiorari, the Court is presented the issue of whether or not the
formulation of a Code of Discipline among employees is a shared responsibility of the
employer and the employees.

On March 15, 1985, the Philippine Airlines, Inc. (PAL) completely revised its 1966 Code
of Discipline. The Code was circulated among the employees and was immediately
implemented, and some employees were forthwith subjected to the disciplinary
measures embodied therein.

Thus, on August 20, 1985, the Philippine Airlines Employees Association (PALEA) filed
a complaint before the National Labor Relations Commission (NLRC) for unfair labor
practice (Case No. NCR-7-2051-85) with the following remarks: "ULP with arbitrary
implementation of PAL's Code of Discipline without notice and prior discussion with
Union by Management" (Rollo, p. 41). In its position paper, PALEA contended that PAL,
by its unilateral implementation of the Code, was guilty of unfair labor practice,
specifically Paragraphs E and G of Article 249 and Article 253 of the Labor Code.
PALEA alleged that copies of the Code had been circulated in limited numbers; that
being penal in nature the Code must conform with the requirements of sufficient
publication, and that the Code was arbitrary, oppressive, and prejudicial to the rights of
the employees. It prayed that implementation of the Code be held in abeyance; that
PAL should discuss the substance of the Code with PALEA; that employees dismissed
under the Code be reinstated and their cases subjected to further hearing; and that PAL
be declared guilty of unfair labor practice and be ordered to pay damages (pp. 7-14,
Record.)

PAL filed a motion to dismiss the complaint, asserting its prerogative as an employer to
prescibe rules and regulations regarding employess' conduct in carrying out their duties
and functions, and alleging that by implementing the Code, it had not violated the
collective bargaining agreement (CBA) or any provision of the Labor Code. Assailing the
complaint as unsupported by evidence, PAL maintained that Article 253 of the Labor
Code cited by PALEA reffered to the requirements for negotiating a CBA which was
inapplicable as indeed the current CBA had been negotiated.

In its reply to PAL's position paper, PALEA maintained that Article 249 (E) of the Labor
Code was violated when PAL unilaterally implemented the Code, and cited provisions of
Articles IV and I of Chapter II of the Code as defective for, respectively, running counter
to the construction of penal laws and making punishable any offense within PAL's
contemplation. These provisions are the following:

Sec. 2. Non-exclusivity. — This Code does not contain the entirety of the rules and
regulations of the company. Every employee is bound to comply with all applicable
rules, regulations, policies, procedures and standards, including standards of quality,
productivity and behaviour, as issued and promulgated by the company through its duly
authorized officials. Any violations thereof shall be punishable with a penalty to be
determined by the gravity and/or frequency of the offense.

Sec. 7. Cumulative Record. — An employee's record of offenses shall be cumulative.

The penalty for an offense shall be determined on the basis of his past record of
offenses of any nature or the absence thereof. The more habitual an offender has been,
the greater shall be the penalty for the latest offense. Thus, an employee may be
dismissed if the number of his past offenses warrants such penalty in the judgment of
management even if each offense considered separately may not warrant dismissal.
Habitual offenders or recidivists have no place in PAL. On the other hand, due regard
shall be given to the length of time between commission of individual offenses to
determine whether the employee's conduct may indicate occasional lapses (which may
nevertheless require sterner disciplinary action) or a pattern of incorrigibility.

Labor Arbiter Isabel P. Ortiguerra handling the case called the parties to a conference
but they failed to appear at the scheduled date. Interpreting such failure as a waiver of
the parties' right to present evidence, the labor arbiter considered the case submitted for
decision. On November 7, 1986, a decision was rendered finding no bad faith on the
part of PAL in adopting the Code and ruling that no unfair labor practice had been
committed. However, the arbiter held that PAL was "not totally fault free" considering
that while the issuance of rules and regulations governing the conduct of employees is a
"legitimate management prerogative" such rules and regulations must meet the test of
"reasonableness, propriety and fairness." She found Section 1 of the Code aforequoted
as "an all embracing and all encompassing provision that makes punishable any offense
one can think of in the company"; while Section 7, likewise quoted above, is
"objectionable for it violates the rule against double jeopardy thereby ushering in two or
more punishment for the same misdemeanor." (pp. 38-39, Rollo.)

The labor arbiter also found that PAL "failed to prove that the new Code was amply
circulated." Noting that PAL's assertion that it had furnished all its employees copies of
the Code is unsupported by documentary evidence, she stated that such "failure" on the
part of PAL resulted in the imposition of penalties on employees who thought all the
while that the 1966 Code was still being followed. Thus, the arbiter concluded that "(t)he
phrase ignorance of the law excuses no one from compliance . . . finds application only
after it has been conclusively shown that the law was circulated to all the parties
concerned and efforts to disseminate information regarding the new law have been
exerted. (p. 39, Rollo.) She thereupon disposed:

WHEREFORE, premises considered, respondent PAL is hereby ordered as follows:

1. Furnish all employees with the new Code of Discipline;

2. Reconsider the cases of employees meted with penalties under the New Code of
Discipline and remand the same for further hearing; and

3. Discuss with PALEA the objectionable provisions specifically tackled in the body of
the decision.

All other claims of the complainant union (is) [are] hereby, dismissed for lack of merit.

SO ORDERED. (p. 40, Rollo.)

PAL appealed to the NLRC. On August 19, 1988, the NLRC through Commissioner
Encarnacion, with Presiding Commissioner Bonto-Perez and Commissioner Maglaya
concurring, found no evidence of unfair labor practice committed by PAL and affirmed
the dismissal of PALEA's charge. Nonetheless, the NLRC made the following
observations:

Indeed, failure of management to discuss the provisions of a contemplated code of

discipline which shall govern the conduct of its employees would result in the erosion
and deterioration of an otherwise harmonious and smooth relationship between them as
did happen in the instant case. There is no dispute that adoption of rules of conduct or
discipline is a prerogative of management and is imperative and essential if an industry,
has to survive in a competitive world. But labor climate has progressed, too. In the
Philippine scene, at no time in our contemporary history is the need for a cooperative,
supportive and smooth relationship between labor and management more keenly felt if
we are to survive economically. Management can no longer exclude labor in the
deliberation and adoption of rules and regulations that will affect them.

The complainant union in this case has the right to feel isolated in the adoption of the
New Code of Discipline. The Code of Discipline involves security of tenure and loss of
employment — a property right! It is time that management realizes that to attain
effectiveness in its conduct rules, there should be candidness and openness by
Management and participation by the union, representing its members. In fact, our
Constitution has recognized the principle of "shared responsibility" between employers
and workers and has likewise recognized the right of workers to participate in "policy
and decision-making process affecting their rights . . ." The latter provision was
interpreted by the Constitutional Commissioners to mean participation in "management"'
(Record of the Constitutional Commission, Vol. II).

In a sense, participation by the union in the adoption of the code if conduct could have
accelerated and enhanced their feelings of belonging and would have resulted in
cooperation rather than resistance to the Code. In fact, labor-management cooperation
is now "the thing." (pp. 3-4, NLRC Decision ff. p. 149, Original Record.)

Respondent Commission thereupon disposed:

WHEREFORE, premises considered, we modify the appealed decision in the sense that
the New Code of Discipline should be reviewed and discussed with complainant union,
particularly the disputed provisions [.] (T)hereafter, respondent is directed to furnish
each employee with a copy of the appealed Code of Discipline. The pending cases
adverted to in the appealed decision if still in the arbitral level, should be reconsidered
by the respondent Philippine Air Lines. Other dispositions of the Labor Arbiter are
sustained.

SO ORDERED. (p. 5, NLRC Decision.)

PAL then filed the instant petition for certiorari charging public respondents with grave
abuse of discretion in: (a) directing PAL "to share its management prerogative of
formulating a Code of Discipline"; (b) engaging in quasi-judicial legislation in ordering
PAL to share said prerogative with the union; (c) deciding beyond the issue of unfair
labor practice, and (d) requiring PAL to reconsider pending cases still in the arbitral level
(p. 7, Petition; p. 8, Rollo.)

As stated above, the Principal issue submitted for resolution in the instant petition is
whether management may be compelled to share with the union or its employees its
prerogative of formulating a code of discipline.
PAL asserts that when it revised its Code on March 15, 1985, there was no law which
mandated the sharing of responsibility therefor between employer and employee.

Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715,
amending Article 211 of the Labor Code, that the law explicitly considered it a State
policy "(t)o ensure the participation of workers in decision and policy-making processes
affecting the rights, duties and welfare." However, even in the absence of said clear
provision of law, the exercise of management prerogatives was never considered
boundless. Thus, in Cruz vs. Medina (177 SCRA 565 [1989]) it was held that
management's prerogatives must be without abuse of discretion.

In San Miguel Brewery Sales Force Union (PTGWO) vs. Ople (170 SCRA 25 [1989]),
we upheld the company's right to implement a new system of distributing its products,
but gave the following caveat:

So long as a company's management prerogatives are exercised in good faith for the
advancement of the employer's interest and not for the purpose of defeating or
circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them.
(at p. 28.)

All this points to the conclusion that the exercise of managerial prerogatives is not
unlimited. It is circumscribed by limitations found in law, a collective bargaining
agreement, or the general principles of fair play and justice (University of Sto. Tomas
vs. NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott Laboratories
(Phil.), vs. NLRC (154 713 [1987]), it must be duly established that the prerogative
being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not
purely business-oriented nor do they concern the management aspect of the business
of the company as in the San Miguel case. The provisions of the Code clearly have
repercusions on the employee's right to security of tenure. The implementation of the
provisions may result in the deprivation of an employee's means of livelihood which, as
correctly pointed out by the NLRC, is a property right (Callanta, vs Carnation
Philippines, Inc., 145 SCRA 268 [1986]). In view of these aspects of the case which
border on infringement of constitutional rights, we must uphold the constitutional
requirements for the protection of labor and the promotion of social justice, for these
factors, according to Justice Isagani Cruz, tilt "the scales of justice when there is doubt,
in favor of the worker" (Employees Association of the Philippine American Life
Insurance Company vs. NLRC, 199 SCRA 628 [1991] 635).

Verily, a line must be drawn between management prerogatives regarding business

operations per se and those which affect the rights of the employees. In treating the
latter, management should see to it that its employees are at least properly informed of
its decisions or modes action. PAL asserts that all its employees have been furnished
copies of the Code. Public respondents found to the contrary, which finding, to say the
least is entitled to great respect.

PAL posits the view that by signing the 1989-1991 collective bargaining agreement, on
June 27, 1990, PALEA in effect, recognized PAL's "exclusive right to make and enforce
company rules and regulations to carry out the functions of management without having
to discuss the same with PALEA and much less, obtain the latter's conformity thereto"
(pp. 11-12, Petitioner's Memorandum; pp 180-181, Rollo.) Petitioner's view is based on
the following provision of the agreement:

The Association recognizes the right of the Company to determine matters of

management it policy and Company operations and to direct its manpower.
Management of the Company includes the right to organize, plan, direct and control
operations, to hire, assign employees to work, transfer employees from one department,
to another, to promote, demote, discipline, suspend or discharge employees for just
cause; to lay-off employees for valid and legal causes, to introduce new or improved
methods or facilities or to change existing methods or facilities and the right to make
and enforce Company rules and regulations to carry out the functions of management.

The exercise by management of its prerogative shall be done in a just reasonable,

humane and/or lawful manner.

Such provision in the collective bargaining agreement may not be interpreted as cession
of employees' rights to participate in the deliberation of matters which may affect their
rights and the formulation of policies relative thereto. And one such mater is the
formulation of a code of discipline.

Indeed, industrial peace cannot be achieved if the employees are denied their just
participation in the discussion of matters affecting their rights. Thus, even before Article
211 of the labor Code (P.D. 442) was amended by Republic Act No. 6715, it was
already declared a policy of the State, "(d) To promote the enlightenment of workers
concerning their rights and obligations . . . as employees." This was, of course,
amplified by Republic Act No 6715 when it decreed the "participation of workers in
decision and policy making processes affecting their rights, duties and welfare." PAL's
position that it cannot be saddled with the "obligation" of sharing management
prerogatives as during the formulation of the Code, Republic Act No. 6715 had not yet
been enacted (Petitioner's Memorandum, p. 44; Rollo, p. 212), cannot thus be
sustained. While such "obligation" was not yet founded in law when the Code was
formulated, the attainment of a harmonious labor-management relationship and the then
already existing state policy of enlightening workers concerning their rights as
employees demand no less than the observance of transparency in managerial moves
affecting employees' rights.

Petitioner's assertion that it needed the implementation of a new Code of Discipline

considering the nature of its business cannot be overemphasized. In fact, its being a
local monopoly in the business demands the most stringent of measures to attain safe
travel for its patrons. Nonetheless, whatever disciplinary measures are adopted cannot
be properly implemented in the absence of full cooperation of the employees. Such
cooperation cannot be attained if the employees are restive on account, of their being
left out in the determination of cardinal and fundamental matters affecting their
employment.

WHEREFORE, the petition is DISMISSED and the questioned decision AFFIRMED. No

special pronouncement is made as to costs.

SO ORDERED.

Feliciano, Bidin, Romero and Vitug, JJ., concur.

THIRD DIVISION

January 18, 2017

G.R. No. 197492

CHATEAU ROYALE SPORTS and COUNTRY CLUB, INC., Petitioner,

vs.
RACHELLE G. BALBA and MARINEL N. CONSTANTE, Respondents.

DECISION

BERSAMIN, J.:

The petitioner appeals the decision promulgated on January 10, 2011, 1 whereby the
Court of Appeals (CA) annulled and set aside the December 14, 2009 decision2 and
February 26, 2010 resolution3 of the National Labor Relations Commission (NLRC)
dismissing the respondents' complaint for constructive dismissal.

Antecedents

On August 28, 2004, the petitioner, a domestic corporation operating a resort complex
in Nasugbu, Batangas, hired the respondents as Account Executives on probationary
status.4 On June 28, 2005, the respondents were promoted to Account Managers
effective July 1, 2005, with the monthly salary rate of ₱9,000.00 plus allowances totaling
to ₱5,500.5 As part of their duties as Account Managers, they were instructed by the
Director of Sales and Marketing to forward all proposals, event orders and contracts for
an orderly and systematic bookings in the operation of the petitioner' s business.
However, they failed to comply with the directive. Accordingly, a notice to explain was
served on them,6 to which they promptly responded. 7

On October 4, 2005, the management served notices of administrative hearing8 on the

respondents. Thereupon, they sent a letter of said date asking for a postponement of
the hearing.9 Their request was, however, denied by the letter dated October 7, 2005,
and at the same time informed them that the petitioner's Corporate Infractions
Committee had found them to have committed acts of insubordination, and that they
were being suspended for seven days from October 10 to 17, 2005, inclusive. 10

The suspension order was lifted even before its implementation on October 10, 2005.11
On October 10, 2005, the respondents filed a complaint for illegal suspension and non-
payment of allowances and commissions. 12

On December 1, 2005, the respondents amended their complaint to include constructive

dismissal as one of their causes of action based on their information from the Chief
Financial Officer of the petitioner on the latter's plan to transfer them to the Manila
Office. 13 The proposed transfer was prompted by the shortage of personnel at the
Manila Office as a result of the resignation of three account managers and the director
of sales and marketing. Despite attempts to convince them to accept the transfer to
Manila, they declined because their families were living in Nasugbu, Batangas.

The respondents received the notice of transfer14 dated December 13, 2005 on
December 28, 2005 15 directing them to report to work at the Manila Office effective
January 9, 2006. They responded by letter addressed to Mr. Rowell David, the Human
Resource Consultant of the petitioner, 16 explaining their reasons for declining the order
of transfer. Consequently, another request for incident report17 was served on them
regarding their failure to comply with the directive to report at the Manila office.
Following respondents' respective responses, 18 the petitioner sent a notice imposing
on them the sanction of written reprimand for their failure to abide by the order of
transfer. 19

Ruling of the Labor Arbiter

On February 14, 2008, Labor Arbiter Arthur L. Amansec rendered his decision declaring
that the respondents had been constructively dismissed, and disposing thusly:20

WHEREFORE, judgment is hereby made finding respondent Chateau Royale Sports

and Country Club, Inc. to have constructively dismissed the complainants Rachelle G.
Balba and Marinel N. Constante from employment. Concomitantly, the respondent
company is hereby ordered to pay each complainant one (1) year backwages plus a
separation pay, computed at a full month's pay for every year of service.

The respondent company is also ordered to pay each complainant ₱50,000.00 moral
damages and ₱10,000.00 exemplary damages.

Ten (10%) attorney's fees are also awarded.

Other claims are dismissed for lack of merit.

SO ORDERED.21
Labor Arbiter Amansec opined that the respondents' transfer to Manila would not only
be physically and financially inconvenient, but would also deprive them of the
psychological comfort that their families provided; that being the top sales performers in
Nasugbu, they should not be punished with the transfer; and that their earnings would
considerably diminish inasmuch as sales in Manila were not as lively as those in
Nasugbu.22

Ruling of the NLRC

On appeal,23 the NLRC reversed the ruling of the Labor Arbiter, and dismissed the
complaint for lack of merit, to wit:

WHEREFORE, the appeal of respondents Chateau Royale Sports and Country Club,
Inc. is Granted. Accordingly, the assailed February 14, 2008 decision is Set-Aside
dismissing the complaint for lack of merit.

SO ORDERED.24

The NLRC found that the respondents had been informed through their respective
letters of appointment of the possibility of transfer in the exigency of the service; that the
transfer was justified due to the shortage of personnel at the Manila office; that the
transfer of the respondents, being bereft of improper motive, was a valid exercise of
management prerogative; and that they could not as employees validly decline a lawful
transfer order on the ground of parental obligations, additional expenses, and the
anxiety of being away from his family.

The respondents filed their motion for reconsideration,25 but the NLRC denied their
motion on February 26, 2010.26

Decision of the CA

On January 10, 2011, the CA promulgated its decision granting the respondents'
petition for certiorari, and setting aside the decision of the NLRC, viz.:

WHEREFORE, premises considered, the assailed Decision dated December 14, 2009
and Resolution dated February 26, 2010 of the NLRC, Second Division in NLRC LAC
No. 07-002551-08 (NLRC-RAB-IV Case No. 10-21558-058) (NLRC-RAB-IV Case No.
02-22153-068) are hereby REVERSED and SET ASIDE. Private respondent Chateau
Royale is hereby ordered to REINSTATE petitioners Balba and Constante to their
former positions without loss of seniority rights and other privileges, and to pay said
petitioners full BACKWAGES inclusive of allowances and other benefits from the time
their employment was severed up to the time of actual reinstatement.
SO ORDERED.27

The CA ruled that the transfer of the respondents from the office in Nasugbu, Batangas
to the Manila office was not a legitimate exercise of management prerogative and
constituted constructive dismissal; that the transfer to the Manila office was not crucial
as to cause serious disruption in the operation of the business if the respondents were
not transferred thereat; that the directive failed to indicate that the transfer was merely
temporary; that the directive did not mention the shortage of personnel that would
necessitate such transfer; and that the transfer would be inconvenient and prejudicial to
the respondents.28

On June 22, 2011,29 the CA denied the petitioner's motion for reconsideration.

Issues

Hence, this appeal by the petitioner via petition for review on certiorari,30citing the
following grounds:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING

THAT TI-IE SHORTAGE OF PERSONNEL IN THE MANILA OFFICE IS A MERE
SUBTERFUGE RATHER THAN AN EXIGENCY JN THE BUSINESS THEREBY
TREATING THE TRANSFER OF RESPONDENTS AS UNREASONABLE

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING

THAT THE INTENDED TRANSFER OF THE RESPONDENTS FROM NASUGBU,
BATANGAS TO MANILA OFFICE CONSTITUTES CONSTRUCTIVE DISMISSAL.31

The petitioner argues that the resignations of the Account Managers and the Director of
Sales and Marketing caused serious disruptions in the operations of the Manila office,
thereby making the immediate transfer of the respondents crucial and indispensable;
that through their respective letters of appointment, the possibility of their transfer to the
Manila office had been made known to them even prior to their regularization; that if its
intention had been to expel them from the company, it would not have rehired them as
regular employees after the expiration of their probationary contract and even promoted
them as Account Managers; that there was no diminution of income and benefits as a
result of the transfer; and that their immediate rejection of the transfer directive
prevented the parties from negotiating for additional allowances beyond their regular
salaries.
The respondents counter that there was no valid cause for their transfer; that they were
forced to transfer to the Manila office without consideration of the proximity of the place
and without improvements in the employment package; that the alleged shortage of
personnel in the Manila office due to the resignation of the account managers was
merely used to conceal the petitioner's illegal acts; and that notwithstanding their
negative response upon being informed of their impending transfer to Manila by Chief
Finance Officer Marquez, the petitioner still issued the transfer order directing them to
report to the Manila office effective January 9, 2006.

The sole issue for resolution is whether or not the respondents were constructively
dismissed.

Ruling of the Court

We find merit in the appeal.

In the resolution of whether the transfer of the respondents from one area of operation
to another was valid, finding a balance between the scope and limitation of the exercise
of management prerogative and the employees' right to security of tenure is
necessary.32 We have to weigh and consider, on the one hand, that management has
a wide discretion to regulate all aspects of employment, including the transfer and re-
assignment of employees according to the exigencies of the business; 33 and, on the
other, that the transfer constitutes constructive dismissal when it is unreasonable,
inconvenient or prejudicial to the employee, or involves a demotion in rank or diminution
of salaries, benefits and other privileges, or when the acts of discrimination, insensibility
or disdain on the part of the employer become unbearable for the employee, forcing him
to forego her employment. 34

In this case of constructive dismissal, the burden of proof lies in the petitioner as the
employer to prove that the transfer of the employee from one area of operation to
another was for a valid and legitimate ground, like genuine business necessity.35 We
are satisfied that the petitioner duly discharged its burden, and thus established that,
contrary to the claim of the respondents that they had been constructively dismissed,
their transfer had been an exercise of the petitioner's legitimate management
prerogative.

To start with, the resignations of the account managers and the director of sales and
marketing in the Manila office brought about the immediate need for their replacements
with personnel having commensurate experiences and skills. With the positions held by
the resigned sales personnel being undoubtedly crucial to the operations and business
of the petitioner, the resignations gave rise to an urgent and genuine business necessity
that fully warranted the transfer from the Nasugbu, Batangas office to the main office in
Manila of the respondents, undoubtedly the best suited to perform the tasks assigned to
the resigned employees because of their being themselves account managers who had
recently attended seminars and trainings as such. The transfer could not be validly
assailed as a form of constructive dismissal, for, as held in Benguet Electric
Cooperative v.Fianza,36management had the prerogative to determine the place where
the employee is best qualified to serve the interests of the business given the
qualifications, training and performance of the affected employee.

Secondly, although the respondents' transfer to Manila might be potentially inconvenient

for them because it would entail additional expenses on their part aside from their being
forced to be away from their families, it was neither unreasonable nor oppressive. The
petitioner rightly points out that the transfer would be without demotion in rank, or
without diminution of benefits and salaries. Instead, the transfer would open the way for
their eventual career growth, with the corresponding increases in pay. It is noted that
their prompt and repeated opposition to the transfer effectively stalled the possibility of
any agreement between the parties regarding benefits or salary adjustments.

Thirdly, the respondents did not show by substantial evidence that the petitioner was
acting in bad faith or had ill-motive in ordering their transfer.1avvphi1 In contrast, the
urgency and genuine business necessity justifying the transfer negated bad faith on the
part of the petitioner.

Lastly, the respondents, by having voluntarily affixed their signatures on their respective
letters of appointment, acceded to the terms and conditions of employment incorporated
therein. One of the terms and conditions thus incorporated was the prerogative of
management to transfer and re-assign its employees from one job to another "as it may
deem necessary or advisable," to wit:

The company reserves the right to transfer you to any assignment from one job to
another, or from one department/section to another, as it may deem necessary or
advisable.

Having expressly consented to the foregoing, the respondents had no basis for
objecting to their transfer. According to Abbot Laboratories(Phils.), Inc. v. National Labor
Relations Commission,37the employee who has consented to the company's policy of
hiring sales staff willing to be assigned anywhere in the Philippines as demanded by the
employer's business has no reason to disobey the transfer order of management. Verily,
the right of the employee to security of tenure does not give her a vested right to her
position as to deprive management of its authority to transfer or re-assign her where
she will be most useful. 38

In view of the foregoing, the NLRC properly appreciated the evidence and merits of the
case in reversing the decision of the Labor Arbiter. As such, the CA gravely erred in
declaring that the NLRC had gravely abused its discretion amounting to lack or excess
of jurisdiction.

WHEREFORE, the Court REVERSES AND SETS ASIDE the decision of the Court of
Appeals promulgated on January 10, 2011; REINSTATES the decision issued on
December 14, 2009 by the National Labor Relations Commission; and ORDERS the
respondents to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

BIENVENIDO L. REYES
Associate Justice FRANCIS H. JARDELEZA
Associate Justice
ALFREDO BENJAMIN S. CAGUIOA*
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division
Chairperson’s Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes

* Designated as Fifth Member of the Third Division per Special Order No. 2417 dated
January 4, 2017.

1 Rollo, pp. 31-40; penned by Associate Justice Remedios A. Salazar-Fernando, with

Associate Justice

Cecilia C. Librea-Leagogo and Associate Justice Michael P. Elbinias concurring.

2 Id. at 152-160.

3 Id. at 195-196.

4 Id. at44-47.

5 Id. at 48-49.

6 Id. at 52-53.

7 Id. at 57-58.

8 Id. at 59.

9 Id. at 60-61.

10 Id. at 62.

11 Id.at63.

12 Id. at 33.
13 Id.

14 Id. at 64-65.

15 Supra note 12.

16 Rollo, pp. 66-67.

17 Id. at 68.

18 Id. at 69-70.

19 Id. at 71-72.

20 Id. at 130-134.

21 Id. at 133-134.

22Id. at 132.

23 Id. at 135-148.

24Id. at 160.

25ld. at l61-189.

26 Id. at 195-196.

27 Supra note 1, at 40.

28 Rollo, pp. 38-39.

29 Id. at 42-43.
30 Id. at 3-24.

31 Id. at 15.

32 Benguet Electric Cooperative v. Fianza, G.R. No. 158606, March 9, 2004, 425 SCRA
41, 50.

33 Id.

34 Tinio v. Court of Appeals, G.R. No. 171764, June 8, 2007, 524 SCRA 533, 541.

35 Id.

36 Supra note 32, at 55.

37 No. L-76959, October 12, 1987, 154 SCRA 713, 719.

38 Tinio v. Court ofAppeals. supra note 34 at 540; Mendoza v. Rural Bank of Lucban,
G. R. No. 155421, July 7, 2004, 433 SCRA 756, 766.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 76959 October 12, 1987

ABBOTT LABORATORIES (PHILIPPINES), INC., and JAIME C. VICTA petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISISON and ALBERT BOBADILLA
respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of respondent National Labor
Relations Commission (NLRC) which set aside the Labor Arbiter's decision dismissing
the complaint and instead entered a new decision ordering the complainant's
reinstatement with full backwages from the date of his termination until his actual
reinstatement.

The antecedent facts as found by the labor Arbiter and reiterated in the NLRC decision
are undisputed:

Complainant Bobadilla started his employment with respondent company sometime in

May 1982. After undergoing training, in September, 1982, competent was designated
professional medical representative (PMR) and was assigned to cover the sales territory
comprising of Sta. Cruz, Binondo and a part of Quiapo and Divisoria, of the Metro
Manila district. In connection with the respondent company's marketing and sales
operations, it has been its policy and established practice of undertaking employment
movements and/or reassignments from one territorial area to another as the exigencies
of its operations require and to hire only applicant salesmen, including professional
medical representatives (PMRs) who are willing to take provincial assignments, at least
insofar as male applicants were concerned. Likewise, respondent company had made
reassignments or transfers of sales personnel which included PMRs from one territorial
area of responsibility to another on a more or less regular basis.

In complainant's application for employment with respondent company, he agreed to the

following: 1) that if employed he win accept assignment in the provinces and/or cities
anywhere in the Philippines; 2) he is willing and can move into and live in the territory
assigned to him; and (3) that should any answer or statement in his application for
employment be found false or incorrect, he will be subject to immediate dismissal, if
then employed.

On 22 July 1983, respondent Victa called competent to his office and informed the latter
that he was being transferred effective 1 August 1983 to the newly opened Cagayan
territory comprising the provinces of Cagayan, Nueva Vizcaya and Isabela. The transfer
order was made formal in a memorandum dated 29 July 1983. Among the reasons
given for complainant's selection as PMR for the Cagayan territory were: The territory
required a veteran and seasoned PMR who can operate immediately with minimum
training and supervision. Likewise, a PMR who can immediately exploit the vast
business potential of the area.

In a letter dated 1 August 1983, which was received by Abbott on 4 August 1983,
competent, thru his lawyer, objected to the transfer on the grounds that it was not only a
demotion but also personal and punitive in nature without basis legally and factually.

On 8 August 1983, Victa issued another inter-office correspondence to competent,

giving the latter up to 15 August 1983 within which to comply with the transfer order,
otherwise his would be dropped from the payroll for having abandoned his job. When
competent failed to report to his new assignment, Abbott assigned thereat Fausto
Antonio T. Tibi another PED PMR who was priorly covering the provinces of Nueva
Ecija and Tarlac.

Meanwhile, complainant filed applications for vacation leave from 2 to 9 August 1983,
and then from 10 to 13 August 1983. And on 18 August 1983, he filed the present
complaint.

After due consideration of the evidence adduced by the parties, the Arbiter below ruled
for the respondent on the ground that the complainant is guilty of gross insubordination.
(pp. 17-19, Rollo; pp. 1-3, NLRC decision)

On appeal, the respondent National Labor Relations Commission reversed the Arbiter's
decision and held that herein petitioners had no valid and justifiable reason to dismiss
the complainant. The National Labor Relations Commission ordered the latter's
reinstatement with backwages.

A motion for reconsideration subsequently filed by the petitioners was denied.

On September 8, 1986, the petitioners filed their second motion for reconsideration
which was not favorably acted upon by respondent National Labor Relations
Commission as the record of the case had already been transmitted to the labor arbiter
for the execution of its decision.
On December 16, 1986, the petitioners and the private respondent agreed before the
labor arbiter that the former would bring the case before this Court.

Hence, this present petition.

Petitioners assigned as errors the following:

... [R]espondent NLRC acted in excess of jurisdiction and/or grave abuse of discretion in
that —

a] Respondent NLRC disregarded settled law and altered the parties' contract when it
stated that private respondent's prior consent was necessary for the validity of his
transfer, rendering his consequent dismissal for insubordination illegal.

b] Granting arguendo that prior consent of an employee is required for the validity of his
transfer to another territory, private respondent had explicitly given such prior consent
as a condition for his hiring and continued employment by petitioner Abbott,

c] Respondent NLRC abused its discretion when it declared private respondent's

dismissal illegal despite his clear and willfull insubordination. (pp. 7, 10 and 11, Rollo).

When asked to comment on the petition as counsel for NLRC, the Solicitor General,
assisted by Assistant Solicitor General Zoilo A. Andin and Trial Attorney Alexander Q.
Gesmundo, agreed with the petitioners' stand that the dismissal of the private
respondent from his employment was for valid reasons.

The main issue in this case is whether or not Albert Bobadilla could be validly dismissed
from his employment on the ground of insubordination for refusing to accept his new
assignment.

We are constrained to answer in the affirmative.

The hiring, firing, transfer, demotion, and promotion of employees has been traditionally
Identified as a management prerogative subject to limitations found in law, a collective
bargaining agreement, or general principles of fair play and justice. This is a function
associated with the employer's inherent right to control and manage effectively its
enterprise. Even as the law is solicitous of the welfare of employees, it must also protect
the right of an employer to exercise what are clearly management prerogatives. The
free who of management to conduct its own business affairs to achieve its purpose
cannot be denied. (See Dangan vs. National Labor Relations Commission, 127 SCRA
706).
As a general rule, the right to transfer or reassign an employee is recognized as an
employer's exclusive right and the prerogative of management.

We agree with the Labor Arbiter's conclusions that:

Settled is the rule in this regard that an employer, except when cited by special laws,
has the right to regulate, according to his own discretion and judgment, all aspects of
employment, which includes, among others, hiring, work assignments, place and
manner of work, working regulations and transfer of employees in accordance with his
operational demands and requirements. This right flows from ownership and from the
established rule that labor law does not authorize the substitution of judgment of the
employer in the conduct of his business, unless it is shown to be contrary to law, morals
or public policy (NLU vs. Insular-Yebana Tobacco Corp., 2 SCRA 924, 931; and
Republic Savings Bank vs. Court of Industrial Relations, 21 SCRA 226, 235).

... Abbott, in accordance with the demands and requirements of its marketing and sales
operations, adopted a policy to hire only sales applicants who are willing to accept
assignments in the provinces anywhere in the Philippines, and to move into and live in
the territory assigned to them.

The existence and implementation of this policy are clearly discernible from the
questions appearing in the application form under the heading:"TO BE FILLED BY
SALES APPLICANTS ONLY," and the fact that Abbott, depending upon the needs of its
marketing and sales operations, periodically made transfers or reassignment of its sales
people.

Complainant was precisely hired because he manifested at the outset as a job applicant
his willingness to follow the conditions of his employment. In line with the policy, as
practiced, Abbott, thru Jaime Victa, issued an inter-office correspondence transferring
complainant to a newly opened sales territory-the Cagayan Region, comprising the
provinces of Cagayan, Nueva Vizcaya and Isabela. According to respondents,
complainant was selected as PMR for the region primarily because he was a veteran
and seasoned PMR who can operate immediately with minimum training and
supervision.

That complainant is a veteran and seasoned PMR is admitted. In fact, it is even

conceded by respondents that complainant was the leader of his peers in PED as
indicated in the letter dated 20 December 1982 of Jaime Victa to complainant. That the
Cagayan Region is relatively inaccessible cannot be debated. That the territory needed
a responsible PMR who could work under the least supervision is a judgment of
respondents. And that this judgment was arrived at upon consultations among the PED
Marketing Manager Jaime Victa, the Director for Administration Francisco Lim, and the
General Manager A. C. Bout has been proven by respondents.
It appearing, therefore, that the order to transfer complainant is based upon a judgment
of his employer Abbott, which judgment to transfer is in the with a company practice
which is not contrary to law, morals or public policy, hence, beyond the competence of
this office to question, the refusal of complainant to obey the lawful order of Abbott is
gross insubordination — a valid cause for dismissal.

Complainant asserted that the true reason for his transfer was the personal ill motives
on the part of respondent Victa who resented the derogatory remarks attributed to him,
as purportedly shown in Victa's memoranda dated 20 December 1982 and 26 April
1983. However, a cursory reading of said memoranda in question who show that the
same were legitimately issued by Victa in the exercise of his functions as PED
Manager. And the fact that complainant never lifted a finger to formally question said
memoranda is a mute admission on his part that the allegations therein are true.

Complainant also alleged that his transfer was a demotion. However, no explanation
was given much less any evidence presented in support of the allegation. On the other
hand, it is clear that there was no change in complainant's position and salary,
privileges and benefits he was receiving while in Manila. With respect to the sales
commission, Abbott claimed that had complainant accepted the assignment, he could
have earned more because the sales prospects in the Cagayan Territory, which
comprises Nueva Vizcaya, Isabela and Cagayan Province were much higher than the
territory assigned to him in Manila. Besides, the assignment offered an important
avenue for future promotion, respondent concluded. (pp. 6-9, Labor Arbiter's decision).

Therefore, Bobadilla had no valid reason to disobey the order of transfer. He had tacitly
given his consent thereto when he acceded to the petitioners' policy of hiring sales staff
who are willing to be assigned anywhere in the Philippines which is demanded by the
petitioners' business.

By the very nature of his employment, a drug salesman or medical representative is

expected to travel. He should anticipate reassignment according to the demands of their
business. It would be a poor drug corporation which cannot even assign its
representatives or detail men to new markets calling for opening or expansion or to
areas where the need for pushing its products is great. More so if such reassignments
are part of the employment contract.

WHEREFORE, the petition is hereby GRANTED. The questioned decision of the

National Labor Relations Commission is SET ASIDE. The decision of the labor Arbiter
dated April 16,1985 is REINSTATED.

SO ORDERED.

Fernan (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 171764 June 8, 2007

ALBERT O. TINIO, petitioner,

vs.
COURT OF APPEALS, SMART COMMUNICATIONS, INC., ALEX O. CAEG and
ANASTACIO MARTIREZ, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari seeks to annul and set aside the Decision and
Resolution of the Court of Appeals dated October 25, 20051 and March 2, 2006,2
respectively, in CA-G.R. SP No. 90677 which reversed and set aside the Decision of the
National Labor Relations Commission (NLRC) dated July 30, 2004,3 and its Resolution
dated April 20, 2005,4 for having been issued with grave abuse of discretion amounting
to lack or excess of jurisdiction. The appellate court reinstated the Decision of the Labor
Arbiter dated December 9, 20035 which dismissed petitioner’s complaint for lack of
merit.

On December 1, 2002, Smart Communications, Inc. (SMART) employed petitioner

Albert O. Tinio as its General Manager for Visayas/Mindanao (VISMIN) Sales and
Operations based in Cebu.6

On May 14, 2003, private respondent Alex O. Caeg, Group Head, Sales and
Distribution of SMART, under the supervision of co-respondent Anastacio Martirez,
informed petitioner of his new assignment as Sales Manager for Corporate Sales in
SMART’s Head Office in Makati City, effective June 1, 2003. However, petitioner
deferred action on his assignment until he had been apprised of the duties and
responsibilities of his new position and the terms and conditions of his relocation. In a
memorandum dated May 26, 2003, Caeg informed petitioner that his transfer was for
the greater business interest of the company; that petitioner is expected to meet at least
80% of his sales and collection targets; and that financial assistance shall be provided
for his physical transfer to Manila.
On June 2, 2003, petitioner reported to SMART’s Head Office in Makati and discussed
with Ann Margaret V. Santiago, HRD Group Head, his job description, functions,
responsibilities, salary and benefits, as well as options for relocation/transfer of his
family to Manila. The Department Head for Corporate Business Group, VIP Accounts
Management and Marketing PR, Julie C. Carceller, likewise explained to him details of
his new assignment such as job description, scope of the position, objectives and goals
of the department, key responsibilities as well as targets and expectations of SMART
from the Corporate Business Group. The next day, June 3, 2003, petitioner and Caeg
met to discuss further details of petitioner’s new position.7

Thereafter, petitioner did not report for work. He instead filed a complaint for
constructive dismissal with claims for moral and exemplary damages and attorney’s
fees against SMART and private respondents Caeg and Martirez. On June 16, 2003,
Caeg required petitioner to explain his continuing refusal to transfer to his new
assignment, but instead of giving an explanation, petitioner referred Caeg to his
complaint for constructive dismissal.8 Private respondents also scheduled a hearing on
June 23, 2003 but petitioner failed to attend. Thus, private respondents terminated
petitioner’s employment effective June 25, 2003 for insubordination.9

On December 9, 2003, the Labor Arbiter rendered judgment finding that petitioner was
not constructively or illegally dismissed; hence, the complaint was ordered dismissed.
But the Labor Arbiter awarded financial assistance to petitioner in the amount of
P235,400.00.10

On appeal, the NLRC reversed the Labor Arbiter’s decision and declared that petitioner
was illegally dismissed, awarded him full backwages, including the corresponding 13th
month pay, moral and exemplary damages, as well as attorney’s fees. Private
respondents’ motion for reconsideration was denied.11

On a petition for certiorari under Rule 65 to the Court of Appeals, private respondents
alleged that the NLRC committed grave abuse of discretion amounting to lack or excess
of jurisdiction in ruling that: (1) the transfer of Tinio resulted in a demotion in rank; (2)
the transfer was not a valid exercise of management prerogative; (3) SMART did not
comply with the procedural requirements of due process, and Tinio’s termination was
made with malice and in bad faith; and (4) Tinio is entitled to reinstatement and full
backwages.12

On October 25, 2005, the Court of Appeals reversed and set aside the Decision of the
NLRC and reinstated the Decision of the Labor Arbiter dismissing the complaint for lack
of merit.13 Petitioner’s motion for reconsideration was denied; hence, this appeal.14

The twin issues for resolution are: (1) whether private respondents’ act of transferring
petitioner to its Head Office in Makati was a valid exercise of management prerogative;
and (2) whether petitioner was constructively dismissed.
This Court has consistently recognized and upheld the prerogative of management to
transfer an employee from one office to another within the business establishment,
provided there is no demotion in rank or a diminution of salary, benefits and other
privileges.15 As a rule, the Court will not interfere with an employer’s prerogative to
regulate all aspects of employment which include among others, work assignment,
working methods and place and manner of work. Labor laws discourage interference
with an employer’s judgment in the conduct of his business.16

The doctrine is well-settled that it is the employer’s prerogative, based on its

assessment and perception of its employees’ qualifications, aptitudes and competence,
to move them around in the various areas of its business operations in order to
ascertain where they will function with maximum benefit to the company.17 This is a
privilege inherent in the employer’s right to control and manage his enterprise
effectively. The freedom of management to conduct its business operations to achieve
its purpose cannot be denied.18

An employee’s right to security of tenure does not give him a vested right to his position
as would deprive the company of its prerogative to change his assignment or transfer
him where he will be most useful. When his transfer is not unreasonable, or
inconvenient, or prejudicial to him, and it does not involve a demotion in rank or a
diminution of his salaries, benefits and other privileges, the employee may not complain
that it amounts to a constructive dismissal.19

But, like other rights, there are limits thereto. The managerial prerogative to transfer
personnel must be exercised without grave abuse of discretion, bearing in mind the
basic elements of justice and fair play. Having the right should not be confused with the
manner in which the right is exercised. Thus, it cannot be used as a subterfuge by the
employer to rid himself of an undesirable worker. The employer must be able to show
that the transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor
does it involve a demotion in rank or a diminution of his salaries, privileges, and other
benefits. Should the employer fail to overcome this burden of proof, the employee’s
transfer shall be tantamount to constructive dismissal, which has been defined as a
quitting because continued employment is rendered impossible, unreasonable or
unlikely; as an offer involving a demotion in rank and diminution of pay. Likewise,
constructive dismissal exists when an act of clear discrimination, insensibility or disdain
by an employer has become so unbearable to the employee leaving him with no option
but to forego his continued employment.20

A transfer is a "movement from one position to another which is of equivalent rank, level
or salary, without break in service." Promotion, on the other hand, is the "advancement
from one position to another with an increase in duties and responsibilities as
authorized by law, and usually accompanied by an increase in salary."21 Conversely,
demotion involves a situation where an employee is relegated to a subordinate or less
important position constituting a reduction to a lower grade or rank, with a
corresponding decrease in duties and responsibilities, and usually accompanied by a
decrease in salary.
The burden of proof in constructive dismissal cases is on the employer to establish that
the transfer of an employee is for valid and legitimate grounds, i.e., that the transfer is
not unreasonable, inconvenient or prejudicial to the employee; nor does it involve a
demotion in rank or a diminution of salaries, privileges and other benefits.

Hence, it may be gleaned from the foregoing discourse that a transfer is deemed to be
constructive dismissal when three conditions concur: first, when the transfer is
unreasonable, inconvenient or prejudicial to the employee; second, when the transfer
involves a demotion in rank or diminution of salaries, benefits and other privileges; and
third, when the employer performs a clear act of discrimination, insensibility, or disdain
towards the employee, which forecloses any choice by the latter except to forego his
continued employment.

In the instant case, the transfer from Cebu to Makati was not unreasonable,
inconvenient or prejudicial to the petitioner considering that it was a transfer from the
provincial office to the main office of SMART. The position would entail greater
responsibilities because it would involve corporate accounts of top establishments in
Makati which are significantly greater in value than the individual accounts in Visayas
and Mindanao. In terms of career advancement, the transfer was even beneficial and
advantageous since he was being assigned the corporate accounts of the choice clients
of SMART. Moreover, the transfer was not economically inconvenient because all
expenses relative thereto were to be borne by SMART.

Also, the transfer from Cebu to Makati does not represent a demotion in rank or
diminution of salaries, benefits and other privileges. It was a lateral transfer with the
same salaries, benefits and privileges. The title of Corporate Sales Manager, as
correctly pointed out by the appellate court, is not derogatory to the petitioner
considering that he will still receive the same benefits and salary he received as Senior
Manager.22 The position is deemed in the level of Senior Manager considering that the
skills and competencies required involve handling the accounts of top corporate clients
of the company, representing some of the largest corporations in the Philippines.

Mere title or position held by an employee in a company does not determine whether a
transfer constitutes a demotion. Rather, it is the totality of the following circumstances,
to wit: economic significance of the work, the duties and responsibilities conferred, as
well as the same rank and salary of the employee, among others, that establishes
whether a transfer is a demotion.

We find that petitioner was not demoted since his transfer from Cebu to Makati was
being implemented due to a valid corporate reorganization to streamline management
operations. The act of management in reorganizing as well as transferring its
employees to achieve its stated objectives is a legitimate exercise of their management
prerogatives, barring any showing of bad faith which is absent in the instant case.
Despite the change of petitioner’s title from "Senior Manager" to "Corporate Sales
Manager," he still enjoyed the same rank and salary. Although Cebu operations of
SMART constitute a large individual client base representing both Visayas and
Mindanao, the Makati operations deal with higher corporate or business sales due to
the larger concentration of top Philippine and multinational corporations. In other words,
petitioner will be managing the select client base that produces the bulk of the corporate
sales income of SMART. We ruled in Philippine Wireless Inc. v. National Labor
Relations Commission23 that there is no demotion where there is no reduction in
position, rank or salary as a result of the transfer.24

Moreover, private respondents did not act with discrimination, insensibility, or disdain
towards petitioner, which foreclosed any choice by the latter except to forego his
continued employment. SMART, through its representatives, attempted to address
petitioner’s grievances by meeting with the latter on several occasions thus addressing
this internal problem utilizing the proper corporate channels. Several meetings were
held between petitioner and private respondents with a view to clarifying the details of
petitioner’s new assignment, such as job description, relation to corporate structure,
functions, responsibilities, salary and benefits. Meetings were on-going when petitioner
opted to file a complaint for constructive dismissal.

We agree with the Court of Appeals’ ruling that private respondent SMART exercised its
management prerogative in transferring petitioner from Cebu to Makati as the person in
charge of the post-paid sales accounts. SMART management has the prerogative to
transfer or re-assign its employees to a position where they can contribute significantly
to the company objectives in line with its corporate reorganization. Petitioner’s argument
that the transfer was hastily arrived at, considering that he was being ordered to transfer
within 15 days from notice and that the Makati head office personnel were unaware
thereof is untenable. Moreover, petitioner knew of the management prerogative to re-
assign its employees as expressly stipulated in petitioner’s employment contract.

No evidence was presented to substantiate petitioner’s claim that the transfer was
punitive or that private respondents were in bad faith. The failure of private respondent
Caeg to directly address the supposed "punitive" nature of the transfer cannot establish
bad faith, without independent evidence to prove this allegation.

We held in Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission,25

that an employee has no valid reason to disobey the order of transfer given by
management, especially if he has tacitly given his consent thereto when he acceded to
the company’s policy of hiring sales staff who are willing to be assigned anywhere in the
Philippines which is demanded by the employer’s business.26

By the very nature of their employment, sales executives are expected to travel. They
should anticipate re-assignment according to the demands of the employer’s business.
Companies which rely heavily on sales such as private respondent SMART are
expected to assign their employees to areas where markets may be expanded or places
where their sales could be improved. The right to transfer or reassign an employee is
thus a reasonable exercise of management prerogatives and is recognized as an
employer’s exclusive right in running its company.27
In the instant case, petitioner premised his deliberate and unjustified refusal to return to
work on the belief that he had been constructively dismissed, despite attempts by
SMART to accommodate his demands. Petitioner’s deliberate and unjustified refusal to
resume his employment, a form of neglect of duty, despite attempts by the company to
hear out his grievances, constitutes abandonment. Petitioner’s failure to report for work,
or absence without valid or justifiable reason, coupled with a clear intention to sever
employer-employee relationship, leads us to no other conclusion than that he
abandoned his work. As such, the award of financial assistance in the amount of
P235,400 given by the Labor Arbiter and affirmed by the appellate court must be
deleted for lack of basis.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals dated October 25, 2005 and March 2, 2006, respectively, in CA-G.R. SP No.
90677, dismissing the complaint for constructive dismissal against private respondents
Smart Communications, Inc., Alex O. Caeg and Anastacio Martirez are AFFIRMED with
the MODIFICATION that the award of financial assistance be DELETED for lack of
basis. No pronouncement as to costs.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

LEONARDO A. QUISUMBING
Acting Chief Justice

Footnotes

1 Rollo, p. 286. Penned by Associate Justice Estela M. Perlas-Bernabe and concurred

in by Associate Justices Remedios A. Salazar-Fernando and Hakim S. Abdulwahid.

2 Id. at 295.

3 Id. at 410. Penned by Commissioner Ernesto S. Dinopol and concurred in by

Commissioner Romeo L. Go.

4 Id. at 420.

5 Id. at 220. Penned by Labor Arbiter Fatima Jambaro-Franco.

6 Id. at 287.

7 Id.

8 Id. at 287-288.

9 Id. at 288.

10 Id.
11 Id. at 289.

12 Id.

13 Id. at 286-294.

14 Id. at 295-297.

15 Castillo v. National Labor Relations Commission, 367 Phil. 605, 615 (1999).

16 Id. at 616.

17 Philippine-Japan Active Carbon Corporation v. National Labor Relations

Commission, G.R. No. 83239, March 8, 1989, 171 SCRA 164, 168.

18 Blue Dairy Corporation v. National Labor Relations Commission, G.R. No. 129843,
September 14, 1999, 314 SCRA 401, 408.

19 Supra note 17.

20 Supra note 18 at 408-409.

21 Millares v. Subido, 127 Phil. 370, 378 (1967).

22 Rollo, p. 292.

23 369 Phil. 907 (1999).

24 Id. at 911.

25 G.R. No. L-76959, October 12, 1987, 154 SCRA 713.

26 Id. at 719.

27 Id.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172601 April 16, 2009

AILEEN G. HERIDA, Petitioner,

vs.
F & C PAWNSHOP and JEWELRY STORE/MARCELINO FLORETE, JR.,
Respondents.

DECISION

QUISUMBING, J.:

Petitioner seeks the reversal of the Decision1 dated September 16, 2005 and the
Resolution2 dated April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82553
which affirmed the Resolution3 dated October 23, 2003 of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-000177-2000.

The antecedent facts of the case are as follows:

Petitioner Aileen G. Herida was an employee of respondent F & C Pawnshop and

Jewelry Store owned by respondent Marcelino Florete, Jr. She was hired as a sales
clerk and eventually promoted as an appraiser in the Bacolod City Branch.

On August 1, 1998, management issued an office memorandum4 directing petitioner to

report to the Guanco Branch in Iloilo City. As petitioner refused to follow the directive,
she was preventively suspended from work on August 10, 1998 for a period of 15 days
effective August 7, 1998. She was also directed to report to her new assignment on
August 24, 1998.5

On August 10, 1998, petitioner filed a complaint6 for illegal dismissal, underpayment of
wages, non-payment of separation pay, 13th month pay, as well as for payment of
moral and exemplary damages and attorney’s fees.
On August 26, 1998, management informed petitioner that it will conduct an
investigation on September 7, 19987 which petitioner failed to attend. In a letter dated
September 7, 1998, management terminated her services on the grounds of willful
disobedience, insubordination and abandonment of work as well as gross violation of
company policy.8

In a Decision9 dated July 19, 1999 in RAB Case No. 06-08-10525-98, the Labor Arbiter
dismissed petitioner’s complaint for lack of merit. The Labor Arbiter ruled that petitioner
was not dismissed from her job and that she deliberately refused to obey management’s
directive for her to report to the Iloilo City Branch. The Labor Arbiter noted that petitioner
filed the complaint as a retaliatory act to secure an award of separation pay.

On September 20, 2001, the NLRC affirmed the Labor Arbiter’s finding that there was
no illegal dismissal. However, due to petitioner’s long service with respondents, the
NLRC awarded her separation pay as well as service incentive leave pay. The decretal
portion of the decision reads:

WHEREFORE, the assailed decision is SET ASIDE and a new one ENTERED
declaring that there was no illegal dismissal. Conformably with the preceding discussion
however, complainant is entitled to separation pay computed on the basis of her one-
half month salary per year of service for nine (9) years, or the amount of SEVENTEEN
THOUSAND ONE HUNDRED PESOS (₱17,100.00).

Complainant is likewise entitled to service incentive leave pay for a total of fifteen (15)
days, or the amount of TWO THOUSAND ONE HUNDRED NINETY PESOS
(₱2,190.00).

No pronouncements as to damages and attorney’s fees.

SO ORDERED.10

Both petitioner and respondents moved for reconsideration. On October 23, 2003, the
NLRC issued a resolution partially reconsidering its decision, in this wise:

WHEREFORE, we reconsider Our Decision of September 20, 2001 by declaring that

there was no illegal dismissal; affirming Our award for separation pay, and deleting Our
award for service incentive leave pay.

SO ORDERED.11

Aggrieved, petitioner filed a petition for certiorari with the Court of Appeals. In
dismissing the petition, the appellate court upheld management’s prerogative to transfer
an employee from one office to another within the business establishment provided
there is no demotion in rank or diminution in salary, benefits and other privileges. It
ruled that as long as management’s exercise of such prerogative is in good faith to
advance its interest and not for the purpose of defeating or circumventing the rights of
the employee under the laws or valid agreements, such exercise will be upheld. The
appellate court noted that there was no proof that respondents were motivated by bad
faith in transferring petitioner. Petitioner never alleged anything that would defeat her
rights as an employee by reason of the transfer. Hence, her transfer cannot be deemed
a constructive dismissal since it is not unreasonable, discriminatory nor attended by a
demotion in rank or diminution in pay. Petitioner’s refusal to obey the transfer therefore
constituted willful disobedience of a lawful order of her employer which was a just cause
for her dismissal. Thus:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

DISMISSING the petition filed in this case and AFFIRMING the Resolution dated
October 23, 2003 of the public respondent NLRC in NLRC Case No. V-000177-2000.

SO ORDERED.12

In this petition before us, petitioner alleges that the Court of Appeals erred in:

I.

… HOLDING THAT THERE WAS NO ILLEGAL SUSPENSION AND DISMISSAL.

II.

… HOLDING THAT PETITIONER’S TRANSFER FROM BACOLOD CITY TO ILOILO

CITY WAS A MANAGEMENT PREROGATIVE AND THAT IT WAS A PROMOTION.

III.

… NOT GRANTING THE RELIEF FOR REINSTATEMENT, BACKWAGES, MORAL

AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.13

The basic issue to be resolved is whether petitioner’s transfer from the Bacolod City
Branch to the Iloilo City Branch was valid.

Petitioner contends that her transfer was never discussed by the parties at the start of
her employment. Thus, it should only be done with her consent. She adds that the
transfer was unnecessary, inconvenient and prejudicial.
Respondents counter that petitioner’s transfer was made in good faith and in
compliance with management’s policy to reshuffle or transfer its employees. They also
argue that petitioner will be given transportation and lodging allowance, hence, she will
not incur any additional expense.1avvphi1

As it is, the question raised in this recourse is basically one of fact. Hornbook is the rule
that in a petition for review, only errors of law may be raised.14 Furthermore, factual
findings of administrative agencies that are affirmed by the Court of Appeals are
conclusive on the parties and not reviewable by this Court. This is so because of the
specialized knowledge and expertise gained by these quasi-judicial agencies from
presiding over matters falling within their jurisdiction. So long as these factual findings
are supported by substantial evidence, this Court will not disturb the same.15

In this case, the Labor Arbiter, the NLRC, and the Court of Appeals were unanimous in
their factual conclusions that petitioner’s transfer from the Bacolod City Branch to the
Iloilo City Branch was valid and that she was not illegally dismissed. We sustain such
findings.

Jurisprudence recognizes the exercise of management prerogative to transfer or assign

employees from one office or area of operation to another, provided there is no
demotion in rank or diminution of salary, benefits, and other privileges, and the action is
not motivated by discrimination, made in bad faith, or effected as a form of punishment
or demotion without sufficient cause.16

To determine the validity of the transfer of employees, the employer must show that the
transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor does it
involve a demotion in rank or a diminution of his salaries, privileges and other benefits.
Should the employer fail to overcome this burden of proof, the employee's transfer shall
be tantamount to constructive dismissal.17

As respondents creditably explained, and as admitted by petitioner herself, respondents

have standing policies that an employee must be single at the time of employment and
must be willing to be assigned to any of its branches in the country. Petitioner’s
contention that upon getting married, she no longer bound herself to be assigned to any
of respondents’ branches in the country is preposterous. Just because an employee
gets married does not mean she can already renege on a commitment she willingly
made at the time of her employment particularly if such commitment does not appear to
be unreasonable, inconvenient, or prejudicial to her. Respondents claimed that travel
time from the Bacolod City Branch to the Iloilo City Branch will only take about an hour
by boat and that they were even willing to defray petitioner’s transportation and lodging
expenses. Petitioner never disputed these matters. There is no showing either that
petitioner’s transfer was only being used by respondents to camouflage a sinister
scheme of management to rid itself of an undesirable worker in the person of
petitioner.18
We have long stated that the objection to the transfer being grounded solely upon the
personal inconvenience or hardship that will be caused to the employee by reason of
the transfer is not a valid reason to disobey an order of transfer.19 Such being the case,
petitioner cannot adamantly refuse to abide by the order of transfer without exposing
herself to the risk of being dismissed. Hence, her dismissal was for just cause in
accordance with Article 282(a)20 of the Labor Code. Consequently, petitioner is not
entitled to reinstatement or separation pay and backwages.21

WHEREFORE, the petition is DENIED. The Decision dated September 16, 2005 and
the Resolution dated April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82553
which affirmed the Resolution dated October 23, 2003 of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-000177-2000, are AFFIRMED with the
MODIFICATION that the award of separation pay is deleted.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice PRESBITERO J. VELASCO, JR.
Associate Justice
ARTURO D. BRION
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Rollo, pp. 25-31. Penned by Associate Justice Isaias P. Dicdican, with Associate
Justices Ramon M. Bato, Jr. and Enrico A. Lanzanas concurring.

2 Id. at 34-35.

3 CA rollo, pp. 52-53.

4 Id. at 72.

5 Id. at 73.

6 Id. at 55.

7 Id. at 74. Annex "C"

8 Id. at 74. Annex "D"

9 Id. at 14-18.

10 Id. at 41-42.

11 Id. at 53.
12 Rollo, p. 30.

13 Id. at 14.

14 Aquino v. Court of Appeals, G.R. No. 149404, September 15, 2006, 502 SCRA 76,
84-85.

15 Morales v. Skills International Company, G.R. No. 149285, August 30, 2006, 500
SCRA 186, 195.

16 Philippine Industrial Security Agency Corporation v. Aguinaldo, G.R. No. 149974,

June 15, 2005, 460 SCRA 229, 239; Mendoza v. Rural Bank of Lucban, G.R. No.
155421, July 7, 2004, 433 SCRA 756, 765-766.

17 Floren Hotel v. National Labor Relations Commission, G.R. No. 155264, May 6,
2005, 458 SCRA 128, 145; Jarcia Machine Shop and Auto Supply, Inc. v. NLRC, G.R.
No. 118045, January 2, 1997, 266 SCRA 97, 109.

18 Homeowners Savings and Loan Association, Inc. v. NLRC, G.R. No. 97067,
September 26, 1996, 262 SCRA 406, 420.

19 Mercury Drug Corporation v. Domingo, G.R. No. 143998, April 29, 2005, 457 SCRA
578, 592.

20 ART. 282. Termination by employer.—An employer may terminate an employment

for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of
his employer or representative in connection with his work;

xxxx

21 Genuino Ice Company, Inc. v. Magpantay, G.R. No. 147790, June 27, 2006, 493
SCRA 195, 213.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 167286 February 5, 2014

INTERNATIONAL SCHOOL MANILA AND/OR BRIAN McCAULEY, Petitioners,

vs.
INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE) AND MEMBERS
REPRESENTED BY RAQUEL DAVID CHING, PRESIDENT, EVANGELINE SANTOS,
JOSELYN RUCIO AND METHELYN FILLER, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

In this petition for review on certiorari,1 petitioners International School Manila

(hereafter the School) and Brian McCauley seek to set aside the Decision2 dated
November 17, 2004 and the Resolution3 dated February 23, 2005 of the Court of
Appeals in CA-G.R. SP No. 79031. The decision of the appellate court upheld the
illegality of respondent Evangeline Santos's termination from employment in the School,
while the assailed resolution denied the petitioners' motion for reconsideration.

The complaint filed before the Labor Arbiter involved three individual complainants,
aside from the International School Alliance of Educators (ISAE).4 However, the instant
petition concerns only the case of Santos as the causes of action of the other
complainants, Joselyn Rucio and Methelyn Filler, had since been dismissed by the
Labor Arbiter and the Court of Appeals, respectively.

The Material Facts

Santos was first hired by the School in 1978 as a full-time Spanish language teacher. In
April 1992, Santos filed for and was granted a leave of absence for the school year
1992-1993. She came back from her leave of absence sometime in August 1993.5
Upon Santos’s return to the School, only one class of Spanish was available for her to
teach. Thus, for the school year 1993-1994, Santos agreed to teach one class of
Spanish and four other classes of Filipino that were left behind by a retired teacher.6
Since it was Santos’s first time to teach Filipino, the School’s high school administrators
observed the way she conducted her classes. The results of the observations on her
classes were summarized in Classroom Standards Evaluation Forms accomplished by
the designated observers. In accordance with said forms, Santos was evaluated in the
areas of Planning, the Teaching Act, Climate, Management and Communication.

On October 26, 1993, Dale Hill, then Assistant Principal, observed Santos’s Filipino II
class. In the Classroom Standards Evaluation Form,7 Hill remarked that the lesson plan
that Santos provided "was written with little detail given." Santos was also noted as
needing improvement in the following criteria: (1) uses effective questioning techniques;
(2) is punctual and time efficient; (3) states and enforces academic and classroom
behavior expectations in a positive manner; and (4) reinforces appropriate behavior. Hill
also stated that Santos’s management of the class left much to be desired. Hill added
that "[t]he beginning and the end of the class were poorly structured with students both
coming late and leaving early with no apparent expectations to the contrary."

On January 17, 1994, Santos submitted to the Personnel Department of the School a
memorandum/form,8 which stated her assignment preference for the school year 1994-
1995. She indicated therein that she planned to return to the School staff for the said
school year and she did not prefer a change of teaching assignment.

On March 11, 1994, Hill observed Santos’s Spanish I class. In the Classroom Standards
Evaluation Form9 he accomplished, Hill stated that Santos needed improvement on the
following areas: (1) uses effective questioning techniques; (2) uses appropriate praise;
(3) deals with students in a fair and consistent manner; (4) is punctual and time efficient;
(5) states and enforces academic and classroom behavior expectations in a positive
manner; (6) reinforces appropriate behavior; (7) organizes the classroom to enhance
learning and minimize disruption; and (8) states expectations and ideas clearly.

On May 30, 1994, Hill completed a Summary Evaluation Form10 of Santos’s

performance. Hill stated, among others, that Santos should improve on managing the
students’ punctuality and time efficiency. Hill added that instructions were not well
stated and presented to the class. He said that Santos needed to identify and state
positively the expectations she has for the students. In a Professional Standards
Form11 accomplished on the same date, Santos was found to be in need of
improvement in these areas: (1) has in-depth knowledge of the appropriate subject
matter; and (2) clearly defines consequences of inappropriate behavior and is
consistent in follow through.

In the meantime, for the school year 1994-1995, Santos agreed to teach five classes of
Filipino.12 On November 7, 1994, Santos also informed the School of her assignment
preference for the incoming school year 1995-1996. In a memorandum/form13
submitted to the Personnel Department of the School, Santos indicated that she did not
prefer a change of teaching assignment. In the school year 1995-1996, Santos again
taught five classes of Filipino.14
On February 1, 1996, then Assistant Principal Peter Loy observed a Filipino IBS1 class
of Santos. In the Classroom Standards Evaluation Form15 he completed thereafter, Loy
noted that Santos needed improvement on the following aspects: (1) has daily lesson
plans written out; (2) incorporates a variety of activities, resources and teaching
strategies into the lesson; (3) plans for the entire instructional period; (4) provides an
instructional sequence which is clear and logical, leading to stated objectives; (5) uses
effective questioning techniques; (6) develops rapport with and between students by
creating a supportive environment; (7) is punctual and time efficient; and (8) reinforces
appropriate behavior. Loy also observed that Santos did not meet the minimum
standards in these areas of concern: (1) has clearly defined lesson objectives that tie
into unit objectives as well as into the school curriculum; and (2) states and enforces
academic and classroom behavior expectations in a positive manner.

On February 2, 1996, Loy wrote a memo16 to Santos, calling her attention to the
deficiencies in her planning, to wit:

Good teaching is not something that happens spontaneously all the time. Good
teaching is the result, in part, of hard work and planning. Clearly the planning for your
classes, as indicated by the absence of detailed lesson plans, has resulted in below
standard instruction. This is simply not acceptable. A review of your planning book
shows less-than-skeletal entries with no detail or unification of direction of syllabus. You
said that you had other written plans, but these were not visible nor used for reference
during class. Relying solely on memory is not always the best approach. Although you
are a veteran teacher with three decades of experience, you have been teaching
Filipino for only two years during which time there have been important changes in the
International Bacc[a]laureate structure. It is crucial that your plans, both medium and
long range, be well constructed and written and then utilized. (Emphasis ours.)

In a memo17 dated March 25, 1996, Loy commented on the outline of goals and
activities of Santos as follows:

1. You do not address any of the comments made in the Classroom Standards
Evaluation Form, nor how you plan to address those concerns. At present, your outline
of activities for this semester is sketchy. That is, your general lesson topics are listed,
but without any daily substance or sequence. One example, the area of planning, along
with objectives and activities, is an area of major concern for us. It is vital to your growth
plan that you submit your detailed lesson plans to Mrs. Villajuan daily and discuss these
with her before the lesson and after to ensure direction and implementation. Thus, a
daily meeting with your department chair is required.

On March 29, 1996, Loy sent another memo18 to Santos, which required her to
undergo the remediation phase19 of the evaluation process through a Professional
Growth Plan. Thus:

Given that planning is one of the areas of major concern, it is all the more disturbing that
you have shown virtually no written planning for this quarter.
For the record, please note that we met on February 2, 1996, the day after I observed
your class for the second time this school year. At that meeting, you were given a draft
of my comments and concerns, along with a two[-] page memo. Since that date, I have
received a mere outline of your fourth quarter syllabus which contains virtually no
specific plan of activity, action, or means of addressing the concerns. My memo of
March 25 reiterates some of the concerns, while elaborating on the shortcomings of the
outline you submitted that same day.

xxxx

The impression you are creating is that planning for your classes is not taking place, nor
is there any immediate movement towards improvement. This lack of attention on your
part only serves to heighten our concern. Please find attached, therefore, my draft of
your Growth Plan.

The March 29, 1996 Professional Growth Plan20 of Santos, which she signed with then
Principal Jeffrey Hammett, Assistant Principal Peter Loy, and Modern Languages
Department Chair Normelita Villajuan, reads:

Goals:

Improve classroom instruction through the implementation of the areas marked as "does
not meet minimum standards," "needs improvement," or "not observed" in classroom
observations from October 1993 through February 1996, as well as concerns noted in
your Summary Evaluation of May 30, 1994. These areas include PLANNING, THE
TEACHING ACT, CLIMATE, MANAGEMENT as specified and dated below.

Initial focus for the first part of this GROWTH PLAN, namely the fourth quarter of SY
1995-96 will be on PLANNING. By focusing on planning first, other issues relative to
climate and management may also be assisted. This Growth Plan will be reviewed and
revised as necessary for SY 1996-97.

Actions:

1. Write daily lesson plans (2/96)

2. Have clearly defined lesson objectives that tie into unit objectives as well as into the
school curriculum (2/96)
3. Incorporate a variety of activities, resources and teaching strategies into the lesson
(2/96)

4. Plan for the entire instructional period (2/96)

5. Provide an instructional sequence which is clear and logical, leading to stated

objectives (2/96)

6. Use effective questioning techniques (2/96, 3/94, 10/93)

7. Provide sufficient guided practice and modeling to ensure success, particularly

homework assignments (11/95)

8. Develop rapport with and between students by creating a supportive environment

(2/96, 11/95)

9. Be punctual and time efficient (2/96, 3/94, 10/93)

10. State and enforce academic and classroom behavior expectations in a positive
manner (2/96, 3/94, 10/93)

11. Reinforce appropriate behavior (2/96, 3/94, 10/93)

12. Organize the classroom to enhance learning and minimize disruption (11/95, 3/94)

In the memo21 to Santos dated April 18, 1996, Loy commented that since the
implementation of Santos’s Professional Growth Plan, it was observed that there was
noticeable improvement in the writing of her lesson plans and the same had a clearer
sense of direction for her classes.

Likewise, in the memo22 dated April 26, 1996, Loy noted that Santos was observed to
be taking steps to address the concerns in her Professional Growth Plan. In the
succeeding memos to Santos dated May 10, 199623 and May 16, 1996,24 Loy
expressed his gladness at the progress of Santos and the positive effect of the
Professional Growth Plan on her performance.

Accordingly, in a memo25 dated May 24, 1996, Loy advised Santos that her
Professional Growth Plan had been revised as a result of her efforts and improvements.
The May 24, 1996 Revised Professional Growth Plan26 of Santos states:

Goals:

Improve classroom instruction through the implementation of the areas marked as "does
not meet minimum standards," "needs improvement," or "not observed" in classroom
observations from October 1993 through February 1996, as well as concerns noted in
your Summary Evaluation of May 30, 1994. These areas include PLANNING, THE
TEACHING ACT, CLIMATE, MANAGEMENT as specified and dated below.

Initial focus for the first part of this GROWTH PLAN was on PLANNING. Ms. Santos has
shown improvement in areas #1-4 under Short Term Planning during the fourth quarter
of SY 1995-1996. Having focused on planning first, other issues relative to climate and
management may also have assisted and can now be directly addressed in the 1996-97
school year.

Actions:

I. Continue the following, which was an area of focus in SY 1995-96:

A. Short Term Planning

1. Write daily lesson plans (2/96)

2. Have clearly defined lesson objectives that tie into unit objectives as well as into the
school curriculum (2/96)

3. Incorporate a variety of activities, resources and teaching strategies into the lesson
(2/96)

4. Plan for the entire instructional period (2/96)

II. Focus on the following areas in need of improvement:

(Note: these items have been grouped by topic area in this revised growth plan and
therefore re-numbered from the listing in the original growth plan)

B. Medium and Long Range Planning

5. Provide an instructional sequence which is clear and logical, leading to stated
objectives (2/96)

6. Be punctual and time efficient (2/96, 3/94, 10/93)

C. Classroom Climate and Management

7. Develop rapport with and between students by creating a supportive environment

(2/96, 11/95)

8. State and enforce academic and classroom behavior expectations in a positive

manner (2/96, 3/94, 10/93)

9. Reinforce appropriate behavior (2/96, 3/94, 10/93)

10. Organize the classroom to enhance learning and minimize disruption (11/95, 3/94)

D. Teaching Techniques

11. Use effective questioning techniques (2/96, 3/94, 10/93)

12. Provide sufficient guided practice and modeling to ensure success, particularly
homework assignments (11/95)

For the school year 1996-1997, Santos again taught five classes of Filipino.27

In a memo28 dated September 6, 1996, Loy reminded Santos that, to support her
planning and instruction, they agreed, among others, that she "would keep detailed daily
lesson plans, medium and long range plans and syllabi, and copies of instructional
materials used." Subsequently, in a memo29 dated September 19, 1996, Loy noted that
there seemed to be progress as regards the instruction that Santos would keep detailed
lesson plans. Santos was then advised to continue and improve her focus on medium
and long range plans.

Thereafter, it seemed that the positive reviews of Santos’s performance were gradually
replaced by renewed concerns on her planning. In a memo30 dated October 4, 1996,
Loy stated that:
[Santos] submitted a plan for the semester using a form from Anne Marie that will be
used by the department to review the curriculum. A review of the plan submitted by
[Santos] indicates that the plan is vague; it needs additional thought and revision with
regards to detail and timelines. The vagueness of this plan is of concern because
proper planning is one of the key areas in Santos’s] Professional Growth Plan. Proper
planning was also noted in Mr. Hammett’s observation comments x x x. [Santos] needs
to revise this semestral plan for our next meeting. (Emphasis ours.)

In the following memo31 dated October 18, 1996, Loy noted that Santos revised her
plan for the semester, but the same could use another revision. Santos was directed to
add more details to her plan.

On October 29, 1996, Loy observed the Conversational Filipino class of Santos. In the
Classroom Standards Evaluation Form32 he accomplished for that day, Loy observed
that Santos needed improvement on the following areas: (1) has daily lesson plans
written out; (2) has clearly defined lesson objectives that tie into unit objectives as well
as into the school curriculum; and (3) reinforces appropriate behavior. Loy also
remarked to Santos that:

[T]here is still noted deficiency in the planning of your classes overall. Although your
lesson plans for Conversational Filipino and Filipino III are better organized than
previously, they are still vague, lack detail and are not clear as to how they fit into a
well-sequenced unit. They are still stand-alone lessons. In addition, your last written
lesson plan for Filipino I was for October 24 -- two class meetings ago. For Filipino A
IBS2, there was only one written lesson plan -- for October 17, the first day of the
quarter. (Emphases ours.)

Thereafter, Loy’s memo33 dated November 14, 1996 sternly told Santos the following
words:

Vangie, you stated that you had not revised your lesson plans, yet there was no reason.
In light of my observation of your class on October 29 which followed, planning remains
a major concern. I voiced concern that, given the draft of my October 29 observation
which had three notations which did not meet expectations, you had not responded to
my request for a follow-up conference. x x x

Vangie, you need to plan thematic units and daily lessons for each class which are well
sequenced and relevant to the unit. This is one of the major areas of concern in your
Professional Growth Plan. For you not to address this issue from our previous meetings,
and to have a planning book that does not reflect proper planning, does not address the
concerns of that Growth Plan; instead the concerns not only persist, they become more
problematic. Vangie, to quote you, you "play it by ear." Flexibility only works when you
are flexible within a clear plan. Otherwise, "playing it by ear" is synonymous with
"winging it day-by-day." You must plan, and you need to begin your second semester
outlines now. To this end, I am asking that you present a draft of your second semester
syllabi and plans at our next meeting."
The memo34 of Loy on November 15, 1996, further stated:

Thank you for coming to speak with me as follow-up to our meeting yesterday and to
share your impressions. You stated that you feel I am being too hard on you. However,
when we reviewed your lesson planning book which you brought with you we noted the
following:

- For your Filipino 1 classes, there were lesson plans for November 6, 7 and 13, but no
lesson plans for November 11 and 12.

- For your Conversational Filipino and Filipino 3 classes, there were at least three
"lesson plans" with no activities listed.

- For your Filipino A1/S2, you had gone back to write, using a pen with a slightly
different colored ink to fill in parts of the lesson plan which I noted as deficient in my
observation report of October 29.

- There are no lesson plans for any class beyond today’s date.

Clearly, this indicates a lack of planning. With this as your planning guide, I cannot
agree that I am "being too hard on you." As I have stated, your daily planning is often
vague at best; your long term planning does not exist in writing. A review of your
planning book today only supports this. (Emphases ours.)

In the memo35 dated December 6, 1996, Loy disclosed to Santos that:

Concern was expressed by both Mr. Hammett and myself that, after eight months
working with your Professional Growth Plan, we are still focused on but one of the four
major areas of concern. Still to be addressed, following Planning, are concerns under
the Teaching Act, Climate and Management. The third quarter is a crucial one for you,
Vangie. We need to move beyond the initial concern in the Growth Plan to work in the
other areas as well.

On January 22, 1997, Loy observed the Filipino 3 class of Santos. The Classroom
Standards Evaluation Form36 he accomplished stated that Santos still needed
improvement on the following aspects: (1) has daily lesson plans written out; (2)
incorporates a variety of activities, resources and teaching strategies into the lesson; (3)
provides an instructional sequence which is clear and logical, leading to stated
objectives; and (4) states and enforces academic and classroom behavior expectations
in a positive manner. Loy also remarked that Santos’s "lesson plans do not give a clear
sense of direction towards a specified goal other than to reach the end of the chapter
and the book."
In his memo37 dated January 24, 1997, Loy made known his apparent frustration at
Santos’s performance in this manner:

As I said today, Vangie, I find myself continuing to use the phrases "vague" and "lacking
specifics" in reviewing your daily, unit, or semestral plans. Moreover, suggestions and
contributions made in our meetings to address those concerns do not seem to affect
your planning. In your lesson plans, your objectives are basic and elementary; your
activities, vacuous. Objectives such as "enrich vocabulary," "identify the theme of the
chapter," and "participate actively in discussion" (for a class of 7) are not fitting of a high
school lesson plan, much less a pre-International Baccalaureate course. Your activities
do not specify the format, criteria, analytical features, or relationship to the
day’s/course’s objectives.

While you claim that you are doing much more than what you have in your lesson plans,
my contention is then, that the plans do not accurately reflect the lesson. As it is, I
entered a question mark next to "plans for the entire instructional period" because your
plan gave so little direction about what you were planning that day. If you know what the
specific objectives are, based on assessment goals, and you plan to include an activity
as part of the lesson, include it in the plan and be specific about what it is, what the
criteria are, and why it is important. (Emphasis ours.)

Since then, Loy continued to voice his concerns on the planning process of Santos. He
noted on his memo38 dated February 7, 1997 that the objectives in Santos’s daily
lesson plans were very generic and the activities listed were elementary and very basic.
Judging from the lesson plans, Loy concluded that Santos’s planning is still
substandard. On February 28, 1997, Loy sent another memo39 to Santos, which
informed her in no uncertain terms that the growth they see was insufficient. Other than
the substandard lessons, Loy commented that there was virtually no written work nor
adequate direction in her syllabus. Loy also warned her that "continuance in this manner
without marked improvement cannot be tolerated."

In a memo40 dated March 14, 1997, Loy called Santos’s attention about a problem they
discovered in one of her classes. Loy said:

With regards to IBS2 Filipino, three of the eight students did not submit world literature
papers as required by the International Baccalaureate syllabus. Why? You have had
these students for the past two years and know the syllabus of the course. This required
component should have been part of the planning of the course throughout. Although
these students are not IB diploma candidates, the paper should have been drafted,
revised, reviewed and polished throughout the course of the past two years. As you
admitted, you did not know until the day the papers were due that these students were
not submitting a paper.

With regards to your lesson planning, there is still a marked absence of writing activities
in all your classes. x x x
Vangie, I hear that you feel you are doing a good job. What worries me, then, is your
perception of how problematic this situation is. You are now one year into a
Professional Growth Plan with incremental movement in just one of several areas of
concern. I am disappointed that you believe that I do not want to have you continue as a
member of our faculty. I have worked with you for the past twelve months on this growth
plan, meeting with you no fewer [than] fifteen times since August 1996. Throughout this
time, I have offered observations on the areas of deficiency and suggestions for ways to
improve. Ms. Butt and Mr. Hammett have also been supportive of your stated desire to
improve. We want you to be a successful teacher in the area you teach for the sake of
our students. If, as you have confided, Filipino is not the language you would choose to
teach, what are the options? Mr. Hammett said again for the record that he did try to
schedule a section of Spanish this year, but was unable to do so. That situation may
also exist next year as we already have four other teachers teaching Spanish. Knowing
all this, it may be difficult to consider your placement next year.

I look forward to continued discussions with you, Vangie, as we search for ways to
assist your improvement toward success as a teacher. I think we all realize, however,
that we are running out of time.

On April 2, 1997, Jeffrey Hammett sent a memo41 to Santos, likewise expressing his
disappointment with the latter’s performance. Hammett stated:

Vangie, we have been focusing on your planning for just over one year now, and this is
just the first of four areas we wanted to address in your growth plan of last March. We
have met with you more than thirty times this past year to check-on, discuss, and help
improve your planning processes. Your planning has become our number one concern.
Still, as I look at the three-day plan you presented me today for this pre-IB Filipino 3
class (see attached) – note that this "plan" covers last Monday (31 March), today (2
April), and this coming Friday (4 April) - this one-page planning sheet is less than half
complete. In fact, the "objectives" section contains nothing more than an unfinished
sentence. You list no activities, no student outcomes. What’s more, I found nothing but
blank pages for any future class sessions.

In all honesty, Vangie, this illustrates to me even more explicitly than ever before how
justified we are in focusing our concerns on your planning. You cannot keep the daily
objectives, activities, and expected student outcomes only "in your head" and "wing it"
as you did today. Frankly speaking, you know how concerned we are with your
planning, and you also know that you and I have had informal conversations relative to
your continued employment with us. I would have hoped and expected, therefore, to
see the complete plans for this quarter in your folder, or at the very least, a thoroughly
planned unit on Noli Me Tangere, the material being presented and covered this week.
Your "plan" shows me very little, and what I do see is completely unacceptable!

For me, the reality of this unacceptable lesson plan only reinforces the concerns being
expressed by Mr. Loy. You do not plan in any written and complete way for the success
of your students, and this lack of planning is now, has been, and always will be
unacceptable in our school and in our profession. (Emphasis ours.)

Subsequently, on April 10, 1997, McCauley sent a letter42 to Santos directing her to
explain in writing why her employment from the School should not be terminated
because of her failure to meet the criteria for improvement set out in her Professional
Growth Plan and her substandard performance as a teacher.

In her reply letter43 dated April 14, 1997, Santos blamed the School for her
predicament. She said that, in the last few years, she had been forced to teach Filipino,
a subject which she had no preparation for. The School allegedly made this happen
against her objections and despite the fact that she had no training in Filipino linguistics
and literature. Santos also asked for clarification on why she was being asked to explain
and the reasons therefor.

On April 21, 1997, McCauley wrote a letter44 to Santos informing her that the School
considered her letter dated April 14, 1997 as her explanation. The School also set a
formal administrative investigation on April 23, 1997 in order to further clarify matters
and accord Santos the opportunity to explain her side. Santos was given the choice of
bringing a representative or counsel to assist her.

According to the Minutes of the Administrative Investigation45 conducted on April 23,

1997, Santos was accompanied by Raquel David Ching, the President of the ISAE.
Ching first sought clarification as regards the specific charge against Santos. McCauley
referred to the letter dated April 10, 1997, which asked Santos to explain why her
employment should not be terminated by reason of her performance that fell below the
acceptable standards of the School. The charge against Santos was gross inefficiency
or negligence in the performance of her assigned work. After the parties made known
their positions, the investigating committee informed Santos and Ching that they would
consider the views presented and they would advise Santos of the School’s action on
her case.

In a letter46 dated May 29, 1997, McCauley informed Santos that he was adopting the
recommendation of the investigation committee that Santos’s employment from the
School cannot be continued. According to McCauley, the committee found that the
numerous consultations of Santos with her supervisors for the last three school years
did not result in any appreciable improvement on her part. McCauley pointed out that
Santos categorically indicated that she preferred to continue teaching Filipino for the
school years 1994-1995 and 1995-1996. Given that Santos was duly licensed to teach
Filipino, McCauley stated that the committee could not accept her claim that she was ill-
equipped to teach the language. McCauley then told Santos that her employment with
the School would cease effective June 7, 1997.

On June 26, 1997, the ISAE filed a complaint47 against the petitioners, alleging the
following causes of action: (1) unfair labor practice; (2) illegal dismissal; (3) moral and
exemplary damages; (4) violation and refusal to comply with grievance procedures in
the CBA; and (5) unresolved grievance matter. The reliefs prayed for included
reinstatement and the payment of backwages and damages. The complaint was
docketed as NLRC-NCR Case No. 00-06-04491-97. The complaint was subsequently
amended48 to include as complainants Evangeline Santos, Joselyn Rucio and
Methelyn Filler.49

The Ruling of the Labor Arbiter

On April 3, 2001, the Labor Arbiter rendered a Decision50 finding, among others, that
Santos was illegally terminated from her employment. The relevant portions of the ruling
state that:

The law is clear that for an employee to be validly dismissed, it must be shown that the
inefficiency or incompetency of the employee must be "gross or serious" and "habitual."
What is gathered from the submission made by the respondent is the fact that
complainant Santos does not have the skill and competency to teach Filipino as she
was observed by her superior and peers to be lacking in "preparation" of her lesson
plan; she was not in control of her classes as observed since students come in late;
and, she has not communicated well with her students what the expectations and
objectives of the class were.

Based on the above arguments, it is this Office’s finding, that if she was measured
against them, the complainant could not be considered as grossly or seriously inefficient
or incompetent and therefore her dismissal is unwarranted. It is unwarranted since her
being caught once for not preparing her lesson plan for the day is not and could not be,
by itself as "gross or serious" as defined by law. Likewise, the observations made by her
superior and peers could not be the basis for concluding or finding that she is grossly
incompetent or inefficient.

The attendance of students to a greater extent is outside the control of the teacher. To
hold her grossly incompetent on account of the late coming of students under her class
is erroneous application of the intent of the law.

xxxx

This Office observed first hand (sic) the strained relations that developed and at times
consumed the parties, making reinstatement a not prudent disposition of the case, for it
will only inflame so far the subdued and subsiding emotions.

This Office was witness to the long and emotional and loud arguments that transpire
every hearing. This Office had to step in most of the times to control flying tempers and
emotions. Thus, in lieu of reinstatement, the respondent is directed to pay complainant
separation pay equivalent to one-half (1/2) month salary for every year of service.
Full backwages will not be awarded as well considering the fact that complainant is not
without fault. Partly, she contributed to the problem she found herself in only that, it is
not "serious" or "gross" to make a finding of legality of her termination. She is, therefore,
awarded a limited backwages not to exceed a year and a half in backwages as a form
of penalty.

xxxx

WHEREFORE, judgment is hereby rendered as follows:

1. The complaint for unfair labor practice is dismissed for lack of merit;

2. The complaint of Rucio is dismissed for lack of merit;

3. The dismissal of Santos is declared unwarranted, and in view thereof, she is ordered
paid separation pay in lieu of reinstatement in the amount of Seven Hundred Fifty-Six
Thousand Five Hundred Thirty-Six and 55/100 (₱756,536.55) Pesos, and, she is
likewise ordered [paid] a limited backwages equivalent to one and a half (1 1/2) year in
the amount of One Million One Hundred Fifty-Two Thousand Eight Hundred Seventeen
and 60/100 (₱1,152,817.60) Pesos (please see computation Annex "A");

4. Ms. Filler is declared a regular employee. She is ordered paid backwages and
benefits due a regular employee covering the period from July 25, 1994 to the time of
the rendition of this decision in the total amount of One Million Thirty[-]Three Thousand
Three Hundred Seventy Five and 80/100 (₱1,033,375.80) Pesos (please see
computation Annex "A").

All other claims are denied for lack of merit.51 (Emphasis ours.)

Both parties appealed the Labor Arbiter’s Decision to the National Labor Relations
Commission (NLRC).52 The appeals were docketed as NLRC CA No. 028558-01.

The Judgment of the NLRC

On February 28, 2003, the NLRC issued a Resolution,53 which affirmed the decision of
the Labor Arbiter in this wise:

WHEREFORE, premises considered, the appeal is dismissed for lack of merit and the
Decision appealed from is affirmed en toto.
The NLRC upheld the ruling of the Labor Arbiter that Santos’s dismissal from
employment was not warranted given that "her being caught once for not preparing her
lesson plan for the day is not and could not be, by itself, as gross or serious as defined
by law. Likewise, the observations made by her superior and peers could not be the
basis for concluding or finding that she is grossly incompetent or inefficient."54 The
NLRC found the conclusion of the Labor Arbiter to be supported by substantial
evidence.

Petitioners moved for a reconsideration55 of the NLRC Resolution but the same was
denied in a Resolution56 dated June 30, 2003. Petitioners then filed a petition for
certiorari57 before the Court of Appeals.

The Decision of the Court of Appeals

On November 17, 2004, the Court of Appeals promulgated the assailed decision the
decretal portion of which provides:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the instant petition is PARTLY
GRANTED. The Resolution of public respondent National Labor Relations Commission
dated February 28, 2003, in NLRC CA No. 028558-01, and its Resolution of June 30,
2003 on the partial motion for reconsideration are AFFIRMED subject to the
MODIFICATION that the award to private respondent METHELYN FILLER of
backwages and benefits due a regular employee from July 25, 1994 until the rendition
of the Labor Arbiter’s decision on April 3, 2001 is hereby DELETED. Without costs.58

Brushing aside the argument that Santos did not exercise slight care or diligence in the
performance of her duties, the Court of Appeals pointed out that Santos did exert efforts
to improve her performance, which led to a revision of her original Professional Growth
Plan. Echoing the findings of the Labor Arbiter and the NLRC, the Court of Appeals
agreed that Santos could not be said to be habitually neglectful of her duties after she
was "caught once with an inadequately prepared lesson plan in 1997."59 Although the
Court of Appeals acknowledged that Santos’s performance as a teacher was not at all
satisfactory, it ruled that the same did not warrant the penalty of dismissal. To the
appellate court, a penalty of suspension from work was more equitable under the
circumstances. As a matter of right, Santos was adjudged to be entitled to reinstatement
and backwages. However, given the deep antagonism between her and the petitioners,
the Court of Appeals ordered the award of separation pay in lieu of reinstatement.

Both parties filed their respective motions for reconsideration60 of the above decision of
the Court of Appeals, but the same were denied in the assailed Resolution dated
February 23, 2005.

The Petitioners’ Arguments

In challenging the assailed decision of the appellate court, petitioners raise for our
consideration the following issues:

a) WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT

RESPONDENT EVANGELINE SANTOS WAS ILLEGALLY DISMISSED; and

b) WHETHER OR NOT RESPONDENT EVANGELINE SANTOS IS ENTITLED TO

REINSTATEMENT OR SEPARATION PAY WITH BACKWAGES.61

Petitioners argue that Santos’s repeated failure to maintain the standards of quality
teaching expected from every faculty member of the School illustrates her gross and
habitual neglect of her duties, which is a just cause for dismissal under Article 282 of the
Labor Code. Petitioners lament the fact that the Court of Appeals allegedly substituted
its own judgment with the reasonable standards of teaching set by the School.
Petitioners point out that there was neither a finding that such standards were arbitrary,
nor was the evaluation process biased or that the School or any of its personnel was
motivated by ill will against Santos. Petitioners stress that Santos was not dismissed
solely on the ground that she failed to prepare her lesson plan for one particular day. On
the contrary, petitioners assert that Santos was dismissed from employment because
she repeatedly failed to meet the standards required by the school from 1993 to 1997.
According to petitioners, this repeated failure, especially after the one-year remediation
period wherein school administrators met with Santos no less than thirty (30) times to
check on her, clarify and discuss her planning process, and help her improve her
performance, was clearly overlooked by the Court of Appeals.

Despite the application of the Professional Growth Plan, petitioners insist that Santos
was still repeatedly found to be lacking in preparation and planning. Petitioners claim
that Santos’s failure to improve, most especially in the planning area of her teaching,
justified the School’s decision to terminate her services. Otherwise, to retain her in the
roster of faculty would be tantamount to sacrificing the welfare of the School’s very own
students. At the very least, petitioners aver that Santos was guilty of gross inefficiency
in the performance of her teaching duties. Petitioners further state that the School
observed procedural due process before dismissing Santos. Since her employment was
lawfully terminated, petitioners posit that an award of separation pay with backwages is
not proper.

The Respondents’ Arguments

Respondents argue that the Court cannot examine anymore the factual findings of an
administrative tribunal, such as the Labor Arbiter, which has already gained expertise in
its field. This holds truer if the factual findings had been affirmed upon review by the
NLRC and the Court of Appeals. According to the respondents, it cannot be said that
Santos did not exercise slight care or diligence in the performance of her duties as she
did exert efforts to make the necessary adjustments. That Santos was shown to have
inadequately prepared a lesson plan in 1997 did not necessarily show that she was
habitually neglectful of her duties. For the said reasons, respondents also rejected the
charge of gross inefficiency. Respondents aver that the administrative superiors of
Santos found that she had greatly improved on her preparations and she was never
found wanting in the other areas of her teaching. Respondents also stress that
petitioners only brought up the claim of gross inefficiency in the petition for certiorari
before the Court of Appeals. Although respondents admit that Santos did indeed
perform her duties unsatisfactorily, they argue that the same does not warrant
dismissal. Considering that she had worked with the School for 17 long years with no
known previous bad record, they allege that the ends of social and compassionate
justice would be better served if she was merely suspended from work rather than
terminated.

The Judgment of the Court

The Court finds the appeal meritorious.

Generally, on appeal, the findings of fact of an administrative agency like the NLRC are
accorded not only respect but also finality if the findings are supported by substantial
evidence. Such rule, however, is by no means absolute. As held in San Miguel
Corporation v. Aballa,62 "when the findings of fact of the labor arbiter and the NLRC are
not supported by substantial evidence or their judgment was based on a
misapprehension of facts, the appellate court may make an independent evaluation of
the facts of the case." The Court finds the said exceptions extant in this case.

In Janssen Pharmaceutica v. Silayro,63 we stated that "[t]o constitute a valid dismissal

from employment, two requisites must concur: (1) the dismissal must be for any of the
causes provided in Article 282 of the Labor Code; and, (2) the employee must be given
an opportunity to be heard and to defend himself."

In the collective bargaining agreement (CBA) between the School and ISAE for the
years 1992-1995, Section 13 of Appendix A thereof expressly states that "[t]ermination
of employment shall be in accordance with the laws of the Philippines as presented in
the LABOR CODE (Book VI, Art. 282)."64

Article 28265 of the Labor Code provides:

ART. 282. Termination by employer. – An employer may terminate an employment for

any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of
his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer
or duly authorized representative;

(d) 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 representative;
and

(e) Other causes analogous to the foregoing.

In all cases involving termination of employment, the burden of proving the existence of
the above just causes rests upon the employer.66 The quantum of proof required in
these cases is substantial evidence, that is, such relevant evidence that a reasonable
mind might accept as adequate to support a conclusion, even if other equally
reasonable minds might conceivably opine otherwise.67

The Court had occasion to explain in Century Iron Works, Inc. v. Bañas68 the concept
of gross and habitual neglect of duties. Thus:

Gross negligence connotes want or absence of or failure to exercise slight care or

diligence, or the entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them. Fraud and willful neglect of
duties imply bad faith of the employee in failing to perform his job, to the detriment of
the employer and the latter’s business. Habitual neglect, on the other hand, implies
repeated failure to perform one’s duties for a period of time, depending upon the
circumstances. (Citations omitted, emphasis supplied.)

We also reiterated in Union Motor Corporation v. National Labor Relations

Commission69 that in dismissing an employee for gross and habitual neglect of duties,
the negligence should not merely be gross, it should also be habitual.

On gross inefficiency, we ruled in Lim v. National Labor Relations Commission70 that:

[G]ross inefficiency falls within the purview of "other causes analogous to the foregoing,"
and constitutes, therefore, just cause to terminate an employee under Article 282 of the
Labor Code. One is analogous to another if it is susceptible of comparison with the latter
either in general or in some specific detail; or has a close relationship with the latter.
"Gross inefficiency" is closely related to "gross neglect," for both involve specific acts of
omission on the part of the employee resulting in damage to the employer or to his
business. In Buiser vs. Leogardo, this Court ruled that failure to observe prescribed
standards of work, or to fulfill reasonable work assignments due to inefficiency may
constitute just cause for dismissal. (Emphases ours; citations omitted.)
Viewed in light of the above doctrines, the Court is not convinced that the actuations of
Santos complained of by the petitioners constituted gross and habitual neglect of her
duties.

From the very beginning of her tenure as a teacher of the Filipino language, the
recurring problem observed of Santos was that her lesson plans lacked details and
coherent correlation to each other, to the course, and to the curriculum, which in turn
affected how lessons and instructions were conveyed to the students.71 After Santos
was placed in a Professional Growth Plan on March 29, 1996, petitioners observed a
noticeable improvement on her part. In his memo72 dated May 24, 1996, then Assistant
Principal Loy even stated that Santos’s improvement was a result of her positive attitude
in approaching her growth plan. Unfortunately, though, Santos could not sustain this
progress. Not long after, the School administrators were again admonishing Santos for
her vague lesson plans that lacked specifics.

What can be gathered from a thorough review of the records of this case is that the
inadequacies of Santos as a teacher did not stem from a reckless disregard of the
welfare of her students or of the issues raised by the School regarding her teaching. Far
from being tainted with bad faith, Santos’s failings appeared to have resulted from her
lack of necessary skills, in-depth knowledge, and expertise to teach the Filipino
language at the standards required of her by the School.

Be that as it may, we find that the petitioners had sufficiently proved the charge of gross
inefficiency, which warranted the dismissal of Santos from the School.

The Court enunciated in Peña v. National Labor Relations Commission73 that "it is the
prerogative of the school to set high standards of efficiency for its teachers since quality
education is a mandate of the Constitution. As long as the standards fixed are
reasonable and not arbitrary, courts are not at liberty to set them aside." Moreover, the
prerogative of a school to provide standards for its teachers and to determine whether
these standards have been met is in accordance with academic freedom, which gives
the educational institution the right to choose who should teach.74

The CBA between ISAE and the School for the years 1992-1995 also recognized the
exclusive right of the School to "hire and appoint qualified faculty subject to such
reasonable rules and regulations as it may prescribe,"75 as well as the right of the
School to discipline its faculty and determine reasonable levels of performance.76
Section 8 of Appendix A77 of the CBA also states that "[a]ll faculty members must meet
the high standard of performance expected by the SCHOOL and abide by all its
policies, procedures and contractual terms."

Contrary to the ruling of the Labor Arbiter, it is not accurate to state that Santos was
dismissed by the School for inefficiency on account of the fact that she was caught only
once without a lesson plan. The documentary evidence submitted by petitioners, the
contents of which we laid down in detail in our statement of facts, pointed to the
numerous instances when Santos failed to observe the prescribed standards of
performance set by the School in several areas of concern, not the least of which was
her lack of adequate planning for her Filipino classes. Said evidence established that
the School administrators informed Santos of her inadequacies as soon as they became
apparent; that they provided constructive criticism of her planning process and teaching
performance; and that regular conferences were held between Santos and the
administrators in order to address the latter’s concerns. In view of her slow progress,
the School required her to undergo the remediation phase of the evaluation process
through a Professional Growth Plan. Despite the efforts of the School administrators,
Santos failed to show any substantial improvement in her planning process. Having
failed to exit the remediation process successfully, the School was left with no choice
but to terminate her employment.

The Court finds that, not only did the petitioners’ documentary evidence sufficiently
prove Santos’s inefficient performance of duties, but the same also remained
unrebutted by respondents’ own evidence. On the contrary, Santos admits in her
pleadings that her performance as a teacher of Filipino had not been satisfactory but
she prays for leniency on account of her prior good record as a Spanish teacher at the
School. Indeed, even the Labor Arbiter, the NLRC and the Court of Appeals agreed that
Santos was not without fault but the lower tribunals deemed that termination was too
harsh a penalty.

Nonetheless, the Court finds that petitioners had satisfactorily discharged the burden of
proving the existence of gross inefficiency on the part of Santos, warranting her
separation from the school.

Anent the conclusion of the Labor Arbiter that "the observations made by [Santos’s]
superior and peers could not be the basis for concluding or finding that she is grossly
incompetent or inefficient,"78 the Court finds the same utterly baseless. Far from being
random and unstructured exercises, said observations were borne out of the evaluation
procedures set up by the School in order to assist the members of its faculty to improve
their performance. In their petition before this Court, petitioners attached a copy of their
Reply/Position Paper79 before the Labor Arbiter. Annexed to said pleading is the
School’s Position Paper Regarding Professional Growth, Supervision and Evaluation of
Faculty,80 which expressly states that:

It is the policy of the International School Manila to assist teachers in the improvement
of classroom instruction at all levels in order to provide the highest quality educational
program at ISM. To that end, procedures have been established which include 1) the
promotion of on-going professional growth, 2) on-going supervision including regular
monitoring, improvement of instructional practices and evaluation for continuing
employment or tenure, and 3) evaluation (performance assessment, directed
assistance, remediation and, if necessary, termination of employment).81

Included in the supervision and evaluation process are formal and informal observations
of a faculty member’s performance in his/her classes. Thus, 2.1 Formal observations
will take several forms. Some will be total [sic] unannounced, with or without a pre-
observation conference.
Others will be scheduled in advance, possibly including a pre-observation conference,
and with a post observation conference. One component of the formal observation will
always be a written commentary by the supervisor or colleague making the observation.

xxxx

2.3 Drop-in, informal observations, will be a part of the supervision and evaluation
process. Drop-ins may be of any length, from a few minutes to an hour or more. A note
from the observer confirming his or her impressions will be helpful to the teacher
observed.82

From the foregoing, it is clear that the Labor Arbiter erred in not giving weight to the
observations made by Santos’s superiors and peers in determining whether she was
grossly inefficient or not.

In view of the acts and omissions of Santos that constituted gross inefficiency, the Court
finds that the School was justified in not keeping her in its employ. At this point, the
Court needs to stress that Santos voluntarily agreed to teach the Filipino classes given
to her when she came back from her leave of absence. Said classes were not forced
upon her by the School. This much she admitted in the hearing of the case before the
Labor Arbiter. She stated therein that for the school year 1993-1994, she was given the
option to teach only one Spanish class and not have any Filipino teaching loads. She,
however, said that if she took that option she would have been underpaid and her salary
would not have been the same.83 Moreover, for the school years 1994-1995 and 1995-
1996, she made known to the School that she did not prefer a change in teaching
assignment. Thus, when she consented to take on the Filipino classes, it was Santos’s
responsibility to teach them well within the standards of teaching required by the
School, as she had done previously as a teacher of Spanish. Failing in this, she must
answer for the consequences.

As held in Agabon v. National Labor Relations Commission84:

The law imposes many obligations on the employer such as providing just
compensation to workers, observance of the procedural requirements of notice and
hearing in the termination of employment. On the other hand, the law also recognizes
the right of the employer to expect from its workers not only good performance,
adequate work and diligence, but also good conduct and loyalty. The employer may not
be compelled to continue to employ such persons whose continuance in the service will
patently be inimical to his interests. (citations omitted.)

As regards the requirements of procedural due process, Section 2(d) of Rule 1 of The
Implementing Rules of Book VI states that:
For termination of employment based on just causes as defined in Article 282 of the
Labor Code:

(i) A written notice served on the employee specifying the ground or grounds for
termination, and giving said employee reasonable opportunity within which to explain
his side.

(ii) A hearing or conference during which the employee concerned, with the assistance
of counsel if he so desires is given opportunity to respond to the charge, present his
evidence, or rebut the evidence presented against him.

(iii) A written notice of termination served on the employee, indicating that upon due
consideration of all the circumstances, grounds have been established to justify his
termination. (Emphases ours.)

In this case, the School complied with the above requirements. After a thorough
evaluation of Santos’s performance, the School held a series of conferences and
meetings with Santos, in order to improve her performance. On March 29, 1996, the
School required Santos to undertake a Professional Growth Plan. Thereafter, when the
intervention of the School failed to yield any considerable improvement on Santos,
McCauley wrote her a letter on April 10, 1997, which required her to explain in writing
within forty-eight (48) hours why her employment should not be terminated in view of
her failure to meet the standards of the School on very specific areas of concern. On
April 16, 1997, Santos responded to McCauley’s letter, asking why she was being
required to explain. On April 21, 1997, McCauley wrote Santos a letter informing her
that an administrative investigation would be conducted on April 23, 1997 where she
would be given the opportunity to be heard. On April 23, 1997, an administrative
investigation was conducted. Santos appeared therein with the assistance of ISAE
President Ching. In a letter dated May 29, 1997, the School informed Santos of its
decision to terminate her employment on the ground of her failure to meet the standards
of the School, which as discussed was tantamount to gross inefficiency.

In view of the finding that Santos was validly dismissed from employment, she would
not ordinarily be entitled to separation pay.85 An exception to this rule is when the court
finds justification in applying the principle of social justice according to the equities of
the case. The Court explained in Philippine Long Distance Telephone Co. (PLDT) v.
National Labor Relations Commission86 that:

We hold that henceforth separation pay shall be allowed as a measure of social justice
only in those instances where the employee is validly dismissed for causes other than
serious misconduct or those reflecting on his moral character. Where the reason for the
valid dismissal is, for example, habitual intoxication or an offense involving moral
turpitude, like theft or illicit sexual relations with a fellow worker, the employer may not
be required to give the dismissed employee separation pay, or financial assistance, or
whatever other name it is called, on the ground of social justice.
xxxx

The policy of social justice is not intended to countenance wrongdoing simply because it
is committed by the underprivileged. At best it may mitigate the penalty but it certainly
will not condone the offense. Compassion for the poor is an imperative of every humane
society but only when the recipient is not a rascal claiming an undeserved privilege.
Social justice cannot be permitted to be refuge of scoundrels any more than can equity
be an impediment to the punishment of the guilty. Those who invoke social justice may
do so only if their hands are clean and their motives blameless and not simply because
they happen to be poor. This great policy of our Constitution is not meant for the
protection of those who have proved they are not worthy of it, like the workers who have
tainted the cause of labor with the blemishes of their own character.

In Toyota Motor Phils. Corp. Workers Association v. National Labor Relations

Commission,87 we modified our ruling in PLDT in this wise:

In all of the foregoing situations, the Court declined to grant termination pay because
the causes for dismissal recognized under Art. 282 of the Labor Code were serious or
grave in nature and attended by willful or wrongful intent or they reflected adversely on
the moral character of the employees. We therefore find that in addition to serious
misconduct, in dismissals based on other grounds under Art. 282 like willful
disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, and
commission of a crime against the employer or his family, separation pay should not be
conceded to the dismissed employee.

In analogous causes for termination like inefficiency, drug use, and others, the NLRC or
the courts may opt to grant separation pay anchored on social justice in consideration of
the length of service of the employee, the amount involved, whether the act is the first
offense, the performance of the employee and the like, using the guideposts enunciated
in PLDT on the propriety of the award of separation pay.1âwphi1 (Emphasis ours.)

In the instant case, the Court finds equitable and proper the award of separation pay in
favor of Santos in view of the length of her service with the School prior to the events
that led to the termination of her employment. To recall, Santos was first employed by
the School in 1978 as a Spanish language teacher. During this time, the records of this
case are silent as to the fact of any infraction that she committed and/or any other
administrative case against her that was filed by the School. Thus, an award of
separation pay equivalent to one-half (1/2) month pay for every year of service is
awarded in favor of Santos on grounds of equity and social justice.88

WHEREFORE, the instant petition is GRANTED. The assailed Decision and the
Resolution of the Court of Appeals in CA-G.R. SP No. 79031 are hereby REVERSED
and a new one is entered ordering the dismissal of the complaint of Evangeline Santos
in NLRC-NCR Case No. 00-06-04491-97. Petitioner International School Manila is
ORDERED to pay respondent Evangeline Santos separation pay equivalent to one-half
(1/2) month pay for every year of service. No costs.
SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice
Chairperson

LUCAS P. BERSAMIN
Associate Justice MARTIN S. VILLARAMA, JR.
Associate Justice
BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1 Rollo, pp. 2-39.

2 Id. at 41-64; penned by Associate Justice Renato C. Dacudao with Associate Justices
Edgardo F. Sundiam and Japar B. Dimaampao, concurring.

3 Id. at 66-67.
4 The ISAE was the certified bargaining agent of the School's faculty members.

5 According to respondents’ Position Paper before the Labor Arbiter, the school year at
the International School Manila commences in the month of August. (CA rollo, p. 151.)

6 Rollo, pp. 428-429.

7 Id. at 230.

8 Id. at 355.

9 Id. at 231.

10 Id. at 199.

11 Id. at 232.

12 Id. at 429, 476.

13 Id. at 356.

14 Id. at 476.

15 Id. at 236.

16 Id. at 375-376.

17 Id. at 377.

18 Id. at 382.

19 Id. at 191. According to the School’s Position Paper Regarding Professional Growth,
Supervision and Evaluation of Faculty:
Category 3. Evaluation and Remediation.

Faculty members whose performance level is below the school’s minimum level of
expectations at any time will enter the "remediation" phase of the evaluation process. A
faculty member will be clearly notified that he/she has entered remediation. During
remediation, the faculty member and administrative supervisor will establish and
carefully monitor a program designed to bring the faculty member’s performance above
the minimum level of expectations. If this program is successful, the employee will be
informed that he/she has been removed from remediation. A faculty member who exits
remediation successfully will be considered for further employment without prejudice.
Should more time be needed to meet the school’s expectations, the administration may
extend a foreign hired expatriate’s contract by one year instead of two. If a faculty
member is not able to meet the school’s minimum performance expectations and exit
remediation successfully, appropriate action regarding the faculty member’s further
employment will be taken. (Emphasis ours.)

20 NLRC Records, Vol. I, Exhibit 24.

21 Rollo, p. 385.

22 Id. at 386.

23 Id. at 388.

24 Id. at 389.

25 Id. at 390.

26 NLRC Records, Vol. I, Exhibit 25.

27 Rollo, p. 477.

28 Id. at 391.

29 Id. at 392.

30 Id. at 393.

31 Id. at 394.
32 Id. at 237.

33 Id. at 395.

34 Id. at 396.

35 Id. at 397.

36 Id. at 373.

37 Id. at 399.

38 Id. at 401.

39 Id. at 402.

40 Id. at 403.

41 Id. at 207.

42 Id. at 208-209.

43 Id. at 210.

44 Id. at 211.

45 Id. at 212.

46 Id. at 213.

47 NLRC Records, Volume I.

48 Id.
49 In the Position Paper of the complainants before the Labor Arbiter, Evangeline
Santos, Joselyn Rucio and Methelyn Filler invoked separate causes of action against
the School. (CA rollo, pp. 149-162.)

50 Rollo, pp. 89-127; penned by Labor Arbiter Patricio P. Libo-on.

51 Id. at 119-126.

52 CA rollo, pp. 321-346, 483-493.

53 Rollo, pp. 128-148; penned by Commissioner Victoriano R. Calaycay with

Commissioner Angelita A. Gacutan, concurring.

54 Id. at 146.

55 CA rollo, pp. 608-624.

56 Rollo, pp. 149-150.

57 CA rollo, pp. 2-43.

58 Rollo, pp. 63-64.

59 Id. at 60.

60 CA rollo, pp. 806-812, 813-832.

61 Rollo, pp. 439-440.

62 500 Phil. 170, 194 (2005).

63 570 Phil. 215, 226 (2008).

64 NLRC Records, Vol. I; CBA, p. 38.

65 Now renumbered as Article 296 pursuant to Republic Act No. 10151 (An Act
Allowing the Employment of Night Workers, thereby Repealing Articles 130 and 131 of
Presidential Decree Number Four Hundred Forty-Two, As Amended, Otherwise known
as the Labor Code of the Philippines).

66 Lopez v. National Labor Relations Commission, 358 Phil. 141, 150 (1998).

67 Functional, Inc. v. Granfil, G.R. No. 176377, November 16, 2011, 660 SCRA 279,
285.

68 G.R. No. 184116, June 19, 2013.

69 487 Phil. 197, 209 (2004).

70 328 Phil. 843, 858 (1996).

71 Rollo, pp. 230, 199, 232, 236, 375-376, 377, 382.

72 Id. at 390.

73 327 Phil. 673, 676 (1996).

74 Mercado v. AMA Computer College-Parañaque City, Inc., G.R. No. 183572, April 13,
2010, 618 SCRA 218, 236.

75 Section 1, Article III of the CBA states:

SECTION 1. The SCHOOL has the exclusive right to hire and appoint qualified faculty
subject to such reasonable rules and regulations as it may prescribe. (NLRC Records,
Vol. I; CBA, p. 6.)

76 Section 2, Article III of the CBA provides:

SECTION 2. Except as otherwise provided in this Agreement the [ISAE] recognizes the
right of the SCHOOL to supervise, manage, and conduct the effective administration of
the SCHOOL, including but not limited to, the direction of the teaching force, the hiring,
re-hiring, assignment, transfer, promotion, laying-off, recalling, suspension, discharge
and disciplining its faculty; the determination and use of testing, selection and
placement procedures, the establishment and revision of reasonable SCHOOL rules,
regulations and a CODE OF ETHICS attached hereto as Appendix B; the activities to be
conducted in the SCHOOL, the determination of the required jobs within the SCHOOL,
and the determination of reasonable levels of performance. (Id.)

77 NLRC Records, Vol. I; CBA, pp. 33-36.

78 Rollo, p. 146.

79 Id. at 151-189.

80 Id. at 190-198.

81 Id. at 190.

82 Id. at 197.

83 NLRC Records, Vol. II; TSN, June 18, 1998, pp. 129-131.

84 485 Phil. 248, 279 (2004).

85 Section 7, Rule I of the Implementing Rules of Book VI of the Labor Code provides:

SEC. 7. Termination of employment by employer. — The just causes for terminating the
services of an employee shall be those provided in Article 282 of the Code. The
separation from work of an employee for a just cause does not entitle him to the
termination pay provided in the Code, without prejudice, however, to whatever rights,
benefits and privileges he may have under the applicable individual or collective
agreement with the employer or voluntary employer policy or practice.

86 247 Phil. 641, 649-650 (1988).

87 562 Phil. 759, 812 (2007).

88 See Philippine Airlines. Inc. v. National Labor Relations Commission, G.R. No.
123294, October 20, 2010, 634 SCRA 18, 46.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 185665 February 8, 2012

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner,

vs.
EASTERN TELECOMS EMPLOYEES UNION, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari seeking modification of the June
25, 2008 Decision1 of the Court of Appeals (CA) and its December 12, 2008
Resolution,2 in CA-G.R. SP No. 91974, annulling the April 28, 2005 Resolution3 of the
National Labor Relations Commission (NLRC) in NLRC-NCR-CC-000273-04 entitled "In
the Matter of the Labor Dispute in Eastern Telecommunications, Philippines, Inc."

The Facts

As synthesized by the NLRC, the facts of the case are as follows, viz:

Eastern Telecommunications Phils., Inc. (ETPI) is a corporation engaged in the

business of providing telecommunications facilities, particularly leasing international
date lines or circuits, regular landlines, internet and data services, employing
approximately 400 employees.

Eastern Telecoms Employees Union (ETEU) is the certified exclusive bargaining agent
of the company’s rank and file employees with a strong following of 147 regular
members. It has an existing collecti[ve] bargaining agreement with the company to
expire in the year 2004 with a Side Agreement signed on September 3, 2001.

In essence, the labor dispute was a spin-off of the company’s plan to defer payment of
the 2003 14th, 15th and 16th month bonuses sometime in April 2004. The company’s
main ground in postponing the payment of bonuses is due to allege continuing
deterioration of company’s financial position which started in the year 2000. However,
ETPI while postponing payment of bonuses sometime in April 2004, such payment
would also be subject to availability of funds.

Invoking the Side Agreement of the existing Collective Bargaining Agreement for the
period 2001-2004 between ETPI and ETEU which stated as follows:

"4. Employment Related Bonuses. The Company confirms that the 14th, 15th and 16th
month bonuses (other than 13th month pay) are granted."

The union strongly opposed the deferment in payment of the bonuses by filing a
preventive mediation complaint with the NCMB on July 3, 2003, the purpose of which
complaint is to determine the date when the bonus should be paid.

In the conference held at the NCMB, ETPI reiterated its stand that payment of the
bonuses would only be made in April 2004 to which date of payment, the union agreed.
Thus, considering the agreement forged between the parties, the said agreement was
reduced to a Memorandum of Agreement. The union requested that the President of the
company should be made a signatory to the agreement, however, the latter refused to
sign. In addition to such a refusal, the company made a sudden turnaround in its
position by declaring that they will no longer pay the bonuses until the issue is resolved
through compulsory arbitration.

The company’s change in position was contained in a letter dated April 14, 2004 written
to the union by Mr. Sonny Javier, Vice-President for Human Resources and
Administration, stating that "the deferred release of bonuses had been superseded and
voided due to the union’s filing of the issue to the NCMB on July 18, 2003." He declared
that "until the matter is resolved in a compulsory arbitration, the company cannot and
will not pay any ‘bonuses’ to any and all union members."

Thus, on April 26, 2004, ETEU filed a Notice of Strike on the ground of unfair labor
practice for failure of ETPI to pay the bonuses in gross violation of the economic
provision of the existing CBA.

On May 19, 2004, the Secretary of Labor and Employment, finding that the company is
engaged in an industry considered vital to the economy and any work disruption thereat
will adversely affect not only its operation but also that of the other business relying on
its services, certified the labor dispute for compulsory arbitration pursuant to Article 263
(q) of the Labor Code as amended.

Acting on the certified labor dispute, a hearing was called on July 16, 2004 wherein the
parties have submitted that the issues for resolution are (1) unfair labor practice and (2)
the grant of 14th, 15th and 16th month bonuses for 2003, and 14th month bonus for
2004. Thereafter, they were directed to submit their respective position papers and
evidence in support thereof after which submission, they agreed to have the case
considered submitted for decision.4

In its position paper,5 the Eastern Telecoms Employees Union (ETEU) claimed that
Eastern Telecommunications Philippines, Inc. (ETPI) had consistently and voluntarily
been giving out 14th month bonus during the month of April, and 15th and 16th month
bonuses every December of each year (subject bonuses) to its employees from 1975 to
2002, even when it did not realize any net profits. ETEU posited that by reason of its
long and regular concession, the payment of these monetary benefits had ripened into a
company practice which could no longer be unilaterally withdrawn by ETPI. ETEU
added that this long-standing company practice had been expressly confirmed in the
Side Agreements of the 1998-2001 and 2001-2004 Collective Bargaining Agreements
(CBA) which provided for the continuous grant of these bonuses in no uncertain terms.
ETEU theorized that the grant of the subject bonuses is not only a company practice but
also a contractual obligation of ETPI to the union members.

ETEU contended that the unjustified and malicious refusal of the company to pay the
subject bonuses was a clear violation of the economic provision of the CBA and
constitutes unfair labor practice (ULP). According to ETEU, such refusal was nothing
but a ploy to spite the union for bringing the matter of delay in the payment of the
subject bonuses to the National Conciliation and Mediation Board (NCMB). It prayed for
the award of moral and exemplary damages as well as attorney’s fees for the unfair
labor practice allegedly committed by the company.

On the other hand, ETPI in its position paper,6 questioned the authority of the NLRC to
take cognizance of the case contending that it had no jurisdiction over the issue which
merely involved the interpretation of the economic provision of the 2001-2004 CBA Side
Agreement. Nonetheless, it maintained that the complaint for nonpayment of 14th, 15th
and 16th month bonuses for 2003 and 14th month bonus for 2004 was bereft of any
legal and factual basis. It averred that the subject bonuses were not part of the legally
demandable wage and the grant thereof to its employees was an act of pure gratuity
and generosity on its part, involving the exercise of management prerogative and
always dependent on the financial performance and realization of profits. It posited that
it resorted to the discontinuance of payment of the bonuses due to the unabated huge
losses that the company had continuously experienced. It claimed that it had been
suffering serious business losses since 2000 and to require the company to pay the
subject bonuses during its dire financial straits would in effect penalize it for its past
generosity. It alleged that the non-payment of the subject bonuses was neither flagrant
nor malicious and, hence, would not amount to unfair labor practice.

Further, ETPI argued that the bonus provision in the 2001-2004 CBA Side Agreement
was a mere affirmation that the distribution of bonuses was discretionary to the
company, premised and conditioned on the success of the business and availability of
cash. It submitted that said bonus provision partook of the nature of a "one-time" grant
which the employees may demand only during the year when the Side Agreement was
executed and was never intended to cover the entire term of the CBA. Finally, ETPI
emphasized that even if it had an unconditional obligation to grant bonuses to its
employees, the drastic decline in its financial condition had already legally released it
therefrom pursuant to Article 1267 of the Civil Code.

On April 28, 2005, the NLRC issued its Resolution dismissing ETEU’s complaint and
held that ETPI could not be forced to pay the union members the 14th, 15th and 16th
month bonuses for the year 2003 and the 14th month bonus for the year 2004 inasmuch
as the payment of these additional benefits was basically a management prerogative,
being an act of generosity and munificence on the part of the company and contingent
upon the realization of profits. The NLRC pronounced that ETPI may not be obliged to
pay these extra compensations in view of the substantial decline in its financial
condition. Likewise, the NLRC found that ETPI was not guilty of the ULP charge
elaborating that no sufficient and substantial evidence was adduced to attribute malice
to the company for its refusal to pay the subject bonuses. The dispositive portion of the
resolution reads:

WHEREFORE, premises considered, the instant complaint is hereby DISMISSED for

lack of merit.

SO ORDERED.7

Respondent ETEU moved for reconsideration but the motion was denied by the NLRC
in its Resolution dated August 31, 2005.

Aggrieved, ETEU filed a petition for certiorari8 before the CA ascribing grave abuse of
discretion on the NLRC for disregarding its evidence which allegedly would prove that
the subject bonuses were part of the union members’ wages, salaries or
compensations. In addition, ETEU asserted that the NLRC committed grave abuse of
discretion when it ruled that ETPI is not contractually bound to give said bonuses to the
union members.

In its assailed June 25, 2008 Decision, the CA declared that the Side Agreements of the
1998 and 2001 CBA created a contractual obligation on ETPI to confer the subject
bonuses to its employees without qualification or condition. It also found that the grant
of said bonuses has already ripened into a company practice and their denial would
amount to diminution of the employees’ benefits. It held that ETPI could not seek refuge
under Article 1267 of the Civil Code because this provision would apply only when the
difficulty in fulfilling the contractual obligation was manifestly beyond the contemplation
of the parties, which was not the case therein. The CA, however, sustained the NLRC
finding that the allegation of ULP was devoid of merit. The dispositive portion of the
questioned decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and the

resolution of the National Labor Relations Commission dated April 28, 2005 is hereby
ANNULLED and SET ASIDE. Respondent Eastern Telecommunications Philippines,
Inc. is ordered to pay the members of petitioner their 14th, 15th and 16th month
bonuses for the year 2003 and 14th month for the year 2004. The complaint for unfair
labor practice against said respondent is DISMISSED.

SO ORDERED.9

ISSUES

Dissatisfied, ETPI now comes to this Court via Rule 45, raising the following errors
allegedly committed by the CA, to wit:

I.

THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT

ANNULLED AND SET ASIDE THE R E S O L U T I O NS OF THE NLRC
DISREGARDING THE WELL SETTLED RULE THAT A WRIT OF CERTIORARI
(UNDER RULE 65) ISSUES ONLY FOR CORRECTION OF ERRORS OF
JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION.

II.

THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT

DISREGARDED THE RULE THAT FINDINGS OF FACTS OF QUASI-JUDICIAL
BODIES ARE ACCORDED FINALITY IF THEY ARE SUPPORTED BY SUBSTANTIAL
EVIDENCE CONSIDERING THAT THE CONCLUSIONS OF THE NLRC WERE
BASED ON SUBSTANTIAL AND OVERWHELMING EVIDENCE AND UNDISPUTED
FACTS.

III.

IT WAS A GRAVE ERROR OF LAW FOR THE COURT OF APPEALS TO CONSIDER

THAT THE BONUS GIVEN BY EASTERN COMMUNICATIONS TO ITS EMPLOYEES
IS NOT DEPENDENT ON THE REALIZATION OF PROFITS.

IV.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT

DISREGARDED THE UNDISPUTED FACT THAT EASTERN COMMUNICATIONS IS
SUFFERING FROM TREMENDOUS FINANCIAL LOSSES, AND ORDERED
EASTERN COMMUNICATIONS TO GRANT THE BONUSES REGARDLESS OF THE
FINANCIAL DISTRESS OF EASTERN COMMUNICATIONS.
V.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT

ARRIVED AT THE CONCLUSION THAT THE GRANT OF BONUS GIVEN BY
EASTERN COMMUNICATIONS TO ITS EMPLOYEES HAS RIPENED INTO A
COMPANY PRACTICE.10

A careful perusal of the voluminous pleadings filed by the parties leads the Court to
conclude that this case revolves around the following core issues:

1. Whether or not petitioner ETPI is liable to pay 14th, 15th and 16th month bonuses for
the year 2003 and 14th month bonus for the year 2004 to the members of respondent
union; and

2. Whether or not the CA erred in not dismissing outright ETEU’s petition for certiorari.

ETPI insists that it is under no legal compulsion to pay 14th, 15th and 16th month
bonuses for the year 2003 and 14th month bonus for the year 2004 contending that they
are not part of the demandable wage or salary and that their grant is conditional based
on successful business performance and the availability of company profits from which
to source the same. To thwart ETEU’s monetary claims, it insists that the distribution of
the subject bonuses falls well within the company’s prerogative, being an act of pure
gratuity and generosity on its part. Thus, it can withhold the grant thereof especially
since it is currently plagued with economic difficulties and financial losses. It alleges that
the company’s fiscal situation greatly declined due to tremendous and extraordinary
losses it sustained beginning the year 2000. It claims that it cannot be compelled to act
liberally and confer upon its employees additional benefits over and above those
mandated by law when it cannot afford to do so. It posits that so long as the giving of
bonuses will result in the financial ruin of an already distressed company, the employer
cannot be forced to grant the same.

ETPI further avers that the act of giving the subject bonuses did not ripen into a
company practice arguing that it has always been a contingent one dependent on the
realization of profits and, hence, the workers are not entitled to bonuses if the company
does not make profits for a given year. It asseverates that the 1998 and 2001 CBA Side
Agreements did not contractually afford ETEU a vested property right to a perennial
payment of the bonuses. It opines that the bonus provision in the Side Agreement
allows the giving of benefits only at the time of its execution. For this reason, it cannot
be said that the grant has ripened into a company practice. In addition, it argues that
even if such traditional company practice exists, the CA should have applied Article
1267 of the Civil Code which releases the obligor from the performance of an obligation
when it has become so difficult to fulfill the same.
It is the petitioner’s stance that the CA should have dismissed outright the respondent
union’s petition for certiorari alleging that no question of jurisdiction whatsoever was
raised therein but, instead, what was being sought was a judicial re-evaluation of the
adequacy or inadequacy of the evidence on record. It claims that the CA erred in
disregarding the findings of the NLRC which were based on substantial and
overwhelming evidence as well as on undisputed facts. ETPI added that the CA court
should have refrained from tackling issues of fact and, instead, limited itself on issues of
jurisdiction and grave abuse of jurisdiction amounting to lack or excess of it.

The Court’s Ruling

As a general rule, in petitions for review under Rule 45, the Court, not being a trier of
facts, does not normally embark on a re-examination of the evidence presented by the
contending parties during the trial of the case considering that the findings of facts of the
CA are conclusive and binding on the Court. The rule, however, admits of several
exceptions, one of which is when the findings of the appellate court are contrary to
those of the trial court or the lower administrative body, as the case may be.11
Considering the incongruent factual conclusions of the CA and the NLRC, this Court
finds Itself obliged to resolve it.

The pivotal question determinative of this controversy is whether the members of ETEU
are entitled to the payment of 14th, 15th and 16th month bonuses for the year 2003 and
14th month bonus for year 2004.

After an assiduous assessment of the record, the Court finds no merit in the petition.

From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the
recipient has no right to demand as a matter of right.12 The grant of a bonus is basically
a management prerogative which cannot be forced upon the employer who may not be
obliged to assume the onerous burden of granting bonuses or other benefits aside from
the employee’s basic salaries or wages.13

A bonus, however, becomes a demandable or enforceable obligation when it is made

part of the wage or salary or compensation of the employee.14 Particularly instructive is
the ruling of the Court in Metro Transit Organization, Inc. v. National Labor Relations
Commission,15 where it was written:

Whether or not a bonus forms part of wages depends upon the circumstances and
conditions for its payment. If it is additional compensation which the employer promised
and agreed to give without any conditions imposed for its payment, such as success of
business or greater production or output, then it is part of the wage. But if it is paid only
if profits are realized or if a certain level of productivity is achieved, it cannot be
considered part of the wage. Where it is not payable to all but only to some employees
and only when their labor becomes more efficient or more productive, it is only an
inducement for efficiency, a prize therefore, not a part of the wage.
The consequential question that needs to be settled, therefore, is whether the subject
bonuses are demandable or not. Stated differently, can these bonuses be considered
part of the wage, salary or compensation making them enforceable obligations?

The Court believes so.

In the case at bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a
provision for the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA
Side Agreement,16 as well as in the 2001-2004 CBA Side Agreement,17 which was
signed on September 3, 2001. The provision, which was similarly worded, states:

Employment-Related Bonuses

The Company confirms that the 14th, 15th and 16th month bonuses (other than the 13th
month pay) are granted.

A reading of the above provision reveals that the same provides for the giving of 14th,
15th and 16th month bonuses without qualification. The wording of the provision does
not allow any other interpretation. There were no conditions specified in the CBA Side
Agreements for the grant of the benefits contrary to the claim of ETPI that the same is
justified only when there are profits earned by the company. Terse and clear, the said
provision does not state that the subject bonuses shall be made to depend on the
ETPI’s financial standing or that their payment was contingent upon the realization of
profits. Neither does it state that if the company derives no profits, no bonuses are to be
given to the employees. In fine, the payment of these bonuses was not related to the
profitability of business operations.

The records are also bereft of any showing that the ETPI made it clear before or during
the execution of the Side Agreements that the bonuses shall be subject to any
condition. Indeed, if ETPI and ETEU intended that the subject bonuses would be
dependent on the company earnings, such intention should have been expressly
declared in the Side Agreements or the bonus provision should have been deleted
altogether. In the absence of any proof that ETPI’s consent was vitiated by fraud,
mistake or duress, it is presumed that it entered into the Side Agreements voluntarily,
that it had full knowledge of the contents thereof and that it was aware of its
commitment under the contract. Verily, by virtue of its incorporation in the CBA Side
Agreements, the grant of 14th, 15th and 16th month bonuses has become more than
just an act of generosity on the part of ETPI but a contractual obligation it has
undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union
members from 1998 to 2002 by virtue of the Side Agreements evidently negates its
argument that the giving of the subject bonuses is a management prerogative.

From the foregoing, ETPI cannot insist on business losses as a basis for disregarding
its undertaking. It is manifestly clear that although it incurred business losses of ₱
149,068,063.00 in the year 2000, it continued to distribute 14th, 15th and 16th month
bonuses for said year. Notwithstanding such huge losses, ETPI entered into the 2001-
2004 CBA Side Agreement on September 3, 2001 whereby it contracted to grant the
subject bonuses to ETEU in no uncertain terms. ETPI continued to sustain losses for
the succeeding years of 2001 and 2002 in the amounts of ₱ 348,783,013.00 and ₱
315,474,444.00, respectively. Still and all, this did not deter it from honoring the bonus
provision in the Side Agreement as it continued to give the subject bonuses to each of
the union members in 2001 and 2002 despite its alleged precarious financial condition.
Parenthetically, it must be emphasized that ETPI even agreed to the payment of the
14th, 15th and 16th month bonuses for 2003 although it opted to defer the actual grant
in April 2004. All given, business losses could not be cited as grounds for ETPI to
repudiate its obligation under the 2001-2004 CBA Side Agreement.

The Court finds no merit in ETPI’s contention that the bonus provision confirms the
grant of the subject bonuses only on a single instance because if this is so, the parties
should have included such limitation in the agreement. Nowhere in the Side Agreement
does it say that the subject bonuses shall be conferred once during the year the Side
Agreement was signed. The Court quotes with approval the observation of the CA in
this regard:

ETPI argues that assuming the bonus provision in the Side Agreement of the 2001-
2004 CBA entitles the union members to the subject bonuses, it is merely in the nature
of a "one-time" grant and not intended to cover the entire term of the CBA. The
contention is untenable. The bonus provision in question is exactly the same as that
contained in the Side Agreement of the 1998-2001 CBA and there is no denying that
from 1998 to 2001, ETPI granted the subject bonuses for each of those years. Thus,
ETPI may not now claim that the bonus provision in the Side Agreement of the 2001-
2004 CBA is only a "one-time" grant.18

ETPI then argues that even if it is contractually bound to distribute the subject bonuses
to ETEU members under the Side Agreements, its current financial difficulties should
have released it from the obligatory force of said contract invoking Article 1267 of the
Civil Code. Said provision declares:

Article 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.

The Court is not persuaded.

The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is, therefore, only in absolutely exceptional changes of circumstances
that equity demands assistance for the debtor.19 In the case at bench, the Court
determines that ETPI’s claimed depressed financial state will not release it from the
binding effect of the 2001-2004 CBA Side Agreement.
ETPI appears to be well aware of its deteriorating financial condition when it entered
into the 2001-2004 CBA Side Agreement with ETEU and obliged itself to pay bonuses
to the members of ETEU. Considering that ETPI had been continuously suffering huge
losses from 2000 to 2002, its business losses in the year 2003 were not exactly
unforeseen or unexpected. Consequently, it cannot be said that the difficulty in
complying with its obligation under the Side Agreement was "manifestly beyond the
contemplation of the parties." Besides, as held in Central Bank of the Philippines v.
Court of Appeals,20 mere pecuniary inability to fulfill an engagement does not discharge
a contractual obligation. Contracts, once perfected, are binding between the contracting
parties. Obligations arising therefrom have the force of law and should be complied with
in good faith. ETPI cannot renege from the obligation it has freely assumed when it
signed the 2001-2004 CBA Side Agreement.

Granting arguendo that the CBA Side Agreement does not contractually bind petitioner
ETPI to give the subject bonuses, nevertheless, the Court finds that its act of granting
the same has become an established company practice such that it has virtually
become part of the employees’ salary or wage. A bonus may be granted on equitable
consideration when the giving of such bonus has been the company’s long and regular
practice. In Philippine Appliance Corporation v. Court of Appeals,21 it was pronounced:

To be considered a "regular practice," however, the giving of the bonus should have
been done over a long period of time, and must be shown to have been consistent and
deliberate. The test or rationale of this rule on long practice requires an indubitable
showing that the employer agreed to continue giving the benefits knowing fully well that
said employees are not covered by the law requiring payment thereof.

The records show that ETPI, aside from complying with the regular 13th month bonus,
has been further giving its employees 14th month bonus every April as well as 15th and
16th month bonuses every December of the year, without fail, from 1975 to 2002 or for
27 years whether it earned profits or not. The considerable length of time ETPI has
been giving the special grants to its employees indicates a unilateral and voluntary act
on its part to continue giving said benefits knowing that such act was not required by
law. Accordingly, a company practice in favor of the employees has been established
and the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the
employees.1âwphi1

The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without
violating Article 100 of the Labor Code:

Art. 100. Prohibition against elimination or diminution of benefits. – Nothing in this Book
shall be construed to eliminate or in any way diminish supplements, or other employee
benefits being enjoyed at the time of promulgation of this Code.

The rule is settled that any benefit and supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or eliminated by the employer. The
principle of non-diminution of benefits is founded on the constitutional mandate to
protect the rights of workers and to promote their welfare and to afford labor full
protection.22

Interestingly, ETPI never presented countervailing evidence to refute ETEU’s claim that
the company has been continuously paying bonuses since 1975 up to 2002 regardless
of its financial state. Its failure to controvert the allegation, when it had the opportunity
and resources to do so, works in favor of ETEU. Time and again, it has been held that
should doubts exist between the evidence presented by the employer and the
employee, the scales of justice must be tilted in favor of the latter.23

WHEREFORE, the petition is DENIED. The June 25, 2008 Decision of the Court of
Appeals and its December 12, 2008 Resolution are AFFIRMED.

SO ORDERE.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN*
Associate Justice ROBERTO A. ABAD
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

RENATO C. CORONA
Chief Justice

Footnotes

* Designated as additional member in lieu of Associate Justice Diosdado M. Peralta, per

Raffle dated July 1, 2010.

1 Rollo, pp. 59-71. Penned by Associate Justice Edgardo P. Cruz with Associate
Justices Fernanda Lampas Peralta and Ricardo R. Rosario, concurring.

2 Id. at 73-74.

3 Id. at 75-91.

4 Id. at 76-78.

5 Id. at 494-514.

6 Id. at 118-143.

7 Id. at 90.

8 Id. at 450-480.

9 Id. at 70-71.
10 Id. at 34.

11 New City Builders, Inc. v. National Labor Relations Commission, 499 Phil. 207, 212-
213 (2005).

12 Philippine National Construction Corp. v. National Labor Relations Commission, 345

Phil. 324, 331 (1997).

13 Trader’s Royal Bank v. National Labor Relations Commission, G.R. No. 88168,
August 30, 1990, 189 SCRA 274, 277.

14 Philippine National Construction Corp. v. National Labor Relations Commission, 366

Phil. 678 (1999); Philippine Duplicators, Inc. v. National Labor Relations Commission,
311 Phil. 407, 419 (1995).

15 315 Phil. 860, 871 (1995).

16 Rollo, pp. 560-564.

17 Id. at 240-245.

18 Id. at 18.

19 So v. Food Fest Land, Inc., G.R. No. 183628, April 7, 2010, 617 SCRA 541, 550.

20 223 Phil. 266, 274 (1985).

21 G.R. No. 149434, June 3, 2004, 430 SCRA 525, 532.

22 Arco Metal Products Co., Inc. v. Samahan Ng Mga Manggagawa Sa Arco Metal-
NAFLU, G.R. No. 170734, May 14, 2008, 554 SCRA 110, 118.

23 Gu-miro v. Adorable, G.R. No. 160952,480 Phil. 597, 605 (2004)

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 167760 March 7, 2007

MANILA JOCKEY CLUB EMPLOYEES LABOR UNION-PTGWO, Petitioner,

vs.
MANILA JOCKEY CLUB, INC., Respondent.

DECISION

GARCIA, J.:

Challenged in this petition for review under Rule 45 of the Rules of Court is the
decision1 dated December 17, 2004 of the Court of Appeals (CA), as reiterated in its
resolution2 of April 4, 2005, dismissing the petition for review of herein petitioner in CA-
G.R. SP No. 69240, entitled Manila Jockey Club Employees Labor Union- PTGWO v.
Manila Jockey Club, Inc.

The facts:

Petitioner Manila Jockey Club Employees Labor Union-PTGWO and respondent Manila
Jockey Club, Inc., a corporation with a legislative franchise to conduct, operate and
maintain horse races, entered into a Collective Bargaining Agreement (CBA) effective
January 1, 1996 to December 31, 2000. The CBA governed the economic rights and
obligations of respondent’s regular monthly paid rank-and-file employees.3 In the CBA,
the parties agreed to a 7-hour work schedule from 9:00 a.m. to 12:00 noon and from
1:00 p.m. to 5:00 p.m. on a work week of Monday to Saturday, as contained under
Section 1, Article IV,4 of the same CBA, to wit:

Section 1. Both parties to this Agreement agree to observe the seven-hour work
schedule herewith scheduled to be from 9:00 a.m. to 12:00 noon and 1:00 p.m. to 5
p.m. on work week of Monday to Saturday. All work performed in excess of seven (7)
hours work schedule and on days not included within the work week shall be considered
overtime and paid as such. Except those monthly compensation which includes work
performed during Saturday, Sunday, and Holiday when races are held at the Club.
xxx xxx xxx

Accordingly, overtime on an ordinary working day shall be remunerated in an amount

equivalent to the worker's regular basic wage plus twenty five percent (25%) thereof.
Where the employee is permitted or suffered to work on legally mandated holidays or on
his designated rest day which is not a legally mandated holiday, thirty percent (30%)
shall be added to his basic wage for a seven hour work; while work rendered in excess
of seven hours on legally mandated holidays and rest days not falling within the
aforestated categories day shall be additionally compensated for the overtime work
equivalent to his rate for the first seven hours on a legally mandated holiday or rest day
plus thirty percent (30%) thereof.

The CBA likewise reserved in respondent certain management prerogatives, including

the determination of the work schedule, as provided under Section 2, Article XI:

Section 2. The COMPANY shall have exclusive control in the management of the
offices and direction of the employees. This shall include, but shall not be limited to, the
right to plan, direct and control office operations, to hire, assign and transfer employees
from one job to another or from one department to another; to promote, demote,
discipline, suspend, discharge or terminate employees for proper cause and/or in
accordance with law, to relieve employees from duty because of lack of work or for
other legitimate reasons; or to introduce new or improved methods or facilities; or to
change existing methods or facilities to change the schedules of work; and to make and
enforce rules and regulations to carry out the functions of management, provided,
however, that the COMPANY will not use these rights for the purpose of discrimination
against any employee because of his membership in the UNION. Provided, further, that
the prerogatives provided for under this Section shall be subject to, and in accordance
with pertinent directives, proclamations and their implementing rules and regulations.

On April 3, 1999, respondent issued an inter-office memorandum declaring that,

effective April 20, 1999, the hours of work of regular monthly-paid employees shall be
from 1:00 p.m. to 8:00 p.m. when horse races are held, that is, every Tuesday and
Thursday. The memorandum, however, maintained the 9:00 a.m. to 5:00 p.m. schedule
for non-race days.

On October 12, 1999, petitioner and respondent entered into an Amended and
Supplemental CBA retaining Section 1 of Article IV and Section 2 of Article XI, supra,
and clarified that any conflict arising therefrom shall be referred to a voluntary arbitrator
for resolution.

Subsequently, before a panel of voluntary arbitrators of the National Conciliation and

Mediation Board (NCMB), petitioner questioned the above office memorandum as
violative of the prohibition against non-diminution of wages and benefits guaranteed
under Section 1, Article IV, of the CBA which specified the work schedule of
respondent's employees to be from 9:00 a.m. to 5:00 p.m. Petitioner claimed that as a
result of the memorandum, the employees are precluded from rendering their usual
overtime work from 5:00 p.m. to 9:00 p.m.

The NCMB’s panel of voluntary arbitrators, in a decision dated October 18, 2001,
upheld respondent's prerogative to change the work schedule of regular monthly-paid
employees under Section 2, Article XI, of the CBA. Petitioner moved for reconsideration
but the panel denied the motion.

Dissatisfied, petitioner then appealed the panel’s decision to the CA in CA-G.R. SP No.
69240. In the herein assailed decision of December 17, 2004, the CA upheld that of the
panel and denied petitioner’s subsequent motion for reconsideration via its equally
challenged resolution of April 4, 2005.

Hence, petitioner’s present recourse, raising the following issues:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

THAT RESPONDENT MJCI DID NOT RELINQUISH PART OF ITS MANAGEMENT
PREROGATIVE WHEN IT STIPULATED A WORK SCHEDULE IN THE CBA.

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

THAT RESPONDENT MJCI DID NOT VIOLATE THE NON-DIMINUTION PROVISION
CONTAINED IN ARTICLE 100 OF THE LABOR CODE.

We DENY.

Respondent, as employer, cites the change in the program of horse races as reason for
the adjustment of the employees’ work schedule. It rationalizes that when the CBA was
signed, the horse races started at 10:00 a.m. When the races were moved to 2:00 p.m.,
there was no other choice for management but to change the employees' work schedule
as there was no work to be done in the morning. Evidently, the adjustment in the work
schedule of the employees is justified.

We are not unmindful that every business enterprise endeavors to increase profits. As it
is, the Court will not interfere with the business judgment of an employer in the exercise
of its prerogative to devise means to improve its operation, provided that it does not
violate the law, CBAs, and the general principles of justice and fair play. We have thus
held that management is free to regulate, according to its own discretion and judgment,
all aspects of employment, including hiring, work assignments, working methods, time,
place and manner of work, processes to be followed, supervision of workers, working
regulations, transfer of employees, work supervision, layoff of workers and discipline,
dismissal, and recall of workers.5

While it is true that Section 1, Article IV of the CBA provides for a 7-hour work schedule
from 9:00 a.m. to 12:00 noon and from 1:00 p.m. to 5:00 p.m. from Mondays to
Saturdays, Section 2, Article XI, however, expressly reserves on respondent the
prerogative to change existing methods or facilities to change the schedules of work. As
aptly ruled by the CA:

x x x. Such exact language lends no other meaning but that while respondent may have
allowed the initial determination of the work schedule to be done through collective
bargaining, it expressly retained the prerogative to change it.

Moreover, it cannot be said that in agreeing to Section 1 of Article IV, respondent

already waived that customary prerogative of management to set the work schedule.
Had that been the intention, Section 2 of Article XI would not have made any reference
at all to the retention by respondent of that prerogative. The CBA would have instead
expressly prohibited respondent from exercising it. x x x As it were, however, the CBA
expressly recognized in respondent the prerogative to change the work schedule. This
effectively rules out any notion of waiver on the part of respondent of its prerogative to
change the work schedule.

The same provision of the CBA also grants respondent the prerogative to relieve
employees from duty because of lack of work. Petitioner’s argument, therefore, that the
change in work schedule violates Article 100 of the Labor Code because it resulted in
the diminution of the benefit enjoyed by regular monthly-paid employees of rendering
overtime work with pay, is untenable. Section 1, Article IV, of the CBA does not
guarantee overtime work for all the employees but merely provides that "all work
performed in excess of seven (7) hours work schedule and on days not included within
the work week shall be considered overtime and paid as such.".5

While it is true that Section 1, Article IV of the CBA provides for a 7-hour work schedule
from 9:00 a.m. to 12:00 noon and from 1:00 p.m. to 5:00 p.m. from Mondays to
Saturdays, Section 2, Article XI, however, expressly reserves on respondent the
prerogative to change existing methods or facilities to change the schedules of work. As
aptly ruled by the CA:

x x x. Such exact language lends no other meaning but that while respondent may have
allowed the initial determination of the work schedule to be done through collective
bargaining, it expressly retained the prerogative to change it.

Moreover, it cannot be said that in agreeing to Section 1 of Article IV, respondent

already waived that customary prerogative of management to set the work schedule.
Had that been the intention, Section 2 of Article XI would not have made any reference
at all to the retention by respondent of that prerogative. The CBA would have instead
expressly prohibited respondent from exercising it. x x x As it were, however, the CBA
expressly recognized in respondent the prerogative to change the work schedule. This
effectively rules out any notion of waiver on the part of respondent of its prerogative to
change the work schedule.

The same provision of the CBA also grants respondent the prerogative to relieve
employees from duty because of lack of work. Petitioner’s argument, therefore, that the
change in work schedule violates Article 100 of the Labor Code because it resulted in
the diminution of the benefit enjoyed by regular monthly-paid employees of rendering
overtime work with pay, is untenable. Section 1, Article IV, of the CBA does not
guarantee overtime work for all the employees but merely provides that "all work
performed in excess of seven (7) hours work schedule and on days not included within
the work week shall be considered overtime and paid as such."

Respondent was not obliged to allow all its employees to render overtime work
everyday for the whole year, but only those employees whose services were needed
after their regular working hours and only upon the instructions of management. The
overtime pay was not given to each employee consistently, deliberately and
unconditionally, but as a compensation for additional services rendered. Thus, overtime
pay does not fall within the definition of benefits under Article 100 of the Labor Code on
prohibition against elimination or diminution of benefits.

While the Constitution is committed to the policy of social justice and the protection of
the working class, it should not be presumed that every labor dispute will be
automatically decided in favor of labor. The partiality for labor has not in any way
diminished our belief that justice in every case is for the deserving, to be dispensed in
the light of the established facts and the applicable law and doctrine.6

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution
of the CA are AFFIRMED.

Costs against petitioner.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice RENATO C. CORONA
Asscociate Justice
ADOLFO S. AZCUNA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnote

1 Penned by Associate Justice Godardo A. Jacinto and concurred in by Associate

Justices Edgardo P. Cruz and Jose Catral Mendoza; Rollo, pp. 23-30.

2 Id. at 32-33.

3 Sec. 1. Appropriate Bargaining Unit. The appropriate bargaining unit covered by this
Agreement consists of all regular monthly paid rank-and file employees employed by
the Company to work Monday to Friday, and, in certain instances, also on Saturdays
when races are not held at the Club. Consequently, supervisory personnel, security
guards, temporary and/or probationary personnel, and especially the hundred of
workers and employees working in the Club on weekend when races are held therein,
are understood to be outside the Scope of this Agreement. x x x; id. at 35.

4 Id. at 37.
5 United Kimberly-Clark Employees Union-Philippine Transport General Workers'
Organization (UKCEU-PTGWO) v. Kimberly-Clark Philippines, Inc., G.R. No. 162957,
March 6, 2006, 484 SCRA 187.

6 Abella v. Philippine Long Distance Telephone Company, G.R. No. 159469, June 8,
2005, 459 SCRA 724.
SECOND DIVISION

G.R. No. 162994 September 17, 2004

DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON,

petitioners,
vs.
GLAXO WELLCOME PHILIPPINES, INC., Respondent.

RESOLUTION

TINGA, J.:

Confronting the Court in this petition is a novel question, with constitutional overtones,
involving the validity of the policy of a pharmaceutical company prohibiting its
employees from marrying employees of any competitor company.

This is a Petition for Review on Certiorari assailing the Decision1 dated May 19, 2003
and the Resolution dated March 26, 2004 of the Court of Appeals in CA-G.R. SP No.
62434.2

Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome

Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson
had undergone training and orientation.

Thereafter, Tecson signed a contract of employment which stipulates, among others,

that he agrees to study and abide by existing company rules; to disclose to
management any existing or future relationship by consanguinity or affinity with co-
employees or employees of competing drug companies and should management find
that such relationship poses a possible conflict of interest, to resign from the company.

The Employee Code of Conduct of Glaxo similarly provides that an employee is

expected to inform management of any existing or future relationship by consanguinity
or affinity with co-employees or employees of competing drug companies. If
management perceives a conflict of interest or a potential conflict between such
relationship and the employee’s employment with the company, the management and
the employee will explore the possibility of a "transfer to another department in a non-
counterchecking position" or preparation for employment outside the company after six
months.
Tecson was initially assigned to market Glaxo’s products in the Camarines Sur-
Camarines Norte sales area.

Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of

Astra Pharmaceuticals3 (Astra), a competitor of Glaxo. Bettsy was Astra’s Branch
Coordinator in Albay. She supervised the district managers and medical representatives
of her company and prepared marketing strategies for Astra in that area.

Even before they got married, Tecson received several reminders from his District
Manager regarding the conflict of interest which his relationship with Bettsy might
engender. Still, love prevailed, and Tecson married Bettsy in September 1998.

In January 1999, Tecson’s superiors informed him that his marriage to Bettsy gave rise
to a conflict of interest. Tecson’s superiors reminded him that he and Bettsy should
decide which one of them would resign from their jobs, although they told him that they
wanted to retain him as much as possible because he was performing his job well.

Tecson requested for time to comply with the company policy against entering into a
relationship with an employee of a competitor company. He explained that Astra,
Bettsy’s employer, was planning to merge with Zeneca, another drug company; and
Bettsy was planning to avail of the redundancy package to be offered by Astra. With
Bettsy’s separation from her company, the potential conflict of interest would be
eliminated. At the same time, they would be able to avail of the attractive redundancy
package from Astra.

In August 1999, Tecson again requested for more time resolve the problem. In
September 1999, Tecson applied for a transfer in Glaxo’s milk division, thinking that
since Astra did not have a milk division, the potential conflict of interest would be
eliminated. His application was denied in view of Glaxo’s "least-movement-possible"
policy.

In November 1999, Glaxo transferred Tecson to the Butuan City-Surigao City-Agusan

del Sur sales area. Tecson asked Glaxo to reconsider its decision, but his request was
denied.

Tecson sought Glaxo’s reconsideration regarding his transfer and brought the matter to
Glaxo’s Grievance Committee. Glaxo, however, remained firm in its decision and gave
Tescon until February 7, 2000 to comply with the transfer order. Tecson defied the
transfer order and continued acting as medical representative in the Camarines Sur-
Camarines Norte sales area.

During the pendency of the grievance proceedings, Tecson was paid his salary, but was
not issued samples of products which were competing with similar products
manufactured by Astra. He was also not included in product conferences regarding
such products.

Because the parties failed to resolve the issue at the grievance machinery level, they
submitted the matter for voluntary arbitration. Glaxo offered Tecson a separation pay of
one-half (½) month pay for every year of service, or a total of ₱50,000.00 but he
declined the offer. On November 15, 2000, the National Conciliation and Mediation
Board (NCMB) rendered its Decision declaring as valid Glaxo’s policy on relationships
between its employees and persons employed with competitor companies, and
affirming Glaxo’s right to transfer Tecson to another sales territory.

Aggrieved, Tecson filed a Petition for Review with the Court of Appeals assailing the
NCMB Decision.

On May 19, 2003, the Court of Appeals promulgated its Decision denying the Petition
for Review on the ground that the NCMB did not err in rendering its Decision. The
appellate court held that Glaxo’s policy prohibiting its employees from having personal
relationships with employees of competitor companies is a valid exercise of its
management prerogatives.4

Tecson filed a Motion for Reconsideration of the appellate court’s Decision, but the
motion was denied by the appellate court in its Resolution dated March 26, 2004.5

Petitioners filed the instant petition, arguing therein that (i) the Court of Appeals erred in
affirming the NCMB’s finding that the Glaxo’s policy prohibiting its employees from
marrying an employee of a competitor company is valid; and (ii) the Court of Appeals
also erred in not finding that Tecson was constructively dismissed when he was
transferred to a new sales territory, and deprived of the opportunity to attend products
seminars and training sessions.6

Petitioners contend that Glaxo’s policy against employees marrying employees of

competitor companies violates the equal protection clause of the Constitution because it
creates invalid distinctions among employees on account only of marriage. They claim
that the policy restricts the employees’ right to marry.7

They also argue that Tecson was constructively dismissed as shown by the following
circumstances: (1) he was transferred from the Camarines Sur-Camarines Norte sales
area to the Butuan-Surigao-Agusan sales area, (2) he suffered a diminution in pay, (3)
he was excluded from attending seminars and training sessions for medical
representatives, and (4) he was prohibited from promoting respondent’s products which
were competing with Astra’s products.8

In its Comment on the petition, Glaxo argues that the company policy prohibiting its
employees from having a relationship with and/or marrying an employee of a competitor
company is a valid exercise of its management prerogatives and does not violate the
equal protection clause; and that Tecson’s reassignment from the Camarines Norte-
Camarines Sur sales area to the Butuan City-Surigao City and Agusan del Sur sales
area does not amount to constructive dismissal.9

Glaxo insists that as a company engaged in the promotion and sale of pharmaceutical
products, it has a genuine interest in ensuring that its employees avoid any activity,
relationship or interest that may conflict with their responsibilities to the company. Thus,
it expects its employees to avoid having personal or family interests in any competitor
company which may influence their actions and decisions and consequently deprive
Glaxo of legitimate profits. The policy is also aimed at preventing a competitor company
from gaining access to its secrets, procedures and policies.10

It likewise asserts that the policy does not prohibit marriage per se but only proscribes
existing or future relationships with employees of competitor companies, and is
therefore not violative of the equal protection clause. It maintains that considering the
nature of its business, the prohibition is based on valid grounds.11

According to Glaxo, Tecson’s marriage to Bettsy, an employee of Astra, posed a real

and potential conflict of interest. Astra’s products were in direct competition with 67% of
the products sold by Glaxo. Hence, Glaxo’s enforcement of the foregoing policy in
Tecson’s case was a valid exercise of its management prerogatives.12 In any case,
Tecson was given several months to remedy the situation, and was even encouraged
not to resign but to ask his wife to resign form Astra instead.13

Glaxo also points out that Tecson can no longer question the assailed company policy
because when he signed his contract of employment, he was aware that such policy
was stipulated therein. In said contract, he also agreed to resign from respondent if the
management finds that his relationship with an employee of a competitor company
would be detrimental to the interests of Glaxo.14

Glaxo likewise insists that Tecson’s reassignment to another sales area and his
exclusion from seminars regarding respondent’s new products did not amount to
constructive dismissal.

It claims that in view of Tecson’s refusal to resign, he was relocated from the Camarines
Sur-Camarines Norte sales area to the Butuan City-Surigao City and Agusan del Sur
sales area. Glaxo asserts that in effecting the reassignment, it also considered the
welfare of Tecson’s family. Since Tecson’s hometown was in Agusan del Sur and his
wife traces her roots to Butuan City, Glaxo assumed that his transfer from the Bicol
region to the Butuan City sales area would be favorable to him and his family as he
would be relocating to a familiar territory and minimizing his travel expenses.15

In addition, Glaxo avers that Tecson’s exclusion from the seminar concerning the new
anti-asthma drug was due to the fact that said product was in direct competition with a
drug which was soon to be sold by Astra, and hence, would pose a potential conflict of
interest for him. Lastly, the delay in Tecson’s receipt of his sales paraphernalia was due
to the mix-up created by his refusal to transfer to the Butuan City sales area (his
paraphernalia was delivered to his new sales area instead of Naga City because the
supplier thought he already transferred to Butuan).16

The Court is tasked to resolve the following issues: (1) Whether the Court of Appeals
erred in ruling that Glaxo’s policy against its employees marrying employees from
competitor companies is valid, and in not holding that said policy violates the equal
protection clause of the Constitution; (2) Whether Tecson was constructively dismissed.

The Court finds no merit in the petition.

The stipulation in Tecson’s contract of employment with Glaxo being questioned by

petitioners provides:

10. You agree to disclose to management any existing or future relationship you may
have, either by consanguinity or affinity with co-employees or employees of competing
drug companies. Should it pose a possible conflict of interest in management discretion,
you agree to resign voluntarily from the Company as a matter of Company policy.

…17

The same contract also stipulates that Tescon agrees to abide by the existing company
rules of Glaxo, and to study and become acquainted with such policies.18 In this regard,
the Employee Handbook of Glaxo expressly informs its employees of its rules regarding
conflict of interest:

1. Conflict of Interest

Employees should avoid any activity, investment relationship, or interest that may run
counter to the responsibilities which they owe Glaxo Wellcome.

Specifically, this means that employees are expected:

a. To avoid having personal or family interest, financial or otherwise, in any competitor

supplier or other businesses which may consciously or unconsciously influence their
actions or decisions and thus deprive Glaxo Wellcome of legitimate profit.
b. To refrain from using their position in Glaxo Wellcome or knowledge of Company
plans to advance their outside personal interests, that of their relatives, friends and
other businesses.

c. To avoid outside employment or other interests for income which would impair their
effective job performance.

d. To consult with Management on such activities or relationships that may lead to

conflict of interest.

1.1. Employee Relationships

Employees with existing or future relationships either by consanguinity or affinity with

co-employees of competing drug companies are expected to disclose such relationship
to the Management. If management perceives a conflict or potential conflict of interest,
every effort shall be made, together by management and the employee, to arrive at a
solution within six (6) months, either by transfer to another department in a non-counter
checking position, or by career preparation toward outside employment after Glaxo
Wellcome. Employees must be prepared for possible resignation within six (6) months,
if no other solution is feasible.19

No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxo’s
policy prohibiting an employee from having a relationship with an employee of a
competitor company is a valid exercise of management prerogative.

Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially
so that it and Astra are rival companies in the highly competitive pharmaceutical
industry.

The prohibition against personal or marital relationships with employees of competitor

companies upon Glaxo’s employees is reasonable under the circumstances because
relationships of that nature might compromise the interests of the company. In laying
down the assailed company policy, Glaxo only aims to protect its interests against the
possibility that a competitor company will gain access to its secrets and procedures.

That Glaxo possesses the right to protect its economic interests cannot be denied. No
less than the Constitution recognizes the right of enterprises to adopt and enforce such
a policy to protect its right to reasonable returns on investments and to expansion and
growth.20 Indeed, while our laws endeavor to give life to the constitutional policy on
social justice and the protection of labor, it does not mean that every labor dispute will
be decided in favor of the workers. The law also recognizes that management has rights
which are also entitled to respect and enforcement in the interest of fair play.21
As held in a Georgia, U.S.A case,22 it is a legitimate business practice to guard
business confidentiality and protect a competitive position by even-handedly
disqualifying from jobs male and female applicants or employees who are married to a
competitor. Consequently, the court ruled than an employer that discharged an
employee who was married to an employee of an active competitor did not violate Title
VII of the Civil Rights Act of 1964.23 The Court pointed out that the policy was applied
to men and women equally, and noted that the employer’s business was highly
competitive and that gaining inside information would constitute a competitive
advantage.

The challenged company policy does not violate the equal protection clause of the
Constitution as petitioners erroneously suggest. It is a settled principle that the
commands of the equal protection clause are addressed only to the state or those
acting under color of its authority.24 Corollarily, it has been held in a long array of U.S.
Supreme Court decisions that the equal protection clause erects no shield against
merely private conduct, however, discriminatory or wrongful.25 The only exception
occurs when the state29 in any of its manifestations or actions has been found to have
become entwined or involved in the wrongful private conduct.27 Obviously, however,
the exception is not present in this case. Significantly, the company actually enforced
the policy after repeated requests to the employee to comply with the policy. Indeed, the
application of the policy was made in an impartial and even-handed manner, with due
regard for the lot of the employee.

In any event, from the wordings of the contractual provision and the policy in its
employee handbook, it is clear that Glaxo does not impose an absolute prohibition
against relationships between its employees and those of competitor companies. Its
employees are free to cultivate relationships with and marry persons of their own
choosing. What the company merely seeks to avoid is a conflict of interest between the
employee and the company that may arise out of such relationships. As succinctly
explained by the appellate court, thus:

The policy being questioned is not a policy against marriage. An employee of the
company remains free to marry anyone of his or her choosing. The policy is not aimed
at restricting a personal prerogative that belongs only to the individual. However, an
employee’s personal decision does not detract the employer from exercising
management prerogatives to ensure maximum profit and business success. . .28

The Court of Appeals also correctly noted that the assailed company policy which forms
part of respondent’s Employee Code of Conduct and of its contracts with its employees,
such as that signed by Tescon, was made known to him prior to his employment.
Tecson, therefore, was aware of that restriction when he signed his employment
contract and when he entered into a relationship with Bettsy. Since Tecson knowingly
and voluntarily entered into a contract of employment with Glaxo, the stipulations
therein have the force of law between them and, thus, should be complied with in good
faith."29 He is therefore estopped from questioning said policy.
The Court finds no merit in petitioners’ contention that Tescon was constructively
dismissed when he was transferred from the Camarines Norte-Camarines Sur sales
area to the Butuan City-Surigao City-Agusan del Sur sales area, and when he was
excluded from attending the company’s seminar on new products which were directly
competing with similar products manufactured by Astra. Constructive dismissal is
defined as a quitting, an involuntary resignation resorted to when continued employment
becomes impossible, unreasonable, or unlikely; when there is a demotion in rank or
diminution in pay; or when a clear discrimination, insensibility or disdain by an employer
becomes unbearable to the employee.30 None of these conditions are present in the
instant case. The record does not show that Tescon was demoted or unduly
discriminated upon by reason of such transfer. As found by the appellate court, Glaxo
properly exercised its management prerogative in reassigning Tecson to the Butuan
City sales area:

. . . In this case, petitioner’s transfer to another place of assignment was merely in

keeping with the policy of the company in avoidance of conflict of interest, and thus
valid…Note that [Tecson’s] wife holds a sensitive supervisory position as Branch
Coordinator in her employer-company which requires her to work in close coordination
with District Managers and Medical Representatives. Her duties include monitoring
sales of Astra products, conducting sales drives, establishing and furthering relationship
with customers, collection, monitoring and managing Astra’s inventory…she therefore
takes an active participation in the market war characterized as it is by stiff competition
among pharmaceutical companies. Moreover, and this is significant, petitioner’s sales
territory covers Camarines Sur and Camarines Norte while his wife is supervising a
branch of her employer in Albay. The proximity of their areas of responsibility, all in the
same Bicol Region, renders the conflict of interest not only possible, but actual, as
learning by one spouse of the other’s market strategies in the region would be
inevitable. [Management’s] appreciation of a conflict of interest is therefore not merely
illusory and wanting in factual basis…31

In Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission,32 which

involved a complaint filed by a medical representative against his employer drug
company for illegal dismissal for allegedly terminating his employment when he refused
to accept his reassignment to a new area, the Court upheld the right of the drug
company to transfer or reassign its employee in accordance with its operational
demands and requirements. The ruling of the Court therein, quoted hereunder, also
finds application in the instant case:

By the very nature of his employment, a drug salesman or medical representative is

expected to travel. He should anticipate reassignment according to the demands of their
business. It would be a poor drug corporation which cannot even assign its
representatives or detail men to new markets calling for opening or expansion or to
areas where the need for pushing its products is great. More so if such reassignments
are part of the employment contract.33

As noted earlier, the challenged policy has been implemented by Glaxo impartially and
disinterestedly for a long period of time. In the case at bar, the record shows that Glaxo
gave Tecson several chances to eliminate the conflict of interest brought about by his
relationship with Bettsy. When their relationship was still in its initial stage, Tecson’s
supervisors at Glaxo constantly reminded him about its effects on his employment with
the company and on the company’s interests. After Tecson married Bettsy, Glaxo gave
him time to resolve the conflict by either resigning from the company or asking his wife
to resign from Astra. Glaxo even expressed its desire to retain Tecson in its employ
because of his satisfactory performance and suggested that he ask Bettsy to resign
from her company instead. Glaxo likewise acceded to his repeated requests for more
time to resolve the conflict of interest. When the problem could not be resolved after
several years of waiting, Glaxo was constrained to reassign Tecson to a sales area
different from that handled by his wife for Astra. Notably, the Court did not terminate
Tecson from employment but only reassigned him to another area where his home
province, Agusan del Sur, was included. In effecting Tecson’s transfer, Glaxo even
considered the welfare of Tecson’s family. Clearly, the foregoing dispels any suspicion
of unfairness and bad faith on the part of Glaxo.34

WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario*, JJ., concur.

Footnotes

1 Penned by Associate Justice Rosmari D. Carandang and concurred in by Justices

Conrado M. Vasquez, Jr. and Mercedes Gozo-Dadole. Rollo,pp. 22-32.

2 Duncan Association of Detailman-PTGWO and Pedro A. Tecson, petitioners, v. Glaxo

Wellcome Philippines, Inc., respondent.

3 Now Astra Zeneca Pharmaceuticals, Inc.

4 Rollo, pp. 28-32.

5 Id. at 55.

6 Id. at 9.

7 Id. at 9-11.

8 Id. at 14-17.
9 Id. at 96-112.

10 Id. at 99-100.

11 Id. at 101-102.

12 Id. at 102-103.

13 Id. at 102-104.

14 Id. at 104-105.

15 Id. at 64.

16 Id. at 106-110.

17 See Decision of the Court of Appeals; Rollo, pp. 23-24.

18 Item No. 6 of Tecson’s employment contract cited by the Court of Appeals in its
Decision, Id.

19 Excerpt of Glaxo’s Employee Handbook, Annex "A" of respondent’s Comment, Id. at

114.

20 Section 3, Article XIII of the Constitution provides:

The State shall regulate the relations between workers and employers, recognizing the
right of labor to its just share in the fruits of production and the right of enterprises to
reasonable returns on investments, and to expansion and growth.

21 Sta. Catalina College v. National Labor Relations Commission, G.R. No. 144483,
November 19, 2003.

22 Emory v. Georgia Hospital Service Association (1971), DC Ga., 4 CCH EPD ¶ 7785,
4 BNA FEP Cas 891, affd (CA5) 446 F2d 897, 4 CCH EPD ¶ 7786; Cited 45 Am Jr 2d
Sec. 469.
23 42 USCS §§2000e–2002e–17. Title VII prohibits certain employers, employment
agencies, labor organizations, and joint labor-management training committees from
discriminating against applicants and employees on the basis of race or color, religion,
sex, national origin, or opposition to discriminatory practices.

There is no similar legislation in the Philippines.

24 Avery v. Midland County, 390 US 474, 20 L. Ed 2d 45, 88 S Ct 1114, on remand

(Tex) 430 SW2d 487; Cooper v. Aaron, 358 US 1, 3 L Ed 2d 5, 78 S Ct 1401.

25 District of Columbia v. Carter, 409 US 418, 34 L.Ed.2d 613, 93 S. Ct. 602, 35

L.Ed.2d 694, 93 S. Ct. 1411; Moose Lodge No. 107 v. Irvis, 407 US 163, 32 L.Ed.2d
627, 92 S. Ct. 1965; United States v. Price, 383 US 787, 16 L.Ed. 2d 267, 86 S. Ct.
1152; Burton v. Wilmington Parking Authority, 365 US 715, 6 L.Ed.2d 45, 81 S. Ct. 856;
Shelley v. Kraemer, 334 US 1, 92 L.Ed.1161, 68 S. Ct. 836, 3 ALR2d 441; United
States v. Classic, 313 US 299, 85 L.Ed 1368, 61 S. Ct. 1031, 86 L.Ed 565, 62 S. Ct. 51;
Nixon v. Condon, 286 US 73, 76 L.Ed. 984, 52 S. Ct. 484, 88 ALR 458; Iowa-Des
Moines Nat. Bank v. Bennet, 284 US 239, 76 L.Ed 265, 52 S. Ct. 133; Corrigan v.
Buckley, 271 US 323, 70 L.Ed. 969, 46 S. Ct. 521; U.S. ¾Adickes v. S. H. Kress & Co.,
N.Y., 90 S. Ct. 1598, 398 U.S. 144, 26 L. Ed. 2d 142.

26 The equal protection clause contained in the Fourteenth Amendment of the U.S.
Constitution is a restriction on the state governments and operates exclusively upon
them. It does not extend to authority exercised by the Government of the United States.
16 A Am Jur 2d §742.

27 Gilmore v. Montgomery, 417 US 556, 41 L Ed 2d 304, 94 S Ct 2416; Evans v.

Newton, 382 US 296, 15 L Ed 2d 373, 86 S Ct 486; Anderson v. Martin, 375 US 399, 11
L Ed 2d 430, 84 S Ct 454; Peterson v. Greenville, 373 US 244, 10 L Ed 2d 323, 83 S Ct
1119; Burton v. Wilmington Parking Authority, supra note 25.

28 Decision of the Court of Appeals, Rollo, p. 28.

29 Article 1159, Civil Code. See National Sugar Trading and/or the Sugar Regulatory
Administration v. Philippine National Bank, G.R. No. 151218, January 18, 2003, 396
SCRA 528; Pilipinas Hino, Inc. v. Court of Appeals, G.R. No. 126570, August 18, 2000,
338 SCRA 355.

30 Leonardo v. National Labor Relations Commission, et al., G.R. Nos. 125303, and
126937, June 16, 2000, 333 SCRA 589.

31 Rollo, pp. 30-31.

32 G.R. No. L-76959, October 12, 1987, 154 SCRA 713.

33 Id. at 719.

34 Decision of the Court of Appeals, Rollo, pp. 24-27.

SECOND DIVISION

G.R. No. 164774 April 12, 2006

STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN CHUA,

Petitioners,
vs.
RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E. ESTRELLA,
Respondents.

DECISION

PUNO, J.:

We are called to decide an issue of first impression: whether the policy of the employer
banning spouses from working in the same company violates the rights of the employee
under the Constitution and the Labor Code or is a valid exercise of management
prerogative.

At bar is a Petition for Review on Certiorari of the Decision of the Court of Appeals
dated August 3, 2004 in CA-G.R. SP No. 73477 reversing the decision of the National
Labor Relations Commission (NLRC) which affirmed the ruling of the Labor Arbiter.

Petitioner Star Paper Corporation (the company) is a corporation engaged in trading –

principally of paper products. Josephine Ongsitco is its Manager of the Personnel and
Administration Department while Sebastian Chua is its Managing Director.

The evidence for the petitioners show that respondents Ronaldo D. Simbol (Simbol),
Wilfreda N. Comia (Comia) and Lorna E. Estrella (Estrella) were all regular employees
of the company.1

Simbol was employed by the company on October 27, 1993. He met Alma Dayrit, also
an employee of the company, whom he married on June 27, 1998. Prior to the
marriage, Ongsitco advised the couple that should they decide to get married, one of
them should resign pursuant to a company policy promulgated in 1995,2 viz.:

1. New applicants will not be allowed to be hired if in case he/she has [a] relative, up to
[the] 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (both singles [sic], one male and another female)
developed a friendly relationship during the course of their employment and then
decided to get married, one of them should resign to preserve the policy stated above.3

Simbol resigned on June 20, 1998 pursuant to the company policy.4

Comia was hired by the company on February 5, 1997. She met Howard Comia, a co-
employee, whom she married on June 1, 2000. Ongsitco likewise reminded them that
pursuant to company policy, one must resign should they decide to get married. Comia
resigned on June 30, 2000.5

Estrella was hired on July 29, 1994. She met Luisito Zuñiga (Zuñiga), also a co-worker.
Petitioners stated that Zuñiga, a married man, got Estrella pregnant. The company
allegedly could have terminated her services due to immorality but she opted to resign
on December 21, 1999.6

The respondents each signed a Release and Confirmation Agreement. They stated
therein that they have no money and property accountabilities in the company and that
they release the latter of any claim or demand of whatever nature.7

Respondents offer a different version of their dismissal. Simbol and Comia allege that
they did not resign voluntarily; they were compelled to resign in view of an illegal
company policy. As to respondent Estrella, she alleges that she had a relationship with
co-worker Zuñiga who misrepresented himself as a married but separated man. After he
got her pregnant, she discovered that he was not separated. Thus, she severed her
relationship with him to avoid dismissal due to the company policy. On November 30,
1999, she met an accident and was advised by the doctor at the Orthopedic Hospital to
recuperate for twenty-one (21) days. She returned to work on December 21, 1999 but
she found out that her name was on-hold at the gate. She was denied entry. She was
directed to proceed to the personnel office where one of the staff handed her a
memorandum. The memorandum stated that she was being dismissed for immoral
conduct. She refused to sign the memorandum because she was on leave for twenty-
one (21) days and has not been given a chance to explain. The management asked her
to write an explanation. However, after submission of the explanation, she was
nonetheless dismissed by the company. Due to her urgent need for money, she later
submitted a letter of resignation in exchange for her thirteenth month pay.8

Respondents later filed a complaint for unfair labor practice, constructive dismissal,
separation pay and attorney’s fees. They averred that the aforementioned company
policy is illegal and contravenes Article 136 of the Labor Code. They also contended
that they were dismissed due to their union membership.

On May 31, 2001, Labor Arbiter Melquiades Sol del Rosario dismissed the complaint for
lack of merit, viz.:
[T]his company policy was decreed pursuant to what the respondent corporation
perceived as management prerogative. This management prerogative is quite broad
and encompassing for it covers hiring, work assignment, working method, time, place
and manner of work, tools to be used, processes to be followed, supervision of workers,
working regulations, transfer of employees, work supervision, lay-off of workers and the
discipline, dismissal and recall of workers. Except as provided for or limited by special
law, an employer is free to regulate, according to his own discretion and judgment all
the aspects of employment.9 (Citations omitted.)

On appeal to the NLRC, the Commission affirmed the decision of the Labor Arbiter on
January 11, 2002. 10

Respondents filed a Motion for Reconsideration but was denied by the NLRC in a
Resolution11 dated August 8, 2002. They appealed to respondent court via Petition for
Certiorari.

In its assailed Decision dated August 3, 2004, the Court of Appeals reversed the NLRC
decision, viz.:

WHEREFORE, premises considered, the May 31, 2002 (sic)12 Decision of the National
Labor Relations Commission is hereby REVERSED and SET ASIDE and a new one is
entered as follows:

(1) Declaring illegal, the petitioners’ dismissal from employment and ordering private
respondents to reinstate petitioners to their former positions without loss of seniority
rights with full backwages from the time of their dismissal until actual reinstatement; and

(2) Ordering private respondents to pay petitioners attorney’s fees amounting to 10% of
the award and the cost of this suit.13

On appeal to this Court, petitioners contend that the Court of Appeals erred in holding
that:

1. x x x the subject 1995 policy/regulation is violative of the constitutional rights towards

marriage and the family of employees and of Article 136 of the Labor Code; and

2. x x x respondents’ resignations were far from voluntary.14

We affirm.
The 1987 Constitution15 states our policy towards the protection of labor under the
following provisions, viz.:

Article II, Section 18. The State affirms labor as a primary social economic force. It shall
protect the rights of workers and promote their welfare.

xxx

Article XIII, Sec. 3. The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality of employment
opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of tenure, humane conditions of
work, and a living wage. They shall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and
employers, recognizing the right of labor to its just share in the fruits of production and
the right of enterprises to reasonable returns on investments, and to expansion and
growth.

The Civil Code likewise protects labor with the following provisions:

Art. 1700. The relation between capital and labor are not merely contractual. They are
so impressed with public interest that labor contracts must yield to the common good.
Therefore, such contracts are subject to the special laws on labor unions, collective
bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor
and similar subjects.

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed
in favor of the safety and decent living for the laborer.

The Labor Code is the most comprehensive piece of legislation protecting labor. The
case at bar involves Article 136 of the Labor Code which provides:

Art. 136. It shall be unlawful for an employer to require as a condition of employment or

continuation of employment that a woman employee shall not get married, or to
stipulate expressly or tacitly that upon getting married a woman employee shall be
deemed resigned or separated, or to actually dismiss, discharge, discriminate or
otherwise prejudice a woman employee merely by reason of her marriage.
Respondents submit that their dismissal violates the above provision. Petitioners allege
that its policy "may appear to be contrary to Article 136 of the Labor Code" but it
assumes a new meaning if read together with the first paragraph of the rule. The rule
does not require the woman employee to resign. The employee spouses have the right
to choose who between them should resign. Further, they are free to marry persons
other than co-employees. Hence, it is not the marital status of the employee, per se,
that is being discriminated. It is only intended to carry out its no-employment-for-
relatives-within-the-third-degree-policy which is within the ambit of the prerogatives of
management.16

It is true that the policy of petitioners prohibiting close relatives from working in the same
company takes the nature of an anti-nepotism employment policy. Companies adopt
these policies to prevent the hiring of unqualified persons based on their status as a
relative, rather than upon their ability.17 These policies focus upon the potential
employment problems arising from the perception of favoritism exhibited towards
relatives.

With more women entering the workforce, employers are also enacting employment
policies specifically prohibiting spouses from working for the same company. We note
that two types of employment policies involve spouses: policies banning only spouses
from working in the same company (no-spouse employment policies), and those
banning all immediate family members, including spouses, from working in the same
company (anti-nepotism employment policies).18

Unlike in our jurisdiction where there is no express prohibition on marital

discrimination,19 there are twenty state statutes20 in the United States prohibiting
marital discrimination. Some state courts21 have been confronted with the issue of
whether no-spouse policies violate their laws prohibiting both marital status and sex
discrimination.

In challenging the anti-nepotism employment policies in the United States, complainants

utilize two theories of employment discrimination: the disparate treatment and the
disparate impact. Under the disparate treatment analysis, the plaintiff must prove that
an employment policy is discriminatory on its face. No-spouse employment policies
requiring an employee of a particular sex to either quit, transfer, or be fired are facially
discriminatory. For example, an employment policy prohibiting the employer from hiring
wives of male employees, but not husbands of female employees, is discriminatory on
its face.22

On the other hand, to establish disparate impact, the complainants must prove that a
facially neutral policy has a disproportionate effect on a particular class. For example,
although most employment policies do not expressly indicate which spouse will be
required to transfer or leave the company, the policy often disproportionately affects one
sex.23
The state courts’ rulings on the issue depend on their interpretation of the scope of
marital status discrimination within the meaning of their respective civil rights acts.
Though they agree that the term "marital status" encompasses discrimination based on
a person's status as either married, single, divorced, or widowed, they are divided on
whether the term has a broader meaning. Thus, their decisions vary.24

The courts narrowly25 interpreting marital status to refer only to a person's status as
married, single, divorced, or widowed reason that if the legislature intended a broader
definition it would have either chosen different language or specified its intent. They
hold that the relevant inquiry is if one is married rather than to whom one is married.
They construe marital status discrimination to include only whether a person is single,
married, divorced, or widowed and not the "identity, occupation, and place of
employment of one's spouse." These courts have upheld the questioned policies and
ruled that they did not violate the marital status discrimination provision of their
respective state statutes.

The courts that have broadly26 construed the term "marital status" rule that it
encompassed the identity, occupation and employment of one's spouse. They strike
down the no-spouse employment policies based on the broad legislative intent of the
state statute. They reason that the no-spouse employment policy violate the marital
status provision because it arbitrarily discriminates against all spouses of present
employees without regard to the actual effect on the individual's qualifications or work
performance.27 These courts also find the no-spouse employment policy invalid for
failure of the employer to present any evidence of business necessity other than the
general perception that spouses in the same workplace might adversely affect the
business.28 They hold that the absence of such a bona fide occupational qualification29
invalidates a rule denying employment to one spouse due to the current employment of
the other spouse in the same office.30 Thus, they rule that unless the employer can
prove that the reasonable demands of the business require a distinction based on
marital status and there is no better available or acceptable policy which would better
accomplish the business purpose, an employer may not discriminate against an
employee based on the identity of the employee’s spouse.31 This is known as the bona
fide occupational qualification exception.

We note that since the finding of a bona fide occupational qualification justifies an
employer’s no-spouse rule, the exception is interpreted strictly and narrowly by these
state courts. There must be a compelling business necessity for which no alternative
exists other than the discriminatory practice.32 To justify a bona fide occupational
qualification, the employer must prove two factors: (1) that the employment qualification
is reasonably related to the essential operation of the job involved; and, (2) that there is
a factual basis for believing that all or substantially all persons meeting the qualification
would be unable to properly perform the duties of the job.33

The concept of a bona fide occupational qualification is not foreign in our jurisdiction.
We employ the standard of reasonableness of the company policy which is parallel to
the bona fide occupational qualification requirement. In the recent case of Duncan
Association of Detailman-PTGWO and Pedro Tecson v. Glaxo Wellcome Philippines,
Inc.,34 we passed on the validity of the policy of a pharmaceutical company prohibiting
its employees from marrying employees of any competitor company. We held that
Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors. We
considered the prohibition against personal or marital relationships with employees of
competitor companies upon Glaxo’s employees reasonable under the circumstances
because relationships of that nature might compromise the interests of Glaxo. In laying
down the assailed company policy, we recognized that Glaxo only aims to protect its
interests against the possibility that a competitor company will gain access to its secrets
and procedures.35

The requirement that a company policy must be reasonable under the circumstances to
qualify as a valid exercise of management prerogative was also at issue in the 1997
case of Philippine Telegraph and Telephone Company v. NLRC.36 In said case, the
employee was dismissed in violation of petitioner’s policy of disqualifying from work any
woman worker who contracts marriage. We held that the company policy violates the
right against discrimination afforded all women workers under Article 136 of the Labor
Code, but established a permissible exception, viz.:

[A] requirement that a woman employee must remain unmarried could be justified as a
"bona fide occupational qualification," or BFOQ, where the particular requirements of
the job would justify the same, but not on the ground of a general principle, such as the
desirability of spreading work in the workplace. A requirement of that nature would be
valid provided it reflects an inherent quality reasonably necessary for satisfactory job
performance.37 (Emphases supplied.)

The cases of Duncan and PT&T instruct us that the requirement of reasonableness
must be clearly established to uphold the questioned employment policy. The employer
has the burden to prove the existence of a reasonable business necessity. The burden
was successfully discharged in Duncan but not in PT&T.

We do not find a reasonable business necessity in the case at bar.

Petitioners’ sole contention that "the company did not just want to have two (2) or more
of its employees related between the third degree by affinity and/or consanguinity"38 is
lame. That the second paragraph was meant to give teeth to the first paragraph of the
questioned rule39 is evidently not the valid reasonable business necessity required by
the law.

It is significant to note that in the case at bar, respondents were hired after they were
found fit for the job, but were asked to resign when they married a co-employee.
Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine
Operator, to Alma Dayrit, then an employee of the Repacking Section, could be
detrimental to its business operations. Neither did petitioners explain how this detriment
will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting
Department, who married Howard Comia, then a helper in the cutter-machine. The
policy is premised on the mere fear that employees married to each other will be less
efficient. If we uphold the questioned rule without valid justification, the employer can
create policies based on an unproven presumption of a perceived danger at the
expense of an employee’s right to security of tenure.

Petitioners contend that their policy will apply only when one employee marries a co-
employee, but they are free to marry persons other than co-employees. The questioned
policy may not facially violate Article 136 of the Labor Code but it creates a
disproportionate effect and under the disparate impact theory, the only way it could pass
judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit
disproportionate, effect. The failure of petitioners to prove a legitimate business concern
in imposing the questioned policy cannot prejudice the employee’s right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in
one company.40

Lastly, the absence of a statute expressly prohibiting marital discrimination in our

jurisdiction cannot benefit the petitioners. The protection given to labor in our jurisdiction
is vast and extensive that we cannot prudently draw inferences from the legislature’s
silence41 that married persons are not protected under our Constitution and declare
valid a policy based on a prejudice or stereotype. Thus, for failure of petitioners to
present undisputed proof of a reasonable business necessity, we rule that the
questioned policy is an invalid exercise of management prerogative. Corollarily, the
issue as to whether respondents Simbol and Comia resigned voluntarily has become
moot and academic.

As to respondent Estrella, the Labor Arbiter and the NLRC based their ruling on the
singular fact that her resignation letter was written in her own handwriting. Both ruled
that her resignation was voluntary and thus valid. The respondent court failed to
categorically rule whether Estrella voluntarily resigned but ordered that she be
reinstated along with Simbol and Comia.

Estrella claims that she was pressured to submit a resignation letter because she was in
dire need of money. We examined the records of the case and find Estrella’s contention
to be more in accord with the evidence. While findings of fact by administrative tribunals
like the NLRC are generally given not only respect but, at times, finality, this rule admits
of exceptions,42 as in the case at bar.

Estrella avers that she went back to work on December 21, 1999 but was dismissed
due to her alleged immoral conduct. At first, she did not want to sign the termination
papers but she was forced to tender her resignation letter in exchange for her thirteenth
month pay.

The contention of petitioners that Estrella was pressured to resign because she got
impregnated by a married man and she could not stand being looked upon or talked
about as immoral43 is incredulous. If she really wanted to avoid embarrassment and
humiliation, she would not have gone back to work at all. Nor would she have filed a suit
for illegal dismissal and pleaded for reinstatement. We have held that in voluntary
resignation, the employee is compelled by personal reason(s) to dissociate himself from
employment. It is done with the intention of relinquishing an office, accompanied by the
act of abandonment. 44 Thus, it is illogical for Estrella to resign and then file a complaint
for illegal dismissal. Given the lack of sufficient evidence on the part of petitioners that
the resignation was voluntary, Estrella’s dismissal is declared illegal.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. SP No. 73477
dated August 3, 2004 is AFFIRMED.1avvphil.net

SO ORDERED.

REYNATO S. PUNO
Associate Justice

WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

RENATO C. CORONA
Associate Justice ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Associate Justice
Chairman

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s
Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

1 Petition for Review on Certiorari, 2; rollo, p. 9.

2 The records do not state the exact date when the policy in question was promulgated.
The date of reference is "sometime in 1995."

3 Petition for Review on Certiorari, p. 3; rollo, p. 10.

4 Id. at 4; Id. at 11.

5 Ibid.

6 Ibid.

7 Petition for Review on Certiorari, pp. 4-5; rollo, pp. 11-12. See CA rollo, pp. 40-49.

8 CA Decision, p. 4; rollo, p. 29.

9 Decision of Labor Arbiter Melquiades Sol del Rosario; CA rollo, pp. 40-49.

10 Resolution, p. 7; CA rollo, p. 36.

11 Resolution; Id. at 37.

12 Should be January 11, 2002.

13 CA Decision, p. 11; rollo, p. 36.

14 Petition, p. 7; rollo, p. 14. Lower case in the original.

15 The questioned Decision also invokes Article II, Section 12. The State recognizes
the sanctity of family life and shall protect and strengthen the family as a basic
autonomous social institution. It shall equally protect the life of the mother and the life of
the unborn from conception. The natural and primary right and duty of parents in the
rearing of the youth for civic efficiency and the development of moral character shall
receive the support of the Government.

16 Memorandum [for Petitioners], p. 11; rollo, p. 73.

17 A. Giattina, Challenging No-Spouse Employment Policies As Marital Status

Discrimination: A Balancing Approach, 33 Wayne L. Rev. 1111 (Spring, 1987).

18 Ibid.

19 See Note 23, Duncan Association of Detailman-PTGWO and Pedro Tecson v. Glaxo
Wellcome Philippines, Inc., G.R. No. 162994, September 17, 2004.

20 ALASKA STAT. § 18.80.200 (1986); CAL. GOV'T CODE § 12940 (West 1980 &
Supp. 1987); CONN. GEN. STAT. § 46a-60 (1986); DEL. CODE ANN. tit. 19, § 711
(1985); D.C. CODE ANN. § 1-2512 (1981); FLA. STAT. § 760.01 (1986); HAWAII REV.
STAT. § 378-2 (1985); ILL. REV. STAT. ch. 68, §§ 1- 103, 2-102 (Supp. 1986); MD.
ANN. CODE art. 49B, § 16 (1986); MICH. COMP. LAWS ANN. § 37.2202 (West 1985);
MINN. STAT. ANN. § 363.03 (West Supp. 1987); MONT. CODE ANN. § 49-2-303
(1986); NEB. REV. STAT. § 48-1104 (1984); N.H. REV. STAT. ANN. § 354-A:2 (1984);
N.J. REV. STAT. § 10:5-12 (1981 & Supp. 1986); N.Y. EXEC. LAW § 296 (McKinney
1982 & Supp. 1987); N.D. CENT. CODE § 14-02.4-03 (1981 & Supp. 1985); OR. REV.
STAT. § 659.030 (1985); WASH. REV. CODE § 49.60.180 (Supp. 1987); WIS. STAT. §
111.321 (Supp. 1986). Cited in Note 34, A. Giattina, supra note 18.

21 State courts in Michigan, Minnesota, Montana, New York, and Washington have
interpreted the marital status provision of their respective state statutes. See Note 10, A.
Giattina, supra note 18.

22 Supra note 18.

23 Ibid.
24 Ibid.

25 Whirlpool Corp. v. Michigan Civil Rights Comm'n, 425 Mich. 527, 390 N.W.2d 625
(1986); Maryland Comm'n on Human Relations v. Greenbelt Homes, Inc., 300 Md. 75,
475 A.2d 1192 (1984); Manhattan Pizza Hut, Inc. v. New York State Human Rights
Appeal Bd., 51 N.Y.2d 506, 434 N.Y.S.2d 961, 415 N.E.2d 950 (1980); Thompson v.
Sanborn's Motor Express Inc., 154 N.J. Super. 555, 382 A.2d 53 (1977).

26 Ross v. Stouffer Hotel Co., 72 Haw. 350, 816 P.2d 302 (1991); Thompson v. Board
of Trustees, 192 Mont. 266, 627 P.2d 1229 (1981); Kraft, Inc. v. State, 284 N.W.2d 386
(Minn.1979); Washington Water Power Co. v. Washington State Human Rights
Comm'n, 91 Wash.2d 62, 586 P.2d 1149 (1978).

27 See note 55, A. Giattina, supra note 18.

28 See note 56, ibid.

29 Also referred to as BFOQ.

30 See note 67, A. Giattina, supra note 18.

31 See Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783, 73 Fair Empl.Prac.Cas.
(BNA) 579, 69.

32 See note 117, A. Giattina, supra note 18.

33 Richard G. Flood and Kelly A. Cahill, The River Bend Decision and How It Affects
Municipalities’ Personnel Rule and Regulations, Illinois Municipal Review, June 1993, p.
7.

34 G.R. No. 162994, September 17, 2004.

35 Ibid.

36 G.R. No. 118978, May 23, 1997.

37 Ibid.
38 Petition, p. 9; rollo, p. 16.

39 Ibid.

40 See A. Giattina, supra note 18.

41 See dissenting opinion of Chief Justice Compton in Muller v. BP Exploration (Alaska)

Inc., 923 P.2d 783 (1996).

42 In Employees Association of the Philippine American Life Insurance Co. v. NLRC

(G.R. No. 82976, July 26, 1991), the established exceptions are as follows:

a) the conclusion is a finding of fact grounded on speculations, surmises and

conjectures;

b) the inferences made are manifestly mistaken, absurd or impossible;

c) there is a grave abuse of discretion;

d) there is misappreciation of facts; and

e) the court, in arriving in its findings, went beyond the issues of the case and the same
are contrary to the admission of the parties or the evidence presented.

43 Petition, p. 11; rollo, p. 18.

44 Great Southern Maritime Services Corporation v. Acuña, et al., G.R. No. 140189,
February 28, 2005.
SECOND DIVISION

G.R. No. 163512 February 28, 2007

DAISY B. TIU, Petitioner

vs.
PLATINUM PLANS PHIL., INC., Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 20, 2004 of the Court of
Appeals in CA-G.R. CV No. 74972, and its Resolution2 dated May 4, 2004 denying
reconsideration. The Court of Appeals had affirmed the decision3 dated February 28,
2002 of the Regional Trial Court (RTC) of Pasig City, Branch 261, in an action for
damages, ordering petitioner to pay respondent ₱100,000 as liquidated damages.

The relevant facts are as follows:

Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the

pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing
Director.

On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President

and Territorial Operations Head in charge of its Hongkong and Asean operations. The
parties executed a contract of employment valid for five years.4

On September 16, 1995, petitioner stopped reporting for work. In November 1995, she
became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.

Consequently, respondent sued petitioner for damages before the RTC of Pasig City,
Branch 261. Respondent alleged, among others, that petitioner’s employment with
Professional Pension Plans, Inc. violated the non-involvement clause in her contract of
employment, to wit:

8. NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes that during

his/her engagement with EMPLOYER and in case of separation from the Company,
whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter,
engage in or be involved with any corporation, association or entity, whether directly or
indirectly, engaged in the same business or belonging to the same pre-need industry as
the EMPLOYER. Any breach of the foregoing provision shall render the EMPLOYEE
liable to the EMPLOYER in the amount of One Hundred Thousand Pesos
(P100,000.00) for and as liquidated damages.5

Respondent thus prayed for ₱100,000 as compensatory damages; ₱200,000 as moral

damages; ₱100,000 as exemplary damages; and 25% of the total amount due plus
₱1,000 per counsel’s court appearance, as attorney’s fees.

Petitioner countered that the non-involvement clause was unenforceable for being
against public order or public policy: First, the restraint imposed was much greater than
what was necessary to afford respondent a fair and reasonable protection. Petitioner
contended that the transfer to a rival company was an accepted practice in the pre-need
industry. Since the products sold by the companies were more or less the same, there
was nothing peculiar or unique to protect. Second, respondent did not invest in
petitioner’s training or improvement. At the time petitioner was recruited, she already
possessed the knowledge and expertise required in the pre-need industry and
respondent benefited tremendously from it. Third, a strict application of the non-
involvement clause would amount to a deprivation of petitioner’s right to engage in the
only work she knew.

In upholding the validity of the non-involvement clause, the trial court ruled that a
contract in restraint of trade is valid provided that there is a limitation upon either time or
place. In the case of the pre-need industry, the trial court found the two-year restriction
to be valid and reasonable. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay the following:

1. the amount of One Hundred Thousand Pesos (P100,000.00) for and as damages, for
the breach of the non-involvement provision (Item No. 8) of the contract of employment;

2. costs of suit.

There being no sufficient evidence presented to sustain the grant of attorney’s fees, the
Court deems it proper not to award any.

SO ORDERED.6

On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that
petitioner entered into the contract on her own will and volition. Thus, she bound herself
to fulfill not only what was expressly stipulated in the contract, but also all its
consequences that were not against good faith, usage, and law. The appellate court
also ruled that the stipulation prohibiting non-employment for two years was valid and
enforceable considering the nature of respondent’s business.

Petitioner moved for reconsideration but was denied. Hence, this appeal by certiorari
where petitioner alleges that the Court of Appeals erred when:

A.

… [IT SUSTAINED] THE VALIDITY OF THE NON-INVOLVEMENT CLAUSE IN

PETITIONER’S CONTRACT CONSIDERING THAT THE PERIOD FIXED THEREIN IS
VOID FOR BEING OFFENSIVE TO PUBLIC POLICY

B.

… [IT SUSTAINED] THE AWARD OF LIQUIDATED DAMAGES CONSIDERING THAT

IT BEING IN THE NATURE OF A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS
OR UNCONSCIONABLE7

Plainly stated, the core issue is whether the non-involvement clause is valid.

Petitioner avers that the non-involvement clause is offensive to public policy since the
restraint imposed is much greater than what is necessary to afford respondent a fair and
reasonable protection. She adds that since the products sold in the pre-need industry
are more or less the same, the transfer to a rival company is acceptable. Petitioner also
points out that respondent did not invest in her training or improvement. At the time she
joined respondent, she already had the knowledge and expertise required in the pre-
need industry. Finally, petitioner argues that a strict application of the non-involvement
clause would deprive her of the right to engage in the only work she knows.

Respondent counters that the validity of a non-involvement clause has been sustained
by the Supreme Court in a long line of cases. It contends that the inclusion of the two-
year non-involvement clause in petitioner’s contract of employment was reasonable and
needed since her job gave her access to the company’s confidential marketing
strategies. Respondent adds that the non-involvement clause merely enjoined her from
engaging in pre-need business akin to respondent’s within two years from petitioner’s
separation from respondent. She had not been prohibited from marketing other service
plans.

As early as 1916, we already had the occasion to discuss the validity of a non-
involvement clause. In Ferrazzini v. Gsell,8 we said that such clause was unreasonable
restraint of trade and therefore against public policy. In Ferrazzini, the employee was
prohibited from engaging in any business or occupation in the Philippines for a period of
five years after the termination of his employment contract and must first get the written
permission of his employer if he were to do so. The Court ruled that while the stipulation
was indeed limited as to time and space, it was not limited as to trade. Such prohibition,
in effect, forces an employee to leave the Philippines to work should his employer
refuse to give a written permission.

In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar stipulation as void for

being an unreasonable restraint of trade. There, the employee was prohibited from
engaging in any business similar to that of his employer for a period of one year. Since
the employee was employed only in connection with the purchase and export of abaca,
among the many businesses of the employer, the Court considered the restraint too
broad since it effectively prevented the employee from working in any other business
similar to his employer even if his employment was limited only to one of its multifarious
business activities.

However, in Del Castillo v. Richmond,10 we upheld a similar stipulation as legal,

reasonable, and not contrary to public policy. In the said case, the employee was
restricted from opening, owning or having any connection with any other drugstore
within a radius of four miles from the employer’s place of business during the time the
employer was operating his drugstore. We said that a contract in restraint of trade is
valid provided there is a limitation upon either time or place and the restraint upon one
party is not greater than the protection the other party requires.

Finally, in Consulta v. Court of Appeals,11 we considered a non-involvement clause in

accordance with Article 130612 of the Civil Code. While the complainant in that case
was an independent agent and not an employee, she was prohibited for one year from
engaging directly or indirectly in activities of other companies that compete with the
business of her principal. We noted therein that the restriction did not prohibit the agent
from engaging in any other business, or from being connected with any other company,
for as long as the business or company did not compete with the principal’s business.
Further, the prohibition applied only for one year after the termination of the agent’s
contract and was therefore a reasonable restriction designed to prevent acts prejudicial
to the employer.

Conformably then with the aforementioned pronouncements, a non-involvement clause

is not necessarily void for being in restraint of trade as long as there are reasonable
limitations as to time, trade, and place.

In this case, the non-involvement clause has a time limit: two years from the time
petitioner’s employment with respondent ends. It is also limited as to trade, since it only
prohibits petitioner from engaging in any pre-need business akin to
respondent’s.1awphi1.net

More significantly, since petitioner was the Senior Assistant Vice-President and
Territorial Operations Head in charge of respondent’s Hongkong and Asean operations,
she had been privy to confidential and highly sensitive marketing strategies of
respondent’s business. To allow her to engage in a rival business soon after she leaves
would make respondent’s trade secrets vulnerable especially in a highly competitive
marketing environment. In sum, we find the non-involvement clause not contrary to
public welfare and not greater than is necessary to afford a fair and reasonable
protection to respondent.13

In any event, Article 1306 of the Civil Code provides that parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.

Article 115914 of the same Code also provides that obligations arising from contracts
have the force of law between the contracting parties and should be complied with in
good faith. Courts cannot stipulate for the parties nor amend their agreement where the
same does not contravene law, morals, good customs, public order or public policy, for
to do so would be to alter the real intent of the parties, and would run contrary to the
function of the courts to give force and effect thereto.15 Not being contrary to public
policy, the non-involvement clause, which petitioner and respondent freely agreed upon,
has the force of law between them, and thus, should be complied with in good faith.16

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay
respondent ₱100,000 as liquidated damages. While we have equitably reduced
liquidated damages in certain cases,17 we cannot do so in this case, since it appears
that even from the start, petitioner had not shown the least intention to fulfill the non-
involvement clause in good faith.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20,
2004, and the Resolution dated May 4, 2004, of the Court of Appeals in CA-G.R. CV
No. 74972, are AFFIRMED. Costs against petitioner.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice DANTE O. TINGA
Asscociate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Rollo, pp. 58-64. Penned by Associate Justice Delilah Vidallon-Magtolis, with

Associate Justices Jose L. Sabio, Jr. and Hakim S. Abdulwahid concurring.

2 Id. at 66.

3 Records, Vol. I, pp. 213-219.

4 Id. at 175-178.
5 Id. at 176.

6 Id. at 219.

7 Rollo, p. 44.

8 34 Phil. 697, 714 (1916).

9 39 Phil. 120, 125 (1918).

10 45 Phil. 679, 683 (1924).

11 G.R. No. 145443, March 18, 2005, 453 SCRA 732, 745.

12 Art. 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

13 See Ollendorff v. Abrahamsom, 38 Phil. 585, 592 (1918).

14 Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

15 Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. Nos.

147324 & 147334, May 25, 2004, 429 SCRA 153, 164.

16 Duncan Association of Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc., G.R.

No. 162994, September 17, 2004, 438 SCRA 343, 356.

17 Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be

equitably reduced if they are iniquitous or unconscionable.
FIRST DIVISION

G.R. No. 163269 April 19, 2006

ROLANDO C. RIVERA, Petitioner,

vs.
SOLIDBANK CORPORATION, Respondent.

DECISION

CALLEJO, SR., J.:

Assailed in this Petition for Review on Certiorari is the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 52235 as well as its Resolution2 denying the Motion for Partial
Reconsideration of petitioner Rolando C. Rivera.

Petitioner had been working for Solidbank Corporation since July 1, 1977.3 He was
initially employed as an Audit Clerk, then as Credit Investigator, Senior Clerk, Assistant
Accountant, and Assistant Manager. Prior to his retirement, he became the Manager of
the Credit Investigation and Appraisal Division of the Consumer’s Banking Group. In the
meantime, Rivera and his brother-in-law put up a poultry business in Cavite.

In December 1994, Solidbank offered two retirement programs to its employees: (a) the
Ordinary Retirement Program (ORP), under which an employee would receive 85% of
his monthly basic salary multiplied by the number of years in service; and (b) the
Special Retirement Program (SRP), under which a retiring employee would receive
250% of the gross monthly salary multiplied by the number of years in service.4 Since
Rivera was only 45 years old, he was not qualified for retirement under the ORP. Under
the SRP, he was entitled to receive P1,045,258.95 by way of benefits.5

Deciding to devote his time and attention to his poultry business in Cavite, Rivera
applied for retirement under the SRP. Solidbank approved the application and Rivera
was entitled to receive the net amount of P963,619.28. This amount included his
performance incentive award (PIA), and his unearned medical, dental and optical
allowances in the amount of P1,666.67, minus his total accountabilities to Solidbank
amounting to P106,973.00.6 Rivera received the amount and confirmed his separation
from Solidbank on February 25, 1995.7

Subsequently, Solidbank required Rivera to sign an undated Release, Waiver and

Quitclaim, which was notarized on March 1, 1995.8 Rivera acknowledged receipt of the
net proceeds of his separation and retirement benefits and promised that "[he] would
not, at any time, in any manner whatsoever, directly or indirectly engage in any unlawful
activity prejudicial to the interest of Solidbank, its parent, affiliate or subsidiary
companies, their stockholders, officers, directors, agents or employees, and their
successors-in-interest and will not disclose any information concerning the business of
Solidbank, its manner or operation, its plans, processes, or data of any kind."9

Aside from acknowledging that he had no cause of action against Solidbank or its
affiliate companies, Rivera agreed that the bank may bring any action to seek an award
for damages resulting from his breach of the Release, Waiver and Quitclaim, and that
such award would include the return of whatever sums paid to him by virtue of his
retirement under the SRP.10 Rivera was likewise required to sign an undated
Undertaking as a supplement to the Release, Waiver and Quitclaim in favor of
Solidbank in which he declared that he received in full his entitlement under the law
(salaries, benefits, bonuses and other emoluments), including his separation pay in
accordance with the SRP. In this Undertaking, he promised that "[he] will not seek
employment with a competitor bank or financial institution within one (1) year from
February 28, 1995, and that any breach of the Undertaking or the provisions of the
Release, Waiver and Quitclaim would entitle Solidbank to a cause of action against him
before the appropriate courts of law.11 Unlike the Release, Waiver and Quitclaim, the
Undertaking was not notarized.

On May 1, 1995, the Equitable Banking Corporation (Equitable) employed Rivera as

Manager of its Credit Investigation and Appraisal Division of its Consumers’ Banking
Group.12 Upon discovering this, Solidbank First Vice-President for Human Resources
Division (HRD) Celia J.L. Villarosa wrote a letter dated May 18, 1995, informing Rivera
that he had violated the Undertaking. She likewise demanded the return of all the
monetary benefits he received in consideration of the SRP within five (5) days from
receipt; otherwise, appropriate legal action would be taken against him.13

When Rivera refused to return the amount demanded within the given period, Solidbank
filed a complaint for Sum of Money with Prayer for Writ of Preliminary Attachment14
before the Regional Trial Court (RTC) of Manila on June 26, 1995. Solidbank, as
plaintiff, alleged therein that in accepting employment with a competitor bank for the
same position he held in Solidbank before his retirement, Rivera violated his
Undertaking under the SRP. Considering that Rivera accepted employment with
Equitable barely three months after executing the Undertaking, it was clear that he had
no intention of honoring his commitment under said deed.

Solidbank prayed that Rivera be ordered to return the net amount of P963,619.28 plus
interests therein, and attorney’s fees, thus:

WHEREFORE, it is respectfully prayed that:

1. At the commencement of this action and upon the filing of a bond in such amount as
this Honorable Court may fix, a writ of preliminary attachment be forthwith issued
against the properties of the defendant as satisfaction of any judgment that plaintiff may
secure;
2. After trial, judgment be rendered ordering defendant to pay plaintiff the following
sums: NINE HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED NINETEEN AND
28/100 ONLY (P963,619.28) PESOS, Philippine Currency, as of 23 May 1995, plus
legal interest of 12% per annum until fully paid;

3. Such sum equivalent to 10% of plaintiff’s claims plus P2,000.00 for every appearance
by way of attorney’s fees; and

4. Costs of suit.

PLAINTIFF prays for other reliefs just and equitable under the premises.15

Solidbank appended the Affidavit of HRD First Vice-President Celia Villarosa and a
copy of the Release, Waiver and Quitclaim and Undertaking which Rivera executed.16

In an Order dated July 6, 1995, the trial court issued a Writ of Preliminary Attachment17
ordering Deputy Sheriff Eduardo Centeno to attach all of Rivera’s properties not exempt
from execution. Thus, the Sheriff levied on a parcel of land owned by Rivera.

In his Answer with Affirmative Defenses and Counterclaim, Rivera admitted that he
received the net amount of P963,619.28 as separation pay. However, the employment
ban provision in the Undertaking was never conveyed to him until he was made to sign
it on February 28, 1995. He emphasized that, prior to said date, Solidbank never
disclosed any condition to the retirement scheme, nor did it impose such employment
ban on the bank officers and employees who had previously availed of the SRP. He
alleged that the undertaking not to "seek employment with any competitor bank or
financial institution within one (1) year from February 28, 1995" was void for being
contrary to the Constitution, the law and public policy, that it was unreasonable,
arbitrary, oppressive, discriminatory, cruel, unjust, inhuman, and violative of his human
rights. He further claimed that the Undertaking was a contract of adhesion because it
was prepared solely by Solidbank without his participation; considering his moral and
economic disadvantage, it must be liberally construed in his favor and strictly against
the bank.

On August 15, 1995, Solidbank filed a Verified Motion for Summary Judgment, alleging
therein that Rivera raised no genuine issue as to any material fact in his Answer except
as to the amount of damages. It prayed that the RTC render summary judgment against
Rivera. Solidbank alleged that whether or not the employment ban provision contained
in the Undertaking is unreasonable, arbitrary, or oppressive is a question of law. It
insisted that Rivera signed the Undertaking voluntarily and for valuable consideration;
and under the Release, Waiver and Quitclaim, he was obliged to return the
P963,619.28 upon accepting employment from a competitor bank within the one-year
proscribed period. Solidbank appended to its motion the Affidavit of Villarosa, where she
declared that Rivera was employed by Equitable on May 1, 1995 for the same position
he held before his retirement from Solidbank.

Rivera opposed the motion contending that, as gleaned from the pleadings of the
parties as well as Villarosa’s Affidavit, there are genuine issues as to material facts
which call for the presentation of evidence. He averred that there was a need for the
parties to adduce evidence to prove that he did not sign the Undertaking voluntarily. He
claimed that he would not have been allowed to avail of the SRP if he had not signed it,
and consequently, his retirement benefits would not have been paid. This was what Ed
Nallas, Solidbank Assistant Vice-President for HRD and Personnel, told him when he
received his check on February 28, 1995. Senior Vice-President Henry Valdez, his
superior in the Consumers’ Banking Group, also did not mention that he would have to
sign such Undertaking which contained the assailed provision. Thus, he had no choice
but to sign it. He insisted that the question of whether he violated the Undertaking is a
genuine issue of fact which called for the presentation of evidence during the hearing on
the merits of the case. He also asserted that he could not cause injury or prejudice to
Solidbank’s interest since he never acquired any sensitive or delicate information which
could prejudice the bank’s interest if disclosed.

Rivera averred that he had the right to adduce evidence to prove that he had been
faithful to the provisions of the Release, Waiver and Quitclaim, and the Undertaking,
and had not committed any act or done or said anything to cause injury to Solidbank.18

Rivera appended to his Opposition his Counter-Affidavit in which he reiterated that he

had to sign the Undertaking containing the employment ban provision, otherwise his
availment of the SRP would not push through. There was no truth to the bank’s
allegation that, "in exchange for receiving the larger amount of P1,045,258.95 under the
SRP, instead of the very much smaller amount of P224,875.81 under the ORP, he
agreed that he will not seek employment in a competitor bank or financial institution
within one year from February 28, 1995." It was the bank which conceived the SRP to
streamline its organization and all he did was accept it. He stressed that the decision
whether to allow him to avail of the SRP belonged solely to Solidbank. He also pointed
out that the employment ban provision in the Undertaking was not a consideration for
his availment of the SRP, and that if he did not avail of the retirement program, he
would have continued working for Solidbank for at least 15 more years, earning more
than what he received under the SRP. He alleged that he intended to go full time into
the poultry business, but after about two months, found out that, contrary to his
expectations, the business did not provide income sufficient to support his family. Being
the breadwinner, he was then forced to look for a job, and considering his training and
experience as a former bank employee, the job with Equitable was all he could find. He
insisted that he had remained faithful to Solidbank and would continue to do so despite
the case against him, the attachment of his family home, and the resulting mental
anguish, torture and expense it has caused them.19

In his Supplemental Opposition, Rivera stressed that, being a former bank employee, it
was the only kind of work he knew. The ban was, in fact, practically absolute since it
applied to all financial institutions for one year from February 28, 1995. He pointed out
that he could not work in any other company because he did not have the qualifications,
especially considering his age. Moreover, after one year from February 28, 1995, he
would no longer have any marketable skill, because by then, it would have been
rendered obsolete by non-use and rapid technological advances. He insisted that the
ban was not necessary to protect the interest of Solidbank, as, in the first place, he had
no access to any "secret" information which, if revealed would be prejudicial to
Solidbank’s interest. In any case, he was not one to reveal whatever knowledge or
information he may have acquired during his employment with said bank.20

In its Reply, Solidbank averred that the wisdom of requiring the Undertaking from the
1995 SRP is purely a management prerogative. It was not for Rivera to question and
decry the bank’s policy to protect itself from unfair competition and disclosure of its
trade secrets. The substantial monetary windfall given the retiring officers was meant to
tide them over the one-year period of hiatus, and did not prevent them from engaging in
any kind of business or bar them from being employed except with competitor
banks/financial institutions.21

On December 18, 1995, the trial court issued an Order of Summary Judgment.22 The
fallo of the decision reads:

WHEREFORE, SUMMARY JUDGMENT is hereby rendered in favor of plaintiff and

against defendant ordering the latter to pay to plaintiff bank the amount of NINE
HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED NINETEEN AND 28/100
(P963,619.28) PESOS, Philippine Currency, as of May 23, 1995, plus legal interest at
12% per annum until fully paid, and the costs of the suit.

FURTHER, NEVERTHELESS, both parties are hereby encouraged as they are directed
to meet again and sit down to find out how they can finally end this rift and litigation, all
in the name of equity, for after all, defendant had worked for the bank for some 18
years.23

The trial court declared that there was no genuine issue as to a matter of fact in the
case since Rivera voluntarily executed the Release, Waiver and Quitclaim, and the
Undertaking. He had a choice not to retire, but opted to do so under the SRP, and, in
fact, received the benefits under it.

According to the RTC, the prohibition incorporated in the Undertaking was not
unreasonable. To allow Rivera to be excused from his undertakings in said deed and, at
the same time, benefit therefrom would be to allow him to enrich himself at the expense
of Solidbank. The RTC ruled that Rivera had to return the P963,619.28 he received
from Solidbank, plus interest of 12% per annum from May 23, 1998 until fully paid.

Aggrieved, Rivera appealed the ruling to the CA which rendered judgment on June 14,
2002 partially granting the appeal. The fallo of the decision reads:
WHEREFORE, the appeal is PARTIALLY GRANTED. The decision appealed from is
AFFIRMED with the modification that the attachment and levy upon the family home
covered by TCT No. 51621 of the Register of Deeds, Las Piñas, Metro Manila, is hereby
SET ASIDE and DISCHARGED.

SO ORDERED.24

The CA declared that there was no genuine issue regarding any material fact except as
to the amount of damages. It ratiocinated that the agreement between Rivera and
Solidbank was the law between them, and that the interpretation of the stipulations
therein could not be left upon the whims of Rivera. According to the CA, Rivera never
denied signing the Release, Waiver, and Quitclaim, including the Undertaking regarding
the employment prohibition. He even admitted joining Equitable as an employee within
the proscribed one-year period. The alleged defenses of Rivera, the CA declared, could
not prevail over the admissions in his pleadings.1avvphil.net Moreover, Rivera’s
justification for taking the job with Equitable, "dire necessity," was not an acceptable
ground for annulling the Undertaking since there were no earmarks of coercion, undue
influence, or fraud in its execution. Having executed the said deed and thereafter
receiving the benefits under the SRP, he is deemed to have waived the right

to assail the same, hence, is estopped from insisting or retaining the said amount of
P963,619.28.

However, the CA ruled that the attachment made upon Rivera’s family home was void,
and, pursuant to the mandate of Article 155, in relation to Article 153 of the Family
Code, must be discharged.

Hence, this recourse to the Court.

Petitioner avers that –

I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE PROPRIETY OF THE

SUMMARY JUDGMENT RENDERED BY THE TRIAL COURT CONSIDERING THE
EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS WHICH CALL FOR
THE PRESENTATION OF EVIDENCE IN A TRIAL ON THE MERITS.

II.

THE COURT OF APPEALS ERRED IN NOT DECLARING THE ONE-YEAR

EMPLOYMENT BAN IMPOSED BY RESPONDENT SOLIDBANK UPON HEREIN
PETITIONER NULL AND VOID FOR BEING UNREASONABLE AND OPPRESSIVE
AND FOR CONSTITUTING RESTRAINT OF TRADE WHICH VIOLATES PUBLIC
POLICY AS ENUNCIATED IN OUR CONSTITUTION AND LAWS.

III.

THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION

ORDERING HEREIN RESPONDENT TO PAY SOLIDBANK THE AMOUNT OF
P963,619.28 AS OF MAY 23, 1995, PLUS LEGAL INTEREST OF 12% PER ANNUM
UNTIL FULLY PAID.

IV.

MORE SPECIFICALLY, THE COURT OF APPEALS ERRED IN AFFIRMING THE

PORTION OF THE SUMMARY JUDGMENT ORDERING PETITIONER TO PAY
SOLIDBANK LEGAL INTEREST OF 12% PER ANNUM UNTIL FULLY PAID ON THE
AFOREMENTIONED SUM [OF] P963,619.28.25

The issues for resolution are: (1) whether the parties raised a genuine issue in their
pleadings, affidavits, and documents, that is, whether the employment ban incorporated
in the Undertaking which petitioner executed upon his retirement is unreasonable,
oppressive, hence, contrary to public policy; and (2) whether petitioner is liable to
respondent for the restitution of P963,619.28 representing his retirement benefits, and
interest thereon at 12% per annum as of May 23, 1995 until payment of the full amount.

On the first issue, petitioner claims that, based on the pleadings of the parties, and the
documents and affidavits appended thereto, genuine issues as to matters of fact were
raised therein. He insists that the resolution of the issue of whether the employment ban
is unreasonable requires the presentation of evidence on the circumstances which led
to respondent bank’s offer of the SRP and ORP, and petitioner’s eventual acceptance
and signing of the Undertaking on March 1, 1995. There is likewise a need to adduce
evidence on whether the employment ban is necessary to protect respondent’s interest,
and whether it is an undue restraint on petitioner’s constitutional right to earn a living to
support his family. He further insists that respondent is burdened to prove that it
sustained damage or injury by reason of his alleged breach of the employment ban
since neither the Release, Waiver and Quitclaim, and Undertaking he executed contain
any provision that respondent is automatically entitled to the restitution of the
P963,619.28. Petitioner points out that all the deeds provide is that, in case of breach
thereof, respondent is entitled to protection before the appropriate courts of law.

On the second issue, petitioner avers that the prohibition incorporated in the Release,
Waiver and Quitclaim barring him as retiree from engaging directly or indirectly in any
unlawful activity and disclosing any information concerning the business of respondent
bank, as well as the employment ban contained in the Undertaking he executed, are
oppressive, unreasonable, cruel and inhuman because of its overbreath. He reiterates
that it is against public policy, an unreasonable restraint of trade, because it prohibits
him to work for one year in the Philippines, ultimately preventing him from supporting his
family. He points out that a breadwinner in a family of four minor daughters who are all
studying, with a wife who does not work, one would have a very difficult time meeting
the financial obligations even with a steady, regular-paying job. He insists that the
Undertaking deprives him of the means to support his family, and ultimately, his
children’s chance for a good education and future. He reiterates that the returns in his
poultry business fell short of his expectations, and unfortunately, the business was
totally destroyed by typhoon "Rosing" in November 1995.

Petitioner further maintains that respondent’s management prerogative does not give it
a license to entice its employees to retire at a very young age and prohibit them from
seeking employment in a so-called competitor bank or financial institution, thus prevent
them from working and supporting their families (considering that banking is the only
kind of work they know). Petitioner avers that "management’s prerogative must be
without abuse of discretion. A line must be drawn between management prerogative
regarding business operations per se and those which affect the rights of the
employees. In treating its employees, management should see to it that its employees
are at least properly informed of its decision or modes of action."

On the last issue, petitioner alleges that the P1,045,258.95 he received was his
retirement benefit which he earned after serving the bank for 18 years. It was not a
mere gift or gratuity given by respondent bank, without the latter giving up something of
value in return. On the contrary, respondent bank received "valuable consideration,"
that is, petitioner quit his job at the relatively young age of 45, thus enabling respondent
to effect its reorganization plan and forego the salary, benefits, bonuses, and
promotions he would have received had he not retired early.

Petitioner avers that, under the Undertaking, respondent would be entitled to a cause of
action against him before the appropriate courts of law if he had violated the
employment ban. He avers that respondent must prove its entitlement to the
P963,619.28. The Undertaking contains no provision that he would have to return the
amount he received under the SRP; much less does it provide that he would have to
pay 12% interest per annum on said amount. On the other hand, the Release, Waiver
and Quitclaim does not contain the provision prohibiting him from being employed with
any competitor bank or financial institution within one year from February 28, 1995.
Petitioner insists that he acted in good faith when he received his retirement benefits;
hence, he cannot be punished by being ordered to return the sum of P963,619.28 which
was given to him for and in consideration of his early retirement.

Neither can petitioner be subjected to the penalty of paying 12% interest per annum on
his retirement pay of P963,619.28 from May 23, 1995, as it is improper and oppressive
to him and his family. As of July 3, 2002, the interest alone would amount to
P822,609.67, thus doubling the amount to be returned to respondent bank under the
decision of the RTC and the CA. The imposition of interest has no basis because the
Release, Waiver and Quitclaim, and the Undertaking do not provide for payment of
interest. The deeds only state that breach thereof would entitle respondent to bring an
action to seek damages, to include the return of the amount that may have been paid to
petitioner by virtue thereof. On the other hand, any breach of the Undertaking or the
Release, Waiver and Quitclaim would only entitle respondent to a cause of action
before the appropriate courts of law. Besides, the amount received by petitioner was not
a loan and, therefore, should not earn interest pursuant to Article 1956 of the Civil Code.

Finally, petitioner insists that he acted in good faith in seeking employment with another
bank within one year from February 28, 1995 because he needed to earn a living to
support his family and finance his children’s education. Hence, the imposition of
interest, which is a penalty, is unwarranted.

By way of Comment on the petition, respondent avers that the Undertaking is the law
between it and petitioner. As such, the latter could not assail the deed after receiving
the retirement benefit under the SRP. As gleaned from the averments in his petition,
petitioner admitted that he executed the Undertaking after having been informed of the
nature and consequences of his refusal to sign the same, i.e., he would not be able to
receive the retirement benefit under the SRP.

Respondent maintains that courts have no power to relieve parties of obligations

voluntarily entered into simply because their contracts turned out to be disastrous
deeds. Citing the ruling of this Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,26 respondent avers that petitioner is obliged to pay 12% per annum interest of
the P963,619.28 from judicial or extrajudicial demand.

In reply, petitioner asserts that respondent failed to prove that it sustained damages,
including the amount thereof, and that neither the Release, Waiver and Quitclaim nor
the Undertaking obliged him to pay interest to respondent.

The petition is meritorious.

Sections 1 and 3, Rule 34 of the Revised Rules of Civil Procedure provide:

Section 1. Summary judgment for claimant. – A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the
pleading in answer thereto has been served, move with supporting affidavits,
depositions or admissions for a summary judgment in his favor upon all or any part
thereof.

xxxx

Sec. 3. Motion and proceedings thereon. – The motion shall be served at least ten (10)
days before the time specified for the hearing. The adverse party may serve opposing
affidavits, depositions, or admissions at least three (3) days before the hearing. After the
hearing, the judgment sought shall be rendered forthwith if the pleadings, supporting
affidavits, depositions, and admissions on file, show that, except as to the amount of
damages, there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.

For a summary judgment to be proper, the movant must establish two requisites: (a)
there must be no genuine issue as to any material fact, except for the amount of
damages; and (b) the party presenting the motion for summary judgment must be
entitled to a judgment as a matter of law.27 Where, on the basis of the pleadings of a
moving party, including documents appended thereto, no genuine issue as to a material
fact exists, the burden to produce a genuine issue shifts to the opposing party. If the
opposing party fails, the moving party is entitled to a summary judgment.28

A genuine issue is an issue of fact which requires the presentation of evidence as

distinguished from an issue which is a sham, fictitious, contrived or a false claim. The
trial court can determine a genuine issue on the basis of the pleadings, admissions,
documents, affidavits or counteraffidavits submitted by the parties. When the facts as
pleaded appear uncontested or undisputed, then there is no real or genuine issue or
question as to any fact and summary judgment called for. On the other hand, where the
facts pleaded by the parties are disputed or contested, proceedings for a summary
judgment cannot take the place of a trial.29 The evidence on record must be viewed in
light most favorable to the party opposing the motion who must be given the benefit of
all favorable inferences as can reasonably be drawn from the evidence.30

Courts must be critical of the papers presented by the moving party and not of the
papers/documents in opposition thereto.31 Conclusory assertions are insufficient to
raise an issue of material fact.32 A party cannot create a genuine dispute of material
fact through mere speculations or compilation of differences.33 He may not create an
issue of fact through bald assertions, unsupported contentions and conclusory
statements.34 He must do more than rely upon allegations but must come forward with
specific facts in support of a claim. Where the factual context makes his claim
implausible, he must come forward with more persuasive evidence demonstrating a
genuine issue for trial.35

Where there are no disputed material facts, the determination of whether a party
breached a contract is a question of law and is appropriate for summary judgment.36
When interpreting an ambiguous contract with extrinsic evidence, summary judgment is
proper so long as the extrinsic evidence presented to the court supports only one of the
conflicting interpretations.37 Where reasonable men could differ as to the contentions
shown from the evidence, summary judgment might be denied.

In United Rentals (North America), Inc. v. Keizer,38 the U.S. Circuit Court of Appeals
resolved the issue of whether a summary judgment is proper in a breach of contract
action involving the interpretation of such contract, and ruled that:

[A] contract can be interpreted by the court on summary judgment if (a) the contract’s
terms are clear, or (b) the evidence supports only one construction of the controverted
provision, notwithstanding some ambiguity. x x x If the court finds no ambiguity, it
should proceed to interpret the contract – and it may do so at the summary judgment
stage. If, however, the court discerns an ambiguity, the next step – involving an
examination of extrinsic evidence – becomes essential. x x x Summary judgment may
be appropriate even if ambiguity lurks as long as the extrinsic evidence presented to the
court supports only one of the conflicting interpretations.39

In this case, there is no dispute between the parties that, in consideration for his
availment of the SRP, petitioner executed the Release, Waiver and Quitclaim, and the
Undertaking as supplement thereto, and that he received retirement pay amounting to
P963,619.28 from respondent. On May 1, 1995, within the one-year ban and without
prior knowledge of respondent, petitioner was employed by Equitable as Manager of its
Credit Investigation and Appraisal Division, Consumers’ Banking Group. Despite
demands, petitioner failed to return the P963,619.28 to respondent on the latter’s
allegation that he had breached the one-year ban by accepting employment from
Equitable, which according to respondent was a competitor bank.

We agree with petitioner’s contention that the issue as to whether the post-retirement
competitive employment ban incorporated in the Undertaking is against public policy is
a genuine issue of fact, requiring the parties to present evidence to support their
respective claims.

As gleaned from the records, petitioner made two undertakings. The first is incorporated
in the Release, Waiver and Quitclaim that he signed, to wit:

4. I will not, at any time, in any manner whatsoever, directly or indirectly engage in any
unlawful activity prejudicial to the interest of the BANK, its parent, affiliate or subsidiary
companies, their stockholders, officers, directors, agents or employees, and their
successors-in-interest and will not disclose any information concerning the business of
the BANK, its manner or operation, its plans, processes or data of any kind.40

The second undertaking is incorporated in the Undertaking following petitioner’s

execution of the Release, Waiver and Quitclaim which reads:

4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank

on FEBRUARY 28, 1995, I hereby expressly undertake that I will not seek employment
with any competitor bank or financial institution within one (1) year from February 28,
1995.41

In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring "an
action for damages which may include, but not limited to the return of whatever sums he
may have received from respondent under said deed if he breaks his undertaking
therein."42 On the other hand, petitioner declared in the Undertaking that "any breach
on his part of said Undertaking or the terms and conditions of the Release, Waiver and
Quitclaim will entitle respondent to a cause of action against [petitioner] for protection
before the appropriate courts of law."43

Article 1306 of the New Civil Code provides that the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public
policy. The freedom of contract is both a constitutional and statutory right.44 A contract
is the law between the parties and courts have no choice but to enforce such contract
as long as it is not contrary to law, morals, good customs and against public policy.

The well-entrenched doctrine is that the law does not relieve a party from the effects of
an unwise, foolish or disastrous contract, entered into with full awareness of what he
was doing and entered into and carried out in good faith. Such a contract will not be
discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look
into the wisdom of the contract entered into by and between the parties or to render a
decision different therefrom. They have no power to relieve parties from obligation
voluntarily assailed, simply because their contracts turned out to be disastrous deals.45

On the other hand, retirement plans, in light of the constitutional mandate of affording
full protection to labor, must be liberally construed in favor of the employee, it being the
general rule that pension or retirement plans formulated by the employer are to be
construed against it.46 Retirement benefits, after all, are intended to help the employee
enjoy the remaining years of his life, releasing him from the burden of worrying for his
financial support, and are a form of reward for being loyal to the employer.47

In Ferrazzini v. Gsell,48 the Court defined public policy in civil law countries and in the
United States and the Philippines:

By "public policy," as defined by the courts in the United States and England, is
intended that principle of the law which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious to the public or against the public good, which
may be termed the "policy of the law," or "public policy in relation to the administration of
the law." (Words & Phrases Judicially Defined, vol. 6, p. 5813, and cases cited.) Public
policy is the principle under which freedom of contract or private dealing is restricted by
law for the good of the public. (Id., Id.) In determining whether a contract is contrary to
public policy the nature of the subject matter determines the source from which such
question is to be solved. (Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co., 62 Fed.
904, 906.)

The foregoing is sufficient to show that there is no difference in principle between the
public policy (orden publico) in the two jurisdictions (the United States and the Philippine
Islands) as determined by the Constitution, laws, and judicial decisions.49

The Court proceeded to define "trade" as follows:

x x x In the broader sense, it is any occupation or business carried on for subsistence or
profit. Anderson’s Dictionary of Law gives the following definition: "Generally equivalent
to occupation, employment, or business, whether manual or mercantile; any occupation,
employment or business carried on for profit, gain, or livelihood, not in the liberal arts or
in the learned professions." In Abbott’s Law Dictionary, the word is defined as "an
occupation, employment or business carried on for gain or profit." Among the definitions
given in the Encyclopaedic Dictionary is the following: "The business which a person
has learnt, and which he carries on for subsistence or profit; occupation; particularly
employment, whether manual or mercantile, as distinguished from the liberal arts or the
learned professions and agriculture." Bouvier limits the meaning to commerce and
traffic, and the handicraft of mechanics. (In re Pinkney, 47 Kan., 89.) We are inclined to
adopt and apply the broader meaning given by the lexicographers.50

In the present case, the trial court ruled that the prohibition against petitioner accepting
employment with a competitor bank or financial institution within one year from February
28, 1995 is not unreasonable. The appellate court held that petitioner was estopped
from assailing the post-retirement competitive employment ban because of his
admission that he signed the Undertaking and had already received benefits under the
SRP.

The rulings of the trial court and the appellate court are incorrect.

There is no factual basis for the trial court’s ruling, for the simple reason that it rendered
summary judgment and thereby foreclosed the presentation of evidence by the parties
to prove whether the restrictive covenant is reasonable or not. Moreover, on the face of
the Undertaking, the post-retirement competitive employment ban is unreasonable
because it has no geographical limits; respondent is barred from accepting any kind of
employment in any competitive bank within the proscribed period. Although the period
of one year may appear reasonable, the matter of whether the restriction is reasonable
or unreasonable cannot be ascertained with finality solely from the terms and conditions
of the Undertaking, or even in tandem with the Release, Waiver and Quitclaim.

Undeniably, petitioner retired under the SRP and received P963,619.28 from
respondent. However, petitioner is not proscribed, by waiver or estoppel, from assailing
the post-retirement competitive employment ban since under Article 1409 of the New
Civil Code, those contracts whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy are inexistent or void from the beginning.
Estoppel cannot give validity to an act that is prohibited by law or one that is against
public policy.51

Respondent, as employer, is burdened to establish that a restrictive covenant barring an

employee from accepting a competitive employment after retirement or resignation is
not an unreasonable or oppressive, or in undue or unreasonable restraint of trade, thus,
unenforceable for being repugnant to public policy. As the Court stated in Ferrazzini v.
Gsell,52 cases involving contracts in restraint of trade are to be judged according to
their circumstances, to wit:
x x x There are two principal grounds on which the doctrine is founded that a contract in
restraint of trade is void as against public policy. One is, the injury to the public by being
deprived of the restricted party’s industry; and the other is, the injury to the party himself
by being precluded from pursuing his occupation, and thus being prevented from
supporting himself and his family.

And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule
thus:

Public welfare is first considered, and if it be not involved, and the restraint upon one
party is not greater than protection to the other party requires, the contract may be
sustained. The question is, whether, under the particular circumstances of the case and
the nature of the particular contract involved in it, the contract is, or is not,
unreasonable.53

In cases where an employee assails a contract containing a provision prohibiting him or

her from accepting competitive employment as against public policy, the employer has
to adduce evidence to prove that the restriction is reasonable and not greater than
necessary to protect the employer’s legitimate business interests.54 The restraint may
not be unduly harsh or oppressive in curtailing the employee’s legitimate efforts to earn
a livelihood and must be reasonable in light of sound public policy.55

Courts should carefully scrutinize all contracts limiting a man’s natural right to follow any
trade or profession anywhere he pleases and in any lawful manner. But it is just as
important to protect the enjoyment of an establishment in trade or profession, which its
employer has built up by his own honest application to every day duty and the faithful
performance of the tasks which every day imposes upon the ordinary man. What one
creates by his own labor is his. Public policy does not intend that another than the
producer shall reap the fruits of labor; rather, it gives to him who labors the right by
every legitimate means to protect the fruits of his labor and secure the enjoyment of
them to himself.56 Freedom to contract must not be unreasonably abridged. Neither
must the right to protect by reasonable restrictions that which a man by industry, skill
and good judgment has built up, be denied.57

The Court reiterates that the determination of reasonableness is made on the particular
facts and circumstances of each case.58 In Esmerson Electric Co. v. Rogers,59 it was
held that the question of reasonableness of a restraint requires a thorough
consideration of surrounding circumstances, including the subject matter of the contract,
the purpose to be served, the determination of the parties, the extent of the restraint and
the specialization of the business of the employer. The court has to consider whether its
enforcement will be injurious to the public or cause undue hardships to the employee,
and whether the restraint imposed is greater than necessary to protect the employer.
Thus, the court must have before it evidence relating to the legitimate interests of the
employer which might be protected in terms of time, space and the types of activity
proscribed.60
Consideration must be given to the employee’s right to earn a living and to his ability to
determine with certainty the area within which his employment ban is restituted. A
provision on territorial limitation is necessary to guide an employee of what constitutes
as violation of a restrictive covenant and whether the geographic scope is co-extensive
with that in which the employer is doing business. In considering a territorial restriction,
the facts and circumstances surrounding the case must be considered.61

Thus, in determining whether the contract is reasonable or not, the trial court should
consider the following factors: (a) whether the covenant protects a legitimate business
interest of the employer; (b) whether the covenant creates an undue burden on the
employee; (c) whether the covenant is injurious to the public welfare; (d) whether the
time and territorial limitations contained in the covenant are reasonable; and (e) whether
the restraint is reasonable from the standpoint of public policy.62

Not to be ignored is the fact that the banking business is so impressed with public
interest where the trust and interest of the public in general is of paramount importance
such that the appropriate standard of diligence must be very high, if not the highest
degree of diligence.63

We are not impervious of the distinction between restrictive covenants barring an

employee to accept a post-employment competitive employment or restraint on trade in
employment contracts and restraints on post-retirement competitive employment in
pension and retirement plans either incorporated in employment contracts or in
collective bargaining agreements between the employer and the union of employees, or
separate from said contracts or collective bargaining agreements which provide that an
employee who accepts post retirement competitive employment will forfeit retirement
and other benefits or will be obliged to restitute the same to the employer. The strong
weight of authority is that forfeitures for engaging in subsequent competitive
employment included in pension and retirement plans are valid even though
unrestricted in time or geography. The raison d’etre is explained by the United States
Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester, Jr.:64

x x x The authorities, though, generally draw a clear and obvious distinction between
restraints on competitive employment in employment contracts and in pension plans.
The strong weight of authority holds that forfeitures for engaging in subsequent
competitive employment, included in pension retirement plans, are valid, even though
unrestricted in time or geography. The reasoning behind this conclusion is that the
forfeiture, unlike the restraint included in the employment contract, is not a prohibition
on the employee’s engaging in competitive work but is merely a denial of the right to
participate in the retirement plan if he does so engage. A leading case on this point is
Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at p. 865, where, in passing on a forfeiture
provision similar to that here, the Court said:

"A restriction in the contract which does not preclude the employee from engaging in
competitive activity, but simply provides for the loss of rights or privileges if he does so
is not in restraint of trade." (emphasis added)65
A post-retirement competitive employment restriction is designed to protect the
employer against competition by former employees who may retire and obtain
retirement or pension benefits and, at the same time, engage in competitive
employment.66

We have reviewed the Undertaking which respondent impelled petitioner to sign, and
find that in case of failure to comply with the promise not to accept competitive
employment within one year from February 28, 1995, respondent will have a cause of
action against petitioner for "protection in the courts of law." The words "cause of action
for protection in the courts of law" are so broad and comprehensive, that they may also
include a cause of action for prohibitory and mandatory injunction against petitioner,
specific performance plus damages, or a damage suit (for actual, moral and/or
exemplary damages), all inclusive of the restitution of the P963,619.28 which petitioner
received from respondent. The Undertaking and the Release, Waiver and Quitclaim do
not provide for the automatic forfeiture of the benefits petitioner received under the SRP
upon his breach of said deeds. Thus, the post-retirement competitive employment ban
incorporated in the Undertaking of respondent does not, on its face, appear to be of the
same class or genre as that contemplated in Rochester.

It is settled that actual damages or compensatory damages may be awarded for breach
of contracts. Actual damages are primarily intended to simply make good or replace the
loss covered by said breach.67 They cannot be presumed. Even if petitioner had
admitted to having breached the Undertaking, respondent must still prove that it
suffered damages and the amount thereof.68 In determining the amount of actual
damages, the Court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of losses.69 The benefit to be derived from a contract
which one of the parties has absolutely failed to perform is of necessity to some extent a
matter of speculation of the injured party.

On the assumption that the competitive employment ban in the Undertaking is valid,
petitioner is not automatically entitled to return the P963,619.28 he received from
respondent. To reiterate, the terms of the Undertaking clearly state that any breach by
petitioner of his promise would entitle respondent to a cause of action for protection in
the courts of law; as such, restitution of the P963,619.28 will not follow as a matter of
course. Respondent is still burdened to prove its entitlement to the aforesaid amount by
producing the best evidence of which its case is susceptible.70

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 52235 is SET ASIDE. Let this case be
REMANDED to the Regional Trial Court of Manila for further proceedings conformably
with this decision of the Court.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES-SANTIAGO
Associate Justice MA. ALICIA AUSTRIA-MARTINEZ
Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

1 Penned by Associate Justice Oswaldo D. Agcaoili, with Associate Justices Eriberto U.

Rosario, Jr. and Danilo B. Pine, concurring; rollo, pp. 35-44.

2 Penned by Associate Justice Danilo B. Pine, with Associate Justices Portia A.

Hormachuelos and Rodrigo V. Cosico, concurring; id. at 46.

3 Id. at 64.

4 Records, p. 2.
5 Id.

6 Rollo, p. 55.

7 Records, p. 7.

8 Rollo, pp. 57-58.

9 Id. at 57.

10 Id. at 57-58.

11 Id. at 56.

12 Records, p. 13.

13 Rollo, p. 59.

14 Id. at 48-54.

15 Id. at 53.

16 Records, pp. 7-15.

17 Id. at 16.

18 Id. at 107-109.

19 Id. at 116, 119-120.

20 Id. at 163-165.

21 Id. at 170-171.
22 Penned by Presiding Judge Juan C. Nabong, Jr.

23 Rollo, p. 143.

24 Id. at 44.

25 Id. at 16-17.

26 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

27 Solidbank Corporation v. Court of Appeals, 439 Phil. 23, 25, 34 (2002).

28 Planmatics, Inc. v. Showers, 137 F.Supp.2d 616 (2001).

29 Paz v. Court of Appeals, G.R. No. 85332, January 11, 1990, 181 SCRA 26, 31.

30 Warner and Company v. Solberg, 639 N.W.2d 65, 69 (2001).

31 Supra note 27, at 25 and 35.

32 Jones v. Barnett, 619 N.W.2d 490, 492 (2000).

33 Demst v. CSF Transportation Company, 153 F.3d 326 (1998).

34 Supra note 28, at 628.

35 United Rentals (North America), Inc. v. Keizer, 202 F.Supp.2d 727 (2004).

36 Allen, Gibbs & Houlik v. Ristow, 32 Kan.App.2d 1051, 1053, 94 P.3d 724, 726.

37 Supra note 35, at 410.

38 Id. at 406.
39 Id.

40 Rollo, p. 57.

41 Id. at 56.

42 Id. at 58.

43 Id. at 56.

44 Government Service Insurance System v. Province of Tarlac, G.R. No. 157860,

December 1, 2003, 417 SCRA 60, 64 (2003).

45 Sanchez v. Court of Appeals, 345 Phil. 155, 190-191 (1997).

46 Brion v. South Philippine Union Mission of the 7th Day Adventist Church, 366 Phil.
967, 976 (1999).

47 Sta. Catalina College v. National Labor Relations Commission, G.R. No. 144483,
November 19, 2003, 416 SCRA 233, 243.

48 34 Phil. 697 (1916).

49 Id. at 711-712.

50 Id. at 714.

51 Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).

52 Supra note 48.

53 Id. at 712-713.

54 Foti v. Cook, Jr., 263 S.E.2d 430 (1980).

55 Motion Control Systems, Inc. v. East, 546 S.E.2d 424, 425 (2001).
56 Faust v. Rohr, 81 S.E. 1096.

57 Scott v. Gillis, 148 S.E. 315 (1929).

58 Weber v. Tillman, Jr., 259 Kan. 457, 464, 913 P.2d 84, 90 (1996).

59 418 F.3d 841, 846 (2005).

60 Smithereen Co. v. Renfroe, 59 N.E.2d 545, 549 (1945).

61 W.R. Grace Co. v. Mouyal, 422 S.E.2d 529, 531 (1992).

62 Supra note 58, at 464.

63 Philippine Commercial International Bank v. Court of Appeals, G.R. No. 121413,

January 29, 2001, 350 SCRA 446, 472.

64 450 F.2d 118 (1971).

65 Id at 123.

66 Van Pelt v. Berefco, Inc., 208 N.E.2d 858, 865 (1965).

67 Flores v. Uy, 420 Phil. 408, 420 (2001).

68 Ticzon v. Video Post Manila, Inc., 389 Phil. 20, 33 (2000).

69 Tsai v. Court of Appeals, 418 Phil. 606, 622 (2001).

70 Producers Bank of the Philippines v. Court of Appeals, 417 Phil. 646, 660 (2001).